Ground Lease Agreement

APPENDIX 7


GROUND LEASE AGREEMENT,


BETWEEN


UNION CARBIDE CORPORATION, LANDLORD


AND


NORTHERN COGENERATION ONE COMPANY, TENANT


DATED


JANUARY 1, 1986


IN


TEXAS CITY, TEXAS


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TABLE OF CONTENTS


ARTICLE I: DEFINITIONS..................................................... 1
1.01. Certain Definitions............................................. 1


ARTICLE II: DEMISE; TERM; USE............................................... 3
2.01. Demise of Premises.............................................. 3
2.02. Term and Commencement........................................... 4
2.03. Renewal and Extension........................................... 5
2.04. Use of Premises................................................. 5


ARTICLE III: CONSTRUCTION OF IMPROVEMENTS AND LANDLORD'S IMPROVEMENTS........ 6
3.01. Plans........................................................... 6
3.02. Contractor...................................................... 7
3.03. Construction.................................................... 7
3.04. Compliance Inspections.......................................... 7
3.05. Utilities....................................................... 7
3.06. Payment Certificate............................................. 8
3.07. Ownership of Landlord's Improvements............................ 9
3.08. Tenant's Failure to Complete.................................... 9
3.09. Tenant's Failure to Prosecute the Work.......................... 9
ARTICLE IV: RENT AND ADJUSTMENTS............................................ 9
4.01. Payment of Rent................................................. 9
4.02. Net Lease.......................................................10


ARTICLE V: TAXES, UTILITIES AND ADDITIONAL EXPENSES........................10
5.01. Tenant's Payment of Taxes and Assessments.......................10
5.02. Utility Charges.................................................12
5.03. Liens...........................................................12
5.04. Landlord's Option to Pay or Perform.............................13


ARTICLE VI REPAIR AND MAINTENANCE..........................................13
6.01. Obligation of Repair............................................13
6.02. Safety and Environmental Matters................................13


3 ARTICLE VII: INSURANCE; INDEMNIFICATION......................................15
7.01. Tenant's Insurance..............................................15
7.02. Maintenance of Insurance........................................15
7.03. Waiver of Subrogation Rights....................................16
7.04. INDEMNITY.......................................................16
ARTICLE VIII: DAMAGE AND DESTRUCTION..........................................17
8.01. Election to Restore.............................................17
8.02. Election to Terminate...........................................17
ARTICLE IX: CONDEMNATION....................................................17
9.01. Total Taking....................................................17
9.02. Partial Taking..................................................18
9.03. Prosecution of Proceedings......................................18
ARTICLE X: TRADE FIXTURES AND OTHER IMPROVEMENTS ON TERMINATION............19
10.01. Ownership of Improvements.......................................19
10.02. Removal of Trade Fixtures by Tenant.............................19


ARTICLE XI: DEFAULTS AND REMEDIES...........................................20
11.01. Events of Default by Tenant.....................................20
11.02. Landlord's Remedies.............................................20
11.03. Events of Default by Landlord...................................21
11.04. Tenant's Remedies...............................................22
11.05. Damage Limitations..............................................22
11.06. Non-Waiver......................................................23
11.07. Remedies Cumulative.............................................23


ARTICLE XII: TRANSFER OF INTERESTS...........................................23
12.01. Assignment and Subletting.......................................23
12.02. Permitted Transfers.............................................23
12.03. Prohibition Against Encumbrances................................24
12.04. Estoppel Certificates...........................................24


ARTICLE XIII: LANDLORD'S RIGHT TO USE PREMISES................................24


ARTICLE XIV: QUIET ENJOYMENT.................................................24


4 ARTICLE XV: HOLDING OVER....................................................25


ARTICLE XVI: NOTICES.........................................................25


ARTICLE XVII: GENERAL PROVISIONS..............................................26
17.01. Time is of the Essence..........................................26
17.02. Entire Agreement................................................26
17.03. No Agency or Partnership........................................26
17.04. No Merger.......................................................26
17.05. Attorneys' Fees.................................................27
17.06. Governing Law...................................................27
17.07. Partial Invalidity..............................................27
17.08. Binding Effect..................................................27
17.09. Construction....................................................27
17.10. Memorandum of Lease.............................................27
17.11. Confidentiality.................................................27
17.12. Force Majeure...................................................28
17.13. Compliance with Laws............................................28
17.14. Late Payments...................................................28
17.15. Precautionary Filings...........................................28
17.16. Priority of Agreements..........................................29
17.17. Fair Market Value...............................................29


EXHIBIT A: Legal Description of Premises


EXHIBIT A-1: Premises Survey


EXHIBIT B: Cogeneration Site Clearance


EXHIBIT C: Designation of Main Drainage Ditch


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GROUND LEASE AGREEMENT


THIS GROUND LEASE AGREEMENT dated as of January 1, 1986 ("Lease") is made and entered into by and between UNION CARBIDE CORPORATION ("Landlord") and NORTHERN COGENERATION ONE COMPANY ("Tenant").


W I T N E S E T H:


ARTICLE I


DEFINITIONS


1.01. Certain Definitions. In addition to those certain terms defined elsewhere in this Lease, the following capitalized terms shall be defined as set forth below, for purposes of this Lease and all supplements and amendments hereto, unless otherwise required by the context in which such term appears:


(1) "Additional Rent" means any and all sums other than Annual
Rent which Tenant is or becomes obligated to pay to Landlord under this
Lease.


(2) "Agreements" means this Lease, the Steam and Electricity
Service Agreement and the Utility Service Agreement.


(3) "Annual Rent" shall have the meaning described in Section
4.01.


(4) "Applicable Law" means all present and future statutes,
regulations, ordinances, resolutions and orders of any Governmental
Authority in any way relating to this Lease, the Premises or Tenant's use
thereof.


(5) "Applicable Rate" means, at any time, the then current
short-term borrowing rate, plus one percent (1%0, of the obligor, not to
exceed the maximum interest rate permitted to be charged by Applicable
Law.


(6) "Commencement Date" means that date for commencement of the
Term of this Lease determined in accordance with Section 2.02 hereof.


(7) "Commencement of Service Date" shall have the same meaning as
described in the Steam and Electricity Service Agreement.


(8) "Contractor" means the general construction contractor or
contractors for construction of Tenant's Plant, selected by Tenant as
provided in Section 3.02.


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(9) "Force Majeure" means fire, strike, riot, explosion, flood,
accident, acts of God, the public enemy, governmental laws, ordinances,
rules or regulations (whether valid or invalid), or without limitation by
enumeration, any other acts or circumstances beyond the reasonable control
of the affected party which prevents or delays the performance by Landlord
or Tenant of any obligation imposed upon it hereunder (other than the
payment of Rent). Unscheduled shutdowns due to failure of either party to
properly maintain the equipment for which it is responsible according to
accepted practices shall not be considered as a force majeure event.


(10) "Governmental Authority" means any federal, state, county or
municipal governing body, and any department, agency or board thereof,
having jurisdiction over the Project.


(11) "Improvements" means Tenant's Plant and the Retrofit
Equipment.


(12) "Landlord's Improvements" means those improvements on certain
land as designated in the plans and specifications attached hereto as
Exhibit "B".


(13) "Landlord's Land" means the land owned by Landlord in Texas
City, Texas, situated in the vicinity of the Premises, as such land may be
increased or decreased from time to time, except that the Premises is
expressly excluded from such definition.


(14) "Landlord's Plant" means the plant, including equipment,
rolling stock and all personal property of any kind, owned and operated by
or on behalf of Landlord on Landlord's Land, now or in the future, being
the property and equipment on Landlord's side of the Point of Delivery,
excluding the Retrofit Equipment.


(15) "Lease Year" means each calendar year, or portion thereof,
during the term of the Lease.


(16) "Plans" means the plans and specifications for the
construction of the Improvements, prepared as provided in Section 3.01.


(17) "Point of Delivery" shall be those points specified in the
Steam and Electricity Service Agreement.


(18) "Premises" means the property which is the subject hereof and
leased by Landlord to Tenant and which is described by metes and bounds in
Exhibit A, attached hereto.


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(19) "Project" means the Premises and Tenant's Plant to be
constructed thereon.


(20) "Rent" means Annual Rent and Additional Rent.


(21) "Retrofit Equipment" means that equipment described in the
Steam and Electricity Service Agreement as Retrofit Equipment and owned,
constructed and provided by Tenant on Landlord's Land.


(22) "Steam and Electricity Service Agreement" means the Steam and
Electricity Service Agreement dated as of June 12, 1985, between Landlord
and Tenant providing for the sale and purchase of steam and electricity as
therein provided, as amended from time to time.


(23) "Substantial Completion" means that Tenant's Plant has been
substantially completed in accordance with the Plans and evidenced by a
certificate to such effect executed by Landlord and Tenant. Such
certificate shall not be withheld because certain minor items of
construction or mechanical adjustment remain to be completed.


(24) "Tenant's Plant" means the plant, including equipment, rolling
stock and all personal property of any kind, owned and operated by Tenant
on the Premises, being the property and equipment on Tenant's side of the
Point of Delivery up to and including the Point of Delivery.


(25) "Term" means the term of this Lease, as provided in Sections
2.02 and 2.03.


(26) "Utility Service Agreement" means the Utility Service
Agreement dated as of June 12, 1985, between Landlord and Tenant providing
for the sale of utility service as therein provided, as amended from time
to time.


ARTICLE II


DEMISE; TERM; USE


2.01 Demise of Premises. (a) Subject to the terms and conditions set forth herein, and in consideration of the covenants of payment and performance set forth herein, Landlord hereby leases and demises unto Tenant, and Tenant hereby rents and accepts from Landlord, the Premises, subject to all existing exceptions, reservations, conditions, restrictions, easements and other third-party rights and the exception and reservation by Landlord of the exclusive right to use any wastewater, drainage, utility or product ditches, conduits or pipelines now located in, under, upon or through the Premises, whether visible from


-3- 8 apparent inspection or otherwise, except as may be otherwise expressly provided by the Agreements. The foregoing shall be subject to the limitations and indemnification contained in Section 6.02 (b) of this Agreement.


(b) Landlord agrees to inform Tenant of the nature and approximate location of such facilities or easements on or pertaining to the Premises, or privilege to install same, of which Landlord is aware. Tenant has the duty to investigate and inspect the Premises for the purpose of ascertaining the conditions existing at such Premises; provided, however, that the inability to visually observe any of such conditions shall not affect Tenant's liability and responsibilities hereunder. In any event, Tenant shall have the right to build the Improvements in substantially. the manner originally anticipated as long as the construction, operation and use thereof does not unreasonably interfere with the rights of those parties entitled to possession of the Premises by way of easements, whether express, prescriptive or otherwise.


(c) Tenant may, at Tenant's sole cost, expense and liability, exercise all of Landlord's rights and privileges pertaining to the relocation or removal of third party property on the Premises, subject however to any pre-existing agreements between Landlord and such third party. Tenant agrees to indemnify and hold Landlord harmless from and against any claims, costs, damages or liabilities arising in connection with the exercise of such rights and privileges.


(d) Landlord, its subsidiaries and affiliates, currently utilize portions of the Premises for pipelines as indicated on the site plan of D. Engineers, Inc., dated September 30, 1985, and such use shall continue uninterrupted by this Lease, subject however to the provisions of Section 2.01(b) above. Landlord shall have the right to evidence in written, recordable form easements sufficient to reasonably service such pipelines and this Lease shall thereby be subject to such easements.


2.02 Term and Commencement. Unless sooner terminated as provided in this Lease, the Term of this Lease will be for a period beginning on the Commencement Date and ending on June 30, 1999, or such earlier date as the Steam and Electricity Service Agreement may terminate if such termination is due to Tenant's default or the mutual agreement of the parties. The Commencement Date and the date of delivery of possession of the Premises to Tenant shall be the effective date of this Agreement or such earlier date as may be mutually agreed by the parties hereto. Notwithstanding the Commencement Date, however, Landlord shall have the right to use the Premises as a parking lot until such


-4- 9 time as Tenant has provided satisfactory alternative parking facilities for Landlord as specified on Exhibit "B" hereto.


2.03. Renewal and Extension. In the event that the parties agree to extend the Steam and Electricity Service Agreement beyond the initial term thereof, this Lease shall be extended for the same period of time. In the event of termination of the Steam and Electricity Agreement (except due to the default by Tenant) and subject to the continuous operation of Tenant's Plant and the Retrofit Equipment in accordance with Section 2.04 below and this Lease, the term of this Lease shall be extended at the option of Landlord and Tenant f or so long as Tenant's Plant is used for the production of steam or electric power, provided that if Landlord chooses in its sole discretion not to extend the term of this Lease, Tenant shall have, the option to purchase the Premises upon terms mutually agreeable to Landlord and Tenant. In the event Landlord and Tenant are unable to reach a satisfactory agreement as to acquisition of the Premises and Tenant still desires to purchase the Premises, the purchase price shall be the fair market value of the Premises as determined in accordance with Section 17.17 of this Lease. Within sixty (60) days after Landlord provides written notice to Tenant of its election not to extend this Lease, Tenant shall provide written notice to Landlord whether it intends to purchase the Premises. Conveyance of the Premises to Tenant and payment of the consideration for such sale shall occur within sixty (60) days after the purchase price is agreed upon or determined. In the event Tenant fails or refuses to exercise the option provided for herein, Tenant shall have no continuing right to the Premises after termination of this Lease, except as may be otherwise provided in this Lease. The instrument(s) conveying the Premises to Tenant shall contain a restriction limiting use of the Premises to the same extent limited by this Lease, unless otherwise approved by Landlord, which approval shall not be unreasonably withheld as long as the intended use does not potentially interfere with the ongoing business of Landlord. Landlord and Tenant shall also agree upon such mutual reciprocal easements and rights and obligations between Landlord and Tenant as may be necessary to continue use of the Premises, the Improvements and Landlord's Plant in the same manner contemplated by this Lease. Such restriction and mutual reciprocal easements shall terminate in the event Landlord becomes the owner of the Premises or the Premises is merged with Landlord's Land. In the event of violation of such restriction, Landlord shall have the option to acquire the Premises in the same manner described above and the Improvements shall be disposed of in accordance with Article X.


2.04. Use of Premises. Tenant shall have the right to use the Premises for the following purposes, and only for those purposes: construction of Tenant's Plant, and the business of


-5- 10 operating and maintaining Tenant's Plant for the generation and production of steam and electricity for sale to Landlord and third parties. Any use by Tenant of the Premises for any other purposes shall require the specific prior written approval of Landlord thereto. Tenant shall at all times during the Term, excepting periods of reconstruction due to casualty or condemnation (provided Tenant diligently and continuously prosecutes the same), continuously operate Tenant's Plant and the Retrofit Equipment in accordance with the terms of the Agreements. Notwithstanding the above, however, if Landlord is in default under the Steam and Electricity Service Agreement, and said Agreement has been terminated for that reason, Tenant shall have the right for the balance of the term of any then effective agreement for the sale of electric power generated by Tenant's Plant to operate and maintain Tenant's Plant. If, however, Tenant is in default under (i) the existing agreement, as amended, for the sale of electricity to said public utility of electric power generated by Tenant's Plant and (ii) the Steam and Electricity Agreement and/or Utility Service Agreement and Landlord has obtained the full amount of its remedy due to such default, Tenant may sublease the Premises to said electric public utility for the balance of the original term of this Lease.


ARTICLE III


CONSTRUCTION OF IMPROVEMENTS AND LANDLORD'S IMPROVEMENTS


3.01. Plans. (a) Tenant shall, without expense to Landlord, prepare plans and specifications for construction of the Improvements and shall construct such Improvements as required by the Steam and Electricity Service Agreement. Such plans and specifications shall include working drawings, complete for building purposes and sufficient for approval by all Governmental Authorities. Tenant shall design the Improvements to provide for all surface water runoff to be delivered in the manner designated on Exhibit "C" hereto. Tenant shall design the Improvements to conform with all easement obligations of Landlord and to prevent any damage to pipelines existing on the Premises on the date of execution of this Lease. Tenant shall comply with all pipeline easement conditions applicable to Landlord on the Premises.


(b) Tenant, as an independent contractor and not as an agent or partner of Landlord, shall also construct Landlord's Improvements at no cost to Landlord on land to be provided by Landlord in accordance with the plans and specifications. for Landlord's Improvements attached hereto as Exhibit "B". Landlord's Improvements are hereby expressly agreed not to be part of the Retrofit Equipment.


-6- 11
(c) Tenant shall obtain, without expense to Landlord, all building permits and approvals required by Governmental Authorities before commencing construction.


3.02. Contractor. (a) Tenant shall retain one or more contractors (the "Contractor") to construct the Improvements and Landlord's Improvements. The construction contract to be executed between Tenant and Contractor shall provide that Contractor shall look solely to Tenant for any payment due under the construction contract.


(b) Tenant shall require all Contractors to furnish payment and performance bonds, naming Landlord as a co-obligee, which shall be in such amount and with such other terms as are reasonably satisfactory to Landlord. Such bonds shall remain in effect notwithstanding any breach of contract by Tenant or termination of this Lease. The comprehensive general liability insurance and indemnification provisions set forth in Article VII shall apply to the construction of Landlord's Improvements, and Tenant shall require similar provisions of its Contractors.


3.03. Construction. Upon obtaining required permits and approvals, Tenant shall commence construction of the Improvements and Landlord's Improvements and thereafter prosecute same to Substantial Completion. All construction shall be done substantially in accordance with the Plans, in compliance with all Applicable Laws, and in a good and workmanlike manner. Tenant shall pay all bills for labor, materials and supplies in connection with such construction, and shall obtain releases of liens from the persons or entities performing such labor or furnishing such materials and supplies, and all fees for engineering, architectural, legal and other professional services incurred in connection with such construction.


3.04. Compliance Inspections. Landlord shall have the right to inspect, at any time during business hours, the Improvements and Landlord's Improvements and all construction and materials thereof and all plans, drawings, records and other documents that relate to construction of the Improvements and Landlord's Improvements. Tenant shall afford Landlord full and free access to the Improvements and Landlord's Improvements and all such documents. Landlord shall have no obligation to make any inspections, and if Landlord makes any inspection, Landlord shall have no responsibility or liability for detecting or determining deficiency in construction or variance from the Plans.


3.05. Utilities. Except to the extent otherwise provided in the Steam and Electricity Service Agreement and the Utility Service Agreement, Tenant shall be responsible for obtaining satisfactory utility service for full operation of the Improvements without expense to Landlord. As an incident to


-7- 12 Tenant's occupancy and subject to availability, capacity and sufficient prior notice, Landlord will endeavor to provide Tenant with electric power sufficient to enable Tenant to commence initial operations in Tenant's Plant on the Premises or restart Tenant's Plant in the event of a power shutdown. Such power shall be generated from Landlord's qualifying cogeneration facilities under Federal Energy Regulatory Commission guidelines. Tenant's use of power supplied by Landlord shall be strictly limited to use at Tenant's Plant and may not be held for resale or distribution to any other party. Landlord shall have the right to terminate the supply of electric power if at any time such activity would endanger the operations at Landlord's Plant or if required under Applicable Laws. The agreement of the Landlord to the foregoing is based on the assumption that the ratepayers of the utility in whose service area the Tenant is located will not be substantially adversely affected as a result of the activity of Landlord or Tenant anticipated by this Section. If at any time it is claimed by governmental agencies exercising jurisdiction in such area under Applicable Laws that Landlord is in violation of Applicable Laws, that Landlord is required to obtain a Certificate of Convenience and Necessity or that the services provided by Landlord are deemed evidence that it is operating or holding itself out as a public utility, any rights or obligations with regard to supplying electric power shall thereby terminate. Landlord shall not be liable to Tenant for any claims, damages, loss or liability due to (i) Landlord's inability or failure to furnish any of the power pursuant to the provisions of this Section on account of any force majeure occurrences, (ii) any failure of Landlord's supplier of electricity to provide adequate and reliable service which affects Landlord's ability to provide power to Tenant, or (iii) any failure, interruption or curtailment of any of the power due to equipment, labor or other problems which do not arise out of the gross negligence or willful misconduct of Landlord, its employees, agents or contractors. Tenant shall fully and promptly pay, pe ...