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Southwestern Energy - Master Lease Agreement - Drilling Rigs
EXECUTION COPY
MASTER LEASE AGREEMENT
dated as of December 29, 2006
between
SUNTRUST LEASING CORPORATION
as Lessor
and
SOUTHWESTERN ENERGY COMPANY
as Lessee
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TABLE OF CONTENTS
Page
1.
LEASE OF EQUIPMENT
1
1.1
Each Schedule is a Lease
1
1.2
Closing Conditions
2
2.
TERM AND RENT
2
3.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE
3
3.1
Representations, Warranties and Covenants
3
4.
DISCLAIMER OF WARRANTIES; NO AGENCY
5
4.1
Disclaimer
5
4.2
Lessor is Not Supplier
6
5.
EXCLUSION OF CONSEQUENTIAL DAMAGES
6
5.1
NO CONSEQUENTIAL DAMAGES
6
6.
RISK OF LOSS
6
6.1
Risk of Loss
6
6.2
Total Loss
6
6.3
Stipulated Loss Value, Etc
7
6.4
Application of Proceeds
7
7.
INSURANCE
8
7.1
Required Coverages and Amounts
8
7.2
Additional Requirements
8
8.
INSTALLATION; MAINTENANCE; ADDITIONS
9
8.1
Maintenance and Repairs
9
8.2
Related Real Property Requirements
9
8.3
Additions
9
8.4
Location Reporting
10
9.
TAXES, FEES AND ASSESSMENTS
10
10.
RETURN OF EQUIPMENT
10
11.
AFFIRMATIVE AND NEGATIVE COVENANTS
11
12.
LESSEE' S IDENTITY, ADDRESS AND LOCATION
12
13.
NO ASSIGNMENT OR OTHER SUBLEASING BY LESSEE
12
14.
QUIET ENJOYMENT
13
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TABLE OF CONTENTS
(continued)
Page
15.
EVENTS OF DEFAULT
13
16.
REMEDIES
14
16.1
Remedies
14
16.2
Cumulative Remedies
15
16.3
No Waiver
15
17.
SECURITY; FILINGS
15
17.1
Granting Clause
16
17.2
Precautionary Provisions
16
17.3
Filings
16
18.
LESSOR' S FEES AND EXPENSES; INDEMNITY
16
18.1
Indemnity
16
18.2
Express Exculpation
17
18.3
Indemnity is Essential to Lessor, Etc
17
19.
INCOME TAX INDEMNITY
18
20.
WAIVERS
19
21.
PERFORMANCE BY LESSOR; FURTHER ASSURANCES
19
22.
NOTICES
19
23.
ABSOLUTE AND UNCONDITIONAL
20
24.
GOVERNING LAW
20
25.
WAIVER OF JURY TRIAL
20
26.
FORUM SELECTION AND CONSENT TO JURISDICTION
20
27.
ASSIGNMENT BY LESSOR
21
28.
MISCELLANEOUS
21
RIDER NO. 1 ENVIRONMENTAL RIDER
23
RIDER NO. 2 RETURN RIDER
24
RIDER NO. 3 REMOVAL RIDER
25
EXHIBIT 1 FORM OF SCHEDULE
26
EXHIBIT 2 FORM OF ACCEPTANCE CERTIFICATE
27
EXHIBIT 3 FORM OF ACKNOWLEDGMENT AND AGREEMENT
28
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MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is dated as of December 29, 2006 (including any and all riders, exhibits and supplements, this " Master Lease" ) between SOUTHWESTERN ENERGY COMPANY , a Delaware corporation (together with its successors and assigns, " Lessee" ), and SUNTRUST LEASING CORPORATION (" STLC" ), a Virginia corporation (STLC, or such other party entering into any Schedule (as defined below) incorporating the terms hereof, and named as " Lessor" therein, together with their respective successors and assigns, a " Lessor" ).
RECITALS
Whereas Lessee desires to lease certain drilling rigs, related property and other items of equipment, and intends to have each Lessor, (a) purchase such items of equipment, either from Lessee or directly from a supplier of such equipment and (b) lease the equipment to Lessee pursuant to Schedules entered into from time to time by the Lessor named therein incorporating this Master Lease.
Whereas, each Lessor is willing to enter into a Lease or Leases (as defined below) on the terms and conditions set forth herein, and in the related Schedule, and Lessee is willing to enter into the Leases on such terms and conditions.
Now, Therefore, for such good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.
Lease of Equipment .
1.1
Each Schedule is a Lease . Subject to the terms of each schedule, substantially in the form of Exhibit 1 attached hereto, executed by Lessee and a Lessor (together with all exhibits, riders and attachments thereto, each, a " Schedule" ), and incorporating the terms of this Master Lease by reference therein (collectively, a " Lease" ), each Lessor hereby leases to Lessee and Lessee hereby leases from such Lessor that certain drilling rig and those spare parts identified in the related Schedule (together with all accessories, attachments, parts, repairs, additions, upgrades and accessions thereto and all replacements and substitutions therefor, the " Equipment" ). The term " Lessor" , in each place used herein or in any other related document, instrument or agreement with respect to the Lease created by any Schedule, shall mean the party entering into and named in the Schedule as " Lessor" ( i.e. , either STLC or its designee), or any successors and assigns of such Lessor. Lessee acknowledges and agrees that, unless a Schedule expressly provides to the contrary, each Lease is a " Finance Lease" as defined by the Uniform Commercial Code (the " UCC" ).
1.2
Closing Conditions . Each Lessor's agreement to purchase and lease any Equipment under a Lease is conditioned upon such Lessor's determination that all of the following have been satisfied with respect to such Lease prior to the proposed effective date thereof:
(a)
Such Lessor' s having received the following, in form and substance reasonably satisfactory to such Lessor: (i) evidence as to due compliance with the insurance provisions of Sections 7.1 and 7.2 of this Master Lease; (ii) if requested with sufficient notice, lien searches in the jurisdictions of Lessee' s and DeSoto Drilling, Inc. (" DDI" ) respective organization, and wherever else such Lessor deems appropriate; (iii) UCC financing statements and all other filings required by such Lessor; (iv) a certificate of an appropriate officer of each of Lessee and DDI, certifying: (A) resolutions duly authorizing the transactions contemplated in the applicable Lease Documents (as defined in Section 3.2(b)) and any Relevant Third Party Document (as defined below), (B) the incumbency and signature of the officers of Lessee and DDI, authorized to execute such documents; and (C) if requested by su ch Lessor, the accuracy and completeness of the attached copies of Lessee' s organizational documents; (v) if requested by such Lessor, an opinion of counsel for Lessee as to certain of the matters set forth in Section 3.1(a) through (e) of this Master Lease under Texas law, Delaware corporate law, and certain federal law, as more particularly referenced therein; (vi) the only manually executed original of each of the related
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Schedule, and Acceptance Certificate (as defined in Section 3.1(g)), and counterpart originals of all other related Lease Documents and Relevant Third Party Documents; (vii) all purchase documents pertaining to the related Equipment (collectively, the " Supply Contract ") and, if such Lessor is purchasing the Equipment from Lessee, bills of sale, assignments of warranties, lien releases, and such other documents, instruments and agreements reasonably requested by such Lessor in connection with such purchase (the vendor and any other seller of the Equipment, a " Supplier" ); (viii) if requested by such Lessor, good standing certificates from the jurisdictions of Lessee' s and DDI' s respective organization and the state in which the Equipment is located, and evidence of Lessee' s and DDI' s organizational numbers; and (ix) such other documents, agreements, instruments, certificates, opinions, and assurances, as such Lessor reasonably may require. For the purposes hereof: (a) " Relevant Third Party" shall mean (i) any Permitted Operator (as defined in Section 13), or (ii) DDI (itself, as well as being successor by merger to PV Exploration Company); and (b) " Relevant Third Party Document" shall mean any of the following to which a Relevant Third Party is a party, (i) any bills of sale or other purchase documents relating to the Equipment, (ii) any Use Agreement, and/or (iii) the Acknowledgment and Agreement (as defined in Section 13) and any and all other documents, instruments, filings, assurances or deductibles entered into or provided to a Lessor in connection with a Lease.
(b)
All representations and warranties provided by Lessee and/or Permitted Operator in favor of a Lessor herein, in any Lease, or in any related Lease Documents or Relevant Third Party Documents, to which Lessee is a party, shall be true and correct on the effective date of the related Acceptance Certificate (and Lessee's execution and delivery of the Acceptance Certificate, shall constitute its acknowledgment of the same).
(c)
There shall be no Event of Default under such Lease. The related Equipment shall have been delivered to and accepted by Lessee, as evidenced by an Acceptance Certificate, and shall be in the condition and repair required hereby and thereby; and on the effective date of such Acceptance Certificate, the Lessor under such Lease shall have received good title to the related Equipment described therein, free and clear of any Liens, except for any Permitted Liens. For the purposes hereof, " Permitted Lien" means (i) Liens for taxes, assessments or other governmental charges that are either not delinquent or being contested in good faith by appropriate proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of the Equipment or any material part thereof, or a Lessor' s rights, title or interests with respect thereto, (ii) suppliers' , m echanics' , materialmen' s, workers' , repairmen' s, landlords' , operators' , drillers' , carriers' , employees' or other like Liens arising after the Acceptance Date in the ordinary course of Lessee' s business and for amounts the payment of which is either not yet delinquent or is being contested in good faith by appropriate proceedings, so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of the Equipment or any material part thereof, or Lessor' s rights, title or interests with respect thereto, (iii) salvage or similar rights of insurers under insurance policies maintained pursuant to Section 7.1 hereof, (iv) Liens arising out of any judgment against Lessee which has been fully bonded, (v) the rights of a Permitted Operator under a Use Agreement, (vi) Lessor Liens, and (vii) the respective rights of Lessor and Lessee under such Lease.
2.
Term and Rent . Equipment described in a Schedule shall be leased for a term (the " Term" ) that shall commence on the date stated in such Schedule and continue for the period stated therein, including any extension or renewal periods as provided in the End of Term Option Rider executed by Lessee and the Lessor thereunder in connection with such Schedule, except as sooner terminated by Lessee' s exercise of its rights under the Early Purchase Rider executed by Lessee and such Lessor, or otherwise terminated or cancelled, in each case, in accordance with any other provision hereof, or of such Lease or any of the other related Lease Documents. Lessee shall pay the Lessor the rental payments in the aggregate amounts specified in each Schedule to which it is a party, without notice or prior demand, and all other amounts payable pursuant to the related Lease (collectively, 7; Rent" ). If any Rent shall be unpaid five (5) days after the due date thereof, Lessee shall pay on demand a late charge equal to 5% of any such unpaid Rent but in no event to exceed the maximum lawful charges. EACH LEASE IS NONCANCELABLE BY LESSEE FOR ITS ENTIRE TERM , and Lessee has no right of termination or purchase of any Equipment except as specifically granted to Lessee in a Schedule (including any rider thereto). Upon the expiration of the Term respecting the Equipment, and until the return to the applicable
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Lessor of all such Equipment in accordance with the terms of the Lease applicable thereto, or until any purchase option with respect thereto is exercised in accordance with the terms of the Lease applicable thereto, at the option of the Lessor thereunder, in its sole discretion, such Lease shall remain effective and shall become a month-to-month lease between the parties with respect to such Equipment on the same terms and conditions of such Lease and the monthly Rent in effect immediately prior to such expiration shall be the monthly Rent payable during such month-to-month term under the applicable Schedule.
3.
Representations and Warranties of Lessee .
3.1
Representations and Warranties . Lessee represents and warrants to each Lessor on the date hereof and the date of the Schedule to which such Lessor is a party that:
(a)
Lessee is a corporation, duly organized and validly existing in good standing under the laws of the jurisdiction of its organization (as specified in the first sentence of this Master Lease), duly qualified to do business in each jurisdiction (i) where any Equipment subject to such Schedule is, or is to be, located or (ii) in which the failure to be so qualified, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect (as defined under Section 3.1(d)) and has full power and authority to hold property under lease and to enter into and perform its obligations hereunder and under that Lease.
(b)
Lessee is fully authorized to execute and deliver this Master Lease and each Schedule, and each of the documents, instruments and agreements entered into pursuant to or contemplated by this Master Lease, or in connection with such Schedule, including the Acceptance Certificate, Acknowledgment and Agreement, any RE Waivers, bills of sale, certificates, filings and other related assurances and deliverables (collectively with the Schedule, and solely as they relate to such Schedule, the " Lease Documents" ) to which Lessee is a party delivered by it, under an appropriate resolution or resolutions of its governing body and by any other appropriate official approval.
(c)
This Master Lease and such Lease and each related Lease Document and any Relevant Third Party Document have been duly executed and delivered by Lessee and any Relevant Third Party, to the extent each is a party thereto, and this Master Lease, such Lease and each related Lease Document and any Relevant Third Party Document constitute, legal, valid and binding obligations of Lessee and any Relevant Third Party, enforceable against Lessee and any Relevant Third Party in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally (although none of such laws is or shall be applicable to Lessee or any Relevant Third Party on the date hereof, or on the date of any Schedule, whether prior to, upon, or by reason of such party' s entering into and/or becoming bound to pay and perform its obligations under, this Master Lease, any such Schedule, or other related Lease Document or Relevant Third Party Document), and by general principles of equity.
(d)
The execution, delivery and performance by Lessee of this Master Lease and such Lease, and all related Lease Documents to which it is a party, do not violate any law or governmental rule, regulation, or order applicable to Lessee or any provision of Lessee' s organizational documents, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract, or other instrument to which it is bound which could reasonably be expected to have a Material Adverse Effect and do not and will not result in the creation of any lien, charge, security interest, encumbrance or other charge or claim (any of the same, a " Lien" ) on all or any part of the Equipment leased thereby other than as retained by, created and/or granted in favor of such Lessor under a Lease. As used herein, " Material Adverse Effect" shall mean (i) a mat erially adverse effect on the business, condition (financial or otherwise), operations, performance or properties of Lessee and its subsidiaries, taken as a whole, (ii) a material impairment of Lessee' s ability to perform its financial obligations under such Lease or any related Lease Document or (iii) any material impairment of the validity or enforceability of this Master Lease, such Lease or any related Lease Document or the rights and remedies available to such Lessor thereunder.
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(e)
There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of Lessee' s knowledge, threatened against Lessee, challenging Lessee' s authority to enter into this Master Lease, or such Lease or any related Lease Document or any other action wherein an unfavorable ruling or finding could reasonably be expected to have, a Material Adverse Effect.
(f)
No consent or authorization of, filing with, or any other act by or in respect of any person (for the purposes hereof, " person" shall mean any individual or business entity, as the context may require) is required in connection with the execution, delivery, performance or validity of this Master Lease, the Lease or any Lease Document to which Lessee is a party other than leases, titles, concessions, bonds, deposits, permits, licenses, easements and/or rights-of-way, approvals or consents, in respect of or by any local, state, federal or other governmental authority or agency, that have already been obtained or, as appropriate, shall have been obtained on or before the effective date of the related Lease.
(g)
As of the date of each Schedule, Lessee has accepted the related Equipment pursuant to a certificate of acceptance delivered to such Lessor and substantially similar in form and substance to Exhibit 2 (an " Acceptance Certificate" ) and, on each occasion, and without regard as to how situated on or attached to any real property, such Equipment is personal property and is removable from and is not essential to the premises at which it is located.
(h)
The consolidated financial statements of Lessee for the fiscal year ended December 31, 2005 contained in its annual report on Form 10-K, and the consolidated financial statements of Lessee for the fiscal quarters ended March 31, 2006, June 30, 2006, and September 30, 2006, contained in Lessee's quarterly reports on Forms 10-Q for such quarterly periods, present fairly in all material respects the financial position and the results of operations and cash flows of the Company and its consolidated subsidiaries, at the indicated dates and for the indicated periods. Such consolidated financial statements have been prepared in accordance with U.S. generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed therein.
(i)
Lessee' s residence for federal income tax purposes, Lessee' s " location" for purposes of Article 9 of the applicable UCC and its organizational identification number are as set forth below its signature hereto.
(j)
Lessee' s correct legal name is as set forth on the execution page hereof.
(k)
Any Lease or any other Lease Documents deemed to create a security interest and/or other Lien creates a valid first priority Lien on the related Equipment subject to no other Lien (other than any Permitted Lien), and upon the filing by such Lessor of financing statements pursuant to Section 17 hereof, such Lessor will have a valid and perfected security interest in the Equipment and any other Lien retained, created or granted with respect thereto, subject to no other Lien other than Permitted Liens.
(l)
Effective as of the payment of the purchase price therefor on the Acceptance Date, such Lessor shall have good and marketable title to the Equipment leased under such Lease, free and clear of all Liens, except for any Permitted Liens, whether purchased from Lessee or any third party supplier.
(m)
Lessee is in compliance with all Applicable Requirements. For the purposes hereof, " Applicable Requirements" shall mean, to the extent applicable, any and all of the following: (i) all maintenance and operating manuals or service agreements, whenever furnished or entered into, including any subsequent amendments or replacements thereof, issued by the manufacturer or service provider, to the extent disseminated to all customers, (ii) the requirements, terms and conditions of all applicable insurance policies, (iii) the Supply Contract or the original purchase agreement with the manufacturer, so as to preserve all of Lessee' s and such Lessor' s rights thereunder, including all rights to any warranties, indemnities or other rights or remedies, (iv) all Applicable Laws, and (v) all prudent
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industry standards and practices (including any of the same as determined by the American Petroleum Institute (API)), in existence from time to time for the purposes for which it was designed, but in any event, to no lesser standard than that employed by Lessee for comparable equipment owned or leased by it. For the purposes hereof, " Applicable Laws" , shall mean all applicable legal requirements, including without limitation the applicable statutes, treaties, conventions, judgments, decrees, injunctions, writs and orders of any court, governmental agency or authority and rules, regulations, orders, directives, licenses and permits of any governmental body, instrumentality, agency or authority as amended and revised, and any judicial or administrative interpretation, of any of the same, relating to such Lease or any related Lease Document or Relevant Third Party Document, Lessee, any Permitted Operator, o r any party using, operating, possessing or having any right, title or interest in, or with respect to any of the Equipment leased under such Lease, or any real property on which any of the Equipment is then located, including, without limitation, any Environmental Law (as defined in the Environmental Rider attached hereto as Rider No. 1, the terms of which are hereby incorporated herein; the " Environmental Rider" ), or any other similar municipal, state or federal law or regulation.
(n)
Lessee has paid or withheld or caused to be paid or withheld, all federal, state and local taxes required to be paid or withheld by it, and Lessee has filed all federal, state and local tax returns which are required to be filed by Lessee, if in each such case, failing to do so has resulted or could result in a Material Adverse Effect.
(o)
No factual information furnished by Lessee in connection with the entering into of this Master Lease or any Lease, relating to the transactions contemplated herein or therein, contains any material misstatement of fact or omitted to state a material fact necessary to make the statements contained therein not misleading.
(p)
Lessee is not engaged principally, nor does it engage as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying " margin stock" (as provided in F.R.S. Board Regulation T, U or X or any regulations substituted therefor, as from time to time in effect), and none of the proceeds of any Lease will be used in any manner to enable or assist any person in, directly or indirectly, purchasing or carrying " margin stock."
4.
Disclaimer of Warranties; No Agency .
4.1
Disclaimer . Lessee acknowledges that no Lessor is the manufacturer of the Equipment, the manufacturer' s agent or a dealer therein; the Equipment is of a size, design, capacity, description and manufacture selected by Lessee; Lessee is satisfied that all licenses and rights necessary to install, use and operate the Equipment have been obtained and that the Equipment is suitable and fit for its purposes; and THE EQUIPMENT IS LEASED HEREUNDER " AS IS, WHERE IS" AND WITH ALL FAULTS, AND NO LESSOR HAS MADE, NOR DOES ANY LESSOR MAKE, AND EACH LESSOR SPECIFICALLY DISCLAIMS, ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED AND ALL OTHER WARRANTIES OTHERWISE ARISING BY OPERATION OF LAW, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN, OPERABILITY, OPERATION OR PERFORMANCE OF THE EQUIPMENT, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE EQUIPMENT OR WORKMANSHIP IN THE EQUIPMENT, THE CONFORMITY OF THE EQUIPMENT TO ANY OF THE APPLICABLE REQUIREMENTS, SUCH LESSOR' S TITLE TO THE EQUIPMENT AND RIGHTS TO USE AND OPERATE THE EQUIPMENT NOR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER ; no Lessor shall be liable to Lessee, and Lessee hereby releases and discharges each Lessor, for any loss, damage, or expense of any kind or nature caused, directly or indirectly, by the Equipment or the use or maintenance thereof or the failure or operation thereof, or the repair, service or adjustment thereof, or by any delay or failure to provide any such maintenance, repairs, service or adjustment, or by any interruption of service or loss of use thereof or for any loss of business howsoever caused. No defect or unfitness of the Equipment shall relieve Lessee of the obligation to pay any Rent or perform any other obligation under any Lease. No Lessor shall have any obligation under a Lease in respect of the Equipment lea sed thereunder or any obligation to ship, deliver, assemble, install, erect, test, adjust or service such Equipment. Each Lessor agrees that until an Event of Default (as defined in
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Section 15) or an event which with lapse of time or notice, or both, might become an Event of Default hereunder (a " Default" ) has occurred, such Lessor will permit Lessee, as Lessee' s sole and exclusive remedy hereunder, to enforce in Lessee' s own name and at Lessee' s sole expense any Supplier' s or manufacturer' s warranty or agreement in respect of such Equipment to the extent that such warranty or agreement is assignable.
4.2
Lessor is Not Supplier . Lessee acknowledges and agrees that none of the manufacturer, the Supplier or any salesman, representative or other agent of the manufacturer or the Supplier is an agent of any Lessor. No salesman, representative or agent of the manufacturer or the Supplier is authorized to waive or alter any term or condition of any Lease, and no representation as to the Equipment or any other matter by the manufacturer or the Supplier shall in any way affect Lessee' s duty to pay Rent and perform its other obligations as set forth in a Lease.
5.
Exclusion of Consequential Damages .
5.1
NO CONSEQUENTIAL DAMAGES . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY LEASE, NO LESSOR SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO LESSEE OR ANY THIRD PARTY, FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY OR PUNITIVE DAMAGES ARISING OUT OF OR RELATED TO THE EQUIPMENT OR ANY TRANSACTION CONTEMPLATED UNDER ANY LEASE, WHETHER IN AN ACTION BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE OR STRICT LIABILITY) PATENT INFRINGEMENT, BREACH OF WARRANTY, MISREPRESENTATION OR THE NEGLIGENT ACTS OR OMISSIONS OF LESSEE OR ANY OTHER LEGAL THEORY, INCLUDING, BUT NOT LIMITED TO, LOSS OF ANTICIPATED PROFITS OR BENEFITS OF USE OR LOSS OF BUSINESS, BUSINESS INTERRUPTION, LOSS OF REVENUES, OR PRODUCT, LOSS BY REASON OF SHUTDOWN, NON-OPERATION, OR INCREASED EXPENSE OF MAINTENANCE OR OPERATION, INCREASED EXPENSES OF BORROWING, FINANCING, LOSS OF PRODUCTIVITY OR LOSS OF SHOP SPACE, EVEN IF SUCH LESSOR IS APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. Without limiting the foregoing, no Lessor will be responsible to Lessee or any other person with respect to, and Lessee agrees to bear sole responsibility for, any risk or other matter that is the subject of any Lessor' s disclaimer; and each Lessor's agreement to enter into this Master Lease and any Lease or Schedule is in reliance upon the freedom from and complete negation of liability or responsibility for the matters so waived or disclaimed herein or covered by the indemnity in this Lease.
6.
Risk of Loss .
6.1
Risk of Loss . At all times until all of the Equipment is returned to and accepted by the applicable Lessor in accordance with the related Lease, Lessee shall bear the risk of loss, theft, confiscation, taking, unavailability, damage or partial destruction of any or all of the Equipment and shall not be released from its obligations under any Lease or any related Lease Document in any such event. Lessee shall provide prompt written notice to such Lessor of any Total Loss or any material damage to any Equipment (including any Component Part or Spare Part (as hereinafter defined)) leased under such Lease. Any such notice must be provided together with any damage reports provided to any governmental authority, the insurer or Supplier, and any documents pertaining to the repair of such damage, including copies of work orders, and all invoices for related charges. Without limiting any other provision hereof, Lessee shall repair all damage to any Equipment (including any Component Part or Spare Part (as hereinafter defined)) from any and all causes, other than a Total Loss, so as to cause it to be in the condition and repair required by the related Lease.
6.2
Total Loss .
(a)
The parties hereby agree as follows:
(i) For the purposes of this Section 6, as incorporated into each Lease,
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(A) a " Drilling Rig" shall mean that certain drilling rig identified in the related Schedule, comprised of the Component Parts and other related property described in such Schedule as being a part of or used in connection with such drilling rig,
(B) a " Spare Part," shall mean each item of Equipment identified as a " spare part" on the related Schedule and other related property described in such Schedule as being a part of or used in connection with such spare part,
(C) a " Component Part" shall mean each of the components of the Drilling Rig specified in the related Schedule as being a part of such Drilling Rig, and other related property described in such Schedule as being a part of or used in connection with such Component Part, and
(D) each of the above defined terms shall also be deemed to include all accessories, attachments, parts, repairs, additions, upgrades and accessions to the property described in the definition and all replacements and substitutions therefor.
(ii) For the purposes hereof, (A) the occurrence of a Total Loss, at any time, of or relating to less than all of the Component Parts of the Drilling Rig leased under any Lease having an aggregate Stipulated Loss Value, determined as of the preceding rent payment date, not exceeding fifteen percent (15.00%) of the Stipulated Loss Value, as of such date, of all of the Component Parts comprising such Drilling Rig shall constitute a Total Loss of only such Component Parts, shall be deemed a Total Loss solely of each such Component Part suffering a Total Loss, and in such event Lessee shall replace such Component Parts in accordance with Section 6.4; and (B) the occurrence a Total Loss, at any time, with respect to Component Parts having an aggregate Stipulated Loss Value, determined as of the preceding rent payment date, equal to or exceeding fifteen percent (15.00%) of the Stipulated Loss Value, as of such dat e, of all of the Component Parts comprising such Drilling Rig shall constitute a Total Loss of such Drilling Rig, and in such event, Lessee shall pay the amounts and otherwise comply with Section 6.3.
(iii) Notwithstanding the provisions of subparagraph (ii) above, or any shorter grace periods provided for in the definition of " Total Loss" in Section 6.2(b), Lessee may avoid having the occurrence described in subparagraph (ii) being deemed a Total Loss with respect to the related Drilling Rig by replacing the Component Parts having suffered an immediate Total Loss, or a Potential Loss (as defined below) within sixty (60) days of the occurrence of such immediate Total Loss, or Potential Loss, as the case may be, or if earlier, at the expiration or earlier termination or cancellation of the related Lease. Any such replacement must be made in accordance with the provisions of Section 6.4 (except that the 60 day period set forth therein will run from the date of the Potential Loss, if applicable), and Lessee' s right to make such replacement shall be further conditioned upon the aggregate Stipulated Loss Value of all such Component Parts having suffered such Total Loss or Potential Loss, as the case may be, determined as of the preceding rent payment date, being less than twenty five percent (25.00%) of the Stipulated Loss Value, as of such date, of all of the Component Parts comprising such Drilling Rig. For the purposes hereof, a " Potential Loss" shall mean an event or occurrence described in the definition of Total Loss that, with the passage of time without cure could be deemed a Total Loss. Upon the occurrence of a Total Loss of any Spare Part, Lessee shall replace such Spare Part in accordance with Section 6.4.
(b)
A " Total Loss" shall be deemed to have occurred with respect to a Drilling Rig, any Spare Part or any Component Part, as the case may be, upon: (i) any damage thereto that results in an insurance settlement with respect to such Drillin...
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