ELM ROAD I FACILITY LEASE AGREEMENT between ELM ROAD GENERATING STATION SUPERCRITICAL, LLC as Lessor and WISCONSIN ELECTRIC POWER COMPANY

Exhibit 10.56

 

ELM ROAD I FACILITY LEASE AGREEMENT

 

between

 

ELM ROAD GENERATING STATION SUPERCRITICAL, LLC

as Lessor

 

and

 

WISCONSIN ELECTRIC POWER COMPANY

as Lessee

 

Dated as of November 9, 2004

TABLE OF CONTENTS

 

 

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Exhibit 10.56

 

ELM ROAD I FACILITY LEASE AGREEMENT

 

This ELM ROAD I FACILITY LEASE AGREEMENT, dated as of November 9, 2004 (this “ Facility Lease ”), is between Elm Road Generating Station Supercritical, LLC, a Wisconsin limited liability company, as lessor (“ Lessor ”), and Wisconsin Electric Power Company, a Wisconsin corporation, as lessee (“ Lessee ”). Lessee and Lessor are sometimes herein referred to as a “ Party ” and collectively as the “ Parties ”.

 

WITNESSETH :

 

WHEREAS, Lessee currently owns and operates four (4) coal-based electric generating units and one (1) gas-based electric generating unit and related facilities at its Oak Creek generating facility (the “ Existing Units ”); and

 

WHEREAS, Lessor intends to develop, design, engineer, procure, permit, construct, commission and have an ownership interest in an approximately 615 MW net nominal supercritical pulverized coal electric generating facility and related facilities (as further described in Exhibit A , “ Unit 1 ”) to be located on land owned by Lessee consisting of Parcel 1 (all capitalized terms used but not defined in these Recitals shall have the meanings given to such terms in Schedule 1.1 ); and

 

WHEREAS, Lessor also intends to develop, design, engineer, procure, permit, construct and have an ownership interest in an approximately 615 MW net nominal supercritical pulverized coal electric generating facility and related facilities (“ Unit 2 ” together with Unit 1, the Future Unit and the facilities associated with each (including the New Common Facilities), the “ Elm Road Facility ”) to be located on land owned by Lessee consisting of Parcel 2; and

 

WHEREAS, Lessor intends to develop, design, engineer, procure, permit, construct, commission and have an ownership interest in certain facilities to be used in common for two or more of Unit 1, Unit 2, the Future Unit and the Existing Units (as further described in Exhibit A , the “ New Common Facilities ”);

 

WHEREAS, Unit 1 will be constructed on Parcel 1 which will be leased to Lessor pursuant to that certain Elm Road I Ground Lease Agreement, dated as of the date hereof, between Lessee, as ground lessor, and Lessor, as ground lessee (the “ Elm Road I Ground Lease ”), and subleased back to Lessee pursuant to that certain Elm Road I Ground Sublease Agreement, dated as of the date hereof, between Lessor, as ground sublessor, and Lessee, as ground sublessee (the “ Elm Road I Ground Sublease ”); and

 

WHEREAS, Lessor will lease to Lessee, and Lessee will lease from Lessor, the Unit 1 Ownership Interest and the New Common Facilities Ownership Interest (collectively, the “ Leased Facility ”) on the terms and conditions provided for in this Facility Lease.

 

NOW, THEREFORE, in consideration of the foregoing premises, the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

ARTICLE 1: DEFINITIONS; RULES OF INTERPRETATION

 

Capitalized terms used but not defined herein shall have the meanings set forth in Schedule 1.1 , and the rules of interpretation set forth in Schedule 1.1 shall apply to this Facility Lease.

 

ARTICLE 2: CONSTRUCTION EFFECTIVE DATE; DECOMMISSIONING

COMPLETION DATE

 

2.1 Construction Effective Date . (a) After the Execution Date, each Party shall use commercially reasonable efforts to achieve the Construction Effective Date and, thereafter, to satisfy its respective conditions precedent to the Decommissioning Completion Date set forth on Schedule 2.2 . Lessor shall determine and deliver written notice to Lessee when the Construction Effective Date has occurred.

 

(b) On or before the tenth (10 ^th ) day of each calendar month (or if such day is not a Business Day, the next Business Day) from the Construction Effective Date until the Lease Effective Date, or if this Facility Lease is otherwise terminated in accordance with this Article 2 or Article 5 , such termination date, beginning with the calendar month following the calendar month in which the Construction Effective Date occurs, Lessor shall submit a written invoice (each, a “ Construction Invoice ”) to Lessee which shall indicate: (i) the aggregate amount of Construction Costs, if any, incurred by or on behalf of Lessor as of the last day of such previous calendar month (the “ Outstanding Construction Costs ”); provided , however , that the Outstanding Construction Costs shall not exceed the Approved Amount; (ii) the Return on Capital with respect to such Outstanding Construction Costs (the “ Monthly Return on Capital Amount ”); (iii) the Monthly Management Services Costs, if any, incurred by or on behalf of Lessor during such previous calendar month; (iv) any Community Impact Mitigation Costs incurred by or on behalf of Lessor during such previous calendar month (“ Monthly CIMC ”) and with respect to the first Construction Invoice, the amount of any accrued Community Impact Mitigation Costs incurred by or on behalf of Lessor as of the last day of such previous calendar month and (v) with respect to the first Construction Invoice, the amount of Pre-CPCN Expenses (other than Capital Costs) incurred by or on behalf of Lessor as of the last day of such previous calendar month and accrued Return on Capital with respect to the Major Equipment Procurement Pre-CPCN Expenses as of the last day of such previous calendar month. No later than the thirtieth (30th) calendar day after which Lessee receives the Construction Invoice (or if such day is not a Business Day, the next Business Day), Lessee shall pay to or for the account of Lessor as Lessor shall direct in writing in immediately available funds in Dollars an amount equal to the sum of the amounts in (ii), (iii), (iv), and (v) specified in such Construction Invoice.

 

(c) Lessor agrees to make available to Lessee, upon written request, copies of all notices, invoices, bills or other documentation reasonably requested by Lessee with respect to

 

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any of the amounts described in Section 2.1(b ) for which reimbursement is sought pursuant to Article 2 .

 

(d) If at any time prior to the Lease Effective Date Lessor transfers a portion of its Unit 1 Ownership Interest and New Common Facilities Ownership Interest to MGE Power and/or WPPI or their respective Affiliates or any other Owner, then Lessor shall, within five (5) days after such transfer, pay to Lessee an amount equal to the aggregate amount of the costs described in Section 2.1(b)(ii ), ( iv) and ( v ) which are reimbursed to Lessor by such new Owner(s).

 

2.2 Decommissioning Completion Date . Notwithstanding any provision to the contrary contained herein, the Parties’ rights and obligations under Articles 3 (except for Article 5 of Schedule 3.1(a) and Section 3.5) , 4, 5, 7.4, 7.5, 11 and 16 and Sections 8.2, 17.1, 17.4 and 20.1(a) shall not become effective until the Decommissioning Completion Date shall have occurred.

 

2.3 Failure to Achieve the Decommissioning Completion Date .

 

(a) If the Decommissioning Completion Date has not occurred by the Required Decommissioning Completion Date, then either Party (a “ Terminating Party ”) may, provided that the failure to achieve the Decommissioning Completion Date by the Required Decommissioning Completion Date is not due to the acts or omissions of the Terminating Party or the Terminating Party’s failure to perform any of its obligations under this Facility Lease or any other Lease Document to which it is a party, deliver a written notice to the other Party, identifying its election to terminate this Facility Lease (a “ Construction Termination Notice ”). The Construction Termination Notice shall identify the date on which this Facility Lease shall terminate (the “ Construction Termination Date ”); provided that the Construction Termination Date shall not be less than one hundred eighty (180) days and no more than three hundred sixty five days (365) after the date of the Construction Termination Notice unless the Parties mutually agree otherwise and the PSCW approves such date.

 

(b) If Lessee elects to terminate this Facility Lease pursuant to Section 2.3(a) , then no later than fifteen (15) days after receipt of the Construction Termination Notice, Lessor shall deliver to Lessee a written notice identifying the total amount (the “ Pre-Termination Pre-CPCN Expenses ”) of (i) Pre-CPCN Expenses and (ii) Lessor’s Percentage of other costs and expenses approved by the PSCW which have been incurred by or on behalf of Lessor in connection with the development, design, engineering and procurement of the Unit 1 Facility which have not already been reimbursed by Lessee pursuant to Section 2.1(b) . If Lessor elects to terminate this Facility Lease pursuant to Section 2.3(a) , then Lessor shall include the amount of the Pre-Termination Pre-CPCN Expenses in its Construction Termination Notice.

 

(c) If either Party has delivered the Construction Termination Notice in accordance with Section 2.3(a ) and as of the Construction Termination Date the Decommissioning Completion Date has not occurred (and the Construction Termination Notice

 

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has not been withdrawn by the Terminating Party), then effective as of the Construction Termination Date:

 

(i) Lessee shall pay all Pre-Termination Pre-CPCN Expenses to or for the account of Lessor on the Construction Termination Date as Lessor shall direct in writing in immediately available funds in Dollars; and

 

(ii) this Facility Lease shall automatically terminate and each Party shall cease to have any liability to the other Party hereunder, except for any obligations surviving pursuant to the express terms of this Facility Lease; provided , however , that it shall be a condition of such termination that each Party shall have paid any and all amounts due under this Facility Lease (including pursuant to this Article 2 ).

 

(d) Notwithstanding any provision to the contrary contained herein, if the Decommissioning Completion Date has occurred prior to the Construction Termination Date, then the Construction Termination Notice shall automatically be revoked and the provisions of Section 2.2 shall apply.

 

(e) If, within one hundred eighty (180) days after the Required Decommissioning Completion Date, no Party eligible to deliver a Construction Termination Notice exercises its option to deliver a Construction Termination Notice to the other Party in accordance with Section 2.3(a) , then the Construction Termination Date shall be deemed to have occurred and this Facility Lease shall terminate in accordance with this Article 2 , unless the Parties mutually agree otherwise and the PSCW approves such continuation.

 

ARTICLE 3: CONSTRUCTION OF UNIT 1

 

3.1 Construction of Unit 1 Facility .

 

(a) Lessor shall develop, design, engineer, procure, permit, construct and commission the Unit 1 Facility in all material respects in accordance with the Development Protocol as set forth in Schedule 3.1(a) . Notwithstanding anything to the contrary contained herein, Lessor may delegate all or a portion of its obligations under this Article 3 and Article 4 to one or more agents, provided that Lessor shall continue to be responsible in accordance with the terms and conditions of this Facility Lease for all such delegated obligations.

 

(b) Lessor shall obtain and maintain in full force and effect all material Government Approvals required by applicable Law to perform its obligations under Section 3.1(a) and shall comply in all material respects with all such Government Approvals and all applicable Laws in connection with the performance of its obligations under Section 3.1(a) .

 

(c) No later than thirty (30) days following the Decommissioning Completion Date, Lessor shall provide and maintain (or cause to be provided and maintained) until the Limited Use Termination Date, Construction Security to secure compliance with its payment obligations under Section 3.3 and Section 4.5 .

 

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(d) The Parties shall use commercially reasonable efforts to coordinate Lessor’s activities contemplated under Article 3 and Article 4 with Lessee’s ongoing operation and maintenance of the Existing Units, in accordance with Good Utility Practice; provided, however, that such coordination shall not materially interfere with or impair the operation and use of the Existing Units.

 

3.2 Construction Milestone Schedule .

 

(a) Lessor shall use commercially reasonable efforts to achieve each of the Milestones by its respective Milestone Date as set forth in the Construction Milestone Schedule attached hereto as Schedule 3.2(a) .

 

(b) Lessor shall provide Lessee, with a copy to the PSCW and to the Independent Evaluator, with prompt written notice of the date upon which it has achieved each Milestone.

 

(c) During the Construction Term, Lessor shall provide Lessee with monthly status reports, with a copy to the PSCW and to the Independent Evaluator (which shall include, among other things, the status of all material Government Approvals required by Lessor to perform its obligations under Section 3.1(a) ) and shall inform Lessee of any expected delays (and their duration) in achieving any Milestone by the respective Milestone Date. Should Lessor fail to achieve any Milestone by the respective Milestone Date, Lessor shall, as soon as practicable (and in any event within ten (10) days after such Milestone Date), provide Lessee with a Remedial Action Plan, with a copy to the PSCW and to the Independent Evaluator.

 

(d) If and to the extent Lessor fails as a result of Force Majeure or an Excused Event to achieve a Milestone by the respective Milestone Date, then such Milestone Date and all subsequent Milestone Dates, if any, shall be adjusted by a reasonable amount of time (not to exceed three hundred sixty five (365) days) attributable to the delay caused by such Force Majeure or Excused Event.

 

3.3 Failure to Achieve Commercial Operation by the Scheduled Commercial Operation Date . If Lessor shall fail to achieve Commercial Operation by the Scheduled Commercial Operation Date, then Lessor shall pay to Lessee Scheduled Commercial Operation Date Damages for each day from the Scheduled Commercial Operation Date until the Lease Effective Date as set forth in Schedule 3.3 ; provided , however , that the maximum amount of Scheduled Commercial Operation Date Damages payable by Lessor under this Section 3.3 shall not exceed in the aggregate the Delay Damages Cap as set forth in Schedule 3.3 . Payments pursuant to this Section 3.3 shall be made on a monthly basis sixty (60) days after the conclusion of any month in which there are accrued and unpaid Scheduled Commercial Operation Date Damages.

 

3.4 Offset . Lessee may deliver to Lessor a written invoice for any amounts due and payable by Lessor during the Construction Term; provided , however , that a written invoice for

 

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payment shall not be sent more frequently than once in any calendar month. If Lessor shall fail to pay any undisputed amount shown on any such invoice within thirty (30) days of receipt thereof, Lessee shall be entitled to offset amounts due to Lessor during the Construction Term.

 

3.5 Insurance . Lessor shall obtain and maintain or cause to be obtained and maintained during the Construction Term insurance with respect to the Unit 1 Facility in accordance with the requirements of Schedule 13.2 .

 

3.6 Event of Loss and Event of Total Loss .

 

(a) During the Construction Term, if an Event of Loss with respect to the Unit 1 Facility occurs that results in:

 

(i) less than one million Dollars ($1,000,000) in physical loss, destruction or damage to the Unit 1 Facility above any Loss Proceeds and/or Condemnation Award that Lessor receives or anticipates receiving for its own account in connection therewith, then Lessor shall be obligated to reconstruct or complete construction of the Unit 1 Facility in accordance with the requirements of Section 3.1 ;

 

(ii) equal to or greater than one million Dollars ($1,000,000) in physical loss, destruction or damage to the Unit 1 Facility above any Loss Proceeds and/or Condemnation Award that Lessor receives or anticipates receiving for its own account in connection therewith, then Lessor shall be obligated to reconstruct or complete construction of the Unit 1 Facility in accordance with the requirements of Section 3.1 , if and only if Lessee agrees to and the PSCW approves an increase in the “AALF” to be recovered in the Basic Rent formula by an amount equal to the additional Construction Costs incurred by or on behalf of Lessor to reconstruct or complete construction (including any costs incurred as a result of the time required to obtain PSCW approval), less the aggregate amount of any Loss Proceeds and/or Condemnation Award received by Lessor for its own account in connection therewith. The Milestone Dates and the Required Lease Effective Date shall be extended by a reasonable amount of time attributable to the time required to reconstruct or complete construction of the Unit 1 Facility (including any time required to obtain PSCW approval) and this Facility Lease and the other Lease Documents shall be amended as otherwise may be required by the Parties and approved by the PSCW; or

 

(b) In the event that Lessee and/or the PSCW does not approve an increase in the “AALF” in the Basic Rent formula pursuant to Section 3.6(a)(ii ), then Lessor may terminate this Facility Lease in accordance with Section 5.5 by delivering to Lessee a Purchase Price Notice (with the Purchase Price calculated as of the date of such notice) and the date upon which the Purchase Price Notice is delivered shall be deemed to be the Required Lease Effective Date for the purposes of Section 5.5 .

 

(c) During the Construction Term, if an Event of Total Loss in respect of the Unit 1 Facility occurs, then Lessor may elect to terminate this Facility Lease in accordance with Section 5.5 by delivering to Lessee a Purchase Price Notice (with the Purchase Price calculated

 

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as of the date of such notice) and the date upon which the Purchase Price Notice is delivered shall be deemed to be the Required Lease Effective Date for the purposes of Section 5.5 or to continue this Facility Lease on such terms and conditions as the Parties may mutually agree and the PSCW approves.

 

ARTICLE 4: TESTING PROCEDURES; PERFORMANCE LEVELS

 

4.1 Testing Procedures . Except as provided in Section 4.2 , Lessor shall be responsible for the development and implementation of all testing procedures during the construction, start-up and commissioning of the Unit 1 Facility and shall provide Lessee with advance written notice of all testing procedures.

 

4.2 Commercial Operation Test . Lessor shall perform a Commercial Operation Test in accordance with Schedule 4.2 .

 

4.3 Test Fuel and Test Power Procedures . Each of the Parties shall comply with the Test Fuel and Test Power Procedures set forth in Schedule 4.3 .

 

4.4 Intentionally Omitted .

 

4.5 Guaranteed Performance Levels . Lessor agrees to use commercially reasonable efforts to achieve the Guaranteed Performance Levels as set forth in Schedule 4.5 by the Scheduled Commercial Operation Date. Lessor shall test the Unit 1 Facility for the Guaranteed Performance Levels in connection with the Commercial Operation Test in accordance with the applicable testing procedures set forth in Schedule 4.2 . If the Unit 1 Facility should fail to satisfy one or more of the Guaranteed Performance Levels in accordance with Schedule 4.2 (other than as a result of the acts or omissions of Lessee or the failure of Lessee to perform any of its obligations under this Facility Lease or any other Lease Document to which it is a party) but nevertheless achieves the Lease Effective Date, then within sixty (60) Business Days after the Lease Effective Date, Lessor shall pay to Lessee, as liquidated damages and not as a penalty the respective Guaranteed Performance Level Damages as set forth in Schedule 4.5 ; provided , however , that the maximum amount of Guaranteed Performance Level Damages payable by Lessor under this Section 4.5 for failure to achieve the Guaranteed Performance Levels shall not exceed the Performance Damages Cap as set forth in Schedule 4.5 ; provided , further , that notwithstanding any provision to the contrary contained herein, in no event shall Lessor be obligated to pay Guaranteed Performance Level Damages prior to the Lease Effective Date (including if the Lease Effective Date does not occur).

 

4.6 Unit Appraisal .

 

(a) No later than ninety (90) days and no earlier than one hundred twenty (120) days prior to the Lease Effective Date, Lessor shall submit to Lessee, with a copy to the PSCW, a written list of proposed Appraisers. Lessee shall select one (1) of the Appraisers from Lessor’s list and give written notice thereof to Lessor and the PSCW. The PSCW shall either approve the Appraiser selected by Lessee or choose a different Appraiser from Lessor’s list. The

 

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Appraiser selected in accordance with this Section 4.6(a) (the “ Unit Appraiser ”) shall appraise the Unit 1 Facility (excluding the Site Improvements) in accordance with Section 4.6(b ).

 

(b) Within ninety (90) days of appointment, the Unit Appraiser shall deliver to Lessor and Lessee a written report, with a copy to the PSCW, in form and substance satisfactory to Lessor and the PSCW (the “ Unit Appraisal Report ”), which shall certify as to (i) the economic useful life (the “ Economic Useful Life ”) of the Unit 1 Facility at the end of each of the Base Term and the First Renewal Term, (ii) the expected fair market value (the “ Appraised FMV ”) of the Unit 1 Facility (excluding the Site Improvements) at the end of each of the Base Term and the First Renewal Term; provided , however , that the Appraised FMV shall be determined without taking into account inflation or deflation occurring after the Lease Effective Date (including any inflation or deflation occurring during the Base Term or First Renewal Term) and (iii) the estimated demolition and removal costs expected to be incurred by or on behalf of Lessor at the end of the Unit 1 Facility’s Economic Useful Life (the “ Demolition and Removal Costs ”).

 

ARTICLE 5: LEASE EFFECTIVE DATE

 

5.1 Achievement of the Lease Effective Date or the Deemed Lease Effective Date . Notwithstanding any provision to the contrary contained herein, the Parties’ rights and obligations under Articles 6, 9, 10, 12, 13, 14 and 15 and Sections 7.1, 7.2, 7.3, 8.3, 8.4, 8.5, 17.2, 17.3(a) and 20.1(b) shall not become effective until the Lease Effective Date or the Deemed Lease Effective Date shall have occurred in accordance with the terms and conditions of this Facility Lease. Each Party shall use commercially reasonable efforts to satisfy their respective conditions precedent to the Lease Effective Date as set forth in Schedule 5.1 .

 

5.2 Notice of Purchase Price . If the Lease Effective Date has not occurred by the Required Lease Effective Date, then within fifteen (15) days after the Required Lease Effective Date, Lessor shall deliver to Lessee, with a copy to the Independent Evaluator and the PSCW, a written notice (the “ Purchase Price Notice ”) in which Lessor shall indicate (together with reasonable supporting information) (i) the Aggregate Construction Costs incurred by or on behalf of Lessor as of the Required Lease Effective Date, (ii) the aggregate amount of outstanding Return on Capital with respect to the Aggregate Construction Costs, calculated as of the Required Lease Effective Date, (iii) the aggregate amount of outstanding Monthly Management Services Costs incurred by or on behalf of Lessor as of the Required Lease Effective Date and (iv) the aggregate amount of outstanding Monthly CIMC incurred by or on behalf of Lessor as of the Required Lease Effective Date (collectively, the “ Purchase Price ”). Lessor shall provide such other information as the Independent Evaluator may reasonably request in connection with its evaluation pursuant to Section 5.4 of Exhibit 3.1(a) .

 

5.3 Lessor’s Failure to Achieve the Lease Effective Date .

 

(a) If the Lease Effective Date has not occurred by the Required Lease Effective Date due to the acts or omissions of Lessor (including the failure of Lessor to satisfy its conditions precedent to the Lease Effective Date set forth in Schedule 5.1 ) or the failure of Lessor to perform any of its obligations under this Facility Lease or any other Lease Document to

 

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which it is a party, then within one hundred twenty (120) days after the Required Lease Effective Date, Lessee may deliver to Lessor written notice that Lessee has elected either: (i) to terminate this Facility Lease (the “ Lessee Termination Notice ”), (ii) to continue this Facility Lease (the “ Lessee Continuation Notice ”) or (iii) to change the Required Lease Effective Date to a later date which shall be no more than three hundred sixty-five (365) days after the original Required Lease Effective Date; provided that Lessee shall include in its notice (A) Lessee’s response to the Independent Evaluator’s evaluation provided pursuant to Section 5.4 of Exhibit 3.1(a) and (B) a copy of the PSCW’s written approval that its election is reasonable and prudent; provided , further , that Lessee may only once elect to change the Required Lease Effective Date pursuant to Section 5.3(a)(iii) .

 

(b) If Lessee elects to terminate this Facility Lease pursuant to Section 5.3(a) , then Lessee shall specify in the Lessee Termination Notice (i) the conditions precedent to the Lease Effective Date that Lessee believes have not been satisfied, (ii) the date on which this Facility Lease shall terminate (the “ Lessee Termination Date ”), provided that the Lessee Termination Date shall not be earlier than the date that is one hundred eighty (180) days after the Required Lease Effective Date, and (iii) whether Lessee elects to purchase the Leased Facility.

 

(c) If Lessee elects to terminate this Facility Lease and to purchase the Leased Facility pursuant to Section 5.3(a) , then Lessee shall purchase the Leased Facility and shall pay an amount equal to the Purchase Price, to or for the account of Lessor, subject to Section 5.6(d ), on the Lessee Termination Date as Lessor shall direct in writing in immediately available funds in Dollars and this Facility Lease shall terminate on the Lessee Termination Date in accordance with Section 5.6 .

 

(d) If Lessee elects to terminate this Facility Lease but not to purchase the Leased Facility pursuant to Section 5.3(a ), then Lessee shall pay the aggregate amount of the Pre-Termination Pre-CPCN Expenses less the Major Equipment Procurement Pre-CPCN Expenses to or for the account of Lessor on the Lessee Termination Date as Lessor shall direct in writing in immediately available funds in Dollars and this Facility Lease shall terminate on the Lessee Termination Date in accordance with Section 5.6 .

 

(e) If Lessee elects to continue this Facility Lease pursuant to Section 5.3(a ) and provided that Lessee has secured a Completeness Determination from the PSCW and approval from the PSCW to continue this Facility Lease (a copy of which Lessee has included in the Lessee Continuation Notice), then: (i) Lessee shall specify in the Lessee Continuation Notice the date on which the Lease Effective Date shall be deemed to have occurred (the “ Lessee Deemed Lease Effective Date ”), provided that the Lessee Deemed Lease Effective Date shall not be more than thirty (30) days after the date of the Lessee Continuation Notice; and (ii) the provisions of the first sentence of Section 5.1 shall apply.

 

(f) In the event that Lessee fails to timely deliver a notice pursuant to Section 5.3(a) within one hundred twenty (120) days after the Required Lease Effective Date, then this Facility Lease will automatically terminate on the date that is one hundred eighty (180) days after the Required Lease Effective Date and Lessee shall be deemed to have elected to purchase the

 

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Leased Facility in accordance with Section 5.3(c ). Notwithstanding any other provision of this Section 5.3 or any notice provided by Lessee, in the event the conditions precedent to the Lease Effective Date have been satisfied in accordance with the terms and conditions of this Facility Lease prior to any termination date provided for in this Section 5.3 , then the Lessee Termination Notice and the first sentence of this Section 5.3(f ) shall automatically be revoked and the provisions of the first sentence of Section 5.1 shall apply.

 

5.4 Lessee’s Failure to Achieve the Lease Effective Date .

 

(a) If the Lease Effective Date has not occurred by the Required Lease Effective Date due to the acts or omissions of Lessee (including the failure of Lessee to satisfy its conditions precedent to the Lease Effective Date set forth in Schedule 5.1 ) or the failure of Lessee to perform any of its obligations under this Facility Lease or any other Lease Document to which it is a party or due to an Excused Event, then within ninety (90) days after the Required Lease Effective Date, Lessor may deliver to Lessee written notice of its election to terminate this Facility Lease (the “ Lessor Termination Notice ”) or to continue this Facility Lease (the “ Lessor Continuation Notice ”).

 

(b) If Lessor elects to terminate this Facility Lease pursuant to Section 5.4(a ), then Lessor shall specify in the Lessor Termination Notice (i) the conditions precedent to the Lease Effective Date that Lessor believes have not been satisfied, (ii) the date on which this Facility Lease shall terminate (the “ Lessor Termination Date ”), provided that the Lessor Termination Date shall not be earlier than the date that is one hundred eighty (180) days after the Required Lease Effective Date, and (iii) whether Lessor elects to retain or sell the Leased Facility to Lessee.

 

(c) If Lessor elects to terminate this Facility Lease and to sell the Leased Facility to Lessee pursuant to Section 5.4(a ), then Lessee shall purchase the Leased Facility and shall pay the Purchase Price to or for the account of Lessor, subject to Section 5.6(d) , on the Lessor Termination Date as Lessor shall direct in writing in immediately available funds in Dollars and this Facility Lease shall terminate on the Lessor Termination Date in accordance with Section 5.6 .

 

(d) If Lessor elects to terminate this Facility Lease and to retain the Leased Facility pursuant to Section 5.4(a ), then Lessee shall pay the amount of the Pre-Termination Pre-CPCN Expenses less the Major Equipment Procurement Pre-CPCN Expenses to or for the account of Lessor on the Lessor Termination Date as Lessor shall direct in writing in immediately available funds in Dollars and this Facility Lease shall terminate on the Lessor Termination Date in accordance with Section 5.6 .

 

(e) If Lessor elects to continue this Facility Lease pursuant to Section 5.4(a ) and provided that Lessor has secured a Completeness Determination from the PSCW (a copy of which Lessor has included in the Lessor Continuation Notice) then: (i) Lessor shall specify in the Lessor Continuation Notice the date on which the Lease Effective Date shall be deemed to have occurred (the “ Lessor Deemed Lease Effective Date ”), provided that the Lessor Deemed Lease

 

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Effective Date shall not be more than thirty (30) days after the date of the Lessor Continuation Notice; and (ii) the provisions of the first sentence of Section 5.1 shall apply.

 

(f) In the event that Lessor fails to timely deliver either the Lessor Termination Notice or the Lessor Continuation Notice within ninety (90) days after the Required Lease Effective Date in accordance with Section 5.4(a ), then this Facility Lease will automatically terminate on the date that is one hundred eighty (180) days after the Required Lease Effective Date and Lessor shall be deemed to have elected to sell the Leased Facility in accordance with Section 5.4(c ). Notwithstanding any other provision of this Section 5.4 or any notice provided by Lessor, in the event that the conditions precedent to the Lease Effective Date have been satisfied in accordance with the terms and conditions of this Facility Lease prior to any termination date provided for in this Section 5.4 , then the Lessor Termination Notice and the first sentence of this Section 5.4(f ) shall automatically be revoked and the provisions of the first sentence of Section 5.1 shall apply.

 

5.5 Failure to Achieve the Lease Effective Date Due to Force Majeure .

 

(a) If the Lease Effective Date has not occurred by the Required Lease Effective Date due to Force Majeure then within ninety (90) days after the Required Lease Effective Date, Lessor may deliver to Lessee a Lessor Termination Notice or a Lessor Continuation Notice.

 

(b) If Lessor elects to terminate this Facility Lease pursuant to Section 5.5(a ), then Lessor shall specify in the Lessor Termination Notice (i) the conditions precedent to the Lease Effective Date that Lessor believes have not been satisfied, (ii) the Lessor Termination Date, which shall not be earlier than the date that is one hundred eighty (180) days after the Required Lease Effective Date, and (iii) whether the Lessor elects to retain or sell the Leased Facility to Lessee.

 

(c) If Lessor elects to terminate this Facility Lease and to sell the Leased Facility to Lessee pursuant to Section 5.5(a ) and Section 5.5(b) , then Lessee shall purchase the Leased Facility and shall pay the Purchase Price less any Loss Proceeds and/or Condemnation Award that Lessor received for its own account as a result of such Force Majeure or Event of Total Loss to or for the account of Lessor, subject to Section 5.6(d) , on the Lessor Termination Date as Lessor shall direct in writing in immediately available funds in Dollars and this Facility Lease shall terminate on the Lessor Termination Date in accordance with Section 5.6 .

 

(d) If Lessor elects to terminate this Facility Lease and to retain the Leased Facility pursuant to Section 5.5(a ), then Lessee shall pay the amount of Pre-Termination Pre-CPCN Expenses less the Major Equipment Procurement Pre-CPCN Expenses to or for the account of Lessor on the Lessor Termination Date as Lessor shall direct in writing in immediately available funds in Dollars and this Facility Lease shall terminate on the Lessor Termination Date in accordance with Section 5.6 .

 

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(e) If Lessor elects to continue this Facility Lease pursuant to Section 5.5(a ) and provided that Lessor has secured a Completeness Determination from the PSCW (a copy of which Lessor has included in the Lessor Termination Notice) and Lessee has agreed in writing to continue this Facility Lease, then: (i) Lessor shall specify in the Lessor Termination Notice the Lessor Deemed Lease Effective Date, provided that the Lessor Deemed Lease Effective Date shall not be more than thirty (30) days after the date of the Lessor Continuation Notice; and (ii) the provisions of the first sentence of Section 5.1 shall apply.

 

(f) In the event that Lessor fails to timely deliver either a Lessor Termination Notice or a Lessor Continuation Notice within ninety (90) days after the Required Lease Effective Date in accordance with Section 5.5(a ), then this Facility Lease will automatically terminate on the date that is one hundred eighty (180) days after the Required Lease Effective Date and Lessor shall be deemed to have elected to sell the Leased Facility in accordance with Section 5.5(c ). Notwithstanding any other provision of this Section 5.5 or any notice provided by Lessor, in the event the conditions precedent to the Lease Effective Date have been satisfied in accordance with the terms and conditions of this Facility Lease prior to any termination date provided for in this Section 5.5 , then the Lessor Termination Notice and the first sentence of this Section 5.5(f ) shall automatically be revoked and the provisions of the first sentence of Section 5.1 shall apply.

 

5.6 Termination of the Facility Lease . If Lessee or Lessor elects to terminate this Facility Lease pursuant to Section 5.3(b ), Section 5.4(b ) or Section 5.5(b ), as the case may be, then on the Lessee Termination Date or the Lessor Termination Date, as the case may be:

 

(a) this Facility Lease shall automatically terminate and each Party shall cease to have any liability to the other Party hereunder, except for any obligations surviving pursuant to the express terms of this Facility Lease; provided , however , that it shall be a condition of such termination that each Party shall have performed its respective obligations pursuant to this Section 5.6 and paid any and all amounts due under this Facility Lease (including any outstanding Monthly Return on Capital Amount Monthly Management Services Costs or Community Impact Mitigation Costs pursuant to Section 2.1(b ) not included in the Purchase Price or other amounts due pursuant to Article 5 except as otherwise provided in Section 5.6(d ));

 

(b) if the Leased Facility is sold to Lessee pursuant to Section 5.3(b ), Section 5.4(b ) or Section 5.5(b ), then:

 

(i) Lessor shall transfer on an “as is” and “where is” basis (by an appropriate instrument of transfer in form and substance reasonably satisfactory to Lessee ( provided that such instrument of transfer shall not contain representations or warranties, express or implied, other than a representation and warranty as to the absence of Lessor’s Liens attributable to Lessor, the Member or the Lenders and a representation and warranty that Lessor has authority to sell the Leased Facility) and prepared and recorded at Lessee’s cost and expense) the Leased Facility to Lessee (or its designee);

 

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(ii) to the extent permitted by applicable Law and the provisions of the applicable Government Approvals, Lessor shall, at Lessee’s cost and expense, assign to Lessee or its designee, as the case may be, all of Lessor’s right, title and interest, if any, in all Government Approvals that are required to be obtained in connection with the ownership, use, operation or maintenance of the Unit 1 Facility;

 

(iii) Lessor shall use commercially reasonable efforts to assign to Lessee, at Lessee’s cost and expense, all of its right, title and interest, if any, in any warranties, covenants and representations of any manufacturer or vendor of the Unit 1 Facility or any component thereof; and

 

(iv) Lessor shall use commercially reasonable efforts to assign to Lessee, at Lessee’s cost and expense, certain of Lessor’s right, title and interest, if any, in any Project Documents to which it is a party (but only such right, title and interest which it has in its capacity as Lessor under such Project Documents) in accordance with Exhibit E .

 

(c) if Leased Facility is not sold to Lessee but retained by Lessor pursuant to Section 5.3(b ), Section 5.4(b ) or Section 5.5(b ) then:

 

(i) to the extent permitted by applicable Law and the provisions of the applicable Government Approvals, Lessee shall, at Lessor’s cost and expense, assign to Lessor or its designee, as the case may be, all of Lessee’s right, title and interest, if any, in all Government Approvals that are required to be obtained in connection with the ownership, use, operation or maintenance of the Unit 1 Facility;

 

(ii) Lessee shall use all commercially reasonable efforts to assign to Lessor, at Lessor’s cost and expense, all of its right, title and interest, if any, in any warranties, covenants and representations of any manufacturer or vendor of the Unit 1 Facility or any component thereof;

 

(iii) Lessee shall use commercially reasonable efforts to assign to Lessor, at Lessor’s cost and expense, all of its right, title and interest in the Interconnection Agreement, together with any easements or rights-of-way associated therewith;

 

(iv) Lessee shall use commercially reasonable efforts to assign to Lessor, at Lessor’s cost and expense, certain of Lessee’s right, title and interest, if any, in any Project Documents to which it is a party (but only such right, title and interest which it has in its capacity as Lessee under such Project Documents) in accordance with Exhibit E ;

 

(v) Lessor may request in writing that the Parties enter into good faith negotiations for an operation and maintenance agreement with respect to Unit 1, on terms and conditions reasonably satisfactory to the Parties (the “ Replacement Operating Agreement ”); and

 

(vi) Lessor shall sell to Lessee, and Lessee, shall purchase from Lessor, a portion of Lessor’s New Common Facilities Ownership Interest equal to the aggregate amount

 

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of Lessor’s New Common Facilities Ownership Interest which are allocated to the Existing Units pursuant to Schedule 7.4 of this Facility Lease.

 

(d) if the Leased Facility is sold to Lessee pursuant to Section 5.3(b ), Section 5.4(b ) or Section 5.5(b ) and the Purchase Price is greater than thirty percent (30%) of the Approved Amount, then Lessee shall not be obligated to pay the entire amount of such Purchase Price on the Lessor Termination Date or Lessee Termination Date, as the case may be, but shall be obligated to pay Lessor as follows:

 

(i)(A) if such Purchase Price is between thirty percent (30%) and fifty percent (50%) of the Approved Amount, then Lessee shall be obligated to pay the full amount of such Purchase Price in twenty (20) equal quarterly installments; and

 

(B) if such Purchase Price is over fifty percent (50%) of the Approved Amount, then Lessee shall be obligated to pay the full amount of such Purchase Price in forty (40) equal quarterly installments.

 

(ii) In addition to the repayment of the Purchase Price, Lessee shall be obligated to pay Lessor a Return on Capital with respect to the outstanding unpaid amount of the Purchase Price. On or before the tenth (10 ^th ) day of each calendar month (or if such day is not a Business Day, the next Business Day) following the Lessee Termination Date or the Lessor Termination, as the case may be, until the Purchase Price is paid in full to Lessor, Lessor shall submit a written invoice to Lessee which shall indicate (i) the total amount outstanding of the Purchase Price and (ii) the Return on Capital with respect to the total amount outstanding of the Purchase Price. No later than the thirtieth (30 ^th ) day after which Lessee receives each invoice (or if such day is not a Business Day, the next Business Day), Lessee shall pay the amount specified in the invoice to or for the account of Lessor as Lessor shall direct in writing in immediately available funds in Dollars.

 

(iii) Notwithstanding any provision to the contrary contained in this Facility Lease, this Section 5.6(d ) shall survive the termination of this Facility Lease.

 

(e) each Party shall promptly and duly execute and deliver such further documents and take such further action reasonably requested by the other Party, as may be reasonably necessary to carry out the intent and purpose of this Section 5.6 .

 

5.7 PSCW Return Event . If a PSCW Return Event occurs during the Construction Term, then Lessor may, subject to Lessor delivering to Lessee a Purchase Price Notice (with the Purchase Price calculated as of the date of such notice) and a Lessor Termination Notice, exercise its rights and remedies pursuant to Section 5.4(b) , provided that for purposes of exercising its rights and remedies under Section 5.4(b) , Lessee shall be deemed to have failed to achieve the Lease Effective Date by the Required Lease Effective Date pursuant to Section 5.4(a) and Lessor shall be entitled to exercise its rights and remedies pursuant to Section 5.4(b ).

 

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ARTICLE 6: LEASE OF LEASED FACILITY; NATURE OF TRANSACTION

 

6.1 Lease of Leased Facility . Subject to Section 5.1 , Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the Leased Facility subject to and in accordance with the terms and conditions of this Facility Lease, for the Base Term and, subject to Lessee’s exercise of its renewal options in accordance with Article 14 , the Renewal Terms.

 

6.2 Nature of Transaction . It is the intent of the Parties that: (a) the transactions contemplated hereby constitute a capital lease pursuant to GAAP from Lessor to Lessee for purposes of Lessee’s financial reporting only; (b) the transactions contemplated hereby preserve ownership of the Leased Facility by Lessor for federal and state income tax, bankruptcy and UCC purposes; and (c) other than for Lessee’s financial reporting, the obligations of Lessee to pay Rent shall be treated as payments of rent. Except as otherwise required by any taxing Governmental Authority, the Parties agree that they shall not, nor shall any of their Affiliates, at any time take any action or fail to take any action with respect to the filing of any income tax return, including an amended income tax return, inconsistent with the intention of the Parties expressed in this Section 6.2 . Without limiting the generality of the foregoing, the Parties intend and agree that the transactions contemplated in this Facility Lease are, and shall be treated as a lease for U.S. federal and state income tax purposes.

 

ARTICLE 7: RENT

 

7.1 Rent Payments .

 

(a) Basic Rent . Lessee shall pay to Lessor in the manner and place set forth in Section 7.2 on each Rent Payment Date rent calculated in accordance with Schedule 7.1 (the “ Basic Rent ”) for the lease of the Leased Facility during the Base Term.

 

(b) Supplemental Rent . Lessee shall pay to Lessor and any other Person entitled thereto pursuant to Section 7.2 any and all Supplemental Rent on the date on which the same shall become due and payable, including, to the extent permitted by applicable Law, interest at the applicable Overdue Rate on any payment of Rent, the Termination Value or the Fair Market Value Purchase Price not paid when due for the period from the due date until the same shall be paid. The expiration or other termination of the Lease Term and/or Lessee’s obligation to pay Basic Rent or Renewal Rent hereunder, as the case may be, shall not limit or modify the obligations of Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Facility Lease, in the event of any failure on the part of Lessee to pay and discharge any Supplemental Rent as and when the same shall be due and payable, Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added for non-payment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. Lessor agrees to make available to Lessee, upon written request, copies of all notices, invoices, bills or other documentation reasonably requested by Lessee with respect to the calculation of Supplemental Rent.

 

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(c) Invoices and Supporting Documentation . On or before the tenth (10 ^th ) day of each calendar month (or if such day is not a Business Day, the next Business Day) from the Lease Effective Date until this Facility Lease expires or is terminated, Lessor shall submit a written invoice to Lessee which shall indicate the amount of Basic Rent or Renewal Rent, as the case may be, that Lessee owes to Lessor for the previous month. The invoice shall specify each component of the Basic Rent or Renewal Rent formula, as the case may be, and shall resemble the sample calculations, attached for illustrative purposes only, set forth in Annex A to Schedule 7.1 and Annexes A, B and C to Schedule 14.2 . Lessor agrees to make available to Lessee, upon written request, copies of all notices, invoices, bills or other documentation reasonably requested by Lessee with respect to the calculation of Basic Rent and Renewal Rent.

 

(d) Community Impact Mitigation Costs . Lessee shall reimburse Lessor through Basic Rent or Renewal Rent payments for Community Impact Mitigation Costs incurred by or on behalf of Lessor after the Lease Effective Date.

 

7.2 Place and Manner of Payment .

 

(a) All payments of Rent, the Termination Value and the Fair Market Value Purchase Price payable by Lessee to Lessor under this Facility Lease shall be made by Lessee to or for the account of Lessor as Lessor shall from time to time direct in writing in immediately available funds in Dollars in the amount of such payments on the date when such payments are due.

 

(b) Neither Lessee’s inability or failure to take possession of all, or any portion, of the Leased Facility when delivered by Lessor, nor Lessor’s inability or failure to deliver all or any portion of the Leased Facility to Lessee, whether or not attributable to any act or omission of Lessee or any act or omission of any other Person (other than Lessor), or for any other reason whatsoever, shall delay or otherwise affect Lessee’s obligation to pay Rent, the Termination Value and/or the Fair Market Value Purchase Price in accordance with the terms of this Facility Lease.

 

(c) If the Leased Facility is sold to Lessee pursuant to Section 14.4, and the Fair Market Value Purchase Price is greater than thirty percent (30%) of the Approved Amount, then Lessee shall not be obligated to pay the entire amount of such Fair Market Value Purchase Price as of the last day of the Base Term or Renewal Term, as the case may be, but shall be obligated to pay Lessor as follows:

 

(i)(A) if such Fair Market Value Purchase Price is between thirty percent (30%) and fifty percent (50%) of the Approved Amount, then Lessee shall be obligated to pay the full amount of the Fair Market Value Purchase Price in twenty (20) equal quarterly installments; and (B) if such Fair Market Value Purchase Price is over fifty percent (50%) of the Approved Amount, then Lessee shall be obligated to pay the full amount of such Fair Market Value Purchase Price in forty (40) equal quarterly installments.

 

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(ii) In addition to the repayment of the Fair Market Value Purchase Price, Lessee shall be obligated to pay Lessor a Return on Capital with respect to the outstanding unpaid amount of the Fair Market Value Purchase Price. On or before the tenth (10 ^th ) day of each calendar month (or if such day is not a Business Day, the next Business Day) following the last day of the Base Term or Renewal Term, as the case may be, until the Fair Market Value Purchase Price is paid in full to Lessor, Lessor shall submit a written invoice to Lessee which shall indicate (i) the total amount outstanding of the Fair Market Value Purchase Price and (ii) the Return on Capital with respect to the total amount outstanding of the Fair Market Value Purchase Price. No later than the thirtieth (30 ^th ) day after which Lessee receives each invoice (or if such day is not a Business Day, the next Business Day), Lessee shall pay the amount specified in the invoice to or for the account of Lessor in Dollars.

 

(iii) Notwithstanding any provision to the contrary contained in this Facility Lease, this Section 7.2(c ) shall survive the termination of this Facility Lease.

 

7.3 Net Lease .

 

(a) THIS FACILITY LEASE IS A NET LEASE AND LESSEE’S OBLIGATION TO PAY ALL RENT, THE TERMINATION VALUE AND/OR THE FAIR MARKET VALUE PURCHASE PRICE SHALL BE ABSOLUTE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSEE SHALL NOT BE ENTITLED TO ANY ABATEMENT OR REDUCTION OF RENT, THE TERMINATION VALUE OR THE FAIR MARKET VALUE PURCHASE PRICE OR ANY SETOFF AGAINST RENT, THE TERMINATION VALUE, THE FAIR MARKET VALUE PURCHASE PRICE, INDEMNITY OR ANY OTHER AMOUNT, WHETHER ARISING BY REASON OF ANY PAST, PRESENT OR FUTURE CLAIMS OF ANY NATURE BY LESSEE AGAINST LESSOR OR ANY OTHER PERSON, OR OTHERWISE, EXCEPT FOR THE DAMAGES, ADJUSTMENTS AND TERMINATION PROVISIONS SPECIFICALLY PROVIDED IN THIS FACILITY LEASE.

 

(b) Except as otherwise expressly provided herein and by performance of the obligations in connection herewith, this Facility Lease shall not terminate, nor shall the obligations of Lessee be otherwise affected:

 

(i) by reason of the condition, merchantability, design, quality, fitness for use, any defect in or damage to, loss of possession or use, obsolescence or destruction of any or all of the Leased Facility or the Unit 1 Facility, however caused, or any inability to use the Leased Facility or any part thereof by reason of any such defect;

 

(ii) by the taking or requisitioning of any or all of the Leased Facility by condemnation or otherwise or by any removal, abandonment, salvage, loss, contamination or destruction of the Leased Facility or the Unit 1 Facility or any part thereof;

 

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(iii) by the invalidity or unenforceability or lack of due authorization by any Person to any Lease Document or other infirmity of this Facility Lease or any other Lease Document;

 

(iv) by the attachment of any Lien of any third party to any or all of the Leased Facility or the Unit 1 Facility;

 

(v) by any prohibition or restriction of or interference with Lessee’s use of any or all of the Leased Facility or the Unit 1 Facility by any Person (other than Lessor or a Person rightly claiming through Lessor);

 

(vi) by the insolvency of or the commencement by or against Lessor or any party to a Lease Document of any bankruptcy, reorganization or similar proceeding;

 

(vii) by any restriction, prevention or curtailment of or interference with any use of the Leased Facility or any part thereof;

 

(viii) by any defect in title to or rights to the Leased Facility or the Unit 1 Facility or any Lien on such title or rights to the Leased Facility or the Unit 1 Facility;

 

(ix) by any change, waiver, extension or indulgence by any Person party to the Lease Documents except to the extent provided in such change, waiver, extension or indulgence;

 

(x) by any claim that Lessee has or might have against any Person, including any vendor, manufacturer or contractor of or for the Leased Facility or the Unit 1 Facility;

 

(xi) by any invalidity, unenforceability, illegality or disaffirmance of this Facility Lease against or by Lessee or any provision hereof or any of the other Lease Documents or any provision thereof;

 

(xii) by the impossibility or illegality of performance by Lessee, Lessor or both under this Facility Lease or any other Lease Document to which either is a party;

 

(xiii) by any failure on the part of Lessor to perform or comply with any of the terms of this Facility Lease or any other Lease Document (other than performance by Lessor of its obligations under and in accordance with Section 6.1 );

 

(xiv) by any action of any Governmental Authority;

 

(xv) by any claim for infringement or other liability resulting from any patent, trademark, copyright or other intellectual property rights; or

 

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(xvi) by any other cause, whether similar or dissimilar to the foregoing, any present or future Law to the contrary notwithstanding.

 

(c) It is the intention of the Parties that all payments of Rent, the Termination Value and the Fair Market Value Purchase Price payable by Lessee hereunder shall be payable in all events in the manner and at the times herein provided unless Lessee’s obligations in respect thereof shall have been terminated or modified pursuant to the express provisions of this Facility Lease. Each payment of Rent, the Termination Value and the Fair Market Value Purchase Price by Lessee hereunder shall be final, and Lessee shall not seek to recover all or any part of such payment from Lessor except as expressly provided in this Facility Lease. Without affecting Lessee’s obligation to pay Rent, the Termination Value and/or the Fair Market Value Purchase Price, as the case may be, and subject in all respects to Sections 7.3 , 17.3 and 22.15 , Lessee may exercise its remedies at law for a breach by Lessor of its respective obligations under this Facility Lease in accordance with Section 17.2(b) . Lessor shall be under no obligation to marshal any assets in favor of Lessee or against or in payment of any or all Rent, the Termination Value or the Fair Market Value Purchase Price. The Parties intend that the obligations of Lessee under this Facility Lease shall be covenants and agreements that are separate and independent from any obligations of Lessor hereunder or under any other Lease Document and the obligations of Lessee under this Facility Lease shall continue unaffected unless such obligations have been modified or terminated in accordance with an express provision of this Facility Lease.

 

7.4 Common Facilities Adjustment . Upon the occurrence of any of the following events, the New Common Facilities, which are used in common by two or more of Unit 1, Unit 2, the Future Unit and the Existing Units, will be adjusted and the rent formulas in Schedule 7.1 and Schedule 14.2 , respectively, will be adjusted as provided below: (i) the “Lease Effective Date” or termination pursuant to Article 5 of the Elm Road II Facility Lease, (ii) the “Lease Effective Date” or termination before the “Lease Effective Date” if the Future Unit is leased to Lessee pursuant to a lease substantially similar to this Facility Lease, or alternatively, if the Future Unit is not so leased, upon commercial operation of the Future Unit or (iii) Lessor transfers or sells to or purchases from another Owner or its Affiliates, a Unit 1 Ownership Interest and a corresponding New Common Facilities Ownership Interest (each, a “ New Common Facilities Adjustment Event ”):

 

(a) Lessor shall adjust Lessor’s New Common Facilities Ownership Interest and New Common Facilities Ownership Percentage in accordance with Schedule 7.4 . If Lessor’s New Common Facilities Ownership Interest is increased pursuant to this Section 7.4 , then the increased amount of New Common Facilities Ownership Interest shall be part of the Leased Facility and shall be subject to the terms and conditions of this Facility Lease. If Lessor’s New Common Facilities Ownership Interest is decreased pursuant to this Section 7.4 , then the decreased amount of New Common Facilities Ownership Interest shall be released from the Leased Facility and shall no longer be subject to the terms and conditions of this Facility Lease; and

 

(b) Lessor shall amend the Basic Rent and the Renewal Rent formulas in Schedule 7.1 and Schedule 14.2 , respectively, to reflect any change in Lessor’s New Common

 

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Facilities Ownership Interest and New Common Facilities Ownership Percentage, in accordance with Schedule 7.4 .

 

7.5 Unit 1 Ownership Adjustment .

 

(a) Subject to Section 7.5(c ), if at any time Lessor acquires all or a portion of another Owner’s ownership interest in Unit 1, then effective as of the consummation of such acquisition, the amount of Unit 1 Ownership Interest acquired shall be part of the Leased Facility, and shall be subject to the terms and conditions of this Facility Lease, and Lessor shall amend the Basic Rent and the Renewal Rent formulas in Schedule 7.1 and Schedule 14.2 , respectively, to reflect the change in Lessor’s Unit 1 Ownership Interest and Unit 1 Ownership Percentage in accordance with this Section 7.5(a) .

 

(b) If at any time Lessor sells or transfers a portion of its ownership interest in Unit 1 to another Owner, then effective as of the consummation of such sale or transfer, the amount of Unit 1 Ownership Interest sold or transferred shall no longer be a part of the Leased Facility and shall be released from the terms and conditions of this Facility Lease, and Lessor shall amend the Basic Rent and the Renewal Rent formulas in Schedule 7.1 and Schedule 14.2 , respectively, to reflect the change in Lessor’s Unit 1 Ownership Interest and Unit 1 Ownership Percentage in accordance with this Section 7.5(b) .

 

(c) If nine (9) months after the date of this Facility Lease or at any time thereafter, Lessor’s Unit 1 Ownership Percentage is or becomes greater than eighty-four percent (84%), then Lessor and Lessee shall provide to the PSCW, within forty-five (45) days thereafter, a report that either: (i) demonstrates that Lessee’s customers are not paying for too much capacity, or (ii) a plan to eliminate customer impact from paying for too much capacity, pursuant to order point 24 of the CPCN Approval.

 

ARTICLE 8: REPRESENTATIONS AND WARRANTIES

 

8.1 Representations and Warranties of the Parties . Each of Lessee and Lessor represents and warrants to the other Party, as of the Execution Date as follows:

 

(a) Due Organization, Etc . It: (i) is duly formed, validly existing and in good standing under the Laws of the State of Wisconsin, (ii) has all requisite power and all material Government Approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is duly qualified to do business in all jurisdictions in which the nature of the business conducted by it or proposed to be conducted by it makes such qualification necessary.

 

(b) Due Authorization . It has all necessary corporate power and authority to execute, deliver and perform its obligations under this Facility Lease and each other Lease Document to which it is a party, and the execution, delivery and performance by it of this Facility Lease and each other Lease Document to which it is a party have been duly authorized by all necessary corporate action on its part.

 

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(c) Non-Contravention . The execution, delivery and performance by it of this Facility Lease and each other Lease Document to which it is a party does not and shall not:

 

(i) violate its Organic Documents;

 

(ii) violate any Law or Government Approval applicable to it or its property or to the Leased Facility;

 

(iii) result in a breach of or constitute a default of any Lease Document or any other material agreement to which it is a party; or

 

(iv) result in, or require the creation or imposition of, any Lien (other than a Permitted Encumbrance) on any of its properties.

 

(d) Enforceability, Etc . This Facility Lease and each other Lease Document to which it is a party: (i) has been duly authorized and duly and validly executed and delivered by it; and (ii) assuming the due authorization, execution and delivery thereof by the other parties thereto, constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other similar Laws affecting creditors’ rights generally and by general principles of equity.

 

(e) Litigation . No court order, judgment or arbitral award has been issued and is outstanding with respect to it or any of its properties, rights or assets (including the Leased Facility) which prohibits it from executing or delivering this Facility Lease or any other Lease Document to which it is a party or performing in any material respect its obligations under this Facility Lease or any other Lease Document to which it is a party.

 

(f) Government Approvals . All Government Approvals required by applicable Law to have been obtained by it prior to the date of this representation and warranty in connection with the due execution and delivery of, and performance by it of its obligations and the exercise of its rights under, this Facility Lease and each other Lease Document to which it is a party have been obtained and are in full force and effect, and are held in its name and are free from conditions or requirements (i) compliance with which could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Facility Lease and each other Lease Document to which it is party or the validity or enforceability of this Facility Lease and each other Lease Document to which it is a party or (ii) which it does not reasonably expect to be able to satisfy.

 

(g) No Breach of Lease Documents . It is not in breach of any material obligation under any of the Lease Documents to which it is a party.

 

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8.2 Special Lessor Representations . Lessor represents and warrants to Lessee, as of the Decommissioning Completion Date as follows:

 

(a) Change in Business . Lessor is not engaged in any business other than the business relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of the Elm Road Facility, as contemplated by this Facility Lease and the other Lease Documents and the activities incidental thereto, the Project Documents, the Elm Road II Facility Lease and any other agreements relating to the Future Unit.

 

(b) Ownership of Assets . Lessor does not own any assets other than those relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of the Elm Road Facility, as contemplated by this Facility Lease and the other Lease Documents and the activities incidental thereto, the Project Documents, the Elm Road II Facility Lease and any other agreements relating to the Future Unit.

 

(c) No Subsidiaries . Lessor has no subsidiaries and does not beneficially own the whole or any part of the issued share capital or other ownership interest of any other Person.

 

(d) Other Indebtedness . Lessor has not incurred any indebtedness other than that permitted or required by this Facility Lease and the other Lease Documents or otherwise incurred in the ordinary course of business relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of the Elm Road Facility. Lessor has not assumed or guaranteed or become obligated for the debts of any other Person other than as required or permitted by this Facility Lease and the other Lease Documents, the Project Documents, the Elm Road II Facility Lease and any other agreements relating to the Future Unit.

 

(e) Maintenance of Accounts; Maintenance of Records; Commingling of Funds; Arms-Length Transactions .

 

(i) Lessor maintains its accounts, books and records separate from any other Person and in accordance with GAAP.

 

(ii) Lessor does not commingle its funds or assets with those of any other Person and holds its assets and conducts its business in its own name.

 

(iii) Lessor will not enter into or be party to any transactions or agreements with its Members or Affiliates other than those transactions or agreements contemplated by the Elm Road I Facility Lease, the Project Documents, the Elm Road II Facility Lease and any other agreements relating to the Future Unit except in the ordinary course of its business and on terms that are reasonably fair and are no less favorable to it than would be obtained in a comparable arm’s length transaction with an unrelated third party.

 

8.3 Disclaimer of Warranties . Without waiving any claim Lessee may have against any manufacturer, vendor or contractor, LESSEE ACKNOWLEDGES AND AGREES THAT: (a) THE UNIT 1 FACILITY IS OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE ACCEPTABLE TO LESSEE; (b) LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR ITS PURPOSES; (c) LESSOR IS NOT A MANUFACTURER THEREOF OR A DEALER

 

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IN OR VENDOR OF PROPERTY OF SUCH KIND, AND (d) LESSOR HAS NOT MADE, OR DOES OR WILL NOT MAKE (i) ANY REPRESENTATION OR WARRANTY OR COVENANT WITH RESPECT TO THE TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, DESCRIPTION, DURABILITY OR SUITABILITY OF ANY OR ALL OF THE UNIT 1 FACILITY IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES AND USES OF LESSEE OR ANY OTHER PERSON, OR (ii) ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OR ALL OF THE UNIT 1 FACILITY, IT BEING AGREED THAT, EXCEPT AS EXPRESSLY SPECIFIED HEREIN OR IN THE OTHER LEASE DOCUMENTS, ALL RISKS ASSOCIATED WITH THE UNIT 1 FACILITY, AS BETWEEN LESSOR AND LESSEE, SHALL BE BORNE SOLELY BY LESSEE. In no event shall Lessee have any recourse against Lessor for any defect in or exception to title to the Unit 1 Facility, except with respect to Lessor’s Liens attributable to Lessor, the Member or the Lenders.

 

8.4 Assignment of Warranties . Lessor shall use all commercially reasonable efforts to assign to Lessee, effective as of the Lease Effective Date, all of Lessor’s right, title and interest in any warranties, covenants and representations of any manufacturer, vendor or contractor of the Unit 1 Facility or any component thereof.

 

8.5 Claims Against Third Parties Relating to the Unit 1 Facility . During the Lease Term, so long as no Lessee Event of Default shall have occurred and be continuing, Lessor hereby appoints irrevocably and constitutes Lessee its agent and attorney-in-fact, coupled with an interest, to assert and enforce, from time to time, in the name and for the account of Lessor and Lessee, as their interests may appear, but in all cases at the sole cost and expense of Lessee, whatever Claims and rights Lessor may have in respect of the Unit 1 Facility against any manufacturer, vendor or contractor, or under any express or implied warranties relating to the Unit 1 Facility. Lessor agrees to cooperate and provide any information reasonably requested by Lessee to assist Lessee in enforcing warranties from any manufacturer, vendor or contractor related to the Unit 1 Facility.

 

ARTICLE 9: USE AND MAINTENANCE OF UNIT 1 FACILITY

 

9.1 Use and Possession of Unit 1 Facility . Without limiting Lessee’s obligations under Section 9.2 , Lessee shall use and operate the Unit 1 Facility in compliance in all material respects with all applicable Laws. Lessee shall obtain and maintain in full force and effect all material Government Approvals required by applicable Law to use and operate the Unit 1 Facility and to perform its other obligations under this Facility Lease and the other Lease Documents to which it is a party and shall comply in all material respects with all such Government Approvals in connection with the use and operation of the Unit 1 Facility and the performance of its other obligations under this Facility Lease and the other Lease Documents to which it is a party. Lessee shall not use and operate the Unit 1 Facility for any purpose or in any manner that would adversely affect, in any material respect, the Fair Market Value, utility, remaining useful life or residual value of the Unit 1 Facility (other than to the extent any of the foregoing constitutes Ordinary Wear and Tear). Lessee hereby waives any right that it may now

 

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have or hereafter acquire under any Law or otherwise (a) to require Lessor to repair, renew, replace or improve all or any part of the Unit 1 Facility, or (b) to make any repairs to the Unit 1 Facility at the expense of Lessor, in each case, except as expressly provided for in this Facility Lease. Subject to Section 9.3 and Section 22.7(f) and Article 17 , the Unit 1 Facility shall at all times during the Lease Term be and remain in the possession and control of Lessee and the other Owners, if any.

 

9.2 Maintenance of Unit 1 Facility . During the Lease Term, Lessee shall, at its own cost and expense, keep, repair, maintain and preserve the Unit 1 Facility in all material respects: (a) in good condition (Ordinary Wear and Tear excepted), repair and working order; (b) in accordance with Good Utility Practice and all insurance policies required to be maintained by Lessee pursuant to this Facility Lease; (c) so as not to cause any manufacturer’s warranties then in effect on the Unit 1 Facility to become void; and (d) in compliance with all applicable Laws and Government Approvals.

 

9.3 Removal of Components .

 

(a) In the ordinary course of repairing, maintaining, preserving or testing the Unit 1 Facility or any component thereof, Lessee shall have the right to remove or cause to be removed any component of such Unit 1 Facility; provided , however , that: (i) Lessee shall cause any such component to be replaced by a replacement component; (ii) Lessee shall cause such replacement component to be free and clear of all Liens (other than Permitted Encumbrances) and in as good an operating condition as that of the component replaced and with a residual value, utility and remaining useful life at least equal to that of the component replaced (in each case, assuming that the replaced component was maintained in accordance with the terms of this Facility Lease); and (iii) the use of such replacement component as part of the Unit 1 Facility shall not, other than in a de minimis respect, diminish the Fair Market Value, utility, remaining useful life or residual value of the Unit 1 Facility. Each component (other than an Obsolete Component) removed from the Unit 1 Facility will remain subject to this Facility Lease, wherever located, until such time as such component is replaced by a replacement component which has been incorporated in the Unit 1 Facility and which meets the requirements for replacement components specified in this Section 9.3(a) . Lessee shall take all actions reasonably requested by Lessor to cause such removed component to remain subject to this Facility Lease.

 

(b) Notwithstanding anything to the contrary contained in Section 9.3(a) , Lessee shall not be required to replace a particular component in accordance with Section 9.3(a) if such component is obsolete and its removal without replacement could not reasonably be expected to diminish, other than in a de minimis respect, the residual value, utility or remaining useful life of the Unit 1 Facility (“ Obsolete Component ”).

 

(c) Immediately upon removal of an Obsolete Component or removal of any other component from the Unit 1 Facility pursuant to Section 9.3(a) and the replacement component becoming incorporated in the Unit 1 Facility in accordance with Section 9.3(a) , and without further act and with no adjustment to the Rent, the Termination Value or the Fair Market Value Purchase Price, as the case may be: (i) the removed component shall no longer be subject

 

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to this Facility Lease, (ii) title to the removed component shall thereupon vest in Lessee or such other Person as shall be designated by Lessee, free and clear of all rights of Lessor, and (iii) in the case of any replacement component, title to the replacement component shall thereupon vest with Lessor and such replacement component shall (A) become subject to this Facility Lease and (B) be deemed a part of the Unit 1 Facility for all purposes of this Facility Lease.

 

ARTICLE 10: INVESTMENTS

 

10.1 Investments . Provided that Lessee’s senior unsecured long-term debt is rated at least Investment Grade, Lessor shall, during the Base Term and any Renewal Term, finance Lessor’s Percentage of all capital costs associated with any capital renewal, replacement, improvement, enhancement, modification, alteration and addition to the Unit 1 Facility (each, an “ Improvement ”) if such Improvement is required by applicable Law, is necessary or appropriate for the efficient operation of the Unit 1 Facility or is consistent with Good Utility Practice, provided that:

 

(a) Such Improvement will not have a material adverse effect on the value of Lessor’s investment in the Unit 1 Facility (including an adverse effect, in any material respect, on the Fair Market Value, residual value, utility or remaining useful life of the Unit 1 Facility, causing any manufacturer’s warranties then in effect on the Unit 1 Facility to become void, creating any Liens on the Leased Facility (other than Permitted Encumbrances) or causing the Improvement or Unit 1 Facility to become “limited use” property within the meaning of Rev. Proc. 2001-28, 2001-19 I.R.B. 1156) or otherwise cause harm to the Unit 1 Facility; and

 

(b) Lessee has received any Government Approvals required for designing, engineering, procuring, permitting, constructing and operating such Improvement, including any Government Approvals required by the PSCW which would be applicable if the Improvement was proposed, constructed and owned by a public utility in Wisconsin. The Parties agree that they will not, either separately or jointly, attempt to avoid PSCW regulation and oversight of Improvements, including by dividing an Improvement into a series of renewals, replacements, improvements, enhancements, modifications, alterations or additions any one or number of which would not be of sufficient cost to mandate PSCW oversight.

 

Improvements which meet the requirements of Section 10.1(a ) and ( b ) shall be known as “ Investments ”.

 

10.2 Financing of Investments .

 

(a) No later than August 1st of each calendar year during the Lease Term, Lessee shall notify Lessor in writing (the “ Investments Notice ”) of each Investment which Lessee is planning or is required by applicable Law to make in the succeeding calendar year pursuant to Section 10.1 . Each Investments Notice shall include: (i) a description of the Investments and the design and material equipment to be used in such Investments; (ii) a proposed timeline for designing, engineering, procuring, permitting and constructing the respective Investments; and (iii) the expected total and monthly capital costs for Lessee to design, engineer, procure, permit

 

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and construct the respective Investments. Lessee shall provide to Lessor such additional information with respect to the Investments as Lessor may reasonably request.

 

(b) If pursuant to Section 10.1 , Lessor is not obligated to and does not elect, in its discretion, to finance any Investment, Lessee may, in its sole discretion, elect to finance the capital costs associated with such Investment as outlined in the Investments Notice.

 

(c) Within thirty (30) days from receipt of the Investments Notice, Lessor and Lessee shall promptly meet to agree on: (i) the final design and material equipment to be used in the respective Investments; (ii) the final timeline for designing, engineering, procuring, permitting and constructing the respective Investments; and (iii) the total capital costs (the “ Investments Total Capital Costs ”) and the monthly capital costs required to design, engineer, procure, permit and construct the respective Investments.

 

10.3 Title . Title to all Investments shall be and remain the property of Lessor and the other Owners, if any, and, to the extent of Lessor’s Percentage, it shall automatically become subject to this Facility Lease and be deemed part of the Unit 1 Facility for all purposes of this Facility Lease; provided , however , that if upon termination of this Facility Lease the Leased Facility is not purchased by Lessee, then any Investment made by Lessee that Lessor did not finance pursuant to Section 10.1 shall be purchased by Lessor or its designee pursuant to Section 15.1(b)(iv ).

 

ARTICLE 11: SPECIAL LESSOR COVENANTS

 

Lessor covenants and agrees that on and after the Decommissioning Completion Date and until the termination of this Facility Lease, unless otherwise approved by Lessee, such approval not to be unreasonably withheld or delayed:

 

11.1 Change in Business . Lessor shall not engage in any business other than business relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of the Elm Road Facility, as contemplated by this Facility Lease and the other Lease Documents and activities incidental thereto, the Project Documents, the Elm Road II Facility Lease and any other agreements relating to the Future Unit.

 

11.2 Ownership of Assets . Lessor shall not acquire any assets other than those relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of the Elm Road Facility as contemplated by this Facility Lease and the other Lease Documents and activities incidental thereto, the Project Documents, the Elm Road II Facility Lease and any other agreements relating to the Future Unit.

 

11.3 No Subsidiaries . Lessor shall not have any subsidiaries and shall not beneficially own the whole or any part of the issued share capital or other ownership interest of any Person.

 

11.4 Other Indebtedness . Lessor shall not incur any indebtedness other than that permitted or required by this Facility Lease and the other Lease Documents, the Elm Road II

 

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Facility Lease and any other agreements relating to the Future Unit or otherwise incurred in the ordinary course of business relating to the development, design, engineering, procuring, permitting, constructing, commissioning, owning, leasing and financing of the Elm Road Facility. Lessor shall not assume or guarantee or become obligated for the debts of any other Person other than as required or permitted by this Facility Lease and the other Lease Documents, the Project Documents, Elm Road II Facility Lease and any other agreements relating to the Future Unit.

 

11.5 Amendments to Constituent Documents . Lessor shall not amend or permit to be amended its Membership Agreement or other constituent documents or the rights attaching to membership interests in Lessor if such amendment could reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Facility Lease and the other Lease Documents to which it is a party or the validity or enforceability of such Lease Documents.

 

11.6 Maintenance of Accounts; Maintenance of Records; Commingling of Funds; Arms-Length Transactions .

 

(a) Lessor shall maintain its accounts, books and records separate from any other Person and in accordance with GAAP.

 

(b) Lessor shall not commingle its funds or assets with those of any other Person and will hold its assets and conduct business in its own name.

 

(c) Lessor shall not enter into or be party to any transactions or agreements with its Members or Affiliates (other than the Lease Documents, the Project Documents, the Elm Road II Facility Lease and those agreements contemplated thereby and any other agreements relating to the Future Unit) except in the ordinary course of its business and on terms that are reasonably fair and are no less favorable to it than would be obtained in a comparable arm’s length transaction with an unrelated third party.

 

11.7 Independent Director . If and only if Lessor is not an Affiliate of Lessee, Lessor shall ensure that its constituent documents require the favorable vote of one (1) independent director or independent member, as the case may be, before Lessor can take any of the following voluntary actions in anticipation of insolvency or bankruptcy:

 

(a) apply for or consent to the appointment of a receiver, trustee or liquidator of Lessor or of all or a substantial part of Lessor’s assets;

 

(b) file a voluntary petition in bankruptcy, or admit in writing Lessor’s inability to pay Lessor’s debts as they come due;

 

(c) make a general assignment for the benefit of Lessor’s creditors;

 

(d) file a petition or an answer seeking reorganization or arrangement with Lessor’s creditors or take advantage of any insolvency Law;

 

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(e) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against Lessor in any bankruptcy, reorganization or insolvency proceedings; or

 

(f) agree to be the subject of an order, judgment or decree entered by any court of competent jurisdiction, approving a petition seeking reorganization of Lessor or appointing a receiver, trustee or liquidator of Lessor or of all or a substantial part of Lessor’s assets.

 

ARTICLE 12: INSPECTION AND RIGHT TO ENTER

 

12.1 Inspection . Upon at least five (5) Business Days’ prior written notice by Lessor, Lessee shall make the Unit 1 Facility and the Elm Road Site available to Lessor or its designee for inspection at reasonable times and under conditions reasonably acceptable to Lessee; provided that Lessor and its designees shall comply with all of Lessee’s reasonable rules and regulations, including security and safety requirements and any applicable insurance policies.

 

12.2 Right to Enter .

 

(a) Lessor and its designees shall have the right to enter upon the Elm Road Site for the purpose of exercising any of their rights or performing any of their obligations under this Facility Lease; provided that Lessor and its designees shall comply with all of Lessee’s reasonable rules and regulations, including security and safety requirements and any applicable insurance policies.

 

(b) Upon the occurrence and continuation of a Lessee Event of Default and the exercise of remedies by Lessor pursuant to Article 17 , Lessor shall have the right to enter upon the Elm Road Site for the purpose of repossessing the Leased Facility. Lessor shall not be liable for any damage to Lessee’s property caused by the repossession of the Leased Facility pursuant to the preceding sentence.

 

ARTICLE 13: RISK OF LOSS; INSURANCE

 

13.1 Risk of Loss .

 

(a) During the Lease Term, the risk of loss of or decrease in the enjoyment and beneficial use of the Unit 1 Facility as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and Lessor shall not be answerable or accountable to Lessee therefor.

 

(b) Lessee shall notify Lessor of any Event of Loss with respect to the Unit 1 Facility (including a description of the loss of, destruction or damage to, or taking of the Unit 1 Facility) resulting in physical loss, destruction or damage to the Unit 1 Facility in excess of five hundred thousand Dollars ($500,000) or any Event of Total Loss occurring during the Lease Term. Following any Event of Loss with respect to the Unit 1 Facility occurring during the Lease Term, Lessee shall promptly repair the Unit 1 Facility or replace a component thereof, as

 

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applicable so that the Unit 1 Facility shall have a current and residual value, remaining useful life and utility at least equal to that of the Unit 1 Facility prior to such Event of Loss, assuming the Unit 1 Facility was in the condition and repair required to be maintained by this Facility Lease. Lessee shall notify Lessor of the repairs to be undertaken with respect to the Unit 1 Facility and when such repairs are completed. Lessor and its designees shall be entitled to make a physical inspection of the damaged and restored property in accordance with Section 12.2 .

 

(c) If an Event of Loss with respect to the Unit 1 Facility occurs and Lessee does not repair the Unit 1 Facility or replace a component thereof in accordance with the provisions of Section 13.1(b) , then, unless and until Lessor terminates this Facility Lease in accordance with the terms hereof, Lessee shall be obligated to continue to pay Rent to Lessor under this Facility Lease in the same amount as would otherwise have been payable hereunder.

 

(d) If an Event of Total Loss with respect to the Unit 1 Facility occurs during the Lease Term or an “Event of Total Loss” under and as defined in the Elm Road I Ground Lease which has a material adverse effect on the Unit 1 Facility occurs during the Lease Term, then Lessor shall receive, retain and own any Condemnation Award and Loss Proceeds related to such Event(s) of Total Loss which are paid to Lessor for its own account under the insurance coverages Lessee is required to carry during the Lease Term pursuant to this Facility Lease (collectively, the “ Recovered Loss Proceeds ”) and this Facility Lease shall terminate effective one hundred eighty (180) days after the date of such Event(s) of Total Loss. If the sum of the Recovered Loss Proceeds, plus Rent payable by Lessee through the termination of this Facility Lease (“ Event of Total Loss Amount ”) is greater than the then Aggregate Principal Amount, then Lessor shall pay to Lessee such difference within ninety (90) days of the date after the termination of this Facility Lease. If the Event(s) of Total Loss Amount is less than the then Aggregate Principal Amount, Lessee shall pay to Lessor, within ninety (90) days of the date of termination of this Facility Lease, the difference between the Event of Total Loss Amount and the Aggregate Principal Amount. If the Parties agree to apply the Recovered Loss Proceeds related to the Event of Total Loss to the repair or replacement of the Unit 1 Facility, this Facility Lease may be continued as amended by the mutual agreement of the Parties and as approved by the PSCW. The provisions of this Section 13.1(d ) shall survive the termination of this Facility Lease.

 

13.2 Insurance . At all times during the Lease Term, Lessee shall maintain insurance with respect to the Unit 1 Facility in accordance with the requirements of Schedule 13.2 . If Lessee fails to procure or maintain the full insurance coverage required by this Section 13.2 , then Lessor may (but shall not be obligated to), upon thirty (30) days’ prior written notice (unless the aforementioned insurance would lapse within such period, in which event notice should be given as soon as reasonably possible) to Lessee of any such failure, take out the required policies of insurance and pay the premiums on such required policies of insurance. All amounts so advanced therefor by Lessor shall become an additional obligation of Lessee hereunder, and Lessee shall forthwith pay such amounts to Lessor as Supplemental Rent, together with interest thereon from the date so advanced at the applicable Overdue Rate.

 

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ARTICLE 14: END OF TERM OPTIONS AND TERMINATION

 

14.1 Appraisal Report .

 

(a) No later than seven hundred thirty (730) days and no earlier than eight hundred fifty (850) days prior to the end of the Base Term and any Renewal Term, Lessor shall submit to Lessee, with a copy to the PSCW, a written list of proposed Appraisers. Lessee shall select one (1) of the Appraisers from Lessor’s list and give written notice thereof to Lessor and the PSCW. The PSCW shall either approve the Appraiser selected by Lessee or choose a different Appraiser from Lessor’s list. The Appraiser selected in accordance with this Section 14.1(a) (the “ Independent Appraiser ”) shall appraise the Unit 1 Facility in accordance with Section 14.1(b ).

 

(b) Within ninety (90) days of appointment, the Independent Appraiser shall deliver to Lessor and Lessee a written report, in form and substance satisfactory to Lessor (the “ Appraisal Report ”), which shall certify as to (i) the cash payment obtainable in an arm’s length sale of the Unit 1 Facility between an informed and willing purchaser under no compulsion to purchase and an informed and willing seller under no compulsion to sell at the end of the Base Term or the Renewal Term taking into account any Investments financed by Lessor, as the case may be (an amount equal to Lessor’s Percentage of such cash payment is herein referred to as the “ Fair Market Value Purchase Price ”) and (ii) in the case of an appraisal during the First Renewal Term or the Second Renewal Term, as the case may be, the Current Economic Useful Life of the Unit 1 Facility and the Appraised FMV of the Unit 1 Facility at the end of the subsequent Renewal Term taking into account any Investments; provided , however , that the Appraised FMV shall be determined without taking into account inflation or deflation occurring after the Lease Effective Date (including any inflation or deflation occurring during the respective Renewal Term).

 

(c) Within sixty (60) days of the date of an Appraisal Report, Lessee shall notify Lessor in writing in accordance with Wisconsin Stat. § 196.52(9)(b)(8)(a) (the “ Lessee Election Notice ”) whether it elects: (i) to renew this Facility Lease in accordance with Section 14.2 , provided , however , that such election occurs during the Base Term, the First Renewal Term or the Second Renewal Term, (ii) to purchase the Leased Facility in accordance with Section 14.4 , or (iii) to terminate this Facility Lease in accordance with Section 14.5 , provided , however , that if Lessee fails to timely deliver to Lessor a Lessee Election Notice, Lessee shall be deemed to have elected (A) in the case of the Base Term, the First Renewal Term or the Second Renewal Term, to renew this Facility Lease in accordance with Section 14.2 or (B) in the case of the Third Renewal Term, to terminate this Facility Lease in accordance with Section 14.5 .

 

(d) Notwithstanding anything to the contrary contained herein, if Lessee elects in the Lessee Election Notice to purchase the Leased Facility, Lessor shall have thirty (30) days from receipt of the Lessee Election Notice to demonstrate to the PSCW, pursuant to Wisconsin Stat. § 196.52(9)(b)(8)(b), that a renewal of this Facility Lease rather than sale of the Leased Facility is necessary to avoid material adverse tax consequences to Lessor or its Affiliates and any other requirements as set forth in Wisconsin Stat. § 196.52(9)(b)(8)(b). If the PSCW

 

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determines that a renewal of this Facility Lease is necessary in accordance with Wisconsin Stat. § 196.52(9)(b)(8)(b) within one hundred eighty (180) days of such demonstration or if the PSCW fails to make a determination within such one hundred eighty (180) day period, then this Facility Lease shall be renewed in accordance with Section 14.2 . If the PSCW determines within such one hundred eighty (180) day period that Lessor has failed to demonstrate that renewal of this Facility Lease is necessary pursuant to Wisconsin Stat. § 196.52(9)(b)(8)(b), then Lessee shall purchase the Leased Facility in accordance with Section 14.4 .

 

14.2 End of Term Renewal of Facility Lease.

 

(a) If Lessee notifies Lessor in the Lessee Election Notice that it elects or is deemed to have elected to renew this Facility Lease pursuant to Section 14.1(c) or Section 14.1(d ) or Lessee notifies Lessor in the Lessee Early Renewal Notice that it elects to renew this Facility Lease early pursuant to Section 14.3(c) , then at the end of the Base Term, the First Renewal Term or the Second Renewal Term, as the case may be, this Facility Lease shall, subject to Section 14.2(b) , automatically be extended for a period of time (such periods of time, the “ First Renewal Term ”, the “ Second Renewal Term ” and the “ Third Renewal Term ”, respectively) equal to (i)(A) in the case of the First Renewal Term, eighty percent (80%) of the Economic Useful Life of the Unit 1 Facility as determined by the Unit Appraiser pursuant to Section 4.6 or (B) in the case of the Second Renewal Term or the Third Renewal Term, eighty percent (80%) of the Current Economic Useful Life of the Unit 1 Facility as determined by the Independent Appraiser pursuant to Section 14.1(b ) or the Early Renewal Independent Appraiser pursuant to Section 14.3(b ), as the case may be, less (ii) the sum of the Base Term and any previous Renewal Terms, in each case expressed in calendar months, with any partial calendar month rounded down to the next whole calendar month, on the same terms and conditions as were applicable during the Base Term; provided , however , that Lessee shall pay to Lessor pursuant to Section 7.1 on each Rent Payment Date during the respective Renewal Term rent calculated in accordance with Schedule 14.2 (“ Renewal Rent ”) for the lease of the Leased Facility during the respective Renewal Term; provided , further , if any subsequent Renewal Term will be less than twenty four (24) months, then the provisions in Section 14.1(c) shall apply as if the existing Base Term or Renewal Term, as the case may be, ends on the last day of such subsequent Renewal Term.

 

(b) Notwithstanding anything to the contrary in Article 14 , in no event shall a Renewal Term extend beyond the earlier of: (i) (A) in the case of the First Renewal Term, the date as of which the Appraised FMV, as determined by the Unit Appraiser pursuant to Section 4.6 , or (B) in the case of any Renewal Term (other than the First Renewal Term), the date as of which the Appraised FMV as determined by the Independent Appraiser pursuant to Section 14.1(b ) or the Early Renewal Independent Appraiser pursuant to Section 14.3(b ), as the case may be, is equal to or is less than twenty percent (20%) of the total Construction Costs incurred by or on behalf of Lessor to construct and commission the Unit 1 Facility, and (ii) the date as of which (A) in the case of the First Renewal Term, the sum of the Base Term and the First Renewal Term shall equal eighty percent (80%) of the Economic Useful Life of the Unit 1 Facility as determined by the Unit Appraiser pursuant to Section 4.6 and (B) in the case of any Renewal Term (other than the First Renewal Term), the sum of the Base Term, any previous Renewal

 

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Terms and the subsequent Renewal Term shall equal eighty percent (80%) of the Current Economic Useful Life of the Unit 1 Facility, as determined by the Independent Appraiser pursuant to Section 14.1(b ) or the Early Renewal Independent Appraiser pursuant to Section 14.3(b ), as the case may be; it being the intent of the Parties that Lessee’s right to renew this Facility Lease shall not conflict with the Parties’ intent regarding the tax ownership of the Leased Facility for federal and state income tax purposes as more fully described in Section 6.2 . If a Renewal Term would extend beyond the earlier of (i) and (ii) above, then the duration of such Renewal Term shall automatically and without any action on the part of the Parties be reduced so as to ensure that the provisions of this Section 14.2(b) are met, notwithstanding that the duration of such Renewal Term may be shorter than the duration prescribed for the Renewal Term in Section 14.2(a) .

 

14.3 Early Exercise of Renewal Option.

 

(a) If Lessee expects to make Investments to the Unit 1 Facility and one of the following conditions (each, an “ Early Renewal Condition ”) has been satisfied, then Lessee may in accordance with this Section 14.3 exercise its option to renew this Facility Lease early:

 

(i) If 75% - 79.99% of the Base Term, the First Renewal Term or the Second Renewal Term, as the case may be, shall have expired at the expected in-service date of such Investments and Lessor’s Percentage of such Investments is expected to cost $50,000,000 or more;

 

(ii) If 80% - 84.99% of the Base Term, the First Renewal Term or the Second Renewal Term, as the case may be, shall have expired at the expected in-service date of such Investments and Lessor’s Percentage of such Investments is expected to cost $40,000,000 or more;

 

(iii) If 85% - 89.99% of the Base Term, the First Renewal Term or the Second Renewal Term, as the case may be, shall have expired at the expected in-service date of such Investments and Lessor’s Percentage of such Investments is expected to cost $30,000,000 or more;

 

(iv) If 90% - 94.99% of the Base Term, the First Renewal Term or the Second Renewal Term, as the case may be, shall have expired at the expected in-service date of such Investments and Lessor’s Percentage of such Investments is expected to cost $20,000,000 or more; or

 

(v) If 95% or more of the Base Term, the First Renewal Term or the Second Renewal Term, as the case may be, shall have expired at the expected in-service date of such Investments and Lessor’s Percentage of such Investments is expected to cost $10,000,000 or more.

 

(b) If one of the Early Renewal Conditions has been satisfied, then within fifteen (15) days of such occurrence (or, if earlier, the date by which an application for a

 

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certificate of public convenience and necessity with respect to such Investments is to be filed with the PSCW), Lessee may so notify Lessor in writing (each, an “ Early Renewal Notice ”). Lessee shall include in the Early Renewal Notice: (i) the Early Renewal Condition that has been satisfied; (ii) a description of the Investments (the “ Renewal Triggering Plant Investment ”) and the design and material equipment to be used in such Renewal Triggering Plant Investment; (iii) a proposed timeline for designing, engineering, procuring, permitting and constructing the Renewal Triggering Plant Investment; and (iv) Lessor’s Percentage of the expected total and monthly capital costs for Lessee to design, engineer, procure, permit and construct the Renewal Triggering Plant Investment. No later than fifteen (15) days after the date of the Early Renewal Notice, Lessor shall submit to Lessee, with a copy to the PSCW, a written list of proposed Appraisers. Lessee shall select one (1) of the Appraisers from Lessor’s list and give written notice thereof to Lessor and the PSCW. The PSCW shall either approve the Appraiser selected by Lessee or choose a different Appraiser from Lessor’s list. The Appraiser selected in accordance with this Section 14.3 (the “ Early Renewal Independent Appraiser ”) shall appraise Unit 1 Facility in accordance with this Section 14.3 . The Early Renewal Independent Appraiser shall, within ninety (90) days of appointment, deliver to Lessor and Lessee a written report (the “ Early Renewal Appraisal Report ”), in form and substance satisfactory to Lessor, which shall certify as to the (i) Fair Market Value Purchase Price of the Unit 1 Facility taking into account any Investments financed by Lessor and (ii) in the case of an appraisal during the First Renewal Term or the Second Renewal Term, as the case may be, the Current Economic Useful Life of the Unit 1 Facility and the Appraised FMV of the Unit 1 Facility at the end of the subsequent Renewal Term taking into account any Investments; provided , however , that the Appraised FMV shall be determined without taking into account inflation or deflation occurring after the Lease Effective Date (including any inflation or deflation occurring during the respective Renewal Term).

 

(c) Lessor shall if Lessee’s senior unsecured long-term debt is rated at least Investment Grade, finance Lessor’s Percentage of all capital costs associated with the Renewal Triggering Plant Investments identified in the Early Renewal Notice; provided that if Lessor assumes such responsibility, then within ninety (90) days after the date of the Early Renewal Appraisal Report, Lessee may elect, in its sole discretion, to renew this Facility Lease early by giving written notice thereof to Lessor (the “ Lessee Early Renewal Notice ”). If Lessor does not finance Lessor’s Percentage of the capital costs of such Renewal Triggering Plant Investment, then Lessee may not elect to renew this Facility Lease early in accordance with this Section 14.3 and the provisions of Section 10.2(b) shall apply.

 

(d) If Lessee delivers a Lessee Early Renewal Notice in accordance with Section 14.3(c) , then:

 

(i) Lessor and Lessee shall promptly meet to agree on (A) the final design and material equipment to be used in the respective Renewal Triggering Plant Investment, (B) the final timeline for designing, engineering, procuring, permitting and constructing the respective Renewal Triggering Plant Investment and (C) the total and monthly capital required to design, engineer, procure, permit and construct the respective Renewal Triggering Plant Investment; and

 

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(ii) at the end of the Base Term or the Renewal Term, as the case may be, this Facility Lease shall automatically be extended for a Renewal Term in accordance with Section 14.2 and Lessee shall pay to Lessor Renewal Rent on each Rent Payment Date during such Renewal Term in accordance with Section 14.2 .

 

14.4 End of Term Purchase of Leased Facility . If Lessee timely notifies Lessor in a Lessee Election Notice that it wishes to purchase the Leased Facility in accordance with Section 14.1(d ) ( provided that the PSCW determines or fails to timely determine that a renewal of this Facility Lease is not necessary in accordance with Wisconsin Stat. § 196.52(9)(b)(8)(b)), then effective as of the last day of the Base Term or the Renewal Term, as the case may be:

 

(a) Lessee shall purchase all, but not less than all, of the Leased Facility at a price equal to the Fair Market Value Purchase Price as most recently determined by the Independent Appraiser or the Early Renewal Appraiser, as the case may be, pursuant to Section 14.1(b ) or Section 14.3(b ), respectively, plus any Supplemental Rent then due;

 

(b) Lessor shall transfer on an “as is” and “where is” basis (by an appropriate instrument of transfer in form and substance reasonably satisfactory to Lessee ( provided that such instrument of transfer shall not contain representations or warranties, express or implied, other than a representation and warranty as to the absence of Lessor’s Liens attributable to Lessor, the Member or the Lenders and a representation and warranty that Lessor has authority to sell the Leased Facility) and prepared and recorded at Lessee’s cost and expense) the Leased Facility to Lessee (or its designee);

 

(c) all Basic Rent or Renewal Rent, as the case may be, for the Leased Facility shall cease to accrue;

 

(d) this Facility Lease shall terminate and Lessee shall cease to have any liability to Lessor with respect to the Leased Facility, except for obligations surviving pursuant to the express terms of this Facility Lease, provided that it shall be a condition of such termination that each of the Parties shall have performed their respective obligations pursuant to this Section 14.4 and that Lessee shall pay, subject to Section 7.2(c) , all amounts due which it is obligated to pay under this Facility Lease;

 

(e) to the extent permitted by applicable Law and the provisions of the applicable Government Approvals, Lessor shall, at Lessee’s cost and expense, assign to Lessee or its designee, as the case may be, all of Lessor’s right, title and interest, if any, in all Government Approvals that are required to be obtained in connection with the ownership, use, operation or maintenance of the Unit 1 Facility;

 

(f) Lessor shall use commercially reasonable efforts to assign to Lessee, at Lessee’s cost and expense, certain of Lessor’s right, title and interest, if any, in any Project Documents to which it is a party (but only such right, title and interest which it has in its capacity as Lessor under such Project Documents) in accordance with Exhibit E ; and

 

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(g) Lessor shall execute and deliver, and/or cause to be executed and delivered, all appropriate releases and other documents or instruments (and in such form) as Lessee may reasonably request to effect the foregoing and otherwise to release the Leased Facility from the terms of this Facility Lease, all of which shall be prepared, filed and, if appropriate, recorded at the cost and expense of Lessee.

 

14.5 Termination . If Lessee elects not to purchase the Leased Facility or renew this Facility Lease, in each case, in accordance with the terms of this Article 14 , then the provisions of Article 15 shall apply.

 

ARTICLE 15: RETURN OF LEASED FACILITY

 

15.1 Return of Leased Facility.

 

(a) Unless the Leased Facility is being transferred to Lessee pursuant to the provisions of this Facility Lease, Lessee shall return the Leased Facility to Lessor or its designee (written notice of which Lessor shall provide to Lessee no less than thirty (30) days before return of the Leased Facility) at the expiration of the Lease Term (or such earlier date as may be required by the provisions of this Facility Lease) by surrendering the Leased Facility into the possession of Lessor or such designee in the condition required by Section 15.2 and at the location of the Leased Facility on Parcel 1.

 

(b) Concurrently with the return of the Leased Facility to Lessor or its designee pursuant to Section 15.1(a):

 

(i) all Basic Rent or Renewal Rent, as the case may be, for the Leased Facility shall cease to accrue;

 

(ii) this Facility Lease shall terminate and Lessee shall cease to have any liability to Lessor with respect to the Leased Facility, except for obligations surviving pursuant to the express terms of this Facility Lease, provided that it shall be a condition of such termination that Lessee shall have performed all of its obligations pursuant to this Section 15.1(b) and that Lessee shall pay any and all amounts due which it is obligated to pay under this Facility Lease;

 

(iii) Lessee shall sell to Lessor or its designee, as the case may be, all inventory (including any fuel inventory) and spare parts related to the operation and maintenance of the Unit 1 Facility that are owned by or on behalf of Lessee (in its capacity as Lessee thereunder) pursuant to the Elm Road I Operation and Maintenance Agreement or the Common Facilities Operations and Maintenance Agreement for an amount equal to the greater of (A) the actual cost to Lessee of such inventory and spare parts, or (B) the Fair Market Value of such inventory and spare parts;

 

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(iv) Lessee shall sell, and Lessor or its designee shall purchase an ownership interest in any Investment made by or on behalf of Lessee that Lessor did not finance pursuant to Section 10.1 (such ownership interest to equal Lessor’s Percentage of the entire ownership interest in such Investment) for an amount equal to Lessor’s Percentage of the lesser of (a) the net book value of such Investment (i.e., the depreciated cost of such Investment, using straight line depreciation) and (b) the Fair Market Value of such Investment as determined by the Independent Inspection Engineer pursuant to Section 15.2(c) ;

 

(v) Lessee shall provide to Lessor or its designee, as the case may be, an inventory list of the Unit 1 Facility and all then current plans, specifications and operating, maintenance and repair manuals and copies of operating and maintenance records relating to the Unit 1 Facility that have been received or prepared by Lessee;

 

(vi) to the extent permitted by applicable Law and the provisions of the applicable Government Approvals, Lessee shall assign to Lessor or its designee, as the case may be, all of Lessee’s right, title and interest, if any, in all Government Approvals that are required to be obtained in connection with the use, operation or maintenance of the Leased Facility;

 

(vii) Lessee shall, at its own cost and expense, use commercially reasonable efforts to assign to Lessor, all of its right, title and interest, if any, in any warranties, covenants and representations of any manufacturer or vendor of the Unit 1 Facility or any component thereof, including reassignment of any warranties, covenants and representations assigned by Lessor to Lessee pursuant to Section 8.4 ;

 

(viii) If requested by Lessor in writing, the Parties shall enter into good faith negotiations for a Replacement Operating Agreement;

 

(ix) Lessor shall sell to Lessee, and Lessee, shall purchase from Lessor, a portion of Lessor’s New Common Facilities Ownership Interest equal to the aggregate amount of Lessor’s New Common Facilities Ownership Interest allocated to the Existing Units pursuant to Schedule 7.4 ; and

 

(x) Lessee shall execute and deliver, and/or cause to be executed and delivered to Lessor, all appropriate releases and other documents or instruments and in such form as Lessor may reasonably request to effect the foregoing (including the assignment of certain of Lessee’s right, title and interest in the Project Documents to which it is a party (but only such right, title and interest which it has in its capacity as Lessee under such Project Documents)) in accordance with Exhibit E and the Interconnection Agreement, together with any easements or rights-of-way associated therewith) and otherwise to release the Leased Facility from the terms of this Facility Lease, all of which shall be prepared, filed and, if appropriate, recorded at Lessee’s cost and expense.

 

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15.2 Condition of Leased Facility Upon Return . At the time of returning the Leased Facility to Lessor or its designee pursuant to Section 15.1(a) , Lessee agrees that:

 

(a) the Unit 1 Facility shall be in a condition at least as good as the condition in which the Unit 1 Facility would have been if Lessee had maintained the Unit 1 Facility in accordance with Article 9 (Ordinary Wear and Tear excepted);

 

(b) there shall exist no Lien with respect to the Unit 1 Facility except Lessor’s Liens attributable to Lessor or the Member and Permitted Encumbrances, unless Lessee shall have insured or bonded for any such Liens in a manner reasonably satisfactory to Lessor; and

 

(c) Lessee shall make the Unit 1 Facility available to be inspected and appraised, by the Inspection Independent Engineer, at Lessee’s sole cost, at any time during the ninety (90) day period immediately prior to the expiration of the Lease Term (or such earlier date as may be required by the provisions of this Facility Lease). Lessor shall submit to Lessee, with a copy to the PSCW, a written list of approved Inspection Engineers. Lessee shall select one (1) of the Inspection Engineers from Lessor’s list and give written notice thereof to Lessor and the PSCW. The PSCW shall either approve of the Inspection Engineer selected by Lessee or choose a different Inspection Engineer from Lessor’s list. The Inspection Engineer selected in accordance with this Section 15.2(c) (the “ Inspection Independent Engineer ”) shall inspect and appraise the Unit 1 Facility and, separately, any Lessee-financed Investments, no later than sixty (60) days after PSCW approval and deliver a written report (the “ End of Term Inspection Report ”) to Lessor and Lessee in which the Inspection Independent Engineer shall opine as to: (i) the need for any modifications or maintenance required at that point in time other than modifications or maintenance needed as a result of Ordinary Wear and Tear on the Unit 1 Facility (“ Exceptional Maintenance ”); (ii) the amount that the Unit 1 Facility’s Fair Market Value is diminished as of the date of the End of Term Inspection Report due to the need to undertake Exceptional Maintenance (the “ Exceptional Maintenance Amount ”); and (iii) the Fair Market Value of any Lessee-financed Investments, taking into account the Fair Market Value of the Unit 1 Facility, as a whole, and the useful life of such Lessee-financed Investments. If the Independent Inspection Engineer reports that Exceptional Maintenance is needed, then the PSCW shall review the End of Term Inspection Report and, if the PSCW approves the Exceptional Maintenance Amount, Lessee shall pay Lessor’s Percentage of such approved Exceptional Maintenance Amount to Lessor upon return of the Leased Facility to Lessor.

 

ARTICLE 16: EVENTS OF DEFAULT

 

At any time after the Decommissioning Completion Date, the following shall constitute events of default by Lessee under this Facility Lease (each, a “ Lessee Event of Default ”):

 

16.1 Payment Default . Any amount due and payable by Lessee under this Facility Lease or any other Lease Document to which it is a party shall not have been paid within thirty (30) days of its respective due date and after notice thereof by Lessor.

 

16.2 Misrepresentation . Any representation or warranty of Lessee contained in this Facility Lease or any other Lease Document to which it is a party is false or misleading in any material respect when made, deemed made or reaffirmed, as the case may be, and would, if

 

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capable of being corrected, still be incorrect sixty (60) days later with reference to the facts and circumstances existing on such later date and which has a Material Adverse Effect.

 

16.3 Covenant Defaults . Lessee defaults in the performance or observance of any of its other material obligations under this Facility Lease (other than provided for in Section 16.1 and Section 16.2 ) or any other Lease Document to which it is a party and such default continues unremedied for a period of ninety (90) days after written notice thereof by Lessor; provided , however , that such ninety (90) day period shall be extended for an additional ninety (90) days so long as such default is remediable and Lessee is diligently pursuing such remedy.

 

16.4 Judgment Default . One or more final judgments in the aggregate in excess of one hundred million Dollars ($100,000,000), to the extent not paid or covered by insurance provided by an insurance carrier who has acknowledged coverage in writing, shall be rendered against Lessee and shall not be discharged within ninety (90) days from the date of entry thereof.

 

16.5 Bankruptcy . Lessee shall have:

 

(a) applied for or consented to the appointment of a receiver, trustee or liquidator of Lessee or of all or a substantial part of Lessee’s assets;

 

(b) been adjudicated bankrupt or insolvent, or filed a voluntary petition in bankruptcy, or admitted in writing its inability to pay its debts as they come due;

 

(c) made a general assignment for the benefit of creditors;

 

(d) filed a petition or an answer seeking reorganization or arrangement with creditors or taken advantage of any insolvency Law;

 

(e) filed an answer admitting the material allegations of, or consented to, or defaulted in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceedings; or

 

(f) been the subject of an order, judgment or decree entered by any court of competent jurisdiction, approving a petition seeking reorganization of Lessee or appointing a receiver, trustee or liquidator of Lessee or of all or a substantial part of Lessee’s assets, and such order, judgment or decree shall have continued unstayed and in effect for a period of at least sixty (60) consecutive days.

 

16.6 Lack of Government Approvals . Any Government Approval required by applicable Law for the continued performance by Lessee of its obligations under this Facility Lease or any other Lease Document to which it is party shall have been revoked, suspended, modified or withdrawn, and Lessee shall have failed to restore such Government Approval within one hundred eighty (180) days after such revocation, suspension, modification or withdrawal, and such revocation, suspension, modification or withdrawal has a Material Adverse Effect.

 

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ARTICLE 17: REMEDIES

 

17.1 Construction Term Remedies.

 

(a) Lessor Remedies . If a Lessee Event of Default has occurred and is continuing during the Construction Term then Lessor may, subject to Lessor delivering to Lessee a Purchase Price Notice (with the Purchase Price calculated as of the date of such notice), exercise its rights and remedies pursuant to Section 5.4 and Section 5.6 , provided that for purposes of exercising its rights and remedies under Section 5.4 and Section 5.6 , Lessee shall be deemed to have failed to achieve the Lease Effective Date by the Required Lease Effective Date in accordance with Section 5.4(a ) and the Required Lease Effective Date shall be deemed to be the date upon which the Purchase Price Notice is delivered pursuant hereto.

 

(b) Lessee Remedies . Subject to Section 17.3 , and notwithstanding any provision to the contrary contained herein, if Lessor shall (i) fail to perform or breach any of its material obligations under Articles 2, 3, 4 and 5 during the Construction Term, Lessee’s sole and exclusive remedies shall be those remedies, if any, expressly provided for therein, and to the maximum extent permitted by Law, Lessee expressly waives any other rights or remedies available to it at law or in equity, and (ii) fail to perform or breach any of its other material obligations under this Facility Lease during the Construction Term, and such default continues unremedied for a period of ninety (90) days after written notice thereof by Lessee, provided , however , that such ninety (90) day period shall be extended for an additional ninety (90) days so long as such default is remediable and Lessor is diligently pursuing such remedy, then Lessee may, upon written notice to Lessor, declare this Facility Lease to be in default, and at any time, subject to Section 17.3 and the other terms of this Facility Lease, Lessee shall have all remedies available to it at law or in equity.

 

17.2 Lease Term Remedies.

 

(a) Lessor Remedies . Subject to Section 17.3(a) , whenever during the Lease Term any Lessee Event of Default shall have occurred and be continuing, Lessor may, upon written notice to Lessee, declare this Facility Lease to be in default, and at any time thereafter, so long as all outstanding Lessee Events of Default shall not have been remedied, Lessor may take any one or more of the following actions as Lessor in its sole discretion shall elect, to the extent permitted by and subject to compliance with any mandatory requirements of applicable Law:

 

(i) Lessor shall have the right to demand in writing that Lessee pay to Lessor immediately, as and for final liquidated damages and not as a penalty, but exclusive of any indemnities and other amounts payable by Lessee under this Facility Lease, and in lieu of all damages (including Rent (other than Supplemental Rent)) beyond the date of such demand (the “ Demand Date ”), and Lessee shall immediately pay the Termination Value for the Leased Facility determined as of the Rent Payment Date immediately preceding the Demand Date (it being agreed that the Termination Value shall be adjusted by subtracting therefrom any Basic Rent and/or Renewal Rent, as the case may be, previously paid by Lessee which is attributable to any period occurring on or after the Demand Date and adding thereto any Basic Rent and/or

 

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Renewal Rent, as the case may be, which has not been paid by Lessee but which has accrued for any portion of the Lease Term occurring prior to the Demand Date); provided that if a Lessee Event of Default described in Section 16.5 shall occur, the Termination Value determined in accordance with this Section 17.2(a)(i) shall automatically, and without any action on the part of Lessor, become immediately due and payable. Concurrently with the payment by Lessee of the Termination Value to Lessor pursuant to this Section 17.2(a) and the payment of all Supplemental Rent due and owing under the Lease Documents to the Persons entitled thereto:

 

(A) Basic Rent or Renewal Rent, as the case may be, for the Leased Facility shall cease to accrue;

 

(B) this Facility Lease shall terminate and Lessee shall cease to have any liability to Lessor with respect to the Leased Facility, except for Supplemental Rent and other obligations surviving pursuant to the express terms of this Facility Lease and any other Lease Document; provided that it shall be a condition of such termination that Lessee shall pay all amounts (including Supplemental Rent) due which it is obligated to pay under this Facility Lease and the other Lease Documents;

 

(C) Lessor shall transfer on an “as is” and “where is” basis (by an appropriate instrument of transfer in form and substance reasonably satisfactory to Lessee ( provided that such instrument of transfer shall not contain representations or warranties, express or implied, other than a representation and warranty as to the absence of Lessor’s Liens attributable to Lessor or the Member and a representation and warranty that Lessor has the authority to sell the Leased Facility) and prepared and recorded at Lessee’s cost and expense) the Leased Facility to Lessee (or its designee);

 

(D) Lessor, shall execute and deliver and/or cause to be executed and delivered to Lessee, all appropriate releases and other documents or instruments and in such form as Lessee may reasonably request to effect the foregoing (including the assignment of certain of Lessor’s right, title and interest in the Project Documents to which it is a party (but only such right, title and interest which it has in its capacity as Lessor under such Project Documents)) in accordance with Exhibit E and otherwise to release the Leased Facility from the terms of this Facility Lease, all of which shall be prepared, filed and, if appropriate, recorded at Lessee’s cost and expense; and

 

(E) to the extent permitted by applicable Law and the provisions of the applicable Government Approvals, Lessor shall, at Lessee’s cost and expense, assign to Lessee or its designee, as the case may be, all of Lessor’s right, title and interest, if any, in all Government Approvals that are required to be obtained in connection with the ownership, use, operation or maintenance of the Unit 1 Facility.

 

(ii) Lessor may (A) terminate this Facility Lease as of the date specified in writing to Lessee and (B) declare the entire balance of Basic Rent and/or Renewal Rent, as the case may be, to be due and payable together with accrued unpaid Basic Rent and/or Renewal Rent, as the case may be, and any other Supplemental Rent payable under this Facility

 

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Lease and the other Lease Documents; provided that no reletting or taking possession of the Leased Facility by or on behalf of Lessor shall be construed as a termination of this Facility Lease by Lessor unless Lessor has delivered written notice of its intent to terminate this Facility Lease;

 

(iii) Lessee shall, upon Lessor’s written demand, surrender to Lessor possession of the Leased Facility in the manner and condition required under Article 15 as if the Leased Facility were being returned upon the Base Term Expiration Date and Lessee shall quit the same. Lessor may act to repossess the Leased Facility by such means as are available at law or in equity. Lessor shall have no liability by reason of any such repossession performed in accordance with Law;

 

(iv) Lessor may relet all, or any portion, of the Leased Facility, for the account of Lessee, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Lease Term) and on such conditions and for such purposes as Lessor may determine. Lessor may collect, receive and retain the rents resulting from such reletting. If the amount of such rents during any period is less than the Basic Rent or Renewal Rent, as the case may be, to be paid during that period by Lessee hereunder, Lessee shall pay any deficiency, as calculated by Lessor, to Lessor on the next Rent Payment Date;

 

(v) Lessor may exercise any other right or remedy that may be available to it under applicable Law or proceed by appropriate court action (legal or equitable) to enforce the terms hereof and/or to recover damages for the breach hereof; and

 

(vi) Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this Facility Lease or any Laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this Facility Lease nor its enforcement shall prejudice or in any manner affect Lessor’s right to realize upon or enforce any other security now or hereafter held by Lessor, it being agreed that Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by Lessor in such order and manner as Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Lease Documents to Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Lessor. In no event shall Lessor, in the exercises of the remedies provided in this Facility Lease, be deemed a mortgagee in possession, and Lessor shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies.

 

(b) Lessee Remedies . If Lessor fails to perform any of its material obligations under this Facility Lease during the Lease Term, and such default continues unremedied for a

 

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period of ninety (90) days after written notice thereof by Lessee, provided , however , that such ninety (90) day period shall be extended for an additional ninety (90) days so long as such default is remediable and Lessor is diligently pursuing such remedy, then Lessee may, upon written notice to Lessor, declare this Facility Lease to be in default, and at any time, subject to Section 17.3 and the other terms of this Facility Lease, Lessee shall have all remedies available to it at law or in equity.

 

17.3 Limitation on Liability . Notwithstanding any provision to the contrary contained in this Facility Lease, the Parties acknowledge and agree that:

 

(a) upon the declaration of a Lessee Event of Default in accordance with Section 17.2 , the maximum amount due and owing by Lessee under this Facility Lease shall be the Termination Value determined in accordance with Section 17.2(a)(i) , plus all Supplemental Rent due and owing under the Lease Documents to the Persons entitled thereto, less any Loss Proceeds or Condemnation Award received by Lessor for its own account in connection therewith and not provided to Lessee;

 

(b) Lessor and the Member shall have no personal liability to Lessee or its respective successors and permitted assigns for any claim based on or in respect of this Facility Lease or any other Lease Document or arising in any way from the transactions contemplated hereby or thereby (other than for Lessor’s Liens attributable to Lessor or the Member, as the case may be), and the recourse shall be solely had against Lessor’s and the Member’s interest in the Leased Facility, as the case may be, and the Lease Documents;

 

(c) Lessor shall not be liable to Lessee for any costs or expenses incurred by Lessee in accordance with the fulfillment of its obligations under this Facility Lease and any other Lease Document to which it is a party; and

 

(d) Notwithstanding anything to the contrary contained herein, neither Party shall be liable to the other Party under this Facility Lease for any consequential, exemplary or punitive damages.

 

17.4 No Delay or Omission to be Construed as Waiver . No delay in exercising or omission to exercise any right, power or remedy accruing to a Party upon any breach or default by the other Party under this Facility Lease and any other Lease Document to which it is a party shall impair any such right, power or remedy of such Party, nor shall any such delay or omission be construed as a waiver of any breach or default, or of any similar breach or default hereafter occurring; nor shall any waiver of a single breach or default be deemed a waiver of any subsequent breach or default.

 

ARTICLE 18: LIENS

 

Neither Party shall directly or indirectly create, incur, assume or suffer to exist any Lien (other than Permitted Encumbrances) on or with respect to the Leased Facility or any part thereof

 

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or its interest or the other Party’s interest therein or in this Facility Lease or any other Lease Document to which it is a party.

 

ARTICLE 19: INDEMNIFICATION

 

19.1 General Indemnity . Each Party (an “ Indemnifying Party ”) shall indemnify the other Party, their respective officers, directors, employees, representatives and agents (each an “ Indemnitee ”) from, and hold each of them harmless against, any and all Claims that may at any time be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in any way related to: (a) the execution, delivery or performance by the Indemnifying Party of this Facility Lease and any other Lease Document to which it is a party; (b) any breach or default by the Indemnifying Party of any of its covenants or representations and warranties under this Facility Lease or any other Lease Document to which it is a party; (c) any violation by the Indemnifying Party of any applicable Law or Government Approval; and (d) any Environmental Claim arising out of the management, use, control, ownership or operation, as the case may be, by the Indemnifying Party of the Unit 1 Facility or the Elm Road Site; provided , however , that in no event shall an Indemnitee be indemnified for any such Claim caused by reason of the gross negligence or willful misconduct of such Indemnitee.

 

19.2 Tax Indemnity . The Parties acknowledge and agree to comply with the tax indemnity requirements set forth in Schedule 19.2 .

 

19.3 Survival . The provisions of this Article 19 shall survive termination of this Facility Lease.

 

ARTICLE 20: COMPLIANCE AUDIT; DISPUTE RESOLUTION

 

20.1 Compliance Audit.

 

(a) No later than sixty (60) days prior to the Lease Effective Date, the Lessee shall submit to the PSCW, with a copy to Lessor, a written list of Independent Auditing Firms. The PSCW shall select one (1) of the Independent Auditing Firms (the “ Compliance Auditor ”) and give written notice thereof to Lessor and Lessee.

 

(b) The Compliance Auditor shall perform an annual audit of Lessor’s and Lessee’s compliance with the following provisions of this Facility Lease: Article 7, Section 8.5, Articles 10, 11, Section 13.1(d), Articles 14, 15, 16, 17, 19, and S ections 22.3 and 22.7 . The Compliance Auditor’s reports shall be public and shall be filed with the PSCW. The Lessor and/or the Lessee shall either make all adjustments determined to be required under the terms of this Facility Lease by the Compliance Auditor, or, if Lessor or Lessee disagrees with the judgment of the Compliance Auditor, the Lessor or the Lessee shall submit the Dispute to the PSCW for resolution in an expedited regulatory proceeding. Any such proceeding shall be public and Lessee’s customers as well as all other interested parties shall have a right to intervene.

 

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20.2 General Provisions . Any Dispute arising out of or in connection with this Facility Lease may be resolved in accordance with the provisions of Sections 20.3 through 20.9 to the extent permitted by applicable Law, provided , however , that any Dispute arising out of or in connection with this Facility Lease pursuant to Section 20.1 , Article 5 of Schedule 3.1(a ), or Chapter 196 of the Wisconsin statutes shall be subject to the procedures set forth in Section 20.1 , Article 5 of Schedule 3.1(a ), or Chapter 196.

 

20.3 Negotiation . In the event of a Dispute, the Parties shall in good faith attempt to resolve such Dispute by negotiations within five (5) Business Days from the date a Party gives written notice to the other Party of such Dispute, including a description of the Dispute. If a Dispute cannot be resolved by negotiation during such five (5) Business Day period, the Parties’ Project Managers shall meet at least once and shall attempt to resolve such controversy or claim. Either Project Manager may request the other Project Manager to meet within five (5) Business Days of such request at a mutually agreed upon time and place. Such request must be in writing and include a description of the nature of the Dispute. If the Dispute is not resolved within five (5) Business Days from the date of the first meeting of the Project Managers (or, if the Project Managers fail to meet within the applicable period required by this Section 20.3 ), then the Project Managers shall refer the Dispute to the Party’s Senior Executives who shall have authority to settle the Dispute. Thereupon, each Project Manager shall promptly prepare and deliver to the Parties’ Senior Executives and the other Project Manager a memorandum describing the Dispute and their positions and summarizing any negotiations which have taken place, together with all relevant documents. The Senior Executives shall meet within five (5) Business Days from the exchange of such memoranda, at a mutually agreed time and place.

 

20.4 Binding Arbitration.

 

(a) Expedited Arbitration . Individual Disputes involving claims or requesting payments in an amount equal to or less than one million Dollars ($1,000,000) and Aggregated Disputes less than or equal to five million Dollars ($5,000,000) that are not resolved under Section 20.3 , within ten (10) Business Days of the first meeting of the Senior Executives (or if the Senior Executives fail to meet within the applicable period required by Section 20.3 , the last day on which the Senior Executives were required by Section 20.3 to meet), shall be resolved through expedited arbitration conducted by an Independent Attorney in accordance with the Commercial Arbitration Rules’ expedited procedures. Selection of the Independent Attorney shall commence upon a Party giving notice to the other Party of its election to so initiate expedited arbitration proceedings. Lessor and Lessee shall each select one (1) Attorney and provide notice thereof to the other Party and the PSCW, provided , however , that for so long as Lessee is an Affiliate of Lessor, the PSCW shall have thirty (30) days from receipt of Lessee’s notice to provide Lessee written notice that it does not approve of Lessee’s selected Attorney and the name of an Attorney acceptable to the PSCW. The two Attorneys shall promptly meet and select a third Attorney (the “ Independent Attorney ”) who shall preside over the expedited arbitral proceedings pursuant to this Section 20.4(a ). Should the two Attorneys fail within five (5) Business Days of meeting to reach agreement on the Independent Attorney, then the Independent Attorney shall be selected under the Commercial Arbitration Rules’ expedited procedures. A copy of the award of the Independent Attorney shall be filed with the Compliance Auditor and the PSCW.

 

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(b) Non-Expedited Arbitration . Individual Disputes involving claims or requesting payments in an amount over one million Dollars ($1,000,000) and Aggregated Disputes over five million Dollars ($5,000,000) that are not resolved under Section 20.3 , within ten (10) Business Days of the first meeting of the Senior Executives (or if the Senior Executives fail to meet within the applicable period required by Section 20.3 , the last day on which the Senior Executives were required by Section 20.3 to meet), shall be resolved by binding arbitration by the Independent Arbitrator in accordance with this Section 20.4(b ). Selection of the Independent Arbitrator shall commence upon a Party giving notice to the other Party of its election to so initiate arbitration proceedings. Lessor and Lessee shall each select one (1) Arbitrator and provide notice thereof to the other Party and the PSCW, provided , however , that for so long as Lessee is an Affiliate of Lessor, the PSCW shall have thirty (30) days from receipt of Lessee’s notice to provide Lessee written notice that it does not approve of Lessee’s selected Arbitrator and the name of an Arbitrator acceptable to the PSCW. The two Arbitrators shall promptly meet and select a third Arbitrator (the “ Independent Arbitrator ”) who shall preside over the arbitral proceedings pursuant to this Section 20.4(b ); provided , however , that if such Dispute is a Technical Dispute, the two Arbitrators selected by or on behalf of Lessor and Lessee shall choose the Independent Arbitrator from the list of Arbitrators approved by the American Arbitration Association. Should the two Arbitrators fail, within five (5) Business Days of meeting, to reach agreement on the Independent Arbitrator, then the Independent Arbitrator shall be selected pursuant to the Commercial Arbitration Rules. Except as otherwise expressly set forth herein to the contrary, the arbitration shall be conducted in Wisconsin in accordance with the Commercial Arbitration Rules then in force and effect, including the Optional Rules for Emergency Measures of Protection. All Disputes among Lessor and Lessee that arise under or in connection with one or more Lease Documents may be brought in a single arbitration. In order to facilitate the comprehensive resolution of related disputes, and upon the request of either Party to the arbitration proceeding, the Independent Arbitrator shall consolidate the arbitration proceeding brought under this Facility Lease with any other arbitration proceeding involving the Parties relating to this Facility Lease or any other Lease Document if the Independent Arbitrator determines (A) there are issues of fact or law common to the proceeding, so that a consolidated proceeding would be more efficient than separate proceedings and (B) no Party would be prejudiced as a result of such consolidation through undue delay or otherwise.

 

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20.5 Timing; Discovery; Awards, Fees and Expenses .

 

(a) It is the intent of the Parties that the Independent Arbitrator exercise due diligence to expedite full submission of the Dispute and closing of the arbitration hearings barring extraordinary circumstances. Any arbitration hereunder shall be concluded as promptly as practicable. Unless the Parties otherwise agree, once commenced, hearings shall be held five (5) days a week (Monday through Friday), with each hearing day to begin at 9:00 a.m. and conclude at 5:00 p.m. The Parties may by agreement alter these limits, or the Independent Arbitrator may alter these limits if the Independent Arbitrator determines that the interests of justice require such. The Independent Arbitrator shall use best efforts to issue the final award or awards within forty (40) Business Days after closing the hearings, or if hearings have been waived, from the date of the AAA’s transmittal of the final statements and proofs to the Independent Arbitrator. Failure to do so shall not be a basis for challenging the award.

 

(b) To promote a speedy resolution of Disputes, the Parties agree that discovery shall be limited to that required by the Independent Arbitrator and shall be handled expeditiously. Each Party shall produce relevant and non-privileged documents or copies thereof requested by the other Party within the time limits set and to the extent required by order of the Independent Arbitrator. Depositions shall not be taken or interrogatories served or requests to admit expected as a matter of course and shall be propounded only upon order of the Independent Arbitrator. It is the intention of the Parties that all discovery shall be concluded within thirty (30) Business Days of the date the statement of claim is received by the Independent Arbitrator unless such Independent Arbitrator rules that more time is required in the interests of justice and to obtain a fair and informed result. All disputes regarding discovery shall be promptly resolved by the Independent Arbitrator.

 

(c) Following closing of the hearings, the Independent Arbitrator shall render its written award as provided by the Commercial Arbitration Rules. The award shall include findings of fact and conclusions of law upon which the award is based. The Independent Arbitrator shall base the written award on the applicable law chosen by the Parties. A copy of the award of the Independent Arbitrator shall be filed with the Compliance Auditor and the PSCW.

 

(d) The Parties shall equally share the cost of the fee or honorarium of the Independent Arbitrator. Each Party agrees to pay its own legal fees, including stenographic costs and other hearing-related expenses, such as travel, lodging, and any service charges required by the AAA. The Independent Arbitrator may in its written award render an award of attorneys’ fees and all other costs of the arbitration against the losing Party in whole or in part as the Independent Arbitrator so determines.

 

20.6 Deadlines . All deadlines specified in this Article 20 may be extended by mutual agreement of the Parties.

 

20.7 Statutes of Limitation . All applicable statutes of limitation shall be tolled while the procedures specified in Section 20.3 through Section 20.9 are pending. The Parties shall take such action, if any, required to effectuate such tolling.

 

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20.8 Binding Upon Parties . In the resolution of any Dispute pursuant to this Article 20 , each of the Parties, their Project Managers and Senior Executives and any Independent Attorney or Independent Arbitrator appointed pursuant hereto, shall give effect to this Article 20 .

 

20.9 Continued Performance . Notwithstanding any Dispute between the Parties and/or pending the final decision of the PSCW, Independent Attorney or the Independent Arbitrator of a Dispute hereunder, (a) each Party shall continue to perform its respective obligations under this Facility Lease, and (b) neither Party shall exercise any other remedies hereunder arising by virtue of the matters in dispute.

 

20.10 Survival . The provisions of this Article 20 shall survive termination of this Facility Lease.

 

ARTICLE 21: CONFIDENTIALITY OF INFORMATION

 

21.1 Non-Disclosure Obligations . Each Party agrees that it, its Affiliates and its Affiliates’ respective directors, officers, employees, representatives, agents and advisors will use any Confidential Information and Trade Secrets of another Party solely for the purpose of implementing this Facility Lease and the other Lease Documents. Each Party further agrees that a receiving Party may disclose Confidential Information or Trade Secrets only to such directors, officers, employees, agents, representatives and advisors who are involved in the receiving Party’s implementation of this Facility Lease and other Lease Documents, and then only on a need to know basis. Each Party agrees that it will not (and each Party shall take full responsibility for ensuring that all of its Affiliates and all of its and its Affiliates’ respective officers, directors, employees, agents, representatives and advisors do not) in any way disclose, communicate, transfer or use (other than as permitted by this Section 21.1 ) any Confidential Information or Trade Secrets of another Party, without the prior written consent in each instance of such other Party; provided , however , that Lessor shall have the right to disclose such Confidential Information or Trade Secrets without the consent of Lessee to any Person (and its agents and advisors) contemplating a purchase, directly or indirectly, of all or an interest in Lessor or the Unit 1 Facility, provided that such Person agrees that it (and its agents and advisors) will maintain such Confidential Information and Trade Secrets in accordance with the terms and conditions of this Article 21 . The covenants in the preceding sentence shall apply for as long as the underlying information or data remains a Trade Secret; and with respect to Confidential Information, shall apply for two (2) years after the expiration or termination of this Facility Lease.

 

21.2 Return of Material . Each Party agrees that it will promptly return to the disclosing Party all Confidential Information and Trade Secrets received from such disclosing Party within five (5) days following the written request of the disclosing Party after any expiration or termination of this Facility Lease. The return of Confidential Information and Trade Secrets shall be accomplished by personal delivery or forwarded by reputable couriers properly addressed to the disclosing Party at the addresses set forth on Schedule 22.4 . As an alternative, the receiving Party may destroy all such Confidential Information and Trade Secrets, and certify to the disclosing Party that such destruction has been carried out.

 

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21.3 Law . Each Party agrees that if it becomes subject to a subpoena or other Law to disclose any of the Confidential Information or Trade Secrets of another Party, it will provide such Party with prompt notice so that such Party may seek a protective order or other appropriate remedy. If such protective order or other appropriate remedy is denied or otherwise not obtained, the Party required to furnish the information shall furnish only that portion of the Confidential Information and/or Trade Secrets which is, in the opinion of its counsel, legally compelled, and will cooperate with the other Party and its counsel to enable the other Party to attempt to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information and/or Trade Secrets to be disclosed.

 

ARTICLE 22: MISCELLANEOUS

 

22.1 Applicable Law . THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS FACILITY LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF WISCONSIN.

 

22.2 Jury Trial . EACH OF LESSEE AND LESSOR WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS FACILITY LEASE OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS FACILITY LEASE AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

22.3 Quiet Enjoyment . So long as no Lessee Event of Default shall have occurred and be continuing (and subject in all events to Section 7.3 ), Lessee shall peaceably and quietly have, hold and enjoy the use, operation and possession of the Leased Facility for the Lease Term free of any claim or other action by Lessor or anyone rightfully claiming by, through or under Lessor. Such right of quiet enjoyment is independent of, and shall not affect the rights of Lessor (or anyone claiming by, through or under Lessor) otherwise to initiate legal action to enforce, the obligations of Lessee under this Facility Lease.

 

22.4 Notices . Unless otherwise expressly specified or permitted by the terms hereof, all communications and notices provided for herein to a Party shall be in writing or shall be produced by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including, by overnight mail or next Business Day or courier service, (b) in the case of notice by United States mail, certified or registered, postage prepaid, return receipt requested, upon receipt thereof, or (c) in the case of notice by such a telecommunications device, upon transmission thereof, provided such transmission is promptly confirmed by either of the methods set forth in clause (a) or (b) above, in each case addressed as provided in Schedule 22.4 , or to such other address as any Party may designate by written notice to the other Party.

 

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22.5 Counterparts . This Facility Lease shall be executed in several counterparts. One counterpart shall be prominently marked “Lessor’s Copy” and the other counterpart shall be prominently marked “Lessee’s Copy.” Only the counterpart marked “Lessor’s Copy” shall evidence a monetary obligation of Lessee or shall be deemed to be an original or to be chattel paper for purposes of the UCC, and such copy shall be held by Lessor.

 

22.6 Severability . Whenever possible, each provision of this Facility Lease shall be interpreted in such manner as to be effective and valid under applicable Law; but if any provision of this Facility Lease shall be prohibited by or deemed invalid under any applicable Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Facility Lease.

 

22.7 Transfer Restrictions .

 

(a) This Facility Lease shall be binding upon the Parties and their respective successors and permitted assigns. Except as provided in this Section 22.7 or the Right of First Refusal Agreement, neither Party may sell, assign, transfer, convey or otherwise dispose of, directly or indirectly (collectively, “ Transfer ”), all or any part of its rights, benefits, advantages, titles or interest in and to this Facility Lease and each other Lease Document to which it is a party and the Leased Facility and all replacements thereof and substitutions therefor, including all Investments thereto, without the prior written consent of the other Party, and any such Transfer in contravention of this Section 22.7(a) shall be null and void ab initio . Notwithstanding the foregoing, however, Lessor may Transfer portions of its Unit 1 Ownership Interest and its New Common Facilities Ownership Interest to WPPI or MGE Power or their Affiliates or any other Owner, in accordance with Section 7.4 and Section 7.5 and the terms and conditions of the Lease Documents, provided that the portion transferred will not reduce Lessor’s Unit 1 Ownership Percentage in Unit 1 to an amount totaling less than 83.33%.

 

(b) Notwithstanding any provision to the contrary contained herein, Lessor may, at any time, without the prior written consent of Lessee, assign to the Lenders as collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Lessor Secured Obligations, all of its rights, benefits, advantages, titles and interests in and to this Facility Lease and each other Lease Document to which it is a party and the Leased Facility and all replacements thereof and substitutions therefor, including all Investments thereto; provided , however , that such assignment shall not in any way relieve Lessor of any of its obligations hereunder; provided , further , that in the event that the Lenders exercise their remedies under the Security Documents and foreclose on Lessor’s rights, benefits, advantages, titles and interests in and to the Leased Facility and the Lease Documents, then the Lenders shall, except to the extent otherwise agreed by Lessee in writing, be bound by the terms and conditions of this Facility Lease and the other Lease Documents. Lessee hereby irrevocably consents to any such assignment and to the creation of any such security interest in favor of the Lenders, in each case, pursuant to the Security Documents.

 

(c) Notwithstanding any provision to the contrary contained herein, after and only after the seventh (7 ^th ) anniversary of the date of Commercial Operation of the Leased

 

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Facility, Lessor may, subject to this Section 22.7(c) and otherwise in accordance with the terms and conditions of this Section 22.7 , Transfer all of its rights, benefits, advantages, titles and interests in and to this Facility Lease and each other Lease Document to which it is a party and the Leased Facility and all replacements thereof and substitutions therefor, including all Investments thereto (collectively, the “ Transferred Interest ”), to a Person (the “ Acceptable Assignee ”) (i) (A) whose senior unsecured long-term debt is rated at least the Rating Requirement or (B) whose Parent’s senior unsecured long-term debt is rated at least the Rating Requirement and who guarantees such Persons’ obligations under any Lease Document to which such Person shall be a party, (ii) who has five (5) years experience in the United States electric generating power industry and (iii) who meets the requirements set forth in Article 11 . It shall be a condition precedent to any Transfer pursuant to this Section 22.7(c) that the PSCW determines that the Acceptable Assignee meets the requirements in Section 22.7(c)(i)-(iii) and that the Acceptable Assignee enter into an assignment and assumption agreement, in form and substance reasonably satisfactory to the Parties, whereby the Acceptable Assignee shall assume and Lessor shall assign all of its rights, obligations, benefits, advantages, titles and interests in this Facility Lease and each other Lease Document to which it is a party (including the covenants set forth in Article 11 ) and the Acceptable Assignee shall purchase and Lessor shall sell all of its ownership interest in the Leased Facility and all replacements thereof and substitutions therefor, including all Investments thereto.

 

(d) No less than one hundred twenty (120) days prior to a proposed Transfer by Lessor of all of its rights, benefits, advantages, titles and interests in and to this Facility Lease and each Lease Document to which it is a party and the Leased Facility and all replacements thereof and substitutions therefor, including all Investments thereto, in each case, pursuant to Section 22.7(c) to an Acceptable Assignee (other than an Affiliate), Lessor shall provide Lessee written notice of such proposed Transfer, including the terms and conditions of the proposed Transfer and the name of the Acceptable Assignee. Lessee shall have sixty (60) days from receipt of such notice to notify Lessor in writing of its election to exercise its right of first refusal to purchase the Transferred Interest on the same terms and conditions of such proposed Transfer; provided , however , that if Lessee fails to notify Lessor of its election to exercise its right of first refusal within such 60-day period, Lessee shall be deemed to have waived its right of first refusal with respect to such proposed Transfer. If Lessee notifies Lessor of its election to exercise its right of first refusal within such 60-day period, then within thirty (30) days of delivery of such notice to Lessor, Lessee and Lessor shall meet to negotiate the terms and conditions of the transfer documents (the “ Transfer Documents ”) by which Lessor shall Transfer the Transferred Interest to Lessee; provided , that the terms and conditions of the Transfer Documents shall be no less favorable to Lessor than the terms and conditions of the proposed Transfer of the Transferred Interest by Lessor to the Acceptable Assignee. Upon consummation of the Transfer by Lessor and Lessee pursuant to the Transfer Documents, this Facility Lease shall terminate and each of the Parties shall cease to have any liability to one another with respect to the Leased Facility and each other Lease Document to which it is a party, except for obligations surviving pursuant to the express terms of this Facility Lease and the other Lease Documents, provided that it shall be a condition of such termination that each of the Parties shall have performed their respective obligations pursuant to the Lease Documents and the Transfer Documents and that each Party

 

50

shall pay all amounts due which it is obligated to pay under the Lease Documents and the Transfer Documents.

 

(e) The Parties acknowledge that they have entered into the Right of First Refusal Agreement with WEC and the Member.

 

(f) Lessee shall not, without the prior written consent of Lessor, sublease all or any portion of the Leased Facility and all replacements thereof and substitutions therefor, including all Investments thereto, and its rights, benefits, advantages, titles and interest in and to this Facility Lease and each other Lease Document to which it is a party, and any such sublease made in contravention of this Section 22.7(f) shall be null and void ab initio .

 

(g) The Parties acknowledge that Schedule 22.7(g ) addresses certain regulatory implications imposed on Lessee by the PSCW with respect to a ratings downgrade as a result of a Transfer.

 

22.8 Third-Party Beneficiaries . Except as expressly provided herein, none of the provisions of this Facility Lease are intended for the benefit of any Person except the Parties, their respective successors and permitted assigns.

 

22.9 Entire Agreement . This Facility Lease states the rights and obligations of the Parties with respect to the leasing of the Leased Facility and the other transactions contemplated by this Facility Lease and supersedes all prior agreements, oral or written, with respect thereto.

 

22.10 Headings and Table of Contents . Section headings and the table of contents used in this Facility Lease (including the Schedules, Annexes and Exhibits attached hereto) are for convenience of reference only and shall not affect the construction of this Facility Lease.

 

22.11 Schedules, Annexes and Exhibits . The Schedules, Annexes and Exhibits along with all attachments referenced therein, are incorporated herein by reference and made a part hereof.

 

22.12 No Joint Venture . Any intention to create a joint venture or partnership relation between Lessor and Lessee is hereby expressly disclaimed.

 

22.13 Amendments and Waivers . No term, covenant, agreement or condition of this Facility Lease may be terminated, amended or compliance therewith waived (either generally or in a particular instance, retroactively or prospectively) except by an instrument or instruments in writing executed by both Parties and approved by the PSCW.

 

22.14 Survival . Except as expressly provided herein the warranties and covenants made by each Party shall not survive the expiration or termination of this Facility Lease in accordance with its terms.

 

22.15 Limitation on Liability . The Parties acknowledge and agree that: (a) this Facility Lease is executed and delivered by the Member, not individually or personally but solely as

 

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Member of Lessor under the Membership Agreement, in the exercise of the powers and authority conferred and vested in it pursuant thereto; (b) each of the representations, undertakings and agreements herein made on the part of Lessor is made and intended not as a personal representation, undertaking and agreement (as applicable) by the Member, but is made and intended for the purpose of binding only Lessor; (c) nothing herein contained shall be construed as creating any liability on the Member, individually or personally, to perform any covenant either expressly contained or implied herein, all such liability, if any, being expressly waived by the Parties or by any Person claiming by, through or under the Parties; and (d) under no circumstances shall the Member be personally liable for the payment of any indebtedness or expenses of Lessor or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Lessor under this Facility Lease.

 

22.16 Further Assurances . Each Party shall promptly and duly execute and deliver such further documents and assurances for and take such further actions reasonably requested by the other Party, all as may be reasonably necessary to carry out the purpose of this Facility Lease.

 

[Signature page follows on next page]

 

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IN WITNESS WHEREOF, Lessor and Lessee have caused this Elm Road I Facility Lease Agreement to be duly executed and delivered under seal by their respective officers thereunto duly authorized.

 

 

SCHEDULE 1.1

TO THE FACILITY LEASE

 

DEFINITIONS; INTERPRETATION

 

A. Interpretation . In each Lease Document, unless a clear contrary intention appears:

 

(i) the singular number includes the plural number and vice versa;

 

(ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by the Lease Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

 

(iii) reference to any gender includes the other gender;

 

(iv) reference to any agreement (including any Lease Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

 

(v) reference to any Law means such Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Law means that provision of such Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or re-enactment of such section or other provision;

 

(vi) reference in any Lease Document to any Preamble, Recital, Article, Section, Annex, Schedule or Exhibit means such Article or Section thereof or Preamble, Recital, Annex, Schedule or Exhibit thereto;

 

(vii) “hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to a Lease Document as a whole and not to any particular Article, Section or other provision thereof;

 

(viii) “including” (and with the correlative meaning “include”) means including without limiting the generality of any description preceding such term;

 

(ix) Costs, fees, expenses and other amounts “incurred by or on behalf of Lessor” and words of similar import shall be deemed references to costs, fees, expenses and other amounts incurred (a) by or on behalf of Lessor or (b) by any agents to whom Lessor has delegated any of its obligations pursuant to Section 3.1(d ) of the Facility Lease on behalf of Lessor and the other Owners, if any;

 

SCHEDULE 1.1

TO THE FACILITY LEASE

 

(x) with respect to any rights and obligations of the parties under the Lease Documents, all such rights and obligations shall be construed to the extent permitted by applicable Law; and

 

(xi) any transfer or assignment by any Party pursuant to this Facility Lease of any agreement or its rights and obligations under any agreement, any warranty, any Government Approval, New Common Facilities, inventory or spare parts shall only be with respect to such rights, titles and interests it has in its capacity as Lessor or Lessee, as the case may be, under this Facility Lease.

 

B. Computation of Time Periods . For purposes of computation of periods of time under the Lease Documents, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

 

C. Accounting Terms and Determinations . Unless otherwise specified in any Lease Document, all terms of an accounting character used therein shall be interpreted, all accounting determinations thereunder shall be made, and any financial statements required to be delivered thereunder shall be prepared, in accordance with GAAP.

 

D. Conflict in Lease Documents . If there is any conflict between the Facility Lease and any other Lease Document, such Lease Documents shall be interpreted and construed, if possible, so as to avoid or minimize such conflict.

 

E. Legal Representation of the Parties . The Lease Documents were negotiated by the parties thereto with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Lease Document to be construed or interpreted against any party shall not apply to any construction or interpretation thereof.

 

F. Definitions . Unless the context otherwise requires, the following defined terms shall have the meanings ascribed to them below:

 

“ AAA ” shall mean the American Arbitration Association or any successor thereto.

 

“ Acceptable Assignee ” shall have the meaning given to such term in Section 22.7(c) of the Facility Lease.

 

“ Acceptable Bank ” shall mean a U.S. bank or a U.S. branch of a non-U.S. bank whose senior unsecured long-term debt is rated at least Investment Grade.

 

“ Acceptable Guarantor ” shall mean a Person whose senior unsecured long-term debt is rated at least Investment Grade.

 

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SCHEDULE 1.1

TO THE FACILITY LEASE

 

“ Additional Insureds ” shall have the meaning given to such term in Section 1.3(b) of Schedule 13.2 of the Facility Lease.

 

“ Affiliate ” shall mean, with respect to any Person, (a) each entity that such Person Controls, (b) each Person that Controls such Person, and (c) each entity that is under common Control with such Person.

 

“ Aggregate Construction Costs ” shall mean all Construction Costs actually incurred by or on behalf of Lessor but not to exceed the Approved Amount.

 

“ Aggregate Principal Amount ” shall mean the sum of the current unamortized principal balances of (a) the Approved Amount, (b) Lessor’s costs incurred in connection with Investments (including Renewal Triggering Plant Investments) deemed complete and in-service, (c) Lessor’s costs incurred in connection with Investments (including Renewal Triggering Plant Investments) under construction and (d) any lender breakage costs incurred with respect to the amounts in (a), (b) or (c) above (including, make-whole costs, attorney fees, appraisal fees, and other incidental expenses incurred in connection therewith).

 

“ Aggregated Disputes ” shall mean more than one Dispute.

 

“ Applicable Cost of Debt ” shall mean the respective cost of debt determined in Annex B to Schedule 7.1 to the Facility Lease.

 

“ Appraisal Report ” shall have the meaning given to such term in Section 14.1(b) of the Facility Lease.

 

“ Appraised FMV ” shall have the meaning given to such term in Section 4.6(b ) of the Facility Lease.

 

“ Appraiser ” shall mean a nationally recognized appraiser with no less than ten (10) years’ experience appraising U.S. electric generation facilities who is not employed by, does not provide services to, and does not otherwise derive any financial or other benefit from any of the Parties, their respective Affiliates or the PSCW other than as provided in the Lease Documents, or the PTF Leases.

 

“ Approved Amount ” shall mean the total amount of actual Construction Costs incurred by or on behalf of Lessor as of the Lease Effective Date but in any case not to exceed an amount equal to:

 

(a) $1,453,352,800, plus

 

(b) any Construction Costs in excess of (a), but in any case not to exceed five percent (5%) of (a), which are prudently incurred and approved by the PSCW in advance of being recovered in the Rent payments, plus

 

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SCHEDULE 1.1

TO THE FACILITY LEASE

 

(c) any Construction Costs in excess of (a), which are incurred by or on behalf of Lessor due to an Excused Event, an event of Force Majeure or Event of Loss, which Construction Costs are prudently incurred and approved by the PSCW in advance of being recovered in the Rent payments,

 

(d) provided , however , the Approved Amount shall not exceed actual Construction Costs incurred by or on behalf of Lessor.

 

“ Arbitrator ” shall mean an independent arbitrator with no less than ten (10) years’ arbitration experience in the U.S. electric generation industry who is not employed by, does not provide services to, and does not otherwise derive any financial or other benefit from any of the Parties, their respective Affiliates or the PSCW other than as provided in the Lease Documents or the PTF Leases.

 

“ Attorney ” shall mean an independent attorney with no less than ten (10) years’ project development and financing experience in the U.S. electric energy industry who is not employed by, does not provide services to, and does not otherwise derive any financial or other benefit from any of the Parties, their respective Affiliates or the PSCW other than as provided in the Lease Documents or the PTF Leases.

 

“ Authorized Officer ” shall mean, with respect to (a) any Person other than a partnership or limited liability company, the president, any vice president, the treasurer, the chief financial officer or any other similar senior officer of such Person, (b) any Person who is a partnership, the president, any vice president, the treasurer, the chief financial officer or any other similar senior officer of any general partner of such Person, and (c) any Person who is a limited liability company, the president, any vice president, the treasurer, the chief financial officer or any other similar senior officer of the manager or the managing member of such Person.

 

“ Base Term ” shall mean the period of time beginning on the Lease Effective Date and ending on the Base Term Expiration Date.

 

“ Base Term Expiration Date ” shall mean the date falling on the earlier of (i) the thirtieth (30 ^th ) anniversary of the Lease Effective Date or (ii) the number of years and months equal to eighty percent (80%) of the Economic Useful Life of the Unit 1 Facility as determined by the Unit Appraiser pursuant to Section 4.6 of the Facility Lease.

 

“ Basic Rent ” shall have the meaning given to such term in Section 7.1(a) of the Facility Lease.

 

“ Business Day ” shall mean any day on which commercial banks are not authorized or required to close in Milwaukee, Wisconsin.

 

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SCHEDULE 1.1

TO THE FACILITY LEASE

 

“ Capital Costs ” shall mean all Pre-CPCN Expenses directly attributable to project development, design, engineering and construction that a Wisconsin public utility would normally be required to capitalize under PSCW rules for accounting purposes, including Major Equipment Procurement Pre-CPCN Expenses.

 

“ Claims ” shall mean liabilities, obligations, damages, losses, demands, penalties, interest, fines, claims, actions, suits, judgments, settlements, and reasonable costs, fees, expenses and disbursements (including reasonable legal fees and expenses and costs of investigation), of any kind and nature whatsoever.

 

“ Commercial Arbitration Rules ” shall mean the commercial arbitration rules of the AAA.

 

“ Commercial Operation ” shall mean that the Unit 1 Facility has successfully completed the Commercial Operation Test.

 

“ Commercial Operation Test ” shall mean the commercial operation tests for the Unit 1 Facility as set forth in Schedule 4.2 to the Facility Lease.

 

“ Community Impact Mitigation Costs ” shall mean Lessor’s Unit 1 Ownership Percentage of all costs and expenses incurred by or on behalf of Lessor associated with satisfying local regulatory requirements or to mitigate any adverse effect the Elm Road Facility might otherwise have on local communities but in no event to exceed the amount approved by the PSCW.

 

“ Completeness Determination ” shall mean an order or approval from the PSCW that the Unit 1 Facility is complete within the meaning of Wisconsin Stat. § 196.52(9)(b)(7).

 

“ Compliance Auditor ” shall have the meaning given to such term in Section 20.1 of the Facility Lease.

 

“ Component ” shall mean any of Component 1, Component 2, Component 3 or Component 4 as defined in Exhibit A .

 

“ Condemnation Award ” shall mean any monetary award in respect of a taking of all or substantially all of or a material portion of the Unit 1 Facility by an exercise of eminent domain or a similar right or power by a Governmental Authority, or as a result of a Governmental Authority ordering the Unit 1 Facility to cease to operate.

 

“ Confidential Information ” shall mean, with respect to a Party, all proprietary and confidential business information and data of such Party that does not constitute a Trade Secret and that is not generally known by or readily ascertainable by or available to, on a legal or authorized basis, the general public; provided , however , “ Confidential Information ” shall not

 

58

SCHEDULE 1.1

TO THE FACILITY LEASE

 

include any information: (a) which is already known to the receiving Party; or (b) which before being divulged by the disclosing Party (i) has become generally know to the public through no wrongful act of the receiving Party or its representatives and agents, (ii) has been received by the receiving Party from a third party without (to the receiving Party’s knowledge) restriction on disclosure and without (to the receiving Party’s knowledge) a breach by the third party of an obligation of confidentiality, or (iii) is independently developed by the receiving Party without use of the Confidential Information received from a disclosing Party.

 

“ Construction Costs ” shall mean Lessor’s Percentage of all internal and third party costs, expenses and fees incurred by or on behalf of Lessor in connection with the performance of its obligations under Articles 2, 3 and 4 of the Facility Lease, including: (a) Capital Costs; (b) all costs, expenses and fees incurred by or on behalf of Lessor in connection with the Site Improvements in accordance with the Elm Road I Ground Lease; and (c) all costs, expenses and fees incurred by or on behalf of Lessor in connection with any of the construction contracts or equipment supply agreements with respect to the Unit 1 Facility, but not including Pre CPCN Expenses otherwise reimbursed pursuant to Section 2.1(b ), Community Impact Mitigation Costs and Monthly Management Services Costs less Lessor’s Percentage of any monetary payments (including liquidated damages but excluding liquidated damages or other monetary payments paid to Lessee) actually received by Lessor from any contractor in connection with any of the construction contracts or equipments supply agreements with respect to the Unit 1 Facility (net of legal fees and any other expenses incurred by or on behalf of Lessor in connection with the receipt or recovery of such monetary payments).

 

“ Construction Effective Date ” shall mean the date on which construction in connection with the Unit 1 Facility commences.

 

“ Construction Invoice ” shall have the meaning given to such term in Section 2.1(b) of the Facility Lease.

 

“ Construction Milestone Schedule ” shall mean the schedule of Milestones and Milestone Dates by which such Milestones are to be achieved as set forth in Schedule 3.2(a) to the Facility Lease.

 

“ Construction Security ” shall mean (a) a corporate guaranty from an Acceptable Guarantor for the benefit of Lessee substantially in the form of Exhibit B to the Facility Lease, or (b) an irrevocable letter of credit from an Acceptable Bank for the benefit of Lessee substantially in the form of Exhibit C to the Facility Lease, in each case, with a stated amount of twenty million Dollars ($20,000,000).

 

“ Construction Term ” shall mean the period beginning on the Decommissioning Completion Date and ending on the Lease Effective Date.

 

59

SCHEDULE 1.1

TO THE FACILITY LEASE

 

“ Construction Termination Date ” shall have the meaning given to such term in Section 2.3(a) of the Facility Lease.

 

“ Construction Termination Notice ” shall have the meaning given to such term in Section 2.3(a) of the Facility Lease.

 

“ Control ” shall mean the possession, directly or indirectly, through one or more intermediaries, of the following:

 

(a) (i) in the case of a corporation, fifty percent (50%) or more of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to fifty percent (50%) or more of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, fifty percent (50%) or more of the beneficial interest therein; and (iv) in the case of any other entity, fifty percent (50%) or more of the economic or beneficial interest therein; and

 

(b) in the case of any entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the entity.

 

“ CPCN Approval ” shall mean the PSCW order approving the certificate of public convenience and necessity for the Unit 1 Facility, either individually or as part of the Elm Road Facility.

 

“ Current Economic Useful Life ” shall mean the economic useful life of the Unit 1 Facility as re-determined by an Independent Appraiser pursuant to Section 14.1(b ) of the Facility Lease or an Early Renewal Independent Appraiser pursuant to Section 14.3(b ) of the Facility Lease, as the case may be, at the end of a Renewal Term using the same methodology and approach utilized by the Unit Appraiser pursuant to Section 4.6(b) of the Facility Lease.

 

“ Decommissioning Activities ” shall have the meaning given to such term in Schedule 1.1 to the Elm Road I Ground Lease.

 

“ Decommissioning Completion Date ” shall mean the date on which all of the conditions precedent set forth on Schedule 2.2 to the Facility Lease have been satisfied or waived by the appropriate Party.

 

“ Deemed Lease Effective Date ” shall mean either the Lessee Deemed Lease Effective Date or the Lessor Deemed Lease Effective Date.

 

“ Delay Damages Cap ” shall have the meaning given to such term in Schedule 3.3 to the Facility Lease.

 

60

SCHEDULE 1.1

TO THE FACILITY LEASE

 

“ Demand Date ” shall have the meaning given to such term in Section 17.2(a)(i) of the Facility Lease.

 

“ Demolition and Removal Costs ” shall have the meaning given to such term in Section 4.6(b) of the Facility Lease.

 

“ Development Protocol ” shall mean the development protocol outlining the design, development, engineering, procurement, construction and commissioning of the Unit 1 Facility as set forth in Schedule 3.1(a) to the Facility Lease.

 

“ Dispute ” shall mean any controversy, claim or dispute of whatsoever nature or kind between the Parties, arising out of or relating to the Facility Lease or the validity, execution, performance, discharge, termination or breach therefrom including Technical Disputes.

 

“ Dollars ” shall mean the lawful currency of the United States.

 

“ Early Renewal Appraisal Report ” shall have the meaning given to such term in Section 14.3(b) of the Facility Lease.

 

“ Early Renewal Condition ” shall have the meaning given to such term in Section 14.3(a) of the Facility Lease.

 

“ Early Renewal Independent Appraiser ” shall have the meaning given to such term in Section 14.3(b) of the Facility Lease.

 

“ Early Renewal Notice ” shall have the meaning given to such term in Section 14.3(b) of the Facility Lease.

 

“ Economic Useful Life ” shall have the meaning given to such term in Section 4.6(b ) of the Facility Lease.

 

“ Elm Road Common Facilities Ownership Agreement ” shall mean that certain Common Facilities Ownership Agreement to be entered into among Lessor, WPPI and MGE Power.

 

“ Elm Road Common Facilities Operation and Maintenance Agreement ” shall mean that certain Common Facilities Operation and Maintenance Agreement to be entered into among WEPCO, WPPI and MGE.

 

“ Elm Road Facility ” shall have the meaning given to such term in the Recitals to the Facility Lease.

 

61

SCHEDULE 1.1

TO THE FACILITY LEASE

 

“ Elm Road II Facility Lease ” shall mean that certain Elm Road II Facility Lease Agreement to be entered into between Lessor and Lessee.

 

“ Elm Road I Ground Lease ” shall have the meaning given to such term in the Recitals to the Facility Lease.

 

“ Elm Road I Ground Sublease ” shall have the meaning given to such term in the Recitals to the Facility Lease.

 

“ Elm Road I Operation and Maintenance Agreement ” shall mean that certain Operation and Maintenance Agreement to be entered into among WEPCO, WPPI and MGE in respect of Unit 1.

 

“ Elm Road I Ownership Agreement ” shall mean that certain Unit 1 Ownership Agreement to be entered into among Lessor, WPPI and MGE Power.

 

“ Elm Road Site ” shall have the meaning given to such term in the Elm Road I Ground Lease.

 

“ Emergency Condition ” shall mean any condition or situation which presents an imminent threat of danger to life, or threat to health or material property, or could reasonably be expected to cause a significant disruption on or significant damages to the Unit 1 Facility or any material portion thereof or to Lessee’s electric generating facilities or the Transmission Provider’s electric transmission system.

 

“ End of Term Inspection Report ” shall have the meaning given to such term in Section 15.2(c) of the Facility Lease.

 

“ Environmental Claim ” shall mean, with respect to any Person, any notice, claim, administrative, regulatory or judicial action, suit, lien, judgment, demand or other communication (whether written or oral) by any other Person alleging or asserting such Person’s liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other property, personal injuries, fines or penalties arising out of, based on or resulting from: (a) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person; or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.

 

“ Environmental Law ” shall mean any and all Laws, now or hereafter in effect, and any judicial or administrative judgment, relating to the environment, or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes into the environment including ambient air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage,

 

62

SCHEDULE 1.1

TO THE FACILITY LEASE

 

disposal, transport, or handling of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes.

 

“ Event of Loss ” shall mean any loss of, destruction or damage to, or taking of the Unit 1 Facility (or any part thereof), other than an Event of Total Loss.

 

“ Event of Total Loss ” shall mean: (a) all or substantially all of the Unit 1 Facility shall be damaged to the extent of being completely or substantially completely destroyed; (b) any damage to the Unit 1 Facility that results in an insurance settlement with respect thereto on the basis of a to