<PAGE> 1
- - ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-67546
HARRIS CHEMICAL NORTH AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
399 PARK AVENUE, 32nd FLOOR
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(Zip Code)
48-1135402
(I.R.S. Employer Identification Number)
(212) 207-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock at June
29, 1996 was 1,000 shares. All of such shares are owned by Harris Chemical
Group, Inc.
- - ------------------------------------------------------------------------------
<PAGE> 2
HARRIS CHEMICAL NORTH AMERICA, INC.
FORM 10-Q For the Quarter ended June 29, 1996
Index
Page #
------
PART I Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II Other Information
Item 1 Legal Proceedings 20
Item 6 Exhibits and Reports on Form 8-K 20
Signature Page 20
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) (Unaudited)
<TABLE>
<CAPTION>
June 24, March 30, June 29,
1995 1996 1996
------------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ - $ 9,093 $ -
Trade accounts receivable, less allowance for
doubtful accounts of $1,224 at June 24, 1995,
$2,336 at March 30, 1996 and $1,143 at
June 29, 1996................................ 65,959 109,542 77,413
Other receivables............................ 7,321 9,572 6,455
Inventories.................................. 103,874 103,255 117,210
Deferred income taxes........................ 8,755 6,235 6,181
Other........................................ 4,378 4,787 7,735
---------- ---------- ----------
Total current assets....................... 190,287 242,484 214,994
Property, plant and equipment.................. 395,821 403,286 395,956
Investments.................................... 13,626 1,989 1,989
Deferred financing costs....................... 27,147 23,840 22,931
Other.......................................... 2,761 6,374 6,193
---------- ---------- ----------
Total assets............................... $ 629,642 $ 677,973 $ 642,063
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt............ $ 7,494 $ 6,788 $ 6,653
Accounts payable............................. 50,758 66,301 59,262
Accrued expenses............................. 18,191 19,442 18,480
Accrued salaries and wages................... 11,444 13,658 14,762
Accrued interest............................. 11,541 24,234 23,790
Income taxes payable......................... 667 1,181 728
---------- ---------- ----------
Total current liabilities.................. 100,095 131,604 123,675
Long-term debt, net of current portion......... 755,326 785,470 775,989
Deferred income taxes.......................... 21,380 22,865 22,077
Other noncurrent liabilities................... 20,226 18,964 16,294
Commitments and contingencies
Common stockholder's deficit:
Common stock, at par......................... - - -
Additional paid in capital................... 107,253 103,441 103,441
Cumulative translation adjustment............ (547) (3,343) (3,341)
Common stockholder's receivable.............. (3,742) (3,083) (3,035)
Accumulated deficit.......................... (370,349) (377,945) (393,037)
---------- ---------- ----------
Total common stockholder's deficit......... (267,385) (280,930) (295,972)
---------- ---------- ----------
Total liabilities and stockholder's
deficit.................................. $ 629,642 $ 677,973 $ 642,063
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended
-------------------------
June 24, June 29,
1995 1996
---------- ----------
<S> <C> <C>
Net sales................................ $ 87,379 $ 99,581
Cost of sales............................ 76,896 81,478
---------- ----------
Gross profit......................... 10,483 18,103
Selling, general and
administrative expense ................ 14,232 13,965
---------- ----------
Operating income..................... (3,749) 4,138
Other income (expense):
Interest expense....................... (20,042) (20,533)
Foreign currency
transaction gain (loss).............. 1,310 (31)
Other, net............................. 1,031 1,265
---------- ----------
Loss before income
taxes.............................. (21,450) (15,161)
Benefit for income taxes................. (304) (69)
---------- ----------
Net loss............................. $ (21,146) $ (15,092)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended
-------------------------
June 24, June 29,
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (21,146) $ (15,092)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation....................................... 13,592 15,042
Finance fees amortization.......................... 1,259 1,347
Operating amortization............................. 180 195
Accreted interest.................................. 5,829 -
Deferred income taxes.............................. (379) (673)
Unrealized foreign currency transaction loss (gain) 1,441 (230)
Loss (gain) on disposal of property, plant and
equipment........................................ - 10
Changes in operating assets and liabilities:
Receivables...................................... 27,439 35,246
Inventories...................................... (15,995) (14,212)
Other assets..................................... (525) (2,886)
Accounts payable, accrued expenses and other
noncurrent liabilities......................... (25,148) (6,804)
Increase (decrease) in checks outstanding in
excess of cash balances ....................... 421 (3,497)
---------- ----------
Net cash provided by (used in) operating
activities................................... (13,032) 8,446
---------- ----------
Cash flows from investing activities:
Capital expenditures................................. (6,872) (6,501)
Capitalized interest................................. (885) (1,128)
Proceeds from sales of property, plant and
equipment.......................................... - 20
Other................................................ (827) -
---------- ----------
Net cash used in investing activities.......... (8,584) (7,609)
---------- ----------
Cash flows from financing activities:
Revolver borrowings.................................. 31,000 72,173
Revolver payments.................................... (14,000) (80,044)
Principal payments on other long-term debt, including
capital leases..................................... (1,060) (1,663)
Capitalized finance costs............................ - (455)
Receivable from HCG.................................. (462) 48
Other................................................ 485 -
---------- ----------
Net cash provided by (used in) financing
activities................................... 15,963 (9,941)
---------- ----------
Effect of exchange rate changes on cash................ 5 11
---------- ----------
<PAGE> 6
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
(in thousands)
(Unaudited)
Thirteen weeks ended
-------------------------
June 24, June 29,
1995 1996
---------- ----------
Net decrease in cash........................... (5,648) (9,093)
Cash and cash equivalents, beginning of period......... 5,648 9,093
---------- ----------
Cash and cash equivalents, end of period............... $ - $ -
========== ==========
Supplemental disclosure of noncash activities:
Inventory trade agreement:
Inventory sold under trade agreement............... $ 269 $ 1,271
Inventory purchased under trade agreement.......... (530) (1,785)
---------- ----------
Inventory payable under trade agreement.......... $ (261) $ (514)
========== ==========
Assets acquired under capital leases................. $ 335 $ 75
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
HARRIS CHEMICAL NORTH AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The accompanying financial statements have not been audited but reflect
all normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the Company's financial position and
results of operations for the interim periods presented. These interim
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto for the fiscal year ("FY") ended
March 30, 1996 included in the Company's FY 1996 Form 10-K filed with the
Securities and Exchange Commission on July 15, 1996. The balance sheet as of
June 24, 1995 is presented to assist in understanding the impact of
seasonal fluctuations on the financial condition of the Company. Certain
reclassifications have been made to the prior year statement of operations
and statement of cash flows to conform with the current year presentation.
2. Organization:
The consolidated financial statements include the consolidated accounts
of: Harris Chemical North America, Inc. ("Harris") and its wholly owned
subsidiaries, consisting principally of North American Chemical Company
("NACC"), NAMSCO Inc. ("NAMSCO") and its wholly owned subsidiaries North
American Salt Company ("NASC") and Sifto Canada Inc. ("Sifto"), and GSL
Corporation ("GSL") and its wholly owned subsidiary Great Salt Lake Minerals
Corporation ("GSLMC"). Harris and its direct and indirect subsidiaries are
collectively referred to as the "Company." Harris is a wholly owned subsidiary
of Harris Chemical Group, Inc. ("HCG").
3. Details of Inventory and Net Property:
Inventories (in thousands):
Inventories are stated at the lower of cost or market, and consist of the
following:
June 24, March 30, June 29,
1995 1996 1996
--------- -------- ---------
Finished goods................ $ 72,736 $ 68,951 $ 84,416
Raw materials and supplies.... 31,138 34,304 32,794
--------- -------- ---------
Total inventories............. $ 103,874 $103,255 $ 117,210
========= ======== =========
Property, Plant & Equipment (in thousands):
June 24, March 30, June 29,
1995 1996 1996
--------- --------- ---------
At cost....................... $ 622,981 $ 666,995 $ 674,652
Less accumulated depreciation
and amortization.............. 227,160 263,709 278,696
--------- --------- ---------
Net property, plant and
equipment..................... $ 395,821 $ 403,286 $ 395,956
========= ========= =========
<PAGE> 8
4. Income Taxes:
The financial statements for the thirteen weeks ended June 29, 1996
reflect a $69,000 income tax benefit arising from a $15,161,000 loss before
provision for income taxes. The net benefit is due to Sifto's current
operating loss, offset by current U.S. alternative minimum tax. A $304,000
income tax benefit was recorded in the first quarter of the prior year for
the same reason.
The Company believes Sifto's Canadian net operating loss carryforwards
will be fully utilized in the near future and as a result, the Company has
recognized the associated tax benefits. The Company believes that some
uncertainty exists with the future utilization of its U.S. net operating loss
carryforwards. Therefore, in accordance with SFAS 109, the Company has
recorded a valuation allowance against deferred income tax assets and has not
recognized any income tax benefits associated with its U.S. current year loss.
5. Subsequent Events:
Sale and Leaseback of Argus Utilities:
In July 1996, NACC entered into an agreement for the sale and leaseback of
an electric and steam generating facility associated with its Searles Valley
soda ash facilities (the "Argus Utilities"). Under the terms of the agreement
the Argus Utilities were sold to two institutional investors for $75 million,
approximately $70.0 million in cash, net of related expenses and taxes. The
initial term of the lease will be for approximately 13 years with a two-to-
fifteen year reduced rate renewal option. After expiration of the reduced rate
renewal period there will be three fair market renewal options of up to 5 years
each. The Company has provided a guarantee for the performance of NACC's
obligations under the lease and related agreements. In addition, during the
initial term of the lease NACC has provided a letter of credit of approximately
$15 million as additional credit support. The Company has also agreed to
certain covenants, including maintaining access to adequate working capital,
meeting fixed charge and interest coverage ratios, and restrictions on asset
dispositions and mergers. Proceeds were used to provide the Company with
additional liquidity by reducing the outstanding balance under its revolving
credit agreement. The transaction will be accounted for as a financing
transaction during the initial and reduced rate rental periods.
ECMC Prepayment:
As part of the original NACC acquisition, NACC assumed the seller's
obligation under the Emission Controls, Maintenance and Construction Agreement
("ECMC") with a provider of steam. Under the agreement, NACC must maintain
certain emission standards and construct environmental upgrades (if required).
In consideration of the foregoing, NACC receives annual payments ranging from
$1.3 million to $7.5 million through 2015.
NACC has reached an agreement in principle whereby the steam provider would
prepay a portion of the amounts due under the ECMC Agreement. The agreement
provides that NACC would receive $22.8 million in cash and approximately $2.7
million of debt owed by NACC will be forgiven. The present value of the ECMC
payment streams being prepaid, including the forgiveness of debt, reflects an
effective discount rate of approximately 10.8%. The prepayment and related
forgiveness of debt will be recorded as deferred revenue and amortized over
the remaining life of the ECMC Agreement.
The agreement also provides for the sale by NACC of certain land, which the
steam provider currently leases from NACC, for $0.4 million in cash.
<PAGE> 9
6. Condensed Consolidating Financial Statements:
Separate condensed consolidating financial statements of certain
subsidiaries of the Company are presented below. Except for Sifto, which is
domiciled in Canada, all subsidiaries of Harris are domiciled in the United
States. In order to present the financial statements of Sifto separately,
the financial statements of NAMSCO present the investment in Sifto using the
cost method.
Separate financial statements of the subsidiaries of Harris which have
guaranteed Harris' and Sifto's outstanding public debt (the "Guarantors"),
including NACC, North American Terminals, Inc., NAMSCO, NASC, Carey Salt
Company, The Hutchinson & Northern Railway Company, GSL, GSLMC and White River
Nahcolite Limited Liability Co. are not included for the following reasons:
(i) pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to Harris' and Sifto's outstanding public debt,
(ii) the aggregate assets, liabilities, earnings and equity of the Guarantors
and Sifto are substantially equal to the assets, liabilities, earnings and
equity of Harris on a consolidated basis and (iii) accordingly, Harris does not
believe that separate full financial statements concerning the Guarantors and
Sifto are material to investors. Financial statements of the subsidiaries of
Harris which are not Guarantors are not presented separately as these companies
are immaterial.
CONDENSED CONSOLIDATING BALANCE SHEETS
June 24, 1995
(in thousands)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
--------- -------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash.............. $ - $ - $ - $ - $ 7,254 $ (7,254) $ -
Receivables....... 40,214 8,909 17,531 6,626 - - 73,280
Inventories....... 41,007 11,816 35,455 16,466 - (870) 103,874
Other current
assets........... 8,572 842 1,864 1,638 217 - 13,133
Property, plant
equipment, net... 222,882 40,906 63,839 68,194 - - 395,821
Investment in
Sifto............ - - 2,513 - - (2,513) -
Other............. 13,015 67 1,866 3,440 346,943 (321,797) 43,534
--------- -------- --------- --------- --------- ---------- ---------
Total assets..... $ 325,690 $ 62,540 $ 123,068 $ 96,364 $ 354,414 $(332,434) $ 629,642
========= ======== ========= ========= ========= ========== =========
Total current
liabilities...... $ 56,196 $ 9,821 $ 12,830 $ 18,846 $ 9,918 $ (7,516) $ 100,095
Long-term debt.... 51,719 10,247 20,941 100,952 571,467 - 755,326
Other noncurrent
liabilities...... 62,719 (16,293) (3,854) (28,420) 40,414 (12,960) 41,606
Total common
stockholder's
equity (deficit). 155,056 58,765 93,151 4,986 (267,385) (311,958) (267,385)
--------- -------- --------- --------- ---------- --------- ----------
Total liabilities
and common
stockholder's
equity (deficit). $ 325,690 $ 62,540 $ 123,068 $ 96,364 $ 354,414 $(332,434) $ 629,642
========= ======== ========= ========= ========= ========== =========
<PAGE> 10
CONDENSED CONSOLIDATING BALANCE SHEETS
June 29, 1996
(in thousands)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
--------- -------- --------- --------- --------- ------------ ------------
Cash.............. $ - $ - $ - $ - $ 4,578 $ (4,578) $ -
Receivables....... 46,211 8,031 20,164 8,623 839 - 83,868
Inventories....... 47,431 21,444 33,953 16,715 - (2,333) 117,210
Other current
assets........... 9,157 369 (2,680) 6,468 602 - 13,916
Property, plant
equipment, net... 229,613 41,012 62,943 62,388 - - 395,956
Investment in
Sifto............ - - 2,513 - - (2,513) -
Other............. 5,193 53 2,184 2,780 365,178 (344,275) 31,113
--------- -------- --------- --------- --------- ---------- ---------
Total assets..... $ 337,605 $ 70,909 $ 119,077 $ 96,974 $ 371,197 $(353,699) $ 642,063
========= ======== ========= ========= ========= ========== =========
Total current
liabilities...... $ 52,628 $ 10,213 $ 24,415 $ 17,986 $ 23,073 $ (4,640) $ 123,675
Long-term debt.... 55,736 8,126 17,853 109,274 585,000 - 775,989
Other noncurrent
liabilities...... 80,222 (12,241) (32,256) (34,799) 59,096 (21,651) 38,371
Total common
stockholder's
equity (deficit). 149,019 64,811 109,065 4,513 (295,972) (327,408) (295,972)
--------- -------- --------- --------- --------- --------- ----------
Total liabilities
and common
stockholder's
equity (deficit). $ 337,605 $ 70,909 $ 119,077 $ 96,974 $ 371,197 $(353,699) $ 642,063
========= ======== ========= ========= ========= ========== =========
</TABLE>
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirteen Weeks Ended June 24, 1995
(in thousands)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales......... $ 46,099 $ 15,921 $ 23,679 $ 14,575 $ - $(12,895) $ 87,379
Cost of sales..... 46,214 12,556 18,897 11,740 - (12,511) 76,896
-------- -------- -------- -------- -------- --------- ---------
Gross profit..... (115) 3,365 4,782 2,835 - (384) 10,483
Selling and
administrative... 5,539 1,305 4,263 2,839 286 - 14,232
-------- -------- -------- -------- -------- --------- ---------
Operating income
(loss)........... (5,654) 2,060 519 (4) (286) (384) (3,749)
Interest expense.. (43) (36) (145) (2,401) (17,417) - (20,042)
Other income
(expense)......... 1,143 1,577 (1,704) 1,326 (3,443) 3,442 2,341
-------- -------- --------- ------- -------- --------- ---------
Income (loss)
before taxes..... (4,554) 3,601 (1,330) (1,079) (21,146) 3,058 (21,450)
Income taxes...... - 660 (1,683) (529) - 1,248 (304)
-------- -------- -------- -------- -------- --------- ----------
Net income
(loss)........... $ (4,554) $ 2,941 $ 353 $ (550) $(21,146) $ 1,810 $ (21,146)
======== ======== ======== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Thirteen Weeks Ended June 29, 1996
(in thousands)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- -------- -------- -------- ------------ ------------
Net Sales......... $ 52,716 $ 15,201 $ 26,158 $ 20,261 $ - $ (14,755) $ 99,581
Cost of sales..... 44,505 13,379 19,807 16,877 - (13,090) 81,478
-------- -------- -------- -------- -------- ---------- ---------
Gross profit..... 8,211 1,822 6,351 3,384 - (1,665) 18,103
Selling and
administrative... 4,896 1,434 3,870 3,464 301 - 13,965
-------- -------- -------- -------- -------- ---------- ---------
Operating income
(loss)........... 3,315 388 2,481 (80) (301) (1,665) 4,138
Interest expense.. 474 (63) (150) (2,540) (18,254) - (20,533)
Other income
(expense)......... 1,366 1,633 (1,755) (10) 3,463 (3,463) 1,234
-------- -------- --------- -------- -------- ---------- ---------
Income (loss)
before taxes..... 5,155 1,958 576 (2,630) (15,092) (5,128) (15,161)
Income taxes...... - (154) 265 (294) - 114 (69)
-------- -------- -------- -------- --------- ---------- ----------
Net income
(loss)........... $ 5,155 $ 2,112 $ 311 $ (2,336) $(15,092) $ (5,242) $ (15,092)
======== ======== ======== ========= ========= ========== ==========
</TABLE>
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Thirteen Weeks Ended June 24, 1995
(in thousands)
<TABLE>
<CAPTION>
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- ------- -------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating
activities........ $ (2,729) $(8,488) $ 4,209 $ (4,797) $(8,019) $ 6,792 $(13,032)
-------- -------- -------- --------- -------- ---------- ---------
Investing:
Capital
expenditures..... (3,799) (440) (1,879) (754) - - (6,872)
Capitalized
interest......... (885) - - - - - (885)
Proceeds from
sales............ - - - - - - -
Other............ (827) - - - 524 (524) (827)
--------- -------- --------- --------- -------- ---------- ---------
Net investing... (5,511) (440) (1,879) (754) 524 (524) (8,584)
--------- -------- --------- --------- -------- ---------- ---------
Financing:
Borrowings....... 10,000 11,000 10,000 - - - 31,000
Repayments....... (1,760) (2,072) (11,126) (102) - - (15,060)
Other............ - - 43 - 2,898 (2,918) 23
--------- -------- --------- --------- -------- ---------- ---------
Net financing... 8,240 8,928 (1,083) (102) 2,898 (2,918) 15,963
--------- -------- --------- --------- -------- ---------- ---------
Exchange rate
changes........... - - - 5 - - 5
--------- -------- --------- --------- -------- ---------- ---------
Net decrease in
cash............ - - 1,247 (5,648) (4,597) 3,350 (5,648)
Cash beginning.... - - (1,247) 6,895 - - 5,648
--------- -------- --------- --------- -------- ---------- ---------
Cash ending....... $ - $ - $ - $ 1,247 $(4,597) $ 3,350 $ -
========= ======== ========= ========= ======== ========== =========
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Thirteen Weeks Ended June 29, 1996
(in thousands)
NACC GSL NAMSCO SIFTO HCNA Eliminations Consolidated
-------- -------- --------- --------- --------- ------------ ------------
Net operating
activities........ $ 12,662 $ 5,544 $ 9,162 $ 3,542 $(16,771) $ (5,693) $ 8,446
-------- -------- --------- --------- --------- ---------- ---------
Investing:
Capital
expenditures..... (2,229) (1,307) (2,531) (434) - - (6,501)
Capitalized
interest......... (1,128) - - - - - (1,128)
Proceeds from
sales............ 20 - - - - - 20
Other............ - - - - (3,465) 3,465 -
--------- -------- --------- --------- --------- ---------- ---------
Net investing... (3,337) (1,307) (2,531) (434) (3,465) 3,465 (7,609)
--------- -------- --------- --------- --------- ---------- ---------
Financing:
Borrowings....... 9,986 21,995 14,001 26,191 - - 72,173
Repayments....... (3,171) (22,649) (38,257) (17,630) - - (81,707)
Other............ (16,140) (3,583) 17,625 (20,773) 22,403 61 (407)
--------- -------- --------- --------- --------- ---------- ---------
Net financing... (9,325) (4,237) (6,631) (12,212) 22,403 61 (9,941)
--------- -------- --------- --------- --------- ---------- ---------
Exchange rate
changes........... - - - 11 - - 11
--------- -------- --------- --------- --------- ---------- ---------
Net decrease in
cash.............. - - - (9,093) 2,167 (2,167) (9,093)
Cash beginning.... - - - 9,093 2,411 (2,411) 9,093
--------- -------- --------- --------- --------- ---------- ---------
Cash ending....... $ - $ - $ - $ - $ 4,578 $ (4,578) $ -
========= ======== ========= ========= ========= ========== =========
</TABLE>
<PAGE> 14
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Thirteen Weeks Ended June 29, 1996 Compared With Thirteen Weeks Ended
June 24, 1995
Net sales for the thirteen weeks ended June 29, 1996 (the "First
Quarter FY 1997") were $99.6 million compared to $87.4 million for the
thirteen weeks ended June 24, 1995 (the "First Quarter FY 1996").
The following table presents the average price per ton, volume and net
sales by major product line for the First Quarter FY 1997 compared to the
First Quarter FY 1996. The average price is not indicative of the different
prices for separate products within a category and is affected by changes in
the product mix.
Thirteen Weeks Ended
-----------------------------------
June 24, June 29,
1995 1996
------------- -------------
SALT
Volume (000's tons)........... 1,073.2 1,261.4
Price/Ton..................... $29.49 $27.97
Net Sales ($000's)............ $31,644 $35,287
SODA PRODUCTS
Volume (000's tons)........... 315.4 345.3
Price/Ton..................... $75.98 $90.32
Net Sales ($000's)............ $23,965 $31,186
BORON CHEMICALS
Volume (000's tons)........... 37.5 36.6
Price/Ton..................... $435.07 $470.33
Net Sales ($000's)............ $16,315 $17,214
SPECIALTY POTASH FERTILIZERS
Volume (000's tons)........... 93.4 86.6
Price/Ton..................... $139.21 $143.94
Net Sales ($000's)............ $13,002 $12,465
OTHER
Net Sales ($000's)............ $2,453 $3,429
TOTAL NET SALES............... $87,379 $99,581
First Quarter FY 1997 salt sales were $35.3 million or $3.6 million more
than First Quarter FY 1996. Actual tons sold increased 17.5%, generating a
favorable volume variance of $3.6 million. First Quarter FY 1997 salt prices
were flat compared to First Quarter FY 1996. Also, there was no significant
change in the relative value of the Canadian dollar compared to the United
States dollar in the First Quarter FY 1997 versus the First Quarter FY 1996.
<PAGE> 15
Increased volume in the highway salt business generated a favorable
variance of $3.5 million primarily due to higher highway salt shipments in
First Quarter FY 1997 caused by low or depleted inventories from the severe
winter weather in the Third and Fourth Quarters of FY 1996. There was no
significant change in general trade and chemical salt sales in First Quarter
FY 1997 compared to First Quarter FY 1996.
First Quarter FY 1997 soda products (soda ash, sodium sulfate and sodium
bicarbonate) sales were $31.2 million or $7.2 million higher than First Quarter
FY 1996. Increased ANSAC soda ash sales generated a $5.0 million favorable
volume variance and favorable price variances of $1.0 million. Higher soda ash
prices in domestic markets provided a favorable variance of $1.7 million, which
was partially offset by unfavorable domestic soda ash volume variances of $0.8
million. Other export soda ash volume and price variances were an unfavorable
$0.3 million and $0.1 million, respectively. Sodium bicarbonate contributed
favorable volume and price variances of $0.8 million and $0.2 million,
respectively, due to an expansion into export markets. Sodium sulfate generated
favorable price variances of $1.0 million which were offset by unfavorable
volume variances of $1.3 million.
Boron chemical sales were $17.2 million or $0.9 million higher than the
First Quarter FY 1996. The favorable variance is due to favorable price and
product sales mix variances of $0.6 million and $0.3 million, respectively. The
favorable price variance is a result of price increases which have continued on
an upward trend since Fourth Quarter of FY 1996.
Specialty potash fertilizer sales were $12.5 million or $0.5 million lower
than First Quarter FY 1996. The unfavorable variance was due to decreased
domestic and export volume which generated unfavorable volume variances of
$0.5 million and $0.3 million, respectively. The lower volumes versus First
Quarter FY 1996 were largely a result of lost sales due to competitive pricing.
The unfavorable domestic potash volume variances were partially offset by
favorable price/mix variances of $0.3 million. Export potash prices were
comparable to First Quarter FY 1996.
Other product sales were $3.4 million or $1.0 million higher than First
Quarter FY 1996. The favorable sales versus First Quarter FY 1996 are largely
due to increased sales of magnesium chloride and increased revenue from other
service subsidiaries of the Company, Trona Railway Company and North American
Terminals, Inc. The improvement in magnesium chloride sales is the result of
increased marketing.
Cost of sales was $81.5 million or 81.8% of net sales in First Quarter
FY 1997 compared to $76.9 million or 88.0% of net sales in First Quarter
FY 1996. The improvement in manufacturing cost is primarily due to positive
manufacturing variances and lower maintenance costs. The every-other-year
Searles Valley facilities shutdown and subsequent start-up difficulties in
First Quarter FY 1996 increased maintenance costs compared to First Quarter
FY 1997. The favorable effect on cost of sales of increased production of
highway salt, soda ash and magnesium chloride products in the First Quarter
FY 1997 was partially offset by lower production of boron and specialty
potash.
Gross profit in First Quarter FY 1997 versus First Quarter FY 1996
increased by $7.6 million due to the improvement in sales and cost of sales
discussed above.
<PAGE> 16
Selling, general and administrative expenses were relatively unchanged,
decreasing $0.3 million in First Quarter FY 1997 compared to First Quarter
FY 1996.
Operating income was $4.1 million in First Quarter FY 1997 versus an
operating loss of $3.7 million in First Quarter FY 1996 for the reasons
discussed above.
First Quarter FY 1997 interest expense was $0.5 million higher than First
Quarter FY 1996. The increase in interest expense is due to higher debt
balances from the revolving line of credit and the Senior Secured Discount
Notes due 2001. The Senior Secured Discount Notes accrued cash interest during
the First Quarter FY 1997 compared to the accretion of interest on such Notes
in First Quarter FY 1996. Interest capitalized on construction in process was
$0.2 million higher in First Quarter FY 1997 versus First Quarter FY 1996,
which partially offset the unfavorable interest expense.
The translation of United States dollar-denominated debt of Sifto into
Canadian dollars did not result in a material gain or loss in the First Quarter
FY 1997, whereas a translation gain of $1.3 million was recorded in the First
Quarter FY 1996 due to the strengthening of the Canadian dollar relative to the
United States dollar.
Other income/expense in First Quarter FY 1997 was comparable to First
Quarter FY 1996.
A $0.1 million benefit for income taxes was recorded in First Quarter FY
1997 primarily relating to Sifto's current operating loss, offset by current
U.S. alternative minimum tax. A $0.3 million benefit for income taxes was
recorded in First Quarter FY 1996 for the same reason. While the Company has
recognized the full tax benefit associated with Sifto's current operating loss,
income tax benefits associated with the U.S. First Quarter FY 1997 loss have
not been recognized as future realization is uncertain.
A net loss of $15.1 million was recorded for First Quarter FY 1997 compared
to a net loss of $21.1 million in First Quarter FY 1996 due to the factors
described above.
<PAGE> 17
Liquidity, Capital Resources and Financial Condition
First Quarter FY 1997 Cash Flows:
First Quarter FY 1997 operating activities provided $8.4 million in net
cash compared to cash used by operating activities of $13.0 million in First
Quarter FY 1996. Earnings before depreciation, amortization, interest and
income taxes for First Quarter FY 1997 were $20.6 million or $9.6 million more
than First Quarter FY 1996. Cash interest expense was $20.5 million in First
Quarter FY 1997 or $6.3 million more in First Quarter FY 1997 due to higher
debt balances and the commencement of cash interest payments on the Senior
Secured Discount Notes. Income taxes paid increased $0.9 million in First
Quarter FY 1997 versus First Quarter FY 1996. Noncash unrealized foreign
currency transactions used $0.2 million versus cash provided in First Quarter
FY 1996 of $1.4 million. Receivables provided $7.8 million more cash than First
Quarter FY 1996 due to collections in First Quarter FY 1997 of additional
year-end receivables generated by higher sales in FY 1996 versus FY 1995. Cash
used for inventories decreased $1.8 million in First Quarter FY 1997 compared
to First Quarter FY 1996. Other assets used $2.9 million or $2.4 million more
in FY 1997 compared to First Quarter FY 1996. Accounts payable, accrued
liabilities and other liabilities used $18.3 million less cash in First Quarter
FY 1997 versus First Quarter FY 1996, which is partially offset by an increase
in cash used for checks outstanding in excess of cash of $3.9 million.
First Quarter FY 1997 cash used in investing activities was $7.6 million
or $1.0 million less than First Quarter FY 1996. The variance was primarily
due to $0.8 million in investments in a joint venture, White River Nahcolite
Limited Liability Co., in First Quarter FY 1996. The Company purchased the
remaining 50% interest in the joint venture in the Second Quarter of FY 1996.
First Quarter FY 1997 cash used in financing activities was $9.9 million
compared to cash provided by financing activities of $16.0 million in First
Quarter FY 1996. Net revolver payments were $7.9 million compared to net
revolver borrowings of $17.0 million in First Quarter FY 1996, primarily due
to improved cash provided by operating activities in First Quarter FY 1997
compared to First Quarter FY 1996. Payments on long term debt were $0.6 million
higher, primarily due to capital leases. Other financing activities used $0.4
million primarily relating to the sale of the Argus Utilities (See Financial
Statements Note 5).
Liquidity:
The Company's accounts receivable and inventory levels can vary by as much
as $50.0 million during the year. Generally, accounts receivable and inventory
increase in the third and fourth fiscal quarters. During the third quarter
deicing road salt inventories are increased in preparation for the winter
season. The harvesting of the solar ponds at the Ogden facility also takes
place in the third quarter, adding to the inventory levels. Inventories begin
to decline in the fourth quarter and accounts receivable increase as highway
salt sales and specialty potash fertilizer sales peak during this period.
Cash requirements rapidly decline at the end of the fourth fiscal quarter and
early part of the next fiscal year first fiscal quarter as accounts receivable
are converted into cash.
<PAGE> 18
In order to improve liquidity and to meet seasonal working capital needs,
the Company has undertaken the following actions:
1. In June 1996, the Bank Agreements were amended (1) to permit the sale
and leaseback of the Argus Utilities (discussed below), (2) to change
commencement of the required clean down covenant period from October 15 of each
fiscal year to April 30, 1996 and each anniversary thereof and (3) to stipulate
that all of the proceeds from the sale and leaseback of the Argus Utilities be
used to repay a portion of the outstanding borrowings in order to meet an
additional one-time clean down covenant period ending in mid-August.
2. In July 1996, NACC entered into an agreement for the sale and leaseback
of an electric and steam generating facility associated with its Searles Valley
soda ash facilities (the "Argus Utilities"). Under the terms of the agreement
the Argus Utilities were sold to two institutional investors for $75 million,
approximately $70.0 million in cash, net of related expenses and taxes.
Proceeds were used to provide the Company with additional liquidity by reducing
the outstanding balance under its revolving credit agreement. The Company has
also agreed to provide a $15 million letter of credit as additional credit
support. See Note 5 of the Financial Statements for further information.
3. NACC has reached an agreement in principle whereby a steam provider
would prepay a portion of the amounts due under the ECMC Agreement. The
agreement provides that NACC would receive $22.8 million in cash and
approximately $2.7 million of debt owed by NACC will be forgiven. The present
value of the ECMC payment streams being prepaid, including the forgiveness of
debt, reflects an effective discount rate of approximately 10.8%.
The Company believes that the above actions, internal cash generated from
operations plus liquidity provided by its revolving credit facilities will be
adequate to meet the Company's anticipated working capital needs during the
term of such facilities. As of July 27, 1996, the Company had $46.1 million of
available borrowing capacity under its revolving credit agreements.
<PAGE> 19
Environmental Matters
The nature of the Company's business requires a continual monitoring of
compliance with all applicable environmental laws and regulations. At
June 29, 1996, the Company had recorded $2.7 million of current liabilities
and $14.0 million of other noncurrent liabilities to reflect the estimated
future costs associated with environmental matters. Management believes that
the outcome of known environmental contingencies will not have a material
effect on the operations, financial condition or liquidity of the Company.
Seasonality and Quarterly Financial Data
The Company experiences a substantial amount of seasonality in sales of
the various products. The result of this seasonality is that net sales and
operating income are generally higher in the third and fourth fiscal quarters
and lower in the first and second fiscal quarters of each fiscal year.
Sales of highway deicing salt in particular, are seasonal in nature,
varying with the winter conditions in areas where the product is used.
Following industry practice, the Company and its customers stockpile
sufficient quantities of ice control salt in the first three fiscal quarters
to meet estimated requirements for the winter season. Soda ash sales to the
glass container industry tend to be somewhat seasonal due to stronger summer
demand for beverages packaged in glass bottles. Most of the Company's
specialty potash sales are made between December and March in order to meet
the spring planting season requirements.
The table below reflects the seasonality of the Company's business.
Fiscal Year 1996 by Quarter
-----------------------------------------------
1st 2nd 3rd 4th
-------- --------- ---------- ---------
(in thousands)
Operating Data:
Net sales................ $ 87,379 $ 93,018 $ 133,461 $ 161,617
Gross profit............. 10,483 19,101 40,131 54,719
Operating income (loss).. (3,749) 5,796 24,882 26,188
Interest expense......... 20,042 20,910 21,479 22,507
Net income (loss)........ (21,146) (12,426) 1,957 2,873
Fiscal Year 1997
--------------------
1st Quarter
-----------
(in thousands)
Operating Data:
Net sales................ $ 99,581
Gross profit............. 18,103
Operating income......... 4,138
Interest expense......... 20,533
Net loss................. (15,092)
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) All exhibits otherwise required in connection with this quarterly report
on Form 10-Q have heretofore been filed with the Securities and Exchange
Commission except as follows:
Exhibit No. Description of Exhibit
- - ----------- ----------------------
10.1 Form of Participation Agreement dated as of July 15, 1996 among
NACC, Harris, [Owner Participant]/[Owner Participant, OP
Guarantor] and U.S. Trust Company of California, N.A., as Owner
Trustee (1)
10.2 Form of Annex A to Participation Agreement (1)
10.3 Form of Facility Lease dated as of July 15, 1996 between U.S.
Trust Company of California, N.A.,as Owner Trustee as Lessor,
and NACC, as Lessee (1)
10.4 Form of Guaranty Agreement dated as of July 15, 1996 by Harris
for the benefit of [Owner Participant]/[Owner Participant,OP
Guarantor] (2) and U.S. Trust Company of California, N.A., as
Owner Trustee (1)
(1) To effect the sale and leaseback, NACC and Harris entered into two
separate but substantially identical sets of documents, each set for a
different institutional investor.
(2) One institutional investor chose to use an owner participant and a parent
guarantor ("[OP Guarantor]").
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Harris Chemical North America, Inc.
(Registrant)
Date: August 13, 1996 Emanuel J. Di Teresi
--------------- --------------------------
(Emanuel J. Di Teresi)
(Senior Vice President and
Chief Financial Officer)
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 29, 1996 (Unaudited) and the Consolidated
Statement of Operations for the Thirteen Weeks Ended June 29, 1996 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> JUN-29-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 85,011
<ALLOWANCES> 1,143
<INVENTORY> 117,210
<CURRENT-ASSETS> 214,994
<PP&E> 674,652
<DEPRECIATION> 278,696
<TOTAL-ASSETS> 642,063
<CURRENT-LIABILITIES> 123,675
<BONDS> 685,000
0
0
<COMMON> 0
<OTHER-SE> (295,972)
<TOTAL-LIABILITY-AND-EQUITY> 642,063
<SALES> 99,581
<TOTAL-REVENUES> 99,581
<CGS> 81,478
<TOTAL-COSTS> 81,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,533
<INCOME-PRETAX> (15,161)
<INCOME-TAX> (69)
<INCOME-CONTINUING> (15,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,092)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FORM OF PARTICIPATION AGREEMENT
-------------------------------
PARTICIPATION AGREEMENT
(Searles Valley Trust 1996)
dated as of July 15, 1996
among
NORTH AMERICAN CHEMICAL COMPANY,
HARRIS CHEMICAL NORTH AMERICA, INC.,
[OWNER PARTICIPANT],
and
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity, except as otherwise
expressly provided herein, but solely as
owner trustee under the Trust Agreement that
creates the trust identified under
the title hereof.
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
INTRODUCTION 1
ARTICLE I
DEFINITIONS
2
ARTICLE II
CLOSING
2
Section 2.1 Transaction............................................... 2
Section 2.2 Closing Date Notice....................................... 4
ARTICLE III
ADJUSTMENTS
4
Section 3.1 Assumptions in Computing Interim and Basic Rent........... 4
Section 3.2 Making of Adjustments..................................... 4
Section 3.3 Procedures for Adjustments................................ 5
Section 3.4 Adjustment to the Stated Amount........................... 6
Section 4.1 Conditions Precedent to Obligations of Owner Participant
and Owner Trustee......................................... 6
Section 4.2 Additional Conditions Precedent to Obligations of Owner
Participant............................................... 12
Section 4.3 Conditions Precedent to Obligations of NACC and HCNA...... 13
ARTICLE V
REPRESENTATIONS AND WARRANTIES
15
Section 5.1 Representations and Warranties of NACC.................... 15
Section 5.2 Representations and Warranties of HCNA.................... 25
Section 5.4 [Reserved.]............................................... 30
Section 5.5 Representations and Warranties of Trust Company and Owner
Trustee................................................... 30
- i -
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
Section 5.6 Offerings by Parties...................................... 31
Section 5.7 Representations and Warranties Regarding Investment....... 32
ARTICLE VI
COVENANTS
32
Section 6.1 Covenants of NACC......................................... 32
Section 6.2 Covenants of HCNA During Basic Term....................... 45
Section 6.3 Covenants of HCNA After Basic Term........................ 55
Section 6.4 Covenants of Owner Participant and Owner Trustee.......... 57
Section 6.5 Special Termination Event................................. 61
ARTICLE VII
INDEMNIFICATION 62
Section 7.1 General Indemnity......................................... 62
Section 7.2 Exceptions................................................ 63
Section 7.3 Procedures................................................ 64
Section 7.4 General Tax Indemnity..................................... 66
Section 7.5 Survival.................................................. 73
ARTICLE VIII
LIMITATION OF LIABILITY OF OWNER TRUSTEE
73
ARTICLE IX
MISCELLANEOUS
74
Section 9.1 Notices................................................... 74
Section 9.2 Counterparts; Reproduction of Documents................... 76
Section 9.3 Further Assurances........................................ 76
Section 9.4 Quiet Enjoyment........................................... 76
Section 9.5 Survival.................................................. 76
- ii -
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
Section 9.6 Confidentiality........................................... 76
Section 9.7 Intentionally Omitted..................................... 77
Section 9.8 Amendments................................................ 77
Section 9.9 Headings, etc............................................. 78
Section 9.10 Successors and Assigns.................................... 78
Section 9.11 Governing Law; Consent to Jurisdiction; Service of
Process; Waiver of Immunities............................. 78
Section 9.12 Severability.............................................. 79
Section 9.13 Waiver of Trial by Jury................................... 79
Section 9.14 Obligation of Owner Participant to Return Letter of
Credit.................................................... 79
- iii -
<PAGE>
EXHIBITS
Annex A - Schedule of Definitions
Exhibit A - Form of Argus Utility Bill of Sale
Exhibit B - Form of Argus Utility Deed of Improvements
Exhibit C - Form of Lease
Exhibit D - Form of Site Lease
Exhibit E - Form of Power Contract Trust Agreement
Exhibit F - Form of Power Contract Assignment
Exhibit G - Reserved
Exhibit H - Form of Trust Agreement
Exhibit I - Form of Tax Indemnity Agreement
Exhibit J - Reserved
Exhibit K - Form of HCNA Guaranty
Exhibit L - Form of OP Parent Guaranty
Exhibit M - Form of Services Agreement
Exhibit N - Form of Letter of Credit
Exhibit O - Form of Memorandum of Lease
Exhibit P - Form of Memorandum of Site Lease (Parcel A-1)
Exhibit P-1 - Form of Memorandum of Site Lease (Parcel B-1)
Exhibit P-2 - Form of Easement
Exhibit P-3 - Form of License
Exhibit Q - Form of Opinion of Special Counsel to NACC and HCNA
Exhibit R - Form of Opinion of Special California Counsel to NACC
and HCNA
Exhibit S - Form of Opinion of Special Counsel to Owner Trustee
and Power Contract Trustee
Exhibit T - Form of Opinion of Special Counsel to Owner
Participant
Exhibit U - Form of Opinion of General Counsel of Owner
Participant
Exhibit V - Form of Opinion of Special California Counsel to
Owner Participant
Exhibit W-1 - Form of Special New York Counsel to Letter of Credit
Issuer
Exhibit W-2 - Form of Special English Counsel to Letter of Credit
Issuer
Exhibit X - Form of Babcock & Brown, Inc. Letter
Exhibit Y - Form of Lessor Security Agreement
Exhibit Z - Form of Account Bank Agreement
Exhibit AA - Form of Transfer Agreement
Exhibit BB - HCNA Letter
Schedule I - Pricing Assumptions
Schedule II - Certain Permitted Liens
Schedule 4.1(l) - Environmental Approvals
Schedule 4.1(o) - Filings
Schedule 5.1(c) - Consents
- iv -
<PAGE>
Schedule 5.1(q) - Condition of Facility
Schedule 5.1(u) - Environmental Compliance
Schedule 5.1(aa) - Restrictions and Covenants
Schedule 5.1(bb) - Pending Assessments
- v -
<PAGE>
PARTICIPATION AGREEMENT
(Searles Valley Trust 1996)
PARTICIPATION AGREEMENT dated as of July 15, 1996 (this
"Participation Agreement") among (i) NORTH AMERICAN CHEMICAL COMPANY, a Delaware
corporation ("NACC"), (ii) HARRIS CHEMICAL NORTH AMERICA, INC., a Delaware
corporation ("HCNA"), (iii) [OWNER PARTICIPANT], a New York corporation ("Owner
Participant") and (iv) U.S. TRUST COMPANY OF CALIFORNIA, N.A., a national
banking association, not in its individual capacity, except as otherwise
expressly provided herein but solely as trustee under the Trust Agreement that
creates the trust identified under the title hereof ("Owner Trustee").
INTRODUCTION
A. Upon purchasing the Undivided Interest in the Facility and
entering into the Site Lease, Owner Trustee will lease the Undivided Interest in
the Facility and sublease the Leasehold Estate to NACC pursuant to the Lease.
B. Subject to the terms and conditions hereof, on the Closing
Date the parties contemplate that (i) NACC will execute and deliver to Owner
Trustee the Argus Utility Bill of Sale and Argus Utility Deed of Improvements
pursuant to which NACC will grant and convey to Owner Trustee good, marketable
(to the extent the same constitutes real property) and indefeasible title to the
Undivided Interest in the Facility; (ii) Owner Trustee will purchase from and
pay NACC for the Undivided Interest in the Facility pursuant to the Argus
Utility Bill of Sale and Argus Utility Deed of Improvements; (iii) NACC will
lease the Undivided Interest in the Site to Owner Trustee pursuant to the Site
Lease, will enter into the Easement and the License with Owner Trustee and will
enter into the Services Agreement with Owner Trustee and the Other Owner Trustee
providing for, among other things, the provision of certain facilities, services
and supplies necessary for the operation of the Facility; (iv) Owner Trustee and
NACC will enter into the Lease providing for the lease of the Undivided Interest
in the Facility and the sublease of the Leasehold Estate; (v) Owner Participant,
Other Owner Participant and Power Contract Trustee will enter into the Power
Contract Trust Agreement; (vi) Owner Trustee, Other Owner Trustee, Power
Contract Trustee and NACC will enter into the Power Contract Assignment
providing for the assignment of the Power Purchase Agreements; (vii) NACC and
Owner Participant will enter into the Tax Indemnity Agreement; and (viii) HCNA
will execute and deliver the HCNA Guaranty to Owner Trustee and Owner
Participant.
NOW, THEREFORE, in consideration of the mutual agreements
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Capitalized terms used (including those used in the forgoing
recitals) but not defined herein shall have the meanings assigned to them in
Annex A hereto, which Annex A shall for all purposes constitute part of this
Participation Agreement and shall be subject to amendment in accordance with the
terms hereof. All references to Sections, Schedules and Exhibits herein are to
Sections, Schedules and Exhibits to this Participation Agreement unless
otherwise indicated.
ARTICLE II
CLOSING
Section 2.1 Transaction. Subject to the terms and conditions
hereof, the following transactions (the "Closing") shall occur and be closed at
the offices of Hunton & Williams, 200 Park Avenue, New York, New York
10166-0136, or such other location in New York as may be determined by the Owner
Participant and NACC, at 11:00 a.m., New York time, on the Closing Date, which
transactions shall be deemed to have occurred simultaneously.
(a) Owner Participant's Commitment. Owner Participant shall
contribute to Owner Trustee an amount equal to the Facility Cost (the
"Commitment"), and Owner Participant hereby agrees that its making
available the amount of its Commitment to Owner Trustee for the
purchase of an Undivided Interest in the Facility in accordance with
the terms of this Section 2.1 shall constitute, without further act,
authorization or direction by Owner Participant to Owner Trustee,
subject, to the conditions set forth in Sections 4.1 and 4.2 having
been fulfilled to the satisfaction of Owner Participant or waived by
Owner Participant, to take the actions specified in Section 2.1 of the
Trust Agreement with respect to the Undivided Interest in the Facility.
(b) Purchase and Lease of Facility. Owner Trustee shall
purchase from NACC, and NACC shall sell to Owner Trustee, the Undivided
Interest in the Facility for an aggregate purchase price equal to the
Facility Cost, and to evidence such sale, NACC shall execute and
deliver to Owner Trustee the Argus Utility Bill of Sale substantially
in the form of Exhibit A and the Argus Utility Deed of Improvements
substantially in the form of Exhibit B; and NACC and Owner Trustee
shall enter into the Lease substantially in the form of Exhibit C,
pursuant to which Owner Trustee immediately shall lease the Undivided
Interest in the Facility to NACC.
(c) Purchase, Lease and Sublease of Site. NACC and Owner
Trustee shall enter into the Site Lease substantially in the form of
Exhibit D pursuant to which NACC shall lease an Undivided Interest in
the Site to Owner Trustee; and Owner Trustee shall sublease the
Leasehold Estate to NACC pursuant to the Lease.
2
<PAGE>
(d) Power Contract Trust Agreement. Owner Participant, the
Other Owner Participant and Power Contract Trustee shall enter into the
Power Contract Trust Agreement substantially in the form of Exhibit E.
(e) Assignment and Sub-Assignment of Power Purchase
Agreements. NACC and Power Contract Trustee shall enter into the Power
Contract Assignment substantially in the form of Exhibit F pursuant to
which NACC shall assign its right, title and interest in the Power
Purchase Agreements to Power Contract Trustee; and Power Contract
Trustee shall then sub-assign back its right, title and interest in the
Power Purchase Agreements to NACC, which assignment and sub-assignment
shall be consented to by the Power Purchaser.
(f) Other Agreements. The Persons identified therein as
parties thereto shall execute and deliver to each other the following:
(i) the Trust Agreement substantially in the
form of Exhibit H;
(ii) the Tax Indemnity Agreement substantially in
the form of Exhibit I;
(iii) the HCNA Guaranty substantially in the form
of Exhibit K;
(iv) [Reserved.];
(v) the Services Agreement substantially in the
form of Exhibit M;
(vi) the Letter of Credit substantially in the
form of Exhibit N;
(vii) the Memorandum of Lease substantially in the
form of Exhibit O;
(viii) the Memorandum of Site Lease (Parcel A-1)
substantially in the form of Exhibit P;
(ix) the Memorandum of Site Lease (Parcel B-1)
substantially in the form of Exhibit P-1;
(x) the Easement substantially in the form of
Exhibit P-2; and
(xi) the License substantially in the form of
Exhibit P-3.
(g) Payment. Upon receipt of Owner Participant's Commitment
described in Section 2.1(a), Owner Trustee shall pay an amount equal to
Facility Cost to NACC, in immediately available funds, at its account
specified in Section 9.1 in consideration of
3
<PAGE>
the sale of the Undivided Interest in the Facility and the Undivided
Interest in the Power Purchase Agreements assigned to the Power
Contract Trustee pursuant to the Power Contract Assignment, and NACC
acknowledges and agrees that the making of the payment contemplated by
Section 2.1(b) satisfies all obligations to such party in respect of
any such payments due to it at the Closing. The obligations of NACC,
HCNA, Owner Trustee and Owner Participant under this Section 2.1 or
elsewhere in the Operative Documents shall be separate, independent and
several, not joint, obligations and none of the parties shall be liable
or responsible for the acts or defaults of any other party hereunder.
Transaction Costs shall be payable pursuant to Section 6.4(b).
Section 2.2 Closing Date Notice. The Closing of the
transactions contemplated by Section 2.1 shall occur on a date specified in a
notice from NACC to Owner Participant and Owner Trustee at least three (3)
Business Days prior to the scheduled Closing Date; provided, however, that the
Closing Date shall be a Business Day occurring on or before July 15, 1996. Such
notice may be by facsimile transmission (promptly confirmed) and shall specify
the proposed Closing Date.
ARTICLE III
ADJUSTMENTS
Section 3.1 Assumptions in Computing Interim and Basic Rent.
The Interim and Basic Rent amounts set forth in Schedule III to the Lease,
Stipulated Loss Values set forth in Schedule IV to the Lease and the "Stated
Amounts" set forth in Exhibit B to the form of Letter of Credit attached hereto
as Exhibit N, were calculated by Owner Participant on the basis of the
assumptions set forth in Section 3 of the Tax Indemnity Agreement (the "Tax
Assumptions") and, in addition thereto, the assumptions set forth in Schedule I
(the "Pricing Assumptions").
Section 3.2 Making of Adjustments. In the event that:
(a) on or prior to the Closing Date (i) there occurs a change
in the Tax Assumptions or the Pricing Assumptions or (ii) there occurs
a Tax Law Change that is enacted after April 26, 1996.
(b) the Closing Date is other than July 15 or the Transaction
Costs are greater or less than the amount of Transaction Costs set
forth in the Pricing Assumptions; or
(c) NACC becomes obligated to make a tax indemnity payment
under the Tax Indemnity Agreement which is to be paid through an
adjustment to Basic Rent;
then, Owner Participant shall recompute, upward or downward, the schedules of
(x) Interim and Basic Rent and Stipulated Loss Values as shall be necessary to
preserve Owner Participant's Net Economic Return while, to the extent possible,
minimizing the present value to NACC of the
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Interim and Basic Rent payments (discounted at the Discount Rate) during the
remainder of the Lease Term and (y) Stated Amount in accordance with Section
3.4; provided, however, that any Adjustment as a result of an event described in
clause (a) above shall be made on or prior to the Closing Date. Any such
recomputation (i) shall be made using the same methodology and assumptions which
were used in the original computation of the Interim and Basic Rent and
Stipulated Loss Value Schedules attached to the Lease on the Closing Date, (ii)
shall be consistent with the Pricing Assumptions and Tax Assumptions (other than
any Pricing Assumptions or Tax Assumptions the incorrectness of which gave rise
to such recomputation or to a prior recomputation), (iii) shall satisfy the
provisions of Revenue Procedures 75-21 and 75-28 and any successor or
supplemental procedure or administrative guidance relating to the subject matter
of such procedures to the same extent, if any, as such schedules complied with
or satisfied such revenue procedures or guidance on the date hereof, and (iv)
shall be made in a manner designed to comply with Section 467 of the Code or any
successor provision thereto and any regulations thereunder or under any
successor or supplemental provision of federal income tax law to the same
extent, if any, as such schedules complied with or satisfied such Code
provisions and regulations on the date hereof, except in the case of an
adjustment pursuant to clause (c), in which case such adjustment must comply
with such provisions of the Code and the regulations thereunder as are
applicable at the time of such adjustment.
Section 3.3 Procedures for Adjustments. Any Adjustments made
pursuant to this Article III shall be made by Owner Participant and the results
of such Adjustments shall be delivered promptly to NACC which results shall,
subject to this Section 3.3, be binding upon NACC if Owner Participant confirms
to NACC that the assumption and methods of calculation employed in the original
calculations were used consistently in the Adjustments, except as contemplated
within this Article III. Within thirty (30) days of receipt of the results of an
Adjustment, if NACC shall disagree with such Adjustment, NACC may demand that an
independent public accounting (or lease advising) firm of national standing and
reputation selected by Owner Participant and reasonably acceptable to NACC (the
"Verifier") verify whether such Adjustment is correct. In verifying the
Adjustment, such Verifier (but not NACC) shall have access to information (but
not the tax returns), subject to a confidentiality agreement reasonably
satisfactory to Owner Participant, necessary to verify such Adjustment. Both
NACC and the Owner Participant shall have the right to communicate with the
Verifier and to submit supporting information and data. If the adjustments to
Interim Rent, Basic Rent and Stipulated Loss Values calculated by the Verifier
are different than those calculated by the Owner Participant, then, absent
manifest error, the Lease shall be amended to reflect the Verifier's
adjustments. If the sum of the present values, discounted at the Discount Rate,
of the Interim Rent and all Basic Rent scheduled to be paid during the Basic
Term divided by the Facility Cost and expressed as a percentage, as calculated
by the Verifier, is more than 15 basis points less than the sum of present
values, discounted and calculated in the same manner, of the Owner Participant's
calculation, then the Owner Participant shall pay the reasonable cost of such
verification. Otherwise, NACC shall pay the reasonable cost of verification. The
determination of any Adjustment hereunder shall be set forth in a Lease
Supplement executed and delivered by Owner Trustee and NACC; provided, however,
that the failure so to set forth such Adjustment or execute and deliver a Lease
Supplement shall not affect the validity or effectiveness of such Adjustment.
The parties hereto agree that the sole responsibility of the Verifier shall be
to verify
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the Adjustments and that matters of interpretation of this Agreement or any
other Operative Document shall not be within the scope of the Verifier's
responsibilities.
Section 3.4 Adjustment to the Stated Amount. If an Adjustment
is made as a result of an event described in Section 3.2(c) as a result of a tax
indemnity payment under the Tax Indemnity Agreement in excess of $750,000, the
Owner Participant shall also recompute the "Stated Amounts" set forth in Exhibit
B to the form of Letter of Credit to equal the sum of (I) $1,000,000 plus (II)
the product of (a) $5,860,441 multiplied by (b) the quotient of (1) the annual
payment amount of Basic Rent plus Supplemental Rent then due and owing, with
respect to payments made under the Tax Indemnity Agreement, following the
adjustment thereof pursuant to Section 3.2 over (2) $5,586,857; provided that
the Stated Amount shall not exceed the aggregate amount of the remaining
scheduled payments of Basic Rent under the Lease.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Obligations of Owner
Participant and Owner Trustee. The obligation of Owner Participant and Owner
Trustee to consummate the transactions contemplated by Section 2.1 shall be
subject to the fulfillment to the satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to
the addressee or beneficiary thereof), or waiver in writing by, Owner
Participant or Owner Trustee, as appropriate, prior to or on the Closing Date,
of the following conditions precedent (except that the obligation of any party
shall not be subject to such party's own performance or compliance):
(a) Authorization, Execution and Delivery of Documents. All
of the Lease Financing Documents (other than the Account Bank Agreement
and the Lessor Security Agreement) shall have been duly authorized,
executed and delivered by the respective parties thereto, shall be in
full force and effect on the Closing Date and each such party shall
have performed and complied with all agreements and conditions therein
required to be performed or complied with on or prior to the Closing
Date.
(b) No Default. Other than HCNA's failure to deliver audited
financial statements with respect to HCNA's fiscal year ended March 30,
1996 to the holders of its Debt, no event shall have occurred and be
continuing that constitutes a Default or Event of Default or no event
of default or event or condition which would, with the giving of notice
or the passage of time and without giving effect to any waiver or
forbearance with respect thereto constitute an event of default, shall
have occurred or be continuing under any Operative Document or any
agreement under which NACC or HCNA has borrowed money in excess of
$5,000,000.
(c) Notice. Owner Participant and Owner Trustee shall have
received the Closing Date Notice.
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(d) Illegality, etc. No change shall have occurred after the
date of the execution and delivery of this Agreement in Legal
Requirements thereunder or interpretations thereof by any Authority
that would (i) make it illegal for Owner Participant or Owner Trustee
to participate in the transactions contemplated by the Operative
Documents or (ii) reasonably be expected to have an adverse effect on
the Facility, the Complex, any Material Participant or the Owner
Participant's participation in the transaction.
(e) No Violation of Applicable Law. The transactions
contemplated by the Operative Documents shall not violate any Legal
Requirements.
(f) Litigation. No action or proceeding shall have been
instituted, nor shall any Order have been issued by any Authority at
the time of the Closing Date to set aside, restrain, enjoin or prevent
the consummation of the transactions contemplated by the Operative
Documents.
(g) Consents and Approvals. All Approvals (other than any
thereof listed on Schedule 5.1(c)) required to be taken, given or
obtained, as the case may be, by or from any Authority, or by or from
any trustee or holder of any indebtedness or obligations of NACC or any
other Person which are required on the Closing Date for the use and
operation of the Facility and the Site as contemplated by the Operative
Documents, and to the extent applicable to such use, operation or
maintenance of the Facility and the Site, of the Complex, or otherwise
in connection with the transactions contemplated by the Operative
Documents, shall have been duly taken, given or obtained, as the case
may be, shall be satisfactory in form, scope and substance to the Owner
Participant, shall be in full force and effect on the Closing Date
(and, with respect to Approvals of any Authority, subject to no further
appeal), shall be adequate to authorize the consummation of the
transactions contemplated by the Operative Documents and the
performance by NACC of its obligations under such thereof to which it
is a party.
(h) Title to the Undivided Interest in the Facility. On the
Closing Date, after giving effect to the transactions contemplated
hereby, Owner Trustee shall have received good, marketable (to the
extent the same constitutes real property) and indefeasible title to
the Undivided Interest in the Facility, good and marketable title to
the Leasehold Estate and good and marketable title to the Easement in
all cases free and clear of all Liens other than Permitted Liens of the
type described in clauses (a), (b), (f), (h) and (l) of the definition
thereof.
(i) Title Insurance and UCC Reports; Precautionary UCCs.
Owner Trustee shall have received (and Owner Participant shall have
received a copy of) the following:
(i) an ALTA leasehold policy of title
insurance issued by the Title Underwriter, in prescribed form,
with such co-insurance/re-insurance supplements as are
acceptable to Owner Participant, and containing such
endorsements as Owner Participant may reasonably require,
including without
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limitation a California Subdivision Map Act endorsement in
acceptable form, subject only to standard printed exceptions
to a leasehold policy of title insurance to the extent that,
pursuant to Legal Requirements, such exceptions cannot be
removed or insured against by endorsement or otherwise,
Permitted Liens of the type described in clause (h) of the
definition thereof and such other exceptions as shall be
approved by Owner Participant in its sole discretion. The
leasehold policy shall insure the Owner Trustee's Leasehold
Estate to be good and marketable;
(ii) an ALTA owner's policy of title
insurance issued by the Title Underwriter, in prescribed form,
with such co-insurance/re-insurance supplements as are
acceptable to Owner Participant, and containing such
endorsements as Owner Participant may reasonably require,
subject only to standard printed exceptions to an owner policy
of title insurance to the extent that, pursuant to Legal
Requirements, such exceptions cannot be removed or insured
against by endorsement or otherwise, Permitted Liens of the
type described in clause (h) of the definition thereof and
such other exceptions as shall be approved by Owner
Participant in its sole discretion. Such owner's policy shall
insure Owner Trustee's Undivided Interest in the Facility to
be good, marketable (to the extent the same constitutes real
property) and indefeasible;
(iii) The policies referenced in (i) and
(ii) may be combined into a single policy. The policy amount
shall be $75,000,000. The policy shall also insure the
Easement to be good and marketable in form acceptable to the
Owner Participant;
(iv) acceptable Uniform Commercial Code
financing statement filing reports with respect to NACC dated
as close to the Closing Date as practicable from the Office of
the Secretary of State of California and the appropriate
filing offices in San Bernardino County, California and Kern
County, California;
(v) acceptable Uniform Commercial Code
financing statement filing reports with respect to NACC dated
as close to the Closing Date as practicable from the Office of
the Secretary of State of Kansas;
(vi) acceptable Uniform Commercial Code
financing statement filing reports with respect to NACC dated
as close to the Closing Date as practicable from the Office of
the Secretary of State of New York and the appropriate filing
offices in New York County, New York; and
(vii) Precautionary UCC financing statements
covering the rights of the Owner Trustee in the Lease shall
have been executed and delivered by the Lessee as debtor for
the benefit of the Owner Trustee as secured party, and in each
case duly filed in all places as, in the reasonable opinion of
counsel for the
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Owner Participant and the Owner Trustee, are necessary or
desirable to perfect said security or other interests.
(j) Survey. Owner Trustee shall have received the following:
(i) an ALTA/ACSM Land Title Survey of the Facility, the Easement Site
and the Site dated no more than fourteen (14) days prior to the Closing
Date, prepared by a licensed land surveyor, certified to Owner
Participant, Owner Trustee and the Title Underwriter and satisfactory
to Owner Participant, (ii) a copy of the recorded Parcel Map 14061 (the
"Parcel Map"), (iii) an ALTA/ACSM Land Title Survey dated no more than
fourteen (14) days prior to the Closing Date, prepared by a licensed
land surveyor, certified to Owner Participant, Owner Trustee and the
title insurers and satisfactory to Owner Participant, depicting the
proposed amendment to Parcel 4 of the Parcel Map, and (iv) an
uncertified, map depicting the approximate location of the Complex in
the form previously delivered to Owner Trustee.
(k) Environmental Report. Owner Participant and Owner Trustee
shall have received reports, addressed to each of them, which are
satisfactory in form and substance, from the Environmental Consultants
regarding the environmental condition of the Facility, the Site and the
Complex.
(l) Environmental Approvals. Owner Participant and Owner
Trustee shall have received Schedule 4.1(l), setting forth all
Approvals required on the Closing Date under Environmental Laws for the
use, operation and maintenance of the Facility and the Site as
contemplated by the Operative Documents and, to the extent applicable
to such use, operation or maintenance of the Facility or the Site, the
Complex.
(m) Engineering Report. Owner Participant shall have received
(i) satisfactory reports from the Engineering Consultant regarding the
Facility and the Site.
(n) Soda Ash Report. Owner Participant shall have received
satisfactory reports from the Soda Ash Consultant regarding the soda
ash industry and the business of NACC.
(o) Filings and Recordings. Satisfactory arrangements shall
have been made to file and record the documents listed on Schedule
4.1(o) in the filing offices described in Schedule 4.1(o) and to pay
all filing fees in connection therewith.
(p) Insurance. Insurance complying with the provisions of
Section 9 of the Lease shall be in full force and effect and Owner
Participant and Owner Trustee shall have received a certificate of an
independent insurance broker dated the Closing Date, describing the
insurance obtained in accordance with Section 9 of the Lease and
stating that such insurance is in full force and effect and that all
premiums then due and payable thereon have been paid and, in the
opinion of such broker, such insurance complies with the provisions of
the Lease. Owner Participant and Owner Trustee shall have received
certificates of insurance in accordance with Section 9 of the Lease.
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(q) Additional Officer's Certificates. On the Closing Date,
the following statements shall be true and Owner Participant and Owner
Trustee, as the case may be, shall have received the following
Officer's Certificates:
(i) Owner Trustee shall have received an
Officer's Certificate of Owner Participant, dated the Closing
Date, stating that (A) the representations and warranties of
Owner Participant contained in Sections 5.3, 5.6 and 5.7 are
true and accurate on and as of the Closing Date as though made
on and as of the Closing Date and (B) Owner Participant has
performed and complied with all agreements and conditions
required to be performed or complied with by it under the
Operative Documents on or before the Closing Date;
(ii) [Reserved.];
(iii) Owner Trustee and Owner Participant
shall have received an Officer's Certificate of NACC, dated
the Closing Date, stating that (A) the representations and
warranties of NACC contained in the Operative Documents and
any letter, certificate or other instrument executed in
connection therewith are true and correct on and as of the
Closing Date as though made on and as of the Closing Date and
(B) NACC has performed and complied with all agreements and
conditions herein contained which are required to be performed
or complied with by it under the Operative Documents on or
before the Closing Date;
(iv) Owner Trustee and Owner Participant
shall have received an Officer's Certificate of HCNA, dated
the Closing Date, stating that (A) the representations and
warranties of HCNA contained in the Operative Documents and
any letter, certificate or instrument executed in connection
therewith are true and correct on and as of the Closing Date
as though made on and as of the Closing Date and (B) HCNA has
performed and complied with all agreements and conditions
herein contained which are required to be performed or
complied with by it under the Operative Documents on or before
the Closing Date;
(v) Owner Participant shall have received an
Officer's Certificate of Owner Trustee, dated the Closing
Date, stating that (A) the representations and warranties of
Owner Trustee contained in Sections 5.5 and 5.6 of this
Participation Agreement and Section 5 of the Lease are true
and correct on and as of the Closing Date as though made on
and as of the Closing Date and (B) Owner Trustee has performed
and complied with all agreements and conditions herein
contained which are required to be performed or complied with
by it under the Operative Documents on or before the Closing
Date; and
(vi) Owner Participant shall have received
an Officer's Certificate of the Power Contract Trustee, dated
the Closing Date, stating that (A) the representations and
warranties of the Power Contract Trustee contained in Section
6(i) of the Power Contract Trust Agreement are true and
correct on and
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as of the Closing Date as though made on and as of the Closing
Date and (B) the Power Contract Trustee has performed and
complied with all agreements and conditions which are required
to be performed or complied with by it under the Operative
Documents on or before the Closing Date.
(r) Resolutions, Certificates, etc. Owner Participant and
Owner Trustee shall have received a copy of resolutions of the
respective Boards of Directors (or committee thereof having power with
respect to the matters covered by such resolutions) of NACC, HCNA,
Owner Participant and Owner Trustee, certified as of such Closing Date
by the Secretary or an Assistant Secretary of NACC, HCNA, Owner
Participant, Power Contract Trustee or Owner Trustee, respectively,
duly authorizing the execution, delivery and performance by it of each
Operative Document that is to be executed on such Closing Date and to
which it is a party, together with an incumbency certificate as to the
officer or officers authorized to execute and deliver such documents on
its behalf and certified copies of its certificate of incorporation and
bylaws or of its other organizational documents; provided, that the
receipt by a party of documents and certificates prepared with respect
to itself shall not be a condition precedent to such party's
obligations hereunder.
(s) No Event of Loss. No Event of Loss or Regulatory Event of
Loss or event or condition which would, with the giving of notice or
passage of time, constitute an Event of Loss or Regulatory Event of
Loss shall have occurred.
(t) Opinion of Special Counsel for NACC and HCNA. Owner
Participant and Owner Trustee shall have received an opinion, dated the
Closing Date, from Winthrop, Stimson, Putnam & Roberts, special counsel
for NACC, HCNA in the form of Exhibit Q.
(u) Opinion of Special California Counsel for NACC and HCNA.
Owner Participant and Owner Trustee shall have received an opinion of
Gresham, Varner, Savage, Nolan & Tilden, special California Counsel for
NACC and HCNA in the form of Exhibit R.
(v) Opinion of Special Counsel for Owner Trustee and Power
Contract Trustee. Owner Participant shall have received an opinion,
dated the Closing Date, from Carter, Ledyard & Milburn, special counsel
for Owner Trustee, in the form of Exhibit S.
(w) Opinion of Special Counsel for Owner Participant. Owner
Trustee, Owner Participant shall have received an opinion, dated the
Closing Date, from Hunton & Williams, special counsel for Owner
Participant, in the form of Exhibit T.
(x) Opinion of General Counsel for Owner Participant. Owner
Trustee shall have received an opinion, dated the Closing Date, from
Raymond W. Leyden, Jr., Esq., Senior Counsel of Owner Participant, in
the form of Exhibit U.
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(y) Opinion of Special California Counsel for Owner
Participant. Owner Trustee and Owner Participant shall have received an
opinion, dated the Closing Date, from Lillick & Charles, special
California counsel for Owner Participant, in the form of Exhibit V.
(z) Opinion of Special Counsel for Letter of Credit Issuer.
Owner Participant and Owner Trustee shall have received an opinion,
dated the Closing Date, from Simpson Thacher & Bartlett, special New
York counsel for Letter of Credit Issuer in the form of Exhibit W-1 and
from Lovell White Durrant, special English counsel for the Letter of
Credit Issuer in the form of Exhibit W-2.
(aa) Babcock & Brown Inc. Certificate. Owner Participant and
Owner Trustee shall have received a certificate in the form of Exhibit
X from Babcock & Brown Inc. dated the Closing Date with respect to
offerees of interests in the Facility, the Undivided Interest therein
and the Trust Estate.
(bb) Payment of Taxes, etc. All taxes, fees and other charges
due and payable on or prior to the Closing Date in connection with the
execution, delivery, recordation and filing of all the documents and
instruments, and performance of the transactions contemplated by the
Operative Documents happening on or before the Closing Date, referred
to in this Participation Agreement shall have been paid in full.
(cc) No Material Adverse Change. There shall have been no
material adverse change (i) in the business, operations or financial
condition of HCNA or NACC since March 25, 1995 or (ii) with respect to
the Facility, the Site or the Complex since January 30, 1996.
(dd) Closing Must Occur on or Before July 15, 1996. The
Closing Date shall be a Business Day occurring on or before July 15,
1996.
(ee) Appointment of Agent. Owner Participant shall have
received evidence of the acceptance by CT Corporation System of its
appointment as process agent for HCNA and NACC pursuant to Section
9.11(c).
Section 4.2 Additional Conditions Precedent to Obligations of
Owner Participant. The obligation of Owner Participant to consummate the
transactions contemplated by Section 2.1 shall be subject to the fulfillment to
the satisfaction of (including, with respect to writings, such writings being in
form and substance reasonably satisfactory to the addressee or beneficiary
thereof), or waiver in writing by, Owner Participant of the following additional
conditions precedent:
(a) Appraisal. Owner Participant shall have received an
appraisal with respect to the Facility (the "Appraisal") from the
Appraiser.
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(b) Tax Opinion. Owner Participant shall have received the
opinion of its special tax counsel addressed to Owner Participant.
(c) County Letter. Owner Participant shall have received a
letter from the County of San Bernardino confirming that the Site Lease
and the sublease of the Site, pursuant to the Lease, are exempt from
the requirements of the California Subdivision Map Act and local
ordinances and codes regarding subdivision of real property, in form
and substance acceptable to Owner Participant in its sole discretion.
Section 4.3 Conditions Precedent to Obligations of NACC and
HCNA. The obligation of NACC and HCNA to consummate the transactions
contemplated by Section 2.1 shall be subject to fulfillment to the satisfaction
of (including, with respect to writings, such writings being in form and
substance reasonably satisfactory to the addressee or beneficiary thereof), or
waiver in writing by, NACC and HCNA prior to or on the Closing Date, of the
following conditions precedent (except that the obligations of NACC and HCNA
shall not be subject to such party's own performance or compliance):
(a) Authorization, Execution and Delivery of Documents. All
of the Lease Financing Documents (other than the Account Bank Agreement
and the Lessor Security Agreement) shall have been duly authorized,
executed and delivered by the respective parties thereto (other than
NACC and HCNA) and shall be in full force and effect on the Closing
Date.
(b) Illegality, etc. No change shall have occurred after the
date of the execution and delivery of this Agreement in Legal
Requirements other than a Tax Law Change (or rules or regulations
thereunder or interpretations thereof by any Authority) that would (i)
make it illegal for NACC to participate in any of the transactions
contemplated by the Operative Documents or (ii) be reasonably expected
to have an adverse effect on NACC's or HCNA's participation in the
transaction.
(c) Litigation. No action or proceeding shall have been
instituted nor shall any Order have been issued by any Authority at the
time of the Closing Date to set aside, restrain, enjoin or prevent the
consummation of the transactions contemplated by this Participation
Agreement or by the other Operative Documents.
(d) Officer's Certificates. NACC shall have received the
Officer's Certificates described in Sections 4.1(q)(i), 4.1(q)(ii),
4.1(q)(v) and 4.1(q)(vi).
(e) Resolutions, Certificates, etc. NACC shall have received
the Resolutions and Certificates of Owner Participant and Owner Trustee
described in Section 4.1(r).
(f) Opinions. NACC shall have received the opinions of
counsel described in Sections 4.1(t) through (z), each addressed to
NACC and HCNA.
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(g) Babcock & Brown, Inc. Certificate. NACC shall have
received the certificate described in Section 4.1(aa).
(h) Owner Participant's Investment. Owner Participant shall
have contributed the amounts described in Section 2.1(a) to Owner
Trustee.
(i) Consents and Approvals. All consents and approvals
described in Section 4.1(g) shall be satisfactory in form, scope and
substance to NACC, have been executed and delivered and be subject to
no further appeal. HCNA shall have received the required consent of the
applicable banks under any agreement under which NACC or HCNA has
borrowed money in excess of $5,000,000.
(j) No Material Adverse Change. Since March 31, 1996, there
shall have been no material adverse change in the business, operations
or financial condition of Owner Participant.
(k) No Event of Loss. No Event of Loss or Regulatory Event of
Loss or event or condition which would, with the giving of notice or
the passage of time, constitute an Event of Loss or Regulatory Event of
Loss shall have occurred.
(l) No Default. No event shall have occurred and be
continuing that constitutes a Default or Event of Default or no event
of default or event or condition which would, with the giving of notice
or the passage of time constitute an event of default, shall have
occurred or be continuing under any agreement under which NACC or HCNA
has borrowed money in excess of $5.0 million.
(m) Tax Law Change. As of the Closing Date, no adjustment
shall be required pursuant to Section 3.2(a)(ii) which, together with
any adjustment that is reasonably expected to be required pursuant to
Section 3.2(c) as a result of a Proposed Tax Law Change, would cause
the present value of all scheduled payments of Interim Rent and Basic
Rent (discounted at the Discount Rate) divided by the Facility Cost to
increase by more than 100 basis points.
(n) Appraisal. NACC shall have received a letter from the
Appraiser setting forth the Appraiser's determination as to the fair
market value of the Undivided Interest in the Facility and in the Power
Purchase Agreements, the fair market rental value (on an annual basis)
of the Leasehold Estate, the purchase price to be paid if Lessee
exercises its option under Section 21 of the Lease, a summary of the
methodology employed in the Appraisal and a list of the information
relied on by the Appraiser in preparing the Appraisal.
(o) HCNA Letter. Owner Participant shall have received the
HCNA Letter in the form of Exhibit BB.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of NACC. NACC
represents and warrants as of the date of this Participation Agreement and as of
the Closing Date to Owner Participant and Owner Trustee that:
(a) Organization. NACC is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to carry on its
business in all material respects as now conducted, to own and hold
under lease its properties and to enter into and perform its
obligations under each Operative Document to which it is or will be a
party and each other letter, certificate, document or instrument to be
executed and delivered therewith or as contemplated thereby. NACC is
duly qualified to do business as a foreign corporation and is in good
standing in the State of California and under the laws of each other
jurisdiction where such qualification is required and where failure to
so qualify would reasonably be expected to have a Material Adverse
Effect.
(b) Authorization, Execution and Delivery; No Conflict. Each
Operative Document (other than the Account Bank Agreement and the
Lessor Security Agreement) and each letter, certificate, document and
instrument to be executed in connection therewith to which NACC is or
will be a party has been duly authorized by all necessary corporate
action on the part of, and has been or will be duly executed and
delivered on or prior to the Closing Date by, NACC, and neither the
execution and delivery thereof, nor the consummation by NACC of the
transactions contemplated thereby on the Closing Date nor compliance by
NACC with any of the terms and provisions thereof on the Closing Date
(A) contravenes or results in a breach of or constitutes any default
under any provision of the certificate of incorporation or by-laws of
NACC, (B) contravenes or results in a breach of or constitutes any
default under any Applicable Law or any of its material properties
(including without limitation any building or similar codes or zoning,
planning or similar regulations), or result in the creation of a Lien
(other than a Permitted Lien of the type described in clause (a) or (b)
of the definition thereof and those Liens approved by Owner
Participant) upon the Facility, the Site, or the Undivided Interests
therein or (C) contravenes or results in any breach of or constitutes
any default under any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or
other material agreement or instrument to which NACC is a party or by
which NACC or any of its properties may be bound or affected.
(c) Consents. Neither the execution and delivery by NACC of
the Operative Documents (other than the Account Bank Agreement and the
Lessor Security Agreement) to which NACC is or will be a party nor the
consummation on the Closing Date of any of the transactions on the part
of NACC contemplated thereby requires the consent or approval of, the
giving of notice to, or the registration with, the recording or filing
of any document with, or the taking of any other action in respect of,
any Authority or any
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other Person, except (i) those set forth on Schedule 5.1(c) and (ii)
the recordings and filings described in Schedule 4.1(o).
(d) Enforceability. Each Lease Financing Document and
Facility Document to which NACC is or will be a party constitutes, or
when entered into will constitute, the legal, valid and binding
obligation of NACC, enforceable against NACC in accordance with the
terms thereof except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
rights of creditors generally and by general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
(e) Litigation. There are no actions, suits or proceedings
before any Authority pending or, to the knowledge of NACC, threatened
against or affecting NACC, the Facility, the Complex, the Site, the
Power Purchase Agreements or any of its other property or rights that
(i) question the validity of any Operative Document or NACC's ability
to perform its obligations under each Operative Document to which it is
or will be a party or (ii), except as disclosed in the SEC Periodic
Reports or the Information Memorandum would reasonably be expected to
(individually or together with any other such actions, suits or
proceedings) have a Material Adverse Effect. NACC is not in default
with respect to any Order of any Authority, where such default would
reasonably be expected to have a Material Adverse Effect or would
result in the creation or imposition of any Lien (other than a
Permitted Lien) upon the Facility, the Site or the Undivided Interests
therein or affect the rights and remedies of the Owner Participant or
Lessor under any of the Operative Documents. No action or proceeding
has been instituted, and no Order has been issued by any Authority to
set aside, restrain, enjoin or prevent the consummation of the
transactions contemplated by the Operative Documents.
(f) Title; Filings. On the Closing Date (A) NACC will have
conveyed to Owner Trustee good, marketable (to the extent any portion
of the Facility constitutes real estate) and indefeasible title to the
Undivided Interest in the Facility and NACC will have good, marketable
and indefeasible title to the Site and NACC will have good and
marketable title to the Easement Site, in each case, free and clear of
all Liens (other than Permitted Liens of the type described in clause
(a), (b), (f), (h) or (l) of the definition thereof; (B) the Facility
will be located on the Site and pursuant to the Site Lease, Owner
Trustee shall hold a valid, subsisting and marketable leasehold
interest in the Site free and clear of Liens (other than Permitted
Liens of the type described in clause (a), (b), (f), (h) or (l) of the
definition thereof; and (C) satisfactory arrangements will have been
made to file or record all documents described in Schedule 4.1(o) in
the appropriate offices.
(g) Taxes. NACC has filed or caused to be filed all United
States Federal and all other tax returns required to be filed by NACC
and has paid, or caused to be paid, all taxes shown to be due and
payable on such returns to the extent the same have become due and
payable, except for any taxes and assessments of which the amount,
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applicability or validity is currently being contested pursuant to a
Permitted Contest and except to the extent non-filing or incorrect
filing could not reasonably be expected to have a Material Adverse
Effect.
(h) Financial Statements. NACC has delivered to Owner
Participant copies of a balance sheet of NACC as at March 25, 1995 and
the related statements of income and statements of cash flows for the
fiscal year ended on said date. Said financial statements are complete
and correct in all material respects and present fairly the financial
position of NACC as of the date of said balance sheet, and the results
of its operations and its cash flows for the period ended of such date
and have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except
as set forth in the notes thereto. Since March 25, 1995, NACC has not
incurred any material contingent liability or liability for taxes, or
any long-term lease or unusual forward or long-term commitment,
including any Interest Rate or Currency Protection Agreements, other
than in the ordinary course of business.
(i) Disclosure. Taken as a whole, neither this Participation
Agreement, the SEC Periodic Reports, the Information Memorandum, nor
the other Operative Documents to which NACC is or will be a party nor
the other documents and certificates furnished by or on behalf of NACC
pursuant to this Participation Agreement to Owner Participant contains
any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading; except as
disclosed in the SEC Periodic Reports or the Information Memorandum,
there is no fact known to NACC which would reasonably be expected to
have a material adverse effect on the business, operations, property or
financial or other condition of NACC or HCNA and its Restricted
Subsidiaries taken as a whole.
(j) Description of Facility and Site. The descriptions set
forth in Schedules I and II to the Lease, Schedule I and Exhibit A to
the Argus Utility Deed of Improvements and Schedule I and Exhibit A to
the Argus Utility Bill of Sale are in each case true and correct
descriptions of the Facility and the Site, respectively, in all
material respects.
(k) Defaults; Events of Loss. Other than HCNA's failure to
deliver audited financial statements with respect to HCNA's fiscal year
ended March 30, 1996 to the holders of its Debt, no Default or Event of
Default has occurred and is continuing. No Event of Loss or event or
condition which would, with the giving of notice or the passage of
time, constitute an Event of Loss has occurred.
(l) Investment Company. NACC is not an "investment company"
or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
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(m) Holding Company. NACC is not subject to regulation as a
"holding company," an "affiliate" of a "holding company," or a
"subsidiary company" of a "holding company," within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(n) Chief Executive Office. The chief place of business and
the chief executive office of NACC are located at 8300 College
Boulevard, Overland Park, Kansas 66210, and the offices where NACC
keeps its records concerning the Facility (and the Undivided Interest
therein) and the Operative Documents to which NACC is a party are
located at 8300 College Boulevard, Overland Park, Kansas 66210 and at
13200 Main Street, Trona, California 93562.
(o) No Violation of Applicable Law. The transactions
contemplated by the Operative Documents to be performed by NACC on the
Closing Date do not violate any Legal Requirement.
(p) No Material Adverse Change. (i) There has been no
material adverse change in the business, operations or financial
condition of NACC or HCNA (each on a consolidated basis) from that
existing on March 25, 1995 and (ii) since January 30, 1996, there has
been no material adverse change with respect to the Facility, the Site
or the Complex.
(q) Condition of Facility. Except as set forth in Schedule
5.1(q), NACC does not know of any event or condition currently existing
which, taking into account the age and maintenance history of the
Facility, (i) presently adversely affects the capacity of the Facility
to generate reliably steam and electrical power at the levels set forth
in clause (ii) of this Section 5.1(q) at the rate of consumption of
coal and gas fuel set forth in clause (iii) of this Section 5.1(q),
(ii) causes NACC to believe that the combined rated gross steam
generation capacity and rated gross electrical power output of the
Facility is less than (x) 1.4 million lbs/hour of 1,500 psig, 955oF
steam and (y) 54 MW of electrical power; or (iii) causes NACC to
believe that the rate of consumption of coal and gas fuel necessary to
provide simultaneously the steam generation capacity and electrical
power output set forth in clause (ii) above exceeds 1,970 million
Btu/hour (higher heating value).
(r) Statements to Insurers. All representations and
warranties made by NACC or its authorized representatives to any
insurer in connection with any insurance required to be maintained by
NACC under any Operative Document were true, correct and complete in
all material respects when made.
(s) Sufficiency of Support Arrangements. The services to be
performed for the Owner Trustee, the materials to be supplied to the
Owner Trustee and the rights granted to the Owner Trustee pursuant to
the Services Agreement, the Site Lease, the Easement and the License
are sufficient to enable the Facility to be located on the Site for the
entire Site Lease Term and to enable the Owner Trustee (or its agents
or
18
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assignees) to obtain access to and operate the Facility, upon the
expiration or earlier termination of the Lease Term for the Facility,
for the balance of the Site Lease Term (including without limitation
the period following the Lease Term for the Facility upon the exercises
of remedies under the Lease) in a manner consistent with Section 7 of
the Lease, substantially continuously and at the capacity or capacities
at which it is contemplated on the Closing Date that the Facility will
be operated from time to time, and there are no services, materials or
rights required for such operation other than those granted by or to be
provided or arranged pursuant to the Services Agreement, the Site
Lease, the Easement or the License. NACC has no reason to believe that
there will be contractual or, based upon Applicable Law, other legal
rights required for such occupancy, use, possession, leasing,
ownership, operation and maintenance or that there will be other
services or materials required for such operation, maintenance, use,
occupancy and possession other than those which can reasonably be
expected to be available at the end of the Lease Term.
(t) Payment of Taxes, etc. All taxes, fees and other charges
due and payable on or prior to the Closing Date in connection with the
execution, delivery, recordation and filing of all documents and
instruments contemplated by the Operative Documents, including the
Operative Documents, and the performance by NACC of the transactions
contemplated by the Operative Documents happening on or before the
Closing Date, have been paid in full or arrangements acceptable to the
Owner Participant have been made for such payment.
(u) Environmental Matters. Except as set forth on Schedule
5.1(u), to NACC's best knowledge after due inquiry:
(i) NACC is in compliance, except to an insignificant
extent, with all Environmental Laws with respect to the Site
and the Facility. Since March 29, 1992, NACC has complied with
all Environmental Laws with respect to the Site and the
Facility, except to the extent any Special Environmental
Expenses resulting from any violation of or non-compliance
with such Environmental Laws did not equal or exceed $100,000
as to any individual violation or non-compliance, or $500,000
as to aggregate violations and non-compliances. Since March
29, 1992, NACC has complied with all Environmental Laws with
respect to the Complex, except to the extent any Special
Environmental Expenses resulting from any violation of or
non-compliance with such Environmental Laws did not equal or
exceed $500,000 as to any individual violation or
non-compliance.
(ii) NACC possesses all Approvals required under
Environmental Laws for the use, operation and maintenance of
the Site and the Facility in the regular course of NACC's
business as contemplated by the Operative Documents and, to
the extent applicable to such use, operation or maintenance of
the Site or the Facility, the Complex, such Approvals are in
full force and effect, and NACC is
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in compliance, except to an insignificant extent, with the
terms and conditions thereof.
(iii) There is no event that has occurred or failed
to occur that is reasonably expected to prevent or
significantly interfere with NACC's ability to use, operate
and maintain the Site and the Facility in the regular course
of NACC's business as contemplated by the Operative Documents
in compliance with Environmental Laws. There is no event that
has occurred or failed to occur that is reasonably expected to
prevent or significantly interfere with NACC's ability to use,
operate and maintain the Complex in the regular course of
NACC's business as contemplated by the Operative Documents in
compliance with Environmental Laws.
(iv) There are no pending or threatened Environmental
Claims involving the Site or the Facility. In addition, since
March 29, 1992, there have been no Environmental Claims
involving the Site or the Facility, except to the extent any
Special Environmental Expenses resulting from any such
Environmental Claim did not equal or exceed $100,000 as to any
individual Environmental Claim, or $500,000 as to aggregate
Environmental Claims. Since March 29, 1992, there have been no
Environmental Claims involving the Complex, except to the
extent any Special Environmental Expenses resulting from any
such Environmental Claim did not equal or exceed $500,000 as
to any individual Environmental Claim.
(v) Hazardous Materials are not present, generated,
used, treated or stored on, or transported to or from, the
Site or the Facility and NACC is not using and does not intend
to use or allow others to use any portion of the Site or the
Facility for such purposes other than (A) as appropriate to
operate the Site, the Facility and the Complex in the regular
course of NACC's business as contemplated by the Operative
Documents and (B) in compliance with all Environmental Laws.
Except to the extent any Special Environmental Expenses
resulting from the following conditions or activities would
not reasonably be expected to equal or exceed $750,000 as to
any such individual condition or activity, Hazardous Materials
are not and, since March 29, 1992, have not been present,
generated, used, treated or stored on, or transported to or
from, the Complex and, since March 29, 1992, NACC has not used
and does not intend to use or allow others to use any portion
of the Complex for such purposes other than in compliance with
all Environmental Laws.
(vi) There are no actions, activities, circumstances,
conditions, events or incidents at or otherwise involving the
Site or the Facility that would reasonably be expected to form
the basis of an Environmental Claim (A) against or involving
the Site, the Facility or NACC, except to the extent any
Special Environmental Expenses resulting from any such
individual action, activity, circumstance, condition, event or
incident would not reasonably be expected to
20
<PAGE>
equal or exceed $100,000, (B) that would reasonably be
expected to cause the Site or the Facility to be subject to
any restrictions that prevent or significantly interfere with
its ownership, occupancy, use or transferability under any
Environmental Law for the use contemplated by the Operative
Documents, or (C) that would reasonably be expected to prevent
or significantly interfere with the continued operation and
maintenance of the Site and the Facility in the regular course
of NACC's business as contemplated by the Operative Documents.
There are no present or, since March 29, 1992, past actions,
activities, circumstances, conditions, events or incidents at
or otherwise involving the Complex that would reasonably be
expected to form the basis of an Environmental Claim against
or involving the Complex or NACC, except to the extent any
Special Environmental Expenses resulting from any such
individual action, activity, circumstance, condition, event or
incident would not reasonably be expected to reach or exceed
$750,000.
(vii) There are not now and, since March 29, 1992,
there have not been at the Site or the Facility (A)
underground storage tanks, (B) polychlorinated biphenyls
("PCBs") regulated pursuant to the Toxic Substances Control
Act, or (C) friable asbestos.
(viii) There are no pending or threatened
Environmental Claims involving NACC or HCNA in connection with
any offsite treatment, storage or disposal facility that has
received Hazardous Materials from or generated at the Site,
the Facility or the Complex.
(v) Status of Site. On the Closing Date (A) the Facility will
be located on the Site and will not encroach on any property located
outside the Site and the Easement Site; (B) any structure, improvement
or part thereof which is part of the Facility which encroaches upon any
easement or right of way within the Site does not or shall not have a
material adverse effect on the ability of Owner Trustee (or its
designee) to operate the Facility on a commercially reasonable basis in
accordance with Applicable Law or the value, utility or remaining
useful life of the Facility or the Site except to an insignificant
extent; (C) any structure, improvement or part thereof that is not part
of the Facility which is located on or encroaches upon the Site does
not and shall not have a material adverse effect on the ability of
Owner Trustee (or its designee) to operate the Facility on a
commercially reasonable basis in accordance with Applicable Law or on
the value, utility or remaining useful life of the Facility or the
Site, except to an insignificant extent; (D) no easements, rights of
way or other encumbrance exist with respect to the Site other than
Permitted Liens of the type described in clauses (a), (b), (f), (h) and
(l) and none of such Liens has or would reasonably be expected to have
a material adverse effect on the ability of Owner Trustee to operate
the Facility on a commercially reasonable basis in accordance with
Applicable Law or the value, utility or remaining useful life of the
Facility or the Site except to an insignificant extent, and (E) no
rights other than those conveyed to Owner Trustee pursuant to the Argus
Utility Bill of Sale, Argus Utility Deed of Improvements, the Site
Lease, the Easement, the License and the
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Services Agreement are required for the Owner Trustee to operate the
Facility on a commercially reasonable basis in accordance with
Applicable Law.
(w) Qualifying Facility. The Facility is a Qualifying
Facility. FERC has issued a final order granting Kerr-McGee Chemical
Corporation's application for certification as a Qualifying Facility
and NACC has filed with FERC a notice of self- certification reflecting
its ownership of the Facility and satisfaction of the other
requirements for Qualifying Facility status pursuant to 18 C.F.R. ss.
292.207(a).
(x) ERISA. (i) None of the Pension Plans or their related
trusts have been terminated in a distress termination pursuant to
Section 4041(c) of ERISA or by the PBGC pursuant to Section 4042 of
ERISA, nor have any actions been taken to so terminate any Pension Plan
or related trust and neither NACC, HCNA nor any ERISA Affiliate has
incurred or could reasonably be expected to incur any liability with
respect to a Pension Plan under Section 4062, 4063, 4064 or 4069 of
ERISA which liability has had or could reasonably be expected to have a
Material Adverse Effect.
(ii) There have been no "reportable events" (as such
term is defined in Section 4043(c) of ERISA) for which the notice
requirement to the PBGC has not been waived with respect to any Pension
Plan which have had or could reasonably be expected to have a Material
Adverse Effect.
(iii) No "accumulated funding deficiency" (as such
term is defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived, exists or is expected to exist with respect to
any Pension Plan, nor has any request for a waiver under Section 412(d)
of the Code been, or is reasonably likely to be, filed with respect to
any of the Pension Plans.
(iv) Neither NACC, HCNA nor any ERISA Affiliate has
failed to make any contribution or payment to any Pension Plan which
has resulted or could reasonably be expected to result in the
imposition of a Lien under Section 302(f) of ERISA or Section 412(n) of
the Code.
(v) There is no violation of any applicable provision
of ERISA or the Code with respect to any Pension Plan that has had or
could reasonably be expected to have a Material Adverse Effect.
(vi) Neither NACC, HCNA nor any ERISA Affiliate has
incurred or is reasonably likely to incur any liability pursuant to
Section 515, 4201 or 4204 of ERISA that has had or could reasonably be
expected to have a Material Adverse Effect.
(vii) No Pension Plan is a multiemployer plan (as
defined in Section 4001(a)(3) of ERISA).
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(viii) Neither NACC, HCNA nor any ERISA Affiliate has
breached the fiduciary rules of ERISA or engaged in a "prohibited
transaction" (within the meaning of Section 4975 of the Code or Section
406 of ERISA) which breach or prohibited transaction could reasonably
be expected to subject NACC or HCNA to any direct or indirect liability
(including, without limitation, as a result of any indemnification
obligation) in connection with a suit for damages or pursuant to
Section 409 or 502 of ERISA or Section 4975 of the Code which liability
has had or could reasonably be expected to have a Material Adverse
Effect.
(ix) Assuming the accuracy of the representations
made by Owner Participant in Section 5.3(j) of the Participation
Agreement and the Other Owner Participant in Section 5.3(j) of the
Other Participation Agreement, the execution and delivery by NACC of
this Agreement and the other Operative Documents, and the consummation
of the transactions contemplated hereby and thereby, will not involve
any prohibited transaction within the meaning of Section 4.06 of ERISA
or Section 4975 of the Code.
(y) Securities Laws. The use of the funds from the Owner
Participant under this Participation Agreement will not violate or
result in any violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto,
including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System.
(z) Utility Services. The Site, together with the Easement
Site have, or on the Closing Date will have, available all utilities
necessary for use, maintenance and operation of the Facility for its
intended purposes including, without limitation, electricity, water,
gas, sewer, parking and telephone.
(aa) Restrictions; Covenants. Schedule 5.1(aa) contains a list
of all restrictions or covenants running with the Site that would
reasonably be expected to have a Material Adverse Effect. To the actual
knowledge of NACC and HCNA, no default or breach, or event, occurrence,
condition or act which, with the giving of notice, the lapse of time or
both may give rise to any default or breach, exists under any covenant,
condition, restriction, right-of-way, easement or other agreement
affecting all or any portion of the Site (including, without
limitation, deed restrictions, site plan approvals or redevelopment
plans, whether or not appearing in the public records) which is to be
performed or complied with by the owner or occupant of the Site, the
nonperformance of which would reasonably be expected to have Material
Adverse Effect.
(bb) No Pending Assessments. To the actual knowledge of NACC
and HCNA, there are no public improvements pending or intended that
would result in any charge or special assessment being levied against
the Facility, the Site and the Easement Site, except as reflected in
the title commitment delivered pursuant to Section 4.1(h) hereof.
Except as disclosed in Schedule 5.1(bb), neither the execution or
delivery of any Operative Documents on the Closing Date by NACC, nor
the recordation of any thereof
23
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(or the filing or recordation of any memoranda or financing statement
with respect thereto) nor the consummation by NACC on or prior to the
Closing Date of any of the transactions contemplated hereby or thereby
will of itself result in any tax, levy, impose, duty, charge (other
than routine filing fees) or withholding imposed by the United States
of America or the State of California or any taxing authority or
political subdivision thereof on or with respect to any such execution,
delivery, recordation, filing or consummation or upon or with respect
to Owner Participant, Owner Trustee, the Site or Trust Estate, other
than secured and/or unsecured property taxes based on reassessment of
the Facility resulting from the conveyance of the Undivided Interest to
the Owner Trustee.
(cc) Foreign Control Regulations. So long as none of the Owner
Trustee, the Owner Participant, the Other Owner Trustee, the Owner
Participant under the Other Participation Agreement or the "OP
Guarantor" under the Other Participation Agreement is a national of any
foreign country or area which is the subject of any of the foreign
asset control regulations, assets control regulations, sanctions
regulations and transactions regulations of the United States Treasury
Department set forth in 31 C.F.R., Subtitle B, Chapter V, as amended
(collectively, the "FAC Regulations"), or is controlled by or has a
substantial part of its securities or obligations owned or controlled
by any of such countries or areas or any national thereof within the
meaning of such Regulations, Owner Trustee's use of the proceeds of the
transaction contemplated hereby in accordance with Section 2.1 on the
Closing Date will not violate the Trading with the Enemy Act, any
Executive Order issued thereunder or the FAC Regulations.
(dd) Status of Site and Easement Site. To the best knowledge
of NACC after due inquiry and except to the extent that such condition
would not reasonably be expected either individually or in the
aggregate to have a Material Adverse Effect, (i) the Site and the
Easement Site are not, and never have been, dedicated cemetery
property; (ii) the Site and the Easement Site are not classified as
regulated "wetlands" and do not require a Federal Water Pollution
Control Act Section 404 permit for development or construction; (iii)
the Site and the Easement Site are not located in an area designated by
the Secretary of the Interior as a critical habitat of endangered or
threatened species covered by the Endangered Species Act of 1973, 16
U.S.C.A. ss.1531-1544, and do not require any Approvals under the
Endangered Species Act or any other Applicable Law governing endangered
or threatened species; (iv) there are no antiquities on the Site or the
Easement Site which would qualify for protection under any Applicable
Law including, but not limited to, Indian burial mounds, battle field
sites or old graveyards; and (v) the Site and the Easement Site are not
subject to the California Desert Protection Act.
(ee) Power Purchase Agreements. (i) Each of the Power Purchase
Agreements is a legally valid and enforceable agreement as to itself
and the Power Purchaser, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the rights of creditors generally and by general principles
of equity (regardless of whether considered in a proceeding in equity
or at law), (ii) each of the
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Power Purchase Agreements is in full force and effect and has not been
modified or amended in any respect except for Amendment No. 1 to the
Parallel Generation Agreement between Kerr-McGee Chemical Corporation
and Southern California Edison, dated March 27, 1989, and Amendment No.
2, (iii) other than the "Assignment and Assumption of the Parallel
Generation Agreements between Southern California Edison Company and
Kerr-McGee Chemical Corporation," dated as of November 30, 1990, by and
between Kerr-McGee Chemical Corporation and NACC, there has been no
prior assignment of the Power Purchase Agreements of which NACC has
notice or is aware, (iv) neither NACC nor, to NACC's best knowledge,
without investigation, the Power Purchaser is in default under the
Power Purchase Agreements, and (v) to NACC's best knowledge, without
investigation, all covenants, conditions and agreements have been
performed as required in the Power Purchase Agreements except those not
due to be performed until after the date hereof and there is no default
or any condition which, with the passage of time and/or the giving of
notice, or both, would constitute a default under the Power Purchase
Agreements, and there are no claims or rights of setoff by any party
thereto against the other.
(ff) BLM Leases. NACC is the sole tenant under each of the BLM
Leases. Except to the extent the same would not reasonably be expected
to have a Material Adverse Effect, (i) each of the BLM Leases is in
full force and effect; (ii) neither NACC nor the BLM currently is in
default under any of the BLM Leases and no condition exists which, with
the giving of notice or the passage of time (or both), would constitute
a default or event of default under any of the BLM Leases; (iii) NACC
has received no notice from the BLM of an intention to terminate any of
the BLM Leases and has no reason to believe that the BLM is
contemplating the termination of any of the BLM Leases.
Section 5.2 Representations and Warranties of HCNA. HCNA
represents and warrants as of the date of this Participation Agreement and as of
the Closing Date to Owner Participant and Owner Trustee that:
(a) Organization. HCNA is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to carry on its
business in all material respects as now conducted, to own and hold
under lease its properties and to enter into and perform its
obligations under each Operative Document to which it is or will be a
party and each other letter, certificate, document or instrument to be
executed and delivered therewith or as contemplated thereby. HCNA is
duly qualified to do business as a foreign corporation under the laws
of each jurisdiction where the ownership, lease or operation of
property of the conduct or business requires such qualification and
where failure to so qualify would reasonably be expected to have a
Material Adverse Effect.
(b) Authorization, Execution and Delivery; No Conflict. Each
Operative Document to which HCNA is or will be a party and each letter,
certificate, document or other instrument executed and delivered in
connection therewith has been duly authorized
25
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by all necessary corporate action on the part of, and has been or will
be duly executed and delivered on or prior to the Closing Date by,
HCNA, and neither the execution and delivery thereof, nor the
consummation by HCNA of the transactions contemplated thereby nor
compliance by HCNA with any of the terms and provisions thereof (A)
contravenes or results in a breach of or constitutes any default under
any provision of the certificate of incorporation or by-laws of HCNA,
(B) contravenes or results in a breach of or constitutes any default
under any existing law, judgment, governmental rule, regulation or
order applicable to or binding on HCNA or any of its material
properties (including without limitation any building or similar codes
or zoning, planning or similar regulations), or result in the creation
of a Lien (other than a Permitted Lien or Liens approved by Owner
Participant) upon the Facility, the Site or the Undivided Interest
therein or (C) contravenes or results in any breach of or constitutes
any default under any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, bank loan or credit agreement or
other material agreement or instrument to which HCNA is a party or by
which HCNA or any of its properties may be bound or affected.
(c) Consents. Neither the execution and delivery by HCNA of
the Operative Documents to which HCNA is or will be a party nor the
consummation on the Closing Date of any of the transactions on the part
of HCNA contemplated thereby requires the consent or approval of, the
giving of notice to, or the registration with, the recording or filing
of any document with, or the taking of any other action in respect of,
any Authority or any other Person, except (i) those set forth on
Schedule 5.1(c) and (ii) the recordings and filings described in
Schedule 4.1(o).
(d) Enforceability. Each Operative Document to which HCNA is
or will be a party constitutes, or when entered into will constitute,
the legal, valid and binding obligation of HCNA, enforceable against
HCNA in accordance with the terms thereof except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and by general
principles of equity (regardless of whether considered in a proceeding
in equity or at law).
(e) Litigation. There are no actions, suits or proceedings
before any Authority pending or, to the knowledge of HCNA, threatened
against or affecting HCNA or any of its property or rights that (i)
question the validity of any Operative Document or HCNA's ability to
perform its obligations under each Operative Document to which it is or
will be a party, or (ii) except as disclosed in the SEC Periodic
Reports or the Information Memorandum, would reasonably be expected to
have a (individually or together with any other such actions, suits or
proceedings) Material Adverse Effect. HCNA is not in default with
respect to any Order of any Authority, where such default would
reasonably be expected to have a Material Adverse Effect or would
result in the creation or imposition of any Lien (other than a
Permitted Lien) upon the Facility, the Site or the Undivided Interest
therein.
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(f) Taxes. HCNA has filed or caused to be filed all United
States Federal and all material tax returns required to be filed by
HCNA and has paid, or caused to be paid, all taxes shown to be due and
payable on such returns to the extent the same have become due and
payable, except for any taxes and assessments of which the amount,
applicability or validity is currently being contested pursuant to a
Permitted Contest and except to the extent non-filing or incorrect
filing could not reasonably be expected to have a Material Adverse
Effect.
(g) Financial Statements. HCNA has delivered to Owner
Participant copies of an audited consolidated balance sheet of HCNA as
at March 25, 1995 and the related consolidated statements of income and
statements of cash flows for the fiscal year ended on said date. Said
financial statements are complete and correct in all material respects
and present fairly the consolidated financial position of HCNA and its
Subsidiaries as of the date of said balance sheet, and the consolidated
results of their operations and cash flows for the fiscal period ended
on such date and have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved except as set forth in the notes thereto. Since March
25, 1995, none of HCNA and its Subsidiaries have incurred any material
contingent liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitment, including any Interest Rate or
Currency Protection Agreements, other than in the ordinary course of
business.
(h) Disclosure. Taken as a whole, neither this Participation
Agreement, the SEC Periodic Reports, the Information Memorandum, nor
the other Operative Documents to which HCNA is or will be a party or
the other documents and certificates furnished by or on behalf of HCNA
or NACC pursuant to this Participation Agreement to Owner Participant
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading;
except as disclosed in the SEC Periodic Reports or the Information
Memorandum, there is no fact known to HCNA which would reasonably be
expected to have a material adverse effect on the business, operations,
property or financial or other condition of NACC or HCNA and its
Restricted Subsidiaries taken as a whole.
(i) Investment Company. HCNA is not an "investment company"
or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(j) Holding Company. HCNA is not subject to regulation as a
"holding company," an "affiliate" of a "holding company," or a
"subsidiary company" of a "holding company," within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(k) Chief Executive Office. The chief place of business and
the chief executive office of HCNA are located at 399 Park Avenue, 32nd
Floor, New York, New
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York 10022, and the offices where HCNA keeps its records concerning the
Facility and the Operative Documents to which HCNA is a party are
located at 8300 College Boulevard, Overland Park, Kansas 66210 and at
13200 Main Street, Trona, California 93562.
(l) NACC Representations. The representations and warranties
of NACC contained in this Participation Agreement are true and correct
in all material respects on the date made.
(m) NACC Ownership. NACC is a wholly-owned subsidiary of
HCNA.
Section 5.3 Representations and Warranties of Owner
Participant. Owner Participant represents and warrants at and as of the date of
this Participation Agreement and as of the Closing Date to NACC, HCNA and Owner
Trustee that:
(a) Organization. Owner Participant is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and had and has the necessary
corporate power and authority to carry on its business in all material
respects as now conducted, to own and hold under lease its properties
and to enter into and perform its obligations under each Operative
Document to which it is or will be a party and each other letter,
certificate, document or instrument to be executed and delivered
therewith or as contemplated thereby. Owner Participant is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is required and
where the failure to do so would have a material adverse effect on its
business, operations or properties or its ability to perform its
obligations under the Operative Documents or the rights and remedies of
HCNA, NACC or Owner Trustee under any of the Operative Documents.
(b) Authorization, Execution and Delivery; No Conflicts. Each
Operative Document and each letter, certificate, document and
instrument to be executed in connection therewith to which Owner
Participant is or will be a party has been duly authorized by all
necessary corporate action on the part of, and has been or will be duly
executed and delivered on or prior to the Closing Date by, Owner
Participant, and neither the execution and delivery thereof, nor the
consummation by Owner Participant of the transactions contemplated
thereby, nor compliance by Owner Participant with any of the terms and
provisions thereof (A) contravenes or results in a breach of or
constitutes any default under any provision of the certificate of
incorporation, by-laws or other organizational or governing document of
Owner Participant, (B) contravenes or results in a breach of or
constitutes any default under any existing law, judgment, governmental
rule, regulation or order applicable to or binding on Owner Participant
or any of its material properties (including without limitation any
building or similar codes or zoning, planning or similar regulations)
or (C) contravenes or results in any breach of or constitutes any
default under any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement or other
material
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agreement or instrument to which Owner Participant is a party or by
which Owner Participant or any of its properties may be bound or
affected.
(c) Consents. Neither the execution and delivery by Owner
Participant of the Operative Documents to which Owner Participant is or
will be a party nor the consummation on the Closing Date of any of the
transactions on the part of Owner Participant contemplated thereby
requires the consent or approval of, the giving of notice to, or the
registration with, the recording or filing of any document with, or the
taking of any other action in respect of, any Authority or any other
Person other than those which have already been obtained, given or
made.
(d) Enforceability. Each Operative Document to which Owner
Participant is or will be a party constitutes, or when entered into
will constitute, the legal, valid and binding obligation of Owner
Participant, enforceable against Owner Participant in accordance with
the terms thereof except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
rights of creditors generally and by general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
(e) Litigation. There are no actions, suits or proceedings
before any Authority pending or, to the knowledge of Owner Participant,
threatened against or affecting Owner Participant or any of its
property or rights that (i) question the validity of any Operative
Document or Owner Participant's ability to perform its obligations
under each Operative Document to which it is or will be a party, or
(ii) would reasonably be expected to (individually or together with
any.other such actions, suits or proceedings) materially and adversely
affect the business, operations or properties of Owner Participant or
its ability to perform its obligations under any of the Operative
Documents to which it is or will be a party. Owner Participant is not
in default with respect to any Order of any Authority, where such
default would materially and adversely affect the ability of Owner
Participant to perform its obligations under any of the Operative
Documents to which it is or will be a party, or would result in the
creation or imposition of any Lien upon the Facility, the Site or the
Undivided Interests therein.
(f) Investment Company. Owner Participant is not an
"investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as
amended.
(g) Holding Company. Without giving effect to the
transactions contemplated hereby or by the other Operative Documents,
Owner Participant is not subject to regulation as a "holding company,"
an "affiliate" of a "holding company," or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(h) No Liens. The Trust Estate is free of any Lessor Liens
attributable to Owner Participant.
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(i) Ordinary Course of Business. Owner Participant is
entering into this Participation Agreement and the transactions
contemplated hereby in its ordinary course of business.
(j) ERISA. With respect to the amount to be contributed to
Owner Trustee by Owner Participant pursuant to Section 2.1, no part of
such amount constitutes assets of an "employee benefit plan" within the
meaning of Section 3(3) of ERISA which is subject to Title I of ERISA,
a "plan" within the meaning of Section 4975 of the Code or an entity
that is deemed to hold "plan assets" within the meaning of 29 C.F.R.
ss. 2510.3- 101 of any such employee benefit plan or plan.
Section 5.4 [Reserved.]
Section 5.5 Representations and Warranties of Trust Company
and Owner Trustee. Trust Company represents and warrants to Owner Participant,
NACC and HCNA, as to matters set forth in Sections 5.5(a), (c) (to the extent it
relates to the Trust Company), (d)(i), (e) (to the extent it relates to Trust
Company) and (f), and Owner Trustee represents and warrants to Owner
Participant, NACC and HCNA, as to matters set forth in Sections 5.5(b), (c) (to
the extent it relates to Owner Trustee), (d)(ii), (e) (to the extent it relates
to Owner Trustee) and (f) that:
(a) Organization. Trust Company is a national banking
association, duly organized, validly existing and in good standing
under the laws of the United States of America, and has the corporate
power and authority to enter into and perform its obligations under the
Trust Agreement.
(b) Authorization; Execution and Delivery. Each Operative
Document to which Owner Trustee is or will be a party has been duly
authorized by all necessary corporate action on the part of, and has
been or will be duly executed and delivered on or prior to the Closing
Date by, Owner Trustee.
(c) No Conflict. Neither the execution and delivery by Trust
Company of the Operative Documents to which it is or will be a party,
either in its individual capacity, as Owner Trustee or both, nor the
consummation of the transactions contemplated thereby, nor compliance
by Trust Company or Owner Trustee, as the case may be, with any of the
terms and provisions thereof (A) contravenes or results in a breach of
or constitutes any default under any provision of the articles of
association or by-laws or other organizational or governing document of
Trust Company, (B) contravenes or results in a breach of or constitutes
any default under any existing California or New York law, judgment or
order specifically applicable to or binding on Trust Company, in its
individual capacity or as Owner Trustee, as the case may be, or any of
its properties, (C) contravenes any United States Federal, California
or New York law relating to the banking or trust powers of Trust
Company or Owner Trustee, as the case may be, or contravenes or results
in a breach of any governmental rule, regulation or order under any
such law, or (D) contravenes or results in any breach of or constitutes
any default
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under any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement or other
material agreement or instrument to which Trust Company, in its
individual capacity or as Owner Trustee, as the case may be, is a party
or by which Trust Company, in its individual capacity or as Owner
Trustee, as the case may be, or any of its properties may be bound or
affected.
(d) Enforceability. (i) The Trust Agreement has been duly
authorized, executed and delivered by Trust Company; assuming the due
authorization, execution and delivery by the other parties, the Trust
Agreement and this Section 5.5 (to the extent made by Trust Company in
its individual capacity) and Sections 5.6 and 6.4(e) of this
Participation Agreement are the legal, valid and binding obligations of
Trust Company, enforceable against Trust Company in accordance with the
terms thereof except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
rights of creditors generally and by general principles of equity
(regardless of whether considered in a proceeding in equity or at law)
and (ii) each Operative Document (other than the Trust Agreement) to
which Owner Trustee is or will be a party constitutes, or when entered
into will constitute, the legal, valid and binding obligation of Owner
Trustee, enforceable against Owner Trustee in accordance with the terms
thereof except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of
creditors generally and by general principles of equity (regardless of
whether considered in a proceeding in equity or at law).
(e) Title. On the Closing Date Owner Trustee will receive
whatever title to the Undivided Interest in the Facility and the
Undivided Interest in the Site as is conveyed to it by NACC, as
applicable, free and clear of all Lessor Liens arising by, through or
under Trust Company or Owner Trustee.
(f) Chief Executive Office. The chief place of business and
the chief executive office of Owner Trustee is located in Los Angeles,
California and the office where Owner Trustee keeps its records
concerning the Facility and the Undivided Interest therein and the
Operative Documents to which Owner Trustee is a party are located in
Los Angeles, California.
Section 5.6 Offerings by Parties. Each of NACC, HCNA, Owner
Trustee, Trust Company and Owner Participant represents, individually and
separately, but not jointly, to each other party hereto that, except as
expressly contemplated in the Operative Documents, neither it, nor any of its
Affiliates nor anyone authorized to act on its behalf as agent, broker, dealer
or otherwise has directly or indirectly offered any interest in the Trust Estate
or in any similar security relating to the Facility, the Site or the Undivided
Interests therein, or in any security of NACC, HCNA, or the Owner Trustee the
offering of which for purposes of the Securities Act would be deemed to be part
of the same offering as any offering of interests in the Trust Estate, for sale
to, or solicited any offer to acquire any of the same from, any Person other
than the Owner Participant and the institutions referred to in the certificate
described in Section 4.1(aa).
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Section 5.7 Representations and Warranties Regarding
Investment. Owner Participant represents and warrants to each other party hereto
that Owner Participant is acquiring its interest in the Trust Estate for its own
account for investment and not with a view to any resale or distribution
thereof, and if in the future the Owner Participant should decide to dispose of
its interest in the Trust Estate, the Owner Participant understands that it may
do so only in compliance with the applicable requirements of the Securities Act;
provided, however, that, subject to the provisions of Section 6.4 and of the
Trust Agreement, the disposition of the Owner Participant's interest in the
Trust Estate shall be at all times within the Owner Participant's control.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of NACC. NACC covenants and agrees with
each of the other parties as follows:
(a) Covenants of NACC During Basic Term. From the date of
this Agreement and until the end of the Basic Term:
(i) Existence. Except as expressly permitted
in Section 6.1(a)(iv), 6.1(b)(ii), 6.2(h), 6.3(a)(ii) or
6.3(b)(ii), NACC will do or cause to be done all things
necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises;
provided, however, that NACC shall not be required to preserve
any such right or franchise if the Board of Directors of NACC
in good faith shall determine that the preservation thereof is
no longer desirable in the conduct of the business of NACC and
that the loss thereof is not disadvantageous in any material
respect to the Owner Participant.
(ii) Reporting Requirements. (A) Financial
Statements. In the event NACC shall no longer be a
consolidated Subsidiary of HCNA, NACC will furnish to the
Owner Participant:
(1) as soon as available, but in any event
within 90 days after the end of each fiscal year of
NACC, a copy of the audited consolidated balance
sheets of NACC and its consolidated Subsidiaries as
at the end of such fiscal year and the related
audited consolidated statements of income and
retained earnings and of cash flows for such fiscal
year, setting forth in each case in comparative form
the figures for the previous fiscal year, reported on
without a "going concern" or like qualification or
exception, or qualification arising out of the scope
of the audit, by Coopers & Lybrand or other
independent certified public accountants of
nationally recognized standing; and
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(2) as soon as available, but in any event
not later than 45 days after the end of each of the
first three quarterly periods of each fiscal year of
NACC, the unaudited consolidated balance sheets of
NACC and its consolidated Subsidiaries as at the end
of such fiscal quarter and the related unaudited
consolidated statements of income and retained
earnings and of cash flows of NACC and its
consolidated Subsidiaries for such fiscal quarter and
the portion of the fiscal year through the end of
such fiscal quarter, setting forth in comparative
form the budget for such period and the figures for
the same period of the previous fiscal year,
certified by the chief financial officer or the
treasurer of NACC as being fairly stated in all
material respects (subject to normal year-end audit
adjustments).
All such financial statements shall be complete and
correct in all material respects and shall be prepared in
accordance with generally accepted accounting principles
applied consistently throughout the periods reflected therein
and with prior periods (except as approved by such accountants
or officer, as the case may be, and disclosed therein).
(B) Certificates. If NACC shall not be a consolidated
subsidiary of HCNA, NACC will furnish to the Owner
Participant:
(1) concurrently with the delivery of the
financial statements referred to in Section
6.1(a)(ii)(A)(1), a letter from the independent
certified public accountants reporting on such
financial statements (x) stating that in making the
examination necessary therefor no knowledge was
obtained of any non-compliance with Sections
6.1(a)(iii) and 6.1(a)(iv) of this Agreement during
the period reported on constituting a Default or an
Event of Default except as specified in such letter,
(y) stating that such accountants have reviewed the
calculations in the certificates of the chief
financial officer or the treasurer of NACC delivered
concurrently with such financial statements pursuant
to Section 6.1(a)(ii)(B)(2)(y) and Section
6.1(a)(ii)(D) of this Participation Agreement and
confirmed such calculations, and (z) stating that
such accountants have reviewed the reconciliation of
generally accepted accounting principles as then
applied in the preparation of the financial
statements of NACC and Generally Accepted Accounting
Principles, and confirmed that such reconciliation as
presented in such certificates of the chief financial
officer or the treasurer of NACC delivered
concurrently with such financial statements is
complete and correct, or that there are no material
differences between generally accepted accounting
principles as then applied in the preparation of the
financial statements of NACC and Generally Accepted
Accounting Principles for the periods referred to in
such certificates; and
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(2) concurrently with the delivery of the
financial statements referred to in Section
6.1(a)(ii)(A), a certificate of the chief financial
officer or the treasurer of NACC (x) stating that
such officer has obtained no knowledge of any Default
or Event of Default, or of the occurrence of an Event
of Loss, during the period reported on, except as
specified in such certificate and (y) showing in
detail the calculations of Consolidated Tangible Net
Worth, the Fixed Charge Coverage Ratio and the
Interest Coverage Ratio, as applicable, supporting
such statement in respect of Section 6.1(a)(iv) of
this Agreement, if applicable, including a
reconciliation of any material differences between
generally accepted accounting principles as then
applied in the preparation of such financial
statements and Generally Accepted Accounting
Principles.
(C) Other Information. NACC will furnish to the Owner
Participant:
(1) prompt notice of any change in the name
of NACC or the location of the chief executive office
and place of business of NACC and the office where it
keeps its records concerning the Facility and the
operation thereof;
(2) notices described in Section 11 of the
Lease, as and when required by said Section 11; and
(3) promptly upon request such other
financial information with respect to NACC, the
Facility and the Complex as Owner Participant may
reasonably request.
(D) Notices. To the extent that the chief executive
officer, the president, the chief financial officer or the
treasurer of NACC knows or should reasonably be expected to
know thereof, NACC will promptly give notice to the Owner
Participant of any Asset Disposition made or merger,
consolidation, sale of assets or other transaction entered
into or made pursuant to Section 6.1(a)(iii), 6.1(a)(iv) or
6.1(b)(ii), as applicable. Each notice pursuant to this
Section 6.1(a)(ii)(D) shall be accompanied by a certificate of
the chief financial officer or the treasurer of NACC showing
in detail the calculations of Consolidated Tangible Net Worth,
the Fixed Charge Coverage Ratio and the Interest Coverage
Ratio, as applicable, supporting the determination by NACC
that the transaction complies with the applicable provisions
of this Agreement, including a reconciliation of any material
differences between generally accepted accounting principles
as then applied in the preparation of financial statements and
Generally Accepted Accounting Principles.
(iii) Limitation on Certain Asset
Dispositions. Except with the prior written consent
of the Owner Participant, which consent shall not be
unreasonably withheld, NACC shall not, and shall not
permit any
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Restricted Subsidiary of NACC to, make any Asset
Disposition in one or more related transactions by
NACC or a Restricted Subsidiary of NACC, unless:
(A) NACC or the Restricted Subsidiary of
NACC, as applicable, receives consideration for such
Asset Disposition, the fair market value of which is
at least equal to the fair market value of the assets
sold or disposed of as determined in good faith by
(1) a designated officer of NACC (or so long as NACC
is a Restricted Subsidiary of HCNA, a designated
officer of HCNA), as evidenced by a certificate filed
with the Owner Participant, if such consideration is
less than $5 million, or (2) the Board of Directors
of NACC (or so long as NACC is a Restricted
Subsidiary of HCNA, the Board of Directors of HCNA),
as evidenced by a Board Resolution filed with the
Owner Participant, if such consideration is equal to
or greater than $5 million; and
(B) (1) at least 75% of the consideration
for such Asset Disposition consists of cash or
readily marketable Cash Equivalents or the assumption
of Debt of HCNA or of a Restricted Subsidiary of HCNA
(in a principal amount (or accreted value) equal to
the fair market value of the assets sold or disposed
of) and a release from all liability on the Debt
assumed; or
(2) immediately after giving effect to such
Asset Disposition, the aggregate consideration for
all Asset Dispositions during the Initial Term and
the Basic Term that does not consist of cash or
readily marketable Cash Equivalents or the assumption
of Debt of HCNA or of a Restricted Subsidiary of HCNA
(in a principal amount (or accreted value) equal to
the fair market value of the assets sold or disposed
of) and a release from all liability on the Debt
assumed will not be in excess of $45 million; and
(C) 100% of the Net Available Proceeds, less
proceeds in an aggregate amount not exceeding (1) $15
million during any 12-month period, and (2) $90
million during the Interim Term and the Basic Term,
are invested within 180 days of such Asset
Disposition, in the business of HCNA or in any
business related to the business of HCNA or any of
its Restricted Subsidiaries, including the repayment
or retirement of Debt of HCNA or any of its
Restricted Subsidiaries, provided, that at all times
prior to such investment, such proceeds are invested
in Cash Equivalents; and
(D) immediately before and after giving
effect to such transaction no Event of Default shall
have occurred and be continuing; and
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(E) in any such transaction involving any
material component of the Complex, immediately after
giving effect to such transaction all material
components of the Complex, the Host Facilities and
the Service Facilities will be controlled, directly
or indirectly, by the same Person.
The foregoing provisions shall not apply to a
transaction consummated in compliance with the provisions of
Section 6.1(a)(iv), and this Section 6.1(a)(iii) shall not
apply to (x) any Asset Disposition which constitutes a
transfer, conveyance, sale, lease or other disposition of all
or substantially all of NACC's properties or assets or of all
or substantially all of the properties and assets that
comprise the Complex within the meaning of Section 6.1(a)(iv),
(y) any Asset Disposition which constitutes a transfer,
conveyance, sale, lease or other disposition of all or
substantially all of HCNA's properties or assets within the
meaning of Section 6.2(h), or (z) any Asset Disposition as a
result of which the HCNA Guaranty shall terminate in
accordance with Section 13 of the HCNA Guaranty.
(iv) Mergers, Consolidations and Certain
Sales of Assets. Except with the prior written
consent of the Owner Participant, which consent shall
not be unreasonably withheld, NACC (A) shall not
consolidate with or merge into any other Person
(other than HCNA or any Restricted Subsidiary of
HCNA), (B) shall not permit any other Person to
consolidate with or merge into NACC (other than HCNA
or any Restricted Subsidiary of HCNA), (C) shall not,
directly or indirectly, transfer, convey, sell, lease
or otherwise dispose of all or substantially all of
its properties and assets as an entirety to any other
Person (other than HCNA or any Restricted Subsidiary
of HCNA), (D) shall not, directly or indirectly,
transfer, convey, sell, lease or otherwise dispose of
all or substantially all of the properties and assets
that comprise the Complex as an entirety to any other
Person (other than HCNA or any Restricted Subsidiary
of HCNA), and (E) shall not, directly or indirectly,
enter into or otherwise participate in any
reorganization or other transaction or series of
related transactions as a result of which it ceases
to be a Restricted Subsidiary of HCNA, unless:
(1) in the case NACC shall consolidate with
or merge into another Person, shall directly or
indirectly transfer, convey, sell, lease or otherwise
dispose of all or substantially all of its properties
and assets or the properties and assets that comprise
the Complex as an entirety, or shall directly or
indirectly enter into or otherwise participate in any
reorganization or other transaction or series of
related transactions as a result of which it ceases
to be a Restricted Subsidiary of HCNA, the Person
formed by such consolidation or into which NACC is
merged, the Person which acquires by transfer,
conveyance, sale, lease or other disposition all or
substantially all of the properties and assets of
NACC or
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the properties and assets that comprise the Complex
as an entirety, or the Person which succeeds to the
interest of NACC as a result of any reorganization or
other transaction or series of related transactions
in which NACC ceases to be a Restricted Subsidiary of
HCNA (for purposes of this Section, a "NACC Successor
Company") shall be a corporation, partnership or
trust, shall be organized and validly existing under
the laws of the United States of America, any State
thereof or the District of Columbia and shall
expressly assume by an agreement in form and
substance reasonably satisfactory to the Owner
Participant all of the obligations of NACC under this
Participation Agreement and each other Operative
Document to which, immediately prior to such
transaction, NACC was a party, including the due and
punctual performance and observance of each covenant
and condition of the Operative Documents to be
performed or observed by NACC; and
(2) immediately after giving effect to such
transaction,
(v) the Consolidated Tangible Net
Worth of NACC or the NACC Successor
Company, as applicable, will be at least
equal to the greater of (a) $50 million and
(b) 95% of the Consolidated Tangible Net
Worth of HCNA immediately prior to such
transaction; or
(w) the Consolidated Tangible Net
Worth of HCNA will be at least equal to the
greater of (a) $50 million and (b) 95% of
the Consolidated Tangible Net Worth of HCNA
immediately prior to such transaction; or
(x) the Interest Coverage Ratio of
NACC or the NACC Successor Company, as
applicable, will be no less than 3.00 to
1.00 and the Fixed Charge Coverage Ratio of
NACC or the NACC Successor Company, as
applicable, will be no less than 1.75 to
1.00; or
(y) the Interest Coverage Ratio of
HCNA will be no less than 3.00 to 1.00 and
the Fixed Charge Coverage Ratio of HCNA
will be no less than 1.75 to 1.00; or
(z) the outstanding Debt of either
(a) NACC or the NACC Successor Company, as
applicable, or (b) HCNA, with an Average
Weighted Life equal to or greater than the
Average Weighted Life of the remaining
Basic Rent during the Basic Term shall be
rated at least BBB- (or subsequent
equivalent rating) by Standard & Poor's or
at least Baa3 (or subsequent equivalent
rating) by Moody's, or if either such
agency no longer
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publishes ratings, then the equivalent
rating as published by another Rating
Agency; and
(3) immediately before and after giving
effect to such transaction no Event of Default shall
have occurred and be continuing; and
(4) in any such transaction involving any
material component of the Complex, immediately after
giving effect to such transaction all material
components of the Complex, the Host Facilities and
the Service Facilities will be controlled, directly
or indirectly, by the same Person.
Notwithstanding the foregoing, this Section
6.1(a)(iv) shall not apply to any merger, consolidation or
sale of assets as a result of which the HCNA Guaranty shall
terminate in accordance with Section 13 of the HCNA Guaranty.
(b) Covenants of NACC During Remaining Lease Term. From the
date on which the Basic Term ends and until the end of the Lease Term:
(i) Existence; Reporting Requirements. NACC
will observe the covenants set forth in Section
6.1(a)(i) and Section 6.1(a)(ii)(A), 6.1(a)(ii)(B),
6.1(a)(ii)(C) and, as to any merger, consolidation or
sale of assets pursuant to Section 6.1(b)(ii),
6.1(a)(ii)(D).
(ii) Mergers, Consolidations and Certain
Sales of Assets. Except with the prior written
consent of the Owner Participant, which consent shall
not be unreasonably withheld, NACC (A) shall not
consolidate with or merge into any other Person
(other than HCNA or any Restricted Subsidiary of
HCNA), (B) shall not permit any other Person to
consolidate with or merge into NACC (other than HCNA
or any Restricted Subsidiary of HCNA), and (C) shall
not, directly or indirectly, transfer, convey, sell,
lease or otherwise dispose of all or substantially
all of its properties and assets as an entirety to
any other Person (other than HCNA or any Restricted
Subsidiary of HCNA), (D) shall not, directly or
indirectly, transfer, convey, sell, lease or
otherwise dispose of all or substantially all of the
properties and assets that comprise the Complex as an
entirety to any other Person (other than HCNA or any
Restricted Subsidiary of HCNA), and (E) shall not,
directly or indirectly, enter into or otherwise
participate in any reorganization or other
transaction or series of related transactions as a
result of which it ceases to be a Restricted
Subsidiary of HCNA, unless:
(1) in the case NACC shall consolidate with
or merge into another Person, shall directly
or indirectly transfer, convey, sell, lease
or otherwise dispose of all or substantially
all of its properties and assets or the
properties and assets that comprise the
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Complex as an entirety, or shall directly or
indirectly enter into or otherwise
participate in any reorganization or other
transaction or series of related
transactions as a result of which it ceases
to be a Restricted Subsidiary of HCNA, the
NACC Successor Company shall be a
corporation, partnership or trust, shall be
organized and validly existing under the
laws of the United States of America, any
State thereof or the District of Columbia
and shall expressly assume by an agreement
in form and substance reasonably
satisfactory to the Owner Participant all of
the obligations of NACC under this
Participation Agreement and each other
Operative Document to which, immediately
prior to such transaction, NACC was a party,
including the due and punctual performance
and observance of each covenant and
condition of the Operative Documents to be
performed or observed by NACC;
(2) immediately after giving effect to such
transaction, the Consolidated Tangible Net
Worth of NACC or the NACC Successor Company,
as applicable, (or of HCNA, if the HCNA
Guaranty is then in effect) will be at least
equal to 95% of the Consolidated Tangible
Net Worth of HCNA immediately prior to such
transaction;
(3) immediately before and after giving
effect to such transaction no Event of
Default shall have occurred and be
continuing; and
(4) in any such transaction involving any
material component of the Complex,
immediately after giving effect to such
transaction all material components of the
Complex, the Host Facilities and the Service
Facilities will be controlled, directly or
indirectly, by the same Person.
Notwithstanding the foregoing, this Section
6.1(b)(ii) shall not apply to any merger,
consolidation or sale of assets as a result of which
the HCNA Guaranty shall terminate in accordance with
Section 13 of the HCNA Guaranty.
(c) Cooperation. So long as no Facility User
Event of Default (as defined in the Services
Agreement) has occurred and is continuing, upon the
request of Owner Participant or Owner Trustee, NACC
shall, at the expense of Owner Participant,
reasonably cooperate with Owner Participant and Owner
Trustee in obtaining the valid and effective issuance
or transfer or amendment, as the case may be, of all
approvals, notices, filings, consents, waivers,
exemptions, variances, franchises, orders, permits,
authorizations, certificates, licenses or other
actions required to
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be taken, given, made, or obtained, as the case may
be, by, from, to or with any applicable Authority,
necessary or, reasonably desirable for the ownership,
operation and possession of the Undivided Interests
in the Facility or the Site or any property covered
by the Site Lease by Owner Trustee or any permitted
transferee, lessee or assignee thereof for the period
after the Lease Termination Date to the expiration or
termination of the Site Lease Term.
(d) Investigation by Governmental
Authorities. To the extent permitted by Applicable
Law, during the Lease Term NACC shall deliver to
Owner Trustee and Owner Participant promptly upon
NACC's becoming aware of or receiving notice of the
intent by an Authority to (i) investigate the
Facility or the Site for possible violation of a
statute under which material liability may be imposed
upon Owner Participant or Owner Trustee or (ii)
investigate the Facility or the Site for any
violation of applicable law under which criminal
liability may be imposed on Owner Participant or
Owner Trustee.
(e) Limitation on Certain Rights of NACC. As
and to the extent more specifically described in the
applicable Section, NACC shall not exercise its
rights under Sections 12, 15, 20, 21 and 22 of the
Lease, as the case may be, unless NACC concurrently
shall be exercising all similar rights it may have
under the Other Lease.
(f) Environmental Compliance. During the
Lease Term NACC shall:
(i) except to the extent NACC is engaged in
a Permitted Contest with respect thereto, at
its sole cost and expense, comply in all
respects, and cause all other Persons to
comply in all respects, with all
Environmental Laws now or hereafter
applicable to the use, modification,
construction, operation and maintenance of
the Facility, the Site, the Leasehold Estate
and the Undivided Interests therein;
(ii) except to the extent NACC is engaged
in a Permitted Contest with respect thereto,
obtain, in full compliance with
Environmental Laws, all Approvals required
under any Environmental Law for the use,
modification, construction, operation and
maintenance of the Facility and the Site
and, to the extent applicable to the use,
modification, construction, operation or
maintenance of the Facility or the Site, the
Complex, in the regular course of NACC's
business as contemplated by the Operative
Documents and, to the extent then required
in accordance with any Environmental Law,
any other use of the
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Facility or the Site, and maintain such
Approvals in full force and effect, and
comply fully with the terms and conditions
thereof;
(iii) not dispose of, Release, treat, store,
use, recycle, or generate Hazardous Materials or
permit such activities at the Facility, the Site, the
Leasehold Estate or the Undivided Interests therein,
or transport or permit the transportation of
Hazardous Materials to or from the Facility, the
Site, the Leasehold Estate or the Undivided Interests
therein, other than in the regular course of NACC's
business and in full compliance with all
Environmental Laws and Environmental Approvals;
(iv) not install or permit the installation
at the Site or the Facility of any underground
storage tanks, surface impoundments or
asbestos-containing materials and NACC will cause or
ensure that the Site and the Facility will be used,
modified, constructed, operated and maintained so as
to prevent exposure of any Person at the Site or the
Facility to Hazardous Materials in excess of safety
levels established by Environmental Laws and so as
not to result in liability under any Environmental
Laws;
(v) except to the extent NACC is engaged in
a Permitted Contest with respect thereto, conduct and
complete at its sole cost and expense any
investigation, study, sampling, monitoring and
testing and undertake any cleanup, removal, remedial,
corrective, mitigation, response or any other action
required under Environmental Laws, with respect to
Hazardous Materials at the Facility, the Site, the
Leasehold Estate or the Undivided Interests therein,
and any such activity shall be undertaken with
appropriate diligence and in full compliance with all
Environmental Laws;
(vi) provide Owner Participant and Owner
Trustee with reasonably detailed written notice,
promptly upon a Responsible Environmental Manager
becoming aware thereof, of (a) any written notice to
or from an Authority of an actual or alleged
violation of or non-compliance with Environmental
Laws or any reportable Release or other reportable
exceedance involving a Hazardous Material with
respect to the Facility, the Site, the Leasehold
Estate or the Undivided Interests therein; and (b)
any pending or overtly threatened in writing
Environmental Claim against or involving NACC, the
Facility, the Site, the Leasehold Estate or the
Undivided Interests therein or any other Person with
respect to the Facility, the Site, the Leasehold
Estate or the Undivided Interests therein, which is
reasonably expected to (i) result in a material
liability or (ii) result in serious personal injury
or material property damage or allegations thereof or
(iii) have a material adverse effect on the Facility,
the Site, the Leasehold Estate or the Undivided
Interests therein;
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(vii) with respect to matters for which
notice is provided pursuant to Section 6.1(f)(vi)
above, such notice shall also be provided to Owner
Participant and Owner Trustee with respect to the
Complex, to the extent any Special Environmental
Expenses as to any individual item for which notice
is provided under Section 6.1(f)(vi) would reasonably
be expected to reach or exceed $750,000;
(viii) provide Owner Participant and Owner
Trustee during each fiscal year of NACC with (x) a
reasonably detailed written environmental assessment
report concerning the Facility and the Site, and (y)
the Environmental Report prepared annually for NACC's
lenders pursuant to its Working Capital Facilities by
Eder Associates or any other Environmental Consultant
concerning the Facility, the Site and the Complex, or
an equivalent report;
(ix) promptly upon receipt, provide Owner
Participant and Owner Trustee with copies of all
written communications relating to any of such
matters for which notice is provided pursuant to
Section 6.1(f)(vi) above and, within 10 days
following NACC's issuance or receipt of (a) any
written environmental report, environmental notice
letter or other written environmental communication
to or from any Authority, (b) any pending or overtly
threatened written Environmental Claim or (c) any
press release relating to (a) or (b) above, shall
provide to Owner Participant and Owner Trustee copies
of all such written reports, notice letters, written
communications, Environmental Claims and press
releases;
(x) at its sole cost and expense, in
compliance with all Environmental Laws and in
accordance with reasonably prudent industry customs
and standards, diligently and in good faith implement
each of the observations set forth in the letter from
Geomatrix Consultants, Inc., dated July 1, 1996; and
(xi) except to the extent NACC is engaged in
a Permitted Contest with respect thereto, comply and
cause all other Persons to comply with all
Environmental Laws with respect to the Complex,
except to the extent any violation or non-compliance
would not reasonably be expected to result in (a)
Special Environmental Expenses (after giving effect
to the proceeds of any applicable insurance owing by
a carrier which has acknowledged in writing its
liability under the relevant policy and to any
applicable indemnities owing to NACC from a Person
which is reasonably likely to honor its indemnity) in
an aggregate amount equalling or exceeding $12.5
million for any fiscal year of NACC or (b) the
imposition of criminal liability (y) on the Owner
Participant, OP Guarantor or Owner Trustee or (z)
which would prevent or significantly
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interfere with the continued use, operation or
maintenance of the Complex.
(g) Expenses. At all times during the Lease Term and
thereafter if a Processing Services Election has been made,
NACC shall pay (i) to Owner Trustee, Power Contract Trustee
and Owner Participant all expenses (including, without
limitation, legal fees and expenses) reasonably incurred by
such party in connection with the entering into, or giving or
withholding, of any future amendments, supplements, waivers,
approvals, consents or other actions in connection with any
Default or Event of Default or that are requested by NACC or
HCNA and (ii) the ongoing fees and expenses of Owner Trustee
and Power Contract Trustee under the Trust Agreement and the
Power Contract Trust Agreement, respectively.
(h) Site Lease. NACC agrees during the Lease Term, to
perform all covenants and obligations (including, without
limitation, payment obligations, which amounts shall be
payable as Supplemental Rent) imposed by the Site Lease upon
Tenant directly, for the benefit of Site Lessor thereunder.
(i) Lessor Security. (i) At all times on and after
the Closing Date through the expiration or earlier termination
of the Basic Term (other than a termination as a result of an
Event of Default during the Basic Term), NACC shall cause to
be provided and maintained in full force and effect a Letter
of Credit issued in favor of Owner Participant; provided,
however, that no Letter of Credit shall be required (x) at any
time after the senior unsecured debt obligations of HCNA that
mature on or after the scheduled expiration date of the Basic
Term have been rated continuously for a period of at least 12
months at least BBB (or a subsequent equivalent rating) by
Standard & Poor's, at least Baa2 (or a subsequent equivalent
rating) by Moody's or at least 2 (or a subsequent equivalent
rating) by the National Association of Insurance Commissioners
(or if such agencies no longer publish ratings, then the
equivalent rating as published by another Rating Agency) or
(y) at any time when NACC shall be maintaining a Cash Deposit
and such Cash Deposit shall be subject to a first priority,
perfected security interest in favor of Owner Participant
pursuant to the Lessor Security Agreement. If a Letter of
Credit is being provided pursuant to this Section 6.1(i) by an
Issuing Bank that does not satisfy the criteria in clause (i)
of the definition of "Eligible Bank" and a downgrade of such
Issuing Bank's credit rating shall occur such that the Issuing
Bank no longer satisfies the criteria in clause (ii) of the
definition of "Eligible Bank," (A) NACC shall cause a
replacement Letter of Credit to be issued in favor of the
Owner Participant no later than 60 days after NACC acquires
actual knowledge, or receives a notice from the Owner
Participant, of the occurrence of such downgrade and (B) the
Owner Participant shall immediately surrender any Letters of
Credit so replaced to the issuer thereof for cancellation.
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(ii) Owner Participant may draw on any
Letter of Credit provided pursuant to this Section
6.1(i) if any of the following shall occur and be
continuing (each, a "Drawing Event"):
(v) an Event of Default of the type specified in
Section 17(a) of the Lease based on the failure to make a
payment of Basic Rent;
(w) an Event of Default of the type specified in
Section 17(a) of the Lease based on the failure to make a
payment of Stipulated Loss Value where the difference between
(A) the amount due and payable and (B) the amount actually
paid is greater than $500,000;
(x) an Event of Default of the type specified in
Section 17(b) of the Lease based on the failure to make any
payment where the difference between (A) the amount due and
payable and (B) the amount actually paid is greater than
$500,000;
(y) the Letter of Credit shall not be renewed or
replaced by another Letter of Credit at least ten (10)
Business Days prior to the expiration of such Letter of
Credit; or
(z) NACC shall fail to replace any Letter of Credit
within 60 days of the downgrade of the credit rating of the
Issuing Bank in accordance with the last sentence of Section
6.1(i).
If the Owner Participant draws on the Letter of Credit as a result of a
Drawing Event of the type specified in clause (v), (w) or (x) above,
the proceeds of such drawing shall be first applied to the failed
payment to which such Drawing Event relates and the balance of such
drawing, if any, shall be applied to the payment of scheduled Basic
Rent payments in inverse order of due dates by crediting such proceeds
against the actual scheduled amounts of such Basic Rent payments. If
Owner Participant draws on the Letter of Credit as a result of a
Drawing Event of the type specified in clause (y) or (z) above, the
proceeds of such drawing shall be applied to the payment of scheduled
Basic Rent payments in inverse order of due dates by crediting such
proceeds against the actual scheduled amounts of such Basic Rent
payments. Notwithstanding the foregoing, no drawing on the Letter of
Credit or application of the proceeds of any such draw shall be deemed
to cure any Default or Event of Default upon which such drawing may be
based.
(j) Legal Description of Site. NACC shall promptly
process a lot-line adjustment or parcel map application with
San Bernardino County, which will create a legal parcel that
is co-terminus with the Sites, and (i) obtain said adjustment
or parcel map within four (4) months from the Closing Date;
(ii) execute amendments to the Lease, Site Lease, Memorandum
of Lease and each Memorandum of Site Lease and other documents
necessary to change the legal description of the Sites in
accordance with said adjustment or parcel map and/or
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terminate a Site Lease, if appropriate; (iii) record such
amendments to Memorandum of Lease and each Memorandum of Site
Lease; and (iv) obtain appropriate endorsements to the title
insurance policies issued pursuant to this Participation
Agreement insuring the Owner Trustee's interest in the new
legal parcel. All costs and expenses incurred in connection
with all of the foregoing, including the cost of recording any
such amendments to the Memorandum of Lease and each Memorandum
of Site Lease, shall be the obligation of and paid by NACC.
(k) Power Purchase Agreements. Notwithstanding any
provision of the Power Contract Assignment or any other
Operative Document to the contrary, during the Sub-Assignment
Term (as defined in the Power Contract Assignment), NACC (i)
shall be solely liable for, and shall comply with, all
obligations of the "Seller" under the Power Purchase
Agreements, (ii) shall not amend, modify or terminate, or
consent to or permit any amendment, modification, termination,
waiver or variance of any of the Power Purchase Agreements
without the prior written consent of the Power Contract
Trustee, (iii) shall provide the Power Contract Trustee and
the Owner Participant with a copy of all notices,
correspondence and other documents relating to the Power
Purchase Agreements received or delivered by NACC (other than
billing and other materials relating to operations received or
delivered in the ordinary course of business), (iv) until such
time as the Settlement Agreement, effective July 15, 1996
between NACC and the Power Purchaser, has received all
necessary regulatory approvals and has become effective, shall
provide the Power Contract Trustee and Owner Participant
statements, certified by a Responsible Officer of NACC, within
60 days after the end of each fiscal quarter of NACC, setting
forth the energy sales for such quarter (whether in the form
of steam or electricity) by purchaser, reasonably acceptable
to the Owner Participant and (v) shall provide notice of any
non-compliance with the reporting requirements under
Applicable Law relating to the Facility's status as a
Qualifying Facility.
Section 6.2 Covenants of HCNA During Basic Term. From the date
of this Agreement and until the earlier of the end of the Basic Term and the
release of the HCNA Guaranty in accordance with Section 13 of the HCNA Guaranty,
HCNA covenants:
(a) Existence. Except as expressly permitted in Section
6.2(h), 6.3(a)(ii) or 6.3(b)(ii), HCNA will do or cause to be done all
things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises; provided,
however, that HCNA shall not be required to preserve any such right or
franchise if the Board of Directors of HCNA in good faith shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of HCNA and that the loss thereof is not
disadvantageous in any material respect to the Owner Participant.
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(b) Reporting Requirements. (i) Financial Statements. HCNA
will furnish to the Owner Participant:
(A) as soon as available, but in any event within 90
days after the end of each fiscal year of HCNA, a copy of the
audited consolidated and consolidating balance sheets of HCNA
and its consolidated Subsidiaries as at the end of such fiscal
year and the related audited consolidated and consolidating
statements of income and retained earnings and of cash flows
for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year,
reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the
audit, by Coopers & Lybrand or other independent certified
public accountants of nationally recognized standing; and
(B) as soon as available, but in any event not later
than 45 days after the end of each of the first three
quarterly periods of each fiscal year of HCNA, the unaudited
consolidated and consolidating balance sheets of HCNA and its
consolidated Subsidiaries as at the end of such fiscal quarter
and the related unaudited consolidated and consolidating
statements of income and retained earnings and of cash flows
of HCNA and its consolidated Subsidiaries for such fiscal
quarter and the portion of the fiscal year through the end of
such fiscal quarter, setting forth in comparative form the
budget for such period and the figures for the same period of
the previous fiscal year, certified by the chief financial
officer or the treasurer of HCNA as being fairly stated in all
material respects (subject to normal year-end audit
adjustments).
All such financial statements shall be complete and correct in all
material respects and shall be prepared in accordance with generally
accepted accounting principles applied consistently throughout the
periods reflected therein and with prior periods (except as approved by
such accountants or officer, as the case may be, and disclosed
therein).
(ii) Certificates; Other Information. HCNA will
furnish to the Owner Participant:
(A) concurrently with the delivery of the financial
statements referred to in Section 6.2(b)(i)(A), a letter from
the independent certified public accountants reporting on such
financial statements (1) stating that in making the
examination necessary therefor no knowledge was obtained of
any non-compliance with Section 6.2(d) through Section 6.2(h)
of this Agreement during the period reported on constituting a
Default or an Event of Default except as specified in such
letter, (2) stating that such accountants have reviewed the
calculations in the certificates of the chief financial
officer or the treasurer of HCNA delivered concurrently with
such financial statements pursuant to Section 6.2(b)(ii)(B)(2)
and Section 6.2(b)(iii)(C) of this Participation Agreement and
confirmed such calculations, and (3) stating that such
accountants have reviewed the reconciliation of generally
accepted accounting principles as then applied in the
preparation of
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the financial statements of HCNA and Generally Accepted
Accounting Principles, and confirmed that such reconciliation
as presented in such certificates of the chief financial
officer or the treasurer of HCNA delivered concurrently with
such financial statements is complete and correct, or that
there are no material differences between generally accepted
accounting principles as then applied in the preparation of
the financial statements of HCNA and Generally Accepted
Accounting Principles for the periods referred to in such
certificates;
(B) concurrently with the delivery of the financial
statements referred to in Section 6.2(b)(i), a certificate of
the chief financial officer or the treasurer of HCNA (1)
stating that such officer has obtained no knowledge of any
Default or Event of Default, or of the occurrence of an Event
of Loss, during the period reported on, except as specified in
such certificate and (2) showing in detail the calculations of
the Fixed Charge Coverage Ratio, the Interest Coverage Ratio,
the Consolidated Cash Flow Ratio, and Consolidated Tangible
Net Worth, as applicable, supporting such statement in respect
of Section 6.2(d) through 6.2(h) of this Agreement, if
applicable, including a reconciliation of any material
differences between generally accepted accounting principles
as then applied in the preparation of such financial
statements and Generally Accepted Accounting Principles;
(C) within five Business Days after the same are
filed, copies of all financial statements and reports which
HCNA or any of its Restricted Subsidiaries may make to, or
file with, the Securities and Exchange Commission or any
successor or analogous governmental authority;
(D) prompt notice of any change in the location of
the chief executive office and place of business or name of
HCNA; and
(E) promptly upon request such other financial
information with respect to HCNA, the Facility and the Complex
as Owner Participant may reasonably request.
(iii) Notices. To the extent that the chief executive
officer, the president, the chief financial officer or the treasurer of
HCNA knows or should reasonably be expected to know thereof, HCNA will
promptly give notice to the Owner Participant of:
(A) the occurrence of any Default, Event of Default
or Event of Loss;
(B) any development or event which is (in the
reasonable judgment of such officer) reasonably expected to
have a Material Adverse Effect; and
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(C) any Asset Disposition made or merger,
consolidation or sale of assets entered into or made pursuant
to Section 6.2(g) or 6.2(h) or Section 6.3(a)(ii), as
applicable.
Each notice pursuant to Section 6.2(b)(iii)(A) or (B) shall be
accompanied by a statement of the chief executive officer, the
president, the chief financial officer or the treasurer of HCNA setting
forth details of the occurrence referred to therein and stating what
action HCNA or NACC, as applicable, proposes to take with respect
thereto. Each notice pursuant to Section 6.2(b)(iii)(C) shall be
accompanied by a certificate of the chief financial officer or the
treasurer of HCNA showing in detail the calculations of Consolidated
Tangible Net Worth, the Fixed Charge Coverage Ratio and the Interest
Coverage Ratio, as applicable, supporting the determination by HCNA
that the transaction complies with the applicable provisions of this
Agreement, including a reconciliation of any material differences
between generally accepted accounting principles as then applied in the
preparation of financial statements and Generally Accepted Accounting
Principles.
(iv) Financial Statements for Most Recent Fiscal
Year. Within five (5) Business Days of the Closing Date, HCNA shall deliver
audited financial statements with respect to its fiscal year ended March 30,
1996 to the holders of its Debt to whom such financial statements are required
to be delivered.
(c) Working Capital. HCNA will use reasonable commercial
efforts to maintain working capital availability adequate for the
conduct of its business, consistent with historical working capital
availability, including at all times Working Capital Facilities (or
other similar financial arrangements) in a maximum aggregate principal
amount permitted to be outstanding at any time of not less than $100
million.
(d) Financial Condition Covenants. HCNA will not permit the
Fixed Charge Coverage Ratio or the Interest Coverage Ratio of HCNA for
any period of four consecutive fiscal quarters ending during any "Test
Period" to be less than the ratio set forth opposite for the applicable
period under the heading "Test Period Ending" below:
Fixed Charge Interest
Test Period Ending Coverage Ratio Coverage Ratio
- - ------------------ -------------- --------------
September 30, 1996 1.15 to 1.00 1.40 to 1.00
December 31, 1996 1.15 to 1.00 1.40 to 1.00
March 31, 1997 and 1.20 to 1.0 1.50 to 1.00
thereafter
If (i) highway deicing salt sales of HCNA and its Restricted
Subsidiaries for any fiscal year of HCNA fall below the Target Sales
for such period, as determined at the end of
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the fourth quarter of such fiscal year and (ii) HCNA fails to meet the
Fixed Charge Coverage Ratio or the Interest Coverage Ratio for any
period of four consecutive fiscal quarters which includes such fourth
fiscal quarter, the failure by HCNA to meet such Fixed Charge Coverage
Ratio or Interest Coverage Ratio for such period in accordance with the
first paragraph of this Section 6.2(d) will not constitute an Event of
Default, provided, that:
(A) such failure would not have occurred if, for
purposes of calculating such Fixed Charge Coverage Ratio or
Interest Coverage Ratio, as applicable, an addition to HCNA's
gross profits in such fourth fiscal quarter were to be made in
an amount (not to exceed $7,500,000) equal to the product of
(1) the amount by which highway deicing salt sales (in tons)
of HCNA and its Restricted Subsidiaries for such fiscal year
fell below the Target Sales for such period, multiplied by (2)
the Gross Margin for such fiscal year;
(B) this waiver shall cease to apply (i) to any
failure to meet the Fixed Charge Coverage Ratio or the
Interest Coverage Ratio, as applicable, which continues for
longer than four (4) consecutive fiscal quarters of HCNA, or
(ii) to any failure to meet the Fixed Charge Coverage Ratio or
the Interest Coverage Ratio, as applicable, which occurs after
this waiver with respect to any such failure has been applied
on four (4) occasions during the Basic Term; and
(C) the decline in highway deicing salt sales of
HCNA, to the extent resulting in the pro forma addition to
gross profits under clause (A) above, related exclusively to
fluctuations in demand caused by weather conditions.
Notwithstanding the foregoing, any failure by HCNA to meet the
Fixed Charge Coverage Ratio or Interest Coverage Ratio for any period
of four consecutive fiscal quarters in accordance with the first and
the second paragraphs of this Section 6.2(d) will not constitute an
Event of Default, if the Fixed Charge Coverage Ratio or the Interest
Coverage Ratio of HCNA, as applicable, for a period of four consecutive
fiscal quarters ending with either the first or second fiscal quarter
following any such period is not less than the applicable ratio set
forth opposite the relevant "Test Period" above.
On or before November 30 of each year, HCNA shall provide
Owner Participant with an Officer's Certificate setting forth the Salt
Commitments for the current fiscal year of HCNA which shall be used in
making all calculations under this Section 6.2(d) with respect to such
fiscal year.
(e) Limitation on Restricted Payments. HCNA (i) shall not,
directly or indirectly, declare or pay any dividend, or make any
distribution, of any kind or character (whether in cash, property or
securities) in respect of any class of its Capital Stock or to the
holders of any class of its Capital Stock (including payments by HCNA
to the stockholders of HCNA pursuant to a merger or consolidation of
HCNA, but excluding any dividends or distributions payable solely in
shares of its Capital Stock
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(other than Disqualified Stock) or in options, warrants or other rights
to acquire its Capital Stock (other than Disqualified Stock), (ii)
shall not, and shall not permit any Restricted Subsidiary of HCNA,
directly or indirectly, to purchase, redeem or otherwise acquire or
retire for value (A) any Capital Stock of HCNA or any Related Person of
either HCNA or the Parent Company, or (B) any options, warrants or
rights to purchase or acquire shares of Capital Stock of HCNA or any
Related Person of either HCNA or the Parent Company, (iii) shall not
make, or permit any Restricted Subsidiary of HCNA to make, any
Investment in, or payment on a Guarantee of any obligation of, any
Affiliate of HCNA (other than HCNA or a Restricted Subsidiary of HCNA)
or any Related Person of either HCNA or the Parent Company, and (iv)
shall not, and shall not permit any Restricted Subsidiary of HCNA to,
make any Investment in any Unrestricted Subsidiary, exceeding, together
with all Investments made by HCNA in its Unrestricted Subsidiaries
after the date of this Participation Agreement, the aggregate amount of
dividends or distributions of any kind or character (whether in cash,
property or securities) received by HCNA from its Unrestricted
Subsidiaries after the date of this Participation Agreement (the
transactions described in subsections (i) through (iv) being referred
to herein as "Restricted Payments"), unless:
(A) no Event of Default shall have occurred and be
continuing; and
(B) upon giving effect to such Restricted Payment,
the Consolidated Cash Flow Ratio of HCNA and the Restricted
Subsidiaries of HCNA for the four full fiscal quarters for
which quarterly or annual financial statements are available
next preceding the date of such Restricted Payment, calculated
on a pro forma basis as if such Restricted Payment had been
made at the beginning of such four full fiscal quarters, shall
be greater than 2.25 to 1.00.
Notwithstanding the foregoing, HCNA (1) may make, and may
permit any Restricted Subsidiary of HCNA to make, Restricted Payments
in exchange for, or out of the proceeds of, the substantially
concurrent issue or sale (other than to a Restricted Subsidiary of
HCNA) of shares of HCNA's Capital Stock (other than Disqualified
Stock), except in each case to the extent that cash or other payment is
to be paid or distributed by or on behalf of HCNA in connection with
such transaction; (2) may make payments to the Parent Company of up to
$850,000 in any fiscal year to the extent necessary for the Parent
Company to pay reasonable administrative expenses in the ordinary
course of business; (3) may make payments to the Parent Company and
other Persons to the extent necessary to permit the repurchase of
shares of the Common Stock of HCNA or the Parent Company or options on
such shares from employees or former employees (or their estates or
beneficiaries under their estates) upon death, disability, retirement
or termination of employment of any such Person pursuant to the terms
of any agreement under which such shares or options were issued, in an
amount not in excess of $2 million in any twelve-month period; (4) may
make payments to the Parent Company and other Persons to the extent
necessary to permit the repurchase of shares of the Common Stock of
HCNA or the Parent Company from stockholders who are not Affiliates or
Related Persons of HCNA or the Parent Company up to an aggregate
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amount of $15 million; and (5) may declare or pay dividends on its
Capital Stock, following a public offering of the Capital Stock of HCNA
or the Parent Company, of up to 6% per annum of the net proceeds
received by HCNA in such public offering, provided, that the net
proceeds received by HCNA as a result of such public offering shall
have been used to repay or retire Debt of HCNA or any of its Restricted
Subsidiaries. Notwithstanding the foregoing, (x) for each fiscal year
following March 30, 1996, the permitted amounts under clauses (2) and
(3) above shall be multiplied by the CPI-U Factor in effect at such
time and (y) for purposes of calculating the amounts of payments made
under clauses (3) and (4), such amounts shall be net of the proceeds of
any disposition of such Common Stock to Persons other than HCNA or any
Restricted Subsidiary. The foregoing limitations do not prevent HCNA
from paying a dividend on Capital Stock of any class within 60 days
after the declaration thereof if, on the date when the dividend was
declared, HCNA could have paid such dividend in accordance with the
provisions of this Section 6.2(e).
(f) Limitation on Transactions with Affiliates. Except as
expressly permitted in the Operative Documents, HCNA shall not, and
shall not permit any Restricted Subsidiary of HCNA to, enter into any
transaction (or series of related transactions) with an Affiliate or
Related Person of either HCNA or the Parent Company, including any
Investment, either directly or indirectly, unless such transaction (or
series of related transactions) is fair and reasonable to HCNA or such
Restricted Subsidiary of HCNA, as the case may be, and on terms which
are at least as favorable as those available from a Person which is not
an Affiliate or Related Person. Any such transaction (or series of
related transactions) that involves in excess of $5 million shall be
approved by a majority of the Board of Directors of HCNA, provided,
that any such transaction (or series of related transactions) that
involves in excess of $10 million (i) shall also be approved by a
majority of the directors of the Board of Directors of HCNA that are
disinterested with respect to such transaction (or series of related
transactions), if any, and (ii) shall be subject to the further
requirement that HCNA obtain an opinion of a nationally recognized
expert with experience in appraising the terms and conditions of the
type of transaction (or series of related transactions) stating that
the transaction or series of related transactions is fair (from a
financial point of view) to HCNA or such Subsidiary. For any
transaction that involves in excess of $200,000 but less than or equal
to $5 million, HCNA shall deliver to the Owner Participant an Officer's
Certificate evidencing that such transaction satisfies the above
criteria.
The foregoing paragraph shall not be applicable to (A) tax
sharing agreements substantially as in effect at the date of this
Agreement (except for changes made to take account of changes in law)
between HCG, Subsidiaries of HCG, HCNA and HCNA's Subsidiaries, (B) any
transaction among HCNA and its Restricted Subsidiaries, (C) the Joint
Compensation Agreement, dated as of October 28, 1993, among HCNA, HCG,
North American Chemical Company, North American Salt Company, Great
Salt Lake Minerals Corporation, D. George Harris, Anthony J. Petrocelli
and Richard J. Donahue and (D) the Services Agreement, dated as of
October 28, 1993, between HCNA and HCG.
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Notwithstanding the foregoing, any Affiliate or Related Person
of HCNA or the Parent Company who is an individual may serve as a
director, officer, employee or consultant of HCNA or any of its
Restricted Subsidiaries and receive reasonable compensation or
indemnification in connection with his or her services in such
capacity, plus reimbursement of reasonable expenses, including travel
and entertainment expenses, directly relating to the business of HCNA
or any of its Restricted Subsidiaries, provided, that compensation per
annum and indemnification of each such individual in excess of $250,000
shall be approved by a majority of the directors of the Board of
Directors of HCNA, and HCNA shall deliver to the Owner Participant an
Officer's Certificate evidencing such approval and specifying each such
individual and the capacity in which he or she serves.
(g) Limitation on Certain Asset Dispositions. Except with the
prior written consent of the Owner Participant, which consent shall not
be unreasonably withheld, HCNA shall not, and shall not permit any
Restricted Subsidiary of HCNA to, make any Asset Disposition in one or
more related transactions by HCNA or a Restricted Subsidiary of HCNA,
unless:
(i) HCNA or the Restricted Subsidiary of HCNA, as
applicable, receives consideration for such Asset Disposition,
the fair market value of which is at least equal to the fair
market value of the assets sold or disposed of as determined
in good faith by (A) a designated officer of HCNA, as
evidenced by a certificate filed with the Owner Participant,
if such consideration is less than $5 million, or (B) the
Board of Directors of HCNA, as evidenced by a Board Resolution
filed with the Owner Participant, if such consideration is
equal to or greater than $5 million; and
(ii) (A) at least 75% of the consideration for such
Asset Disposition consists of cash or readily marketable Cash
Equivalents or the assumption of Debt of HCNA or of a
Restricted Subsidiary of HCNA (in a principal amount (or
accreted value) equal to the fair market value of the assets
sold or disposed of) and a release from all liability on the
Debt assumed; or
(B) immediately after giving effect to such Asset
Disposition, the aggregate consideration for all Asset
Dispositions during the Initial Term and the Basic Term that
does not consist of cash or readily marketable Cash
Equivalents or the assumption of Debt of HCNA or of a
Restricted Subsidiary of HCNA (in a principal amount (or
accreted value) equal to the fair market value of the assets
sold or disposed of) and a release from all liability on the
Debt assumed will not be in excess of $75 million; and
(iii) 100% of the Net Available Proceeds, less
proceeds in an aggregate amount not exceeding (A) $25 million
during any 12-month period, and (B) $150 million during the
Interim Term and the Basic Term, are invested within 180 days
of such Asset Disposition, in the business of HCNA or in any
business
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related to the business of HCNA or any of its Restricted
Subsidiaries, including the repayment or retirement of Debt of
HCNA or any of its Restricted Subsidiaries, provided, that at
all times prior to such investment, such proceeds are invested
in Cash Equivalents; and
(iv) immediately before and after giving effect to
such transaction no Event of Default shall have occurred and
be continuing; and
(v) in any such transaction involving any material
component of the Complex, immediately after giving effect to
such transaction all material components of the Complex, the
Host Facilities and the Service Facilities will be controlled,
directly or indirectly, by the same Person.
Notwithstanding the foregoing, any Asset Disposition by Sifto
of collateral securing the Sifto Notes or Debt of Sifto that refinances
the Sifto Notes shall not be subject to the foregoing requirements so
long as the Sifto Notes are outstanding or so long as any Debt of Sifto
that refinances the Sifto Notes is outstanding and which Debt is
secured and contains provisions substantially similar to Section 1020
of the Sifto Note Indenture. In addition, the foregoing provisions
shall not apply to a transaction consummated in compliance with the
provisions of Section 6.2(h), and this Section 6.2(g) shall not apply
to (A) any Asset Disposition which constitutes a transfer, conveyance,
sale, lease or other disposition of all or substantially all of HCNA's
properties or assets within the meaning of Section 6.2(h), or (B) any
Asset Disposition as a result of which the HCNA Guaranty shall
terminate in accordance with Section 13 of the HCNA Guaranty.
(h) Mergers, Consolidations and Certain Sales of Assets.
Except with the prior written consent of the Owner Participant, which
consent shall not be unreasonably withheld, HCNA (i) shall not
consolidate with or merge into any other Person (other than any
Restricted Subsidiary of HCNA), (ii) shall not permit any other Person
to consolidate with or merge into HCNA (other than any Restricted
Subsidiary of HCNA), (iii) shall not permit any other Person (other
than any Restricted Subsidiary of HCNA) to consolidate with, merge into
or be merged into by, any Restricted Subsidiary (in a transaction in
which such Restricted Subsidiary (or successor person) remains (or
becomes) a Restricted Subsidiary), and (iv) shall not, directly or
indirectly, transfer, convey, sell, lease or otherwise dispose of all
or substantially all of its properties and assets as an entirety to any
other Person (other than any Restricted Subsidiary of HCNA), unless:
(A) in the case HCNA shall consolidate with or merge
into another Person or shall directly or indirectly transfer,
convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety,
the Person formed by such consolidation or into which HCNA is
merged or the Person which acquires by transfer, conveyance,
sale, lease or other disposition all or substantially all of
the properties and assets of HCNA as an entirety (an
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"HCNA Successor Company") shall be a corporation, partnership
or trust, shall be organized and validly existing under the
laws of the United States of America, any State thereof or the
District of Columbia and shall expressly assume by an
agreement in form and substance reasonably satisfactory to the
Owner Participant all of the obligations of HCNA under this
Participation Agreement and each other Operative Document to
which, immediately prior to such transaction, HCNA was a
party, including the due and punctual performance and
observance of each covenant and condition of the Operative
Documents to be performed or observed by HCNA; and
(B) immediately after giving effect to such
transaction,
(1) (x) the Consolidated Tangible Net Worth
of NACC will be at least equal to the greater of (a)
$50 million and (b) 95% of the Consolidated Tangible
Net Worth of HCNA immediately prior to such
transaction and (y) the Interest Coverage Ratio of
NACC will be no less than 3.00 to 1.00 and the Fixed
Charge Coverage Ratio of NACC will be no less than
1.75 to 1.00; or
(2) (x) the Consolidated Tangible Net Worth
of HCNA or the HCNA Successor Company, as applicable,
will be at least equal to the greater of (a) $50
million and (b) 95% of the Consolidated Tangible Net
Worth of HCNA immediately prior to such transaction
and (y) the Interest Coverage Ratio of HCNA or the
HCNA Successor Company, as applicable, will be no
less than 3.00 to 1.00 and the Fixed Charge Coverage
Ratio of HCNA or the HCNA Successor Company, as
applicable, will be no less than 1.75 to 1.00; or
(3) the outstanding Debt of either (x) NACC
or (y) HCNA or the HCNA Successor Company, as
applicable, with an Average Weighted Life equal to or
greater than the Average Weighted Life of the
remaining Basic Rent during the Basic Term, shall be
rated at least BBB- (or subsequent equivalent rating)
by Standard & Poor's or at least Baa3 (or subsequent
equivalent rating) by Moody's, or if either such
agency no longer publishes ratings, then the
equivalent rating as published by another Rating
Agency; and
(C) immediately before and after giving effect to
such transaction no Event of Default shall have occurred and
be continuing; and
(D) in any such transaction involving any material
component of the Complex, immediately after giving effect to
such transaction all material components of the Complex, the
Host Facilities and the Service Facilities will be controlled,
directly or indirectly, by the same Person.
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Notwithstanding the foregoing, this Section 6.2(h) shall not
apply to (1) any merger, consolidation or sale of assets subject to
Section 6.1(a)(iv) or (2) any merger, consolidation or sale of assets
as a result of which the HCNA Guaranty shall terminate in accordance
with Section 13 of the HCNA Guaranty.
(i) Cooperation. So long as no Facility User Event of Default
(as defined in the Services Agreement) has occurred and is continuing,
upon the request of Owner Participant or Owner Trustee, HCNA shall, at
the expense of Owner Participant, reasonably cooperate with Owner
Participant and Owner Trustee in obtaining the valid and effective
issuance or transfer or amendment, as the case may be, of all
approvals, notices, filings, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, certificates, licenses or
other actions required to be taken, given, made, or obtained, as the
case may be, by, from, to or with any applicable Authority, necessary
or reasonably desirable for the ownership, operation and possession of
the Undivided Interests in the Facility or the Site or any property
covered by the Site Lease by Owner Trustee or any permitted transferee,
lessee or assignee thereof for the period after the Lease Termination
Date to the expiration or termination of the Site Lease Term.
Section 6.3 Covenants of HCNA After Basic Term.
(a) Covenants of HCNA During Remaining Lease Term. From the
date on which the Basic Term ends and until the earlier of the end of the Lease
Term and the release of the HCNA Guaranty in accordance with Section 13 of the
HCNA Guaranty, HCNA covenants as follows:
(i) Existence; Reporting Requirements. HCNA will observe the
covenants set forth in Section 6.2(a) and Section 6.2(b)(i), (ii) and
(iii)(A) and, as to any merger, consolidation or sale of assets
pursuant to Section 6.3(a)(ii), Section 6.2(b)(iii)(C).
(ii) Mergers, Consolidations and Certain Sales of Assets.
Except with the prior written consent of the Owner Participant, which
consent shall not be unreasonably withheld, HCNA (A) shall not
consolidate with or merge into any other Person (other than any
Restricted Subsidiary of HCNA), (B) shall not permit any other Person
to consolidate with or merge into HCNA (other than any Restricted
Subsidiary of HCNA), (C) shall not permit any other Person (other than
any Restricted Subsidiary of HCNA) to consolidate with, merge into or
be merged into by, any Restricted Subsidiary (in a transaction in which
such Restricted Subsidiary (or successor person) remains (or becomes) a
Restricted Subsidiary), and (D) shall not, directly or indirectly,
transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to any
other Person (other than any Restricted Subsidiary of HCNA), unless:
(1) in the case HCNA shall consolidate with or merge
into another Person or shall directly or indirectly transfer,
convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety,
the
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HCNA Successor Company shall be a corporation, partnership or
trust, shall be organized and validly existing under the laws
of the United States of America, any State thereof or the
District of Columbia and shall expressly assume by an
agreement in form and substance reasonably satisfactory to the
Owner Participant all of the obligations of HCNA under this
Participation Agreement and each other Operative Document to
which, immediately prior to such transaction, HCNA was a
party, including the due and punctual performance and
observance of each covenant and condition of the Operative
Documents to be performed or observed by HCNA;
(2) immediately after giving effect to such
transaction, the Consolidated Tangible Net Worth of HCNA or
the HCNA Successor Company, as applicable, will be at least
equal to 95% of the Consolidated Tangible Net Worth of HCNA
immediately prior to such transaction;
(3) immediately before and after giving effect to
such transaction no Event of Default shall have occurred and
be continuing; and
(4) in any such transaction involving any material
component of the Complex, immediately after giving effect to
such transaction all material components of the Complex, the
Host Facilities and the Service Facilities will be controlled,
directly or indirectly, by the same Person.
Notwithstanding the foregoing, this Section 6.3(a)(ii) shall
not apply to (1) any merger, consolidation or sale of assets subject to
Section 6.1(b)(ii) or (2) any merger, consolidation or sale of assets
as a result of which the HCNA Guaranty shall terminate in accordance
with Section 13 of the HCNA Guaranty.
(b) Covenants of HCNA After Lease Term. From the date on which
the Lease Term ends and until the earlier of the end of the Site Lease Term and
the release of the HCNA Guaranty in accordance with Section 13 of the HCNA
Guaranty, HCNA covenants as follows:
(i) Existence. HCNA will observe the
covenants set forth in Section 6.2(a).
(ii) Mergers, Consolidations and Certain
Sales of Assets. Except with the prior written
consent of the Owner Participant, which consent shall
not be unreasonably withheld, HCNA (A) shall not
consolidate with or merge into any other Person
(other than any Restricted Subsidiary of HCNA), (B)
shall not permit any other Person to consolidate with
or merge into HCNA (other than any Restricted
Subsidiary of HCNA), and (C) shall not, directly or
indirectly, transfer, convey, sell, lease or
otherwise dispose of all or substantially all of its
properties and assets as an entirety to any other
Person (other than any Restricted
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Subsidiary of HCNA), unless in the case HCNA shall
consolidate with or merge into another Person or
shall directly or indirectly transfer, convey, sell,
lease or otherwise dispose of all or substantially
all of its properties and assets as an entirety, the
HCNA Successor Company shall be a corporation,
partnership or trust, shall be organized and validly
existing under the laws of the United States of
America, any State thereof or the District of
Columbia and shall expressly assume by an agreement
in form and substance reasonably satisfactory to the
Owner Participant all of the obligations of HCNA
under this Participation Agreement and each other
Operative Document to which, immediately prior to
such transaction, HCNA was a party, including the due
and punctual performance and observance of each
covenant and condition of the Operative Documents to
be performed or observed by HCNA.
Notwithstanding the foregoing, this Section 6.3(b)(ii) shall
not apply to any merger, consolidation or sale of assets as a result of
which the HCNA Guaranty shall terminate in accordance with Section 13
of the HCNA Guaranty.
Section 6.4 Covenants of Owner Participant and Owner Trustee.
(a) Transfers of Owner Participant and Owner Trustee. With respect to a Transfer
by Owner Participant (x) during the Lease Term, unless an Event of Default shall
have occurred and be continuing (in which case no transfer restrictions shall
apply other than clause (iii) below) and (y) after the termination or expiration
of the Lease Term, unless NACC shall have been removed as Operator under the
Services Agreement for cause or if an NACC Event of Default, (as defined under
the Services Agreement) has occurred and is continuing (in which case no
transfer restrictions shall apply other than clause (iii) below), Owner
Participant shall not Transfer all or any portion of (and (A) during the Lease
Term, unless an Event of Default shall have occurred and be continuing and Owner
Trustee is exercising remedies under Section 18 of the Lease, and (B)
thereafter, unless NACC has been removed as Operator for cause or an NACC Event
of Default (as defined under the Services Agreement) has occurred and is
continuing, Owner Trustee shall not Transfer all or any portion of) its right,
title or interest in and to the Trust Estate, the Undivided Interest in the
Facility, the Site, the Easement, the Leasehold Estate or the Operative
Documents during the Site Lease Term without the consent of NACC (other than to
the Other Owner Participant or to an Affiliate of Owner Participant, provided,
that the Affiliate transferee meets the requirements of clause (ii) and (iii)
below or the Affiliate transferee's obligations are guaranteed by Owner
Participant or an Affiliate of Owner Participant having a tangible net worth,
calculated in accordance with generally accepted accounting principles, in
excess of $50,000,000 pursuant to a guaranty in substantially the form set forth
in Exhibit L and the Affiliate transferee is not directly or indirectly in the
borate mining or soda ash business) unless, (i) the transferee is not a
Competitor; (ii) (A) the transferee shall have a tangible net worth, calculated
in accordance with generally accepted accounting principles, in excess of
$50,000,000 (or the transferee shall be a member of a consolidated group having
such tangible net worth) or (B) the obligations of the transferee under the
Operative Documents are guaranteed by a Person pursuant to a guaranty in
substantially the form set forth in Exhibit L that has a tangible net worth,
calculated in accordance with generally accepted accounting principles, in
excess of
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$50,000,000; (iii) the transferee enters into a Transfer Agreement in the form
of Exhibit AA (or, in the case of a Transfer by Owner Trustee, such other
documents reasonably acceptable to NACC reasonably required to accomplish such
Transfer) and the Transfer involves all but not less than all of the Owner
Participant's (or Owner Trustee's) interest; and (iv) NACC shall have received
an opinion of counsel (which counsel and opinion must be reasonably satisfactory
to NACC) to the effect that such Transfer is being made in compliance with
applicable securities laws and will not (x) result in the loss of, or revocation
by FERC of, the Facility's status as a Qualifying Facility or (y) violate any
Legal Requirements. Owner Participant shall be responsible for payment of all
reasonable documented out-of-pocket costs, fees and expenses of Owner
Participant, Owner Trustee, NACC and HCNA incurred in connection with any such
Transfer.
(b) Transaction Costs. (i) Subject to the provisions of
Section 6.4(b)(ii), in the event the transactions contemplated by Section 2.1 to
occur on the Closing Date shall be consummated, the Owner Trustee hereby agrees
that, with funds to be provided by the Owner Participant for that purpose, the
Owner Trustee shall pay when due all Transaction Costs for which a written
statement or request has been submitted to Owner Participant on or within 90
days after the Closing Date. Subject to the provisions of Section 6.4(b)(ii),
the Owner Participant shall provide funds to the Owner Trustee for the timely
payment of Transaction Costs for which Owner Trustee is responsible pursuant to
this Section 6.4(b)(i).
(ii) Notwithstanding the provisions of Section 6.4(b)(i), in
the event the transactions contemplated by Section 2.1 to occur on the Closing
Date shall not be consummated for any reason, NACC shall promptly pay or cause
to be paid, and shall indemnify, defend and hold harmless Owner Participant and
Owner Trustee in respect of, all Transaction Costs incurred by Owner Participant
or Owner Trustee, unless such failure to consummate shall result from Owner
Participant's breach of its obligations set forth in this Agreement, in which
case NACC shall have no obligation with respect to any Transaction Costs
incurred by Owner Participant or Owner Trustee.
(c) Trust Agreement. Provided that (i) no Event of Default has
occurred and is continuing, (ii) NACC has not been removed for cause as the
Operator under the Services Agreement and (iii) no NACC Event of Default (as
defined under the Services Agreement) has occurred and is continuing, during the
Site Lease Term, without the prior written consent of NACC (which consent shall
not be unreasonably withheld), Owner Participant shall not (x) terminate or
revoke, or consent to the termination or revocation of, the Trust Agreement or
the trust created pursuant thereto and the Owner Trustee shall not terminate or
revoke, or consent to the termination or revocation of, the Power Contract Trust
Agreement or the trust created pursuant thereto and (y) Owner Participant and
Owner Trustee shall not enter into amendment to the Trust Agreement or the Power
Contract Trust Agreement, respectively, to the extent such amendment would have
a material adverse effect on the rights or interests of NACC or HCNA under the
Lease Financing Documents.
(d) Liens Attributable to Owner Participant. Owner Participant
covenants and agrees with and for the benefit of Owner Trustee, NACC and HCNA
that Owner Participant will
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not directly or indirectly create, incur, assume or suffer to exist any Lessor
Liens attributable to it, and Owner Participant agrees that it will, at its own
cost and expense, promptly take such action as may be necessary to duly
discharge and satisfy in full any such Lessor Lien (by bonding or otherwise);
provided, that Owner Participant may contest any such Lessor Lien by a Permitted
Contest.
(e) Successor Owner Trustee. So long as (i) no Event of
Default shall have occurred and be continuing, (ii) NACC has not been removed as
Operator for cause pursuant to the Services Agreement and (iii) no NACC Event of
Default (as defined under the Services Agreement) has occurred and is
continuing, the Owner Participant shall not appoint or cause or allow to be
appointed a successor to any Owner Trustee or the Power Contract Trustee as
applicable, or an additional or separate trustee under the Trust Agreement or
the Power Contract Trust Agreement, as applicable, without (i) giving prior
written notice of such appointment (including notification of the principal
place of business of each such successor, additional or separate trustee) to
NACC (provided that NACC shall be entitled to quiet enjoyment under Section 9.4
of this Participation Agreement and Section 6 of the Lease) and (ii) obtaining
the prior written consent of NACC (which consent shall not unreasonably be
withheld). If such consent is given, the Owner Participant shall cause any such
successor, additional or separate trustee, simultaneously with its assumption of
duties in such capacity, to take all actions reasonably necessary in order to
establish, preserve, protect and perfect its interest in and to the Facility,
the Site, the Easement Site, the Leasehold Estate, the Trust Estate and the
Lessor's Contract Rights and its rights under this Participation Agreement and
the other Operative Documents, subject only to Permitted Liens.
(f) Additional Covenants of Trust Company and Owner Trustee.
The Trust Company, in its individual capacity, covenants and agrees with respect
to Sections 6.4(f)(i) and (ii), and each of the Owner Trustee and the Power
Contract Trustee covenant and agree with respect to Sections 6.4(f)(i) and (iii)
that:
(i) Lessor Liens Attributable to Trust Company, Owner Trustee
or Power Contract Trustee. Trust Company covenants and agrees with and
for the benefit of NACC, HCNA and Owner Participant that Trust Company
will not directly or indirectly create, incur, assume or suffer to
exist any Lessor Liens attributable to it, Owner Trustee or Power
Contract Trustee, and Trust Company agrees that it will, at its own
cost and expense, take such action as may be necessary to duly
discharge and satisfy in full any such Lessor Liens arising as a result
of any claims or liability of Trust Company in its individual capacity.
(ii) Change of Chief Place of Business. The Trust Company
shall give notice to NACC, HCNA and the Owner Participant, promptly
after any change in its name, chief place of business or chief
executive office, or the office where the records concerning the
accounts, contract rights or general intangibles relating to the
transactions contemplated hereby are kept.
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(iii) Notice of Transfer. So long as (i) no Event of Default
has occurred or is continuing, (ii) NACC has not been removed as Operator for
cause pursuant to the Services Agreement and (iii) no NACC Event of Default (as
defined in the Services Agreement) has occurred and is continuing, except as
otherwise expressly provided, the Owner Trustee and the Power Contract Trustee
shall not transfer any of the estates, properties, rights, powers, duties or
trusts of the Owner Trustee or the Power Contract Trustee, as applicable, to any
successor trustee or to any additional or separate trustee under the Trust
Agreement or the Power Contract Trust Agreement, as applicable, without giving
prior written notice of such transfer to NACC in accordance with the Trust
Agreement or the Power Contract Trust Agreement, as applicable.
(g) Regulation. None of Owner Participant, Owner Trustee or
Power Contract Trustee (i) is or will become solely as a result of activities
unrelated to Owner Participant's, Owner Trustee's or Power Contract Trustee's
participation in the transactions contemplated by the Lease Financing Documents
(A) "a person primarily engaged in the generation or sale of electric power
(other than electric power solely from cogeneration facilities or small power
production facilities)" within the meaning of Section 201 of PURPA, 16 U.S.C.
796(18)(B), or (B) an electric utility, electric utility holding company, or any
combination thereof, or a subsidiary of an electric utility or electric utility
holding company within the meaning of 18 C.F.R. ss. 292.206(b) (or successor
regulations) or a "public utility company", a "holding company", or a
"subsidiary company" or an "affiliate" of a "holding company" within the meaning
of Section 2(a) of PUHCA, or (ii) will take any action (other than an action
required by Applicable Law or the Lease Financing Documents) which would cause
the revocation of the status of the Facility as a "qualifying facility" within
the meaning of Title 18 C.F.R., Part 292, Subpart B (or successor regulations).
Subject to, and except as otherwise provided in, Section 13(f) of the Lease, if
Owner Participant, Owner Trustee or Power Contract Trustee shall become a Person
referred to in the preceding sentence, Owner Participant, Owner Trustee or Power
Contract Trustee shall notify NACC immediately after Owner Participant, Owner
Trustee or Power Contract Trustee obtains actual knowledge of such fact and, to
the extent caused by a breach of Owner Participant's, Owner Trustee's or Power
Contract Trustee's obligations under this Section 6.4(g), Owner Participant,
Owner Trustee or Power Contract Trustee shall promptly either take such action
as may be necessary in order to cease to be such a Person or shall transfer its
interest in the Trust Estate to an entity that is not such a Person in
accordance with Section 6.4(a). Owner Trustee and Power Contract Trustee shall
comply with Section 9(a) of the Trust Agreement and the Power Contract Trust
Agreement, respectively.
(h) Cooperation. So long as (i) no Event of Default has
occurred and is continuing, (ii) NACC has not been removed as Operator for
cause, or (iii) no NACC Event of Default (as defined in the Services Agreement)
has occurred and is continuing, upon the request of NACC, Owner Participant, the
Owner Trustee and the Power Contract Trustee shall, at the expense of NACC,
reasonably cooperate with NACC in obtaining the valid and effective issuance or
transfer or amendment, as the case may be, of all approvals, notices, filings,
consents, waivers, exemptions, variances, franchises, orders, permits,
authorizations, certificates, licenses, or other actions required to be taken,
given, made, or obtained, as the case may be, by, from, to or with any
applicable Authority, necessary or reasonably desirable for the
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ownership, operation and possession of the Complex by NACC or any transferee,
lessee or assignee thereof during the Site Lease Term.
Section 6.5 Special Termination Event. (i) If at any time NACC
or HCNA proposes a Special Termination Event and Owner Trustee or Owner
Participant, as applicable, for whatever reason, does not consent to such
Special Termination Event as proposed by NACC or HCNA, as applicable (or does
not consent to the Person, if any, designated by NACC or HCNA to purchase the
Undivided Interest in the Facility from the Other Owner Trustee if the Other
Owner Participant or Other Owner Trustee does not consent to such proposed
Special Termination Event), within thirty (30) days of receipt of NACC's or
HCNA's written request for such request (describing such Special Termination
Event in reasonable detail), then if the Other Owner Participant shall have
consented to such Special Termination Event and such Person, the Other Owner
Participant shall have the right, upon notice given within thirty (30) days of
NACC or HCNA having notified the Other Owner Participant that the Owner Trustee
or the Owner Participant, as applicable, has withheld consent to such Special
Termination Event, to purchase the interest of the Owner Participant in the
Trust Estate on a date occurring not less than 30 days and not more than 180
days after receipt by the Other Owner Participant of the notice from NACC or
HCNA specifying the applicable date for a price equal to the Special Termination
Payment Price. If the Other Owner Participant does not elect to purchase Owner
Participant's Interest in the Trustee Estate within such 30-day period, then
NACC or HCNA shall have the right, but only upon or in connection with the
consummation of the transaction that is the basis for the Special Termination
Event, to purchase (or to cause a designated Person to purchase) Lessor's
Undivided Interest in the Facility, on an "as is, where is" basis, upon notice
given within 60 days following the end of the 30-day period in which the Other
Owner Participant was permitted to give notice of its election to purchase. If
NACC or HCNA gives notice of its election to purchase the Undivided Interest in
the Facility pursuant to the preceding sentence, the Special Termination Payment
Date shall be the date specified in such notice which shall be the date of the
closing of the Special Termination Event transaction and in no event later than
180 days after the date of such notice. The purchase price (the "Special
Termination Payment Price") for Lessor's Undivided Interest in the Facility (or
for the Owner Participant's interest in the Trust Estate) shall be an amount
equal to the greater of (1) the Stipulated Loss Value as of the Special
Termination Payment Date (or if such date is not a Determination Date, the
Determination immediately preceding such date), plus (x) if such date is not a
Determination Date, interest at the Discount Rate from and including the
immediately preceding Determination Date to (but excluding) the Special
Termination Payment Date and (y) any Break Costs of Owner Participant (the
computation of such Break Costs in accordance with the definition thereof being
set forth and certified in an Officer's Certificate of Owner Participant), and
(2) the Fair Market Sales Value, determined as of the Special Termination
Payment Date.
(ii) On the Special Termination Payment Date, the Other Owner
Participant shall pay to Owner Participant, or NACC or HCNA (or such designated
Person) shall pay to Owner Trustee, as applicable, the Special Termination
Payment Price in immediately available funds.
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In addition, NACC shall pay to Owner Trustee the following
amounts on the Special Termination Payment Date:
(1) any unpaid Basic Rent due prior to (but not on or after)
the Special Termination Payment Date;
(2) all documented out-of-pocket costs and expenses payable
by Owner Participant or the Other Owner Participant as a result of the
Special Termination Event; and
(3) any due and unpaid Supplemental Rent and any other amount
due and payable on, or relating to, the obligations of Lessee to Owner
Trustee or Owner Participant under any of the Operative Documents that
remains unpaid on the Special Termination Payment Date.
Upon payment of the Stipulated Loss Value or the Special Termination Payment
Price, as applicable, and all other amounts specified above, (x) Owner
Participant shall Transfer all of its right, title and interest in and to the
Trust Estate to the Other Owner Participant, or (y) Owner Trustee shall Transfer
all of its right, title and interest in and to the Undivided Interest in the
Facility on an "as is, where is" basis free and clear of Lessor Liens, to NACC
or HCNA (or such other Person as may be designated by them), as applicable, and
Owner Trustee or Owner Participant, as applicable, shall execute and deliver one
or more bills of sale and such other documents evidencing such Transfer as shall
be reasonably requested or required to effect such Transfer. Upon any such
Transfer by Owner Trustee to NACC or HCNA, the Lease Term and, except as
expressly otherwise provided in this Participation Agreement or the other
Operative Documents, the obligations of NACC and HCNA under this Participation
Agreement and the other Operative Documents to Owner Participant shall terminate
and Owner Participant shall promptly surrender any Letter of Credit to the
issuer thereof for cancellation.
ARTICLE VII
INDEMNIFICATION
Section 7.1 General Indemnity. Whether or not any of the
transactions contemplated hereby are consummated, NACC shall (except as provided
in Section 7.2 and except to the extent that any of the items hereinafter
described are payable by Owner Trustee as part of Transaction Costs) indemnify
and hold harmless each Indemnitee (on an After-Tax Basis) from, any and all
liabilities, obligations, losses, damages, penalties, claims (including but not
limited to Environmental Claims), actions, suits, costs, expenses (including
legal and consultants' fees) and disbursements of whatsoever kind and nature
(herein collectively referred to as "Expenses" and individually as an
"Expense"), imposed on, incurred by or asserted against such Indemnitee (whether
because of an action or omission by such Indemnitee or otherwise and whether or
not otherwise indemnified), in any way relating to or arising out of (a) the
Facility, the Site, the Easement Site, the Service Facilities, the Host
Facilities, the Leasehold Estate, or
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any parts thereof or the Undivided Interests therein, (b) the Operative
Documents, the Other Operative Documents or any of them, or the execution or
delivery thereof, or the performance, enforcement or amendment thereof or
payments made pursuant thereto or any other transactions contemplated thereby
and (c) the manufacture, construction, financing, refinancing, purchase,
acceptance, rejection, ownership, warranty, acquisition, delivery, nondelivery,
insuring, lease, sublease, preparation, installation, storage, maintenance,
repair, alteration, modification, restoration, refurbishing, transportation,
transfer of title, abandonment, possession, rental, use, operation, condition,
sale, return, importation, exportation or other application or disposition of
all or any part of the Facility, the Site, the Easement Site, the Service
Facilities, the Host Facilities, the Leasehold Estate, any parts thereof or the
Undivided Interest therein, as applicable, including without limitation (i)
claims or penalties arising from any violation of law (to the extent such
indemnity is permitted by Applicable Law in the case of any violation of law by
such Indemnitee) or strict liability in tort or from the active or passive
negligence of such Indemnitee, (ii) loss of or damage to any property, natural
resources or the environment (including, without limitation, to the extent
imposed on, incurred by or asserted against such Indemnitee, all Expenses
associated with remediation, response, removal, corrective action, cleanup,
treatment, compliance, restoration, abatement, encapsulation, containment,
revegetation, monitoring, sampling, investigation, assessment, financial
assurance, natural resource damages, the protection of wildlife and aquatic
species and vegetation, the interference with or contamination of any wetland or
body of water (whether surface or subsurface) or aquifer, and any other relevant
mitigative action under any Environmental Law) or death of or injury to any
Person, or the violation of or non-compliance with any Environmental Law, (iii)
any Expenses in any way resulting from or relating to the actual, threatened or
alleged existence or presence of any Hazardous Material at, in, on or under the
Facility, the Site, the Easement Site, the Service Facilities, the Host
Facilities, the Leasehold Estate, any parts thereof, or the Undivided Interests
therein, or the transport of any Hazardous Material or the actual or alleged
Release of any Hazardous Material into the environment (including air, water
vapor, surface water, groundwater, and land (whether surface or subsurface)),
(iv) latent or other defects, whether or not discoverable, and (v) any claim for
patent, trademark or copyright infringement. Upon payment in full of any
indemnity pursuant to this Section 7.1 and all other amounts then owing, NACC
shall be subrogated to any right of such Indemnitee in respect of the matter
against which such indemnity has been paid (other than rights to insurance
proceeds pursuant to policies maintained by the Owner Trustee or Owner
Participant for their own account pursuant to Section 9(g) of the Lease) and (d)
NACC's or HCNA's breach or failure to comply with its obligations under the
Operative Documents to which it is a party.
Section 7.2 Exceptions. The indemnity set forth in Section 7.1
with regard to any particular Indemnitee shall not extend to (a) any Expense (i)
to the extent resulting from the gross negligence or willful misconduct of such
Indemnitee or its respective Affiliates, directors, officers, successors,
assigns, servants, agents or employees, (ii) to the extent included in the
Transaction Costs payable by such Indemnitee pursuant to the Operative
Documents, (iii) resulting from the breach by such Indemnitee of any of its
material agreements, representations, warranties or covenants in any of the
Operative Documents, (iv) to the extent resulting from acts or events that occur
after the surrender of possession of the Facility by the Lessee, except to the
extent that the Expenses arise as a result of a Default or an Event of Default
occurring prior to
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such surrender and, with respect to any Expenses relating in any way to any
Environmental Claim, Environmental Law or Hazardous Material, except to the
extent such Expenses arise out of an event or condition that occurred or arose
prior to such surrender of possession, regardless of when discovered, and to the
extent such Expenses are not attributable to conditions arising after such
surrender of possession, (v) other than pursuant to Section 12, 13, 18 or 21 of
the Lease, Section 6.5 of this Participation Agreement or an exercise of
remedies under the Lease, to the extent resulting from a voluntary or
involuntary sale, transfer, assignment or other disposition by Owner Trustee of
all or any part of the Facility or by any Indemnitee of all or any part of such
Indemnitee's right, title and interest in and to the Facility or any Operative
Document, (vi) relating to salaries or general overhead of such Indemnitee,
(vii) to the extent resulting from any OP Regulatory Event of Loss, or (viii) to
the extent resulting from any obligation or liability assumed in any Operative
Document by such Indemnitee or (b) any Tax (except to the extent that any
indemnity under Section 7.1 is required to be reimbursed on an After-Tax Basis)
or loss of tax benefits.
Notwithstanding the provisions of the Power Contract
Assignment, HCNA and NACC expressly agree and acknowledge that for purposes of
this Article VII none of the Power Contract Trustee, Owner Trustee, Trust
Company or Owner Participant shall be deemed to have assumed any liability or
obligation, or undertaken to perform any agreement or covenant, under the Power
Purchase Agreements with respect to the period prior to the earlier of (x)
termination of the Sub-Assignment Term (as defined in the Power Contract
Assignment) and (y) the giving of the notice by the Power Contract Trustee under
Section 3(b) of the Power Contract Assignment.
Section 7.3 Procedures. (a) If any Indemnitee has knowledge of
any action, suit, proceeding or claim indemnified against under Section 7.1, it
shall give prompt written notice thereof to NACC; provided, however, that the
failure of any Indemnitee to give such notice shall not affect its right to
indemnity. If NACC has knowledge of any action, suit, proceeding or claim
indemnified against under Section 7.1, it shall give prompt written notice to
(i) in the case of notices relating to the Owner Participant or any Affiliate,
officer, director, servant or agent of either of such Indemnitees, the Owner
Participant, or (ii) in the case of notices relating to the Owner Trustee, the
Power Contract Trustee and its trust estate, the Trust Estate or the Trust
Company or any Affiliate, officer, director, servant or agent of Trust Company,
the Owner Trustee.
(b) So long as no Event of Default shall have occurred and be
continuing, NACC (the "Assuming Person") may, at its expense, resist and assume
the defense of any action, suit or proceeding in respect of which NACC would be
required to indemnify hereunder, or cause the same to be resisted and defended
(to the extent the same involve solely a claim for Expenses, or for claims for
other than Expenses, to the extent the claim for Expenses can be severed from
other claims and NACC obtains such severance) by counsel for the insurer of the
liability or by counsel designated by the Assuming Person and approved by the
Indemnitee (which approval shall not be unreasonably withheld); provided, that
such Indemnitee shall cooperate with the Assuming Person by providing, at the
expense of the Assuming Person, such witnesses, documents and other assistance
as the Assuming Person may reasonably request. If
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such Indemnitee desires to participate in the defense of any such action, suit
or proceeding (which the Assuming Person is so resisting and defending or is
causing so to be resisted and defended) through its own counsel, it may do so,
at its own expense; provided, however, that if the Owner Participant or the
Owner Trustee, as applicable, on behalf of the Indemnitee shall have reasonably
concluded that there may be legal defenses available to such Indemnitee that are
different from or additional to those available to NACC or that might reasonably
result in a conflict between NACC and such Indemnitee, such Indemnitee shall
have the right to select separate counsel to assert such legal defenses and
otherwise to participate in the defense of such action on behalf of such
Indemnitee at the expense of the Assuming Person. Upon receipt of notice from
the Assuming Person to the Owner Participant or the Owner Trustee, as
applicable, on behalf of such Indemnitee of its election so to assume the
defense of such action and approval by the counsel of Indemnitee, the Assuming
Person will not be liable to such Indemnitee under Section 7.1 for any legal or
other expenses subsequently incurred by such Indemnitee in connection with the
defense thereof unless the Indemnitee shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the immediately preceding sentence; provided, that in no event shall the
Assuming Person be liable for the fees and expenses of more than one separate
counsel for the Owner Participant or any of its Affiliates, officers, directors,
servants and agents and another separate counsel for the Owner Trustee, the
Power Contract Trustee, the Power Contract Trustee's estate, the Trust Estate,
the Trust Company, or any of their Affiliates, officers, directors, servants and
agents in any action, suit, proceeding or claim relating to common issues in any
one jurisdiction and provided, further, that the Owner Participant agrees to use
reasonable good faith efforts to cooperate with the Other Owner Participant in
any such legal defenses and to endeavor to employ a single common counsel with
the Owner Participant without prejudice to its rights to separate counsel set
forth in this Section 7.3. It shall be a condition to NACC's exercise of the
election to assume the defense of any such action: (i) that such action does not
involve any risk of the imposition of any criminal liability on any Indemnitee,
or any material risk of sale, forfeiture or loss of, or creation of any Lien
(other than a Permitted Lien), on the Facility, Undivided Interest or Site, (ii)
that NACC shall provide to the Indemnitee an assumption and acknowledgement of
NACC's liability under this indemnity with respect to the matters so contested,
and (iii) that there shall at such time exist no Event of Default. Any
Indemnitee may settle or compromise any action, suit, proceeding or claim with
respect to such Indemnitee in respect of which NACC would be required to
indemnify it hereunder. Notwithstanding the foregoing, (i) in the event that any
such action, suit, proceeding or claim also involves matters other than those
for which indemnification is being sought, NACC shall bear only such portion of
such fees and expenses as shall be attributable to the matters for which
indemnification is being sought, and (ii) NACC shall not be liable hereunder for
any settlement or compromise of any Expense of such Indemnitee if NACC
theretofore has exercised, or notified the Indemnitee of its intention to
exercise, its right to resist and assume the defense of such action, suit,
proceeding or claim pursuant to this Section 7.3 and if such settlement or
compromise is effected without the NACC's written consent, which consent shall
not be unreasonably withheld or delayed. Any Indemnitee hereunder may proceed
directly against NACC under this Article VII without first resorting to any
other available rights of indemnification. All indemnities contained in this
Article VII shall continue in full force and effect notwithstanding the
expiration or other termination of any Operative Document, or any assignment
hereof or thereof, and are expressly
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made for the benefit of, and shall be enforceable by, each Indemnitee. NACC's
obligations under this Article VII shall be that of a primary obligor
irrespective of whether an Indemnitee shall also be indemnified with respect to
the same matter under this Agreement or any other agreement by any other Person.
The indemnities and assumptions of liabilities set forth in this Article VII do
not guarantee a residual value of the Facility, any part thereof or the
Undivided Interest therein.
(c) NACC covenants to pay all amounts due under Section 7.1
within 30 days of the date on which an Indemnitee provides NACC with information
sufficient to calculate the amount due and payable under Section 7.1 and to
identify the nature of the Expense against which indemnity is sought. With
respect to any amount that NACC is requested by an Indemnitee to pay by reason
of Section 7.1, the Indemnitee shall, if requested by NACC, submit such
additional information to NACC, as NACC may reasonably request properly to
substantiate the requested payment.
(d) If an Indemnitee shall obtain a refund of all or any part
of Expenses payment or indemnity for which shall have been made by the Assuming
Person pursuant to Section 7.1, such Indemnitee shall promptly pay to the
Assuming Person the amount of such refund including any interest received
(unless a Default or an Event of Default shall have occurred and be continuing,
in which case such payment need not be made until such Default or Event of
Default shall have been cured or waived).
Section 7.4 General Tax Indemnity. (a) Payment of Taxes.
Except as provided in Section 7.4(b), Lessee agrees to pay free of withholdings
attributable to U.S. Federal, state and local income taxes (provided the
Indemnitee has provided Lessee with a California Form 590 or a withholding
certificate issued by the California Franchise Tax Board in the case of any
payment that is otherwise subject to California income tax withholding) and
Taxes indemnified in this Section 7.4, and to assume liability for, and to
indemnify and hold harmless, each Indemnitee (on an After-Tax Basis) from and
against any and all taxes, impositions, fees, levies, imposts, duties,
withholding, assessments, or other charges of any nature whatsoever (together
with any related interest, penalties, fines or additions to tax) (all the
foregoing being herein collectively called "Taxes" or, separately, a "Tax"),
including, without limitation, license, filing, recording, documentation and
registration fees and sales, use, income, franchise, receipt, rental,
value-added, stamp, transfer, leasing, property, excise, or license taxes,
imposed on or with respect to or borne by or asserted against any Indemnitee,
the Lessee, the Facility, the Site, the Service Facilities, the Host Facilities,
the Leasehold Estate, or any parts thereof or the Undivided Interests therein,
or upon any Operative Document, or any of them or interest therein, or otherwise
by any U.S. Federal taxing authority or any taxing authority in any state or any
locality where the Facility or any portion thereof or the Site or any portion
thereof is used or located upon arising out of, in connection with or relating
to (i) the conduct of the business or affairs of the Lessee, the Facility, the
Site, the Service Facilities, the Host Facilities, the Leasehold Estate, or any
parts thereof or the Undivided Interests therein, (ii) the construction,
acquisition, acceptance, delivery, nondelivery, possession, return, subleasing,
modification, transfer of title, rental, purchase, sale, leasing, ownership,
maintenance, repair, redelivery, insuring, use, operation, financing or
refinancing or mortgaging of all or any part
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of the Facility, the Site, the Service Facilities, the Host Facilities, the
Leasehold Estate, or any parts thereof or the Undivided Interests therein, (iii)
the manufacture, design, purchase, acceptance, rejection, delivery or condition
of or improvement to the Facility, the Site, the Service Facilities, the Host
Facilities, the Leasehold Estate, or any parts thereof or the Undivided
Interests therein, (iv) the rental payments (including, without limitation, all
Interim Rent, Basic Rent, and Supplemental Rent), receipts or earnings arising
from the Facility or any portion thereof or any interest therein, Undivided
Interest, the Site or any portion thereof or interest therein or payable
pursuant to the Lease or in each case, the applications or dispositions thereof,
or any other payment or right to receive payment pursuant to the Operative
Documents, (v) the Operative Documents or any waivers or covenants with respect
thereto or any Indemnitee's interest in the Operative Documents, or the
execution, amendment, supplement, issuance, delivery or enforcement of the
Operative Documents or (vi) otherwise with respect to or in connection with the
transactions contemplated by the Operative Documents.
(b) Exclusions from General Tax Liability. The provisions of
Section 7.4(a) shall not apply to, and Lessee shall have no liability to any
Indemnitee under Section 7.4(a) with respect to: (i) Taxes (other than, in each
case, Taxes that are or are in the nature of sales, use, stamp, license,
transfer, rental, property or similar taxes) based on, with respect to, or
measured by, net income (including, but not limited to, capital gain Taxes,
minimum and alternative minimum Taxes, accumulated earnings Taxes, personal
holding company Taxes, excess profits Taxes and Taxes measured by items of tax
preference); (ii) Taxes, including, without limitation, sales and transfer
Taxes, that result from (A) any voluntary transfer by an Indemnitee of any
interest in the Trust Estate, Facility, Undivided Interest, the Site or any
interest in any other Indemnitee or any portion of any of the foregoing or any
interest arising out of the Operative Documents unless such transfer shall have
occurred in connection with, or as a result of, an Event of Default or unless
such transfer shall be pursuant to the provisions of the Lease, including
without limitation, the exercise by the Lessee of any of its purchase options
pursuant to the Lease or (B) any involuntary transfer by an Indemnitee of any of
the foregoing interests described in clause (A) resulting from any bankruptcy or
other proceeding for the relief of debtors in which the Indemnitee is a debtor
or any foreclosure by a creditor of the Indemnitee, unless such transfer shall
have occurred in connection with or as a result of an Event of Default; (iii)
Taxes imposed by any jurisdiction, other than a jurisdiction in which the
Facility or any portion thereof or the Site or any portion thereof or interest
therein is used or located, as a result of (A) a situs of organization or a
place of business (other than a situs of organization or a place of business
arising, or deemed to arise, from acquiring the Facility or entering into the
transactions contemplated by the Operative Documents) of the Indemnitee or (B)
an Indemnitee's engaging in activities in such jurisdiction unrelated to the
transactions contemplated by the Operative Documents; (iv) Taxes imposed on an
Indemnitee (A) that result from the willful misconduct or gross negligence of
such Indemnitee (B) that result from the failure of an Indemnitee to file tax
returns in a procedurally proper manner and on a timely basis or to claim a
deduction or credit (C) that would not have been imposed but for the failure of
an Indemnitee to comply with certification, reporting or other similar
requirements of the jurisdiction imposing such Tax if, in the case of each of
(B) and (C), filing or compliance is (I) required by U.S. Federal, state, or
local law or (II) otherwise requested by the Lessee and required by application
of law as a precondition to any exemption from, or reduction of, Tax, unless
either such filing
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or compliance, as the case may be, will cause an Indemnitee adverse consequences
determined in its sole discretion exercised in good faith or such failure to
file or of compliance, as the case may be, results from a failure of Lessee to
satisfy its obligations under Section 7.4(c) hereof or (D) that result directly
from a material insufficiency or material inaccuracy of information or records
required to be supplied by the Indemnitee hereunder; (v) Taxes that are
attributable to any period beginning or circumstance occurring after the
expiration or earlier termination of the Lease and, if applicable, the return of
the Facility to the Owner Trustee in accordance with the terms of the Lease,
unless such Taxes relate to acts, events or matters arising prior to such
expiration or termination, as applicable, return or imposed on or with respect
to any payments due under the Operative Documents after such time; (vi) Taxes
arising as a direct result of an OP Regulatory Event of Loss; (vii) Taxes
imposed as a result of the Owner Trust not being treated as a "grantor trust"
subject to sections 671 through 679 of the Code (or any successor provisions
thereto) for income tax purposes; (viii) Taxes imposed on an Indemnitee as a
result of a breach of a representation by such Indemnitee under an Operative
Document; (ix) Taxes arising in connection with Lessor Liens; (x) any Tax
enacted by its terms or legislative history as a substitute for any Tax as to
which Lessee is not liable hereunder pursuant to any exception described in this
Section 7.4(b); (xi) Taxes imposed on or payable by a transferee or assignee of
an original Indemnitee to the extent of the excess of such Taxes over the amount
of such Taxes that would have been imposed had there not been a transfer by the
relevant original Indemnitee (provided, that the exclusion shall not apply to
any taxes that result from any transfer in connection with, or as a result of,
an Event of Default or to any amount required to be made as payment on an
After-Tax Basis); (xii) Taxes that are included in the initial tax basis of the
Facility; (xiii) Taxes imposed on, based on, or measured by any fees or other
compensation that the Owner Trustee receives for acting as trustee under the
Trust Agreement; and (xiv) Taxes for which the Lessee is obligated to indemnify
Owner Participant under the Tax Indemnity Agreement.
(c) Reports. If any report, return or statement is required to
be filed with respect to any Tax imposed on an Indemnitee that is subject to
indemnification under this Section 7.4, the Lessee shall timely prepare and file
the same (except for any such report, return or statement with respect to which
an Indemnitee has notified the Lessee that an Indemnitee intends to prepare and
file); provided, that Lessee shall have no obligation to file any such report,
return or statement if such Indemnitee, after Lessee's written request therefor
within a reasonable time prior to the due date, shall have failed to furnish
Lessee with such information as is reasonably available to Lessor and not
otherwise available to Lessee and is necessary for the filing of such report,
return or statement, or such return would or should have been filed by such
Indemnitee even if it had not entered into the transactions contemplated by the
Operative Documents. If requested by the Lessee in writing, an Indemnitee shall
furnish the Lessee at Lessee's expense with such information reasonably
necessary to prepare and file such returns as is reasonably available to such
Indemnitee and not within the control of the Lessee. The Lessee shall either
timely file such report, return or statement and send a copy of such report,
return or statement to an Indemnitee, or, where not so permitted to file, shall
timely notify an Indemnitee of such requirement and, if practicable, prepare and
deliver such report, return or statement to an Indemnitee within a reasonable
period of time and in all events at least five business days prior to the time
such report, return or statement is required to be filed. If the Indemnitee
shall have
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notified Lessee of its intention to prepare and file any report, return or
statement or in case of any report, return or statement required to be filed by
the Indemnitee, the Lessee, at its expense, shall make available or provide to
the Indemnitee such information or records within its control or otherwise
reasonably available to Lessee and not within the control of the Indemnitee,
which information or records are reasonably necessary to prepare and file such
report, return or statement. The Lessee shall hold each Indemnitee harmless from
and against all liability arising out of any insufficiency or inaccuracy of any
report, return or statement if such insufficiency or inaccuracy results from the
insufficiency or inaccuracy of information or records required to be supplied by
the Lessee.
(d) Payments. Any Tax indemnified hereunder shall be paid
directly when due to the applicable taxing jurisdiction if direct payment is
permitted or shall be reimbursed to an Indemnitee on demand if paid by such
Indemnitee. Except as otherwise provided in this Section 7.4, all amounts
payable to an Indemnitee under this Section 7.4 shall be paid promptly and in
any event within thirty (30) days after receipt by the Lessee of a written
demand therefor (but not prior to two days prior to the payment of the Tax),
accompanied by a written statement describing in reasonable detail the Tax and
the computation of the amount payable (which amount shall, at the Lessee's
request, be verified by a nationally recognized "big six" independent accounting
firm selected by the Indemnitee and reasonably acceptable to the Lessee at the
Lessee's expense). Subject to satisfactory confidentiality agreements, the
Indemnitee shall provide the independent accounting firm such information
(including information from such tax returns of the Indemnitee) reasonably
necessary to verify such computations. Any information provided to such firm by
the Indemnitee shall be for its confidential use only and shall not be disclosed
to the Lessee or any other person. The parties agree that the sole
responsibility of the independent accounting firm shall be to verify the amount
of any payment hereunder and that matters regarding interpretation of this
Agreement or any other Operative Document is not with in the scope of the
independent accounting firm's responsibilities.
(e) Contests; Refunds. (i) In the event a taxing jurisdiction
makes a claim with respect to any Tax for which the Lessee may be liable under
this Section 7.4 (a "Tax Claim"), the Lessee may contest, or cause to be
contested, such Tax Claim as set forth herein. In the event any Indemnitee
receives written notice of a Tax Claim or potential Tax Claim that may be
indemnifiable under this Section 7.4, such Indemnitee shall promptly notify the
Lessee thereof. Subject to the preconditions set forth herein, if within thirty
(30) days after its receipt of such notice the Lessee shall request in writing
that such Indemnitee contest the imposition of such Taxes, then such Indemnitee
shall in good faith contest (including, without limitation, by pursuit of
appeals), and shall not settle without the Lessee's consent, the validity,
applicability or amount of such Taxes by, at the Indemnitee's option (after
consulting in good faith with the Lessee), (A) resisting payment thereof, (B)
not paying the same except under protest, if protest shall be necessary and
proper, or (C) if payment shall be made, using reasonable efforts to obtain a
refund thereof or credit therefor through appropriate administrative and
judicial proceedings. Provided (x) title to or interest in the Undivided
Interest, the Facility, the Site or any part thereof is not subjected to a
material risk of loss or forfeiture (unless the Lessee provides a satisfactory
bond or makes other provisions satisfactory (determined, in each case, by each
Indemnitee in its sole discretion exercised in good faith) to each Indemnitee to
protect
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its interest) (y) there is no risk of the imposition of criminal penalties on an
Indemnitee and (z) the Tax Claim does not involve matters which (A) extend
materially beyond, and are unrelated to, the transactions contemplated by the
Operative Documents, (B) cannot be resolved independently of the Tax Claim and
(C) if determined adversely could be materially detrimental to the interests of
the Indemnitee, notwithstanding indemnification by the Lessee, as reasonably
determined by the Indemnitee, after consultation with Lessee, then, subject to
the paragraph (iv) of this Section 7.4(e), the Lessee may at its own expense
defend against, and contest (including any appeals, other than to the U.S.
Supreme Court) the imposition of, or subject to the paragraph (iii) of this
Section 7.4(e), request such Indemnitee to contest (including any appeals, other
than to the U.S. Supreme Court) the imposition of, any Tax Claim and in such
event no Indemnitee shall be entitled to settle, compromise or pay such Tax
Claim so long as such contest is being prosecuted diligently and in good faith.
(ii) Any Indemnitee that settles a contest of a Tax Claim
required to be contested under this Section 7.4(e) without the consent of the
Lessee shall waive its right to indemnification with respect thereto.
(iii) In no event shall any Indemnitee be required to contest
the imposition of any Tax for which the Lessee may be obligated to indemnify
pursuant to this Section 7.4 unless (A) the Lessee shall have agreed in writing
to pay and shall pay to such Indemnitee on demand all reasonable costs and
expenses that such Indemnitee incurs in connection with contesting such Tax
Claim (including without limitation, all costs, expenses, reasonable legal and
accounting fees and disbursements), (B) the anticipated amount of
indemnification payments that might be payable with respect to all claims raised
in the same audit (together with the amount of all similar and logically related
claims that could be raised in any other audit of the Indemnitee) with respect
to the Undivided Interest, equals or exceeds $20,000, (C) no Event of Default
shall have occurred and be continuing, unless the Lessee shall have provided
security that the Indemnitee determines in its sole discretion exercised in good
faith to be satisfactory with respect to Lessee's obligation to indemnify the
Indemnitee with respect to such imposition, (D) nationally recognized
independent tax counsel selected by Lessee and reasonably satisfactory to the
Indemnitee shall have furnished to the Indemnitee an opinion, prepared at
Lessee's expense, setting forth in reasonable detail the factual and legal basis
for the contest, and (E) if such contest shall be conducted in a manner
requiring the payment of the Tax Claim, the Lessee shall have paid or made an
interest-free advance on an After-Tax Basis the amount required. If the contest
described above does not require the payment of a Tax Claim, the provisions of
Section 7.4(a) shall not apply to any Tax so long as it is being contested in
accordance with the provisions of this Section 7.4(e).
(iv) The Lessee may (or at the request of the Indemnitee,
shall) contest, at its own expense and subject to conditions (A), (C) and (E)
set forth in paragraph (iii), the validity, applicability or amount of any Taxes
in its own name (if permitted by applicable laws and regulations), provided,
that the claim can be segregated procedurally from Tax claims for which the
Lessee is not obligated to indemnify the Indemnitee and the Indemnitee has
reasonably determined that it does not have defenses available to it that are
different from or in addition to those available to the Lessee. The Lessee may
also contest the validity, applicability or amount
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of any Taxes in the name of an Indemnitee, provided, that no such proceeding or
action relating to such contest in the name of an Indemnitee shall be commenced
by the Lessee without the prior written consent of such Indemnitee and any such
contest shall be conducted in good faith by and at the expense of the Lessee. If
the Lessee exercises its option or, at the Indemnitee's request, is required to
pursue a contest in its own name or, with the consent of an Indemnitee in the
name of such Indemnitee, each Indemnitee will cooperate in good faith with the
Lessee in the pursuit of such contest. The Indemnitee shall have the right to
participate in any reasonable manner at its own expense and with its own counsel
in any proceeding conducted by the Lessee in accordance with this paragraph.
(v) Notwithstanding the foregoing provisions of this Section
7.4, (a) an Indemnitee, in its sole discretion (by written notice to the
Lessee), may unconditionally waive its rights to the indemnities set forth in
this Section 7.4 with respect to any Tax Claim, and refrain from contesting such
Tax Claim, in which event the Lessee shall have no liability to the Indemnitee
hereunder with respect to such Tax Claim, it being understood that any such
waiver shall be without prejudice to the rights of the Indemnitee with respect
to any other Tax Claim and (b) no Indemnitee shall be required to contest any
claim if the subject matter thereof shall be of a continuing nature and shall
have previously been decided adversely pursuant to Section 7.4(e) unless there
has been a change in law and the Lessee shall have delivered an opinion of
nationally recognized independent tax counsel selected by Lessee and reasonably
satisfactory to the Indemnitee prepared at Lessee's expense that, taking into
account such previous decision, that it is more likely than not that such claim
can be resolved on a basis favorable to the Indemnitee. Each Indemnitee and the
Lessee shall consult in good faith with each other concerning each step and
decision regarding the conduct of such contest controlled by either, including
the forum in which the Tax Claim is most likely to be favorably resolved.
(vi) If any Indemnitee shall receive a refund of, or receive a
credit for (or would have received such a refund or credit but for a
counterclaim or other claim not indemnified by the Lessee hereunder (a "Deemed
Refund or Credit")), all or any part of any Taxes paid, reimbursed or advanced
by the Lessee, then such Indemnitee shall pay to the Lessee within thirty (30)
days of such receipt (or, in the case of a Deemed Refund or Credit, within
thirty (30) days of the Final Determination of such claim), an amount equal to
the lesser of (I) the amount of such refund or credit or Deemed Refund or Credit
plus or minus any net tax benefit or cost (taking into account any Taxes
incurred by such Indemnitee by reason of the receipt or accrual of such refund
or credit or Deemed Refund or Credit) realized by such Indemnitee as a result of
any payment by such Tax Indemnitee made pursuant to this sentence (including
this clause (I)) and (II) the amount of such tax payment, reimbursement or
advance by Lessee plus any other payment by the Lessee pursuant to this Section
7.4 to such Indemnitee, it being intended that such Tax Indemnitee shall retain
a net tax benefit pursuant to this Section 7.4(e) only if the Lessee shall first
have been reimbursed for the corresponding tax payment, reimbursement or
advance, provided, further, that, if at the time any such payment would be due
and payable, an Event of Default shall have occurred and be continuing, the
Indemnitee shall hold the amount of such payment as security for the obligations
of Lessee to the Lessor under the Operative Documents, and at such time as there
shall not be continuing any such Event of Default, shall pay such amount to the
Lessee. If, in addition to such refund or credit or Deemed Refund or
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Credit, as the case may be, such Indemnitee shall receive (or would have
received but for a counterclaim or other claim not indemnified by Lessee
hereunder) an amount representing interest on the amount of such refund or
credit or Deemed Refund or Credit, as the case may be, such Indemnitee shall pay
to the Lessee within thirty (30) days of such receipt or, in the case of a
Deemed Refund or Credit, within thirty (30) days of the Final Determination of
such claim, that portion of such interest that shall be fairly attributable to
Taxes paid, reimbursed or advanced by the Lessee prior to the receipt of such
refund or credit or Deemed Refund or Credit. If it is later determined that the
Indemnitee was not entitled to such refund or credit or Deemed Refund or Credit,
the portion of such refund or credit or Deemed Refund or Credit that is
disallowed, reduced, lost, repaid, or recaptured will be treated as Taxes for
which the Lessee is obligated to Indemnify the Indemnitee hereunder (subject to
the exclusions set forth in clauses (ii) or (iv) of Section 7.4(b)). A "Final
Determination" with respect to this Section 7.4(e) shall mean (i) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or other order has become final after all allowable
appeals by either party to the action have been exhausted or the time for filing
such appeal has expired or a final administrative determination where no
judicial appeal of that determination is available, (ii) a closing agreement or
any other settlement agreement entered into in connection with an administrative
or judicial proceeding and with the consent of the Lessee in circumstances in
which such consent is required under Section 7.4 of this Agreement, (iii) the
expiration of the time for instituting suit with respect to the claimed
deficiency, or (iv) the expiration of the time for instituting a claim for
refund, or if such claim was filed, the expiration of the time for instituting
suit with respect thereto.
(f) Tax Savings. To the extent not already taken into account
in computing After-Tax Basis, any payment that the Lessee shall be required to
make to any Indemnitee with respect to any Tax that is subject to
indemnification under this Section 7.4 shall reflect any current Tax savings of
such Indemnitee resulting by way of allocation or apportionment, deductions,
credits or other tax benefits attributable to such indemnified Tax or the
circumstances thereof that are currently available to reduce any Taxes for which
the Lessee is not required to indemnify such Indemnitee pursuant to this Section
7.4. If by reason of the incurrence of any Tax for which the Indemnitee is
indemnified hereunder or any payment made to or for the account of an Indemnitee
by the Lessee pursuant to this Section 7.4, such Indemnitee at any time realizes
a reduction in any Taxes for which the Lessee is not required to indemnify such
Indemnitee pursuant to this Section 7.4, which reduction in Taxes was not taken
into account in computing such payment by the Lessee to or for the account of
such Indemnitee, then such Indemnitee shall promptly pay to the Lessee an amount
equal to such reduction in Taxes, plus the amount of any additional Tax savings
of such Indemnitee attributable to any payment made by such Indemnitee to the
Lessee pursuant to this sentence; provided, however, that an Indemnitee shall
not be obligated to make any payment pursuant to this Section 7.4(f) to the
extent that the amount of such payment would exceed (x) the amount of all prior
payments by the Lessee to the Indemnitee and any Affiliate thereof pursuant to
this Section 7.4, less (y) the amount of all prior payments by the Indemnitee
and any Affiliate thereof to the Lessee under this Section 7.4(f), provided,
that, if at the time any such payment would be due and payable, an Event of
Default shall have occurred and be continuing, the Indemnitee shall hold the
amount of such payment as security for the obligations of Lessee to the Lessor
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under the Operative Documents, and at such time as there shall not be continuing
any such Event of Default, shall pay such amount to the Lessee. Any such excess
described in clause (ii) of the immediately preceding sentence shall be carried
forward and reduce the Lessee's obligation to make subsequent payments to the
Indemnitee and any Affiliate thereof pursuant to this Section 7.4. The loss,
disallowance, reduction, repayment or recapture of any Tax savings with respect
to which an Indemnitee has made a payment to Lessee hereunder or which was taken
into account in calculating any indemnity payment under this Section 7.4 shall
be treated as a Tax for which the Lessee is obligated to indemnify such
Indemnitee hereunder without regard to the exclusions provided in Section
7.4(b).
(g) Reimbursements by Indemnitees Generally. If, for any
reason, the Lessee is required to make any payment with respect to any Taxes
imposed on any Indemnitee, which taxes are not the responsibility of the Lessee
under this Section 7.4, then such Indemnitee shall pay to the Lessee an amount
that equals the amount paid by the Lessee with respect to such Taxes.
Section 7.5 Survival. The provisions of this Article VII shall
survive the expiration or termination of this Participation Agreement, the Lease
and the other Operative Documents.
ARTICLE VIII
LIMITATION OF LIABILITY OF OWNER TRUSTEE
It is expressly understood and agreed by and among the parties
hereto that, except as otherwise expressly provided herein or in the other
Operative Documents, (a) this Participation Agreement and the other Operative
Documents (other than the Trust Agreement) to which Owner Trustee is a party are
executed by the Trust Company, not in its individual capacity, but solely as
Owner Trustee under the Trust Agreement in the exercise of the power and
authority conferred and vested in it as Owner Trustee, (b) each and every
agreement, covenant, representation and warranty made by Owner Trustee in this
Participation Agreement or any other Operative Document to which it is a party
(except the Trust Agreement) is made and intended not as a personal agreement,
covenant, representation and warranty by Trust Company, or for the purpose or
with the intention of binding Trust Company personally, but is made and intended
for the purpose of binding only the Trust Estate, (c) actions to be taken by
Owner Trustee pursuant to its obligations under this Participation Agreement or
the other Operative Documents to which it is a party (except the Trust
Agreement) may, in certain circumstances set forth herein or in the other
Operative Documents to which it is a party, be taken by Owner Trustee only upon
specific authority of Owner Participant, (d) nothing contained in the Operative
Documents shall be construed as creating any liability on Trust Company,
individually or personally, or any incorporator or any past, present or future
subscriber to the capital stock of, or stockholder, officer or director, of
Trust Company to perform any covenants either express or implied contained
herein, all such liability, if any, being expressly waived by the other parties
hereto and by any Person claiming by, through or under them, and (e) the
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parties hereto and any Person claiming by, through or under them shall look
solely to the Trust Estate for the performance of any obligation under this
Participation Agreement or any other Operative Document; provided, however, that
nothing in this Article VIII shall be construed to limit in scope or substance
the general corporate liability of Trust Company in respect of (i) its gross
negligence or willful misconduct or its negligent handling of monies, (ii) those
representations, warranties and covenants of Trust Company in its individual
capacity set forth herein or in any of the other Operative Documents to which it
is a party, (iii) the consequences of its own acts or omissions in breach of the
Trust Agreement or constituting bad faith, (iv) any Tax based on or measured by
any fees, commission or compensation received by it for acting as trustee in
connection with any of the transactions contemplated by the Operative Documents.
Nothing in this Article VIII shall be deemed to prevent any party hereto from
having recourse to and seeking enforcement against the Trust Estate of any
covenants, agreements and conditions required to be performed or observed by the
Owner Trustee (in its individual capacity and as the Owner Trustee) in this
Participation Agreement and the other Operative Documents.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices. Unless otherwise specifically provided
herein, all notices, consents, directions, approvals, instructions, requests and
other communications required or permitted by the terms hereof shall be in
writing, and all such communications and all payments shall be deemed to have
been duly given (w) when delivered personally, (x) when telecopied (and
confirmed) or (y) if delivered otherwise, when actually received, and addressed
as follows:
If to NACC,
North American Chemical Company
8300 College Boulevard
Overland Park, Kansas 66210
Attention: Vice President/Assistant Treasurer
Telecopy No.: (913) 338-7921
Bank: Barclays Bank PLC
ABA No. 026 002 574
Account for Payment: 050 785 737
If to HCNA:
Harris Chemical North America, Inc.
399 Park Avenue, 32nd Floor
New York, New York 10022
Attention: Chief Financial Officer or Treasurer
Telecopy No.: (212) 207-6440
Bank: Barclays Bank PLC
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Account for Payment: 050 785 737
ABA No. 026 002 574
If to Owner Participant:
[ ]
Attention: [ ]
Telephone: [ ]
Telecopy No.: [ ]
Bank: [ ]
Account for Payment: [ ]
ABA No.: [ ]
If to Owner Trustee:
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention: Ms. Sandra Leess
Telecopy No: (213) 489-3371
and
U.S. Trust Company of California, N.A.
c/o U.S. Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Mr. Louis P. Young
Telecopy No.: (212) 852-1627
Bank: Chase Manhattan Bank
ABA No.: 021000021
Account for Payment: 920-1-073-195
Reference: For credit to Searles Valley Trust (1996)
Account Number: [ ]
with a copy to Owner Participant (receipt of such copy, however, is not notice
to Owner Participant in its capacity as such). From time to time, any party
hereto may designate a new address for payment or for purposes of notice
hereunder by giving notice to each of the other parties.
Section 9.2 Counterparts; Reproduction of Documents. This
Participation Agreement may be executed by the parties hereto in separate
counterparts, each of which when
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so executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument. The Operative Documents and
all documents relating thereto, including without limitation, (a) consents,
waivers and modifications which may hereafter be executed, (b) documents
received by Owner Participant at the closing on the Closing Date, and (c)
financial statements, certificates and other information previously or hereafter
furnished to Owner Participant, may be reproduced by Owner Participant by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and Owner Participant may destroy any original documents
so reproduced. Each party hereto agrees and stipulates that any such
reproduction shall be admissible in evidence as an original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by Owner Participant in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 9.3 Further Assurances. Each party hereto will
promptly and duly execute and deliver all such documents and assurances and take
such further action as may be necessary or appropriate in order to carry out
more effectively the intent and purpose of the Operative Documents and to
establish and protect the rights and remedies created or intended to be created
thereunder.
Section 9.4 Quiet Enjoyment. Each of Owner Participant and
Owner Trustee covenants that during the Lease Term and so long as no Event of
Default has occurred and is continuing, NACC shall peaceably and quietly have,
hold and enjoy the Facility as lessee in possession, free from molestation,
hindrance, eviction or disturbance by Lessor or by any other Person or Persons
lawfully claiming by, through or under Owner Trustee or Owner Participant.
Section 9.5 Survival. All warranties, representations,
covenants and indemnities made by any party herein or in any certificate or
other instrument delivered by such party or on the behalf of such party pursuant
to this Participation Agreement shall be considered to have been relied upon by
each other party hereto (notwithstanding any investigation made by any party
hereto or to any of the other Operative Documents or the fact that any such
party may waive compliance with any of the terms and conditions of any of the
Operative Documents) and shall survive the execution and delivery of this
Participation Agreement and the other Operative Documents and the consummation
of the transactions contemplated by this Participation Agreement or any other
Operative Document.
Section 9.6 Confidentiality. (a) For purposes of this Section
9.6, "Confidential Information" means information delivered to the Owner
Participant, the Owner Trustee or the Power Contract Trustee by or on behalf of
NACC, HCNA or any Affiliate or Subsidiary of NACC or HCNA in connection with the
transactions contemplated by this Participation Agreement that is proprietary in
nature and that was marked or labeled or otherwise adequately identified when
received by such Person as being confidential information of NACC, HCNA or any
of their Subsidiaries or Affiliates, provided that such term does not include
information that (a) was publicly known or otherwise known to such Person prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by such Person or any
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person acting on behalf of such Person, (c) otherwise becomes known to such
Person other than through disclosure by NACC, HCNA or any Affiliate or
Subsidiary of NACC or HCNA or (d) constitutes financial statements that are
otherwise publicly available. Owner Participant, Owner Trustee and the Power
Contract Trustee will maintain the confidentiality of such Confidential
Information; provided, however, that nothing herein or in any such
confidentiality agreement shall prevent or be construed to prevent Owner
Participant or Owner Trustee from providing information (i) to any Affiliate of
such Person (to the extent such disclosure reasonably relates to the
administration of the investment represented by the Lease Financing Documents)
or to any transferee of such Person (or prospective transferee of such Person)
that agrees to be similarly bound or executes and delivers an appropriate
confidentiality agreement, (ii) upon the order, request or demand of, or in
connection with any investigation or audit by, any Authority, (iii) that is in
the public domain other than through any violation hereof or of any such
confidentiality agreement or through any other action, in any such case, by such
Person, (iv) that has been obtained from any Person that is not a party to this
Agreement or an Affiliate of any such party and who was not, to the knowledge of
Owner Participant or Owner Trustee (as the case may be), similarly bound, (v) in
connection with the exercise of any remedy hereunder or under any other
Operative Document, to the extent such Person may reasonably determine such
disclosure to be necessary or appropriate in the enforcement or for the
protection of its rights and remedies under the Lease Financing Documents, (vi)
as expressly contemplated by this Agreement or any other Operative Document,
(vii) to any prospective purchaser or lessee of the Facility or Owner
Participant's interest therein, provided, that such purchaser or lessee shall
have agreed in writing to be bound by the provisions of this Section 9.6 or
(viii) to the auditors or attorneys of such Person who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 9.6(a). The agreements and obligations of the parties
contained in this Section 9.6(a) shall survive the termination of this
Participation Agreement for a period of two years.
(b) Publicity Materials. Except as required by Applicable Law,
each of NACC and HCNA hereby agrees that it will not, and will not permit any
one acting on its behalf, to issue, authorize or release for external
publication or distribution any article, press release, advertising or other
publicity material in any media disclosing the name of the Owner Participant or
its Affiliates, without the prior written consent of the Owner Participant.
Section 9.7 Intentionally Omitted.
Section 9.8 Amendments. Neither this Participation Agreement
nor any of the terms hereof may be terminated, amended, supplemented, waived or
modified orally, but only by an instrument in writing signed by each party
hereto; and no such termination, amendment, supplement, waiver or modification
shall be effective unless a signed copy thereof shall have been delivered to
each party hereto. NACC agrees that it shall not amend the Other Lease without
the consent of the Owner Participant.
Section 9.9 Headings, etc. The Table of Contents and headings
of the various Sections of this Participation Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
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Section 9.10 Successors and Assigns. The terms of this
Participation Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and permitted assigns.
Section 9.11 Governing Law; Consent to Jurisdiction; Service
of Process; Waiver of Immunities. (a) This Participation Agreement shall be
construed in accordance with and governed by the laws of the State of New York.
(b) Each of the parties hereto hereby irrevocably and
unconditionally submits to the non-exclusive jurisdiction of any New York State
or United States Federal court sitting in New York City and, in the event it is
a defendant, of any court of its corporate domicile and the appellate courts of
any such jurisdiction, over any suit, action or proceeding arising out of or
relating to this Participation Agreement or the other Operative Documents. Each
of the parties hereto irrevocably and unconditionally waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. To the extent that HCNA or NACC
has or hereafter may acquire any immunity from jurisdiction of any court or from
any legal process with respect to itself or its property, HCNA and NACC each
irrevocably waives such immunity in respect of its obligations hereunder. Each
of the parties hereto agree that final judgment in any such suit, action or
proceeding brought in such a court shall be conclusive and binding upon such
party, and may be enforced in any court the jurisdiction of which such party, is
subject by a suit upon such judgment or in any manner provided by law, provided,
that service of process is effected upon such party as permitted by law, or in
the case of HCNA or NACC, in the manner specified in the following subsection or
as otherwise permitted by law.
(c) As long as any obligation of NACC or HCNA exists under the
Operative Documents, each of HCNA and NACC will at all times have an authorized
agent in New York City, upon whom process may be served in any legal action or
proceeding arising out of or relating to this Participation Agreement. Service
of process upon such agent and written notice of such service mailed or
delivered to HCNA or NACC, respectively, shall to the extent permitted by law be
deemed in every respect effective service of process upon HCNA and NACC,
respectively, in any such legal action or proceeding. Each of HCNA and NACC
hereby irrevocably appoints CT Corporation System as its agent for such purpose,
and covenants and agrees that service of process in any suit, action or
proceeding may be made upon such party at the office of such agent at 1633
Broadway, New York, New York 10019, U.S.A. Notwithstanding the foregoing, HCNA
or NACC may, with prior written notice to the Trustee, terminate the appointment
of CT Corporation System and appoint another agent for the above purposes so
that HCNA and NACC shall each at all times have an agent for the above purposes
in New York City.
(d) Each of HCNA and NACC hereby irrevocably waives, to the
fullest extent permitted by law, any requirement or other provision of law,
rule, regulation or practice which requires or otherwise establishes as a
condition to the institution, prosecution or completion of any suit, action or
proceeding (including appeals) arising out of or relating to this Participation
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Agreement or the other Operative Documents, the posting of any bond or the
furnishing, directly or indirectly, of any other security.
Section 9.12 Severability. Any provision of this Participation
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction only, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by Applicable Law, each of the parties hereto hereby waives any
provision of law that renders any provision hereof prohibited or unenforceable
in any respect.
Section 9.13 Waiver of Trial by Jury. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OTHER OPERATIVE DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
Section 9.14 Obligation of Owner Participant to Return Letter
of Credit. Owner Participant agrees for the benefit of NACC and HCNA that it
shall return the Letter of Credit as required pursuant to the Lease.
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IN WITNESS WHEREOF, the parties hereto have caused this
Participation Agreement to be duly executed by their respective officers
thereunto duly authorized as of the date and year first above written.
NORTH AMERICAN CHEMICAL COMPANY
By: ____________________________________
Name:
Title:
HARRIS CHEMICAL NORTH AMERICA, INC.
By: ____________________________________
Name:
Title:
[OWNER PARTICIPANT]
By: ____________________________________
Name:
Title:
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity except to
the extent expressly provided herein, but
solely as Owner Trustee under the Trust
Agreement
By: ____________________________________
Name:
Title:
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SCHEDULE I
Pricing Assumptions
Schedule I - 1
<PAGE>
SCHEDULE II
Certain Permitted Liens
Schedule II - 1
<PAGE>
SCHEDULE 4.1(l)
Environmental Approvals
Schedule 4.1(l) - 1
<PAGE>
SCHEDULE 4.1(o)
Filings
Schedule 4.1(o) - 1
<PAGE>
SCHEDULE 5.1(c)
Consents
Schedule 5.1(c) - 1
<PAGE>
SCHEDULE 5.1(q)
Condition of Facility
Schedule 5.1(q) - 1
<PAGE>
SCHEDULE 5.1(u)
Environmental Compliance
Schedule 5.1(u) - 1
<PAGE>
SCHEDULE 5.1(aa)
Restrictions and Covenants
Schedule 5.1(aa) - 1
<PAGE>
SCHEDULE 5.1(bb)
Pending Assessments
Schedule 5.1(bb) - 1
<PAGE>
FORM OF ANNEX A
---------------
ANNEX A
SEARLES VALLEY TRUST (1996)
LEASE FINANCING OF ARGUS UTILITY PLANT
DEFINITIONS AND RULES OF USAGE
RELATING TO THE OPERATIVE DOCUMENTS
Rules of Usage. The following rules of usage shall apply to
this Annex A and the Operative Documents unless otherwise required by the
context:
(a) Singular words shall connote the plural as well as the
singular, and vice versa (except as indicated), as may be appropriate.
(b) Unless otherwise indicated, references within any document
to appendices, articles, schedules, sections, paragraphs, clauses or
exhibits are references to appendices, articles, schedules, sections,
paragraphs, clauses or exhibits in or to such document.
(c) The headings, subheadings and table of contents are solely
for convenience of reference and shall not constitute a part of any
such document nor shall they affect the meaning, construction or effect
of any provision thereof.
(d) References to any Person shall include such Person, its
successors and permitted assigns and transferees.
(e) Except as otherwise expressly provided, reference to any
agreement means such agreement as amended, modified or supplemented
from time to time in accordance with the applicable provisions thereof.
(f) Unless otherwise specified herein or with the prior
consent of the Owner Participant, which consent shall not be
unreasonably withheld, all accounting determinations under the Lease
Financing Documents and all computations utilized by HCNA and NACC in
complying with the covenants contained in the Lease Financing Documents
shall be made and all accounting terms used in the Lease Financing
Documents shall be interpreted in accordance with Generally Accepted
Accounting Principles applied on a consistent basis, except as required
to reconcile such determinations, computations and interpretations with
generally accepted accounting
<PAGE>
principles as then applied in the preparation of the financial
statements of HCNA and NACC.
(g) References to "including" shall mean including without
limiting the generality of any description preceding such term and for
purposes hereof the rule of ejusdem generis shall not be applicable to
limit a general statement, followed by or referable to an enumeration
of specific matters, to matters similar to those specifically
mentioned.
(h) Each of the parties to the Operative Documents and its
counsel have reviewed and revised, or requested revisions to, the
Operative Documents, and the usual rule of construction that any
ambiguities are to be resolved against the drafting party shall be
inapplicable in the construction and interpretation of the Operative
Documents.
"Account Bank Agreement" shall mean an agreement between a
bank and NACC substantially in the form of Exhibit Z to the Participation
Agreement.
"ACE Facility" shall mean the ACE Cogeneration Facility
located adjacent to the Complex.
"Adjustment" shall mean any recomputation of the Basic Rent
amounts pursuant to Article III of the Participation Agreement and any related
adjustments.
"Affiliate" of any specified Person shall mean any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" when used with respect to any Person shall mean the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings correlative to
the foregoing. Notwithstanding the foregoing, for purposes of Article VI of the
Participation Agreement only, a Person will not be deemed to be an "Affiliate"
of HCNA or a Restricted Subsidiary of HCNA solely by reason of the control of
such Person by HCNA or one or more Restricted Subsidiaries of HCNA; provided,
that no other Affiliate of HCNA has an ownership interest in or directly or
indirectly controls such Person.
"After-Tax Basis" shall have the meaning specified in Section
1(b) of the Tax Indemnity Agreement.
"Allocation Agreement" shall mean the Agreement for the
Allocation of Production and Calculation of Mineral Royalties, Searles Lake
California, dated January 1, 1996, between the United States of America, as
represented by the Associate Director for Royalty Management, Minerals
Management Service, the BLM and NACC.
2
<PAGE>
"Applicable Law" shall mean (a) all applicable common law and
principles of equity and (b) all applicable provisions of all (i) constitutions,
statutes, laws, ordinances, codes, policies, rules, regulations and orders of
governmental bodies, (ii) Approvals and (iii) orders, decisions, directives,
judgements and decrees of all courts (whether at law or in equity or admiralty),
governmental bodies, regulatory agencies and arbitrators, including, in all such
cases and without limitation, all Environmental Laws.
"Appraisal" shall have the meaning specified in Section 4.2(a)
of the Participation Agreement.
"Appraisal Procedure" shall mean the procedure specified in
this definition for determining an amount, value, useful life of, or other
matter with respect to, the Facility, the Undivided Interest therein, the Site,
the Leasehold Estate or any Modification (except in the case of determinations
pursuant to Section 18 of the Lease). If the Owner Participant (or Owner
Trustee) and NACC are required to determine any amount, value, useful life of,
or other matter with respect to, the Facility, the Undivided Interest therein,
the Site, the Leasehold Estate or any Modification (except in the case of
determinations pursuant to Section 18 of the Lease), then Owner Participant and
NACC shall consult for the purpose of determining such amount, value, useful
life of, or other matter by mutual agreement. If the Owner Participant and NACC
are unable to reach mutual agreement with respect to any amount, value, useful
life of, or other matter required to be determined by the Appraisal Procedure on
or before the thirtieth (30th) day following commencement of the Appraisal
Procedure, either the Owner Participant or NACC may give notice to the other
requesting determination of such amount, value, useful life of, or other matter
to be determined by an appraisal, and, in such event, the Owner Participant and
NACC may each appoint a qualified, disinterested and MAI-certified and licensed
industrial property appraiser within ten (10) Business Days following the date
of such notice requesting determination by appraisal. For an Appraisal Procedure
with respect to the Facility as a whole, such amount, value, useful life of, or
other matter shall be determined by the appraisers applying methodology and
otherwise on a basis consistent with the Appraisal. If the appraisers appointed
by the Owner Participant and NACC are unable to agree upon the amount, value,
useful life of, or other matter in question within twenty (20) Business Days
following their final appointment, such appraisers shall jointly appoint a third
qualified, disinterested and MAI-certified and licensed industrial property
appraiser or, if such appraisers do not appoint a third appraiser, the Owner
Participant and NACC shall jointly appoint the third appraiser. Each appraiser
appointed pursuant to the foregoing procedure shall be instructed to determine
such amount, value or useful life within twenty (20) Business Days following its
appointment. If either party does not appoint its appraiser within ten (10)
Business Days following the date of the notice requesting determination by
appraisal, the determination of the other appraiser shall be conclusive and
binding upon such party. If the two appraisers appointed by the parties agree
upon the amount, value, useful life or other matter in question, or if a single
appraiser shall have been appointed by the parties, the determination of such
appraiser(s) shall be final and binding upon the parties, and if three
appraisers shall have been appointed, the separate determinations of each of
such three appraisers shall be averaged and such average shall constitute the
determination of the appraisers which determination shall be conclusive and
binding on the parties; provided, that if
3
<PAGE>
the determination of one appraiser is disparate from the middle determination by
more that twice the amount by which the third determination is disparate from
the middle determination, then the determination of the most disparate appraiser
shall be excluded, and the average of the remaining two determinations shall be
conclusive and binding on the Owner Participant and NACC. The expenses of the
Appraisal Procedure shall be shared equally by the Owner Participant and NACC,
except that (a) in the case of an Appraisal Procedure pursuant to Sections 18,
20 and 21 of the Lease all such expenses shall be borne solely by Lessee and (b)
in the case of an Appraisal Procedure pursuant to Section 10 of the Lease all
such expenses shall be borne solely by Lessor. Any fair market value
determination of a Severable Modification shall take into consideration any
liens or encumbrances to which the Severable Modification being appraised is
subject and which are being assumed by the transferee.
"Appraiser" shall mean American Appraisal Associates.
"Approvals" shall mean all permits, authorizations,
registrations, franchises, consents, approvals, rate orders, waivers,
exceptions, variances, claims, orders, judgments, interpretations and decrees,
licenses, exemptions, publications, filings, notices to and declarations of or
with any Authority and shall include, without limitation, those pertaining to
Environmental Laws, and all siting, environmental and operating permits and
licenses that are required under Applicable Law for the use, operation and
maintenance of the Facility and the Site as contemplated by the Operative
Documents, and to the extent applicable to such use, operation or maintenance of
the Facility and the Site, of the Complex.
"Approved Sublessee" shall mean (a) any entity whose
outstanding debt obligations that have a remaining average life at least as long
as the average life of the remaining Basic Rent under the Lease are rated BBB-
or better by Standard & Poor's or Baa3 or better by Moody's or (b) HCNA or any
direct or indirect subsidiary of HCNA organized under the laws of the United
States or any state thereof.
"Argus Utility Bill of Sale" shall mean the Bill of Sale
substantially in the form of Exhibit A to the Participation Agreement.
"Argus Utility Deed of Improvements" shall mean the Deed of
Improvements substantially in the form of Exhibit B to the Participation
Agreement.
"Argus Utility Plant" shall mean the coal and gas-fired steam
and electricity generation facility located within the Complex, as more
particularly described in Schedule I to the Lease.
"Asset Disposition" by any Person shall mean any transfer,
conveyance, sale, lease or other disposition by such Person or any of its
Restricted Subsidiaries (including a consolidation or merger or other sale of
any such Restricted Subsidiary with, into or to another Person in a transaction
in which such Restricted Subsidiary ceases to be a Restricted Subsidiary, but
excluding a disposition (a) by a Restricted Subsidiary of HCNA to HCNA or a
Restricted
4
<PAGE>
Subsidiary of HCNA, (b) by HCNA to a Restricted Subsidiary of HCNA, (c) by HCNA
or any Restricted Subsidiary of HCNA to an entity in exchange solely for Voting
Stock of such entity as a part of a commercial joint venture arrangement related
to the business of HCNA or (d) of any assets constituting collateral pledged
under any Working Capital Facility) resulting in Net Available Proceeds in
excess of $1 million of (i) shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests of a Subsidiary of such Person,
(ii) substantially all of the assets of such Person or any of its Subsidiaries
representing a division or line of business or (iii) other assets or rights of
such Person or any of its Subsidiaries outside of the ordinary course of
business; provided, however, that an Asset Disposition that is otherwise a
Restricted Payment under Section 6.2(e) shall not be deemed to be an Asset
Disposition.
"Assignment' shall have the meaning specified in Section 15 of
the Lease.
"Assuming Person" shall have the meaning specified in Section
7.3 of the Participation Agreement.
"Authority" shall mean any (a) federal, state or local
government or subdivision thereof and any entity exercising executive,
legislative, judicial or administrative functions of or pertaining to
government, or (b) arbitrator or panel of arbitrators, in the case of each of
clause (a) and (b) having or exercising jurisdiction over NACC, HCNA, Owner
Participant, Owner Trustee, the Facility or the Undivided Interest therein, the
Easement Site or the Site or the Undivided Interest therein.
"Average Sales Percentage" shall mean, with respect to any
period, the ratio (expressed as a percentage) of (x) the annual average of
highway deicing salt sales (in tons) to (y) the annual average of Salt
Commitments, in each case for the preceding four fiscal years and the current
fiscal year of HCNA and its Restricted Subsidiaries.
"Average Weighted Life" means, as of the date of
determination, with respect to any Debt or remaining Basic Rent, the quotient
obtained by dividing (i) the sum of the products of the numbers of years from
the date of determination to the dates of each successive scheduled principal or
Basic Rent payments of such Debt or remaining Basic Rent, respectively, and the
amount of such principal or Basic Rent payments, by (ii) the sum of all such
principal or Basic Rent payments.
"Basic Rent" shall mean, for the Basic Term, the rent payable
pursuant to Section 4(a) of the Lease (as the same may be adjusted from time to
time), and, for any Renewal Term, shall mean the rent payable pursuant to
Section 20(b) of the Lease.
"Basic Rent Payment Date" shall mean August 15, 1996 and each
Semiannual Rent Payment Date thereafter.
"Basic Term" shall have the meaning specified in Section 3 of
the Lease.
5
<PAGE>
"Basic Term Commencement Date" shall mean August 15, 1996.
"BLM" shall mean the United States Department of Interior
Bureau of Land Management.
"BLM Leases" shall mean those certain mineral leases listed on
Attachment 1 to the Allocation Agreement.
"Board of Directors" shall mean with respect to any Person
either its Board of Directors or any duly authorized committee of that board.
"Board Resolution" shall mean, with respect to any Person, a
copy of a resolution certified by the secretary or assistant secretary of such
Person to have been duly adopted by its Board of Directors and to be in full
force and effect on the date of such certification.
"Break Costs" shall mean with respect to the amount (x)
payable by NACC to Owner Trustee on the Termination Date pursuant to Section 12
of the Lease and (y) payable to Owner Participant or Owner Trustee pursuant to
Section 6.5 of the Participation Agreement, an amount, not less than zero, equal
to: (i) the Discounted Value (Yield); plus (ii) the Discounted Value (Investment
Recovery); plus (iii) the Discounted Value (Termination); minus (iv) the
applicable Stipulated Loss Value.
"Breakage Treasury Yield" shall mean with respect to the
calculation of Break Costs on any Determination Date, the per annum rate
(expressed as a semiannual equivalent rounded to the nearest 0.0001 percentage
point and, in the case of United States Treasury bills, converted to a
bond-equivalent yield) determined to be equal to the semiannual yield to
maturity for United States Treasury securities with a weighted average life to
maturity (calculated in accordance with accepted financial practice) equal to
the Weighted Average Life to Maturity on such date, as determined by linear
interpolation between the most recent weekly average yields to maturity for two
series of United States Treasury securities, (i) the first with a weighted
average life to maturity (calculated in accordance with accepted financial
practice) as close as possible to, but earlier than, the Weighted Average Life
to Maturity on such date, and (ii) the second with a weighted average life to
maturity (calculated in accordance with accepted financial practice) as close as
possible to, but later than, the Weighted Average Life to Maturity on such date,
in each case as published in the most recent H.15 (519) (or, if a weekly average
yield to maturity for United States Treasury securities with a weighted average
life to maturity (calculated in accordance with accepted financial practice)
equal to the Weighted Average Life to Maturity on such date is reported in the
most recent H.15 (519), such weekly average yield to maturity). H.15 (519) means
"Statistical Release H.15 (519), Selected Interest Rates", or any successor
publication, published by the Board of Governors of the Federal Reserve System.
The most recent H.15 (519) means the latest H.15 (519) which is published prior
to the close of business on the third Business Day preceding the applicable
Determination Date.
6
<PAGE>
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks are required or authorized to be closed in
the State of New York or in the place in which the principal office of the Owner
Trustee is located.
"Capital Expenditures" of any Person shall mean expenditures
by such Person in respect of the purchase or other acquisition of fixed or
capital assets having a useful life of greater than one year (excluding, to the
extent otherwise included herein, interest capitalized during such period in
accordance with Generally Accepted Accounting Principles) which would, in
accordance with Generally Accepted Accounting Principles, be set forth as
capital expenditures on a consolidated statement of cash flows of such Person.
"Capital Lease Obligation" of any Person shall mean the
obligation to pay rent or other payment amounts under a lease of (or other Debt
arrangements conveying the right to use) real or personal property of such
Person which is required to be classified and accounted for as a capital lease
or a liability on the face of a balance sheet of such Person in accordance with
Generally Accepted Accounting Principles. The stated maturity of such obligation
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Capital Stock" of any Person shall mean any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock of such Person.
"Cash Deposit" shall mean an amount of cash at all times at
least equal to the Drawing Amount deposited in the Lessor Security Account
pursuant to the Account Bank Agreement.
"Cash Equivalents" shall mean at any time, (a) any evidence of
Debt with a maturity of 180 days or less issued or directly and fully guaranteed
or insured by the United States of America or any agency or instrumentality
thereof (provided, that the full faith and credit of the United States of
America is pledged in support thereof); (b) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000 and rated at least
A- by Standard & Poor's or at least A3 by Moody's, or, in the event of any
change in the rating system employed by either such agency, the equivalent or
better of the ratings specified above then employed by such agency, or if either
such agency no longer publishes ratings, the equivalent rating as published by
another Rating Agency; (c) commercial paper with maturity of 180 days or less
issued by a corporation (except HCNA or an Affiliate or Subsidiary of HCNA)
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's or at lease P-1 by Moody's
or, in the event of any change in the rating system employed by either such
agency, the equivalent or better of the ratings specified above then employed by
such agency, or if either such agency no longer publishes ratings, the
equivalent rating as published by another Rating Agency; and (d) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United
7
<PAGE>
States of America or issued by any agency thereof and backed by the full faith
and credit of the United States of America, in each case maturing within one
year from the date of acquisition; provided, that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.
"Closing" shall have the meaning specified in Section 2.1 of
the Participation Agreement.
"Closing Date" shall mean July 15, 1996 or such other date
agreed to by the Owner Participant and NACC that the transactions contemplated
by Section 2.1 of the Participation Agreement are consummated.
"Closing Date Notice" shall mean a notice delivered pursuant
to Section 2.2 of the Participation Agreement.
"Coal Supply Agreement" shall mean the Coal Purchase and Sale
Agreement dated as of December 30, 1994, by and between NACC and Coastal States
Energy Company.
"Coal Transportation Agreement" shall mean the Rail
Transportation Agreement, effective as of November 5, 1994, by and among the
Denver and Rio Grande Western Railroad Company, Southern Pacific Transportation
Company, Trona Railway Company and NACC.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment" shall have the meaning specified in Section
2.1(a) of the Participation Agreement.
"Common Stock" of any Person shall mean Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Competitor" shall mean any Person that is engaged directly or
indirectly through one or more of its Affiliates in the business of mining,
processing or sale of products mined or processed by any Affiliate of HCNA;
provided, however, that institutional investors in the business of investing in
assets such as the Facility shall not be deemed competitors of HCNA or any
Affiliate thereof.
"Complex" shall mean, collectively, the industrial plants
commonly known as the "Argus Plant," the "Trona Plant" and the "Westend Plant"
and all related facilities, located in Trona, California.
8
<PAGE>
"Consolidated Cash Flow Ratio" of any Person shall mean for
any period the ratio of (a) Consolidated Operating Cash Flow of such Person for
such period to (b) the sum of (i) Consolidated Interest Expense of such Person
for such period plus (ii) the annual interest expense (excluding the
amortization of debt issuance costs) with respect to any Debt proposed to be
Incurred by such Person or its Restricted Subsidiaries minus (iii) Consolidated
Interest Expense of such Person to the extent included in Clause (b)(i) with
respect to any Debt that will no longer be outstanding as a result of the
Incurrence of the Debt proposed to be Incurred plus (iv) the annual interest
expense (excluding the amortization of debt issuance costs) with respect to any
other Debt Incurred by such Person or its Restricted Subsidiaries since the end
of such period to the extent not included in Clause (b)(i) minus (v)
Consolidated Interest Expense of such Person to the extent included in Clause
(b)(i) with respect to any Debt that no longer is outstanding as a result of the
Incurrence of Debt by such Person or its Restricted Subsidiaries since the end
of such period; provided, however, that in making such computation, the
Consolidated Interest Expense of such Person attributable to interest on any
Debt bearing a floating interest rate shall be computed on a pro forma basis as
if the rate in effect on the date of computation had been the applicable rate
for the entire period; provided, further, that in the event such Person or its
Restricted Subsidiaries has made Asset Dispositions or acquisitions of assets
not in the ordinary course of business (including acquisitions of other Persons
by merger, consolidation or purchase of Capital Stock) during or after such
period, such computation shall be made on a pro forma basis as if the Asset
Dispositions or acquisitions had taken place on the first day of such period.
"Consolidated Cash Interest Expense" for any period with
respect to any Person, shall mean an amount equal to (a) Consolidated Interest
Expense of such Person and its Restricted Subsidiaries for such period, minus
(b) any non-cash interest expense included in such Consolidated Interest
Expense.
"Consolidated EBITDA" for any period with respect to any
Person, shall mean an amount equal to consolidated income before taxes on or
measured by net income or gain (as determined in accordance with Generally
Accepted Accounting Principles) for such period of such Person and its
Restricted Subsidiaries on a consolidated basis:
(a) minus, to the extent included in the computation of
consolidated income before taxes, interest income and income or gain
from extraordinary items for such period, all determined on a
consolidated basis for such Person and its Restricted Subsidiaries in
accordance with Generally Accepted Accounting Principles;
(b) plus, to the extent deducted in the computation of
consolidated income before taxes, the sum of (i) Consolidated Interest
Expense (including, without limitation, interest expense imputed in
respect of any Capital Lease Obligations), (ii) expense or loss from
extraordinary items for such period, (iii) depreciation and other
non-cash charges against income for such period and (iv) amortized debt
discount for such period, all determined on a consolidated basis for
such Person and its Restricted Subsidiaries in accordance with
Generally Accepted Accounting Principles.
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<PAGE>
"Consolidated Income Tax Expense" of any Person shall mean for
any period the consolidated provision for income taxes of such Person and its
Restricted Subsidiaries for such period calculated on a consolidated basis in
accordance with Generally Accepted Accounting Principles.
"Consolidated Interest Expense" for any period with respect to
any Person, shall mean interest expense of such Person and its Restricted
Subsidiaries for such period (excluding the effects of capitalizing interest
with respect to Capital Expenditures and any amortization of capitalized finance
fees), determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
"Consolidated Net Income" of any Person shall mean for any
period the consolidated net income (or loss) of such Person and its Subsidiaries
(after minority interests and dividends paid on Preferred Stock) for such period
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles; provided, that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by such Person or a Restricted
Subsidiary of such Person in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (but not net loss) of
any Restricted Subsidiary of such Person which is subject to restrictions which
prevent the payment of dividends or the making of distributions to such Person
to the extent of such restrictions, (c) the net income (or loss) of any Person
that is not a Restricted Subsidiary of such Person except to the extent of the
amount of dividends or other distributions actually paid to such Person by such
other Person during such period, (d) gains or losses on Asset Dispositions by
such Person or its Restricted Subsidiaries and (e) all extraordinary gains and
extraordinary losses.
"Consolidated Operating Cash Flow" of any Person shall mean
for any period the Consolidated Net Income of such Person for such period plus
(a) Consolidated Interest Expense of such Person for such period, plus (b)
Consolidated Income Tax Expense of such Person for such period, plus (c) the
consolidated depreciation and amortization expense included in the income
statement of such Person and its consolidated Restricted Subsidiaries for such
period, plus (d) other non-cash charges deducted from consolidated revenues in
determining Consolidated Net Income for such period, minus (e) non-cash items
increasing consolidated revenues in determining Consolidated Net Income for such
period.
"Consolidated Tangible Net Worth" of any Person shall mean the
consolidated stockholders' equity of such Person and its Restricted
Subsidiaries, determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles, minus (a) amounts attributable to Disqualified
Stock of such Person, (b) the cost of treasury shares, and (c) the net book
value of all assets that are classified as intangibles in accordance with
Generally Accepted Accounting Principles (without duplication of deductions in
respect of items already deducted in calculating consolidated stockholders'
equity) but in any event including goodwill, deferred research and development
costs, trademarks, trade names, copyrights, licenses, patents and franchises,
unamortized debt discount, and any write-up in the book value of assets
resulting
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from a revaluation thereof subsequent to March 30, 1996, in each case,
determined in accordance with Generally Accepted Accounting Principles.
"CPI-U" shall mean the Consumer Price Index for All Urban
Consumers as published by the United States Department of Labor, Bureau of Labor
Statistics. If the Consumer Price Index for All Urban Consumers ceases to exist
or is no longer available, HCNA, with the consent of the Owner Participant
(which consent shall not be unreasonably withheld), shall designate a substitute
index that is reasonably similar to the Consumer Price Index for All Urban
Consumers.
"CPI-U Factor" shall mean, with respect to each fiscal year,
the CPI-U published with respect to March of such year divided by the CPI-U
published with respect to March 1996; provided, however, that such CPI-U Factor
shall not be less than one (1).
"Debt" shall mean (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in connection
with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business), (v) every
Capital Lease Obligation of such Person, (vi) the maximum fixed mandatory
redemption or repurchase price of Disqualified Stock of such Person at the time
of determination, (vii) every net obligation under Interest Rate or Currency
Protection Agreements of such Person and (viii) every obligation of the type
referred to in Clauses (i) through (vii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed
or is responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise.
"Deemed Refund or Credit" shall have the meaning specified in
Section 7.4(e) of the Participation Agreement.
"Default" shall mean an event or condition which, with notice
or lapse of time or both, would become an Event of Default.
"Depreciation Deductions" shall have the meaning specified in
the Tax Indemnity Agreement.
"Determination Date" shall mean one of the dates set forth in
Schedule IV to the Lease for which a Stipulated Loss Value is specified.
"Discount Rate" shall mean twelve percent (12%) per annum,
compounded semiannually and computed on the basis of a 360-day year consisting
of twelve 30-day months.
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"Discounted Value (Investment Recovery)" shall mean with
respect to the calculation of Break Costs on any Determination Date, the amount
calculated by discounting to such Determination Date: (i) for each then
remaining Stipulated Loss Value, including the Stipulated Loss Value on such
Determination Date but excluding the last Stipulated Loss Value of Schedule IV
to the Lease, an amount equal to (A) such Stipulated Loss Value, minus (B) the
next succeeding Stipulated Loss Value; (ii) from the day one calendar month
after such Determination Date for each such Stipulated Loss Value; at (iii) a
discount rate (applied on a simple monthly basis) equal to the Breakage Treasury
Yield, all in accordance with accepted financial practice.
"Discounted Value (Termination)" shall mean with respect to
the calculation of Break Costs on any Determination Date, the amount calculated
by discounting to such date: (i) the last Stipulated Loss Value of Schedule IV
to the Lease; (ii) from the Determination Date applicable to such Stipulated
Loss Value; at (iii) a discount rate (applied on a simple monthly basis) equal
to the Breakage Treasury Yield, all in accordance with accepted financial
practice.
"Discounted Value (Yield)" shall mean with respect to the
calculation of Break Costs on any Determination Date, the amount calculated by
discounting to such date: (i) the product of (A) each then remaining Stipulated
Loss Value, including the Stipulated Loss Value on such Determination Date but
excluding the last Stipulated Loss Value of Schedule IV to the Lease, and (B) a
rate (applied on a simple monthly basis) equal to the Discount Rate; (ii) from
the day one calendar month after such Determination Date for each such
Stipulated Loss Value; at (iii) a discount rate (applied on a simple monthly
basis) equal to the Breakage Treasury Yield, all in accordance with accepted
financial practice.
"Disqualified Stock" shall mean any Capital Stock of a Person
or any Restricted Subsidiary of such Person which, by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, on or prior to the end of the
Basic Term.
"Drawing Amount" shall mean for any period of time the "Stated
Amount" for such period as set forth on Exhibit B to the form of Letter of
Credit attached as Exhibit M to the Participation Agreement, as such amounts may
be adjusted from time to time pursuant to Article III of the Participation
Agreement.
"Drawing Event" shall have the meaning specified in Section
6.1(i)(ii) of the Participation Agreement.
"Easement" shall mean, collectively, the easements granted
under the Access Easement Agreement between NACC and Owner Trustee substantially
in the form of Exhibit P-2 to the Participation Agreement.
"Easement Site" shall mean the real property which is covered
by the Easement.
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"Eligible Bank" shall mean the New York main office or branch
of a banking, financial or other similar institution as selected by NACC that is
either (i) the letter of credit issuing bank under the Debt instruments relating
to the Working Capital Facilities of HCNA or (ii) (A) is formed or organized
under the laws of the United States, (B) is capable of issuing a Letter of
Credit, and (C)(1) the senior unsecured debt obligations (or long-term deposits)
of which are rated by at least one Rating Agency and are rated at least A by
Standard & Poor's, at least A2 by Moody's or such other rating by any other
Rating Agency as is acceptable to Owner Participant in the ordinary course of
its business, or (2) that is otherwise reasonably acceptable to Owner
Participant as a letter of credit issuing bank in the ordinary course of
business of the Owner Participant.
"Engineering Consultant" shall mean Parsons Power or any
subsequent nationally-recognized independent engineering consultant expert in
power generation facilities that is appointed by the Owner Participant with the
prior written consent of NACC, which consent shall not be unreasonably withheld.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, obligations, restrictions (including any
restrictions on ownership, occupancy, transferability or use), liabilities,
losses, proceedings, decrees, judgments, penalties, fees, fines, demand letters,
Orders, directives, claims (including any claims involving liability in tort,
strict, absolute or otherwise), liens, notices of noncompliance or violation, or
claims for legal fees or costs of investigations or proceedings (hereinafter
"Claims"), relating to any Environmental Law or any Approval issued under any
Environmental Law, or arising from the actual or alleged presence or Release of
any Hazardous Material, including, without limitation, and regardless of the
merit of such Claim, any and all Claims for enforcement, mitigation, cleanup,
removal, response, remediation or other actions or damages, contribution,
indemnification, cost recovery, compensation or injunctive or declaratory relief
pursuant to any Environmental Law or alleged injury or threat of injury to
property, health, safety, natural resources or the environment.
"Environmental Consultant" shall mean Eder Associates,
Geomatrix Consultants, Inc., or any other environmental consultant or
consultants.
"Environmental Laws" shall mean any Applicable Law relating to
pollution or the regulation or protection of human health, safety, natural
resources or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata, natural
resources, aquatic species, vegetation or wetlands), including, without
limitation, laws and regulations (and all other items recited above) relating to
any Release of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, recordkeeping, reporting, notification, disclosure,
use, treatment, storage, disposal, management, generation, recycling, transport
or handling of or exposure to Hazardous Materials. Without limiting the
generality of the foregoing, Environmental Laws include, but are not limited to,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 42 U.S.C. ss.ss.
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9601 et seq.; the Solid Waste Disposal Act, 42 U.S.C. ss.ss. 6901 et seq.; the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss.
11001 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.;
the Federal Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1801 et seq.; the Clean
Air Act, 42 U.S.C. ss.ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
ss.ss. 300f et seq.; the Occupational Safety and Health Act of 1970, 29 U.S. C.
ss.ss. 651 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss.ss. 136 et seq.; and the Endangered Species Act, 16 U.S.C. ss.ss. 1531
et seq., each as amended and their state and local counterparts or equivalents.
"Environmental Report" shall have the meaning specified in
Section 10(b) of the Lease.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall mean each entity required to be
aggregated with the Lessee pursuant to the requirements of Section 414(b) or (c)
of the Code.
"Event of Default" shall have the meaning specified in Section
17 of the Lease.
"Event of Loss" shall mean the occurrence of any of the
following events at any time: (a) the Facility or the Complex shall be either
destroyed or damaged beyond economic repair (as evidenced by a certificate of
the chief financial officer of NACC) or any other event shall occur that results
in an insurance settlement on a basis of a total loss, or a constructive total
loss, of the Facility or the Complex, as the case may be; (b) the entire
Facility, Site or Complex or any substantial and essential portion of the
Facility, Site or Complex shall have been condemned, confiscated, or seized
(except that if Lessee is contesting the validity of such condemnation,
confiscation or seizure by a Permitted Contest, such condemnation, confiscation
or seizure shall not constitute an "Event of Loss" during the pendency of such
Permitted Contest (but not to exceed 180 days)) or shall have been requisitioned
for use for a period of one hundred eighty (180) days or for a period which
extends beyond the scheduled expiration of the Basic Term or any Renewal Term
then in effect; (c) there shall be a requisition or taking of title to the
entire Facility, Site or Complex or any substantial and essential portion of the
Facility, Site or Complex (except that if Lessee is contesting the validity of
such requisition or taking of title by a Permitted Contest, such requisition or
taking of title shall not constitute an "Event of Loss" during the pendency of
such Permitted Contest (but not to exceed 180 days)); (d) the Facility, Site or
the Complex shall have been abandoned; or (e) NACC shall have failed to convey
to the Lessor good, marketable (to the extent the same constitutes real
property) and indefeasible title to the Undivided Interest in the Facility or
good and marketable title to the Leasehold Estate or good and marketable title
to the Easement or the rights purported to be conveyed pursuant to the Easement
and the License and any such failure would be reasonably likely to have a
Material Adverse Effect.
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"Event of Loss Date" shall mean (a) with respect to loss,
destruction, damage, requisition of title or abandonment, the date of such event
of loss, (b) with respect to a requisition of use, on the earlier to occur of
the 180th day following the requisition of use or the last day, as the case may
be, of the Basic Term or any Renewal Term then in effect or (c) in the case of a
failure of NACC to convey title, the date the Lessor so advises NACC.
"Event of Loss Purchase Price" shall have the meaning
specified in Section 13(b) of the Lease.
"Expense" and "Expenses" shall have the respective meanings
specified in Section 7.1 of the Participation Agreement.
"Facility" shall mean the Argus Utility Plant as more
particularly described in Schedule I to the Lease.
"Facility Cost" shall mean the product of (a) the Undivided
Interest multiplied by (b) $75,000,000.
"Facility Documents" shall mean the Coal Supply Agreement, the
Coal Transportation Agreement, the Gas Supply Agreement and the Power Purchase
Agreements.
"Fair Market Renewal Term" shall mean a period commencing at
the end of a Renewal Term and ending on the date chosen by NACC pursuant to
Section 22 of the Lease, during which the Undivided Interest in the Facility is
leased for Fair Market Rental Value, or such shorter period as may result from
earlier termination of the Lease.
"Fair Market Rental Value" shall mean, with respect to an
Undivided Interest in the Facility, the product of (x) the Undivided Interest
multiplied by (y) the rent which would be obtained in arriving at a fair market
rental value for the Facility unencumbered by the Lease for the applicable lease
term in an arm's-length transaction for cash between an informed and willing
lessee and an informed and willing lessor (in either case under no compulsion to
lease and neither of whom is related to the Owner Trustee, the Owner
Participant, NACC or HCNA) on an "as is" "where is" basis except that any such
determination of fair market rental value of the Facility shall be determined
applying methodology and otherwise on a basis consistent with the Appraisal and
on the basis that (i) (except in the case of determinations pursuant to Section
18 of the Lease) the Facility has been maintained in accordance with the terms
of the Lease and (ii) the lessee will have substantially the same rights,
interests and obligations with respect to the Site as the Lessor has under the
Site Lease, the Easement and the License and for the then remaining term of the
Site Lease and under the Services Agreement; provided, that there shall be
excluded from the calculation thereof the value of any Severable Modification to
which the Lessor does not have title. With respect to any other property,
including an Undivided Interest in the Site, "Fair Market Rental Value" shall
mean the value, which shall not in any event be less than zero, that would be
obtained for the use of such property in an arm's-length transaction for cash
between an informed and willing lessee and an informed and willing lessor,
neither of
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whom is under any compulsion to lease and neither of whom is related to the
Owner Trustee, the Owner Participant, NACC or HCNA.
"Fair Market Sales Value" shall mean, with respect to an
Undivided Interest in the Facility, the product of (x) the Undivided Interest
multiplied by (y) the fair market sales value of the Facility unencumbered by
the Lease which would be arrived at in an arm's-length transaction for cash
between an informed and willing buyer and an informed and willing seller (under
no compulsion, respectively, to buy or sell and neither of whom is related to
the Owner Trustee, the Owner Participant, NACC or HCNA) on an "as is" "where is"
basis except that any such determination of fair market sales value for the
Facility shall be determined applying methodology and otherwise on a basis
consistent with the Appraisal and on the basis that (i) (except in the case of
determinations pursuant to Section 18 of the Lease) the Facility has been
maintained in accordance with the terms of the Lease and (ii) the buyer will
have substantially the same rights, interests and obligations with respect to
the Site as the Lessor has under the Site Lease, the Easement and the License
and for the then remaining term of the Site Lease and under the Services
Agreement; provided, that there shall be excluded from calculation thereof the
value of any Severable Modification to which the Lessor does not have title;
provided, further, that for purposes of Section 10(c) of the Lease, Fair Market
Sales Value shall be calculated net of estimated dismantlement, removal and
transportation costs of the Facility or the salvageable portions thereof as of
the time the Lessee would otherwise have had to dismantle, remove and deliver
the same in accordance with such Section 10(c). With respect to any other
property, including any Severable Modification made available to the Lessor
pursuant to Section 7(h) of the Lease, "Fair Market Sales Value" shall mean the
value, which shall not in any event be less than zero, that would be obtained
for the ownership of such property in an arm's-length transaction for cash
between an informed and willing purchaser and an informed and willing seller,
neither of whom is under any compulsion to purchase or sell and neither of whom
is related to the Owner Trustee, the Owner Participant, NACC or HCNA.
"Federal Power Act" or "FPA" shall mean the Federal Power Act,
as amended from time to time, or any comparable successor Federal statute.
"FERC" shall mean the Federal Energy Regulatory Commission of
the United States of America or any successor agency.
"Fixed Charge Coverage Ratio" for any period with respect to
any Person, shall mean the ratio of:
(a) the sum of (i) Consolidated EBITDA for such period, (ii)
amounts due under Capital Lease Obligations for such period, and (iii)
without duplication of amounts included in the preceding clause (ii),
the aggregate amount required to be paid by NACC in respect of Basic
Rent during such period, other than any amount otherwise includable
therein in respect of Interim Rent for such period,
to
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(b) the sum of
(i) Consolidated Cash Interest Expense for such
period, other than any amount otherwise includable therein in
respect of Interim Rent;
(ii) the sum of (A) the amount of regularly
scheduled principal payments with respect to Debt of the type
described in clause (a), (b) or (e) of the definition thereof
(other than Capital Lease Obligations outstanding on the
Closing Date and those under the Operative Documents) required
to be made by such Person and its Restricted Subsidiaries
during such period and (B) the amount of regularly scheduled
principal payments during such period with respect to direct
or indirect Guarantees (as guarantor, obligor or otherwise) of
Debt Incurred by Persons other than such Person or any of its
Restricted Subsidiaries, but only to the extent that payments
are required to be made by such Person or any of its
Restricted Subsidiaries under such Guarantees, other than (1)
any such principal payments that are refinanced, renewed,
refunded or replaced with other Debt during such period
(provided, however, that the amount of any regularly scheduled
principal payments during such period with respect to Debt
Incurred in connection with such refinancing, renewal,
refunding or replacement shall be included under this clause
(ii)), and (2) principal payments during such period under
Working Capital Facilities of such Person or any of its
Restricted Subsidiaries; and
(iii) without duplication of amounts included in
clause (i) or (ii) above, the sum of (A) amounts due under
Capital Lease Obligations for such period, and (B) without
duplication of amounts included in the preceding clause (A),
the aggregate amount required to be paid by NACC in respect of
Basic Rent during such period, other than any amount otherwise
includable therein in respect of Interim Rent.
"Fixed Rate Renewal Term" shall mean a period commencing at
the end of the Basic Term and ending on the date chosen by NACC pursuant to
Section 22 of the Lease, during which the Undivided Interest in the Facility may
be leased for the rent specified in clause (i) of Section 20(b) of the Lease or
such shorter period as may result from early termination of the Lease.
"Gas Supply Agreement" shall mean the Gas Supply Agreement,
effective as of September 1, 1994, by and between Chevron U.S.A. Production
Company, a division Chevron U.S.A. Inc., and NACC.
"Generally Accepted Accounting Principles" means generally
accepted accounting principles in the United States of America in effect on
March 30, 1996.
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"Gross Margin" shall mean the average price per ton for
highway deicing salt of HCNA and its Restricted Subsidiaries minus the average
distribution and production costs (before allocated depreciation) of HCNA and
its Restricted Subsidiaries per ton of highway deicing salt, in each case for
the applicable fiscal year of HCNA, determined in accordance with Generally
Accepted Accounting Principles.
"Guarantee" by any Person shall mean any obligation,
contingent or otherwise, of such Person guaranteeing any Debt of any other
Person (the "primary obligor") in any manner, whether directly or indirectly,
and including, without limitation, any obligation of such Person, (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or to purchase (or to advance or supply funds for the purchase of) any
security for the payment of such Debt, (ii) to purchase property, securities or
services for the purpose of assuring the holder of such Debt of the payment of
such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing"
and "Guarantor" shall have the meanings correlative to the foregoing); provided,
however, that the Guarantee by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Hazardous Material" shall mean (a) any petroleum or petroleum
product (including crude oil or any fraction thereof), explosive, radioactive
material, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, lead and radon gas; (b) any chemical, material, gas, substance or
waste which is defined as or included in the definition of "hazardous
substance," "hazardous waste," "hazardous material," "extremely hazardous
substance," "hazardous chemical," "toxic substance," "toxic chemical,"
"contaminant" or "pollutant" or words of similar import under any Environmental
Law; and (c) any other chemical, material, gas, substance or waste, exposure to
which, or the presence, use, generation, treatment, Release, transport or
storage of which, is prohibited, limited or regulated under any Environmental
Law.
"HCG" shall mean Harris Chemical Group, Inc., a Delaware
corporation.
"HCNA" shall mean Harris Chemical North America, Inc., a
Delaware corporation, together with its successors and permitted assigns.
"HCNA Guaranty" shall mean the Guaranty substantially in the
form of Exhibit K to the Participation Agreement, dated as of the Closing Date,
from HCNA in favor of Owner Participant and Owner Trustee.
"HCNA Guaranty Termination Date" shall mean the date on which
the Guaranteed Obligations have been paid and discharged in full.
"HCNA Letter" shall mean the letter substantially in the form
of Exhibit X-1, dated as of the Closing Date, from HCNA in favor of Owner
Participant acknowledging the adequacy of consideration supporting the HCNA
Guaranty.
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"HCNA Successor Company" shall have the meaning specified in
Section 6.2(h) of the Participation Agreement.
"Host Facilities" shall mean the plant commonly known as the
"Argus Plant" located in the Complex that processes brine for the production of
soda ash.
"Incur" shall mean, with respect to any Debt or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such Debt
or other obligation or the recording, as required pursuant to Generally Accepted
Accounting Principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in Generally Accepted Accounting Principles that results
in an obligation of such Person that exists at such time becoming Debt shall not
be deemed an Incurrence of such Debt.
"Indemnitee" shall mean Trust Estate, Owner Participant, Power
Contract Trustee, Trust Company and Owner Trustee and their respective
Affiliates, officers, directors, servants and agents.
"Information Memorandum" shall mean the Confidential
Investment Summary for the Argus Utility Plant Sale/Leaseback Financing, dated
January 1996, relating to the financing of the Facility.
"Interest Coverage Ratio" for any period with respect to any
Person, shall mean:
(a) for purposes of Section 6.2(d) of the Participation
Agreement, the ratio of (i) Consolidated EBITDA to (ii) the amount
equal to Consolidated Interest Expense for such period; and
(b) for purposes of Sections 6.1(a)(iv) and 6.2(h) of the
Participation Agreement, the ratio of (i) Consolidated EBITDA to (ii)
the amount equal to Consolidated Interest Expense, in each case, on a
pro forma basis, for the four consecutive fiscal quarters for which
quarterly or annual financial statements are available immediately
prior to the Transaction Date; provided, that in the event such Person
or its Restricted Subsidiaries have made Asset Dispositions or
acquisitions of assets not in the ordinary course of business
(including acquisitions of other Persons by merger, consolidation or
purchase of Capital Stock) during or after such period or in connection
with the transaction giving rise to the calculation of the Interest
Coverage Ratio, such computation shall be made on a pro forma basis as
if the Asset Dispositions or acquisitions and the related application
of proceeds or financings had taken place on the first day of such
period.
"Interest Rate or Currency Protection Agreements" of any
Person shall mean any interest rate swap agreement, interest rate cap agreement,
currency swap agreement or other
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financial agreement or arrangement designed to protect such Person or any
Restricted Subsidiary of such Person against fluctuations in interest rates or
currency exchange rates and which shall have a notional amount no greater than
the payments due with respect to Debt being hedged thereby.
"Interim Rent" shall mean the rent for the Interim Term.
"Interim Term" shall have the meaning specified in Section 3
of the Lease.
"Investment" by any Person shall mean any direct or indirect
loan, advance or other extension of credit or capital contribution to (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by any other Person.
"Issuing Bank" shall mean an Eligible Bank that issues a
Letter of Credit.
"Lease" or "Facility Lease" shall mean the Facility Lease
substantially in the form of Exhibit B to the Participation Agreement, dated as
of the Closing Date, between Lessor and NACC, as the same may be amended,
modified or supplemented from time to time in accordance with the provisions
thereof.
"Lease Financing Documents" shall mean the Participation
Agreement, the Lease, the Site Lease, the Easement, the License, the Memorandum
of Lease, the Memorandum of Site Lease (Parcel A-1), the Memorandum of Site
Lease (Parcel B-1), the Trust Agreement, the Argus Utility Bill of Sale, the
Argus Utility Deed of Improvements, the Tax Indemnity Agreement, the HCNA
Guaranty, the Letter of Credit, the Power Contract Trust Agreement, the Power
Contract Assignment, the Services Agreement, the Account Bank Agreement and the
Lessor Security Agreement.
"Leasehold Estate" shall have the meaning specified in Section
2(a) of the Site Lease.
"Lease Term" shall mean the full term of this Lease, including
the Interim Term, the Basic Term and any applicable Renewal Term.
"Lease Termination Date" shall mean the last day of the Lease
Term whether occurring by reason of the scheduled expiration of the Lease Term
or upon earlier termination of the Lease pursuant to the terms thereof.
"Legal Requirement" shall mean any requirement or obligation
imposed by or under any Applicable Law, including, without limitation, any
Environmental Law.
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"Lessee Regulatory Event of Loss" shall mean a Regulatory
Event of Loss caused by the action, inaction or status (unless caused by a
change in Legal Requirements) of NACC or any Affiliate thereof.
"Lessor" shall mean Owner Trustee and its successors and
permitted assigns.
"Lessor Liens" shall mean Liens on or against the Facility (or
the Undivided Interest therein), the Site (or the Undivided Interest therein),
the Lease, the Power Purchase Agreements, the Trust Estate or any payment of
Rent (a) which result from any act of, any failure to act by, or any claim or
Expense against, Owner Trustee, Trust Company or Owner Participant unrelated to
its interest in the Trust Estate, the Facility or the Site, the Power Purchase
Agreements, the administration of the Trust Estate or the transactions
contemplated by the Participation Agreement or any other Operative Document, or
which result from any violation by Owner Trustee, Power Contract Trustee, Trust
Company, or Owner Participant of any of the terms of the Operative Documents or
(b) which result from Liens in favor of any taxing authority by reason of any
Tax owed by Owner Trustee, Trust Company, Power Contract Trustee or Owner
Participant, except that Lessor Liens shall not include any Lien resulting from
any Tax for which NACC is obligated to indemnify any Indemnitee until such time
as NACC shall have already paid to, or on behalf of, such Indemnitee the Tax or
an indemnity with respect to the same.
"Lessor Possession Date" shall mean the earlier of the day
after the Lease Termination Date and the date of loss of use or possession of
the Undivided Interest in the Facility by NACC pursuant to Section 18 of the
Lease.
"Lessor Security Account" shall mean the account in which the
Cash Deposit is held pursuant to the Account Bank Agreement.
"Lessor Security Agreement" shall mean the Security Agreement
substantially in the form of Exhibit Y to the Participation Agreement between
Lessor and Lessee.
"Lessor's Contract Rights" shall mean the Lessor's beneficial
interest in the Power Purchase Agreements held by the Power Contract Trustee
pursuant to the Power Contract Trust Agreement.
"Letter of Credit" shall mean one or more irrevocable,
unconditional standby letters of credit substantially in the form of Exhibit N
to the Participation Agreement (i) issued by an Issuing Bank for the benefit of
the Owner Participant, (ii) having a stated expiration date of not earlier than
one year after the date of original issuance or renewal thereof, or in the case
of a renewal, such shorter period, if the term of the Working Capital Facility
to which the Eligible Bank and NACC are parties expires at the end of such
shorter period and such Working Capital Facility has not been extended or
renewed, (iii) having an aggregate drawing amount at all times at least equal to
the Drawing Amount, (iv) that may be drawn upon at the office of the
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Issuing Bank in New York City in the event that a Drawing Event shall have
occurred and (vi) which are payable in immediately available funds.
"License" shall mean, collectively, the licenses granted under
the License Agreement between NACC and Owner Trustee substantially in the form
of Exhibit P-3 to the Participation Agreement.
"Lien" shall mean any lien, mortgage, encumbrance, pledge,
charge, lease, easement or security interest of any kind, including any thereof
arising under conditional sales or other title retention agreements.
"Material Adverse Effect" shall mean (a) a material adverse
effect on (i) the Facility, (ii) the business, operations, property or financial
or other condition of NACC or HCNA and its Restricted Subsidiaries taken as a
whole, (iii) the validity or enforceability of any of the Lease Financing
Documents, the Facility Documents or any Approvals necessary for the use,
operation or maintenance of the Facility, the Site and the Easement Site
pursuant to the Lease Financing Documents or (iv) the rights and remedies of the
Owner Participant, OP Guarantor or Owner Trustee under any of the Lease
Financing Documents or the Power Purchase Agreements or (b) the imposition of,
or a material increase in the risk of imposition of, any criminal liability on
the Owner Participant, OP Guarantor or Owner Trustee.
"Material Default" shall mean an event or condition which,
with notice or lapse of time or both, would become an Event of Default of the
type described in Section 17 (a), (b) or (g) of the Lease.
"Material Event of Default" shall mean an Event of Default
described in Sections 17(a), (b), (f), (g), (h), (i), (k), (l) or (m) of the
Lease.
"Memorandum of Lease" shall mean the Memorandum of Lease
substantially in the form of Exhibit O to the Participation Agreement, dated as
of the Closing Date, between Lessor and NACC.
"Memorandum of Site Lease (Parcel A-1)" shall mean the
Memorandum of Site Lease (Parcel A-1) substantially in the form of Exhibit P to
the Participation Agreement, dated as of the Closing Date, between NACC and
Lessor.
"Memorandum of Site Lease (Parcel B-1)" shall mean the
Memorandum of Site Lease (Parcel B-1) substantially in the form of Exhibit P-1
to the Participation Agreement, dated as of the Closing Date, between NACC and
Lessor.
"Merger" shall have the meaning specified in Section 6.1(a) of
the Participation Agreement.
"Modifications" shall have the meaning specified in Section
7(f) of the Lease.
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"Moody's" shall mean Moody's Investors Service, Inc. or its
successor in interest.
"NACC" shall mean North American Chemical Company, a Delaware
corporation, together with its successors and permitted assigns under the Lease.
"NACC Successor Company" shall have the meaning specified in
Section 6.1(a)(iv) of the Participation Agreement.
"Net Available Proceeds" from any Asset Disposition by any
Person shall mean cash and readily marketable Cash Equivalents received
(including by way of sale or discounting of a note, instalment receivable or
other receivable, but excluding any other consideration received in the form of
assumption by the acquiree of Debt or other obligations relating to such
properties or assets) and the fair market value of all other property received
therefrom by such Person, net of (a) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred and all federal,
state, provincial, foreign and local taxes required to be accrued as a liability
as a consequence of such Asset Disposition, (b) all payments made by such Person
or its Restricted Subsidiaries on any Debt which is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Lien, or in order to obtain a necessary consent
from holders of secured Debt to such Asset Disposition or by applicable law be
repaid out of the proceeds from such Asset Disposition, and (c) all
distributions and other payments made to minority interest holders in Restricted
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition.
"Net Economic Return" shall mean the anticipated net after-tax
yield (calculated using the multiple investment sinking fund method of
analysis), and the anticipated aggregate income (computed in accordance with
Financial Accounting Standard No. 13, as amended and in effect on the Closing
Date) and after-tax cash flow of Owner Participant, all calculated on the basis
of the Pricing Assumptions, the Tax Assumptions, and the methods of calculation
used as of the Closing Date by the Owner Participant in calculating Basic Rent
and Stipulated Loss Values.
"Nonseverable Modification" shall mean any Modification that
is not a Severable Modification.
"Officer's Certificate" of any corporation shall mean a
certificate of the Chairman, the President, any Vice President, the Treasurer,
the Secretary or any authorized representative of such corporation, which
certificate shall state that such officer has made such investigation and review
as such officer shall deem necessary to make the statements contained therein.
"Operative Documents" shall mean the Lease Financing
Documents, the Facility Documents and all Approvals.
"Operator" shall mean NACC or such other Person designated by
the Owner Participant as being responsible for the operation of the Facility,
such Person being NACC, its
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successors and assigns, until it resigns or is removed pursuant to the
provisions of the Services Agreement.
"OP Regulatory Event of Loss" shall mean a Regulatory Event of
Loss caused by the action (including, without limitation, a transfer pursuant to
Section 6.4 of the Participation Agreement), inaction or status (unless caused
by a change in Legal Requirements) of the Lessor, the Owner Participant or an
Affiliate thereof unrelated to Lessor's or Owner Participant's participation in
the lease financing of the Facility and the related transactions under the
Operative Documents.
"Order" shall mean and include any order, writ, injunction,
decree, judgment, award, determination, direction or demand.
"Other Lease" shall mean the document that is defined to be
the Lease in the Other Participation Agreement.
"Other Lessor" shall mean the Other Owner Trustee.
"Other Operative Documents" shall mean the documents that are
defined to be the Operative Documents in the Other Participation Agreement.
"Other Owner Participant" shall mean the person that is
defined to be the "Owner Participant" in the Other Participation Agreement.
"Other Owner Trustee" shall mean the Person that is defined to
be the "Owner Trustee" in the Other Participation Agreement.
"Other Participation Agreement" shall mean the Participation
Agreement (Searles Valley Trust 1996) dated as of the Closing Date among NACC,
HCNA, Other Owner Trustee, Other Owner Participant, and OP Guarantor, as the
same may be modified, amended or supplemented from time to time pursuant to the
applicable provisions thereof.
"Other Regulatory Event of Loss" shall mean a Regulatory Event
of Loss (other than a Lessee Regulatory Event of Loss or an OP Regulatory Event
of Loss), including any such Regulatory Event of Loss resulting from a change in
Legal Requirements.
"Other Site Lease" shall mean the document that is defined to
be the Site Lease in the Other Participation Agreement.
"Other Tenant" shall mean the Other Owner Trustee.
"Overdue Interest Rate" shall mean the lesser of (i) the
maximum lawful rate and (ii) the Prime Rate plus 2% per annum (computed on the
basis of a 360-day year of twelve 30-day months).
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"Owned Facilities" shall have the meaning specified in Section
2(d) of the Site Lease.
"Owner" shall mean any Person that owns, at the time in
question, an undivided interest in the Facility.
"Owner Participant" shall mean [Owner Participant], a New York
corporation, and its successors and permitted assigns pursuant the Participation
Agreement.
"Owner Trustee" shall mean the Trust Company, not in its
individual capacity, but solely as trustee under the Trust Agreement, until such
time as its successor shall have become such pursuant to the provisions of the
Trust Agreement, and thereafter the term "Owner Trustee" shall mean such
successor.
"Owner Trustee Documents" shall have the meaning specified in
Section 2.1 of the Trust Agreement.
"Parcel Map" shall have the meaning specified in Section
4.1(j) of the Participation Agreement.
"Parent Company" of HCNA shall mean any other Person owning
80% or more of the outstanding Voting Stock of HCNA.
"Participation Agreement" shall mean the Participation
Agreement (Searles Valley Trust 1996) dated as of July 15, 1996, among NACC,
HCNA, Trust Company, not in its individual capacity except as expressly provided
therein, but solely as trustee under the Trust Agreement, Owner Participant, as
the same may be amended, modified or supplemented from time to time in
accordance with the provisions thereof.
"Parts" shall mean all appliances, components, parts,
additions, instruments, appurtenances, accessories, furnishings, accessions and
other equipment of whatever nature (or any part thereof), including, without
limitation, restorations thereof and substitutions and replacements therefor,
that may from time to time constitute or become a part of or be incorporated in
or attached to the Facility.
"PBGC" shall mean the Pension Benefit Guarantee Corporation,
or any successor thereto under ERISA.
"PCBs" shall have the meaning specified in Section 5.1(u)(vii)
of the Participation Agreement.
"Pension Plan" shall have the meaning specified in Section
3(2) of ERISA.
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"Permitted Contest" shall mean (x) actions taken by a Person
to contest in good faith, by appropriate proceedings initiated timely and
diligently prosecuted, the legality, validity or applicability to the Facility
(or the Undivided Interest therein) or the Site (or the Undivided Interest
therein) or any interest in either thereof or any Person of (i) any Legal
Requirement, or (ii) any Lien, or (y) any valid nonconforming use permit,
waiver, extension or forbearance excusing or exempting such Person from
Applicable Law or Legal Requirements and such Person shall be making a good
faith effort and shall be diligently taking all appropriate and reasonable steps
to extend any such valid nonconforming use, permit, waiver, extension or
forbearance for the maximum period available with respect to such Applicable Law
or Legal Requirements (but not longer than the end of the Site Lease Term);
provided, that the initiation and prosecution of such contest or such
non-compliance would not (i) materially and adversely affect the right, title or
interest of NACC, Owner Participant or Owner Trustee in or to the Facility (or
the Undivided Interest therein), the Site (or the Undivided Interest therein),
the Easement Site or any interest in either thereof, (ii) affect the value,
utility or remaining useful life of the Facility or any interest therein or the
continued economic operation thereof, except to an insignificant extent, (iii)
create a danger of criminal liability being imposed on Owner Trustee, Trust
Company or Owner Participant or any related Indemnitee, (iv) create a danger of
material civil liability being imposed on Owner Trustee, Trust Company or Owner
Participant that is not indemnified against pursuant to Section 7.1 of the
Participation Agreement, (v) such contest or non-compliance could not reasonably
be expected to have an adverse effect on the ability of NACC to comply with the
provisions of and perform its obligations under the Lease or any other Operative
Document, and (vi) such contest will not result in the extension of the
imposition of such Legal Requirement beyond the date which is six months prior
to (x) the end of the then-current Lease Term, or (y) if the Lessee has given
its irrevocable purchase option notice or renewal option notice pursuant to
which it has elected to exercise a renewal option, or during the course of such
contest it gives such notice, the end of the Renewal Term with respect to which
the Lessee has given such notice; provided, further, that in any event adequate
reserves in accordance with generally accepted accounting principles are
maintained against any adverse determination of such contest or the termination
of such permit, waiver, extension or forbearance. NACC shall provide the Lessor
with notice of any contest or non-compliance in detail sufficient to enable the
Lessor to ascertain whether such contest or such non-compliance is a Permitted
Contest within this definition.
"Permitted Investments" shall have the meaning specified in
Section 26 of the Lease.
"Permitted Liens" shall mean (a) the respective rights and
interests of the parties to the Operative Documents, as provided in the
Operative Documents, and if Owner Participant exercises its rights under Section
9.7 of the Participation Agreement, the interests of all Persons (including any
trustee acting on behalf of such Persons) providing debt financing to Owner
Participant or Owner Trustee, (b) Lessor Liens, (c) Liens for taxes, water,
sewage, license, permit or inspection fees either not yet due and payable or
being contested pursuant to a Permitted Contest, (d) construction,
materialmen's, mechanics', workers', repairmen's, employees' or other like Liens
arising in the ordinary course of business for amounts either not
26
<PAGE>
overdue for a period of not more than 45 days or being contested pursuant to a
Permitted Contest or bonded for the amount required under Applicable Law to
release any such Lien of record, (e) Liens arising out of judgments or awards
against NACC which at the time are subject to a Permitted Contest, but in any
event not to exceed $1,000,000 in the aggregate at any one time unless the full
amount in dispute is bonded in a manner reasonably acceptable to Owner
Participant, (f) applicable zoning and building regulations and ordinances from
time to time in effect which do not affect the use or operation of the Facility
(or the Undivided Interest therein) in the normal conduct of the business of
NACC except to an insignificant extent or impair the value, utility or remaining
useful life of the Facility (or the Undivided Interests therein) except to an
insignificant extent; (g) the interest of a sublessee in the Undivided Interest
in the Facility under a permitted sublease; (h) Liens listed on the title policy
delivered to Owner Participant on the Closing Date; (i) Liens, easements,
encumbrances, restrictions, defects or irregularity of title that in the
aggregate are not substantial in amount, do not materially detract from the
value of the Facility, the Service Facilities, the Easement Site or the Site (or
the Undivided Interests therein) and do not materially impair the use of the
Facility, the Service Facilities or the Site (or the Undivided Interest therein)
in the ordinary course of business; (j) any Lien, with respect to any Service
Facility that would not, in the event that the beneficiary of such Lien were to
exercise its rights thereunder, materially impair the ability of NACC to provide
or cause to be provided the services for which such Service Facility is required
under the Services Agreement; (k) Liens existing on the Closing Date and listed
on Schedule II to the Participation Agreement; and (l) the respective rights and
interests of the parties to the Other Operative Documents, as provided in the
Other Operative Documents.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, non-incorporated
organization or government or any agency or political subdivision thereof.
"Plan" shall have the meaning specified in Section 9.7 of the
Participation Agreement.
"Power Contract Assignment" shall mean the Agreement
Concerning Assignment and Delegation of Parallel Generation Agreement and
Interconnection Facilities Agreement (Argus Utility), substantially in the form
of Exhibit E to the Participation Agreement, dated as of July 12, 1996, among
NACC, Owner Trustee, Other Owner Trustee, Power Contract Trustee and the Power
Purchaser.
"Power Contract Trust Agreement" shall mean the Argus Utility
Trust Agreement substantially in the form of Exhibit D to the Participation
Agreement, dated as of July 12, 1996, among the Power Contract Trustee, the
Owner Trustee and the Other Owner Trustee.
"Power Contract Trustee" or "Bank Trustee" shall mean the
Trust Company, not in its individual capacity, but solely as trustee under the
Power Contract Trust Agreement.
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<PAGE>
"Power Purchase Agreements" shall mean the "Contracts" as
defined in the Power Contract Assignment.
"Power Purchaser" shall mean Southern California Edison
Company, a California corporation.
"Preferred Stock" as applied to the Capital Stock of any
Person shall mean Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Pricing Assumptions" shall mean the Pricing Assumptions set
forth on Schedule I to the Participation Agreement, as adjusted from time to
time in accordance with Section 3.2 of the Participation Agreement.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by Citibank, N.A. as its prime rate then in
effect at its principal office in New York City.
"Processing Services Election" shall have the meaning
specified in the Services Agreement.
"Proposed Tax Law Change" shall mean a Tax Law Change which is
proposed after April 26, 1996 and on or before the Closing Date and enacted or
promulgated after the Closing Date by or during a Congress in session on the
Closing Date.
"PURPA" shall mean the Public Utility Regulatory Policies Act
of 1978, and the regulations of the FERC promulgated thereunder, as amended from
time to time.
"Qualifying Facility" shall mean a qualifying cogeneration
facility or a qualifying small power production facility within the meaning of
PURPA.
"Rating Agency" shall mean Standard & Poor's or Moody's, or
any other nationally recognized statistical rating organization reasonably
acceptable to Owner Participant in its ordinary course of business.
"Regulations" shall mean the final, temporary or proposed
regulations promulgated or issued under the Code.
"Regulatory Event of Loss" shall mean the revocation by FERC
of the Facility's status as a Qualifying Facility and, as a result of such
revocation, the Lessor or the Owner Participant or any Affiliate thereof becomes
regulated as an "electric utility", "electric corporation", "electric utility
company", "public utility" or a "public utility holding company"
28
<PAGE>
or subject to any other similar materially burdensome regulation by any
Authority or under any Legal Requirement.
"Regulatory Purchase Price" shall have the meaning specified
in Section 13(f)(iii) of the Lease.
"Regulatory SLV Payment Date" shall have the meaning specified
in Section 13(f)(iii) of the Lease.
"Related Plants" shall have the meaning specified in Section
2(d) of the Site Lease.
"Release" shall mean the threatened or actual release,
deposit, disposal or leakage of any Hazardous Material at, into, upon or under
any land, water or air, or otherwise into the environment, including, without
limitation, by means of burial, disposal, discharge, emission, injection,
spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping,
emptying or placement.
"Remaining Dollar-Years" shall mean with respect to the
calculation of Break Costs on any Determination Date, the amount obtained by
dividing the sum of each then remaining Stipulated Loss Value, including the
Stipulated Loss Value for such Determination Date, by twelve (12).
"Renewal Term" shall mean either the Fixed Rate Renewal Term
or a Fair Market Renewal Term.
"Rent" shall mean Basic Rent and Supplemental Rent,
collectively.
"Reorganization" shall have the meaning specified in Section
6.1(a) of the Participation Agreement.
"Replacement Parts" shall have the meaning specified in
Section 7(d) of the Lease.
"Required Modification" shall have the meaning specified in
Section 7(f) of the Lease.
"Responsible Environmental Manager" shall mean the Manager of
Environmental Affairs or the Director of Safety, any of their successors, or
others with substantially similar responsibility for environmental or health and
safety compliance for the Facility, the Site or the Complex, or any manager or
other employee higher than the Manager of Environmental Affairs or Director of
Safety with responsibility for environmental or health and safety compliance for
the Facility, the Site or the Complex.
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<PAGE>
"Responsible Officer" shall mean in the case of any
corporation, the President, the chief financial officer, the Treasurer or any
Vice President thereof, and in the case of the Owner Trustee, any officer in its
Corporate Trust Administration.
"Restricted Payment" has the meaning specified in Section
6.2(e).
"Restricted Subsidiary" shall mean any Subsidiary of any
Person other than an Unrestricted Subsidiary.
"Restoration" shall have the meaning specified in Section 9(f)
of the Lease.
"Salt Commitments" shall mean, with respect to any period, the
aggregate number of tons of highway deicing salt specified in awarded customer
bids to HCNA and its Restricted Subsidiaries or awarded tenders by HCNA and its
Restricted Subsidiaries.
"SEC Periodic Reports" shall mean the annual report of HCNA on
Form 10-K for the fiscal year ended March 25, 1995, and the quarterly reports of
HCNA on Form 10-Q for the fiscal quarters ended June 24, 1995, September 23,
1995, and December 23, 1995, as each such report is amended and filed with the
Securities and Exchange Commission.
"Second Notice" shall have the meaning specified in Section
22(b) of the Lease.
"Securities Act" shall mean the Securities Act of 1933, as
amended and as the same may be further amended.
"Semiannual Lease Periods" during the Lease Term shall mean
consecutive periods in the Lease Term, the first such period commencing on the
Basic Term Commencement Date and ending on the six-month anniversary thereof and
successive semiannual periods thereafter ending on each subsequent six-month
anniversary date of the Basic Term Commencement Date.
"Semiannual Rent Payment Dates" during the Lease Term shall
mean the Basic Rent payment dates set forth on Schedule III to the Lease.
"Senior Note Indentures" shall mean the Senior Secured Note
Indenture and the Senior Subordinated Note Indenture.
"Senior Secured Note Indenture" shall mean the Indenture,
dated as of October 15, 1993, among HCNA, each of the Subsidiary Guarantors
named therein, and The Bank of New York, as Trustee, with respect to the 10 1/4%
Senior Secured Discount Notes due July 15, 2001 of HCNA.
"Senior Subordinated Note Indenture" shall mean the Indenture,
dated as of October 15, 1993, among HCNA, each of the Subsidiary Guarantors
named therein, and IBJ
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Schroder Bank & Trust Company, as Trustee, with respect to the 10 3/4% Senior
Subordinated Notes due October 15, 2003 of HCNA.
"Service Facilities" shall mean the coal handling, processing
and storage facilities, water supply (potable and brackish) system, water
cooling facilities, fire protection water facilities, waste water discharge
facilities and ash disposal facilities of the Complex required for the operation
of the Facility.
"Services Agreement" shall mean the Services Agreement
substantially in the form of Exhibit M to the Participation Agreement, dated as
of the Closing Date, between Owner Trustee and NACC.
"Severable Modifications" shall mean any Modifications that
are removable from the Facility without causing material damage thereto.
"Sifto" shall mean Sifto Canada Inc., a corporation organized
under the laws of the Province of Ontario, Canada.
"Sifto Note Indenture" shall mean the Indenture dated as of
October 15, 1993, among Sifto, HCNA, certain Restricted Subsidiaries of HCNA and
Chemical Bank, as Trustee in respect of Sifto's 8 1/2% Senior Secured Notes due
July 15, 2000.
"Sifto Notes" shall mean the 8 1/2% Senior Secured Notes due
July 15, 2000 issued by Sifto pursuant to the Sifto Note Indenture.
"Site" shall mean, collectively, the "Site" as defined in
Section 2(a) of the Site Lease (Parcel A-1) together with the "Adjoining Site"
as defined in Section 2(c) of the Site Lease (Parcel B-1); provided, that after
the effective date of the lot-line adjustment or parcel resubdivision referred
to in Section 6.1(j) of the Participation Agreement, "Site" shall mean the
"Site" as defined in Section 2(a) of the Site Lease (Parcel A-1), as amended in
connection with such lot-line adjustment or parcel resubdivision.
"Site Lease" shall mean, collectively, Site Lease (Parcel A-1)
and Site Lease (Parcel B-1); provided, that after effective date of the lot-line
adjustment or parcel resubdivision referred to in Section 6.1(j) of the
Participation Agreement, "Site Lease" shall mean Site Lease (Parcel A-1), as
amended in connection with such lot-line adjustment or parcel resubdivision.
"Site Lease (Parcel A-1)" shall mean the Site Lease (Parcel
A-1) substantially in the form of Exhibit C-1 to the Participation Agreement,
dated as of the Closing Date, between NACC, as Site Lessor, and Lessor, as
Tenant.
"Site Lease (Parcel B-1)" shall mean the Site Lease (Parcel
B-1) substantially in the form of Exhibit C-2 to the Participation Agreement,
dated as of the Closing Date, between NACC, as Site Lessor, and Lessor, as
Tenant.
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"Site Lease Event of Default" shall have the meaning specified
in Section 7(a) of the Site Lease.
"Site Lease Term" shall have the meaning specified in Section
3 of the Site Lease.
"Site Lease Termination Date" shall have the meaning specified
in Section 3 of the Site Lease.
"Site Lessor" shall have the meaning specified in preamble of
the Site Lease.
"SLV Payment Date" shall have the meaning specified in Section
13(b) of the Lease.
"Soda Ash Consultant" shall mean British Sulphur Consultants
or any subsequent soda ash consultant.
"Special Environmental Expenses" shall mean any fines,
penalties, liabilities, costs, expenses, payments to claimants or other Persons,
remediation and other response costs and capital expenditures, in each case,
pursuant to any Environmental Law.
"Special Termination Event" shall mean (a) any Asset
Disposition by NACC or HCNA or any Restricted Subsidiary of NACC or HCNA subject
to Section 6.1(a)(iii) or Section 6.2(g) of the Participation Agreement, (b) any
merger, consolidation, or transfer, conveyance, sale, assignment, lease or other
disposition of all or substantially all the properties and assets of NACC or
HCNA or any Restricted Subsidiary of NACC or HCNA subject to Section 6.1(a)(iv),
6.1(b)(ii), 6.2(h), 6.3(a)(ii) or 6.3(b)(ii) of the Participation Agreement, or
(c) any transfer, conveyance, sale, assignment, lease or other disposition of
all or substantially all the properties and assets that comprise the Complex by
NACC or any reorganization or other transaction or series of related
transactions as a result of which it ceases to be a Restricted Subsidiary of
HCNA subject to Section 6.1(a)(iv) or 6.1(b)(ii) of the Participation Agreement
which requires the consent of Owner Trustee or Owner Participant in accordance
with the provisions of Sections 6.1(a)(iii), 6.1(a)(iv), 6.1(b)(ii), 6.2(g),
6.2(h), 6.3(a)(ii) or 6.3(b)(ii) of the Participation Agreement, as the case may
be, and which is not proposed by NACC, HCNA or any Restricted Subsidiary or
Affiliate of NACC or HCNA for the purpose of giving rise to a purchase option
under Section 6.5 of the Participation Agreement.
"Special Termination Payment Date" shall mean the date for
payment of the Special Termination Payment Price pursuant to Section 6.5 of the
Participation Agreement.
"Special Termination Payment Price" shall have the meaning
specified in Section 6.5 of the Participation Agreement.
"Standard & Poor's" shall mean Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc., or its successor in interest.
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<PAGE>
"Stipulated Loss Value" shall mean as of any Determination
Date the amount set forth opposite such Determination Date on Schedule IV to the
Lease.
"Sublease" shall have the meaning specified in Section 15 of
the Lease.
"Subsidiary" of any Person shall mean (i) a corporation more
than 50% of the combined voting power of the outstanding Voting Stock of which
is owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof.
"Supplemental Rent" shall mean any and all amounts,
indemnities, liabilities and other obligations of any kind, except for Basic
Rent, which NACC assumes or agrees to pay under the Lease or any other Operative
Document, including, without limitation, Stipulated Loss Value and damages for
breach of any covenants, representations, warranties or agreements therein, to
Lessor, Owner Trustee, Owner Participant, Power Contract Trustee or Trust
Company.
"Survey" shall mean the survey, maps and plats all delivered
pursuant to Section 4.1(j) of the Participation Agreement.
"Target Sales" shall mean, with respect to any period, an
amount (in tons) equal to the product of (x) the Salt Commitments for such
period multiplied by (y) the Average Sales Percentage for such period.
"Tax" shall have the meaning specified in Section 7.4 of the
Participation Agreement.
"Tax Assumptions" shall have the meaning specified in Section
2 of the Tax Indemnity Agreement.
"Tax Claim" shall have the meaning specified in Section 7.4(e)
of the Participation Agreement.
"Tax Indemnity Agreement" shall mean the Tax Indemnity
Agreement in the form of Exhibit I to the Participation Agreement, dated as of
the Closing Date, between Owner Participant and NACC, as the same may be
amended, modified or supplemented in accordance with the provisions thereof.
"Tax Law Change" shall mean (i) one or more additions,
amendments, modifications or changes in or to (a) the provisions of the Code
(including for this purpose any
33
<PAGE>
uncodified provisions of legislation affecting the Code) or (b) Regulations or
(ii) the issuance of published Internal Revenue Procedures, Revenue Rulings or
other administrative publications.
"Tenant" shall have the meaning specified in preamble of the
Site Lease.
"Termination Date" shall have the meaning specified in Section
12(a) of the Lease.
"Termination Notice" shall have the meaning specified in
Section 12(a) of the Lease.
"Title Underwriter" shall mean Chicago Title Insurance
Company.
"Transaction Costs" shall mean the following fees, expenses,
disbursements and costs incurred in connection with the preparation, execution
and delivery of the Operative Documents and the consummation of the transactions
contemplated thereby on the Closing Date: (i) the reasonable fees, expenses and
disbursements of Hunton & Williams, counsel for Owner Participant; (ii) the
reasonable fees, expenses and disbursements of special California counsel to
Owner Participant; (iii) the reasonable fees, expenses and disbursements of
Carter, Ledyard & Milburn, counsel to Owner Trustee; (iv) the initial (but not
ongoing) fees and expenses of Owner Trustee; (v) printing, word processing and
reproduction costs; (vi) the fees and expenses of the Appraiser with respect to
the Appraisal; (vii) the reasonable fees and expenses of the Engineering
Consultant for services rendered in connection with the transactions
contemplated by the Participation Agreement; (viii) the reasonable fees and
expenses of the Environmental Consultant for services rendered in connection
with the transactions contemplated by the Participation Agreement; (ix) the
reasonable fees and expenses of the Soda Ash Consultant for services rendered in
connection with the transactions contemplated by the Participation Agreement;
(x) the reasonable survey costs incurred by NACC in connection with the
transactions contemplated by the Participation Agreement; (xi) the reasonable
title insurance and related costs incurred by NACC in connection with the
transactions contemplated by the Participation Agreement; (xii) the reasonable
out-of-pocket expenses of Owner Participant (including computer pricing and
travel expenses); (xiii) all fees, taxes and other charges payable in connection
with the filing of the financing statements and other documents filed in
connection with the transactions contemplated by the Participation Agreement;
and (xiv) any other fees, expenses, disbursements and costs as shall have been
approved by both Owner Participant and NACC.
"Transaction Date" means the date of the transaction giving
rise to the need to calculate the Interest Coverage Ratio.
"Transfer" by any Person shall mean any transfer, conveyance,
sale, assignment, lease or other disposition, directly or indirectly, by such
Person.
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"Transfer Agreement" shall mean an Assignment and Assumption
Agreement substantially in the form of Exhibit AA to the Participation
Agreement, to be entered into between Owner Participant and a transferee as
provided in Section 6.4(a) of the Participation Agreement.
"Trust Agreement" shall mean the Trust Agreement substantially
in the form of Exhibit H to the Participation Agreement, dated as of July 12,
1996, between Trust Company and Owner Participant that creates Searles Valley
Trust 1996, as the same may be amended, supplemented or modified in accordance
with the terms thereof.
"Trust Company" shall mean U.S. Trust Company of California,
N.A., in its individual capacity.
"Trust Estate" shall have the meaning specified in Section
2(b) of the Trust Agreement.
"Trust Expenses" shall have the meaning specified in Section
6.1 of the Trust Agreement.
"Trust Office" shall mean the offices of the Owner Trustee at
the address provided in Section 9.1 of the Participation Agreement.
"Undivided Interest" shall mean the fifty percent (50%)
undivided interest leased or purchased by the Owner Trustee, as the case may be.
"Unrestricted Subsidiary" shall mean (a) any Subsidiary
designated as such by the Board of Directors of HCNA as set forth below where
(i) neither HCNA nor any of its other Restricted Subsidiaries (A) provides
credit support for, or Guarantee of, any Debt of such Subsidiary or any
Subsidiary of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Debt) or (B) is directly or indirectly liable for any
Debt of such Subsidiary or any Subsidiary of such Subsidiary, and (ii) no
default with respect to any Debt of such Subsidiary or any Subsidiary of such
Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt of HCNA and its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity, and
(b) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of HCNA
may designate any Restricted Subsidiary to be an Unrestricted Subsidiary unless
such Restricted Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, any other Subsidiary of HCNA which is not a Subsidiary of
the Restricted Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; provided, that either (x) the Restricted Subsidiary to be so
designated has total assets of $1,000 or less or (y) immediately after giving
effect to such designation, the Consolidated Cash Flow Ratio of HCNA and the
Restricted Subsidiaries of HCNA for the four full fiscal quarters for which
quarterly or annual financial statements are available next preceding the date
of such designation,
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calculated on a pro forma basis as if such designation had been made at the
beginning of such four full fiscal quarters, shall be greater than 2.25 to 1.00;
provided, further, in the case of clause (y), HCNA could make a Restricted
Payment in an amount equal to the greater of the fair market value and book
value of the Restricted Subsidiary to be so designated pursuant to Section
6.2(e) of the Participation Agreement.
"Utility Trust Estate" shall have the meaning specified in
Section 2(b) of the Power Contract Trust Agreement.
"Verifier" shall have the meaning specified in Section 3.3 of
the Participation Agreement.
"Voting Stock" of any Person shall mean Capital Stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
"Weighted Average Life to Maturity" shall mean with respect to
the calculation of Break Costs on any Determination Date, the number of years
(calculated to the nearest 1/12) obtained by dividing the then Remaining
Dollar-Years of the Lease by the applicable Stipulated Loss Value.
"Working Capital Facility" or "Facilities" of any Person shall
mean any agreement or agreements between such Person or any Restricted
Subsidiary of such Person and a financial institution or institutions, providing
for the making of loans, on a revolving basis, the issuance of letters of credit
and/or the creation of bankers' acceptances the amount that may be borrowed
under which is based upon eligible accounts receivable and eligible inventories.
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- - --------------------------------------------------------------------------------
FORM OF FACILITY LEASE
----------------------
FACILITY LEASE - UNDIVIDED INTEREST
(Searles Valley Trust 1996)
dated as of July 15, 1996
between
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity, but solely as owner trustee
under the Trust Agreement that creates the trust
identified under the title hereof,
as Lessor,
and
NORTH AMERICAN CHEMICAL COMPANY,
as Lessee
- - --------------------------------------------------------------------------------
Lease of an Undivided Interest in the Argus Utility Plant
Searles Valley, California
<PAGE>
TABLE OF CONTENTS
(Facility Lease Agreement)
Page
----
PARTIES..................................................................... 1
Section 1. Definitions..................................................... 1
Section 2. Lease of the Facility and Sublease of the Site; Conflicts with
Site Lease...................................................... 1
Section 3. Lease Term...................................................... 1
Section 4. Rent............................................................ 2
Section 5. Representations, Warranties and Agreements as to the Facility;
Claims Under Warranties......................................... 4
Section 6. Liens; Quiet Enjoyment.......................................... 6
Section 7. Lawful Use; Maintenance; Modifications and Additions............ 6
Section 8. Identification.................................................. 10
Section 9. Insurance....................................................... 11
Section 10. Return of the Facility.......................................... 16
Section 11. Notice of Defaults.............................................. 18
Section 12. Voluntary Termination........................................... 18
Section 13. Event of Loss; Repair; Regulatory Event of Loss................. 21
Section 14. No Interest Conveyed to Lessee.................................. 23
Section 15. Sublease; Location.............................................. 24
Section 16. Inspection and Reports.......................................... 24
Section 17. Events of Default............................................... 25
Section 18. Remedies........................................................ 28
- i -
<PAGE>
Page
----
Section 19. Right to Perform for Lessee..................................... 32
Section 20. Renewal Terms................................................... 33
Section 21. Lessee's Options to Purchase the Undivided Interest in the
Facility........................................................ 34
Section 22. End of Lease Term Notices; Procedures for Renewal or Purchase... 35
Section 23. Further Assurances.............................................. 36
Section 24. Counterparts; Uniform Commercial Code........................... 36
Section 25. Notices......................................................... 37
Section 27. Miscellaneous................................................... 37
Section 28. Limitations on Lessor Liability................................. 39
Schedule I Description of Facility
Schedule II Description of Site
Schedule III Interim Rent and Basic Rent
Schedule IV Stipulated Loss Values
- ii -
<PAGE>
FACILITY LEASE - UNDIVIDED INTEREST
(Searles Valley Trust 1996)
THIS FACILITY LEASE - UNDIVIDED INTEREST dated as of July 15,
1996 (this "Lease"), is between U.S. TRUST COMPANY OF CALIFORNIA, N.A., a
national banking association, not in its individual capacity, but solely as
owner trustee under the Trust Agreement that creates the trust identified under
the title hereof, as Lessor ("Lessor"), and NORTH AMERICAN CHEMICAL COMPANY, a
Delaware corporation, as Lessee ("Lessee").
W I T N E S S E T H:
Concurrently with its execution and delivery of this Lease,
(i) Lessor is acquiring the Undivided Interest in the Facility in accordance
with the terms and provisions of the Participation Agreement, (ii) Lessor is
acquiring the Leasehold Estate from Lessee pursuant to the Site Lease, (iii)
Lessor now proposes to sublease the Leasehold Estate to Lessee in accordance
with the terms and conditions hereof and (iv) Lessor now proposes to lease the
Undivided Interest in the Facility to Lessee in accordance with the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual terms and
conditions herein contained, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used but not defined
herein (including those used in the foregoing recital) shall have the meanings
assigned to them in the Participation Agreement (Searles Valley Trust 1996),
dated as of the date hereof (the "Participation Agreement") among Lessee, HCNA,
[Owner Participant] and Lessor. All references to Sections, Schedules and
Exhibits herein are to Sections, Schedules and Exhibits to this Lease unless
otherwise indicated.
Section 2. Lease of the Facility and Sublease of the Site;
Conflicts with Site Lease. In consideration for the covenants and agreements
herein contained, Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Undivided Interest in the Facility, and Lessor hereby subleases to
Lessee, and Lessee hereby subleases from Lessor, the Site to have and to hold
the same, together with all the rights, privileges and appurtenances thereunto
belonging, unto Lessee, its successors and permitted assigns, for the Lease Term
upon and subject to the covenants, agreements, terms, conditions, limitations
and provisions hereinafter set forth. The Facility is described in Schedule I,
which Schedule I shall for all purposes constitute part of this Lease. The Site
on which the Facility is located is described in Schedule II, which Schedule II
shall for all purposes constitute part of this Lease. The rights of Lessee
arising under or pursuant to this Lease are subject to any provisions in the
Site Lease to the contrary, and in case of any conflict between the rights of
Lessee under this Lease or as Site Lessor under the Site Lease, the terms of the
Site Lease shall control.
Section 3. Lease Term. The Lease Term shall consist of an
interim term (the "Interim Term") commencing on the Closing Date and ending on
August 14, 1996 and a basic
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term (the "Basic Term") commencing on the Basic Term Commencement Date and
ending on July 15, 2009, subject to earlier termination in accordance with this
Lease and subject to renewal pursuant to Section 20.
Section 4. Rent. (a) Interim Rent; Basic Rent; Sublease Rent.
(i) Lessee shall pay to Lessor, as interim rent ("Interim Rent") in advance for
the Undivided Interest in the Facility, on the Closing Date, the amount set
forth on Schedule III opposite the caption "Interim Rent". On each Basic Rent
Payment Date during the Basic Term, Lessee shall pay to Lessor Basic Rent (in
advance as set forth in Schedule III) in the amount set forth on Schedule III
opposite such Basic Rent Payment Date. Basic Rent with respect to any Renewal
Term shall be payable as provided in Section 20(b). Amounts of Interim Rent,
Basic Rent and Stipulated Loss Value percentages are subject to adjustment as
provided in Article III of the Participation Agreement.
(ii) During the Lease Term, Lessee shall pay to Lessor, as
rent for the sublease by Lessor to Lessee of the Leasehold Estate, an amount
equal to the amount payable by Lessor to Site Lessor as rent under Section 4 of
the Site Lease. The amount payable by the Lessee under this Section 4(a)(i)
shall be due on each date on which rent is due from Lessor under Section 4(a) of
the Site Lease, and shall automatically be offset against the amount due under
such Section 4(a) of the Site Lease on each date on which such amount is due.
(b) Supplemental Rent. Lessee shall pay to Lessor, or to
whomever shall be entitled thereto as expressly provided herein or in any other
Operative Document, any and all Supplemental Rent promptly as the same shall
become due and payable, including any interest payable as provided in Section
4(d).
(c) Method of Payment. Rent shall be paid to Lessor by wire
transfer of immediately available funds to Owner Participant's account in New
York City at [ ], ABA No.: [ ], for credit to account
number [ ], Account Name: [ ], or to such other account as
Lessor shall specify to Lessee on at least fifteen (15) Business Days' prior
written notice; provided, however, that, in the case of Supplemental Rent,
payment shall be made to whomever shall be entitled thereto as expressly
provided herein or in any other Operative Document. Each payment of Rent due
hereunder shall be made by Lessee prior to 1:00 p.m., New York time, on the date
when such payment shall be due; provided, however, that if such date shall not
be a Business Day, such payment shall be made on the next succeeding Business
Day with the same effect as if such payment had been made on the scheduled due
date therefor and no interest shall accrue on the amount of such payment from
and after such scheduled due date.
(d) Late Payment. In the event any Rent shall not be paid when
due, Lessee shall pay to Lessor (or, in the case of Supplemental Rent, to
whomever shall be entitled thereto as expressly provided herein or in any other
Operative Document), as Supplemental Rent, interest (to the extent permitted by
law) on such overdue amount from the due date thereof to the date of payment
thereof at the Overdue Interest Rate.
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<PAGE>
(e) Net Lease; No Set-off, Counterclaims, etc. This Lease is a
net lease and the Lessee hereby acknowledges and agrees that the Lessee's
obligation to pay all Rent hereunder, and the rights of the Lessor and each
other Person entitled thereto in and to such Rent, shall be absolute,
unconditional and irrevocable and shall be without abatement, suspension, or
other reduction and otherwise shall not be released, discharged or affected
(except as may be expressly provided herein) by any circumstance of any
character, including, without limitation: (i) any set-off, abatement,
counterclaim, suspension, recoupment, reduction, compromise, settlement,
release, modification, amendment (whether material or otherwise), waiver,
release or discharge (by act or operation of law), rescission, defense or other
right or claim that Lessee may have against Lessor, the Trust Company, the Power
Contract Trustee, Owner Participant, the Operator, any contractor, any vendor or
manufacturer of any equipment or assets included in the Facility or any
Modification or any part of any thereof, or any other Person for any reason
whatsoever (without prejudice to Lessee's right to assert such claim or defense
in a separate action, so long as Lessee does not set-off the amount of such
claim or defense against its obligation to pay Rent hereunder); (ii) the
assignment or pledging or the purported assignment or pledging of all or any
part of the interest of Lessor, Owner Participant or Lessee in the Facility or
any portion thereof or any defect in or failure of the title, merchantability,
condition, design, compliance with specifications, operation or fitness for use
of all or any part of the Facility, any Modification, any Part, or the Site,
(iii) any damage to, or removal, abandonment, dismantling, decommissioning,
shutdown, salvage, scrapping, requisition, taking, condemnation, loss, theft or
destruction of all or any part of the Facility, any Modification, any Part, or
the Site, or any interference, interruption or cessation in the use or
possession of the Facility or the Site, by Lessee or by any other Person for any
reason whatsoever or of whatever duration; (iv) any charge, waiver, extension,
indulgence or other act or omission in respect of any duty, obligation or
liability of Owner Participant, the Trust Company, the Power Contract Trustee,
the Operator, any contractor, or any other Person or any claim that Lessee has
or might have against any Person (including, without limitation, any vendor,
contractor or manufacturer); (v) any restriction, prevention or curtailment of
or interference with any use of all or any part of the Facility, any
Modification, any Parts, or any right, title or interest in or to the Site; (vi)
any insolvency, bankruptcy, reorganization, composition, adjustment,
dissolution, liquidation, sale or other disposition of all or substantially all
the assets of, marshalling of assets or similar proceeding by or against Lessee,
Lessor, Owner Participant, the Trust Company, the Power Contract Trustee, the
Operator, any contractor, or any other Person; (vii) the invalidity, illegality,
disaffirmance or unenforceability (or the allegation of invalidity, illegality
or unenforceability) of this Lease, any other Operative Document, or any other
instrument referred to herein or therein or any other infirmity herein or
therein or any lack of right, power of authority of Lessor, Lessee, Owner
Participant, or any other Person to enter into this Lease, any other Operative
Document, or to perform the obligations hereunder or thereunder or consummate
the transactions contemplated hereby or thereby or any doctrine of force
majeure, impossibility, frustration or failure of consideration or any action
taken by any Person, court or trustee with respect to any of the foregoing;
(viii) the breach of or failure to comply with any warranty, representation,
covenant or other agreement made in this Lease, any other Operative Document or
any other agreement by Lessee, Lessor, Owner Participant, or any other Person;
(ix) any failure, omission or delay on the part
3
<PAGE>
of any Person to enforce, assert or exercise any right, power or remedy under
any Operative Document; (x) the taking or omission of any of the actions
referred to in any Operative Document; or (xi) any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing and whether
or not Lessee has notice or knowledge of any such circumstance or happening.
Lessee hereby waives, any and all rights that it may now have or that at any
time hereafter may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender this Lease or to effect or claim any diminution or
reduction of Rent payable by Lessee hereunder, except in accordance with the
express terms hereof. Lessee agrees that, if for any reason whatsoever this
Lease shall be terminated or suspended in whole or in part by operation of law
or otherwise, then, except as expressly provided herein, the Lessee shall pay to
the Lessor or any other Person entitled thereto, an amount equal to each payment
of Basic Rent and all payments of Supplemental Rent at the time such payment
would have become due and payable in accordance with the terms hereof had this
Lease not been terminated or suspended in whole or in part. Each payment of Rent
made by Lessee hereunder shall be final and Lessee shall not seek or have any
right to recover all or any part of such payment from the Lessor or any Person
for any reason whatsoever. All covenants, agreements and undertakings of the
Lessee herein shall be performed at its cost, expense and risk unless expressly
otherwise stated. THIS LEASE (AND THE PROVISIONS HEREOF) IS INTENDED TO
SUPERSEDE IN ALL RESPECTS THE PROVISIONS OF, THE RIGHTS GRANTED UNDER AND THE
OBLIGATIONS IMPOSED BY ARTICLE 2A OF THE NEW YORK AND ARTICLE 10 OF THE
CALIFORNIA UNIFORM COMMERCIAL CODE, AND, TO THE FULLEST EXTENT NOW OR HEREAFTER
PERMITTED BY APPLICABLE LAW, THE LESSEE HEREBY WAIVES ALL OF ITS RIGHTS AND
REMEDIES UNDER SUCH ARTICLE 2A AND SUCH ARTICLE 10 EXCEPT THOSE SET FORTH IN
SECTION 10308(C) OF THE CALIFORNIA UNIFORM COMMERCIAL CODE (AND THE PARTIES DO
NOT WAIVE THE PROVISIONS OF SECTION 3440.1K OF THE CALIFORNIA CIVIL CODE), AND
THE LESSEE HEREBY ACKNOWLEDGES AND AGREES THAT THE FOREGOING HAS BEEN NEGOTIATED
AND IS INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ALL REPRESENTATIONS,
WARRANTIES (INCLUDING, WITHOUT LIMITATION, THOSE OF FITNESS FOR A PARTICULAR
PURPOSE AND OF MERCHANTABILITY), OBLIGATIONS AND DUTIES, EXPRESS OR IMPLIED,
IMPOSED ON THE LESSOR OR THE OWNER PARTICIPANT UNDER SUCH ARTICLE 2A AND SUCH
ARTICLE 10 EXCEPT THOSE SET FORTH IN SECTION 10308(C) OF THE CALIFORNIA UNIFORM
COMMERCIAL CODE (AND THE PARTIES DO NOT WAIVE THE PROVISIONS OF SECTION 3440.1K
OF THE CALIFORNIA CIVIL CODE). Nothing contained in this Section 4(e) shall be
construed as a guarantee by Lessee of the residual value or useful life of the
Facility or any interest therein. All obligations imposed on Lessee under this
Lease shall be full recourse obligations of Lessee.
Section 5. Representations, Warranties and Agreements as to
the Facility; Claims Under Warranties. (a) WITHOUT WAIVING OR OTHERWISE
AFFECTING ANY CLAIM LESSEE OR LESSOR MAY HAVE AGAINST ANY THIRD PARTY (OTHER
THAN OWNER PARTICIPANT AND OWNER TRUSTEE), LESSEE HEREBY REPRESENTS, WARRANTS,
ACKNOWLEDGES AND AGREES THAT (I) THE FACILITY IS OF THE
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SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED BY OR ON BEHALF OF LESSEE, (II)
LESSEE IS SATISFIED THAT THE FACILITY AND THE SITE ARE SUITABLE FOR ITS
PURPOSES, (III) LESSOR IS NOT A MANUFACTURER OF OR A DEALER IN PROPERTY OF SUCH
KIND AND (IV) THE UNDIVIDED INTERESTS IN THE FACILITY AND THE SITE ARE LEASED
SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL REGULATIONS (INCLUDING
ENVIRONMENTAL LAWS) NOW IN EFFECT OR HEREAFTER ADOPTED AND IN THE STATE AND
CONDITION OF EVERY PART THEREOF WHEN THE SAME FIRST BECAME OR BECOMES SUBJECT TO
THIS LEASE, WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY LESSOR, EXPRESS OR
IMPLIED, AS TO THE TITLE, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS,
CONDITION, DESIGN, OPERATION, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT,
ABSENCE OF LATENT DEFECTS OR FITNESS FOR USE OF THE FACILITY (OR ANY PART
THEREOF), THE SITE (OR ANY PART THEREOF) OR THE UNDIVIDED INTERESTS THEREIN OR
ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE FACILITY (OR ANY PART THEREOF) OR THE SITE (OR ANY PART THEREOF),
except that Lessor hereby represents and warrants that the Facility and the
Undivided Interest therein shall be free of Lessor Liens. It is agreed that as
between Lessor on the one hand and Lessee on the other, except as expressly
provided herein, all risks incident to the matters discussed in the preceding
sentence (other than those relating to Lessor Liens), shall be borne by Lessee
both during the Lease Term and in connection with any transfer of the Facility
or any part thereof pursuant to Sections 12, 13, 18 or 22. The provisions of
this Section 5 (a) have been negotiated, and, except to the extent otherwise
expressly stated, the foregoing provisions are intended to be a complete
exclusion and negation of any representations or warranties by Lessor, express
or implied, with respect to the Facility, the Site or the Undivided Interest
therein, whether arising pursuant to the Uniform Commercial Code or any similar
law now or hereafter in effect, or otherwise.
(b) Claims Under Warranties. (i) So long as no Event of
Default has occurred and is continuing, Lessor hereby assigns to Lessee, until
the Lessor Possession Date, all of Lessor's claims and rights, if any, under
(including, without limitation, the right to receive any payments made pursuant
thereto) any and all warranties of, and other claims against, dealers,
manufacturers, vendors, suppliers, installers, contractors or subcontractors
relating to the Facility or the Undivided Interest therein. Without limiting the
foregoing, Lessor agrees to execute and deliver to Lessee any such further
assignment or assurances as may reasonably be deemed necessary to facilitate
such enforcement by Lessee.
(ii) Lessee agrees to use commercially reasonable efforts to
preserve and protect Lessor's rights under any warranty, covenant or
representation which is material to the use or operation of the Facility made by
any contractor, subcontractor, vendor, manufacturer or supplier with respect to
the Facility or the Undivided Interest therein, and Lessee will take no action
which will impair such rights of Lessor and covenants to act in compliance with
any restrictions or requirements prerequisite to the continued existence,
enforcement, validity and maintenance of any such warranty, covenant or
representation.
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Section 6. Liens; Quiet Enjoyment. (a) Liens. During the Lease
Term, Lessee shall not directly or indirectly create, incur, assume or suffer to
exist any Lien on or with respect to any portion of the Undivided Interest in
the Facility, the Leasehold Estate, the Site, the Easement Site or the Service
Facilities or title thereto or any interest therein or in any Lease Financing
Document, the Rent, any Sublease or any of the Lessor's Contract Rights, except
Permitted Liens, and Lessee shall promptly, at its own expense, take such action
as may be necessary duly to discharge, eliminate or properly bond (in an amount
required under Applicable Law to release such Lien of record) any such Lien if
the same shall arise at any time and shall promptly furnish evidence of such
discharge to Lessor and Owner Participant upon request. Nothing contained in
this Lease shall be construed as constituting the consent or request of Lessor,
express or implied, to or for the performance by any contractor, laborer,
materialman or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition of or
to the Facility or any part thereof which would result in the Lessor's liability
for payment therefor that is not indemnified by Lessee under the Operative
Documents. Notice is hereby given that without its prior written consent, Lessor
will not be liable for any labor, services or materials furnished or to be
furnished to Lessee or to anyone holding an interest in the Facility, Site, the
Easement Site or Complex or any part thereof through or under Lessee, and no
mechanics' or other Liens for any such labor, services or materials shall attach
to or affect the interest of Lessor in the Facility, Site, the Easement Site or
the Undivided Interest.
(b) Quiet Enjoyment. Lessor covenants that during the Lease
Term and so long as no Event of Default has occurred and is continuing, Lessee
shall peaceably and quietly have, hold and enjoy the Undivided Interest in the
Facility and in the Leasehold Estate as lessee in possession, free from
interruption or disturbance by Lessor or by any other Person or Persons lawfully
entitled to claim by, through or under Lessor on the terms and conditions
provided for under this Lease and the other Operative Documents. Such right of
quiet enjoyment is independent of, and shall not affect, Lessor's right to
exercise its rights hereunder or under any other Operative Document or to
initiate legal action to enforce, including by specific performance, the
obligations of Lessee under this Lease or any other Operative Document. Neither
Lessor nor any Person claiming by or through Lessor shall have any liability to
Lessee for any interference with the use, quiet enjoyment or possession of the
Site arising out of the Site Lease, any defect in the title to the Site existing
on the date the Site Lease was entered into or on the date hereof or arising as
a result of any action or inaction of Site Lessor or any Affiliate thereof or
any Person claiming by, through or under Site Lessor or any Affiliate thereof
other than Lessor and Persons claiming by, through or under Lessor.
Section 7. Lawful Use; Maintenance; Modifications and
Additions. (a) Lawful Use. Lessee agrees that the Facility, the Leasehold
Estate, the Easement Site , the License and the Site will at all times be used
and operated in the regular course of Lessee's business (i) as a coal and gas
fired steam and electricity generation facility, (ii) under and in material
accordance with all Approvals necessary for the continued operation of the
Facility and (iii) under and in compliance with all applicable Legal
Requirements (including, without limitation, any thereof relating to matters of
occupational safety and health and Environmental
6
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Laws), unless noncompliance with (ii) or (iii) above would only affect to an
insignificant extent the right, title or interest of Lessor or Owner Participant
in or to the Facility or the Undivided Interest therein or the Leasehold Estate
or the continued economic operation thereof or the value, utility or remaining
useful life of the Facility or the Undivided Interest therein.
(b) Maintenance. (i) During the Lease Term, Lessee, at its
expense, shall, and shall cause any sublessee to, maintain, operate, service,
repair and otherwise use the Facility and the Site or cause the same to be
maintained, operated, serviced, repaired and otherwise used, and shall conduct
its business affairs, (i) in a prudent and responsible manner and in accordance
with all Operative Documents, (ii) in all material respects in accordance with
all Legal Requirements (including, without limitation, Environmental Laws)
applicable to the Facility or the Site, (iii) to the extent required to maintain
the Facility or the Site in as good operating condition as the Facility or the
Site is in on the Closing Date (ordinary wear and tear excepted) and (iv) in
accordance with sound independent power industry standards. Lessee shall also
comply with (A) such repair standards and periodic maintenance inspections as
shall be required to enforce warranty claims for each material Part of the
Facility and (B) any terms and conditions imposed by any insurance policies in
effect at any time with respect to the Facility and the Site or any part thereof
necessary to preserve applicable coverages. Lessee shall keep and maintain
proper books and records relating to all services rendered and all funds
expended for maintenance and repair of the Facility or the Site or any portions
thereof, all of which shall be available for inspection pursuant to Section 16.
Notwithstanding anything to the contrary herein or in any other Operative
Document, at the end of the Lease Term the Facility and the Site shall be in
compliance in all material respects with all Legal Requirements unless
compliance with such Legal Requirements shall have been permanently excused or
permanently exempted by a valid nonconforming use, permit, waiver, extension or
forbearance exempting Lessor (if in the name of the Lessor) and/or any Person in
possession of the Facility under an agreement with the Lessor, as the case may
be, from such compliance.
(ii) Lessee shall provide the Engineering Consultant with a
copy of Lessee's maintenance plan (including a description and schedule of all
major maintenance) on the Closing Date. If Lessee makes any material
modification or amendment to such maintenance plan, Lessee shall promptly (but
in any event within 15 days) provide (x) Owner Participant with notice of such
modification or amendment and (y) the Engineering Consultant with a copy of the
maintenance plan as so modified or amended. Lessee shall permit the Engineering
Consultant to meet with and to discuss the maintenance plan (and any
modifications and amendments thereto) with Lessee's officers, engineers and
other appropriate personnel, and Lessee shall consider in good faith any
suggestions or changes with respect to the maintenance plan proposed by the
Engineering Consultant. Lessee shall be responsible for all reasonable fees,
costs and expenses of the Engineering Consultant in connection with this Section
7(b)(ii) not exceeding $5,000 per fiscal year.
(c) Payment of Taxes. Lessee shall pay all Taxes and other
impositions related to the Facility, the Easement Site or the Site as and to the
extent required by the Participation
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Agreement. Upon the written request of Lessor or Owner Participant, Lessee shall
provide such Person with evidence of the payment of such Taxes or other
impositions.
(d) Replacement of Parts. Except (i) to the extent the same
shall result in or from an Event of Loss (in which case Section 13 shall apply),
(ii) with respect to Severable Modifications that are not Required Modifications
and (iii) as provided in Section 7(e), Lessee, at its expense, shall with
reasonable promptness restore, substitute or replace all Parts that may from
time to time become worn out, destroyed, damaged beyond repair, lost or rendered
permanently unfit for use, for any reason whatsoever, in each case, to the
extent required to comply with Section 7(a) or 7(b). In the ordinary course of
maintenance, service or repair, Lessee may remove any Parts; provided, however,
that Lessee shall cause such Parts to be replaced as promptly as practicable.
All restorations, substitutions and replacements for Parts ("Replacement Parts")
shall be free and clear of all Liens, except Permitted Liens, shall be in as
good an operating condition as the Parts or Replacement Parts being replaced
(assuming that such replaced Parts or Replacement Parts were in the condition
required by this Lease), shall be in the condition and repair required to be
maintained by the terms hereof and shall not diminish the value, utility or
remaining useful life of the Facility or the Undivided Interest. Notwithstanding
the foregoing, Lessee may install temporary Parts pending completion of
permanent repairs or installation of permanent Replacement Parts, in which event
(A) Lessee shall install permanent Replacement Parts meeting the requirements
set forth in this Section 7(d) or shall cause such temporary Replacement Parts
to meet such requirements, in either case as soon as reasonably possible (it
being understood that Lessee shall use reasonable commercial efforts to install
such permanent Replacement Part or to cause such temporary Replacement Part to
meet such requirements no later than the date which is one year following the
installation of the related temporary Replacement Part), and (B) in any event,
Lessee shall install such permanent Replacement Part or cause such temporary
Replacement Part to meet such requirements prior to the return of the Undivided
Interest in the Facility to Lessor. Except with respect to Parts removed
pursuant to Section 7(e), the Undivided Interest in Parts that are removed from
the Facility shall remain the property of Lessor, no matter where located, until
such time as such Parts shall be exchanged for Replacement Parts that meet the
requirements for Replacement Parts specified above or shall be replaced by
Replacement Parts that have been incorporated or installed in or attached to the
Facility and that meet the requirements for Replacement Parts specified above,
whichever occurs earlier. Immediately upon any such exchange for a Replacement
Part or upon any such Replacement Part becoming incorporated or installed in or
attached to the Facility as above provided, without further act, (i) title to
the Undivided Interest of Lessor in the removed Part shall thereupon vest in
Lessee or such Person as shall be designated by Lessee, free and clear of all
rights of Lessor and Lessor Liens, and such Part shall no longer be deemed a
Part hereunder, and (ii) title to the Undivided Interest in such Replacement
Part shall thereupon vest in Lessor and become subject to this Lease and shall
be deemed part of the Facility for all purposes to the same extent as Parts
originally incorporated or installed in or attached to the Facility.
(e) Removal of Obsolete Parts. Lessee, at its own expense,
may from time to time remove from the Facility Parts that Lessee determines to
be obsolete or no longer suitable
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or appropriate for use in the Facility without the consent of Lessor and free of
any obligation to make any replacement or substitution thereof and, subject to
the last sentence of this Section 7(e), Lessee shall be entitled to sell or
otherwise dispose of such Parts without accounting to Lessor; provided, however,
that no such removal shall cause the Facility to become limited use property or
diminish the value, utility, or remaining useful life of the Facility below what
such value, utility or remaining useful life thereof would have been (assuming
Lessee had fully complied with the provisions of this Lease) if such removal had
not been made. To the extent Lessee sells any Parts removed from the Facility
pursuant to this Section 7(e) during the Lease Term, the aggregate net proceeds
of all such sales during any fiscal year of Lessee in excess of $25,000 shall be
paid to Lessor.
(f) Modifications. Except to the extent Lessee is involved in
a Permitted Contest with respect to such Legal Requirement, during the Lease
Term Lessee, at its own expense, shall make all alterations, modifications,
additions and improvements to the Facility and the Site (herein collectively
referred to as "Modifications") as may be required from time to time by
applicable Legal Requirements (including, without limitation, any Environmental
Law) ("Required Modifications").
(g) Optional Modifications. So long as no Event of Default has
occurred and is continuing, Lessee, at its own expense, may from time to time
make such other Modifications to the Facility or the Site as Lessee may deem
desirable in the proper conduct of its business; provided, however, that no such
Modification shall (i) diminish the value, utility or remaining useful life of
the Facility or the Undivided Interest below what such value, utility or
remaining useful life would have been (assuming Lessee had fully complied with
the provisions of this Lease) if such Modification had not been made, (ii)
adversely affect the operation of the Facility, other than to an insignificant
extent or (iii) result in any adverse tax consequence to the Owner Participant
(as determined by the Owner Participant in its sole discretion); provided,
further, that the aggregate amount incurred in connection with any such
Modifications shall not exceed $5,000,000 during any period of four (4)
consecutive fiscal quarters without the prior written consent of the Lessor,
which consent may not be unreasonably withheld.
(h) Title to Modifications. Title to Severable Modifications
that are not Required Modifications shall vest in Lessee. So long as no Material
Default or Event of Default has occurred and is continuing, any such Severable
Modification not owned by Lessor may be removed by Lessee prior to or upon the
expiration of the Lease Term, subject to Lessor's right to purchase an undivided
interest in such Modification. Upon notice from Lessor to Lessee given not more
than fifteen (15) days following the Lease Termination Date, Lessor shall have
the right to purchase a fifty percent (50%) undivided interest in any
Modification owned by Lessee that remains on the Site on the Lease Termination
Date by giving notice (no later than fifteen (15) days following the Lease
Termination Date and provided the Other Lessor gives a comparable notice also
electing to purchase a fifty percent (50%) undivided interest in such
Modification) to Lessee of its desire to purchase no later than thirty (30) days
following such notice, for cash, at a price equal to the Fair Market Sales Value
of such undivided interest determined by the Appraisal Procedure. If Lessor
chooses to purchase any such undivided
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<PAGE>
interest, Lessor shall pay the purchase price for such undivided interest in
immediately available funds within thirty (30) days of the determination of such
price. Any such undivided interest not purchased by Lessor may be removed by
Lessee (x) if Lessor has not given Lessee notice that it desires to purchase
such undivided interest within thirty (30) days after the expiration of the
Lease Term or (y) if Lessor has given such notice but has not paid the purchase
price for such undivided interest within thirty (30) days after the purchase
price for such undivided interest has been determined. Lessor shall have no
liability or obligation with respect to any such Modification prior to purchase
by Lessor pursuant to this Section 7(h). In addition, in the event that the
Lessor has not elected to purchase an undivided interest in any such
Modification, upon the request of Lessor upon reasonable notice, Lessee shall,
prior to the later of (i) the expiration of the Lease Term and (ii) the
expiration of the lease term of the Other Lease, remove any Severable
Modification to which Lessee retains title and repair any damage resulting to
the Facility or the Site from such removal other than damage resulting from
normal wear and tear, and after giving any such notice Lessor shall no longer
have any right to purchase an undivided interest in such Modification. Title to
an Undivided Interest in all Severable Modifications that are Required
Modifications and all Nonseverable Modifications shall automatically, upon being
affixed to the Facility or the Site, vest in Lessor, free and clear of all Liens
except Permitted Liens, and become subject to the Lease.
(i) Reports of Modifications. On or before the ninetieth
(90th) day of each fiscal year of Lessee during the Lease Term and on the date
on which the Lease Term shall expire, Lessee shall furnish Lessor and Owner
Participant with a report stating the total cost of all Modifications during the
prior fiscal year (or shorter period) and describing in reasonable detail all
Modifications, the cost of which (excluding design and installation costs)
exceeds $50,000.
(j) Location. Lessee shall not remove, or permit to be
removed, any material Part from the Site without the prior written consent of
Lessor, except that, if no Material Default or Event of Default shall have
occurred and be continuing, Lessee may remove from the Site any Part title to
which has vested in Lessee in accordance with the terms of Section 7(h) or may
remove any obsolete or worn out part in accordance with Section 7(e) and may
remove any Part which requires maintenance, repair, service or testing at a
location other than the Site; provided, in the case of Parts other than those
removed in accordance with Section 7(e) or Section 7(h), such Part is returned
to the Site promptly after completion of such maintenance, repairs, service or
testing.
Section 8. Identification. Throughout the Lease Term, Lessee
shall maintain markers or signs in prominent places in and about the Facility
including the inscription "UNDIVIDED INTERESTS IN THIS FACILITY AND CERTAIN
PROPERTY LOCATED HEREIN ARE OWNED BY U.S. TRUST COMPANY OF CALIFORNIA, N.A., AS
OWNER-LESSOR, AND ARE LEASED TO NORTH AMERICAN CHEMICAL COMPANY." Except as
above provided or as otherwise directed by Lessor, Lessee shall not allow the
name of any Person other than that of Lessee or its Affiliates to be placed on
any component of the Facility subject to this Lease as a designation that might
reasonably be interpreted as a claim of
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ownership or right (except for the rights of any sublessees, assignees or the
Operator of the Facility permitted under the Operative Documents) to possession
or use thereof.
Section 9. Insurance. (a) Coverage. During the Lease Term
(including any Renewal Term) Lessee, at its expense, will maintain the following
minimum insurance coverages with respect to the Facility, the Site and the
Complex with insurers of recognized financial standing authorized to do business
in California and having an A.M. Best Rating of A- X or as otherwise acceptable
to Lessor. Such policies shall have terms and conditions that are reasonably
satisfactory to Lessor:
(i) all risk property insurance, including, but not
limited to, fire and extended coverage, collapse, earthquake, flood and
comprehensive boiler and machinery coverage including production
equipment. Such policy or policies shall be written in amount not less
than the higher of (x) the then current repair or replacement value of
the Facility and the Complex and (y) the Stipulated Loss Value. Such
policy or policies shall be written on a no-coinsurance form and on a
replacement cost basis and contain demolition and increased cost of
construction coverage. Notwithstanding the above, such policy or
policies may contain combined property damage/business interruption
sublimits of $125,000,000 for comprehensive boiler and machinery
coverage; $100,000,000 for earthquake coverage; and $75,000,000 for
flood coverage. To the extent that boiler and machinery coverage is
provided under a separate policy, the all-risk property and boiler and
machinery policies shall contain joint loss agreements;
(ii) business interruption insurance covering loss of net
profits and continuing expenses (including the amount of Basic Rent for
one year) and extra expense insurance covering additional expenses
incurred to continue the normal operation of business following
physical loss or damage. Such coverage shall be written on a
no-coinsurance form;
(iii) comprehensive general liability insurance written in
an amount not less than $1,000,000 and shall be written on an
occurrence form. Such policy shall include, but not be limited to,
premises/operations, XCU, broad form contractual, independent
contractors, products and completed operations, broad form property
damage and personal injury. Such policy shall be endorsed to contain
worldwide territorial limits;
(iv) comprehensive auto liability insurance covering owned,
hired and non-owned vehicles written in an amount not less than
$1,000,000;
(v) workers' compensation insurance as required by
applicable law and employer's liability written in an amount not less
than $1,000,000 per accident/disease; and
(vi) excess liability insurance written in an amount (x)
not less than $100,000,000 on a blanket basis or (y) not less than
$50,000,000 which shall apply
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solely to the Facility. In the case of (x) or (y), the first
$50,000,000 of coverage shall be written on an occurrence basis and
shall apply above the primary limits. Such coverage shall apply above
the primary limits of the comprehensive general liability, auto
liability, and employer's liability policies and shall contain a drop
down provision in the event of exhaustion of underlying limits or
aggregates and apply on a following form basis.
(vii) If any insurance required to be maintained by Lessee
pursuant to this Section 9 (including the limits on deductibles or any
other terms under policies for such insurance) ceases to become
available on a commercially reasonable basis at the time of renewal,
Lessee shall provide written notice to Lessor accompanied by a letter
from Lessee's insurance broker stating that such insurance is
unavailable on a commercially reasonably basis. Such notice shall be
given not less than thirty (30) days prior to the scheduled date for
renewal of any such policy. Upon receipt of such notice Lessor and
Lessee shall immediately negotiate in good faith to obtain a
commercially reasonable alternative to such insurance.
In the event that Lessor and Lessee can not reach a resolution
acceptable to both parties within five (5) days, Lessor shall make arrangements
for the formation of an insurance panel consisting of Lessee's insurance advisor
(or broker), Lessor's insurance adviser (or broker) and an independent insurance
expert chosen by Lessor and reasonably acceptable to Lessee selected from an
internationally recognized insurance brokerage. Such independent expert shall
conduct a separate review of the relevant insurance requirements of this Section
9 and the market for such insurance at the time, giving due consideration to the
representations of both insurance advisors, and upon conclusion of such review
shall issue a written report stating that such insurance is either available or
not available on a commercially reasonable basis. In the event the insurance
expert concludes that such insurance is not available on a commercially
reasonable basis, the insurance expert shall provide a written recommendation
not less than fifteen (15) days before the date for renewal of such insurance
which shall be conclusive and binding on both Lessee and Lessor. Lessor shall
issue a waiver to Lessee for a period of one (1) year upon the insurance expert
certifying that the relevant insurance is not available on a commercially
reasonable basis and the Lessee having implemented the recommendation of the
insurance expert.
All fees, costs and expenses associated with the insurance
panel (including the review by the insurance expert) shall be for the sole
account of Lessee.
(b) Policy Provisions. All insurance maintained by Lessee
pursuant to Section 9(a) shall:
(i) include (x) Lessor and Owner Participant as an
additional named insured with respect to the insurance carried pursuant
to Sections 9(a)(i) and 9(a)(ii) with respect to the Facility and the
Site and as an additional insured with respect to the insurance carried
pursuant to Sections 9(a)(iii) and 9(a)(vi) and with the understanding
that any
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<PAGE>
obligation imposed upon Lessee (including but not limited to the
obligation to pay premiums) shall be the sole obligation of Lessee and
not that of Lessor or Owner Participant and (y) to the extent of their
Undivided Interests in the Facility, Lessor and Owner Participant as
the sole loss payees with respect to insurance carried pursuant to
Section 9(a)(i) and as sole loss payees with respect to any Basic Rent
which is then due and payable and covered by insurance carried pursuant
to Section 9(a)(ii);
(ii) include effective waivers by the insurer of all claims
for insurance premiums and other costs and expenses against Lessor and
Owner Participant;
(iii) provide that any losses shall be payable
notwithstanding:
(1) any act of negligence and any action, inaction or
misrepresentation (including any breach of any condition or
warranty in any policy of insurance), of Lessee, HCNA or HCG;
(2) the occupation or use of the Facility or the Site
or any part thereof for purposes more hazardous than permitted
by the terms of the policy;
(3) any foreclosure or other proceeding or notice of
sale relating to the Facility or the Site; or
(4) any change in the title to or ownership of any of
the Facility, the Site or the Undivided Interest therein.
(iv) provide that such insurance shall be primary insurance
and that the insurers under such insurance policies shall be liable
under such policies without right of contribution from any other
insurance coverage effected by Lessee, Lessor or Owner Participant
under any other insurance policies with any other insurance companies
covering a loss which is also covered under the insurance policies
maintained by Lessee pursuant to this Section 9;
(v) provide that the applicable insurer shall provide at
least thirty (30) days' written notice (or ten (10) days' written
notice for any cancellation in the event of non-payment of premium) to
Lessor and Owner Participant prior to the effective date of any lapse,
cancellation or material change thereof shall be effective until at
least thirty (30) days after receipt by Lessor and Owner Participant of
written notice thereof from the applicable insurer;
(vi) waive any right of subrogation of the insurers against
Lessor and Owner Participant and waive any right of the insurers to any
set-off or counterclaim or any other deduction, whether by attachment
or otherwise, in respect of any liability of Lessor or Owner
Participant; and
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<PAGE>
(vii) with respect to the insurance carried pursuant to
paragraphs (iii) and (vi), be endorsed to provide that, inasmuch as the
policy is written to cover more than one insured, all terms,
conditions, insuring agreements, and endorsements, with the exception
of limits of liability, shall operate in the same manner as if there
were a separate policy covering each insured.
(c) Adjustment and Payment of Losses. Losses, if any, under
any property or business interruption insurance carried hereunder pursuant to
Section 9(a)(i) or 9(a)(ii), respectively, with respect to the Facility, the
Site, the Complex or the Undivided Interests therein, shall be adjusted with the
insurance companies by Lessee, or otherwise collected, including the filing of
proceedings deemed advisable by Lessee, subject to the approval of Lessor, which
approval shall not be unreasonably withheld, in the event that such loss is in
excess of $2,500,000 or if an Event of Default shall have occurred and be
continuing. The loss so adjusted shall be paid to Lessor to the extent of
Lessor's Undivided Interest in the Facility, or, in the case of business
interruption insurance, as set forth in Section 9(f), unless the amount of such
loss is $2,500,000 or less, in which case such amount shall be paid directly to
Lessee for application pursuant to Section 9(f), unless an Event of Default
shall have occurred and be continuing, in which case all insurance payments
shall be made to Lessor to the extent of Lessor's Undivided Interest in the
Facility and the Site as security for performance by Lessee of its obligations
hereunder and shall be invested in accordance with Section 26 until released to
Lessee or otherwise applied in accordance with the terms hereof. Losses covered
by general liability insurance shall be adjusted by the insurance carrier and
paid to the Person suffering such loss.
(d) Certificates of Insurance. On or before the Closing Date,
and on or before each policy anniversary date, Lessee shall deliver to Lessor
certificates of insurance executed by the relevant insurers (or their duly
authorized agents) describing in reasonable detail all insurance policies with
respect to the Facility which Lessee is required to maintain pursuant to this
Section 9. Upon request, Lessee shall provide Lessor and Owner Participant with
copies of all policies of insurance required to be maintained under this Section
9.
(e) Annual Insurance Report. On or before the Closing Date and
concurrently with the furnishing of certificates pursuant to Section 9(d),
Lessee shall deliver, or cause to be delivered, to Lessor and Owner Participant
a report signed by Marsh & McLennan, Inc. or such other nationally recognized
insurance broker or any other insurance broker mutually acceptable to the
parties showing all insurance then carried and maintained with respect to the
Facility, the Site and the Undivided Interests therein by Lessee pursuant to
this Section 9 and stating that in the opinion of such broker such insurance
complies with the terms of Sections 9(a), (b), (h), (i) and (j) hereof and
further stating whether all premiums then due thereon have been paid and whether
such insurance is in full force and effect.
(f) Payment of Proceeds. Unless an Event of Default shall have
occurred and be continuing (in which case all insurance proceeds shall be
invested in accordance with Section 26 until released to Lessee or otherwise
applied in accordance with the terms hereof), all
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<PAGE>
insurance proceeds received by or payable to Lessor on account of (x) any damage
to or destruction of the Facility or any part thereof other than any damages or
destruction constituting an Event of Loss, shall be paid over by Lessor to
Lessee or as Lessee may direct from time to time as repair and restoration of
the Facility ("Restoration") progresses to pay (or reimburse Lessee for) the
Undivided Interest multiplied by the cost of Restoration, but only upon the
written request of Lessee accompanied by appropriate evidences satisfactory to
Lessor that such proceeds, together with insurance proceeds received and not yet
disbursed by Other Lessor on account of such damage or destruction and funds of
Lessee available for the purpose, shall be sufficient to complete repair and
restoration of the Facility and the Site and (y) any business interruption to
the extent of Lessor's Undivided Interest in the Facility applicable to the
Facility or the Site and arising from physical damage to the Facility, the Site
or the Complex, shall be caused by Lessee to be placed in escrow up to an amount
equal to the next installment of Basic Rent that will become due and payable.
Upon receipt by Lessor of evidence satisfactory to it that repair and
restoration have been completed and the cost thereof paid in full and that there
are no mechanics' or similar Liens for labor or materials supplied in connection
therewith (other than Permitted Liens that are subject to a Permitted Contest)
on the Facility, the Site or the Undivided Interest therein, the balance, if
any, of such proceeds shall be paid over to Lessee or as it may direct. Prior to
any application of insurance proceeds pursuant to the preceding provisions of
this Section 9(f), if an Event of Default shall have occurred or be continuing
at the time of the requested application of any such proceeds, such proceeds
shall, unless dealt with in accordance with Section 13 hereof, be held as
security for performance by Lessee of its obligations hereunder and, at such
time as no Event of Default shall be continuing, any such proceeds then so held
as security shall be applied in accordance with this Section 9(f) unless Lessor
shall have theretofore declared this Lease to be in default pursuant to Section
18 hereof, in which event such proceeds shall be disposed of by Lessor in
accordance with the provisions thereof.
(g) Additional Insurance. Each of Lessor and the Owner
Participant shall have the right, at its own expense and for its own exclusive
benefit, to obtain any insurance in respect of the Facility and the Leasehold
Estate or any part thereof so long as such insurance does not prevent Lessee
from carrying the insurance required by this Section 9 or (ii) does not reduce
the amounts payable under the insurance required to be maintained by Lessee
pursuant to this Section 9. In addition to the foregoing, if Lessee shall be in
default in respect of its obligation to obtain insurance pursuant to Section
9(a), Lessor shall, after notice of such default to Lessee and the failure of
Lessee forthwith to remedy the same, have the right (without, in any way, either
limiting or otherwise modifying any other rights or remedies of, or imposing any
obligation on, Lessor under this Lease by reason of such default or otherwise)
to obtain such insurance at the expense of Lessee and, in such event, Lessee
shall reimburse Lessor upon demand for the cost thereof, together with interest
thereon at the Overdue Interest Rate, as Supplemental Rent.
(h) Deductibles. (i) The combined deductible or self-insured
retention for property insurance coverages maintained by Lessee pursuant to
Section 9(a)(i) (all risk property
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<PAGE>
damage insurance) and 9(a)(ii) (business interruption insurance) shall not
exceed $250,000 per occurrence.
(1) The deductible or self-insured retention for comprehensive
boiler and machinery property damage insurance shall not exceed $1,500,000 per
occurrence.
(2) The deductible or self-insured retention for boiler and
machinery business interruption insurance coverage shall not exceed fifteen (15)
times the average daily value of production.
(3) The deductible or self-insured retention for combined
earthquake physical damage and earthquake business interruption coverage shall
not exceed $10,000,000.
(ii) The deductible or self-insured retention on insurance
coverages maintained by Lessee pursuant to Sections 9(a)(iii) (comprehensive
general liability insurance), 9(a)(iv) (comprehensive auto liability insurance)
and 9(a)(v) (workers' compensation insurance) shall not exceed $250,000 per
occurrence.
Section 10. Return of the Facility. (a) At End of Term. If
Lessee has not purchased the Undivided Interest in the Facility in accordance
with the terms hereof and if Lessee elects not to renew this Lease pursuant to
Section 20 at the end of the Basic Term or any Renewal Term, Lessee shall, on
the last day of the Basic Term or the Renewal Term, as the case may be, (whether
such date is the scheduled expiration date of the Basic Term or Renewal Term, as
the case may be, or an earlier date upon which the Lease Term ends pursuant to
Section 12(a) (but only if Lessor has elected to retain the Facility)), as the
case may be, deliver possession of the Undivided Interest in the Facility and
the Leasehold Estate to Lessor or its designee or transferee (as specified by
Lessor to Lessee in writing not less than 10 Business Days prior to such
expiration or termination date) in accordance with the terms of this Section
10(a). Lessee shall effect delivery of the Undivided Interest in the Facility
and the Leasehold Estate at its cost and expense by executing and delivering to
Lessor or its designee or transferee an instrument or instruments in form and
substance reasonably satisfactory to Lessor (i) evidencing surrender by Lessee
of all of Lessee's rights to the Undivided Interest in the Facility and the
Leasehold Estate under this Lease and to possession thereof, which Undivided
Interest in the Facility and the Leasehold Estate shall be free and clear of all
Liens, other than Lessor Liens and Permitted Liens of the types referred to in
clauses (a) (but not including the rights and interests of NACC and HCNA), (c)
(but not including Liens being contested pursuant to a Permitted Contest), (f),
(h), (i) (j) and (l) of the definition of Permitted Liens and (ii) the
satisfaction by Lessee of all its obligations as "Seller" under the Power
Purchase Agreement that have accrued and were due to be performed or paid prior
to the termination of the Sub-Assignment (as defined in the Power Contract
Assignment). Lessee shall deliver to Lessor or its designee or transferee
originals or copies of all records, manuals and other written data then in the
possession of Lessee which is used by Lessee for the operation of the Facility
and the Leasehold Estate. Immediately prior to delivery of the Undivided
Interest in the Facility, the Facility and the Leasehold Estate shall in all
respects comply with all of the terms of Section
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7 which are applicable to the Facility and the Leasehold Estate. Without
limiting the generality of any of the other terms of this Lease, the
Participation Agreement or the other Operative Documents, Lessee shall be liable
for any costs, expenses or damages incurred by Lessor or its designee or
transferee as a result of Lessee's failure to duly perform and comply with any
of the terms of this Section 10(a).
(b) Environmental Audit. If (i) Lessee has not elected to
purchase the Undivided Interest in the Facility or to renew this Lease pursuant
to Section 20 at the end of the Basic Term or any Renewal Term, or (ii) Lessor
elects to (x) retain the Facility following receipt of a Termination Notice or
(y) exercise its remedies pursuant to Section 18 resulting in the relinquishment
by Lessee to Lessor of possession of the Undivided Interest in the Facility,
then (A) in the case of Lessee's election not to exercise its purchase or
renewal options or Lessor's election to retain the Facility, at least ninety
(90) but not more than one hundred fifty (150) days prior to the end of the
Basic Term or Renewal Term, as the case may be, or (B) in all other cases, upon
relinquishment of the Undivided Interest in the Facility to Lessor, Lessee
shall, at Lessee's sole cost and expense, arrange for an environmental audit of
the Facility and the Site and provide to Lessor a report or reports of such
audit (collectively, "Environmental Report") as described in this Section 10(b).
The environmental audit shall be conducted and the Environmental Report prepared
in accordance with industry standards and customs by an Environmental Consultant
selected by Lessee and reasonably acceptable to Owner Participant, and the
Environmental Report shall be reasonably acceptable in form and substance to
Owner Participant. The environmental audit shall consist of (i) a Phase I
environmental site assessment, (ii) an environmental compliance audit detailing
any actual or threatened violations of or non-compliance with Environmental Laws
and (iii) an estimate of current liabilities under Environmental Laws in
connection with the Facility and the Site. Thereafter Lessee shall, at its sole
cost and expense, diligently and in good faith arrange for any additional
investigations (including Phase II environmental assessments) and conduct to
completion any environmental remediation relating to the Facility or the Site
that is reasonably prudent pursuant to industry customs and standards based on
the results of the Environmental Report or required under any applicable
Environmental Law. Lessor and Lessee shall consult with one another concerning
the appropriate scope of all reports, investigations and remediation subsequent
to the initial environmental audit, and Lessee shall keep Lessor informed with
respect to any discussions and negotiations with applicable Authorities
concerning potential plans to correct any violation or non-compliance or conduct
remedial activities. Any remediation plan shall include, but shall not be
limited to, plans for full response, remediation, removal, or other corrective
action, and the protection, or mitigative action associated with the protection,
of natural resources including wildlife, aquatic species, and vegetation
associated with the Facility, the Site or any Modification, as required by all
applicable Environmental Laws. Lessee shall have the right to control the
planning and implementation of any environmental remediation pursuant to this
Section 10(b); provided, however, that Lessee shall consult with Lessor with
respect thereto and shall not perform any such activity in a manner adverse in
any way to Lessor (as reasonably determined by Lessor). Lessor and Lessee shall
cooperate with each other with respect to all such matters. In any case, if the
aggregate cost of implementing and completing such remediation plan (or any
amendments, revisions or modifications thereto) together with any
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Liens, fines, fees or civil or stipulated penalties resulting from any violation
of or non-compliance with Environmental Laws or any Release is reasonably likely
to equal or exceed $500,000 in the estimate of the Environmental Consultant,
Lessee shall provide to Lessor, within 30 days of Lessor's written demand, a
bond, letter of credit or other evidence of financial responsibility reasonably
satisfactory to Lessor for the amount of the estimated aggregate costs and
expenses in excess of $500,000.
(c) Following End of Lease Term. Upon notice from Lessor and
the Other Lessor given (i) if a Processing Services Election (as defined in the
Services Agreement) has not been made, at any time on or after the expiration or
termination of the Lease Term but in no event later than one year after NACC
ceases to be Operator pursuant to the Services Agreement, or (ii) if a
Processing Services Election has been made, at any time within one year after
the earlier to occur of Final Shutdown (as defined in the Services Agreement)
and the expiration or termination of the Services Agreement, then, unless Lessee
shall have purchased the Undivided Interest in the Facility in accordance with
the terms hereof, Lessee (at its own expense) shall disassemble the Facility
and, as agent for Lessor (to the extent of the Undivided Interest therein),
dismantle the Facility and deliver the salvageable portions of the Facility,
disassembled, to the railhead or other suitable common carrier nearest the Site.
Notwithstanding the foregoing, Lessee may, within thirty (30) days after
determination of the Fair Market Sales Value for the Facility, at its option and
in lieu of its obligation to dismantle the Facility, purchase the Undivided
Interest in the Facility, for a purchase price equal to the greater of (A) the
Fair Market Sales Value of the Undivided Interest in the Facility, determined by
the Appraisal Procedure, and (ii) One Dollar ($1.00). Upon receipt of the
purchase price, the Lessor shall transfer and assign all of its right, title and
interest in and to the Undivided Interest in the Facility to Lessee or to such
other Person as Lessee may direct, free and clear of Lessor Liens and otherwise
on an "as is, where is" basis, and the Lessor shall execute and deliver one or
more bills of sale, together with such other documents evidencing such transfer
and assignment as may be reasonably requested by the Lessee in order to carry
out such transfer and assignment to the Lessee. This Section 10(c) shall survive
the expiration or termination of this Lease and the other Operative Documents.
Section 11. Notice of Defaults. Lessee shall furnish to Lessor
and Owner Participant promptly after a Responsible Officer of Lessee or HCNA
obtains knowledge of the occurrence of a Default, Event of Default or Event of
Loss a certificate of a Responsible Officer of Lessee specifying the nature of
such condition or event, the period of existence thereof, the action Lessee has
taken or proposes to take with respect thereto and the date, if any, on which it
is estimated that such event or condition shall be remedied or terminated.
Section 12. Voluntary Termination. (a) Notice of Termination.
So long as no Event of Default shall have occurred and be continuing, in the
event that, the board of directors of the Lessee determines that the Facility
has become obsolete, surplus or uneconomic to Lessee's requirements, as
evidenced by a resolution of such board of directors to such effect delivered to
Lessor, then, at any time after the seventh anniversary of the Basic Term
Commencement Date and prior to the expiration or termination of the Basic Term,
Lessee shall
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have the right, at its option, on at least twelve (12) months, but not more than
twenty-four (24) months, prior written notice (the "Termination Notice") to
Lessor, to terminate this Lease, such termination to be effective on the Basic
Rent Payment Date specified in such notice (the "Termination Date") which Basic
Rent Payment Date shall occur after the seventh anniversary of the Basic Term
Commencement Date and prior to the expiration or termination of the Basic Term;
provided, that Lessee shall only be able to exercise the termination option
under this Section 12(a) to the extent it is also exercising a similar option
under the Other Lease. Within three (3) months following receipt of a
Termination Notice, Lessor shall notify Lessee in writing of Lessor's
irrevocable election to (a) retain the Undivided Interest in the Facility or (b)
sell the Undivided Interest in the Facility. If Lessor fails to deliver such
notice within the three (3) month period described in the preceding sentence,
Lessor shall be deemed to have elected to sell the Undivided Interest in the
Facility. If Lessor elects to retain the Undivided Interest in the Facility
pursuant to this Section 12(a), Lessee shall, on the Termination Date (i)
deliver the Facility to Lessor in the same manner as if delivery were made to
Lessor pursuant to Section 10(a) and (ii) pay to Lessor, in funds of the type
specified in Section 4(c), an amount equal to the sum of (x) all Rent (other
than Basic Rent payable on and after the Termination Date and other than
Stipulated Loss Value) with respect to the Undivided Interest in the Facility
due on or prior to such Termination Date plus (y) all documented out-of-pocket
cost and expenses incurred by the Lessor or Owner Participant as a result of the
exercise by the Lessee of its right to terminate the Lease pursuant to this
Section 12(a) (other than as a result of the Lessor's election to retain the
Facility), whereupon the Lease Term and, except as expressly otherwise provided
herein or therein, the obligations of the Lessee and HCNA to the Lessor under
this Lease and any other Operative Documents, including the obligations of the
Lessee to pay Basic Rent on each Basic Rent Payment Date on or after the
Termination Date, shall terminate and the Owner Participant shall promptly
surrender any Letters of Credit to the issuer thereof for cancellation;
provided, however, if the conditions set forth in clauses (i) and (ii) of this
Section 12(a) shall not have occurred on or as of the Termination Date, this
Lease and all other Operative Documents shall continue in full force and effect
as to the Undivided Interest in the Facility and Lessee shall be deemed to have
revoked its Termination Notice.
(b) Sale of Undivided Interest. Upon delivery of a Termination
Notice and until Lessor notifies Lessee in accordance with the provisions of
Section 12(a) of Lessor's election to retain the Undivided Interest in the
Facility, Lessee as non-exclusive agent for Lessor, shall use its commercial
best efforts to obtain bids for the purchase of the Undivided Interest in the
Facility and, in the event it receives any bid, Lessee shall promptly certify to
Lessor in writing the amount and terms of such bid, the proposed date of such
sale and the name and address of the party or parties (who shall not be Lessee
or any Affiliate of Lessee but who may be any Affiliate of Lessor or any Person
contacted by Lessor) submitting such bid. The Owner Participant shall have the
right, but not the obligation to obtain bids for the purchase of the Undivided
Interest in the Facility and shall promptly notify Lessee of each such bid.
Unless no bid shall have been received, if Lessor elected, or was deemed to have
elected, to sell the Undivided Interest in the Facility, then on the Termination
Date and upon payment by Lessee of (x) all Rent (other than Basic Rent payable
on and after the Termination Date and other than Stipulated Loss Value) with
respect to the Undivided Interest in the Facility due on or prior to
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such Termination Date plus (y) the excess, if any, of (A) Stipulated Loss Value
for the Undivided Interest in the Facility, computed as of the Termination Date,
plus any Break Costs of the Owner Participant, over (B) the sales price of the
Undivided Interest in the Facility received by Lessor plus (z) all documented
out-of-pocket costs and expenses incurred by the Lessor or Owner Participant as
a result of the exercise by the Lessee of its right to terminate the Lease
pursuant to this Section 12(a) or the sale of the Facility in connection
therewith, (1) Lessee shall deliver the Undivided Interest in the Facility to
the bidder that submitted the highest bid therefor, in the same manner as if
delivery were made to Lessor pursuant to Section 10(a) and (2) Lessor shall
simultaneously therewith sell all of its right, title and interest in and to the
Undivided Interest in the Facility (together with Lessor's Contract Rights and
all rights of Lessor under the Site Lease, the License and the Easement) for
cash in U.S. dollars to such bidder free and clear of Lessor Liens and otherwise
on an "as is, where is" basis (the total selling price realized at such sale to
be retained by Lessor); provided, however, that no such sale shall occur unless
on or prior to the Termination Date Lessee shall have obtained the express
written consent of the Power Purchaser or the Power Purchase Agreements shall
have been terminated.
(c) Revocation; Termination. If no such sale shall have
occurred on or as of the Termination Date (either as a result of no bid having
been received or otherwise), this Lease shall continue in full force and effect
as to the Undivided Interest in the Facility (and Lessee shall be deemed to have
revoked its Termination Notice). In the event of any such sale and upon
compliance by Lessee with the provisions of this Section 12 with respect
thereto, the Lease Term and, except as expressly otherwise provided herein or
therein, the obligations of the Lessee and HCNA to the Lessor under this Lease
and any other Operative Documents, including the obligations of the Lessee to
pay Basic Rent on each Basic Rent Payment Date on or after the Termination Date,
shall terminate and Owner Participant shall promptly surrender any Letters of
Credit to the issuer thereof for cancellation. Lessor shall be under no duty to
solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise
take any action in connection with any such sale other than to sell the
Undivided Interest in the Facility (in accordance with the last sentence of
Section 12(b)) to the purchaser named in the highest bid certified by Lessee to
Lessor against receipt of the payments provided for herein. Except as expressly
provided for in this Section 12, any termination of this Lease as above provided
shall not affect the obligation of Lessee to make payments of Rent provided for
herein in respect of matters arising prior to or upon such termination. Lessee
may revoke any Termination Notice at any time up to six (6) months prior to the
Termination Date (whether or not Lessor has given notice of its election to
retain the Undivided Interest in the Facility); provided, that Lessee shall not
be permitted to revoke more than two (2) Termination Notices (including any
deemed revocation thereof). At the time when Lessee's Termination Notice shall
no longer be subject to revocation in accordance with this Section 12(c), Lessee
shall promptly provide Lessor with reasonable assurances of Lessee's ability to
make all payments required to be made by Lessee in connection with its exercise
of the termination of this Lease as above provided, after taking into account
any proceeds that can reasonably be expected from the sale of the Facility.
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Section 13. Event of Loss; Repair; Regulatory Event of Loss.
(a) Notice of an Event of Loss. If an Event of Loss shall occur during the Lease
Term with respect to the Undivided Interest in the Facility, Lessee shall give
Lessor prompt written notice thereof.
(b) Purchase of Facility Upon Event of Loss. Following the
occurrence of an Event of Loss, Lessee shall pay to Lessor on or prior to the
earlier of (x) the fifth Business Day following receipt of any requisition,
condemnation or insurance proceeds paid in connection with such Event of Loss
and (y) three (3) months following the Event of Loss Date (the date of such
payment, the "SLV Payment Date") the sum of the following (the "Event of Loss
Purchase Price"): (i) the Stipulated Loss Value for the Facility computed as of
the Determination Date on or immediately preceding the Event of Loss Date, plus
(ii) interest on the sum of the amount in clause (i) from the Determination Date
to the SLV Payment Date at the Overdue Interest Rate, plus (iii) all unpaid Rent
due in accordance with the terms of this Lease on or before the SLV Payment Date
(other than Basic Rent, if any, due and payable on or after the Determination
Date). Such Event of Loss Purchase Price shall be paid to Lessor on the SLV
Payment Date. Upon payment in full of such Event of Loss Purchase Price,
together with all documented out-of-pocket costs and expenses incurred by the
Lessor or Owner Participant, (a) the Lessor shall transfer and assign all of its
right, title and interest in and to the Undivided Interest in the Facility and
the Leasehold Estate to the Lessee or to such other Person as the Lessee may
direct, free and clear of Lessor Liens and otherwise on an "as is, where is"
basis, and Lessor shall execute and deliver one or more bills of sale, together
with such other documents evidencing such transfer and assignment as may be
reasonably requested by the Lessee in order to effect such transfer and
assignment and (b) (i) the Lease Term and, except as expressly otherwise
provided herein or therein, the obligations of the Lessee and HCNA to the Lessor
under this Lease and any other Operative Documents, including the obligations of
the Lessee to pay Basic Rent on each Basic Rent Payment Date on or after the
Determination Date, shall terminate and (ii) Owner Participant shall promptly
surrender any Letters of Credit to the issuer thereof for cancellation.
(c) Repair. Following the occurrence of loss, damage or
destruction to the Facility or the Site not constituting an Event of Loss (x)
Lessee shall make or cause to be made such repairs as are necessary to ensure
that the Facility and the Site is repaired and restored prior to the Lease
Termination Date to the value, utility and remaining useful life of the Facility
that existed prior to such occurrence (assuming the Facility was in the
condition required by this Lease), in compliance with Sections 7(b) and (y) of
this Lease shall continue, and each and every obligation of Lessee hereunder,
including, without limitation, the obligation to pay Rent, and under each other
Operative Document shall remain in full force and effect.
(d) Application of Payments on an Event of Loss. Payments
received by Lessor (other than proceeds of insurance carried by Lessor pursuant
to Section 9(g)) or Lessee from any insurer, governmental authority or other
Person as a result of an Event of Loss with respect to the Undivided Interest in
the Facility, the Easement Site or the Site shall be applied as follows: (x) so
much of such payments as shall not exceed the amount of Stipulated Loss Value
and the other amounts required to be paid by Lessee pursuant to Section 13(b)
shall be paid to and
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applied in reduction of Lessee's obligation to pay such amounts if not already
paid by Lessee in full or, if already paid by Lessee in full, shall be applied
to reimburse Lessee for its payment of such amounts, and (y) any such payments
that shall exceed the aggregate of the amounts payable pursuant to clause (x)
above shall be divided among Lessee and Lessor as their interests may appear.
(e) Application of Payments Not Relating to an Event of Loss.
Unless a Material Default or an Event of Default shall have occurred and be
continuing (in which case all payments described in this Section 13(e) shall be
invested in accordance with Section 26 until released to Lessee or otherwise
applied in accordance with the terms hereof), payments received at any time by
Lessor or Lessee from any insurer, governmental authority or other Person with
respect to any loss, condemnation, confiscation, theft or seizure of, or
requisition of title to or use of, or damage to, the Facility, the Easement Site
or the Site or any part thereof not constituting an Event of Loss will be paid
to or retained by Lessor and will be applied in accordance with the terms of
Section 9(f) in the same manner as the insurance proceeds referred to in said
Section (except that condemnation proceeds received from any Authority that
remain following completion of Restoration of the Facility in accordance with
Section 9(f) shall be divided among Lessee and Lessor as their interests may
appear).
(f) Regulatory Events of Loss. (i) If an OP Regulatory Event
of Loss or a Lessee Regulatory Event of Loss occurs or is threatened, Owner
Participant (with respect to an OP Regulatory Event of Loss) or Lessee (with
respect to a Lessee Regulatory Event of Loss), shall promptly notify the other
and take, or cause to be taken, such action as may be necessary to void or
nullify the OP Regulatory Event of Loss or Lessee Regulatory Event of Loss, as
applicable, or otherwise to mitigate in all material respects the effects
thereof, including (A) expending such sums as may be necessary to void, nullify
or mitigate in all material respects the effects of such Regulatory Event of
Loss, and (B) if necessary, selling or otherwise disposing of all or a portion
of, Lessor's, Lessee's or Owner Participant's interest in the Facility, as the
case may be. All such actions shall be taken prior to the date of the occurrence
or scheduled occurrence of such Regulatory Event of Loss or as soon as possible
thereafter; provided, however, that no Person shall be required to take any such
action after the date of any transfer pursuant to Section 13(f)(iii) or (iv)
hereof.
(ii) If any Regulatory Event of Loss occurs or is threatened,
Lessor (subject to Section 13(f)(iv) hereof), Lessee and Owner Participant shall
cooperate in good faith to void or nullify such Regulatory Event of Loss or to
otherwise mitigate in all material respects the effects thereof; provided,
however, neither Lessor, Lessee nor Owner Participant shall be obligated to
incur any significant expenses (except as otherwise provided in this Section
13(f)).
(iii) In the event of an Other Regulatory Event of Loss that
has not been voided or nullified, or the effect of which has not been mitigated
in all material respects, or, in the case of a Lessee Regulatory Event of Loss
that has not been voided or nullified, or the effect of which has not been
mitigated in all material respects, notwithstanding the Lessee's obligation to
void, nullify or mitigate in all material respects the effects thereof under
Section 13(f)(i),
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Lessee shall purchase the Undivided Interest in the Facility on an "as is, where
is" basis, without warranty, but free of Lessor Liens effective as of the
Determination Date that most immediately precedes the date of the applicable
Regulatory Event of Loss (the "Regulatory SLV Payment Date"), at a price (the
"Regulatory Purchase Price") equal to the greater of (A) the Stipulated Loss
Value as of the Regulatory SLV Payment Date, and (B) the Fair Market Sales
Value, determined as of the Regulatory SLV Payment Date by the Appraisal
Procedure. Owner Participant's rights under the Power Purchase Agreements, at
the time of such purchase, shall be free and clear of Lessor Liens and, to the
extent within the control of Lessor or Owner Participant, be returned to Lessee.
(iv) In connection with a purchase of the Undivided Interest
in the Facility by Lessee pursuant to Section 13(i)(iii), Lessee shall pay to
Lessor the following additional amounts on the Regulatory SLV Payment Date:
(A) any unpaid Basic Rent due prior to the Regulatory SLV
Payment Date; plus
(B) all documented out-of-pocket costs and expenses payable
by Lessor or Owner Participant as a result of such Regulatory Event of
Loss; plus
(C) any due and unpaid Supplemental Rent and any other amount
due and payable on, or relating to, the obligations of Lessee to Lessor
or Owner Participant under any of the Operative Documents that remains
unpaid on the Regulatory SLV Payment Date; whereupon the Lease Term
and, except as expressly otherwise provided herein or therein, the
obligations of the Lessee and HCNA to the Lessor under this Lease and
any other Operative Documents, including the obligations of the Lessee
to pay Basic Rent on each Basic Rent Payment Date on or after the
Termination Date, shall terminate and the Owner Participant shall
promptly surrender any Letters of Credit to the issuer thereof for
cancellation.
In the event of an OP Regulatory Event of Loss that has not
been voided or nullified, or the effect of which has not been mitigated in all
material respects within a reasonable period of time before the date on which it
becomes effective, Owner Participant shall have the option to cause Lessor to
transfer title to its Undivided Interest in the Facility to Lessee and to
convert the Lease into a secured loan, with the remaining Basic Rent payable
under the Lease being re-characterized as payment of principal and interest on
such loan. Lessee agrees to take all such actions, and enter into such
documents, agreements and instruments, as may be reasonably requested by Lessor
in order to effect such transfer and such re-characterization and to provide
Lessor with a first priority security interest in the Undivided Interest in the
Facility.
Section 14. No Interest Conveyed to Lessee. This Lease is an
agreement of lease and does not convey to Lessee any right, title or interest in
or to the Undivided Interest in the Facility except as a lessee and except as
may be available to Lessee under Sections 12(b), 13(b), 13(f) and 21.
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Section 15. Sublease; Location. (a) Assignment; Sublease. (i)
So long as no Event of Default shall have occurred and be continuing at the time
an Assignment or a Sublease (each, as defined below) is entered into and so long
as such Assignment or Sublease does not cause Owner Participant to suffer any
adverse tax consequences for which no indemnity is provided under the Operative
Documents, Lessee may, without prior consent of Lessor, assign its interest in
the Lease ("Assignment") or sublease its interest in the Facility or any portion
thereof ("Sublease") to any Approved Sublessee. Lessee shall give Lessor prompt
notice upon entering into any such Assignment or Sublease. Except as provided
above or as provided in Section 6.1 or Section 6.2 of the Participation
Agreement, Lessee may not assign its interest in the Lease (or any portion
thereof) or sublease its interest in the Facility or any portion thereof to any
other Person without the prior written consent of Lessor, which consent shall
not be unreasonably withheld.
(ii) The assignee in connection with any Assignment permitted
by this Section 15(a) shall enter into a written agreement for the benefit of
Lessor pursuant to which it shall expressly assume all obligations of Lessee
under this Lease and other Lease Financing Documents and which shall contain
representations and warranties as to validity, due authorization, enforceability
and such other matters as may be reasonably requested by Lessor. No such
Assignment shall in any way diminish or discharge any of Lessee's obligations to
Lessor or constitute a waiver of any of Lessor's rights or remedies hereunder.
(iii) The rights of any Person who receives possession under a
Sublease permitted by this Section 15(a) shall be subject and subordinate to all
the terms of this Lease (and any such Sublease shall be made expressly subject
and subordinate to all the restrictions and other terms of this Lease and such
Person shall have no right to further Sublease), including, without limitation,
Lessor's rights to exercise remedies under Section 18 (including re-entry and
repossession of the Undivided Interest in the Facility). No such Sublease shall
in any way discharge or diminish any of Lessee's obligations to Lessor or
constitute a waiver of any of Lessor's rights and remedies hereunder. Each such
Sublease shall be evidenced by a written agreement providing for the sublessee
to be bound by all the terms of this Lease. In addition, any such Sublease shall
expire no later than the last day of the Basic Term and, except for any such
Sublease with a term of less than one year, shall be assigned to Lessor as
collateral security for Lessee's obligations under this Lease and the other
Operative Documents and shall be subjected to the lien of the Lessor Security
Agreement.
(iv) In addition to the other requirements of this Section
15(a), any permitted Sublease entered into with a Person that is not a
Restricted Subsidiary of Lessee or, so long as HCNA Guaranty is in effect, of
HCNA shall be on commercially reasonable, arm's length terms and conditions.
Section 16. Inspection and Reports. (a) Inspection. During the
Lease Term and absent an Event of Default, Lessor, Owner Participant and their
authorized representatives and designees may, at their own expense, during
Lessee's normal business hours and upon reasonable prior notice to Lessee,
inspect the Facility, the Easement Site and the Site and the
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books and records of Lessee relative thereto (including any documents relating
to compliance with Environmental Laws) in Lessee's custody or to which Lessee
has access (subject, in each event, to Applicable Law and applicable
confidentiality undertakings with respect to proprietary information pursuant to
Section 9.6 of the Participation Agreement), and make copies and extracts
therefrom (other than copies of and extracts from engineering, processing and
other proprietary data and information unless such copies or extracts are
subject to the foregoing confidentiality undertakings), and may discuss Lessee's
operations, affairs, finances and accounts with its Responsible Officers and, in
consultation with a Responsible Officer of Lessee, with its independent public
accountants. Lessor shall not have any duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. Inspections shall be conducted so as not to interfere materially
with the operation of the Facility or the conduct by the Lessee of its business
and shall be subject to appropriate safety restrictions and precautions. If the
inspections are conducted during an Event of Default, Lessee shall pay
reasonable out-of-pocket expenses incurred by Lessor and Owner Participant.
(b) Environmental Inspection. During the Lease Term, Lessor,
Owner Participant and Owner Trustee and their agents, employees, contractors and
representatives, upon reasonable prior notice and at all reasonable times, may
enter the Facility, the Easement Site and the Site to undertake any reasonable
environmental inspection and monitoring thereof (including conducting invasive
soil borings and other customary invasive environmental tests, assessments and
sampling), provided that such parties (i) shall, if requested in writing by
Lessee, undertake any invasive inspection or monitoring through an Environmental
Consultant, which consultant shall be reasonably acceptable to Lessee and which
consultant shall provide for the benefit of Lessee standard and customary
indemnification for errors and omissions for preferred clients, but only if such
indemnification is commercially and reasonably available, (ii) shall not
undertake any invasive testing except upon the prior submission to Lessee of a
sampling plan, which plan shall be subject to Lessee's reasonable and prompt
approval, (iii) shall have no duty to conduct such activities, (iv) shall comply
with applicable Environmental Laws in the conduct of such activities, and (v)
shall use reasonable efforts to minimize interference with the business being
conducted at the Facility, the Easement Site and the Site.
(c) Reports. To the extent permissible, Lessee shall prepare
and file in timely fashion or, where Lessor shall be required to file, prepare
and deliver to Lessor within a reasonable time prior to the date for filing, any
material reports with respect to the condition or operation of the Facility, the
Easement Site and the Site during any period included in the Lease Term which
are required to be filed with any Authority.
Section 17. Events of Default. The following events shall
constitute Events of Default (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or Order of any Authority):
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(a) Lessee shall fail to make any payment of Interim Rent,
Basic Rent or Stipulated Loss Value or amounts payable pursuant to
Sections 12, 13 or 21 within five (5) Business Days after the same
shall have become due; or
(b) Lessee shall fail to make any other payment of
Supplemental Rent or any other amount payable hereunder or under any
Lease Financing Document or Facility Document within ten (10) Business
Days after receipt by the Lessee of written notice of such failure from
Lessor or Owner Participant describing such failure; or
(c) Lessee or HCNA shall fail to perform or observe in any
material respect any covenant, condition or agreement to be performed
or observed by it under (other than any covenant, condition or
agreement that is the subject of any other subsection of this Section
17) any Lease Financing Document and such failure shall continue
unremedied for a period of thirty (30) days after Lessee or HCNA shall
have received written notice from Lessor or Owner Participant
describing such failure; provided, that the continuation of such
failure for thirty (30) days or longer shall not constitute an Event of
Default if Lessee or HCNA is diligently proceeding to cure such failure
and such failure shall be cured within two hundred ten (210) days after
Lessee or HCNA shall have received such written notice from Lessor or
Owner Participant describing such failure; or
(d) Lessee or HCNA shall fail to perform or observe in any
material respect any covenant, condition or agreement to be performed
or observed by it under any Facility Document to which it is a party
(other than any covenant, condition or agreement that is subject to any
other subsection of this Section 17) and such failure shall continue
unremedied until the earlier to occur of the expiration of all
applicable cure periods contained in such Facility Document and 180
days after notice to Lessee or HCNA from Lessor or Owner Participant of
such failure; or
(e) any representation or warranty made by Lessee or HCNA in
any of the Lease Financing Documents to which it is a party (other than
in the Tax Indemnity Agreement), or made to the Owner Participant,
Owner Trustee or Power Contract Trustee in any statement, report,
schedule, notice or other writing furnished by Lessee or HCNA pursuant
to the Lease Financing Documents, shall prove to have been incorrect in
any material respect at the time made and shall remain material and
uncured or uncorrected for a period of thirty (30) days after Lessee
shall have received written notice from Lessor or Owner Participant
describing such incorrect representation or warranty; or
(f) Lessee or HCNA commences a voluntary case or other
proceeding seeking liquidation, reorganization or other similar relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, or consents to any such
relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding
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commenced against it, or makes a general assignment for the benefit of
creditors, or fails generally to pay its debts as they become due, or
takes any corporate action to authorize any of the foregoing or the
equivalent thereof; or
(g) an involuntary case or other proceeding is commenced
against Lessee or HCNA seeking liquidation, reorganization or other
similar relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding remains undismissed and
unstayed for a period of ninety (90) consecutive days; or an order for
relief is entered against Lessee or HCNA under any bankruptcy,
insolvency or other similar law as now or hereafter in effect; or
(h) Lessee shall fail to maintain the insurance required to be
maintained pursuant to Section 9; or
(i) for any reason the Site Lease, the Easement, the License
or HCNA Guaranty shall become invalid or otherwise unenforceable; or
(j) Lessee shall permit any Lien (other than a Permitted Lien)
to exist on or with respect to the Facility, the Site, the Easement
Site, a Service Facility or the Owner Trustee's rights under the Power
Purchase Agreements and such Lien shall remain for a period of thirty
(30) days after Lessee shall have received written notice from Lessor
as to the existence of such Lien; or
(k) a default shall have occurred under any Indebtedness (as
such term is defined in the Credit Agreement as in effect on the
Closing Date without regard to whether or not the same is still in
effect) of the Lessee or HCNA, the then principal outstanding amount
outstanding of which is more than $20 million, which default (i) shall
constitute a failure to pay any regularly scheduled payment (whether
principal, interest or otherwise) when due, after the expiration of any
applicable grace period with respect to such payment, or (ii) shall
have resulted in such obligation becoming or being declared due and
payable prior to the date on which it would otherwise have become due
and payable; or
(l) a final judgment or final judgments (not subject to
appeal) for the payment of money are entered against the Lessee or HCNA
in an aggregate amount in excess of $7.5 million by a court or courts
of competent jurisdiction, which judgment or judgments remain
undischarged for a period (during which execution shall not be
effectively stayed) of sixty (60) days after the right to appeal such
judgment or judgments has expired; or
(m) Lessee shall fail to maintain the Letter of Credit or Cash
Deposit as required by Section 6.1(i) of the Participation Agreement;
or
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(n) If at any time Lessee shall have provided Lessor with the
Cash Deposit and the Lessor Security Agreement shall be repudiated or
for any other reason shall fail to be in full force and effect or the
Lien of the Lessor Security Agreement shall terminate, cease to be in
effect or lose its priority other than as a result of the actions of
Lessor or Owner Participant, except as required by the Lease Financing
Documents, in each case except as expressly contemplated by the
Operative Documents; or
(o) HCNA shall fail to perform or observe in any material
respect any covenant, condition or agreement to be performed or
observed by HCNA, under Section 6.2(d) of the Participation Agreement,
and such failure shall continue unremedied upon the expiration of all
applicable cure periods contained in such Section; or
(p) a default in the performance, or breach, (x) by Lessee, of
Section 6.1 (a)(iv) or 6.1(b)(ii) of the Participation Agreement or (y)
by HCNA, of Section 6.2(h) or 6.3(a)(ii) of the Participation
Agreement.
Section 18. Remedies. (a) Remedies. Upon the occurrence of any
Event of Default and at any time thereafter so long as the same shall be
continuing, Lessor at its option may, (x) if such Event of Default is of the
type described in Section 17(f) or (g), without notice, and (y) with respect to
any other Event of Default by notice to Lessee declaring this Lease to be in
default, exercise one or more of the following remedies, except as hereinbelow
expressly otherwise set forth, as Lessor in its sole discretion shall elect:
(i) Lessor may (x) demand that Lessee, and thereupon
Lessee shall, at Lessee's expense, return possession of the Undivided
Interest in the Facility and of the Leasehold Estate promptly to Lessor
in the manner and condition required by, and otherwise in accordance
with the provisions of, Sections 10(a) and 10(b), and without prejudice
to any other remedy which Lessor may have for possession of the
Undivided Interest in the Facility and of the Leasehold Estate or
arrearages in Rent or (y) take all action required to enable Lessor to,
and thereafter, enter upon the Leasehold Estate and take possession (to
the exclusion of Lessee) of the Undivided Interest in the Facility and
of the Leasehold Estate and expel or remove Lessee and any other Person
who may be occupying the Undivided Interest in the Facility and the
Leasehold Estate or any part thereof, all without liability to Lessee
or any other Person for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by
such taking or otherwise;
(ii) Lessor may sell the Undivided Interest in the Facility
or any part thereof, together with any interest of Lessor under the
Argus Utility Bill of Sale, Argus Utility Deed of Improvements, the
Easement, the License and the Site Lease, at public or private sale,
conducted in accordance with applicable law, as Lessor may determine,
free and clear of any rights of Lessee therein and without any duty to
account to Lessee with respect to such sale or for the proceeds thereof
(except to the extent required by clause (v) or (vi) below if Lessor
shall elect to exercise its rights thereunder), in which event
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Lessee's obligation to pay Basic Rent with respect to the Undivided
Interest in the Facility or the part thereof that has been sold, as the
case may be, for periods commencing after the date of such sale shall
terminate (except to the extent that Basic Rent is to be included in
computations under clause (v) or (vi) below if Lessor shall elect to
exercise its rights thereunder);
(iii) Lessor may elect to retake possession of the Undivided
Interest in the Facility and of the Leasehold Estate and relet the same
for the benefit of Lessor without terminating this Lease, in which case
Lessee will be liable for and will pay to Lessor all amounts required
to be paid by Lessee during the remainder of the Lease Term as said
amounts accrue hereunder until the expiration of Lease Term diminished
by any net sums received by Lessor through reletting the Undivided
Interest in the Facility and the Leasehold Estate during such period
(after deducting all reasonable expenses incurred by Lessor in
connection with such reletting); it being understood and agreed that
actions to collect amounts due by Lessee as provided in this clause
(iii) may be brought from time to time on one or more occasions,
without the necessity of Lessor waiting until expiration of the Lease
Term;
(iv) Lessor may elect to retake possession of the Undivided
Interest in the Facility and of the Leasehold Estate and retain the
Undivided Interest in the Facility and the Leasehold Estate for its own
benefit, in which case Lessee will be liable for and will pay to Lessor
damages in an amount equal to the amount specified in clause (C) of
Section 18(a)(v) below;
(v) Lessor may, whether or not Lessor shall have exercised
or shall thereafter at any time exercise its rights under clause (i),
(ii), (iii) above, by notice to Lessee specifying a payment date (which
payment date shall be a Determination Date), demand that Lessee pay to
Lessor, and Lessee shall pay to Lessor, on the date specified in such
notice one of the following amounts as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the Basic Rent due after the
date specified in such notice), in accordance with California Civil
Code Section 1671 (it being agreed that it would be impracticable or
extremely difficult to fix the actual damages), any unpaid Rent due as
of and through the date specified in such notice (other than Basic
Rent, if any, due on or after such Determination Date) plus whichever
of the following amounts Lessor, in its sole discretion, shall specify
in such notice (together with interest on any overdue portion of such
amount at the Overdue Interest Rate from the Determination Date
specified in such notice to the date of actual payment):
(A) an amount equal to the excess, if any, of (1)
Stipulated Loss Value, computed as of the Determination Date
specified in such notice, over (2) the Fair Market Rental
Value of the Undivided Interest in the Facility (determined on
the basis of the then actual condition of the Facility) for
the remainder of the Lease term after discounting such Fair
Market Rental Value semiannually to present
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value as of the date specified in such notice at the rate of
seven percent (7%) per annum; or
(B) an amount equal to the excess, if any, of (1) the
Stipulated Loss Value computed as of the Determination Date
specified in such notice over (2) the Fair Market Sales Value
of the Undivided Interest in the Facility (determined on the
basis of the then actual condition of the Facility) as of the
payment date specified in such notice; or
(C) an amount equal to the excess, if any, of (1) the
present value as of the payment date specified in such notice
of all installments of Basic Rent until the end of the Basic
Term or the then current Renewal Term, as the case may be,
discounted semiannually at the Discount Rate, over (2) the
present value as of such date of the Fair Market Rental Value
of the Undivided Interest in the Facility (determined on the
basis of the then actual condition of the Facility) until the
end of the Basic Term or such Renewal Term, as the case may
be, discounted semiannually at the Discount Rate;
(D) an amount equal to the higher of the Stipulated
Loss Value computed as of the Determination Date specified in
such notice or the Fair Market Sales Value of the Undivided
Interest in the Facility as of the payment date specified in
such notice;
and, in the case of (A), (B), (C) and (D) above, upon payment by Lessee
of all amounts payable by it hereunder and under the other Operative
Documents, (x) unless Lessor shall have sold the Undivided Interest in
the Facility in accordance with the terms hereof and given Lessee
appropriate credit therefor in calculating liquidated damages
hereunder, Lessor shall transfer and assign all of its right, title and
interest in and to the Undivided Interest in the Facility and the
Leasehold Estate together with all rights of Lessor under the Easement,
the License and the Site Lease to Lessee, or such Person as Lessee
shall designate, on an "as is, where is" basis, free and clear of
Lessor Liens, and Lessor shall execute and deliver one or more bills of
sale, together with such other documents, as necessary to effect such
transfer and assignment (including any licenses or permits necessary
for operation and use of the Facility) and (y) the Lease Term and,
except as expressly otherwise provided, the obligations of Lessee and
HCNA to Lessor under this Lease and the other Operative Documents shall
terminate and Owner Participant shall promptly surrender any Letter of
Credit to the issuer thereof for cancellation;
(vi) if Lessor shall have sold the Undivided Interest in
the Facility pursuant to clause (ii) above, Lessor, if it shall so
elect in lieu of exercising its rights under clause (v) above with
respect to the Facility by notice to Lessee may demand that Lessee pay
to Lessor, and Lessee shall pay to Lessor, on the date of such sale, as
liquidated damages for loss of a bargain and not as a penalty (in lieu
of Basic Rent due for periods commencing after the next Basic Rent
Payment Date following the date of such sale), in
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accordance with California Civil Code Section 1671 (it being agreed
that it would be impracticable or extremely difficult to fix the actual
damages), any unpaid Rent due as of the Determination Date following
the date of such sale (other than Basic Rent due on and after, but not
prior to, such Determination Date), plus the amount of any deficiency
between the sale proceeds and Stipulated Loss Value, computed as of
such Determination Date, together with interest at the Overdue Interest
Rate on the amount of such Rent and such deficiency from the
Determination Date of such sale until the date of actual payment;
(vii) Lessor may rescind or terminate this Lease; provided,
however, that (A) no reentry or taking of possession of the Undivided
Interest in the Facility or of the Leasehold Estate by Lessor will be
construed as an election on Lessor's part to terminate this Lease
unless a written notice of such intention is given to Lessee, (B)
Lessor may take and perform any and all actions required for the
operation, maintenance or preservation of the Facility and the Site;
provided, that in no event shall the Owner Trustee's operation,
maintenance or preservation of the Facility and the Site as herein
provided be deemed to constitute a termination of this Lease, and until
this Lease shall have been terminated as provided in this clause (vii)
or otherwise, or by order of any court, Owner Trustee may take any and
all actions provided for herein or permitted by law without terminating
this Lease, and this Lease shall continue in full force and effect, (C)
notwithstanding any reletting, reentry or taking of possession, Lessor
may at any time thereafter elect to terminate this Lease for a
continuing Event of Default and (D) no act or thing done by Lessor or
any of its agents, representatives or employees shall be deemed an
acceptance of a surrender of the Undivided Interest in the Facility or
the Leasehold Estate, and no agreement accepting a surrender of the
Undivided Interest in the Facility or of the Leasehold Estate shall be
valid unless the same be made in writing and executed by Lessor;
(viii) in the event that this Lease is terminated or in the
event that Lessor elects to exercise its remedies pursuant to clause
(iii) or (iv) above, Lessor shall be entitled to collect all Rent
(other than that portion of Basic Rent, if any, payable in advance)
which is due and owing as of the date of the termination of the Lease
or Lessor's retaking of possession of the Undivided Interest in the
Facility or of the Leasehold Estate diminished by any net sums received
by Lessor through reletting the Undivided Interest in the Facility and
the Leasehold Estate during such period (after deducting all reasonable
expenses incurred by Lessor in connection with such reletting);
(ix) in the event that this Lease is terminated or in the
event that Lessor elects to exercise its remedies pursuant to clause
(iii) or (iv) above, Lessor shall not have any obligation to relet or
attempt to relet the Undivided Interest in the Facility and the
Leasehold Estate or any portion thereof, or to collect rent after
reletting, and in the event of reletting Lessor may relet the whole or
any portion of the Undivided Interest in the Facility and the Leasehold
Estate for any period, to any Person, and for any use and purpose; or
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(x) Lessor may exercise any other right or remedy that may
be available to it under applicable law, including without limitation
the remedies provided in California Civil Code Section 1951.4, or
proceed by appropriate court action to enforce the terms hereof or to
recover damages for the breach hereof.
(b) No Release. Except as otherwise provided in Section 18(a),
no rescission or termination of this Lease, in whole or in part, or repossession
of the Undivided Interest in the Facility or exercise of any remedy under
Section 18(a) shall relieve Lessee of any of its obligations under this Lease.
In addition, except as otherwise provided herein, Lessee shall be liable for any
and all unpaid Rent (other than Basic Rent payable on or after the date that
Stipulated Loss Value, or any amount determined by reference to Stipulated Loss
Value, is payable) due hereunder before, after or during the exercise of any of
the foregoing remedies, including all reasonable legal fees and other reasonable
costs and expenses incurred by Lessor and by Owner Participant by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies with
respect thereto. At any sale of the Undivided Interest in the Facility or any
part thereof pursuant to this Section 18, Owner Participant or Lessor may bid
for and purchase such property.
(c) Remedies Cumulative. Except as expressly set forth
therein, no remedy under Section 18(a) is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy provided thereunder or
otherwise available to Lessor at law or in equity. No express or implied waiver
by Lessor of any Default or Event of Default hereunder shall in any way be, or
be construed to be, a waiver of any future or subsequent Default or Event of
Default. The failure or delay of Lessor in exercising any right granted it
hereunder upon any occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such contingency or similar contingencies and any single or partial exercise
of any particular right by Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein. To the extent permitted by applicable
law, Lessee hereby waives any rights now or hereafter conferred by statute or
otherwise that may require Lessor to sell, lease or otherwise use the Undivided
Interest in the Facility or the Leasehold Estate in mitigation of Lessor's
damages as set forth in Section 18(a) or that may otherwise limit or modify any
of Lessor's rights and remedies provided in this Section 18 except as expressly
provided herein.
(d) Allocation of Basic Rent. If, for the purpose of Section
18(a)(ii), it shall become necessary to allocate a portion of the Basic Rent
payable hereunder to any part of the Facility, such allocation shall be in the
same proportion as the value of such Part on the Closing Date (or, if purchased
after the Closing Date, the original cost of such Part) bears to Lessor's Cost.
Section 19. Right to Perform for Lessee. If at any time an
Event of Default shall have occurred and be continuing, Lessor at its sole
discretion, but without any obligation may (i) enter the Easement Site and the
Site to perform the covenant or obligation that Lessee failed to perform and
that gave rise to such Event of Default and (ii) make the payments necessary to
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comply with such agreement. The amount of such payment and the amount of the
reasonable expenses of Lessor incurred in connection with such payment or the
performance of or compliance with such agreement, as the case may be, together
with interest thereon at the Overdue Interest Rate, shall be deemed Supplemental
Rent, payable by Lessee upon demand.
Section 20. Renewal Terms. (a) Exercise of Renewal Options. If
(x) with respect to the Fixed Rate Renewal Term, no Material Event of Default
shall have occurred and be continuing or (y) with respect to a Fair Market Value
Renewal Term, no Event of Default shall have occurred and be continuing, Lessee
shall have the right, upon compliance with the notice procedure set forth in
Section 22, to renew this Lease at the end of the Basic Term for one Fixed Rate
Renewal Term and at the end of each Renewal Term for a Fair Market Renewal Term
not to exceed three Fair Market Renewal Terms in the aggregate; provided,
however, that Lessee shall only be entitled to exercise its right to renew this
Lease for a Renewal Term to the extent that it is exercising its right to renew
the Other Lease for the same period of time; provided, further, however, that
(i) the Fixed Rate Renewal Term shall be for a period of not less than two (2)
years and not more than fifteen (15) years to be determined not more than 18
months prior to the end of the Basic Term; (ii) the sum of the Interim Term, the
Basic Term and the Fixed Rate Renewal Term shall not exceed eighty percent (80%)
of the useful life of the Facility measured from the Closing Date determined as
of the end of the Basic Term in accordance with the Appraisal Procedure, (iii)
the estimated fair market value of the Undivided Interest in the Facility, at
the end of the Fixed Rate Renewal Term (determined as of the end of the Basic
Term in accordance with the Appraisal Procedure, without regard to inflation or
deflation from the Closing Date and after taking into account the return
condition contained in this Lease) will be at least twenty percent (20%) of
Lessor's Cost, (iv) any Fair Market Renewal Term shall not extend beyond the
earlier of (A) the last date on which the remaining useful life of the Facility
equals 20% of the remaining useful life of the Facility as of the commencement
of such Fair Market Renewal Term, (B) the last date on which the remaining
residual value of the Facility equals 20% of the residual value as of the
commencement of the Fair Market Renewal Term and (C) the 30th day prior to the
end of the Site Lease Term, and (v) the term of any Fair Market Renewal Term
shall be the lesser of two (2) years and eighty percent (80%) of the remaining
useful life of the Facility as of the commencement of such Fair Market Renewal
Term and no more than five (5) years. Notwithstanding the foregoing, at Lessor's
option, Lessee's right to renew the Lease for a Fair Market Renewal Term shall
be extinguished if an Event of Default occurs on the date the Second Notice
referred to in Section 22 is given with respect to such Fair Market Renewal Term
or on the date of expiration of the then-current Renewal Term or if Lessor
terminates the Lease on or prior to the first day of any Renewal Term based on
the existence of an Event of Default pursuant to Section 18.
(b) Rent During Renewal Term. All of the terms and provisions
of this Lease shall be applicable during any Renewal Term, except that Lessee
shall pay to Lessor as Basic Rent (i) in arrears on each Semiannual Rent Payment
Date during the Fixed Rate Renewal Term, an amount equal to the lesser of (x)
the semiannual installment of the Fair Market Rental Value of the Undivided
Interest in the Facility during the Fixed Rate Renewal Term, determined not more
than 18 months before the end of the Basic Term by the Appraisal Procedure and
(y) fifty
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percent (50%) of the average of the installments of Basic Rent payable during
the Basic Term, calculated by dividing (A) the sum of all Basic Rent to be paid
during the Basic Term by (B) the number of rent payment periods during the Basic
Term and (ii) in arrears on each Semiannual Rent Payment Date during any Fair
Market Renewal Term, an amount equal to the semiannual installment of the Fair
Market Rental Value of the Undivided Interest in the Facility during the Renewal
Term determined not more than eighteen (18) months before the commencement of
such Renewal Term by the Appraisal Procedure ; provided, however, that during
the Fixed Rate Renewal Term no such Basic Rent shall be due with respect to the
first two (2) years of such Fixed Rate Renewal Term.
(c) Stipulated Loss Value During Renewal Term. Promptly after
the Lessee's election to renew this Lease pursuant to Section 20(a), Schedule IV
shall be modified by Owner Participant in order to provide for monthly
Stipulated Loss Values applicable during the Renewal Term. The Stipulated Loss
Value at the beginning of each Renewal Term shall be equal to the Fair Market
Sales Value of the Undivided Interest in the Facility as of such date. Such
Stipulated Loss Values shall be reduced monthly on a straight line basis from
the Stipulated Loss Value as of the beginning of each Renewal Term to an amount
equal to zero at the end of such Renewal Term. Fair Market Sales Value and
Stipulated Loss Value shall be determined by the Appraisal Procedure.
Section 21. Lessee's Options to Purchase the Undivided
Interest in the Facility. If no Event of Default shall have occurred and be
continuing that could reasonably be expected to have a material adverse effect
on the Lessor following the purchase of the Undivided Interest in the Facility
by the Lessee, in addition to the renewal rights provided for in Section 20,
Lessee shall have the option to purchase the Undivided Interest in the Facility
(i) on the second anniversary of the commencement of the Fixed-Rate Renewal
Term, if any, at a purchase price equal to the lesser of (A) the Fair Market
Sales Value of the Facility on the date of purchase, determined no more than
twelve (12) months before such date by the Appraisal Procedure and (B) an amount
equal to $____________; and (ii) at the end of any Renewal Term, at a purchase
price equal to the Fair Market Sales Value of the Facility, determined not more
than twelve (12) months before the purchase date by the Appraisal Procedure;
provided, however, that Lessee shall only be entitled to exercise its purchase
options under this Section 21 to the extent that it is exercising a similar
purchase option under the Other Lease. To exercise any such option to purchase
the Undivided Interest in the Facility from Lessor under this Section 21, Lessee
shall give Lessor notice of its election to exercise such right in compliance
with Section 22, and, upon such purchase date Lessee shall purchase from Lessor,
and shall pay to Lessor in immediately available funds the purchase price for
the Undivided Interest in the Facility at the address and to the account
provided for payment in Section 4; provided, at Lessor's election, Lessee's
right to purchase the Undivided Interest in the Facility shall be extinguished
if an Event of Default that could reasonably be expected to have a material
adverse effect on the Lessor shall have occurred and be continuing on the date
the notice referred to in Section 22 is given or thereafter, or Lessor
terminates the Lease based on the existence of an Event of Default pursuant to
Section 18. Upon receipt of the purchase price (a) the Lessor shall transfer all
of its right, title and interest in and to the Undivided Interest in the
Facility and the Leasehold Estate to the Lessee
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or to such other Person as the Lessee may direct on an "as is, where is" basis,
free and clear of Lessor Liens, and the Lessor shall execute and deliver one or
more bills of sale, together with such other documents as may be reasonably
requested by Lessee in order to effect such transfer and assignment and (b) (i)
the Lease Term and, except as expressly otherwise provided, the obligations of
the Lessee and HCNA to Lessor under this Lease and the other Operative
Documents, including the obligations of the Lessee to pay Basic Rent on each
Basic Rent Payment Date on or after the date of payment of purchase price, shall
terminate and (ii) the Owner Participant shall promptly surrender any Letters of
Credit to the issuer thereof for cancellation.
Section 22. End of Lease Term Notices; Procedures for Renewal
or Purchase. (a) Notices at End of Basic Term. Not less than twelve (12) months
or more than twenty-four (24) months prior to the end of the Basic Term, Lessee
shall give Lessor written notice electing to (i) return the Undivided Interest
in the Facility in accordance with the provisions of Section 10(a) at the end of
the Basic Term or (ii) exercise a renewal option with respect to the Undivided
Interest in the Facility pursuant to Section 20. If Lessor shall not have
received an election notice on or before the date that is twelve (12) months
prior to the expiration date of the Basic Term, Lessee shall be deemed to have
made the election specified in Section 22(a)(ii) for the minimum length of the
Fixed Rate Renewal Term permitted by Section 20. Lessee may withdraw such notice
at any time up to twelve (12) months prior to the expiration date of the Basic
Term.
(b) Notices at End of Renewal Term. Subject to the provisions
of subsection (c) below, not less than twelve (12) months or more than
twenty-four (24) months prior to the end of any Renewal Term, Lessee shall give
Lessor written notice electing to (i) return the Undivided Interest in the
Facility in accordance with the provisions of Section 10(a) at the end of the
Renewal Term, or (ii) at the end of such Renewal Term, so long as no Event of
Default has occurred and is continuing that could reasonably be expected to have
a material adverse effect on the Lessor following the purchase of the Undivided
Interest in the Facility by the Lessee, purchase the Undivided Interest in the
Facility for the Fair Market Sales Value of the Undivided Interest in the
Facility pursuant to Section 21 or (iii) so long as no Material Event of Default
has occurred and is continuing, exercise a renewal option for the Undivided
Interest in the Facility for a Fair Market Renewal Term pursuant to Section 20.
Lessee may withdraw such notice at any time up to twelve (12) months before it
would otherwise purchase the Facility pursuant to a purchase option or renew the
Lease pursuant to the renewal option. The Lessee may specify that it will
exercise either a purchase or renewal option, in which case, not less than six
(6) months prior to the end of the Renewal Term, Lessee shall deliver a second
written notice (the "Second Notice") to Lessor electing to (i) renew the Lease
or (ii) purchase the Undivided Interest in the Facility; provided, however, that
if Lessee fails to give the Second Notice, it shall be deemed to have renewed
the Lease for the minimum Fair Market Renewal Term. Any notice in which Lessee
elects to renew the Lease shall also set forth the length of the applicable
Renewal Term, subject to the provisions of Section 20(a).
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(c) Notices on the Second Anniversary of the Fixed Rate
Renewal Term. So long as no Event of Default has occurred and is continuing that
could reasonably be expected to have a material adverse effect on the Lessor
following the purchase of the Undivided Interest in the Facility by the Lessee,
not less than twelve (12) months or more than twenty-four (24) months prior to
the second anniversary of the commencement of the Fixed Rate Renewal Term,
Lessee may give Lessor written notice specifying that it will purchase the
Undivided Interest in the Facility pursuant to clause (i) of Section 21 for the
lesser of its Fair Market Sales Value or $____________. If the second
anniversary of the Fixed Rate Renewal Term is also the end of the Fixed Rate
Renewal Term, the Lessee may also give the notice provided for in subsection (b)
above.
Section 23. Further Assurances. Lessee shall cause the
Operative Documents and any amendments and supplements to any of them (together
with any other instruments, financing statements, continuation statements,
records or papers necessary in connection therewith) to be recorded and/or filed
and rerecorded and/or refiled in each jurisdiction as and to the extent required
by law in order to, and shall take such other actions as Lessor may from time to
time reasonably request to establish and maintain Lessor's title to and interest
in the Undivided Interest in the Facility, subject to no Liens other than
Permitted Liens and each of the other rights and interests created by the
Operative Documents in Lessor. Lessee will promptly and duly execute and deliver
to Lessor such documents and assurances and take such further action as Lessor
may from time to time reasonably request in order to carry out more effectively
the intent and purpose of this Lease and to establish and protect the rights and
remedies created or intended to be created in favor of Lessor, to establish and
perfect and maintain Lessor's right, title and interest in and to the Undivided
Interest in the Facility, including, without limitation, if requested by Lessor,
at the expense of Lessee, the recording or filing of counterparts or appropriate
memoranda hereof, or of such financing statements or other documents with
respect hereto as Lessor may from time to time reasonably request, and Lessor
agrees promptly to execute and deliver such of the foregoing financing
statements or other documents as may require execution by Lessor.
Section 24. Counterparts; Uniform Commercial Code. This Lease
may be executed by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument. Each counterpart of
this Lease which has been executed by the parties hereto shall be prominently
marked to identify the party to whom originally delivered. To the extent, if
any, that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), only the
counterpart of this Lease and each Lease Supplement marked "Lessor's Copy" and
containing the receipt therefor executed by Lessor on the signature page thereof
shall evidence the monetary obligations of Lessee hereunder and thereunder. To
the extent, if any, that this Lease constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no security interest in this Lease may be created by the transfer
or possession of any counterpart hereof other than the counterpart marked
"Lessor's Copy" and containing the receipt therefor executed by Lessor on or
immediately following the signature page thereof.
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Section 25. Notices. Any notice, request or other
communication hereunder shall be made in accordance with Section 9.1 of the
Participation Agreement.
Section 26. Investment of Funds. Any monies required to be
paid to or retained by Lessor that are not required to be paid to Lessee
pursuant to this Lease or any other Operative Document solely because a Default
or Event of Default shall have occurred and be continuing, shall, until paid to
Lessee or otherwise applied as provided in this Lease or such other Operative
Document, be invested by Lessor as security for the obligations of Lessee and
not as part of the Trust Estate from time to time at the written direction and
expense of Lessee in (a) obligations of, or guaranteed as to interest and
principal by, the United States maturing within thirty (30) days after such
investment, (b) open market commercial paper maturing within thirty (30) days
after such investment of any corporation (other than Lessee or its Affiliates)
incorporated under the laws of the United States of America or any State thereof
rated "Prime-l" or its equivalent by Moody's or "A-1" or its equivalent by
Standard & Poor's or (c) certificates of deposit maturing on or before the
thirtieth (30th) day after such investment issued by commercial banks organized
under the laws of the United States of America or any governmental subdivision
thereof having combined capital and surplus in excess of $1,000,000,000 and,
with respect to any such commercial bank, rated "A+" or better by Standard &
Poor's Ratings Group (or any successor) to the extent such ratings are then
published. Any gain (including interest received) realized as a result of any
such investment (net of any fees, commissions or other expenses, if any,
incurred in connection with such investment for which Lessor has not been
reimbursed) shall be available for application pursuant to this Lease or the
other Operative Documents to the same extent as any monies invested by Lessor
pursuant to this Section 26, with any portion of such gain that is not so
applied being paid to Lessee at the time any unapplied portion of the monies
invested pursuant to this Section 26 would be payable to Lessee.
Section 27. Miscellaneous. (a) Severability. Any provision of
this Lease that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction only, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by Applicable Law, the parties hereto waive any provision of law that
renders any provision hereof prohibited or unenforceable in any respect.
(b) Survival. The representations, warranties and indemnities
of Lessee under this Lease shall survive the expiration or earlier termination
of this Lease, but all other provisions of this Lease shall terminate upon such
termination or expiration.
(c) Amendment. Neither this Lease nor any of the terms hereof
may be terminated, amended, supplemented, waived or modified orally, but only by
an instrument in writing signed by the party against which the enforcement of
the termination, amendment, supplement, waiver or modification is sought.
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(d) Headings, etc. The Table of Contents and headings of the
various Sections of this Lease are for convenience of reference only and shall
not modify, define or limit any of the terms or provisions hereof.
(e) Successors and Assigns; Third Party Beneficiary. This
Lease shall be binding upon and inure to the benefit of Lessor and Lessee and
their respective successors and permitted assigns. The Lessor and the Lessee
agree that the Owner Participant shall be a third party beneficiary of the
representations, warranties and covenants contained in this Lease which purport
to run to the benefit of the Owner Participant.
(f) Non-Merger of Interests. It is the intention of the
parties hereto that, unless Lessor shall expressly provide to the contrary, any
right, title or interest of Lessor in and to the Operative Documents or any part
thereof (including, without limitation, under or pursuant to this Lease) now or
hereafter acquired shall remain existing separate and distinct from, and shall
not merge with, any right, title or interest of Lessee (or its successors or
assigns) in, under or pursuant to this Lease which Lessor may now or hereafter
acquire pursuant to this Lease or otherwise, notwithstanding any coincident
ownership by Lessor in one or more of such rights, titles or interests.
(g) Lease Subject to Applicable Law. All of the provisions of
this Lease are intended to be subject to all provisions of applicable law that
may be controlling and to be limited to the extent necessary so that they will
not render this Lease invalid or unenforceable under the provisions of any
Applicable Law.
(h) Governing Law; Consent to Jurisdiction; Service of
Process; Waiver of Immunities. This Lease has been delivered in, and shall in
all respects be governed by and construed in accordance with, the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state (regardless of the laws that might otherwise govern under
applicable principles of conflict of laws), including all matters of
construction, validity and performance; provided, that matters relating to the
creation of the leasehold estate hereunder and the exercise of rights and
remedies with respect to such estate shall be governed by and construed in
accordance with the laws of the State of California.
(i) Each of the parties hereto hereby irrevocably and
unconditionally submits to the non-exclusive jurisdiction of any New
York State or United States Federal court sitting in New York City and,
in the event it is a defendant, of any court of its corporate domicile,
over any suit, action or proceeding arising out of or relating to this
Lease, and the appellate courts of any such jurisdiction. Each of the
parties hereto irrevocably and unconditionally waives, to the fullest
extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding
brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient
forum. To the extent that Lessee has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process with
respect to itself or its property, Lessee irrevocably
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<PAGE>
waives such immunity in respect of its obligations hereunder. Each of
the parties hereto agrees that final judgment in any such suit, action
or proceeding brought in such a court shall be conclusive and binding
upon such party and may be enforced in any court to jurisdiction of
which such party is subject by a suit upon such judgment or in any
manner provided by law; provided, that service of process is effected
as permitted by law, or in the case of Lessee, upon Lessee in the
manner specified in the following subsection or as otherwise permitted
by law.
(ii) As long as any obligations exist under the
Operative Documents, Lessee will at all times have an authorized agent
in New York City, upon whom process may be served in any legal action
or proceeding arising out of or relating to this Lease. Service of
process upon such agent and written notice of such service mailed or
delivered to Lessee shall to the extent permitted by law be deemed in
every respect effective service of process upon Lessee in any such
legal action or proceeding. Lessee hereby irrevocably appoints CT
Corporation System, as its agent for such purpose, and covenants and
agrees that service of process in any suit, action or proceeding may be
made upon such party at the office of such agent at 1633 Broadway, New
York, New York 10019, U.S.A. Notwithstanding the foregoing, Lessee may,
with prior written notice to Lessor, terminate the appointment of CT
Corporation System and appoint another agent for the above purposes so
that Lessee shall at all times have an agent for the above purposes in
New York City.
(iii) Lessee hereby irrevocably waives, to the fullest
extent permitted by law, any requirement or other provision of law,
rule, regulation or practice which requires or otherwise establishes as
a condition to the institution, prosecution or completion of any suit,
action or proceeding (including appeals) arising out of or relating to
this Lease, the posting of any bond or the furnishing, directly or
indirectly, of any other security.
Section 28. Limitations on Lessor Liability. It is expressly
understood and agreed by the parties hereto that, except as otherwise provided
herein or in the other Operative Documents, (a) this Lease is executed by the
Trust Company, not in its individual capacity, but solely as Owner Trustee under
the Trust Agreement in the exercise of the power and authority conferred and
vested in it as Owner Trustee, (b) each and every agreement, covenant,
representation, and warranty herein made on the part of Lessor is made and
intended not as a personal agreement, covenant, representation, and warranty by
Trust Company, or for the purpose or with the intention of binding Trust Company
personally, but are made and intended for the purpose of binding only the Trust
Estate, (c) actions to be taken by Lessor pursuant to its obligations under this
Lease may, in certain circumstances, be taken by Lessor only upon specific
authority of Owner Participant, (d) nothing contained in the this Lease shall be
construed as creating any liability on Trust Company, individually or
personally, or any incorporator or any past, present or future subscriber to the
capital stock of, or stockholder, officer or director of, Trust Company to
perform any covenants, warranties, representations, duties or obligations either
expressly or impliedly contained herein, all such liability, if any, being
expressly waived
39
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by the other party hereto and by any Person claiming by, through or under it,
and (e) so far as Trust Company, individually or personally, is concerned, the
other party hereto and any Person claiming by, through or under it shall look
solely to the Trust Estate for the performance of any obligation hereunder or
under any of the instruments referred to herein; provided, however, that nothing
in this Section 28 shall be construed to limit in scope or substance the general
corporate liability of Trust Company in respect of (i) its gross negligence or
willful misconduct or its negligent handling of monies, (ii) those
representations, warranties and covenants of Trust Company in its individual
capacity set forth herein, (iii) the consequences of its own acts or omissions
in breach of the Trust Agreement resulting from its gross negligence, willful
misconduct or bad faith, (iv) any Tax based on or measured by any fees,
commission or compensation received by it for acting as trustee in connection
with any of the transactions contemplated herein. Nothing in this Section 28
shall be deemed to prevent any party hereto from having recourse to and seeking
enforcement against the Trust Estate of any covenants, agreements and conditions
required to be performed or observed by the Owner Trustee (in its individual
capacity and as Owner Trustee) in this Lease.
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IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Lease Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., not in its individual capacity, but
solely as owner trustee under the Trust
Agreement that creates the trust
identified under the title hereof, as
Lessor
By: ____________________________________
Name:
Title:
NORTH AMERICAN CHEMICAL COMPANY,
as Lessee
By: ____________________________________
Name:
Title:
41
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SCHEDULE I
Description of Facility
Schedule I - 1
<PAGE>
SCHEDULE II
Description of Site
Schedule II - 1
<PAGE>
SCHEDULE III
Interim Rent and Basic Rent
Schedule III - 1
<PAGE>
SCHEDULE IV
Stipulated Loss Values
Schedule IV - 1
<PAGE>
GUARANTY AGREEMENT
(Searles Valley Trust 1996)
GUARANTY dated as of July 15, 1996, by HARRIS CHEMICAL NORTH
AMERICA, INC., a Delaware corporation, for the benefit of [Owner Participant],
[OP Guarantor] and U.A. Trust Company of California, N.A., not in its individual
capacity, but solely as owner trustee under the Trust Agreement that creates the
trust identified under the title hereof (each individually a "Guaranteed Party"
and collectively, the "Guaranteed Parties").
WHEREAS HCNA is the owner of all of the issued and outstanding
capital stock of NACC;
WHEREAS (i) the Owner Trustee proposes, among other things, to
purchase the Undivided Interest in the Facility in an aggregate amount equal to
the Facility Cost, (ii) Owner Participant proposes, among other things, to
provide to Owner Trustee funds for such purchase, and (iii) upon purchasing the
Undivided Interest in Facility, Owner Trustee intends to lease the Undivided
Interest in the Facility to NACC, all as described in the Participation
Agreement; and
WHEREAS it is a condition of the willingness of Owner
Participant to enter into the transactions contemplated by the Participation
Agreement that HCNA execute and deliver this HCNA Guaranty;
NOW, THEREFORE, in consideration of the foregoing, and other
good and valuable consideration, the receipt of which is hereby acknowledged,
HCNA hereby agrees with and for the benefit of the Guaranteed Parties as
follows:
Section 1. Guaranty of Guaranteed Obligations. HCNA hereby
irrevocably and unconditionally guarantees to each Guaranteed Party (a) until
final and indefeasible payment thereof has been made, the due and punctual
payment to the Person entitled to receive such payment from NACC, of all of the
Guaranteed Obligations in accordance with their respective terms and when and as
due (whether at maturity, by reason of acceleration or otherwise) and (b) the
full and prompt performance by NACC of all of the Guaranteed Obligations. In
case NACC shall fail to pay or perform duly, completely and punctually any
Guaranteed Obligation when and as the same shall be due (whether at maturity, by
reason of acceleration or otherwise) and payable, or required to be performed,
as the case may be, in accordance with the terms of the Lease Financing
Documents, HCNA will immediately pay or perform, as the case may be, the same to
or for the benefit of each Guaranteed Party pursuant to the Lease Financing
Documents.
<PAGE>
Section 2. Recovered Payments. The Guaranteed Obligations
shall be deemed not to have been paid and HCNA's obligations under this HCNA
Guaranty in respect thereof shall continue and not be discharged, to the extent
that any payment thereof by NACC or any other guarantor, or out of the proceeds
of any collateral, is recovered from or paid over by or for the account of a
Guaranteed Party for any reason, including as a preference or fraudulent
transfer or by virtue of any subordination (whether present or future or
contractual or otherwise) of the Guaranteed Obligations, whether such recovery
or payment over is effected by any judgment, decree or order of any court or
governmental agency, by any plan of reorganization or by settlement or
compromise by the Guaranteed Party (whether or not consented to by NACC, HCNA or
any other guarantor) of any claim for any such recovery or payment over.
Section 3. Nature of HCNA's Obligations. HCNA's obligations
under this HCNA Guaranty (a) are absolute and unconditional, (b) are unlimited
in amount, (c) constitute a guaranty of payment and performance and not a
guaranty of collection, (d) are as primary obligor and not as a surety only, (e)
shall be a continuing guaranty of all present and future Guaranteed Obligations
and all amendments, modifications, supplements, renewals of or extensions to the
Guaranteed Obligations, whether such amendments, modifications, supplements,
renewals or extensions are evidenced by new or additional instruments, documents
or agreements, and (f) shall be irrevocable. The obligations of HCNA to make any
payment or to perform and discharge any other duties, agreements, covenants,
undertakings or obligations hereunder shall to the extent permitted by
Applicable Law, constitute separate and independent obligations of HCNA from its
other obligations under this HCNA Guaranty, and give rise to separate and
independent causes of action against HCNA. HCNA agrees that this HCNA Guaranty
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of NACC is rescinded or must be otherwise restored by
any of the Guaranteed Parties, their successors and assigns, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise. HCNA
specifically agrees that it shall not be necessary, and that HCNA shall not be
entitled to require, before or as a condition of enforcing the liability of HCNA
under this HCNA Guaranty or requiring payment or performance of the Guaranteed
Obligations by HCNA hereunder, or at anytime thereafter, that any Person: (i)
file suit or proceed to obtain or assert a claim for personal judgment against
NACC or any other Person that may be liable for any Guaranteed Obligation, (ii)
make any other effort to obtain payment or performance of any Guaranteed
Obligation from NACC or any other Person that may be liable for such Guaranteed
Obligation, (iii) foreclose against or seek to realize upon any security now or
hereafter existing for such Guaranteed Obligation, (iv) exercise or assert any
other right or remedy to which such Person is or may be entitled in connection
with any Guaranteed Obligation or any security or other guaranty therefor, or
(v) assert or file any claim against the assets of NACC or any other
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Person liable for any Guaranteed Obligation. Notwithstanding the foregoing, the
provisions of this Section 3 shall not be construed to avoid any notices of
demands or the lapse of any time periods available to NACC under the Lease
Financing Documents.
Section 4. No Release of HCNA. THE OBLIGATIONS OF HCNA UNDER
THIS HCNA GUARANTY SHALL NOT BE REDUCED, LIMITED OR TERMINATED, NOR SHALL HCNA
BE DISCHARGED FROM ANY THEREOF, FOR ANY REASON WHATSOEVER (other than, subject
to Section 6, the payment of the Guaranteed Obligations or as otherwise
expressly contemplated in the Lease Financing Documents), including (and whether
or not the same shall have occurred or failed to occur once or more than once
and whether or not HCNA shall have received notice thereof):
(a) (i) any increase of, (ii) any extension of the time of
payment or performance of, (iii) any other amendment or modification of any of
the other terms and provisions of, (iv) any release, composition or settlement
(whether by way of acceptance of a plan of reorganization or otherwise) of, (v)
any subordination (whether present or future or contractual or otherwise) of, or
(vi) any discharge, disallowance, invalidity, illegality, voidness or other
unenforceability of, the Guaranteed Obligations;
(b) (i) any failure to obtain, (ii) any release, composition
or settlement of, (iii) any amendment or modification of any of the terms and
provisions of, (iv) any subordination of, or (v) any discharge, disallowance,
invalidity, illegality, voidness or other unenforceability of, any other
guaranties of the Guaranteed Obligations;
(c) (i) any failure to obtain or any release of, (ii) any
failure to protect or preserve, (iii) any release, compromise, settlement or
extension of the time of payment of any obligations constituting, (iv) any
failure to perfect or maintain the perfection or priority of any Lien upon, (v)
any subordination of any Lien upon, or (vi) any discharge, disallowance,
invalidity, illegality, voidness or other unenforceability of any Lien or
intended Lien upon, any collateral now or hereafter securing the Guaranteed
Obligations or any other guaranties thereof;
(d) any termination of or change in any relationship between
HCNA and NACC, including any such termination or change resulting from a change
in the ownership of HCNA or NACC or from the cessation of any commercial
relationship between HCNA and NACC, other than pursuant to Section 13 or to the
extent expressly otherwise contemplated in the Lease Financing Documents;
(e) any exercise of, or any election not or failure to
exercise, delay in the exercise of, waiver of, or forbearance or other
indulgence with respect to, any right, remedy or power available to a Guaranteed
Party, including (i) any election not or failure to exercise any right of
setoff, recoupment or counterclaim, (ii) any acceptance of partial payments on
the Guaranteed Obligations; (iii) any election of remedies effected by
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a Guaranteed Party, including the foreclosure upon any real estate constituting
collateral, whether or not such election affects the right to obtain a
deficiency judgment, and (iv) any election by the Guaranteed Party in any
proceeding under the Bankruptcy Code of the application of Section 1111(b)(2) of
such Code;
(f) receipt by the Guaranteed Parties (and holding thereby)
of additional security of guaranties for the Guaranteed Obligations or any part
thereof;
(g) any bankruptcy, insolvency, reorganization, arrangement,
adjustment, composition, dissolution, liquidation, or the like, of NACC, HCNA or
any other Person;
(h) any limitation of the remedies of the Guaranteed Parties
under the Lease Financing Documents, or any limitation of the liability of NACC
under the Lease Financing Documents, which may now or hereafter be imposed by
any Applicable Law;
(i) any merger or consolidation of NACC or HCNA into or with
any other Person, or any transfer, conveyance, sale, lease or other disposition
of any or all of the assets of NACC or HCNA to any other Person, or any consent
by the Guaranteed Parties to any such merger, consolidation, transfer of assets
or any other restructuring or termination of the corporate existence of NACC,
HCNA or any other Person;
(j) any Debt of NACC to any Person, including HCNA;
(k) any claim, set-off, deduction or defense HCNA may have
against any of the Guaranteed Parties, whether hereunder or under the Lease
Financing Documents or independent of or unrelated to the transactions
contemplated by the Lease Financing Documents (without prejudice to HCNA's right
to assert such claim, set-off, deduction or defense in a separate action
unrelated to any action for enforcement of this HCNA Guaranty or the Guaranteed
Obligations, so long as HCNA does not set-off the amount of such claim, set-off,
deduction or defense against its obligation to pay the Guaranteed Obligations
hereunder); and
(l) ANY OTHER ACT OR FAILURE TO ACT OR ANY OTHER EVENT OR
CIRCUMSTANCE THAT (i) VARIES THE RISK OF HCNA UNDER THIS HCNA GUARANTY OR (ii)
BUT FOR THE PROVISIONS HEREOF, WOULD, AS A MATTER OF STATUTE OR RULE OF LAW OR
EQUITY, OPERATE TO REDUCE, LIMIT OR TERMINATE THE OBLIGATIONS OF HCNA THEREUNDER
OR DISCHARGE HCNA FROM ANY THEREOF.
Should any money due or owing under this HCNA Guaranty not be
recoverable from HCNA due to any of the matters specified in this Section 4(a)
through (l) above, then, in any case, such money shall nevertheless be
recoverable from HCNA as though HCNA were principal obligor in respect thereof
and not merely a guarantor and shall be paid by HCNA forthwith.
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Section 5. Waivers.
(a) HCNA waives the benefits of any statute of limitations
affecting its liability under this HCNA Guaranty or the enforcement thereof to
the fullest extent permitted by Applicable Law.
(b) HCNA waives any defense to, and any setoff, counterclaim
and claim of recoupment against, the Guaranteed Obligations that may at any time
be available to NACC or any other guarantor (without prejudice to HCNA's right
to assert such defense, set-off, counterclaim or claim in a separate action
unrelated to any action for enforcement of this HCNA Guaranty or the Guaranteed
Obligations, so long as HCNA does not set-off the amount of such defense,
set-off, counterclaim or claim against its obligation to pay Guaranteed
Obligations hereunder). Until the Termination Date, HCNA shall have no right of
subrogation, and HCNA waives, to the fullest extent permitted by Applicable Law:
(i) any right to enforce any remedy which Guaranteed Party now has or may
hereafter have against NACC in respect of any of the Guaranteed Obligations, and
(ii) any benefit of, and any right to participate in, any collateral, whether
real or personal property, now or hereafter held by Guaranteed Party for the
Guaranteed Obligations.
(c) HCNA waives: (i) notice of acceptance of and intention to
rely on this HCNA Guaranty, (ii) notice of the incurrence or renewal of any
other Guaranteed Obligations, (iii) notice of any of the matters referred to in
Section 4, and (iv) all other notices that may be required by Applicable Law or
otherwise to preserve any rights against HCNA under this HCNA Guaranty,
including any notice of default, demand, dishonor, presentment and protest. HCNA
assumes the responsibility for being and keeping informed of the financial
condition of NACC and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations which diligent inquiry would reveal,
and agrees that Guaranteed Party shall have no duty to advise HCNA of
information known to it regarding such condition or any such circumstances. It
is not and shall not be necessary for Guaranteed Party to inquire into the
powers of NACC or any of its agents acting or purporting to act on behalf
thereof, and any Guaranteed Obligations made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder. HCNA agrees
that Guaranteed Party's books and records showing the account between Guaranteed
Party and NACC shall be admissible in any proceeding or action.
(d) HCNA waives any requirement, and any right to require,
that any right or power be exercised or any action be taken against NACC, any
other guarantor or any collateral for the Guaranteed Obligations and HCNA waives
the right to have the property of NACC first applied to the discharge of the
Guaranteed Obligations. Guaranteed Party may at its election exercise any right
or remedy it may have against NACC or any collateral now or hereafter held by
Guaranteed Party, including, without limitation, the right to foreclose upon any
such collateral by judicial or
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nonjudicial sale, without affecting or impairing in any way the liability of
HCNA hereunder. HCNA understands that the exercise by Guaranteed Party of
certain rights and remedies contained in the Lease Financing Documents or
otherwise arising under Applicable Law could affect or eliminate HCNA's right of
subrogation, contribution or indemnification against NACC and that HCNA may
therefore succeed to a partially or totally nonreimbursable liability hereunder.
Nevertheless, HCNA hereby authorizes and empowers Guaranteed Party to exercise,
in its sole discretion any rights and remedies or any combination of rights and
remedies that may then be available, since it is the intent and purpose of HCNA
that the Guaranteed Obligations hereunder shall be absolute, independent and
unconditional under any and all circumstances. HCNA waives: (i) any defense
arising by reason of any disability or other defense of NACC or by reason of the
cessation from any cause whatsoever of the liability, either in whole or in
part, of NACC to Guaranteed Party for the Guaranteed Obligations (without
prejudice to HCNA's right to assert such defense, in a separate action unrelated
to any action for enforcement of this HCNA Guaranty or the Guaranteed
Obligations, so long as HCNA does not set-off the amount of such defense against
its obligation to pay Guaranteed Obligations hereunder), (ii) any defense based
on the discharge of NACC by operation of law, notwithstanding any intervention
or omission by Guaranteed Party, and (iii) any defense based on or arising out
of the absence, impairment or loss of any right of reimbursement, contribution
or subrogation or any other right or remedy of HCNA against NACC or any such
collateral, whether resulting from such election by Guaranteed Party or
otherwise.
(e) HCNA waives all rights, benefits or defenses under any
Applicable Laws which: (i) reduce the obligation of a surety upon the acceptance
by a creditor of anything in partial satisfaction of an obligation, (ii)
exonerate the surety if by any act of the creditor, without the consent of the
surety, the original obligation of the principal is altered in any respect, or
the remedies or rights of the creditor against the principal, in respect
thereto, are in any way suspended or impaired, (iii) exonerate the surety to the
extent that the creditor does not proceed against the principal, or pursue any
other remedy in the creditor's power which the surety cannot pursue, and which
would lighten the surety's burden, (iv) reduce the guaranteed obligation in
proportion to the principal obligation, (v) prohibit the recovery of any
deficiency on a real property purchase money obligation, and (vi) prohibit the
recovery of any deficiency on a note secured by a deed of trust on real property
in case such real property is sold under the power of sale contained in such
deed of trust. Without limiting the generality of the foregoing, HCNA waives all
rights, benefits and defenses arising under (a) Sections 2809, 2810, 2819, 2822,
2825, 2845, 2899 and 3433 of the California Civil Code, and (b) Sections 580(a),
580(b), 580(d) and 726 of the California Code of Civil Procedure, to the extent
such sections, or any of them, have any application hereto or any application to
HCNA.
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(f) Without limiting the application of any of the other
waivers contained in this Section 5, HCNA hereby expressly waives all rights and
defenses arising out of an election of remedies by Guaranteed Party, even though
that election of remedies, such as a nonjudicial foreclosure with respect to any
real property collateral for the Guaranteed Obligations, has destroyed HCNA's
rights of subrogation and reimbursement against the principal (i.e., NACC) by
the operation of Section 580d of the California Code of Civil Procedure or
otherwise. Additionally, HCNA understands and agrees that: (i) by waiving the
anti-deficiency protections and the subrogation rights and defenses referred to
in this Section 5 which protections, rights and defenses might otherwise afford
HCNA with protection from a deficiency judgment following foreclosure of any
real property collateral for the Guaranteed Obligations, HCNA can be held liable
for a deficiency judgment following a judicial or non-judicial foreclosure sale
of such real property collateral (including a judicial or non-judicial
foreclosure sale of a purchase money obligation) even if the price paid for the
real property collateral at the non-judicial foreclosure sale is less than the
fair value of the real property collateral, (ii) HCNA is waiving its defense
that the price paid for the real property collateral at a judicial or
non-judicial foreclosure sale may not be equal to the fair value of the
property, and (iii) by HCNA waiving its right to a fair value hearing following
the foreclosure sale Guaranteed Party can seek a deficiency against HCNA up to
the entire amount of the indebtedness secured by the real property collateral
with interest and costs of sale less the amount paid for the property at the
judicial or non-judicial foreclosure sale.
(g) HCNA WAIVES ALL OTHER RIGHTS, BENEFITS AND DEFENSES UNDER
APPLICABLE LAW THAT WOULD, BUT FOR THIS SUBPARAGRAPH (g), BE AVAILABLE TO HCNA
AS A DEFENSE AGAINST OR A REDUCTION OR LIMITATION OF ITS OBLIGATIONS UNDER THIS
HCNA GUARANTY (without prejudice to HCNA's right to assert such rights, benefits
or defenses in a separate action unrelated to any action for enforcement of this
HCNA Guaranty or the Guaranteed Obligations, so long as HCNA does not set-off
the amount of such rights, benefits or defenses against its obligation to pay
Guaranteed Obligations hereunder).
Section 6. Payments by HCNA. (a) Place and Manner. All
payments due to the Guaranteed Party under this HCNA Guaranty shall be made to
the Guaranteed Party at the address and the account provided for payment in
Section 9.1 of the Participation Agreement or to such other Person or at such
other address as the Guaranteed Party may designate by notice to HCNA. HCNA
agrees that it will make all payments due hereunder by wire transfer at or
before 1:00 p.m., New York time, in immediately available funds to the party to
which payment is to be made.
(b) No Reductions. All payments due the Guaranteed Party
under this HCNA Guaranty shall be made by HCNA without any reduction or
deduction whatsoever, including any reduction or deduction for any set-off,
recoupment or counterclaim (whether, in
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any case, in respect of an obligation owed by the Guaranteed Party to HCNA, NACC
or any other guarantor and, in the case of a counterclaim, whether sounding in
tort, contract or otherwise), without prejudice to HCNA's right to assert such
reduction or deduction in a separate action unrelated to any action for
enforcement of this HCNA Guaranty or the Guaranteed Obligations, so long as HCNA
does not set-off the amount of such reduction or deduction against its
obligation to pay Guaranteed Obligations hereunder.
(c) Extension of Payment Dates. Whenever any payment to the
Guaranteed Party under this HCNA Guaranty would otherwise be due on a day that
is not a Business Day, such payment shall instead be due on the next succeeding
Business Day.
Section 7. Notices and Deliveries. All notices, communications
and materials to be given or delivered pursuant to this HCNA Guaranty shall be
given or delivered in accordance with Section 9.1 of the Participation
Agreement.
Section 8. Rights Cumulative. Each of the rights and remedies
of each Guaranteed Party under this HCNA Guaranty shall be in addition to all of
its other rights and remedies under Applicable Law, and nothing in this HCNA
Guaranty shall be construed as limiting any such rights or remedies.
Section 9. Amendments; Waivers. Any term, covenant, agreement
or condition of this HCNA Guaranty may be amended, and any right under this HCNA
Guaranty may be waived, if, but only if, such amendment or waiver is in writing
and is signed by each Guaranteed Party and, in the case of an amendment, by
HCNA. No election not to exercise, failure to exercise or delay in exercising
any right, nor any course of dealing or performance, shall operate as a waiver
of any right of a Guaranteed Party under this HCNA Guaranty or Applicable Law,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right of a Guaranteed
Party under this HCNA Guaranty or Applicable Law.
Section 10. Assignments. Except pursuant to Section 6.2(h),
6.3(a)(ii) or 6.3(b)(ii) of the Participation Agreement or to the extent
otherwise permitted in the Lease Financing Documents, (a) HCNA may not assign
any of its rights or obligations under this HCNA Guaranty without the prior
written consent of each Guaranteed Party, and (b) no assignment of any such
obligation shall release HCNA therefrom unless each Guaranteed Party shall have
consented to such release in a writing specifically referring to the obligation
from which HCNA is to be released.
Section 11. Governing Law. THIS HCNA GUARANTY AND ANY BREACH
OR DISPUTE WITH RESPECT TO THIS HCNA GUARANTY SHALL, PURSUANT TO NEW YORK
GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. In connection with the
foregoing, it is further
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acknowledged and agreed that it is the specific intent and understanding of HCNA
and the Guaranteed Parties that this HCNA Guaranty be governed by the law of the
State of New York as set forth above under all circumstances and notwithstanding
any reference in this HCNA Guaranty to the laws of any other jurisdiction,
including, without limitation, the laws of the State of California.
Section 12. Severability of Provisions. Any provision of this
HCNA Guaranty that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. To the extent permitted by Applicable Law, HCNA hereby waives any
provision of Applicable Law that renders any provision of this HCNA Guaranty
prohibited or unenforceable in any respect.
Section 13. Termination and Release. The HCNA Guaranty shall
terminate, and HCNA shall be released from its obligations hereunder and under
the other Operative Documents, if any,
(a) on the HCNA Guaranty Termination Date; or
(b) if, (i) immediately after giving effect to a transaction
(A) in which NACC consolidates with, merges with or into or is merged into by,
any other Person (other than any Restricted Subsidiary of HCNA) or, directly or
indirectly, transfers, conveys, sells, leases or otherwise disposes of (1) all
or substantially all of its properties and assets as an entirety, or (2) all or
substantially all of the properties and assets that comprise the Complex as an
entirety, to any other Person (other than any Restricted Subsidiary of HCNA) or
(B) as a result of which NACC is no longer a Restricted Subsidiary of HCNA (NACC
or such surviving Person after giving effect to any such transaction, the
"Surviving Lessee") and (ii) continuously for a period of at least twelve (12)
months immediately following such transaction, the outstanding Debt of (A) the
Surviving Lessee, or (B) an Affiliate of the Surviving Lessee that has entered
into a guaranty on terms substantially equivalent to the HCNA Guaranty in form
reasonably acceptable to the Owner Participant, with an Average Weighted Life
equal to or greater than the Average Weighted Life of the remaining Basic Rent
during the Basic Term or the Renewal Term, as applicable, shall be rated at
least BBB (or subsequent equivalent rating) by Standard & Poor's, at least Baa2
(or subsequent equivalent rating) by Moody's or at least 2 (or subsequent
equivalent rating) by National Association of Insurance Commissioners, or if any
such agency no longer publishes ratings, then the equivalent rating as published
by another Rating Agency.
Section 14. Successors and Assigns. All of the provisions of
this HCNA Guaranty shall be binding upon HCNA and its
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successors and assigns and shall inure to the benefit of, and may be enforced
by, each Guaranteed Party and its respective successors and permitted assigns.
Section 15. Defined Terms. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
Annex A to that certain Participation Agreement, dated as of July 15, 1996,
among North American Chemical Company, Harris Chemical North America, Inc.,
[Owner Participant], [OP Guarantor] and U.S. Trust Company of California, N.A.,
not in its individual capacity except as otherwise expressly provided therein,
but solely as trustee under the Trust Agreement, dated as of July 12, 1996,
creating the Searles Valley Trust 1996.
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IN WITNESS WHEREOF, HCNA has caused this HCNA Guaranty to be
executed and delivered by its duly authorized officer as of the date and year
first above written.
HARRIS CHEMICAL NORTH AMERICA, INC.
By _____________________________________
Name:
Title:
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FORM OF GUARANTY AGREEMENT
--------------------------
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GUARANTY AGREEMENT
(Searles Valley Trust 1996)
dated as of July 15, 1996
by
HARRIS CHEMICAL NORTH AMERICA, INC.
for the Benefit of
[OWNER PARTICIPANT],
[OP GUARANTOR]
and
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
not in its individual capacity,
but solely as owner trustee
under the Trust Agreement that creates
the trust identified under the title hereof.
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<PAGE>
