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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut, Kansas City, Missouri 64106-2124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 556-2200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock at
August 8, 2001, was 61,856,069 shares.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Balance Sheets
(Unaudited)
June 30 December 31
2001 2000
(thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 17,797 $ 34,877
Receivables 180,522 115,356
Equity securities 5,496 18,597
Fuel inventories, at average cost 23,909 20,802
Materials and supplies, at average cost 47,728 46,402
Deferred income taxes 2,948 737
Other 27,462 14,455
Total 305,862 251,226
Nonutility Property and Investments
Telecommunications property 384,760 -
Affordable housing limited partnerships 95,993 98,129
Gas property and investments 28,997 47,654
Nuclear decommissioning trust fund 59,629 56,800
Other 66,381 81,624
Total 635,760 284,207
Utility Plant, at Original Cost
Electric 4,172,699 3,832,655
Less-accumulated depreciation 1,730,171 1,645,450
Net utility plant in service 2,442,528 2,187,205
Construction work in progress 85,814 309,629
Nuclear fuel, net of amortization
of $118,441 and $110,014 26,217 30,956
Total 2,554,559 2,527,790
Deferred Charges
Regulatory assets 135,448 139,456
Prepaid pension costs 78,042 68,342
Goodwill 104,548 11,470
Other deferred charges 16,960 11,400
Total 334,998 230,668
Total $ 3,831,179 $ 3,293,891
LIABILITIES AND CAPITALIZATION
Current Liabilities
Notes payable $ 22,306 $ -
Commercial paper 245,802 55,600
Current maturities of long-term debt 268,342 93,645
Accounts payable 154,642 158,242
Accrued taxes 20,408 14,402
Accrued interest 13,067 12,553
Accrued payroll and vacations 26,082 28,257
Accrued refueling outage costs 7,560 1,890
Other 62,612 14,877
Total 820,821 379,466
Deferred Credits and Other Liabilities
Deferred income taxes 601,748 590,220
Deferred investment tax credits 47,892 50,037
Deferred telecommunications revenue 47,257 -
Other 115,601 121,907
Total 812,498 762,164
Capitalization (see statements) 2,197,860 2,152,261
Commitments and Contingencies (Note 4)
Total $ 3,831,179 $ 3,293,891
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
1
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Capitalization
(Unaudited)
June 30 December 31
2001 2000
(thousands)
Long-term Debt (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 2003-08,
7.28% and 7.18%, weighted-average rate $ 179,000 $ 206,000
3.94%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Senior Notes
7.125% due 2005 250,000 250,000
Unamortized discount (495) (550)
Medium-Term Notes
6.69%** due 2002 - 200,000
Environmental Improvement Revenue Refunding Bonds
3.93%* Series A & B due 2015 106,500 106,500
4.50% Series C due 2017 50,000 50,000
4.35% Series D due 2017 40,000 40,000
Subsidiary Obligations
Senior Discount Notes
12.5% due 2008 202,693 -
Unamortized discount (2,088) -
R.S. Andrews Enterprises, Inc. long-term debt
8.25% weighted-average rate due 2003-07 2,675 -
Affordable Housing Notes
8.15% and 8.29%, weighted-average rate 20,333 31,129
due 2003-08
KLT Inc. Bank Credit Agreement
4.47% due 2003 94,000 -
Total 1,101,386 1,041,847
Company-obligated Mandatorily Redeemable
Preferred Securities of a trust holding solely
KCPL Subordinated Debentures 150,000 150,000
Cumulative Preferred Stock
$100 Par Value
3.80% - 100,000 shares issued 10,000 10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
$100 Par Value - Redeemable
4.00% - 62
Total 39,000 39,062
Common Stock Equity
Common stock-150,000,000 shares authorized
without par value 61,908,729 shares issued,
stated value 449,697 449,697
Retained earnings (see statements) 470,289 473,321
Accumulated other comprehensive income
Loss on derivative hedging instruments (10,858) -
Capital stock premium and expense (1,654) (1,666)
Total 907,474 921,352
Total $ 2,197,860 $ 2,152,261
* Variable rate securities, weighted-average rate as of June 30, 2001
** Variable rate securities, weighted-average rate as of December 31, 2000
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
2
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30 2001 2000
(thousands)
Operating Revenues
Electric sales revenues $325,594 $276,121
Gas sales revenues 5,131 13,824
Telecommunications revenues 4,725 -
Other revenues 18,882 981
Total 354,332 290,926
Operating Expenses
Fuel 39,589 35,332
Purchased power 86,281 56,837
Gas purchased and production expenses 4,960 7,316
Other 85,059 58,838
Maintenance 20,444 18,456
Depreciation and depletion 39,991 33,489
Gain on property (20,398) (4,715)
General taxes 22,562 22,078
Total 278,488 227,631
Operating income 75,844 63,295
Income (Loss) from equity investments 424 (10,482)
Other income and expenses 649 (1,672)
Interest charges 25,615 19,016
Income before income taxes 51,302 32,125
Income taxes 15,070 5,385
Net income 36,232 26,740
Preferred stock dividend requirements 412 412
Earnings available for common stock $ 35,820 $ 26,328
Average number of common shares outstanding 61,855 61,864
Basic and diluted earnings per common share $ 0.58 $ 0.43
Cash dividends per common share $ 0.415 $ 0.415
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
3
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Income
(Unaudited)
Year to Date June 30 2001 2000
(thousands)
Operating Revenues
Electric sales revenues $576,398 $ 466,454
Gas sales revenues 17,106 21,862
Telecommunications revenues 6,992 -
Other revenues 35,693 1,943
Total 636,189 490,259
Operating Expenses
Fuel 72,303 65,185
Purchased power 156,647 71,635
Gas purchased and production expenses 17,115 10,562
Other 164,859 114,358
Maintenance 41,753 38,517
Depreciation and depletion 76,622 65,083
Gain on property (21,706) (3,690)
General taxes 45,414 43,295
Total 553,007 404,945
Operating income 83,182 85,314
Loss from equity investments (112) (16,240)
Other income and expenses (531) (9,515)
Interest charges 49,836 36,368
Income before income taxes, extraordinary
item and cumulative effect of changes
in accounting principles 32,703 23,191
Income taxes (557) (4,124)
Income before extraordinary item and
cumulative effect of changes in
accounting principles 33,260 27,315
Early extinguishment of debt,
net of income taxes 15,872 -
Cumulative effect to January 1, 2000,
of changes in accounting principles,
net of income taxes - 30,073
Net income 49,132 57,388
Preferred stock dividend requirements 824 824
Earnings available for common stock $ 48,308 $ 56,564
Average number of common shares outstanding 61,855 61,881
Basic and diluted earnings per common share
before extraordinary item and cumulative
effect of changes in accounting principles $ 0.52 $ 0.42
Early extinguishment of debt 0.26 -
Cumulative effect to January 1, 2000, of
changes in accounting principles - 0.49
Basic and diluted earnings per common share $ 0.78 $ 0.91
Cash dividends per common share $ 0.83 $ 0.83
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
Year to Date June 30 2001 2000
(thousands)
Cash Flows from Operating Activities
Net income $ 49,132 $ 57,388
Adjustments to reconcile income to net cash
from operating activities:
Early extinguishment of debt, net of income taxes (15,872) -
Cumulative effect of changes in
accounting principles, net of income taxes - (30,073)
Depreciation and depletion 76,622 65,083
Amortization of:
Nuclear fuel 8,428 8,640
Other 8,561 5,731
Deferred income taxes (net) 346 (3,467)
Investment tax credit amortization (2,145) (2,235)
Accretion of Senior Discount Notes 9,719 -
Loss from equity investments 112 16,240
Gain on sale of KLT Gas properties (19,551) -
Asset impairments - 1,994
Allowance for equity funds
used during construction (3,646) (1,950)
Other operating activities (Note 1) (102,942) 26,634
Net cash from operating activities 8,764 143,985
Cash Flows from Investing Activities
Utility capital expenditures (120,010) (230,236)
Allowance for borrowed funds
used during construction (7,698) (5,120)
Purchases of investments (40,653) (40,850)
Purchases of nonutility property (35,806) (13,485)
Sale of KLT Gas properties 41,707 -
Sale of securities 20,778 -
Hawthorn No. 5 partial insurance recovery 30,000 50,000
Loan to DTI prior to majority ownership (94,000) -
Other investing activities 4,607 13,113
Net cash from investing activities (201,075) (226,578)
Cash Flows from Financing Activities
Issuance of long-term debt 94,000 272,000
Repayment of long-term debt (63,320) (57,000)
Net change in short-term borrowings 197,151 (79,339)
Dividends paid (52,164) (52,177)
Other financing activities (436) (2,768)
Net cash from financing activities 175,231 80,716
Net Change in Cash and Cash Equivalents (17,080) (1,877)
Cash and Cash Equivalents at Beginning of Year 34,877 13,073
Cash and Cash Equivalents at End of Period $ 17,797 $ 11,196
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Year to Date
June 30 June 30
2001 2000 2001 2000
(thousands)
Net income $ 36,232 $ 26,740 $ 49,132 $ 57,388
Other comprehensive income (loss):
Loss on derivative
hedging instruments (31,578) - (34,168) -
Income tax benefit 13,127 - 14,207 -
Net loss on derivative
hedging instruments (18,451) - (19,961) -
Reclassification adjustment,
net of tax (4,333) - (8,340) 2,337
Comprehensive income before
cumulative effect of a
change in accounting
principles, net of
income taxes 13,448 26,740 20,831 59,725
Cumulative effect to
January 1, 2001, of a
change in accounting
principles, net of
income taxes - - 17,443 -
Comprehensive Income $ 13,448 $ 26,740 $ 38,274 $ 59,725
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Statements of Retained Earnings
(Unaudited)
Three Months Ended Year to Date
June 30 June 30
2001 2000 2001 2000
(thousands)
Beginning balance $ 460,139 $ 423,500 $ 473,321 $ 418,952
Net income 36,232 26,740 49,132 57,388
496,371 450,240 522,453 476,340
Dividends declared
Preferred stock -
at required rates 412 411 824 824
Common stock 25,670 25,666 51,340 51,353
Ending balance $ 470,289 $ 424,163 $ 470,289 $ 424,163
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
6
KANSAS CITY POWER & LIGHT COMPANY
CERTAIN FORWARD-LOOKING INFORMATION
Statements made in this report which are not based on historical facts
are forward-looking and, accordingly, involve risks and uncertainties
that could cause actual results to differ materially from those
discussed. Any forward-looking statements are intended to be as of
the date on which such statements are made. In connection with the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, we are providing a number of important factors that could
cause actual results to differ materially from provided forward-
looking information. These important factors include:
- - future economic conditions in the regional, national and
international markets
- - state, federal and foreign regulation
- - weather conditions
- - financial market conditions, including, but not limited to changes
in interest rates
- - inflation rates
- - increased competition, including, but not limited to, the
deregulation of the United States electric utility industry, and the
entry of new competitors
- - ability to carry out marketing and sales plans
- - ability to achieve generation planning goals and the occurrence of
unplanned generation outages
- - nuclear operations
- - ability to enter new markets successfully and capitalize on growth
opportunities in nonregulated businesses
- - adverse changes in applicable laws, regulations or rules governing
environmental (including air quality regulations), tax or accounting
matters
- - delays in the anticipated in service dates of new generating
capacity
- - market conditions in the telecommunications industry
This list of factors may not be all-inclusive since it is not possible
to predict all possible factors.
THE COMPANY
The consolidated company (referred to throughout as consolidated or
the Company) consists of Kansas City Power & Light Company (KCPL), KLT
Inc., Great Plains Power Incorporated (GPP), and Home Service
Solutions Inc. (HSS). KLT Inc.'s major holdings consist of DTI
Holdings, Inc. (DTI), Strategic Energy LLC (SEL), KLT Gas, and
investments in affordable housing limited partnerships. HSS has two
subsidiaries: Worry Free Service, Inc. and R.S. Andrews Enterprises,
Inc. (RSAE).
7
Notes to Consolidated Financial Statements
In management's opinion, the consolidated interim financial statements
reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations for
the interim periods presented. These statements and notes should be
read in connection with the financial statements and related notes
included in our 2000 annual report on Form 10-K. The consolidated
financial statements include the accounts of KCPL, KLT Inc., HSS and
GPP.
1. SUPPLEMENTAL CASH FLOW INFORMATION (a)
Year to Date June 30
2001 2000
(thousands)
Cash flows affected by changes in:
Receivables $ (60,076) $ (23,532)
Fuel inventories (3,107) (910)
Materials and supplies (1,326) (519)
Accounts payable (41,118) 45,683
Accrued taxes 3,568 17,961
Accrued interest 472 (4,111)
Wolf Creek refueling outage accrual 5,670 5,292
Pension and postretirement
benefit obligations (14,051) (7,496)
Other 7,026 (5,734)
Total other operating activities $ (102,942) $ 26,634
Cash paid during the period for:
Interest $ 41,178 $ 39,503
Income taxes $ 8,624 $ 109
During the first quarter of 2001, KLT Telecom increased its equity
ownership in DTI to a majority ownership and HSS increased its equity
ownership in RSAE to a majority ownership. The effect of these
transactions is summarized in the tables that follow (b).
DTI RSAE Total
(thousands)
Cash paid to obtain majority ownership $ (39,855) $ (560) $ (40,415)
Subsidiary cash 4,557 1,053 5,610
Purchases of subsidiaries, net of
cash received $ (35,298) $ 493 $ (34,805)
Purchase of other investments (5,848)
Total purchases of investments $ (40,653)
8
DTI at RSAE at
February 8 January 1
2001 2001
Initial consolidation of subsidiaries: (thousands)
Assets
Cash $ 4,557 $ 1,053
Receivables 1,012 4,078
Other nonutility property and investments 363,825 6,267
Goodwill 67,774 24,496
Other assets 5,143 3,919
Eliminate equity investment (64,870) (7,200)
Total assets $ 377,441 $ 32,613
Liabilities
Notes payable $ 5,300 $ 10,057
Accounts payable 31,299 6,219
Accrued taxes 2,414 24
Deferred income taxes 7,437 -
Deferred telecommunications revenue 41,522 -
Other liabilities and deferred credits 5,009 13,418
Loan from KLT Telecom (c) 94,000 -
Long-term debt 190,460 2,895
Total liabilities $ 377,441 $ 32,613
(a) The initial consolidations of DTI and RSAE are not reflected
in the Consolidated Statement of Cash Flows year to date June 30,
2001.
(b) Additional adjustments to purchase accounting may be made.
(c) KLT Telecom provided a $94 million loan to DTI for the
completion of the tender offer of 50.4 percent of DTI's Senior
Discount Notes prior to increasing its DTI investment to a
majority ownership. This loan is eliminated in consolidation.
2. CAPITALIZATION
KCPL Financing I (Trust) has previously issued $150,000,000 of 8.3%
preferred securities. The sole asset of the Trust is the $154,640,000
principal amount of 8.3% Junior Subordinated Deferrable Interest
Debentures, due 2037, issued by KCPL.
KCPL is authorized to issue an additional $150 million of debt
securities under its shelf registration statement dated November 21,
2000.
DTI's Senior Discount Notes are senior unsecured obligations of DTI.
The discount on the Senior Discount Notes accrues from the date of the
issue until March 1, 2003, at which time interest on the Senior
Discount Notes accrues at a rate of 12.5% per year. Cash interest is
payable semi-annually in arrears on March 1 and September 1,
commencing September 1, 2003.
9
3. SEGMENT AND RELATED INFORMATION
The Company's reportable segments include KCPL, KLT Inc. and HSS.
KCPL includes the regulated electric utility, GPP's operations
(immaterial through June 30, 2001) and unallocated corporate charges.
KLT Inc. and HSS are holding companies for various unregulated
business ventures.
The summary of significant accounting policies applies to all of the
segments. The Company evaluates performance based on several factors
including net income. The Company eliminates all intersegment sales
and transfers. The tables below reflect summarized financial
information concerning the Company's reportable segments.
Three Months Ended Year to Date
June 30 June 30
2001 2000 2001 2000
KCPL (millions)
Operating revenues $ 237.6 $ 228.1 $ 436.4 $ 418.4
Fuel expense (39.6) (35.4) (72.3) (65.2)
Purchased power expense (13.8) (20.8) (38.0) (35.6)
Other (a) (94.0) (89.0) (187.0) (180.9)
Depreciation and depletion (33.8) (30.9) (66.5) (60.2)
Gain (loss) on property (0.1) 2.8 (0.1) 2.8
Other income and expenses (0.4) (0.7) (3.6) (4.6)
Interest charges (18.3) (15.3) (37.7) (29.2)
Income taxes (14.4) (14.6) (10.1) (17.8)
Cumulative effect of changes in
pension accounting - - - 30.1
Net income $ 23.2 $ 24.2 $ 21.1 $ 57.8
KLT Inc.
Operating revenues $ 98.0 $ 62.0 $ 164.4 $ 70.0
Purchased power expense (72.4) (36.0) (118.6) (36.0)
Other (a) (20.5) (16.7) (42.8) (23.3)
Depreciation and depletion (5.5) (2.2) (8.8) (4.0)
Gain on property 21.8 1.9 23.1 0.9
Income (loss) from equity investments 0.4 (8.9) - (13.5)
Other income and expenses 0.3 (1.2) (0.1) (5.6)
Interest charges (7.0) (3.8) (11.4) (7.2)
Income taxes (0.6) 8.6 9.7 20.5
Early extinguishment of debt - - 15.9 -
Net income $ 14.5 $ 3.7 $ 31.4 $ 1.8
10
Three Months Ended Year to Date
June 30 June 30
2001 2000 2001 2000
HSS (millions)
Operating revenues $ 18.7 $ 0.9 $ 35.4 $ 1.9
Other (a) (18.6) (1.0) (39.4) (2.6)
Depreciation and depletion (0.7) (0.4) (1.3) (0.9)
Loss on property (1.3) - (1.3) -
Loss from equity investments - (1.5) (0.1) (2.7)
Other income and expenses 0.8 0.2 3.1 0.7
Interest charges (0.3) - (0.7) -
Income taxes (0.1) 0.7 0.9 1.4
Net loss $ (1.5) $ (1.1) $ (3.4) $ (2.2)
Consolidated
Operating revenues $ 354.3 $ 291.0 $ 636.2 $ 490.3
Fuel expense (39.6) (35.4) (72.3) (65.2)
Purchased power expense (86.2) (56.8) (156.6) (71.6)
Other (a) (133.1) (106.7) (269.2) (206.8)
Depreciation and depletion (40.0) (33.5) (76.6) (65.1)
Gain on property 20.4 4.7 21.7 3.7
Income (loss) from equity investments 0.4 (10.4) (0.1) (16.2)
Other income and expenses 0.7 (1.7) (0.6) (9.5)
Interest charges (25.6) (19.1) (49.8) (36.4)
Income taxes (15.1) (5.3) 0.5 4.1
Early extinguishment of debt and
cumulative effect of changes in
pension accounting - - 15.9 30.1
Net income $ 36.2 $ 26.8 $ 49.1 $ 57.4
(a) Other includes gas purchased and production expenses,
telecommunications expenses, other operating, maintenance and
general tax expenses.
June 30 KCPL KLT Inc. HSS Consolidated
2001 (millions)
Assets $ 3,039.6 $ 735.5(b) $ 56.1 $ 3,831.2
Net equity method investments - - - -
Year to date capital and
investments expenditures 122.4 74.4 (0.3) 196.5
2000
Assets $ 2,859.8 $ 314.3 $ 45.7 $ 3,219.8
Net equity method investments - 22.7 22.9 45.6
Year to date capital and
investments expenditures 233.2 51.3 0.1 284.6
(b) Includes assets associated with DTI of $464 million and SEL of $97 million.
11
The following table provides additional detail on the operations of
the KLT segment.
Three Months Ended Year to Date
June 30 June 30
2001 2000 2001 2000
DTI (a) (millions)
Operating revenues $ 4.7 - $ 7.0 -
Other (6.8) - (10.6) -
Depreciation and depletion (5.0) - (7.6) -
Loss from equity investments - $ (7.6) - $ (14.2)
Other income and expenses 0.2 - 1.0 -
Interest charges (4.7) - (7.0) -
Income taxes 4.0 2.7 6.2 5.1
Early extinguishment of debt - - 15.9 -
Net income (loss) $ (7.6) $ (4.9) $ 4.9 $ (9.1)
SEL (a)
Operating revenues $ 92.9 $ 51.5 $ 155.5 $ 51.5
Purchased power expense (72.4) (36.0) (118.6) (36.0)
Other (8.8) (9.2) (23.1) (9.3)
Depreciation and depletion (0.1) (0.2) (0.1) (0.2)
Income (loss) from equity investments - (0.7) - 0.1
Other income and expenses (0.9) (2.1) (1.2) (2.1)
Interest charges - (0.1) (0.1) (0.1)
Income taxes (4.4) (1.2) (5.1) (1.5)
Net income $ 6.3 $ 2.0 $ 7.3 $ 2.4
Gas
Operating revenues $ 0.4 $ 10.5 $ 1.9 $ 18.5
Other (3.3) (5.8) (6.0) (11.0)
Depreciation and depletion (0.4) (2.0) (1.0) (3.8)
Gain (loss) on property 19.6 - 20.9 (1.4)
Income from equity investments 0.9 - 1.0 1.4
Other income and expenses (0.1) - - -
Interest charges - (1.1) - (2.1)
Income taxes (5.3) 1.3 (3.5) 3.4
Net income $ 11.8 $ 2.9 $ 13.3 $ 5.0
Other
Other $ (1.6) $ (1.7) $ (3.1) $ (3.0)
Depreciation and depletion - - (0.1) -
Gain on property 2.2 1.9 2.2 2.3
Loss from equity investments (0.5) (0.6) (1.0) (0.8)
Other income and expenses 1.1 0.9 0.1 (3.5)
Interest charges (2.3) (2.6) (4.3) (5.0)
Income taxes 5.1 5.8 12.1 13.5
Net income $ 4.0 $ 3.7 $ 5.9 $ 3.5
(a) KLT Inc. acquired a majority ownership in SEL during the second
quarter of 2000 and in DTI in February 2001. Prior to this, the
investments in SEL and DTI were recorded on an equity basis. In the
second quarter of 2000, SEL was included in the Company's
consolidated financial statements from January 1, 2000, with the
appropriate adjustments to minority interest from January 1, 2000,
through the date of the acquisition.
12
4. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company operates in an environmentally responsible manner and uses
the latest technology available to avoid and treat contamination. The
Company continually conducts environmental audits designed to ensure
compliance with governmental regulations and to detect contamination.
However, governmental bodies may impose additional or more rigid
environmental regulations that could require substantial changes to
operations or facilities.
Mercury Emissions
In December 2000, The United States Environmental Protection
Agency (EPA) announced it would propose regulations to reduce
mercury emissions by 2003 and issue final rules by 2004. KCPL
cannot predict the likelihood or compliance costs of such
regulations.
Air Particulate Matter
In July 1997, the EPA published new air quality standards for
particulate matter. Additional regulations implementing these
new particulate standards have not been finalized. Without the
implementation regulations, the impact of the standards on KCPL
cannot be determined. However, the impact on KCPL and other
utilities that use fossil fuels could be substantial. Under the
new fine particulate regulations, the EPA is conducting a three-
year study of fine particulate emissions. Until this testing and
review period has been completed, KCPL cannot determine
additional compliance costs, if any, associated with the new
particulate regulations.
Nitrogen Oxide
In 1997, the EPA also issued new proposed regulations on reducing
nitrogen oxide (NOx) emissions. The EPA announced in 1998 final
regulations implementing reductions in NOx emissions. These
regulations initially called for 22 states, including Missouri,
to submit plans for controlling NOx emissions. The regulations
require a significant reduction in NOx emissions from 1990 levels
at KCPL's Missouri coal-fired plants by the year 2003.
In December 1998, KCPL and several other western Missouri
utilities filed suit against the EPA over the inclusion of
western Missouri in the 1997 NOx reduction program based upon the
1-hour NOx standard. On March 3, 2000, a three-judge panel of
the District of Columbia Circuit of the U.S. Court of Appeals
sent the NOx rules related to Missouri back to the EPA, stating
the EPA failed to prove that fossil plants in the western part of
Missouri significantly contribute to ozone formation in downwind
states. On March 5, 2001, the U.S. Supreme Court denied
certiorari, making the decision of the Court of Appeals final.
The full impact of this decision is unknown at this time;
however, it is likely to delay the implementation of new NOx
regulations by EPA in the western portion of Missouri for some
time.
To achieve the reductions proposed in the 1997 NOx reduction
program, if required to be implemented, KCPL would need to incur
significant capital costs, purchase power or purchase NOx
emissions allowances. It is possible that purchased power or
emissions allowances may be too costly or unavailable.
Preliminary analysis of the regulations indicates that selective
catalytic reduction technology, as well as other changes, may be
required for some of the KCPL units. Currently, KCPL estimates
that additional capital expenditures to comply with these
regulations could range from $40 million to $60 million.
Operations and maintenance expenses could also increase by more
than $2.5 million per year. These capital expenditure estimates
do not include the costs of the new air quality control equipment
installed at Hawthorn No. 5. The new air control equipment
installed at
13
Hawthorn No. 5 complies with the proposed requirements discussed
above. KCPL continues to refine these preliminary estimates and
explore alternatives. The ultimate cost of these regulations, if
any, could be significantly different from the amounts estimated above.
Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated
that the various states, individually or through interstate compacts,
develop alternative low-level radioactive waste disposal facilities.
The states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma
formed the Central Interstate Low-Level Radioactive Waste Compact and
selected a site in northern Nebraska to locate a disposal facility.
Wolf Creek Nuclear Operating Corporation (WCNOC) and the owners of the
other five nuclear units in the compact provided most of the pre-
construction financing for this project. As of June 30, 2001, KCPL's
net investment on its books was $7.4 million.
Significant opposition to the project has been raised by Nebraska
officials and residents in the area of the proposed facility, and
attempts have been made through litigation and proposed legislation in
Nebraska to slow down or stop development of the facility. On
December 18, 1998, the application for a license to construct this
project was denied. This issue is being addressed in the courts. The
passage of time, along with the appointment of a new state
administration in Nebraska, has increased the chances for reversal of
the license denial.
In May 1999, the Nebraska legislature passed a bill withdrawing
Nebraska from the Compact. In August 1999, the Nebraska governor gave
official notice of the withdrawal to the other member states.
Withdrawal will not be effective for five years and will not, of
itself, nullify the site license proceeding.
Coal Contracts
KCPL's remaining share of coal purchase commitments under existing
contracts total $86.7 million. Obligations for the remainder of 2001
through 2003, based on estimated prices for those years, total $22.2
million, $46.6 million, and $17.9 million, respectively. These
amounts are net of purchases made year to date 2001.
5. RECEIVABLES
June 30 December 31
2001 2000
(thousands)
KCPL Receivable Corporation $ 52,076 $ 48,208
Other Receivables 128,446 67,148
Receivables $ 180,522 $ 115,356
Accounts receivable sold under the revolving agreement between KCPL
Receivable Corporation and KCPL totaled $112.1 million at June 30,
2001, and $108.2 million at December 31, 2000. In consideration of
the sale, KCPL received $60 million in cash and the remaining balance
in the form of a subordinated note from KCPL Receivable Corporation.
Other receivables consist primarily of receivables from partners in
jointly-owned electric utility plants, bulk power sales receivables
and accounts receivable held by subsidiaries, including receivables
from the increase to a majority ownership of DTI and RSAE (see Note 1
Supplemental Cash Flow Information).
14
6. DERIVATIVE FINANCIAL INSTRUMENTS
On January 1, 2001, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 133 - Accounting for Derivative Instruments
and Hedging Activities, as amended. FASB 133 requires that every derivative
instrument be recorded on the balance sheet as an asset or liability
measured at its fair value and that changes in the fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met.
FASB 133 requires that as of the date of initial adoption, the
difference between the fair market value of derivative instruments
recorded on the balance sheet and the previous carrying amount of
those derivatives be reported in net income or other comprehensive
income, as appropriate, as a cumulative effect of a change in
accounting principle. The adoption of FASB 133 on January 1, 2001,
required the Company to record a $0.2 million expense, net of $0.1
million of income tax. The Company did not reflect this immaterial
amount as a cumulative effect. This entry increased interest expense
by $0.6 million and reduced purchased power expense by $0.3 million.
The Company also recorded $17.4 million, net of $12.6 million of
income tax, as a cumulative effect of a change in accounting principle
applicable to comprehensive income for its cash flow hedges.
Derivative Instruments and Hedging Activities
The Company's activities expose it to a variety of market risks
including interest rates and commodity prices. Management has
established risk management policies and strategies to reduce the
potentially adverse effects that the volatility of the markets may
have on its operating results.
The Company's interest rate risk management strategy uses derivative
instruments to minimize significant, unanticipated earnings
fluctuations caused by interest-rate volatility on a portion of its
variable rate debt. The Company maintains commodity-price risk
management strategies that use derivative instruments to minimize
significant, unanticipated earnings fluctuations caused by commodity
price volatility.
The Company's risk management activities, including the use of
derivatives, are subject to the management, direction and control of
Risk Management Committees.
Interest Rate Risk Management
KCPL utilizes interest rate management derivatives to reduce a portion
of KCPL's interest rate risk by converting a portion of its variable
interest rate payments into fixed interest rate payments.
In 2000, KCPL issued $200 million of unsecured, floating rate medium-
term notes. Simultaneously, KCPL entered into interest rate cap
agreements to hedge the interest rate risk on the notes. The cap
agreements are designated as cash flow hedges. The difference between
the fair market value of the cap agreements recorded on the balance
sheet at initial adoption and the unamortized premium was reported in
interest expense.
KCPL entered into interest rate swap agreements to limit the interest
rate on $30 million of long-term debt. These swaps do not qualify for
hedge accounting. The swap agreements mature in 2003 and effectively
fix the interest to a weighted-average rate of 3.88%. The fair market
values of these agreements are recorded as current assets and
liabilities and adjustments to interest expense on the income
statement. Changes in the fair market value of these instruments are
recorded in the income statement.
15
Commodity Risk Management
SEL utilizes an option and power swap agreements to hedge commodity
prices in various markets. The option and a majority of the swap
agreements are designated as cash flow hedges.
The remaining swap agreements do not qualify for hedge accounting.
The fair market value of these swaps at January 1, 2001, was recorded
as an asset or liability on the balance sheet and an adjustment to the
cost of purchased power. The change in the fair market value and
future changes in the fair market values of these swaps will also be
recorded in purchased power.
The option allows SEL to purchase up to 270 megawatts of power at a
fixed rate of $21 per mwh. The swap agreements protect SEL from price
volatility by fixing the price per mwh. The fair market value of this
option and the swap agreements designated as cash flow hedges at
January 1, 2001, was recorded as a current asset and a cumulative
effect of a change in accounting principle in comprehensive income.
When the power is purchased and to the extent the hedge is effective
at mitigating the cost of purchased power, the amounts accumulated in
other comprehensive income are reclassified to the consolidated income
statement. However, most of the energy purchased under the option and
the energy hedged with the swaps has been sold to customers through
contracts at prices different than the fair market value used to value
the option and the swaps. Therefore, SEL will not receive income or
losses to the extent represented in comprehensive income in the
current or future periods. To the extent that the hedges are not
effective, the ineffective portion of the changes in fair market value
will be recorded directly to purchased power.
KLT Gas' risk management policy is to use firm sales agreements or
financial hedge instruments to mitigate its exposure to market price
fluctuations on up to 100% of its daily natural gas production. These
hedging instruments are designated as cash flow hedges. The fair
market value of these instruments at January 1, 2001, was recorded as
current assets and current liabilities, as applicable, and the
cumulative effect of a change in an accounting principle in
comprehensive income. When the gas is sold and to the extent the
hedge is effective at mitigating the sales price of gas, the amounts
in other comprehensive income are reclassified to the consolidated
income statement. To the extent that the hedges are not effective,
the ineffective portion of the changes in fair market value will be
recorded directly in gas revenues.
KLT Gas unwound the majority of its gas hedge derivatives with a swap
transaction during the second quarter of 2001 primarily due to
declining production at its gas properties. This transaction does
not qualify for hedge accounting. The fair market value of the swap
has been recorded in gas revenues. Future changes in the fair market
value of this swap will also be recorded in gas revenues.
KCPL has eight capacity contracts, which it does not consider to be
derivatives. During the second quarter of 2001, FASB cleared an
interpretation from the FASB Derivatives Implementation Group. The
new implementation guidelines will be applied in the third quarter of
2001. KCPL is still evaluating its capacity contracts under the new
guidelines, but does not expect the contracts to be considered
derivatives under the new guidelines.
16
The amounts recorded related to the cash flow hedges are summarized
below.
Activity for three months ended June 30, 2001
Increase
(Decrease) in
March 31 Comprehensive June 30
Balance Sheet Classification 2001 Income Reclassified 2001
Assets (millions)
Other current assets $ 30.1 $(13.8) $(10.3) $ 6.0
Liabilities
Other current liabilities (4.4) (24.7) 1.1 (28.0)
Other comprehensive income (11.9) 18.4 4.3 10.8
Deferred income taxes (8.7) 13.1 3.1 7.5
Other deferred credits (5.1) 7.0 1.8 3.7
Activity for year to date June 30, 2001
Cumulative Increase
Effect to (Decrease) in
January 1, Comprehensive June 30
Balance Sheet classification 2001 Income Reclassified 2001
Assets (millions)
Other current assets $ 44.5 $(17.3) $(21.2) $ 6.0
Liabilities
Other current liabilities (6.8) (24.4) 3.2 (28.0)
Other comprehensive income (17.4) 19.9 8.3 10.8
Deferred income taxes (12.7) 14.2 6.0 7.5
Other deferred credits (7.6) 7.6 3.7 3.7
7. HSS PURCHASE OF AN ADDITIONAL OWNERSHIP INTEREST IN RSAE
On March 12, 2001, HSS acquired control of RSAE by acquiring an
additional 22.1% of the shares of RSAE for $0.6 million.
This acquisition has been accounted for by the purchase method of
accounting and the operating results of RSAE have been included in the
Company's consolidated financial statements from January 1, 2001, with
the appropriate adjustments to minority interest from January 1, 2001,
through the date of the acquisition. RSAE's June 30, 2001, assets
included $23.3 million of goodwill, which is being amortized over 40
years. On a pro forma basis, as if the business had been acquired at
the beginning of fiscal 2000, revenue, net income and earnings per
share would not differ materially from the amounts reported in the
Company's year ended December 31, 2000, consolidated financial
statements.
8. KLT TELECOM INC. PURCHASE OF AN ADDITIONAL OWNERSHIP INTEREST IN DTI
On February 8, 2001, KLT Telecom acquired control of DTI by acquiring
an additional 31.2% of the fully diluted shares of DTI from Richard D.
Weinstein, DTI's former Chairman, President and CEO, for $33.6 million
in cash. An additional 5.0% of the fully diluted shares were
purchased through a tender offer for DTI's outstanding warrants and
the purchase of a separate warrant for 1.0% of DTI's common stock.
Consequently, KLT Telecom now owns 83.6% of DTI's fully diluted
shares. Under the purchase agreement, Weinstein, who resigned as
Chairman, President and CEO, retained just over 15% of the fully
diluted ownership and a seat on the DTI board. Also, the parties
granted put
17
and call options that gave Weinstein the right to sell and
KLT Telecom the right to buy Weinstein's remaining ownership in DTI.
This acquisition has been accounted for by the purchase method of
accounting. Operating results were included in the Company's
consolidated financial statements from the date of the acquisition.
Goodwill of $67.8 million was recorded as a result of this acquisition
and is being amortized over 25 years. At June 30, 2001, unamortized
goodwill totaled $66.6 million.
Extraordinary Item Early Extinguishment of Debt
The KLT Telecom gain on early extinguishment of debt year to date June
30, 2001, resulted from DTI's completion of a successful tender offer
for 50.4 percent of its outstanding Senior Discount Notes prior to KLT
Telecom acquiring a majority ownership in DTI. The $15.9 million
early extinguishment of debt has been reduced by the losses previously
recorded by DTI but not reflected by KLT Telecom, and is net of $9.1
million of income taxes.
Telecommunications Property
Telecommunications property at June 30, 2001, of $384.8 million, is
net of accumulated depreciation of $39.8 million and consists mainly
of fiber optic plant and usage rights. At June 30, 2001,
telecommunications property includes $63 million of construction in
progress.
Operating Leases and Indefeasible Rights to Use (IRU) Commitments
DTI is a lessee under operating leases and IRUs for fiber, equipment
space, maintenance, power costs and office space. Minimum rental
commitments under these agreements for 2001 are $8 million and $9
million annually for the years 2002 through 2005. After 2005, minimum
rental commitments under these agreements total $136 million.
DTI Risk Factors
For a description of certain risk factors that may adversely affect
DTI's business and results of operations, see DTI's Form 10K for the
six-month period ended December 31, 2000, filed on
May 15, 2001, and DTI's Form 10Q for the quarter ended June 30, 2001.
Pro forma Information
The following unaudited pro forma consolidated results of operations
are presented as if the acquisition of an additional ownership
interest in DTI had been made at January 1, 2000. No pro forma
adjustments to net income are required after February 8, 2001.
Three Months Ended
June 30, 2000
(thousands)
Revenues $293,400
EPS
Net income $ 26,740
Eliminate DTI recorded operating loss 4,719
Add DTI operating loss on a 100% basis (9,236)
Other adjustments (753)
Pro forma net income $ 21,470 $0.35
18
Year to Date June 30
2001 2000
(thousands)
Revenues $637,667 $495,103
EPS EPS
Income before extraordinary item
and cumulative effect of changes
in accounting principles $ 33,260 $ 27,315
Eliminate DTI recorded operating loss 13,863 8,876
Add DTI operating loss on a 100% basis (18,219) (17,970)
Other adjustments (460) (1,356)
Pro forma loss before extraordinary
item and cumulative effect of
changes in accounting principles $ 28,444 $0.46 $ 16,865 $0.27
Cumulative effect to January 1, 2000
of changes in accounting principles,
net of income taxes - - 30,073 0.49
DTI's early extinguishment of debt,
net of income taxes and
minority interests 50,695 0.82 - -
Pro forma net income $ 79,139 $1.28 $ 46,938 $0.76
The unaudited pro forma consolidated results of operations are not
necessarily indicative of the combined results that would have
occurred had the acquisition occurred on those dates, nor is it
indicative of the results that may occur in the future.
9. Sale of Equity Investments
Sale of KLT Investments II Inc.'s Ownership of Downtown Hotel Group
On May 31, 2001, KLT Investments II Inc. sold its 25% ownership of
Kansas City Downtown Hotel Group, L.L.C. for total proceeds of $3.8
million resulting in a $2.2 million gain before income taxes. The
after income tax gain on the sale was $1.4 million and $0.02 per share.
Sale of KLT Gas Properties
On June 28, 2001, KLT Gas sold its 50% ownership in Patrick KLT Gas,
LLC for total proceeds of $41.7 million resulting in a $19.6 million
gain before income taxes. The after income tax gain on the sale was
$11.6 million and $0.19 per share.
10. New Accounting Pronouncement
FASB has issued FASB Statement No. 142 - Goodwill and Other Intangible
Assets. FASB 142 is effective for fiscal years beginning after
December 15, 2001. KCPL will adopt FASB 142 on January 1, 2002.
Under the new pronouncement, goodwill will be assigned to reporting
units and an initial impairment test (comparison of the fair value of
a reporting unit to its carrying amount) will be done on all goodwill
within six months of initially applying the statement and then at
least annually, thereafter. We have not yet quantified the effects of
adopting FASB 142 on the Company's financial condition and results of
operation. At June 30, 2001, goodwill reported on the Consolidated
Balance Sheet totaled $104.5 million.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis by management focuses on those
factors that had a material effect on the consolidated financial
condition and results of operations for the three months ended and
year to date June 30, 2001, compared to the three months ended and
year to date June 30, 2000. The discussion should be read in
conjunction with the accompanying Consolidated Financial Statements,
Notes and especially Note 3 - Segment and Related Information which
summarizes the income statement by segment.
Consolidated Earnings Overview
Three Months
Ended Year to Date
June 30 June 30
2001 2000 2001 2000
Earnings per share (EPS) summary
KCPL
Excluding cumulative effect $ 0.37 $ 0.39 $ 0.33 $ 0.43
Cumulative effect of changes
in pension accounting - - - 0.49
KCPL EPS 0.37 0.39 0.33 0.92
KLT Inc.
Excluding extraordinary item 0.23 0.06 0.24 0.03
Extraordinary item:
Early extinguishment of debt - - 0.26 -
KLT Inc. EPS 0.23 0.06 0.50 0.03
HSS EPS (0.02) (0.02) (0.05) (0.04)
Reported Consolidated EPS $ 0.58 $ 0.43 $ 0.78 $ 0.91
On February 1, 2001, DTI completed a tender offer for 50.4% of its
outstanding senior discount notes. This transaction resulted in KLT
Inc. reporting on an equity basis a $15.9 million ($0.26 per share)
extraordinary item for the gain on the early extinguishment of debt
year to date June 30, 2001.
Effective January 1, 2000, KCPL changed its methods of amortizing
unrecognized net gains and losses and determination of expected return
related to its accounting for pension expense. Accounting principles
required the Company to record the cumulative effect of these changes
increasing common stock earnings year to date June 30, 2000, by $30.1
million ($0.49 per share). Adoption of the new methods of accounting
for pensions will lead to greater fluctuations in pension expense in
the future. The portions of the cumulative effect of pension
accounting changes attributable to KLT Inc. and HSS are immaterial
and, therefore, were not allocated to these subsidiaries.
For further discussion regarding each segment's contribution to
consolidated EPS, see its respective Earnings Overview section below.
20
KCPL Operations
KCPL Business Overview
KCPL, a regulated utility, consists of two business units - generation
and delivery. Dividing into two business units has provided KCPL the
opportunity to reexamine the businesses' internal processes in order
to operate more efficiently and create additional value for
shareholders.
The generation business has over 3,700 megawatts of generating
capacity including Hawthorn No. 5. The rebuild of the boiler at
Hawthorn No. 5 is complete. The unit was returned to commercial
operation on June 20, 2001.
The delivery business consists of transmission and distribution that
serves over 471,000 customers at June 30, 2001, and experiences annual
load growth of approximately 2% to 3% through increased customer usage
and additional customers. Rates charged for electricity are currently
below the national average. Additionally, there is a moratorium on
changes to Missouri retail rates until March 2002.
KCPL has a regulatory obligation to join a Federal Energy Regulatory
Commission (FERC) approved Regional Transmission Organization (RTO) by
December 2001. RTOs combine regional transmission operations of
utility businesses into an organization that schedules transmission
services and monitors the energy market to ensure regional
transmission reliability and non-discriminatory access. KCPL has been
considering its options for joining an RTO. In a recent order, FERC
indicated a desire for the numerous RTO's that have been formed and
are in the process of being formed, to consolidate into the formation
of just four RTOs covering the entire nation. To accomplish that
objective, FERC directed an Administrative Law Judge to mediate a
potential consolidation among the various RTO's. The Administrative
Law Judge has been ordered to issue a report within 45 days from the
July 12, 2001 FERC order.
Strategy
In order to add value for its shareholders, the Company plans to
restructure by forming a holding company with three operating
subsidiaries. These subsidiaries will include:
- - KCPL, a regulated utility;
- - GPP, a competitive generation company that will sell to the
wholesale market; and
- - KLT Inc. with its unregulated energy related and telecommunications
businesses.
In implementing this strategy, the Company is focused on:
- - Providing reliable, low-cost electricity to retail customers;
- - Acquiring and investing in generation to serve the wholesale
market;
- - Pursuing high growth, unregulated business opportunities;
- - Managing the Company as a portfolio of both regulated and unregulated
energy related and growth businesses; and
- - Investing in a diverse group of people, recognizing that KCPL's
success is dependent upon the skills and expertise of its people.
The Company is in the process of obtaining the necessary regulatory
approvals for the reorganization. Approvals have been received from
the FERC, the Federal Communications Commission, the Nuclear
Regulatory Commission, the Missouri Public Service Commission and the
Kansas Corporation Commission. The Company is expecting approval from
the Securities and Exchange Commission shortly.
21
KCPL Earnings Overview
KCPL contributed EPS of $0.37 for the three months ended June 30,
2001, compared to $0.39, for the same period in 2000, and $0.33 year
to date June 30, 2001, compared to $0.43, excluding the cumulative
effect of changes in pension accounting, for the same period in 2000.
The following table and discussion highlight significant factors
affecting the changes in KCPL's EPS contribution for the periods
indicated.
June 30, 2001 compared to June 30, 2000
Three Months
Ended Year to Date
Increased revenues $ 0.09 $ 0.18
Increased price of purchased
power energy (0.01) (0.07)
Decrease in quantity of energy
and capacity purchased 0.08 0.05
Increased price of fossil fuels (0.02) (0.05)
Replacement power cost of Hawthorn
units' test energy (0.02) (0.02)
Interest charges (0.03) (0.08)
Increased depreciation (0.03) (0.06)
Other (see discussion below) (0.08) (0.05)
Total $ (0.02) $ (0.10)
Contributing to the other factors impacting the change in KCPL's EPS
are the following:
- Increased expenses because of the write-off of $2.0 million of
billings incurred after January 1, 2001, to one of KCPL's larger
customers because of its Chapter 11 bankruptcy filing on February 7,
2001. Any recoveries from this bankruptcy proceeding will be recorded
as income when received.
- Increased salaries, benefits and legal expenses for the three months
ended and year to date June 30, 2001, compared to the same periods in
2000.
- Decreased gain on property due to a gain on the sale of unit train coal
cars during the three months ended and year to date June 30, 2000.
KCPL Megawatt-hour (mwh) Sales and Electric Sales Revenues
June 30, 2001 compared to June 30, 2000
Three Months Ended Year to Date
Mwh Revenues Mwh Revenues
Retail Sales: (revenue change in millions)
Residential 5 % $ 2.5 11 % $ 8.6
Commercial 6 % 5.4 5 % 6.3
Large Industrial Customer (95) % (6.7) (73) % (7.8)
Industrial - Other (5) % (1.3) (4) % -
Other 5 % 0.1 1 % 0.1
Total Retail (1) % - 1 % 7.2
Sales for Resale:
Bulk Power Sales 81 % 8.9 27 % 8.9
Other 2 % - 2 % 0.3
Total 8 % 8.9 4 % 16.4
Other revenues 0.6 1.6
KCPL electric sales revenues $ 9.5 $ 18.0
22
Residential and commercial mwh sales increased for the three months
ended and year to date June 30, 2001, compared to the same periods of
2000, primarily due to warmer spring and early summer weather and
colder winter weather for the periods and continued load growth. Load
growth consists of higher usage-per-customer and the addition of new
customers. Industrial mwh sales decreased for the three months ended
and year to date June 30, 2001, compared to the the same periods of
2000 mostly offsetting the increase in residential and commercial mwh
sales. The decrease in industrial mwh sales is primarily due to one
of KCPL's larger customers filing for bankruptcy on February 7, 2001,
and closing its Kansas City, Missouri facilities on May 25, 2001.
Bulk power sales vary with system requirements, generating unit and
purchased power availability, fuel costs and requirements of other
electric systems. Increased bulk power mwh sales for both the three
months ended and year to date June 30, 2001, compared to the same
periods in 2000 was partially attributable to the availability of
Hawthorn No. 5 and the loss of the large industrial customer discussed
above. The increase in bulk power sales year to date June 30, 2001,
compared to the same period of 2000 was partially offset by the colder
winter weather and continued load growth during the first three months
of 2001. The average prices per mwh of bulk power sales were up 17%
for the three months ended and 23% year to date June 30, 2001,
compared to the same periods of 2000.
KCPL's share of LaCygne No. I unit's capacity has been temporarily
reduced by approximately 100 megawatts because of the failure, in mid-
July 2001, of one of the two air heaters. KCPL will replace the 30-
year old air heaters during a 6-week fall outage at a capitalized cost
of $3 to $4 million. KCPL anticipates that other units will replace
the lost capacity during the outage. However, this outage will reduce
bulk power sales in the fourth quarter of 2001.
KCPL Fuel and Purchased Power
Fuel costs increased $4.2 million for the three months ended and $7.1
million year to date June 30, 2001, compared to the same periods of
2000. The higher costs per mmBtu of natural gas and the increased
generation from coal and natural gas were the reasons for the increase
in fuel costs. Total generation, excluding the testing of Hawthorn
units prior to commercial operation, increased 9% for the three months
ended and 3% year to date June 30, 2001, compared to the same periods
of 2000. Natural gas has a significantly higher cost per mmBtu than
coal or nuclear fuel.
Fossil plants represent about two thirds of total generation and the
nuclear plant about one third. Nuclear fuel costs per mmBtu remain
substantially less than the mmBtu price of coal. KCPL expects the
price of nuclear fuel to remain fairly constant through the year 2003.
KCPL's procurement strategies continue to provide coal costs below the
regional average.
Purchased power expenses decreased $7.0 million for the three months
ended June 30, 2001, compared to the same period of 2000 primarily due
to a 40% decrease in mwh's purchased due to an increase in the
availability of KCPL's generating units and a decline in capacity
purchased. However, the decrease was slightly offset by an increase
in the price per mwh of purchased power. Purchased power expenses
increased $2.4 million year to date June 30, 2001, compared to the
same period of 2000 primarily due to an increase in the price per mwh
partially offset by a decline in capacity costs. The cost per mwh for
purchased power is significantly higher than the fuel cost per mwh of
generation.
KCPL Other Income and Expenses
The $1.0 million favorable change in KCPL's other income and expenses
year to date June 30, 2001, compared to the same period of 2000 was
caused primarily by a $1.7 million increase in the allowance for
equity funds used during construction. This increase represents
mainly the cost of capital used to finance expenditures during
construction of Hawthorn No. 5 that arose from other than short- and
long-term debt. This cost, along with the interest on borrowed funds
used during construction, is capitalized as a component of the
construction cost. The increase in the allowance for equity funds
used during
23
construction was partially offset by an increase in the write-off of
billings primarily related to the bankruptcy filing of one of KCPL's
larger customers.
KCPL Interest Charges
KCPL's interest charges increased $3.0 million for the three months
ended and $8.5 million year to date June 30, 2001, compared to the
same periods of 2000 primarily because long-term debt interest expense
increased offset by an increase in interest charged to construction.
The increase in interest expense reflected higher average levels of
outstanding long-term debt. The higher average levels of debt
primarily reflect $200 million of unsecured, floating rate medium-term
notes issued by KCPL in March 2000, and $250 million of unsecured
fixed-rate senior notes issued in December 2000, partially offset by
$60.5 million of scheduled debt repayments by KCPL since June 30,
2000.
Short-term debt interest expense increased for the three months ended
and year to date June 30, 2001, compared to the same periods of 2000
due to higher average levels of outstanding short-term debt. KCPL had
$245.8 million of commercial paper outstanding at June 30, 2001,
compared to $159.4 million at June 30, 2000.
KCPL uses interest rate swap and cap agreements to limit the
volatility in interest expense on a portion of its variable-rate, long-
term debt. Although these agreements are an integral part of interest
rate management, the incremental effect on interest expense and cash
flows is not significant.
Allowance for borrowed funds used during construction increased $1.0
million for the three months ended and $2.6 million year to date June
30, 2001 compared to the same periods of 2000 because of increased
expenditures for construction projects, including Hawthorn No. 5.
Wolf Creek
Wolf Creek is one of KCPL's principal generating units, representing
about 15% of KCPL's generating capacity. The plant's operating
performance has remained strong over the last three years,
contributing about 30% of KCPL's annual mwh generation while operating
at an average capacity of 93%. Furthermore, Wolf Creek has the lowest
fuel cost per mmBtu of any of KCPL's generating units.
KCPL accrues the incremental operating, maintenance and replacement
power costs for planned outages evenly over the unit's operating
cycle, normally 18 months. As actual outage expenses are incurred,
the refueling liability and related deferred tax asset are reduced.
Wolf Creek's next refueling and maintenance outage is scheduled for
the spring of 2002 and is estimated to be a 30-day outage.
Ownership and operation of a nuclear generating unit exposes KCPL to
risks regarding decommissioning costs at the end of the unit's life
and to potential retrospective assessments and property losses in
excess of insurance coverage.
Hawthorn No. 5
On June 20, 2001, Hawthorn No. 5 was returned to commercial operation.
The coal-fired unit has a capacity of 550 megawatts and was rebuilt
following a February 1999 explosion that destroyed the boiler. KCPL
has been recognized nationally in President Bush's National Energy
Policy Report for its use of state-of-the-art pollution control
technology in the rebuilt Hawthorn No. 5. Under KCPL's property
insurance coverage, with limits of $300 million, KCPL received an
additional $30 million in insurance recoveries year to date June 30,
2001, increasing the total insurance recoveries received to date to
$160 million. The recoveries have been recorded in Utility Plant -
accumulated depreciation on the consolidated balance sheet.
Expenditures, excluding capitalized interest, for rebuilding Hawthorn
No. 5, were $35.6 million in 1999, $207.6 million in 2000 and are
projected to be about $73 million in 2001, of which $53.9 million were
incurred year to date June 30, 2001. These amounts have not been
reduced by the insurance proceeds received to date or future proceeds
to be received.
24
KLT Inc. Operations
KLT Inc. Business Overview
KLT Inc., an unregulated subsidiary, pursues business ventures in
higher growth businesses. Existing ventures include investments in
telecommunications, natural gas development and production, energy
services and affordable housing limited partnerships. KCPL's
investment in KLT Inc. was $150 million at June 30, 2001, and $119
million at December 31, 2000.
Telecommunications - DTI Holdings, Inc. (DTI)
At December 31, 2000, KLT Telecom, a subsidiary of KLT Inc., owned 47%
of DTI (acquired in 1997), a facilities-based telecommunications
company. Through utilization of a $94 million loan (10% interest
rate) from KLT Telecom, DTI successfully completed a tender offer to
repurchase a portion of its long-term debt on February 1, 2001,
reducing interest costs. On February 8, 2001, KLT Telecom increased
its ownership from 47 percent to 84 percent of DTI. See Note 8 to the
Consolidated Financial Statements for further information.
The strategic design of the DTI network allows DTI to offer reliable,
high-capacity voice and data transmission services, on a region-by-
region basis, to primary carriers and end-user customers who seek a
competitive alternative to existing providers. DTI's network
infrastructure is designed to provide reliable customer service
through back-up power systems, automatic traffic re-routing and
computerized automatic network monitoring. If the network experiences
a failure of one of its links, the routing intelligence of the
equipment transfers traffic to the next choice route, thereby ensuring
delivery without affecting customers. DTI currently provides services
to other communication companies including Tier 1 and Tier 2 carriers.
DTI also provides private line services to targeted business and
governmental end-user customers. All of DTI's operations are subject
to federal and state regulations. DTI's sales activities were
primarily focused in the states of Missouri, Arkansas and Oklahoma.
Responding to the current challenges of the telecommunications
industry, DTI has more narrowly focused its strategy. In order to
reduce the capital requirements, DTI will only provide connectivity in
secondary and tertiary markets in five states. In addition, DTI is
evaluating means to enhance its business by utilizing the significant
metropolitan fiber assets that it has in its current regional network
to provide metro access services, including high bandwidth services
over an Ethernet based network targeted at enterprise customers (i.e.,
Gigabit Ethernet services). DTI estimates that their total additional
cash funding requirements subsequent to June 30, 2001, necessary to
implement this strategy and to fund existing commitments and payables,
will be approximately $33 million over the next 18 months. This $33
million estimated funding requirement consists of (i) approximately
$25 million related to the five-state region strategy and , (ii)
approximately $8 million to fund the metro access strategy. Despite
the difficult telecommunications marketplace, DTI continues to grow
its business by expanding existing contracts and securing new business
including one with the country's largest discount retailer. On the
network development front, DTI plans to complete the lighting of its
Kansas/Oklahoma ring in early August. The company has also made
significant progress in completing its backbone construction. DTI is
actively exploring its strategic alternatives including a merger, sale
of assets or other type of recapitalization.
KLT Telecom had committed to provide or arrange a revolving credit
facility for DTI in the amount of $75 million. A credit facility with
bank lenders has not been possible to obtain due to, among other
things, the downturn in the telecommunications industry. Under this
arrangement, KLT Telecom has loaned DTI a total of $44.5 million ($5.5
million was loaned on July 26, 2001). This loan is secured, to the
extent permitted by law or agreement, by DTI's assets. The DTI Board
of Directors confirmed that KLT Telecom is not obligated to make any
other future loans to DTI. This confirmation was based on the downturn
in the telecommunications industry and the resulting decline in DTI's
prospects and financial
25
condition. However, KLT Telecom has agreed to review DTI's revised
business plan and to consider, in its sole judgment, lending up to the
remaining $30.5 million contemplated by its original commitment.
Including the loans to date detailed above, interest accrued on these
loans and goodwill recorded, KLT Telecom has $196.5 million invested
in DTI. KLT's assets include assets associated with DTI of $463.7
million.
Because of the downturn in the telecommunication industry, an
impairment analysis was performed on the DTI assets in accordance
with FASB 121 - Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which requires that long-
lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The analysis indicated there was no impairment at this
time.
Natural Gas Development and Production - KLT Gas
KLT Gas' business strategy is to acquire and develop early stage
coalbed methane properties and then divest properties in order to
create shareholder value. KLT Gas believes that coalbed methane
production provides an economically attractive alternative source of
supply to meet the growing demand for natural gas in North America and
has built a knowledge base in coalbed methane production and reserves
evaluation. Therefore, KLT Gas focuses on coalbed methane; a niche in
the natural gas industry where it believes its expertise gives it a
competitive advantage. Because it has a longer, predictable reserve
life, coalbed methane is inherently lower risk than conventional gas
exploration. Although gas prices have been volatile recently, KLT Gas
continues to believe the long-term future price scenarios for natural
gas appear strong. Environmental concerns and the increased demand
for natural gas for new electric generating capacity are contributing
to this projected growth in demand.
KLT Gas' properties are located in Colorado, Texas, Wyoming, Kansas,
and Nebraska. These leased properties cover approximately 185,000
undeveloped acres. The development of this acreage is in accordance
with KLT Gas' exploration plan and capital budget. The timing of the
development may vary from the plans based upon obtaining the required
environmental and regulatory approvals and permits.
Energy Management Service - Strategic Energy LLC (SEL)
SEL is an energy management services provider that operates in the
newly deregulated electricity markets of Pennsylvania, Southern
California, Ohio and New York and has plans to enter the Massachusetts
and Texas markets during the second half of 2001. In 2001, in
exchange for approximately $4.7 million preferred stock ownership in
an energy services company, the ownership in SEL was increased from
approximately 72% to approximately 83%.
SEL acts as an energy manager in deregulated markets on behalf of over
12,600 commercial and small manufacturing customers. SEL enters into
one to five year contracts with customers to supply energy and manage
their energy needs. For this service they receive an ongoing
management fee plus the contracted price for the electricity and
natural gas.
SEL's suppliers and customer base are very diverse. Suppliers include
small and large energy generators across the country. Customers
include numerous Fortune 500 companies, school districts, and
governmental entities. SEL's customer base is currently concentrated
in the four previously mentioned deregulated states. Based on current
signed contracts and expected usage, SEL forecasts a peak load of
1,160 megawatts for 2001. The largest concentration of the forecasted
load, 467 megawatts, is in Pennsylvania.
26
Investments in Affordable Housing Limited Partnerships - KLT Investments
At June 30, 2001, KLT Investments had $96.0 million in affordable
housing limited partnerships. About 71% of these investments were
recorded at cost; the equity method was used for the remainder. Tax
expense is reduced in the year tax credits are generated. The
investments generate future cash flows from tax credits and tax losses
of the partnerships. The investments also generate cash flows from
the sales of the properties (estimated residual value). For most
investments, tax credits are received over ten years. A change in
accounting principle relating to investments made after May 19, 1995,
requires the use of the equity method when a company owns more than 5%
in a limited partnership investment. Of the investments recorded at
cost, $66.0 million exceed this 5% level but were made before May 19,
1995.
On a quarterly basis, KLT Investments completes a valuation study of
its cost method investments in affordable housing by comparing the
cost of those properties to the total of projected residual value of
the properties and remaining tax credits to be received. Estimated
residual values are based on studies performed by an independent firm.
Based on the latest valuation study for the years 2001 through 2005,
projected annual reductions of the book cost total $13 million, $9
million, $12 million, $8 million and $7 million, respectively.
Primarily all of the estimated reductions for the year ended December
31, 2001, are expected to be incurred in the third and fourth
quarters. Even after these reductions, earnings from affordable
housing are expected to be positive for the next five years.
These projections are based on the latest information available but
the ultimate amount and timing of actual reductions made could be
significantly different from the above estimates. Also, based on
preliminary external information, management believes that the assets
could be sold at a loss significantly lower than the accumulated
reductions discussed above.
KLT Inc. Earnings Overview
The following table and discussion highlight significant factors
affecting KLT Inc.'s contribution to consolidated EPS for the three
months ended and year to date June 30, 2001, and June 30, 2000.
Three Months
Ended Year to Date
June 30 June 30
2001 2000 2001 2000
Earnings per share (EPS) summary
KLT Inc.
SEL $ 0.10 $ 0.03 $ 0.12 $ 0.04
DTI
Operations subsequent
to 2/8/01 (0.12) - (0.18) -
Gain on early extinguishment
of debt and equity losses
prior to majority ownership - (0.07) 0.26 (0.14)
KLT Gas
Operations - 0.05 0.02 0.08
Sale of Patrick Energy 0.19 - 0.19 -
Realized loss on CellNet stock - - - (0.05)
Other 0.06 0.05 0.09 0.10
KLT Inc. EPS $ 0.23 $ 0.06 $ 0.50 $ 0.03
On June 28, 2001, KLT Gas sold its 50% equity ownership in Patrick
Energy Corporation for $41.7 million resulting in a gain of $11.6
million, net of income taxes.
27
In February 2001, KLT Telecom increased its investment in DTI from 47%
to 84%, which required a change in the method of accounting from
equity to consolidation. DTI's $0.26 EPS contribution prior to the
change in ownership resulted from the net impact of the gain from
early extinguishment of $193 million of senior discount notes by DTI
reduced by the losses previously recorded by DTI but not reflected by
KLT Telecom. This gain is reflected in the consolidated financial
statements as an extraordinary item.
KLT Inc. Revenues
June 30, 2001 compared to June 30, 2000
Three Months
Ended Year to Date
(millions)
DTI $ 4.7 $ 7.0
SEL
Electric - Retail 31.7 68.3
Electric - Bulk Power Sales 9.4 24.8
Gas 0.3 10.9
Gas (10.1) (16.6)
Total $ 36.0 $ 94.4
KLT Inc. acquired a majority ownership in SEL during the second
quarter of 2000 and in DTI in February 2001. Prior to this, the
investments in SEL and DTI were recorded on an equity basis. In the
second quarter of 2000, SEL was included in the Company's consolidated
financial statements from January 1, 2000, with the appropriate
adjustments to minority interest from January 1, 2000, through the
date of the acquisition.
SEL's retail revenues increased due to continued strong growth in the
electric energy management business. Gas revenues decreased due to
the sale of KLT Gas properties in September and October 2000.
SEL has an option to purchase up to 270 megawatts of power at $21 per
mwh through the end of 2001. Almost all of the bulk power sales
increase for the three months ended and year to date June 30, 2001,
compared to the same periods of 2000 is related to large block sales
of the power purchased under the option. SEL also purchases energy in
the wholesale markets to meet its customers' energy needs. On
occasion, SEL must purchase small blocks of power prior to the sales
contract in order to quote stable pricing to new potential customers.
Power purchased in excess of retail sales is sold in the wholesale
markets.
KLT Inc. Other Income and Expenses
The $5.5 million favorable change in KLT Inc.'s other expenses year to
date June 30, 2001, compared to the same period of 2000 was primarily
due to $4.8 million of realized losses on the write off of an
investment in CellNet in 2000.
KLT Inc. Taxes
KLT Inc. accrued tax credits of $6.4 million and $13.0 million for the
three months ended and year to date June 30, 2001, and $6.8 million
and $13.7 million for the three months ended and year to date June 30,
2000. These tax credits are related to investments in affordable
housing limited partnerships and natural gas properties.
28
HSS Operations
HSS, an unregulated subsidiary, pursues business ventures primarily in
residential services. In 2001, HSS increased its ownership to 72%
from 49% in RSAE, a consumer services company in Atlanta, Georgia,
which required a change in the method of accounting for RSAE from
equity to consolidation. Additionally, Worry Free Service, Inc., a
wholly owned subsidiary of HSS, assists residential customers in
obtaining financing primarily for heating and air conditioning
equipment.
KCPL's investment in HSS was $46.9 million at June 30, 2001, and $46.3
million at December 31, 2000. HSS' loss year to date June 30, 2001,
totaled $3.4 million ($0.05 per share) compared to a loss of $2.2
million ($0.04 per share) year to date June 30, 2000. HSS' increased
loss year to date June 30, 2001, compared to 2000, was primarily due
to increased losses associated with property dispositions at RSAE. At
June 30, 2001, the Company's accumulated losses were $21.4 million on
its investment in HSS. HSS' consolidated assets increased to $56.1
million at June 30, 2001, compared to $25.3 million at December 31,
2000, reflecting the consolidation of RSAE in 2001.
Great Plains Power Incorporated (GPP)
GPP will focus on fossil fuel-fired electric generation in the central
part of the U.S. In April 2001, KCPL entered into a $200 million,
five-year operating lease agreement for five combustion turbines that
would add 385 megawatts of peaking capacity in 2003. Some or all of
those units may be transferred to GPP. If transferred, a significant
portion of the output from some of these units may be sold to KCPL.
GPP announced an agreement with the boiler and air quality control
equipment vendor and construction firm, Babcock and Wilcox, and the
design and engineering firm, Burns and McDonnell, to conduct the
design and development study for Weston Bend I, a coal-fired plant
near Weston, Missouri. This agreement reunites the same team that
rebuilt Hawthorn No. 5 in 22 months rather than the industry norm of
36 months. GPP is considering building, in the Midwest region, one to
five coal-fired plants ranging from 500 to 900 megawatts each. Weston
Bend I is anticipated to be on line late in 2005. All plants built by
GPP would be constructed to serve the wholesale market.
Other Consolidated Discussion
Significant Consolidated Balance Sheet Changes
(June 30, 2001 compared to December 31, 2000)
- Cash and cash equivalents decreased $17.1 million due to KLT
Telecom's payment of $39.9 million to increase its investment in DTI
and $39.0 million working capital used for DTI's operations offset by
$41.7 million proceeds from the sale of KLT Gas' 50% equity ownership
in Patrick Energy, $20.8 million proceeds from the sale of securities
and $3.8 million proceeds from the sale of KLT's equity ownership in
the Downtown Hotel Group.
- Receivables increased $65.2 million primarily due to an increase in
SEL's electric business and the seasonal nature of the utility
business.
- Equity securities decreased $13.1 million primarily due to the sale
by KLT Gas of $12.3 million of stock in Evergreen Resources, Inc.
- Other current assets increased $13.0 million primarily due to a
$6.9 million increase in KCPL prepayments and $5.9 million because of
FASB 133 - Accounting for Derivative Instruments and Hedging
Activities, as amended. (See Note 6 to the Consolidated Financial
Statements)
- Telecommunications property of $384.8 million at June 30, 2001,
resulted from KLT Telecom's purchase of an additional ownership
interest in DTI; which required a change in the method of accounting
for DTI from equity to consolidation.
29
- Gas property and investments decreased $18.7 million primarily due
to the sale of KLT Gas' 50% equity ownership in Patrick Energy.
- Other nonutility property and investments decreased $15.2 million
due to the sale by KLT of its $1.8 million investment in the Downtown
Hotel Group, the sale of $7.3 million of various other investments and
the exchange of $4.7 million preferred stock in an energy services
company for an additional ownership in SEL.
- Combined electric utility plant and construction work in progress
increased $116.2 million primarily due to expenditures of $63.5
million at Hawthorn No. 5 to rebuild the boiler and $64.1 million for
other utility capital expenditures. The completion of rebuilding the
boiler at Hawthorn No. 5 resulted in a transfer of $288.0 million from
construction work in progress to electric plant.
- Goodwill increased $93.1 million due to increased goodwill at June
30, 2001, of $66.6 million resulting from the consolidation of DTI and
an additional $3.2 million in goodwill recorded because of increased
ownership in SEL. An additional $23.3 million of goodwill at June 30,
2001, relates to the consolidation of RSAE, resulting from an
increased ownership by HSS.
- Notes payable to banks of $22.3 million includes $18.7 million of
short-term notes at June 30, 2001, relating to the consolidation of
RSAE and $3.6 million relating to short-term notes held by DTI.
- Commercial paper increased $190.2 million due to the repayment of
medium-term notes of $50 million and additional commercial paper
borrowings as expenditures exceeded cash receipts.
- Current maturities of long-term debt increased $174.7 million,
reflecting a $227.0 million increase in the current portion of KCPL's
medium-term notes offset by $50.0 million of maturing medium-term
notes.
- Other current liabilities increased $47.7 million because of $8.2
million at June 30, 2001, due to the consolidation of RSAE, as well as
$28.5 million because of the adoption of FASB 133 and $11.7 million at
June 30, 2001, due to the consolidation of DTI.
- Deferred telecommunications revenue of $47.3 million at June 30,
2001, is due to the consolidation of DTI. This deferred revenue
results from advances under contracts being deferred and then
recognized on a straight-line basis as revenue over the terms of the
contract. In many cases, recognition does not start until completion
of specified route segments.
- Capitalization increased by $45.6 million due to the consolidation
of $200.6 million of DTI's senior discount notes at June 30, 2001, and
$94.0 million of borrowings by KLT Inc. These increases were offset
by $227.0 million of medium-term notes transferred to current
maturities and a loss of $10.9 million in other comprehensive income
because of FASB 133.
Capital Requirements and Liquidity
The Company's liquid resources at June 30, 2001, included cash flows
from operations, $150 million of registered but unissued debt
securities, and $102 million of unused bank lines of credit. The
unused lines consisted of KCPL's short-term bank lines of credit of
$71 million and KLT Inc.'s bank credit agreement of $31 million.
The Company generated positive cash flows from operating activities
year to date June 30, 2001. Individual components of working capital
will vary with normal business cycles and operations, such as the
increase in receivables of $60.1 million year to date June 30, 2001,
and the reduction of accounts payable by $41.1 million for the same
period. Also, the timing of the Wolf Creek outage affects the
refueling outage accrual, deferred income taxes and amortization of
nuclear fuel.
Cash used for investing activities varies with the timing of utility
capital expenditures and purchases of investments and nonutility
property. Cash used for purchases of investments and nonutility
property increased year to date June 30, 2001, compared to the same
period of 2000 primarily reflecting increased investments by KLT
Telecom in DTI and additional telecommunications property partially
offset by investments in gas properties during the same period of
2000. The note receivable from DTI
30
prior to majority ownership is reflected as an investing activity.
See additional discussion of DTI loan activity in the Telecommunications
section of the KLT Inc. Business overview. These amounts were partially
offset by cash received from the sale of KLT Gas' equity position in
Patrick Energy Corporation and the sale of securities.
Cash from financing activities increased year to date June 30, 2001,
compared to the same period of 2000 primarily because short-term
borrowings increased $197.2 million year to date June 30, 2001,
compared to a $79.3 million decrease for the same period of 2000.
However, this change in short-term borrowings was partially offset by
a decrease in long-term debt issuances year to date June 30, 2001,
compared to the same period of 2000.
The Company expects to meet day-to-day operations, construction
requirements (excluding new generating capacity and telecommunications
construction) and dividends with internally-generated funds. However,
the Company might not be able to meet these requirements with
internally-generated funds because of the effect of inflation on
operating expenses, the level of mwh sales, regulatory actions,
compliance with future environmental regulations and the availability
of generating units. The funds needed to retire $747 million of
maturing debt through the year 2005 will be provided from operations,
refinancings and/or short-term debt. The Company may issue additional
debt and/or additional equity to finance growth or take advantage of
new opportunities.
Environmental Matters
The Company's operations must comply with federal, state and local
environmental laws and regulations. The generation and transmission
of electricity produces and requires disposal of certain products and
by-products, including polychlorinated biphenyl (PCBs), asbestos and
other hazardous materials. The Federal Comprehensive Environmental
Response, Compensation and Liability Act (the Superfund law) imposes
strict joint and several liability for those who generate, transport
or deposit hazardous waste. In addition, the current owner of
contaminated property, as well as prior owners since the time of
contamination, may be liable for cleanup costs.
The Company continually conducts environmental audits to detect
contamination and ensure compliance with governmental regulations.
However, compliance programs need to meet new and future environmental
laws, as well as regulations governing water and air quality,
including carbon dioxide emissions, nitrogen oxide emissions,
hazardous waste handling and disposal, toxic substances and the
effects of electromagnetic fields. Therefore, compliance programs
could require substantial changes to operations or facilities (see
Note 4 to the Consolidated Financial Statements).
31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This disclosure is for the interim periods presented and should be
read in connection with the quantitative and qualitative disclosures
about market risk included in our 2000 annual report on Form 10-K.
The consolidated company is exposed to market risks associated with
commodity price and supply, interest rates and equity prices. Market
risks are handled in accordance with established policies, which may
include entering into various derivative transactions. In the normal
course of business, the Company also faces risks that are either non-
financial or non-quantifiable. Such risks principally include
business, legal, operational and credit risks and are not represented
in the following analysis.
Commodity Risk
KCPL has approximately 95% of its forecasted coal requirements under
contract for the year 2001. A portion of these coal requirements are
subject to the market price of coal. Because of the increased price
of coal, KCPL's coal commitments for 2001 have increased 11% to $39.9
million since the 2000 annual report on Form 10-K was filed. A
hypothetical 10% increase in the price of coal would result in an
immaterial decrease in the year 2001 pretax earnings.
Equity Price Risk
An equity security, with a cost basis of $4.7 million, is considered a
trading security and as such has been recorded at its fair value of
$5.5 million at June 30, 2001. This equity security is exposed to
price fluctuations in equity markets. A hypothetical 10% decrease in
equity prices would result in an immaterial reduction in the fair
value of this equity security.
32
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
Exhibit 10-a Lease dated April 27, 2001 between Kansas City
Power & Light Company and Wells Fargo Bank
Northwest, National Association.
Exhibit 10-b Amendment No. 4 to Credit Agreement dated as of
April 30, 2001, among KLT Inc. and Bank One, NA,
as Agent.
Exhibit 10-c Amendment No. 2 dated June 4, 2001 to Credit
Agreement among KLT Telecom Inc. and Digital
Teleport, Inc.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the six months ended June 30, 2001.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
KANSAS CITY POWER & LIGHT COMPANY
Dated: August 9, 2001 By: /s/Bernard J. Beaudoin
(Bernard J. Beaudoin)
(Chief Executive Officer)
Dated: August 9, 2001 By: /s/Neil Roadman
(Neil Roadman)
(Principal Accounting
Officer)
Exhibit 10-a
=================================================================
Lease
Dated as of April 27, 2001
between
Kansas City Power & Light Company,
as the Lessee
and
Wells Fargo Bank Northwest, National
Association,
a national banking association,
as Lessor
____________________________
Kansas City Power & Light Company Project 2001
Lease Financing
=================================================================
This Lease is encumbered by a lien in favor of First Security
Trust Company of Nevada, as Administrative Agent for the benefit
of the Participants. This Lease has been executed in several
counterparts. To the extent, if any, that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction), no lien on
this Lease may be created through the transfer or possession of
any counterpart other than the original counterpart containing
the receipt therefor executed by the Administrative Agent on or
following the signature page hereof.
THIS COUNTERPART IS [NOT] THE ORIGINAL COUNTERPART.
TABLE OF CONTENTS
Section Heading Page
Article I Definitions; Effectiveness 1
Section 1.1. Definitions; Interpretation 1
Article II Lease of Leased Property; Lease Term 2
Section 2.1. Acceptance and Lease of the Leased Property 2
Section 2.2. Acceptance, Testing and Initial Use Procedures 2
Section 2.3. Term 2
Section 2.4. Title. 3
Section 2.5. Contract Matters 3
Section 2.6. [Intentionally Deleted] 3
Section 2.7. Ground Leases 3
Article III Payment of Rent 4
Section 3.1. Rent 4
Section 3.2. Payment of Basic Rent 4
Section 3.3. Supplemental Rent 4
Section 3.4. Method of Payment 4
Article IV Quiet Enjoyment; Right to Inspect 5
Section 4.1. Non-Interference. 5
Section 4.2. Inspection and Reports 5
Article V Net Lease, Etc. 6
Section 5.1. Net Lease, Etc 6
Section 5.2. No Termination or Abatement. 7
Article VI Assignments, Subleases and Delegations 7
Article VII Lessee Acknowledgments 9
Section 7.1. Condition of the Leased Property 9
Section 7.2. Risk of Loss 9
Section 7.3. Certain Duties and Responsibilities of Lessor 9
Article VIII Possession and Use of the Property, Etc. 10
Section 8.1. Possession and Use of the Leased Property. 10
Section 8.2. Compliance with Requirements of Law and 10
Insurance Requirements
-i-
Article IX Maintenance and Repair; Reports 11
Section 9.1. Maintenance and Repair 11
Section 9.2. Maintenance and Repair Reports 11
Article X Modification, Etc. 11
Section 10.1. Improvements and Modification 11
Section 10.2. Title to Modifications. 13
Article XI Covenants with Respect to Liens and 14
Easements
Section 11.1. Covenants with Respect to Liens. 14
Section 11.2. Lessee's Grants and Releases of Easements; 14
Lessor's Waivers
Article XII PERMITTED CONTESTS 15
Section 12.1. Permitted Contests in Respect of Liens and 15
Applicable Laws.
Article XIII INSURANCE 16
Section 13.1. Required Coverages. 16
Section 13.2. Insurance Coverage 17
Section 13.3. Delivery of Insurance Certificates 17
Section 13.4. Insurance by Lessor, Administrative Agent or 17
any Participant
Article XIV CASUALTY AND CONDEMNATION 18
Section 14.1. Casualty and Condemnation. 18
Section 14.2. Environmental Matters 19
Section 14.3. Notice of Environmental Matters 19
Article XV TERMINATION OF LEASE 20
Section 15.1. Termination upon Certain Events. 20
Section 15.2. Termination Procedures. 20
Article XVI EVENTS OF DEFAULT 20
Section 16.1. Events of Default 20
Section 16.2. Remedies. 22
Section 16.3. Waiver of Certain Rights 26
Section 16.4. Grant of Security Interest. 26
Section 16.5. Determinations of Certain Events of Default 26
Section 16.6. Lessor Sale 26
Article XVII LESSOR'S RIGHT TO CURE 27
Section 17.1. The Lessor's Right to Cure the Lessee's 27
Defaults
-ii-
Article XVIII PURCHASE PROVISIONS 27
Section 18.1. Early Termination Option 27
Article XIX END OF TERM OPTIONS 28
Section 19.1. End of Term Options 28
Section 19.2. Election of Options 29
Section 19.3. Renewal Options. 29
Article XX SALE OPTION 29
Section 20.1. Sale Option Procedures. 29
Section 20.2. Certain Obligations Continue 32
Section 20.3. Failure to Sell Leased Property 32
Article XXI PROCEDURES RELATING TO PURCHASE OR SALE 34
OPTION
Section 21.1 Provisions Relating to Conveyance of the 34
Leased Property Upon Purchase by the Lessee,
Sales or Certain Other Events.
Article XXII ACCEPTANCE OF SURRENDER 36
Section 22.1. Acceptance of Surrender. 36
Article XXIII NO MERGER OF TITLE 36
Section 23.1. No Merger of Title 36
Article XXIV INTENT OF THE PARTIES 36
Section 24.1. Nature of Transaction 36
Section 24.2. Lessee Grant of Mortgage and Security 38
Interest
Article XXV MISCELLANEOUS 39
Section 25.1. Survival; Severability; Etc 39
Section 25.2. Amendments and Modifications 39
Section 25.3. No Waiver 39
Section 25.4. Notices 39
Section 25.5. Successors and Assigns. 39
Section 25.6. Headings and Table of Contents 39
Section 25.7. Counterparts. 40
Section 25.8. Governing Law 40
Section 25.9. Original Lease 40
Section 25.10. Limitations on Recourse 40
Section 25.11. Transfer of Leased Property 41
Section 25.12. Effective Date 41
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Signature 42
Exhibits
Exhibit A - Form of Memorandum of Lease
Exhibit B - Description of Leased Property
-iv-
LEASE
This Lease dated as of April 27, 2001 (as amended,
supplemented, or otherwise modified from time to time, this
"LEASE"), between Wells Fargo Bank Northwest, National
Association, a national banking association, as Lessor
("LESSOR"), and Kansas City Power & Light Company, a Missouri
corporation ("LESSEE").
WITNESSETH:
A. The parties are now entering into the Operative Documents
in order to provide financing for the Leased Property.
B. During the Commitment Period, Lessor, using Advances
funded by the Participants, will reimburse Lessee or pay directly
to the Persons entitled thereto the Project Costs. Pursuant to
the Project Supervisory Agreement being entered into between
Lessor and Lessee, as Supervisory Agent, Supervisory Agent will
supervise (i) the purchase and Shipment of the Equipment under
the Equipment Contracts and (ii) the assembly and installation of
the Equipment and the construction of the Financed Improvements
pursuant to the Project Agreements.
C. Pursuant to this Lease, Lessor will lease the Leased
Property, inclusive of Lessor's leasehold interest in the Leased
Property, to Lessee and Lessee will lease the Leased Property
from Lessor.
Now, Therefore, in consideration of the foregoing, and of
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS; EFFECTIVENESS
SECTION 1.1. DEFINITIONS; INTERPRETATION. For all
purposes hereof, the capitalized terms used herein and not
otherwise defined shall have the meanings assigned thereto in
Appendix 1 to that certain Participation Agreement dated as of
even date herewith, among Kansas City Power & Light Company, as
Lessee; Wells Fargo Bank Northwest, National Association, not in
its individual capacity, except as expressly stated therein, but
solely as Certificate Trustee and Lessor; First Security Trust
Company of Nevada, not in its individual capacity except as
expressly stated therein, but solely as Administrative Agent; the
financial institutions named on Schedule I thereto, as
Certificate Holders; the financial institutions listed on
Schedule II thereto as Lenders (as amended, supplemented or
otherwise modified from time to time pursuant thereto, the
"PARTICIPATION AGREEMENT"); and the rules of interpretation set
forth in Appendix 1 to the Participation Agreement shall apply to
this Lease. All obligations imposed on the "Lessee" in this
Lease shall be full recourse liabilities of Lessee.
ARTICLE II
LEASE OF LEASED PROPERTY; LEASE TERM
SECTION 2.1. ACCEPTANCE AND LEASE OF THE LEASED PROPERTY.
(a) Lessor, subject to the satisfaction or waiver of the
conditions set forth in Article VI of the Participation
Agreement, hereby agrees to enter into the Ground Lease for the
Site and to provide funds for the purchase and construction of
the Equipment and the Financed Improvements.
(b) Beginning on the Base Term Commencement Date, Lessor
hereby leases all of Lessor's interest in the Leased Property to
Lessee hereunder, and Lessee hereby leases pursuant to the terms
hereof the Leased Property from Lessor for the Term.
SECTION 2.2. ACCEPTANCE, TESTING AND INITIAL USE
PROCEDURES. Lessor hereby authorizes Lessee, as the authorized
representative of Lessor, to accept delivery of the Leased
Property, including without limitation the Equipment and the
Financed Improvements to be constructed on the Site[s], upon the
Base Term Commencement Date. Lessee hereby agrees that, subject
to Section 2.3(b), delivery at the Site and payment from Advances
for any portion of the Financed Improvements shall, without
further act, constitute the irrevocable acceptance by Lessee of
all such Financed Improvements for all purposes of this Lease and
the other Operative Documents on the terms set forth herein and
therein and shall constitute Lessee's agreement to lease the
Leased Property pursuant to the terms hereof during the Term.
Notwithstanding anything herein to the contrary, the acceptance
of the Financed Improvements for purposes of this Lease shall not
constitute and shall not be deemed to be acceptance thereof under
any Project Agreement. Pursuant to the Project Supervisory
Agreement, the Lessee will test the Units, and, to the extent the
Units are capable of use prior to the Base Term Commencement
Date, the Lessee is granted a license and is authorized to use
the Units in the ordinary course of its business. The Lessee
agrees that the testing and use prior to the Base Term
Commencement Date of the Units will be subject to the terms of
Articles VIII and IX hereof and may not occur unless the
insurance required by Article XIII is fully effective and
applicable in respect of such Units, except to the extent that
equivalent coverage is provided under the insurance obtained by
the Supervisory Agent pursuant to the Project Supervisory
Agreement and in full force and effect.
SECTION 2.3. TERM. (a) Unless earlier terminated, the
term of this Lease shall consist of (i) a base term (the "BASE
TERM") commencing on and including the Base Term Commencement
Date and ending on but not including the fifth anniversary of the
Document Closing Date, and, (ii) if exercised and approved
pursuant to each of the terms and conditions of Section 4.7 of
the Participation Agreement and exercised pursuant to the terms
of this Lease, including Article XIX hereof, each Lease Renewal
Term (the Base Term and the Lease Renewal Terms, if any, being
collectively referred to as, the "TERM").
(b) Prior to the Base Term Commencement Date, the Leased
Property shall be subject to the provisions of this Lease as it
is acquired, constructed or equipped as the case may be, but only
to the extent and subject to the limitations set forth in
Section 2.6(b)(viii) of the Project Supervisory Agreement.
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SECTION 2.4. TITLE. The Leased Property is leased to the
Lessee without any representation or warranty, express or implied
(other than with respect to the absence of Lessor Liens), by the
Lessor and subject to the rights of parties in possession, the
existing state of title with respect thereto and all Applicable
Laws and any violations thereof. The Lessee shall in no event
have any recourse against the Lessor for any defect in or
exception to title to the Leased Property or any Unit other than
resulting from Lessor Liens created by Lessor or a breach by the
Lessor of its obligations under Article XXI.
SECTION 2.5. CONTRACT MATTERS. Lessor hereby transfers to
Lessee and assigns without warranty of any kind, during the Term,
effective upon the Base Term Commencement Date and so long as no
Event of Default exists, any warranties made by the Manufacturers
with respect to the Equipment and each General Contractor or any
other Person under the Project Agreements with respect to the
Financed Improvements but excluding in each case Liquidated
Damages, which will be applied pursuant to Section 5.3(d)(ii) of
the Participation Agreement. If necessary, the Lessor will join
in any proceedings to enforce any such warranties or permit them
or any part thereof to be brought in its name if and so long as
(i) no Event of Default exists and (ii) the Lessee agrees in
writing to pay, and pays, all related expenses. Lessee hereby
acknowledges, and agrees to comply with and be bound by, the
limitations of liability of and protection of each Manufacturer,
each General Contractor and each other Person against liability
as and to the extent provided in the Equipment Contracts and each
Project Agreement. Lessee hereby further agrees to comply with
and be bound by the provisions of the Equipment Contracts
regarding the protection of proprietary information as and to the
extent provided in said contracts.
SECTION 2.6. [INTENTIONALLY DELETED]
SECTION 2.7. GROUND LEASES. (a) This Lease is and shall
be at all times subject to all of the terms, covenants and
conditions of the Ground Leases and shall in all respects be
limited to the estate granted to Lessor by Ground Lessor pursuant
to the Ground Leases. Excluding only the obligations with regard
to the payment of basic rental under the Ground Leases, Lessee
assumes and agrees to be bound by the terms of and to perform all
of the obligations and duties of Lessor under the Ground Leases.
Lessee shall not commit or permit to be committed any act or
omission which shall violate any terms, covenants or conditions
of the Ground Leases. Lessee agrees that it shall promptly
forward to Lessor any and all notices or other communications
received by Lessee from the Ground Lessor under the Ground
Leases.
(b) Where any approval or consent shall be required of
Lessor pursuant to the provisions of this Lease, any other
Operative Document, or the Ground Leases, Lessor may, without
limitation, condition its approval or consent upon the obtaining
of approval or consent of the Ground Lessor, at Lessee's sole
cost and expense, where such consent or approval is, or may in
the reasonable opinion of Lessor be, required under the Ground
Leases. To the extent that the terms of the Ground Leases are
more restrictive than the terms of the Lease, the terms of the
Ground Leases shall be deemed incorporated herein as applicable.
(c) Lessor shall not agree to an amendment to or other
modification to the Ground Lease without the prior written
consent of Lessee, which consent Lessee may withhold in its sole
and absolute discretion.
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ARTICLE III
PAYMENT OF RENT
SECTION 3.1. RENT. (a) During the Term, the Lessee shall
pay Basic Rent on each Payment Date, on the date required under
Section 20.1(i) in connection with the Lessee's exercise of the
Sale Option and on any date on which this Lease shall terminate
with respect to the Leased Property.
(b) The Lessee's inability or failure to take possession of
all or any portion of the Leased Property when accepted or deemed
accepted hereunder, whether or not attributable to any act or
omission of the Lessee or any act or omission of the Lessor,
shall not delay or otherwise affect the Lessee's obligation to
pay Rent in accordance with the terms of this Lease.
SECTION 3.2. PAYMENT OF BASIC RENT. Basic Rent shall be
paid absolutely net to the Lessor, so that this Lease shall yield
to the Lessor the full amount thereof, without setoff, deduction
or reduction.
SECTION 3.3. SUPPLEMENTAL RENT. The Lessee shall pay to
the Lessor or the Person entitled thereto any and all
Supplemental Rent promptly as the same shall become due and
payable, and if the Lessee fails to pay any Supplemental Rent,
the Lessor shall have all rights, powers and remedies provided
for herein or by law or equity or otherwise in the case of
nonpayment of Basic Rent. Lessee hereby reaffirms that its
obligation to pay Supplemental Rent shall include the payment of
any and all Contingent Rent. The Lessee shall pay to the Lessor,
as Supplemental Rent, among other things, on demand, to the
extent permitted by Applicable Laws, interest at the applicable
Overdue Rate on any installment of Basic Rent not paid when due
for the period for which the same shall be overdue and on any
payment of Supplemental Rent payable to the Lessor or any
Indemnitee not paid when due for the period from the due date
until the same shall be paid. The expiration or other
termination of the Lessee's obligations to pay Basic Rent
hereunder shall not limit or modify the obligations of the Lessee
with respect to Supplemental Rent. Unless expressly provided
otherwise in this Lease, in the event of any failure on the part
of the Lessee to pay and discharge any Supplemental Rent as and
when due, the Lessee shall also promptly pay and discharge any
fine, penalty, interest or cost which may be assessed or added
under any agreement with a third party for nonpayment or late
payment of such Supplemental Rent, all of which shall also
constitute Supplemental Rent.
SECTION 3.4. METHOD OF PAYMENT. Each payment of Rent
shall be made by the Lessee to the Administrative Agent prior to
2:00 p.m., New York City time to the account at the
Administrative Agent designated on Schedule III to the
Participation Agreement (or in the case of Excepted Payments
directly to the Person entitled thereto) in funds consisting of
lawful currency of the United States of America which shall be
immediately available on the scheduled date when such payment
shall be due, unless such scheduled date shall not be a Business
Day, in which case such payment shall be made on the next
succeeding Business Day unless the result of such extension would
be to carry into another calendar month, in which case such
payment shall be made on the immediately preceding Business Day.
Payments received after 2:00 p.m. New York City time on the date
due shall for the purpose of Section 16.1 hereof be deemed
received on such day; PROVIDED, HOWEVER, that for the
purposes of the second sentence of Section 3.3
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hereof, such payments shall be deemed received on the next
succeeding Business Day and subject to interest at the Overdue
Rate as provided in such Section 3.3.
ARTICLE IV
QUIET ENJOYMENT; RIGHT TO INSPECT
SECTION 4.1. NON-INTERFERENCE. Subject to Section 4.2
hereof and subject to Lessor's cure rights, as provided for in
Section 17.1, Lessor covenants that it will not interfere or
authorize any person to interfere in Lessee's use or possession
of the Leased Property during the Term pursuant to the terms of
this Lease, the Lessee being granted the right to peaceful
possession, use and quiet enjoyment of the Leased Property, so
long as no Event of Default has occurred and is continuing, it
being agreed that Lessee's remedies for breach of the foregoing
covenant shall be limited to a claim for damages or the
commencement of proceedings to enjoin such breach or seek
specific performance of the covenant, as applicable. Such right
is independent of and shall not affect Lessee's obligations
hereunder and under the other Operative Documents or Lessor's
rights otherwise to initiate legal action to enforce the
obligations of Lessee under this Lease. The foregoing covenant
shall not require Lessor to take any action contrary to, or which
would permit Lessee to use the Leased Property for a use not
permitted under the provisions of this Lease.
SECTION 4.2. INSPECTION AND REPORTS. (a) Upon five (5)
Business Days' prior notice (or two (2) Business Day's prior
notice during the existence of an Event of Default) to Lessee,
Lessor or its authorized representatives (the "INSPECTING
PARTIES") at any time during the Term may inspect (a) the Leased
Property and (b) the books and records of Lessee relating to the
Leased Property and make copies and abstracts therefrom and may
discuss the affairs, finances and accounts with respect to the
Leased Property with Lessee's officers, Lessee's independent
public accountants (and, by this provision, Lessee authorizes and
directs its independent public accountants to discuss such
matters with the Inspecting Parties; PROVIDED, HOWEVER, that so
long as no Event of Default shall have occurred and be
continuing, the Lessor and its authorized representatives shall
only be entitled to make one inspection in any twelve (12) month
period; PROVIDED, FURTHER, that such limitation shall not be
applicable during the period following the exercise and
continuance of the Sale Option by the Lessee. All such
inspections shall be during Lessee's normal business hours, shall
be subject to Lessee's customary safety and security provisions
and shall be at the expense and risk of the Inspecting Parties,
except that, if an Event of Default or Default has occurred and
is continuing, Lessee shall reimburse the Inspecting Parties for
the reasonable costs of such inspections and such inspection
shall be at Lessee's expense. No inspection shall unreasonably
interfere with Lessee's operations. None of the Inspecting
Parties shall have any duty to make any such inspection or
inquiry. None of the Inspecting Parties shall incur any
liability or obligation by reason of making any such inspection
or inquiry unless and to the extent such Inspecting Party causes
damage to the Leased Property or any property of Lessee or any
other Person during the course of such inspection.
(b) To the extent permissible under Applicable Laws, during
the Term Lessee shall prepare and file in timely fashion, or,
where Lessor shall be required to file, Lessee shall prepare and
make available to Lessor within a reasonable time prior to the
date for filing and Lessor shall file, any reports with respect
to the condition or operation of the Leased Property that shall
be required to be filed with any Governmental Authority.
-5-
ARTICLE V
NET LEASE, ETC.
SECTION 5.1. NET LEASE, ETC. This Lease shall constitute
a net lease and Lessee's obligations hereunder to pay Rent shall
be absolute and unconditional under any and all circumstances.
Any present or future law to the contrary notwithstanding, this
Lease shall not terminate, nor shall the Lessee be entitled to
any abatement, suspension, deferment, reduction, setoff,
counterclaim, or defense (except prior payment in full of all
Obligations then due and payable) with respect to the Rent
(except as expressly provided herein at Section 12.1 to the
extent a Permitted Contest thereunder relates to the payment of
Supplemental Rent to a Person other than Administrative Agent,
Lessor or any Participant), nor shall the obligations of the
Lessee hereunder be affected (except as expressly herein
permitted and by performance of the obligations in connection
therewith) by reason of: (i) any defect in the condition,
merchantability, design, construction, quality or fitness for use
of the Leased Property or any part thereof, or the failure of the
Leased Property to comply with all Applicable Laws, including any
inability to use the Leased Property by reason of such non-
compliance; (ii) any damage to, removal, abandonment, salvage,
loss, contamination of, or Release from, scrapping or destruction
of or any requisition or taking of the Leased Property or any
part thereof; (iii) any restriction, prevention or curtailment of
or interference with any use of the Leased Property or any part
thereof; (iv) any defect in title to or rights to the Leased
Property or any Lien on such title or rights or on the Leased
Property (PROVIDED, that the foregoing shall not relieve any
Person from its responsibility to remove Lessor Liens
attributable to it); (v) any change, waiver, extension,
indulgence or other action or omission or breach in respect of
any obligation or liability of or by the Lessor, the
Administrative Agent or any Participant; (vi) to the fullest
extent permitted by Applicable Laws, any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation
or other like proceedings relating to the Lessee, the Lessor, the
Administrative Agent, any Participant or any other Person, or any
action taken with respect to this Lease by any trustee or
receiver of the Lessee, the Lessor, the Administrative Agent, any
Participant or any other Person, or by any court, in any such
proceeding; (vii) any claim that the Lessee has or might have
against any Person, including without limitation any Participant,
or any vendor, manufacturer, contractor of or for the Leased
Property, including any Manufacturer or General Contractor;
(viii) any failure on the part of the Lessor to perform or comply
with any of the terms of this Lease, of any other Operative
Document or of any other agreement; (ix) any invalidity or
unenforceability or illegality or disaffirmance of this Lease
against or by the Lessee or any provision hereof or any of the
other Operative Documents or any provision of any thereof; (x)
the impossibility or illegality of performance by the Lessee, the
Lessor or both; (xi) any action by any court, administrative
agency or other Governmental Authority; (xii) any restriction,
prevention or curtailment of or interference with the
Construction on or use of the Leased Property or any part
thereof; (xiii) the failure of Lessee or any of its Affiliates to
achieve any accounting or tax benefits or the characterization of
the transaction intended by the parties as set forth at Section
24.1 hereof and Section 5.1 of the Participation Agreement; or
(xiv) any other cause or circumstances whether similar or
dissimilar to the foregoing and whether or not the Lessee shall
have notice or knowledge of any of the foregoing. The Lessee's
agreement in the preceding sentence shall not affect or waive any
claim, action or right the Lessee may have against any Person.
The parties intend that the obligations of the Lessee hereunder
shall be covenants and agreements that are separate and
independent from any obligations of the Lessor
-6-
hereunder or under any other Operative Documents and the
obligations of the Lessee shall continue unaffected unless such
obligations shall have been modified or terminated in accordance
with an express provision of this Lease.
SECTION 5.2. NO TERMINATION OR ABATEMENT The Lessee shall
remain obligated under this Lease in accordance with its terms
and the terms of the other Operative Documents and shall not take
any action to terminate, rescind or avoid this Lease (except as
pursuant to the terms of this Lease and the other Operative
Documents) to the fullest extent permitted by Applicable Laws,
notwithstanding any action for bankruptcy, insolvency,
reorganization, liquidation, dissolution, or other proceeding
affecting the Lessor, the Administrative Agent or any
Participant, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of the Lessor,
the Administrative Agent or any Participant or by any court with
respect to the Lessor, the Administrative Agent or any
Participant. The Lessee hereby waives, to the extent permitted
by Applicable Law, all right to terminate or surrender this Lease
(except as provided herein) or to avail itself of any abatement,
suspension, deferment, reduction, setoff, counterclaim or defense
(other than prior payment in full of all Obligations then due and
payable) with respect to any Rent (except as expressly permitted
in this Lease at Section 12.1 to the extent a Permitted Contest
thereunder relates to the payment of Supplemental Rent to a
Person other than Administrative Agent, Lessor or any
Participant). The Lessee shall remain obligated under this Lease
in accordance with its terms and the terms of the other Operative
Documents and the Lessee hereby waives, to the extent permitted
by Applicable Law, any and all rights now or hereafter conferred
by statute or otherwise to modify or to avoid strict compliance
with its obligations under this Lease. Notwithstanding any such
statute or otherwise, the Lessee shall be bound by all of the
terms and conditions contained in this Lease.
ARTICLE VI
ASSIGNMENTS, SUBLEASES AND DELEGATIONS
Except for assignments and subleases permitted by this
Article VI, Lessee may not assign, mortgage, pledge or otherwise
transfer to any Person, including an Affiliate of Lessee, at any
time, in whole or in part, any of its right, title or interest
in, or obligations to or under this Lease and any other Operative
Document or to any portion of the Leased Property (except a
purchase or sale of the Leased Property as permitted hereby and
by the Project Supervisory Agreement), in any case without the
prior written consent of the Lessor and the Participants not to
be unreasonably withheld, and any such assignment, mortgage or
pledge shall be void; PROVIDED, HOWEVER, that Lessee may assign
or transfer without such consent (but subject to the conditions
set forth below) to the Nonregulated Affiliate such right, title,
obligations or interest if, prior to such assignment or transfer:
(a) Lessee causes the Parent Guarantor to execute and
deliver to the Participants a guaranty of all of such
Nonregulated Affiliate's obligations under the Operative
Documents (such guaranty to be in form of Exhibit J to the
Participation Agreement);
(b) this Lease and the other Operative Documents are
amended to provide for any revisions or additions thereto
(including, but not limited to, any covenants,
-7-
representations and warranties and Events of Default) in
each case, as may be requested by the Participants; and
(c) Lessee, Parent Guarantor and such Nonregulated
Affiliate execute and/or deliver such other documents,
instruments and opinions, obtain such consents and approvals
and perform such filings and recordings and such other acts
as may be requested by the Participants.
Except for the leasehold interest granted to Lessor pursuant
to the Ground Lease and as expressly permitted in this Article
VI, Lessee may not, unless the consent of Lessor is granted,
sublease, in whole or in part, any of its right, title or
interest in, to or under this Lease or any portion of the Leased
Property to any Person except that, notwithstanding the
foregoing, following the Base Term Commencement Date, Lessee may,
so long as no Event of Default exists, enter into subleases to an
Affiliate of Lessee. With respect to any sublease permitted
under this Article VI, Lessee shall not sublease any portion of
the Leased Property to, or permit the sublease of any portion of
the Leased Property by, any Person who shall then be engaged in
any proceedings for relief under any bankruptcy or insolvency law
or laws relating to the relief of debtors. Any Leased Property
subleased pursuant to this Article VI must be used and operated
in place at the Site, subject to the terms and conditions of this
Lease.
No sublease hereunder will (a) discharge or diminish any of
Lessee's obligations to Lessor hereunder or to any other Person
under any other Operative Document, and Lessee shall remain
directly and primarily liable under the Lease with respect to all
of the Leased Property or (b) extend beyond the last day of the
Term. Each sublease permitted hereby shall be made and shall
expressly provide that it is subject and subordinate to this
Lease and the rights of Lessor hereunder, and shall expressly
provide for the surrender of the Leased Property subleased by the
applicable sublessee at the election of Lessor after an Event of
Default.
Lessee shall give Lessor prompt written notice of any
sublease permitted under this Article VI, and Lessee shall,
within fifteen (15) days after execution of any sublease, deliver
to the Administrative Agent a fully executed copy of such
sublease.
ARTICLE VII
LESSEE ACKNOWLEDGMENTS
SECTION 7.1. CONDITION OF THE LEASED PROPERTY. The Lessee
acknowledges and agrees that although the Lessor will own and
hold title to the Leased Property, the Lessee, acting as agent,
is solely responsible under the terms of the Project Supervisory
Agreement (i) subject to the terms of the Equipment Contracts,
for the design, development, budgeting and manufacture of the
Equipment, (ii) for the design, development, budgeting and
construction of the financed improvements, and (iii) any
alterations or modifications and all activities conducted in
connection therewith. the Lessee further acknowledges and agrees
that it is leasing the property "as is" without representation,
warranty or covenant (express or implied) by the Lessor, the
Administrative Agent or the Participants and in each case subject
to (a) the existing state of title (excluding lessor liens),
(b) the rights of any parties in possession thereof, (c) any
-8-
state of facts which an accurate survey or a physical inspection
might show, and (d) violations of requirements of law with
respect to the leased Property, Lessee or its operations on or
with respect to the Leased Property which may exist on the date
hereof or on the acquisition date for the Leased Property. None
of the Lessor, any Agent or any of the Participants has made or
shall be deemed to have made any representation, warranty or
covenant (express or implied except as expressly provided in the
Operative Documents) or shall be deemed to have any liability
whatsoever as to the title (other than for lessor liens), value,
habitability, use, condition, design, operation, or fitness for
use of the Leased Property (or any part thereof), or any other
representation, warranty or covenant whatsoever, express or
implied, with respect to the Leased Property (or any part
thereof) and none of the Lessor, the Administrative Agent or the
Participants shall be liable for any latent, hidden, or patent
defect therein (other than for Lessor Liens) or the failure of
the Leased Property, or any part thereof, to comply with any
applicable laws. All risks incident to the matters discussed in
the preceding sentence, as between Lessor, the Administrative
Agent and the Participants, on the one hand, and Lessee, on the
other, are to be borne by Lessee. The provisions of this Section
7.1 have been negotiated, and, except to the extent otherwise
expressly stated, the foregoing provisions are intended to be a
complete exclusion and negation of any representations or
warranties by any of Lessor, the Administrative Agent or the
Participants, express or implied, with respect to the Leased
Property (or any interest therein), that may arise pursuant to
any law now or hereafter in effect or otherwise.
SECTION 7.2. RISK OF LOSS. During the Term and subject to
the limitations set forth in Section 3.2(c) of the Project
Supervisory Agreement, as between Lessee and Lessor, the risk of
loss of or decrease in the enjoyment and beneficial use of the
Leased Property as a result of the damage or destruction thereof
by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by the Lessee, and the Lessor shall in no
event be answerable or accountable therefor.
SECTION 7.3. CERTAIN DUTIES AND RESPONSIBILITIES OF
LESSOR. Lessor undertakes to perform such duties and only such
duties as are specifically set forth herein and in the other
Operative Documents, and no implied covenants or obligations
shall be read into this Lease against Lessor, and Lessor agrees
that it shall not, nor shall it have a duty to, manage, control,
use, sell, maintain, insure, register, lease, operate, modify,
dispose of or otherwise deal with the Leased Property or any
other part of the Trust Estate in any manner whatsoever, except
as required by the terms of the Operative Documents and as
otherwise provided herein.
ARTICLE VIII
POSSESSION AND USE OF THE PROPERTY, ETC.
SECTION 8.1. POSSESSION AND USE OF THE LEASED PROPERTY.
Lessee agrees that the Leased Property will be used solely in the
conduct of its business at the Site. At all times during the
Term, the Leased Property shall remain in the possession and
control of Lessee or a sublessee or assignee permitted hereunder;
PROVIDED, HOWEVER that portions of the Equipment may be moved
from the Site for maintenance, repair or replacement provided any
such maintenance, repair or replacement is promptly undertaken
and diligently completed and such Equipment is returned to the
Site as promptly as reasonably practicable thereafter. Lessee
warrants that the Leased
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Property will at all times be used and operated under and in
compliance in all material respects with the terms of the
Equipment Contracts and any other contracts or agreements
applicable to the use or operation of the Leased Property or any
portion thereof to which Lessee is a party or by which Lessee is
bound, or to the extent contemplated by the Operative Documents
or, as a result of any action or omission of Lessee, to which
Lessor is a party or by which Lessor is bound and in a manner
consistent with the standards applied by the Lessee for Lessee's
or its Affiliates' other power generation facilities. Lessee
shall not use the Leased Property or any part thereof for any
purpose or in any manner that would materially adversely affect
the Fair Market Value, utility, remaining useful life or residual
value of the Leased Property; other than ordinary wear and tear
excepted. Lessee assumes and agrees to pay all fees, charges,
costs, assessments, impositions, utilities and other amounts
which relate to or arise during the Term in connection with use
of the Leased Property. All such charges for utilities imposed
with respect to the Leased Property for a billing period during
which this Lease expires or terminates (except when Lessee
purchases the Leased Property in accordance with the terms of
this Lease, in which case Lessee shall be solely responsible for
all such charges) shall be adjusted and prorated on a daily basis
between Lessee and any purchaser of the Leased Property, and each
party shall pay or reimburse the other for each party's PRO RATA
share thereof; PROVIDED, that in no event shall Lessor have any
liability therefor.
SECTION 8.2. COMPLIANCE WITH REQUIREMENTS OF LAW AND
INSURANCE REQUIREMENTS. Subject to the terms of Article XII
relating to permitted contests, the Lessee, at its sole cost and
expense, shall comply in all material respects with all
Applicable Laws (including all Environmental Laws), Insurance
Requirements and manufacturer's operating standards and
guidelines relating to the Leased Property, including the use,
construction and operation thereof whether or not compliance
therewith shall require structural or extraordinary changes in
the Leased Property or interfere with the use and enjoyment of
the Leased Property, and procure, maintain and comply in all
material respects with all licenses, permits, orders, approvals,
consents and other authorizations required for the use,
operation, maintenance, repair and restoration of the Leased
Property.
ARTICLE IX
MAINTENANCE AND REPAIR; REPORTS
SECTION 9.1. MAINTENANCE AND REPAIR. On and after the
Base Term Commencement Date, Lessee, at its own expense, shall at
all times and in all material respects (a) maintain the Leased
Property in good operating condition, subject to ordinary wear
and tear, and in at least as good as the condition of similar
property owned or leased by Lessee or its Affiliates and in good
repair and condition; (b) maintain the Leased Property in
accordance with Prudent Industry Practice and, in any event, in
accordance with all Applicable Laws and Industry Standards
affecting the Leased Property; (c) maintain the Leased Property
in compliance with the Insurance Requirements and, to the extent
necessary to preserve the validity of the manufacturer
warranties, all manufacturer's suggested maintenance standards
which are in effect and to the extent applicable at any time with
respect to the Leased Property or any part thereof; (d) make all
necessary or appropriate repairs, replacements, restorations and
renewals of the Leased Property or any part thereof which may be
required to keep the Leased Property in the condition required by
the preceding clauses (a) through (c), structural or
nonstructural, ordinary or extraordinary,
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foreseen or unforeseen, and including, without limitation,
repairs, replacements, restorations and renewals; and (e)
procure, maintain and comply with all material licenses, permits,
orders, approvals, consents and other authorizations required for
the maintenance, use and operation, in the ordinary course of the
Lessee's business, of the Leased Property. Lessee waives any
right that it may now have or hereafter acquire to (x) require
Lessor to maintain, repair, replace, restore, alter, remove or
rebuild all or any part of the Leased Property or (y) make
repairs at the expense of Lessor pursuant to any Applicable Laws
or other agreements.
SECTION 9.2. MAINTENANCE AND REPAIR REPORTS. On and after
the Base Term Commencement Date, Lessee shall keep maintenance
and repair reports in sufficient detail, at least on the same
basis as records are kept for similar properties owned or leased
by Lessee or any of its Affiliates (other than reporting
requirements which are applicable only to a regulated utility),
to indicate the nature and date of major work done at or to the
Leased Property. Such reports shall be kept on file by Lessee,
and shall be made available to Lessor upon reasonable request.
Lessee shall give written notice to Lessor of any Event of Loss
promptly after Lessee has knowledge thereof.
ARTICLE X
MODIFICATION, ETC.
SECTION 10.1. IMPROVEMENTS AND MODIFICATIONS. (a) In
addition to Lessee's obligations as Supervisory Agent under the
Project Supervisory Agreement, on and after the Base Term
Commencement Date, (i) Lessee, at Lessee's own cost and expense,
shall make alterations, renovations, improvements and additions
to the Leased Property or any part thereof and substitutions and
replacements therefor (collectively, "MODIFICATIONS") which are
(A) necessary to repair or maintain the Leased Property in the
condition required by Section 9.1; (B) necessary in order for the
Leased Property to be in compliance with Applicable Laws in all
material respects; or (C) necessary or advisable to restore the
Leased Property to its condition existing prior to a Casualty or
Condemnation to the extent required pursuant to Article XIV; and
(ii) so long as no Event of Default or Default has occurred and
is continuing, Lessee, at Lessee's own cost and expense, may
undertake Modifications to the Leased Property so long as such
Modifications comply in all material respects with Applicable
Laws and with Section 9.1 and subsection (b) of this
Section 10.1.
(b) The making of any Modifications must be in compliance
with the following requirements:
(i) No such Modifications with a cost exceeding
$10,000,000, other than scheduled maintenance to the
Equipment required by the Manufacturers' operating standards
and guidelines or reasonably anticipated repairs or
replacements, shall be made or undertaken except upon not
less than thirty days' prior written notice to Lessor.
(ii) No Modifications shall be undertaken (x) in
violation in any material respect of the terms of any
restriction, easement, condition, covenant or other similar
matter affecting title to or binding on the Leased Property
or (y) until Lessee shall have procured and paid for, so far
as the same may be required from time to time, all material
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permits and authorizations to such Modifications of all
Governmental Authorities having jurisdiction. Lessor, at
Lessee's expense, shall join in the application for any such
permit or authorization and execute and deliver any document
in connection therewith, whenever such joinder is necessary
or advisable.
(iii) The Modifications shall be completed in a
good and workmanlike manner and in compliance in all
material respects with all Applicable Laws then in effect
and the standards imposed by any insurance policies required
to be maintained hereunder or the manufacturer in order to
maintain all warranties, and all Modifications must be
located solely on the Site.
(iv) All Modifications shall, when completed, be of
such a character as to not materially adversely affect the
Fair Market Value, utility, remaining economic useful life
or residual value of the Leased Property from the Fair
Market Value, utility, remaining economic useful life or
residual value thereof immediately prior to the making
thereof or, in the case of Modifications being made by
virtue of a Casualty or Condemnation, immediately prior to
the occurrence of such Casualty or Condemnation. If any
such Modification has a cost exceeding $15,000,000 and if
requested by the Required Participants, Lessor may obtain a
report from the Independent Engineer or, at the option of
the Required Participants, engage an appraiser of nationally
recognized standing, at Lessee's sole cost and expense, to
determine (by appraisal or other methods satisfactory to the
Required Participants) the projected Fair Market Value of
the Leased Property following completion of the
Modifications relating thereto.
(v) Lessee shall have made adequate arrangements for
payment of the cost of all Modifications when due so that
the Leased Property shall at all times be free of Liens for
labor and materials supplied or claimed to have been
supplied to the Leased Property, other than Permitted Liens.
(c) Notwithstanding the foregoing, following the Base Term
Commencement Date, Lessee, at its sole cost and expense, may make
emergency expenditures for Modifications that otherwise comply
with the requirements of this Section 10.1, even if such
Modifications are not scheduled or reasonably anticipated or the
cost thereof exceed the amounts set forth above, if any, provided
Lessee has promptly given Lessor notice promptly following the
earlier of such expenditure or Modification (which notice shall
describe the amount and type of such expenditures, the
Modifications made or to be made, and certifying that such
Modifications otherwise comply with the requirements of this
Section 10.1). The term "EMERGENCY EXPENDITURES" means
expenditures necessary to prevent damage or injury to (or loss
of) the Leased Property or any portion thereof or to prevent
exposing any person or entity to damage or injury or to prevent
any other act or omission which would, in the good faith judgment
of Lessee expose Lessee, Lessor, Administrative Agent or any of
the Participants to an unreasonable or unwarranted risk of loss,
damage, or injury or to comply with Applicable Law.
SECTION 10.2. TITLE TO MODIFICATIONS. Title to the
following described Modifications shall, without further act,
vest in Lessor and shall be deemed to constitute a part of the
Leased Property and be subject to this Lease:
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(a) any Modifications commenced prior to the Base Term
Commencement Date for the Financed Improvements or which are
otherwise Funded by the Participants;
(b) Modifications that are in replacement of or in
substitution for a portion of any item of Leased Property;
(c) Modifications that are required to be made
pursuant to the terms of Section 10.1(a)(i) hereof; or
(d) Modifications that are Nonseverable.
Lessee, at Lessor's request, shall execute and deliver any
deeds, bills of sale, assignments or other documents of
conveyance reasonably necessary to evidence the vesting of title
in and to such Modifications to Lessor.
If such Modifications are not within any of the categories
set forth in clauses (a) through (d) of this Section 10.2, then
title to such Modifications shall vest in Lessee and such
Modifications shall not be deemed to be Modifications which are
part of the Leased Property.
All Modifications to which Lessee shall have title may, so
long as removal thereof shall not result in the violation of any
Applicable Laws, shall not adversely affect the Lessee's ability
to comply with its obligations under this Lease or any other
Operative Document, and no Event of Default or Default is
continuing, be removed at any time by Lessee. Lessee agrees to
notify Lessor in writing at least 30 days before it removes any
such Modifications which individually or in the aggregate had an
original cost exceeding $5,000,000, and Lessee shall at its
expense repair any damage to the Leased Property caused by the
removal of such Modifications. Lessor (or the purchaser of the
Leased Property) may purchase from Lessee any such Modifications
(if not already owned by Lessor) that Lessee intends to remove
from the Leased Property prior to the return of the Leased
Property to Lessor or sale of the Leased Property, which purchase
shall be at the Fair Market Value of such Modifications as
determined by the Appraiser at the time of such purchase. Title
to any such Modifications shall vest in Lessor (or the purchaser
of the applicable Leased Property) if not removed from the Leased
Property by Lessee prior to the return of the Leased Property to
Lessor or sale of the Leased Property.
ARTICLE XI
COVENANTS WITH RESPECT TO LIENS AND EASEMENTS
SECTION 11.1. COVENANTS WITH RESPECT TO LIENS. (a) During
the Term and subject to Section 12.1 hereof, Lessee will not
directly or indirectly create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) on or with respect to any
portion of the Leased Property, Lessor's title thereto, or any
interest therein. Lessee, at its own expense, will promptly pay,
satisfy and otherwise take such actions as may be necessary to
keep the Leased Property free and clear of, and duly to
discharge, eliminate or bond in a manner reasonably satisfactory
to Lessor and the Administrative Agent, any such Lien (other than
Permitted Liens) if the same shall arise at any time.
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(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of the Lessor, expressed or
implied, to or for the performance by any contractor, mechanic,
laborer, materialman, supplier or vendor of any labor or services
or for the furnishing of any materials for any construction,
alteration, addition, repair, restoration or demolition of or to
the Leased Property or any part thereof. notice is hereby given
that none of the Lessor, Administrative Agent or the Participants
is or shall be liable for any labor, services or materials
furnished or to be furnished to the Lessee, or to anyone holding
the Leased Property or any part thereof through or under the
Lessee, and that no mechanic's or other liens for any such labor,
services or materials shall attach to or affect the interest of
the Lessor, the Administrative Agent or any Participant in and to
the Leased Property.
SECTION 11.2. LESSEE'S GRANTS AND RELEASES OF EASEMENTS;
LESSOR'S WAIVERS. Following the Base Term Commencement Date and
PROVIDED that no Default or Event of Default shall have occurred
and be continuing, and subject to the provisions of Articles VII,
IX and X and Section 8.2, and without the requirement of any
further instrument or action of the Lessor, the Lessor hereby
consents in each instance to the following actions by the Lessee
in the name and stead of the Lessor and as the true and lawful
attorney-in-fact of the Lessor with full power and authority to
execute documents on behalf of the Lessor for the following
purposes, but at the Lessee's sole cost and expense: (a) the
granting of, or entry into agreements in connection with,
easements, licenses, rights-of-way, building and use restrictions
and covenants and other rights and privileges in the nature of
easements or similar interests and burdens reasonably necessary
or desirable for the use, repair, maintenance or protection of
the Leased Property as herein provided; (b) the release of
existing easements or other rights in the nature of easements
which are for the benefit of, or burden to, the Leased Property;
(c) the execution of amendments to, or waivers or releases of,
any easements, licenses or covenants and restrictions affecting
the Site; and (d) the exercise of all rights under any
redevelopment agreement or document contemplated thereby
affecting the Site; provided, however, that in each case (i) such
grant, release, dedication, transfer, amendment, agreement or
other action does not materially impair the value, utility,
residual value or remaining useful life of the Leased Property,
(ii) such grant, release, dedication, transfer, amendment,
agreement or other action in the Lessee's judgment is reasonably
necessary in connection with the use, maintenance, alteration or
improvement of the Leased Property, (iii) such grant, release,
dedication, transfer, amendment, agreement or other action will
not cause the Leased Property or any portion thereof to fail to
comply with the provisions of this Lease or any other Operative
Documents and in all material respects, Applicable Laws
(including, without limitation, all applicable zoning, planning,
building and subdivision ordinances, all applicable restrictive
covenants and all applicable architectural approval
requirements); (iv) all governmental consents or approvals
required prior to such grant, release, dedication, transfer,
amendment, agreement or other action have been obtained, and all
filings required prior to such action have been made; (v) the
Lessee shall remain obligated under this Lease and under any
instrument executed by the Lessee consenting to the assignment of
the Lessor's interest in this Lease as security for indebtedness,
in each such case in accordance with their terms, as though such
grant, release, dedication, transfer, amendment, agreement or
other action had not been effected; and (vi) the Lessee shall
timely pay and perform any obligations of the Lessor under such
grant, release, dedication, transfer, amendment, agreement or
other action. Without limiting the effectiveness of the
foregoing, PROVIDED, that no Default or Event of Default
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shall have occurred and be continuing, the Lessor shall, upon the
request of the Lessee, and at the Lessee's sole cost and expense,
execute and deliver any instruments necessary or appropriate to
confirm any such grant, release, dedication, transfer, amendment,
agreement or other action to any Person permitted under this
Section.
ARTICLE XII
PERMITTED CONTESTS
SECTION 12.1. PERMITTED CONTESTS IN RESPECT OF LIENS AND
APPLICABLE LAWS. If, to the extent and for so long as a test,
challenge, appeal or proceeding for review of a Lien or any
Applicable Laws relating to the Leased Property or any part
thereof or the obligation to comply therewith shall be prosecuted
diligently and in good faith in appropriate proceedings by the
Lessee, during the Term, Lessee shall not be required to pay or
discharge such Lien or comply with such Applicable Laws but only
if and so long as any such test, challenge, appeal, proceeding,
waiver, extension, forbearance or noncompliance shall not, in the
reasonable opinion of the Lessor and the Administrative Agent
involve (A) any risk of criminal liability being imposed on the
Lessor, any Agent, any Participant or any item of Leased Property
or (B) any material risk of (1) the foreclosure, forfeiture or
loss of the Leased Property, or any material part thereof, (2)
the nonpayment of Rent, (3) any sale of, or the creation of any
Lien (other than a Permitted Lien) on, any material part of the
Leased Property (PROVIDED, HOWEVER, nothing herein shall be
deemed to reduce or diminish Lessee's obligations at Section
11.1), (4) civil or criminal liability being imposed on the
Lessor, the Administrative Agent, any Participant or any material
part of the Leased Property for which the Lessee is not obligated
to indemnify such parties under the Operative Documents, or
(5) enjoinment of, or interference with, the use, possession or
disposition of the Leased Property in any material respect.
The Lessor shall, at the written request of the Lessee and
at the Lessee's sole cost and expense, execute and deliver to the
Lessee such authorizations and other documents as may be
reasonably required in such test, challenge, appeal or
proceeding. The Lessor will not be required to join in any
proceedings pursuant to this Section 12.1 unless a provision of
any Applicable Laws requires that such proceedings be brought by
or in the name of the Lessor; and in that event the Lessor will
join in the proceedings or permit them or any part thereof to be
brought in its name if and so long as (i) the Lessee has not
elected the Sale Option and (ii) the Lessee agrees in writing to
pay, and pays, all related expenses and agrees in writing to
indemnify the Lessor, the Administrative Agent and the
Participants, in form and substance reasonably satisfactory to
each of the respective Indemnitees, in respect of any claim
relating thereto.
ARTICLE XIII
INSURANCE
SECTION 13.1. REQUIRED COVERAGES. To the extent required
below, during the Term, Lessee will provide or cause to be
provided insurance with respect to the Leased Property of a
character consistent with Lessee's insurance programs for similar
equipment owned or leased by Lessee or its Affiliates and in
keeping with Prudent Industry Practice; PROVIDED, that in any
event Lessee will maintain at all times:
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(a) GENERAL LIABILITY INSURANCE. Combined single limit
insurance against claims for third-party bodily injury, including
death, and third-party property damage occurring as a result of
the ownership, use, maintenance or operation of the Leased
Property in an amount at least equal to $50,000,000 per claim
made. Such coverage may be subject to deductibles or self-
insured retentions up to an amount that is consistent with
Lessee's insurance programs for similar property owned or leased
by Lessee or its Affiliates and in keeping with Prudent Industry
Practice.
(b) PROPERTY INSURANCE. Insurance against loss of or
damage to the Leased Property or any portion thereof by reason of
any peril in an amount consistent with Lessee's insurance program
for similar equipment owned or leased by Lessee, in keeping with
Prudent Industry Practice (subject to such deductibles and/or
self-insurance in such minimum amounts as is consistent with
Lessee's insurance program for similar property owned or leased
by Lessee or its Affiliates, in keeping with Prudent Industry
Practice; PROVIDED, HOWEVER, that at no time shall the amount of
such coverage be less than the replacement cost of the Leased
Property.
(c) OTHER INSURANCE. Lessee shall at all times maintain,
or cause to be maintained, such other insurance as is required by
Applicable Law governing the Lessee or the Leased Property.
Additionally, Lessee shall provide such other coverages as
Lessee, Lessor and Administrative Agent may mutually agree.
SECTION 13.2. INSURANCE COVERAGE. The insurance coverage
required in Section 13.1 shall be written by reputable insurance
companies that are financially sound and solvent and otherwise
reasonably appropriate considering the amount and type of
insurance being provided by such companies. Any insurance
company selected by Lessee shall be rated in A.M. Best's
Insurance Guide or any successor thereto (or if there be none, an
organization having a similar national reputation) and shall have
a general policyholder rating of "A" (or comparable rating for a
rating by an organization other than A.M. Best) and a financial
rating of at least "X" (or comparable rating for a rating by an
organization other than A.M. Best) or be otherwise acceptable to
the Required Participants. In the case of liability insurance
maintained by Lessee, it shall name Lessor (both in its
individual capacity and as Lessor), the Administrative Agent and
each of the Participants, as additional insureds and, in the case
of property insurance maintained by Lessee, it shall name
Administrative Agent, as mortgagee and sole loss payee. Each
policy referred to in Section 13.1 shall provide that: (i) it
will not be canceled, materially modified or its limits reduced,
or allowed to lapse without renewal, except after not less than
30 days' prior written notice to Lessor and Administrative Agent;
(ii) the interests of Lessor, the Administrative Agent and any
Participant shall not be invalidated by any act or negligence of
or breach of warranty or representation by Lessee or any other
Person having an interest in the Leased Property; (iii) such
insurance is primary with respect to any other insurance carried
by or available to Lessor, the Administrative Agent or any
Participant; (iv) the insurer shall waive any right of
subrogation, setoff, counterclaim, or other deduction, whether by
attachment or otherwise, against Lessor; and (v) such policy
shall contain a cross-liability clause providing for coverage of
Lessor, the Administrative Agent and each Participant, as if
separate policies had been issued to each of them. Lessee will
notify Lessor and Administrative Agent promptly of any policy
cancellation, reduction in policy limits, modification or
amendment.
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SECTION 13.3. DELIVERY OF INSURANCE CERTIFICATES. On the
Base Term Commencement Date, Lessee shall deliver to
Administrative Agent certificates of insurance satisfactory to
Administrative Agent evidencing the existence of all insurance
required to be maintained hereunder and setting forth the
respective coverages, limits of liability, carrier, policy number
and period of coverage. Thereafter, upon written request by
Lessor following an Event of Default, Lessee shall deliver to
Administrative Agent certificates of insurance evidencing that
all insurance required by Sections 13.1 and 13.2 to be maintained
by Lessee is in effect.
SECTION 13.4. INSURANCE BY LESSOR, ADMINISTRATIVE AGENT OR
ANY PARTICIPANT. Each of Lessor, the Administrative Agent or any
Participant may at its own expense carry insurance with respect
to its interest in the Leased Property, and any insurance
payments received from policies maintained by Lessor, the
Administrative Agent or any Participant shall be retained by
Lessor, the Administrative Agent or such Participant, as the case
may be, without reducing or otherwise affecting Lessee's
obligations hereunder.
ARTICLE XIV
CASUALTY AND CONDEMNATION
SECTION 14.1. CASUALTY AND CONDEMNATION. (a) Subject to
the provisions of this Article XIV, if all or any portion of the
Leased Property suffers a Casualty (other than a Significant
Casualty as to which a Termination Notice has been given), Lessee
shall control the negotiations with the relevant insurer unless
an Event of Default exists and any insurance proceeds payable
with respect to such Casualty shall be paid directly to the
Lessee, or if received by the Lessor, the Administrative Agent or
the Lenders, shall be paid over to the Lessee and shall be used
by Lessee solely for the reconstruction, restoration and repair
of such Leased Property, and if the use of, access to, occupancy
of or title to the Leased Property or any part thereof is the
subject of a Condemnation (other than a Significant Condemnation
as to which a Termination Notice has been given), then any award
or compensation relating thereto shall be paid to the Lessee and
shall be used by Lessee solely for the restoration of the Leased
Property. Notwithstanding the foregoing, if any Event of
Default, or Default in respect of payment obligations of the
Lessee, shall have occurred and be continuing, such award,
compensation or insurance proceeds shall be paid directly to the
Administrative Agent or, if received by the Lessee, shall be held
in trust for the Participants and shall be paid over by the
Lessee to the Administrative Agent. All amounts held by the
Lessor or the Administrative Agent on account of any award,
compensation or insurance proceeds either paid directly to the
Lessor or the Administrative Agent or turned over to the Lessor
or the Administrative Agent, in each case after the occurrence
and during the continuance of an Event of Default shall at the
option of the Lessor (at the direction of the Required
Participants) either be (A) paid to the Lessee for the repair of
damage caused by such Casualty or Condemnation in accordance with
this clause (a), or (B) applied to the Lease Balance and any
other amounts owed by Lessee under the Operative Documents in
accordance with Article XVI.
(b) In the event any part of the Leased Property becomes
subject to condemnation or requisition proceedings during the
Term, Lessee shall give notice thereof to Lessor promptly after
Lessee has knowledge thereof and, to the extent permitted by
Applicable Laws, Lessee shall control the negotiations with the
relevant Governmental Authority unless an Event of Default
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exists; PROVIDED, that in any event, Lessor may participate at
Lessor's expense (or if an Event of Default exists Lessor may
control or participate at Lessee's expense) in such negotiations;
and PROVIDED in all cases, that no settlement will be made
without Lessor's prior written consent (which consent shall not
be unreasonably withheld or delayed). Lessee shall give to
Lessor such information, and copies of such documents, which
relate to such proceedings, or which relate to the settlement of
amounts due under insurance policies required by Article XIII,
and are in the possession of Lessee, as are reasonably requested
by Lessor. If the proceedings relate to a Significant
Condemnation, Lessee shall act diligently in connection
therewith. Nothing contained in this Section 14.1(b) shall
diminish Lessor's rights with respect to condemnation awards and
property insurance proceeds under Articles XIII or XIV.
(c) In no event shall a Casualty or Condemnation affect the
Lessee's obligations to pay Rent pursuant to Section 3.1 or to
perform its obligations and pay any amounts due on the Expiration
Date or pursuant to Articles XVIII and XXI.
(d) If, pursuant to this Article XIV, this Lease shall
continue in full force and effect following a Casualty or
Condemnation, the Lessee shall, at its sole cost and expense
(and, without limitation, if any award, compensation or insurance
payment is not sufficient to restore the Leased Property in
accordance with this clause (d), Lessee shall pay the shortfall),
promptly and diligently repair any damage to the Leased Property
caused by such Casualty or Condemnation in conformity with the
requirements of Sections 9.1 and 10.1 so as to restore the Leased
Property to at least the same condition and value as existed
immediately prior to such Casualty or Condemnation. In such
event, title to the Leased Property shall remain with the Lessor
subject to the terms of this Lease. Upon completion of such
restoration, the Lessee shall furnish to Lessor a Responsible
Officer's Certificate confirming that such restoration has been
completed pursuant to this Lease.
SECTION 14.2. ENVIRONMENTAL MATTERS. Subject to
Section 12.1 hereof, at Lessee's sole cost and expense, Lessee
shall in a reasonably prompt and diligent manner undertake any
response, clean up, remedial or other action to remove, clean up
or remediate any Environmental Violation to the extent required
by Applicable Laws with respect to the Leased Property.
SECTION 14.3. NOTICE OF ENVIRONMENTAL MATTERS. Lessee
shall promptly provide to Lessor written notice of any pending or
threatened claim, action or proceeding of which it has received
written notice involving any Environmental Violation or any
Release on, at, under or from Leased Property, which violation or
Release could reasonably be expected to require in excess of
$5,000,000 in remediation costs, or which could result in the
imposition of criminal penalties upon Lessor, any Agent or any
Participant (any such claim, action or proceeding, a "MATERIAL
ENVIRONMENTAL MATTER"). All such notices shall describe in
reasonable detail the nature of the Material Environmental Matter
and Lessee's proposed response thereto. In addition, Lessee
shall provide to Lessor, within ten (10) Business Days of
receipt, copies of all material written communications with any
Governmental Authority relating to any such Material
Environmental Matter. Lessee shall also promptly provide such
detailed reports of any such Material Environmental Matter as may
reasonably be requested by Lessor or the Administrative Agent.
Upon completion of remedial action of such Material Environmental
Matter by Lessee, Lessee shall cause to be prepared by an
environmental consultant reasonably acceptable to Lessor and
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Administrative Agent a report describing the Material
Environmental Matter and the actions taken by Lessee (or its
agents) in response to such Material Environmental Matter, and a
statement by the consultant that the Material Environmental
Matter has been remedied in compliance in all material respects
with applicable Environmental Law. Each such Material
Environmental Matter shall be remedied prior to the Expiration
Date unless the Leased Property has been or will be purchased by
Lessee in accordance with Article XV or Article XVIII. Nothing
in this Article XIV shall reduce or limit Lessee's obligations
elsewhere in this Lease or under the Participation Agreement.
ARTICLE XV
TERMINATION OF LEASE
SECTION 15.1. TERMINATION UPON CERTAIN EVENTS. (a) If an
Event of Loss or Significant Environmental Event occurs during
the Term with respect to the Leased Property, then Lessee, upon
Lessee making a reasonable judgment that such Event or Loss or
Significant Environmental Event has occurred, may elect to
terminate the Lease by giving written notice (a "TERMINATION
NOTICE") to the Lessor, but in any event no later than one
hundred twenty (120) days following the occurrence of such Event
of Loss or Significant Environmental Event that, as a consequence
of such Event of Loss or Significant Environmental Event, the
Lease is to be terminated on the Payment Date specified in
Section 15.1(b). If Lessee fails to elect to terminate the Lease
as provided in this Section 15.1(a), Lessee shall be deemed to
have elected to restore, rebuild or remediate the Leased Property
pursuant to Section 14.1(d) or Section 14.3, as applicable and
Lessee shall undertake and diligently pursue such restoration,
rebuilding or remediation which in all cases shall be completed
prior to the Expiration Date.
(b) Following Lessee's delivery of the Termination Notice,
the Lessee shall be obligated to purchase the Lessor's interest
in all, but not less than all, of the Leased Property on or prior
to the next occurring Payment Date (but in no event any later
than thirty (30) days from the date the Lessee delivers the
applicable Termination Notice) by paying the Lessor an amount
equal to the Purchase Amount.
SECTION 15.2. TERMINATION PROCEDURES. On the date of the
payment by the Lessee of the Purchase Amount in accordance with
Section 15.1(b) (such date, the "TERMINATION DATE"), this Lease
shall terminate and, concurrent with the Lessor's receipt of such
payment:
(i) the Lessor and Lessee shall comply with the
provisions of Sections 21.1(i) through 21.1(iii) and Section
21.1(v); and
(ii) Lessor shall convey to the Lessee any net proceeds
(that is, after deducting all reasonable costs and expenses
incurred by the Lessor, Administrative Agent or any
Participant(s) incident to collecting any such proceeds of
Casualty or Condemnation, including, without limitation,
reasonable fees and expenses for counsel) with respect to
the Casualty or Condemnation giving rise to the termination
of this Lease theretofore received by the Lessor or, at the
request of the Lessee, to the extent actually received and
if acceptable to Lessor in its sole judgment, Lessor shall
apply such amounts against sums due hereunder.
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ARTICLE XVI
EVENTS OF DEFAULT
SECTION 16.1. EVENTS OF DEFAULT. The occurrence of any one
or more of the following events (whether such event shall be
voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall
constitute a "Lease Event of Default":
(a) the occurrence of a Payment Default; or
(b) the Lessee shall fail to make payment of any
Supplemental Rent (other than Supplemental Rent referred to
in clause (a) of this Section 16.1) due and payable within
five (5) Business Days after such amounts are due and
payable; or
(c) the Lessee shall fail to maintain insurance as
required by Article XIII of this Lease; or
(d) The Lessee shall fail to observe or perform any
term, covenant or condition of the Lessee under this Lease
or any other Operative Document (other than those described
in any other clause of this Section 16.1) and such failure
shall remain uncured for a period of thirty (30) days after
the earlier of (i) receipt by a Responsible Officer of the
Lessee of written notice thereof and (ii) notification by
Lessor to Lessee of such event; PROVIDED, HOWEVER, that if
such failure is capable of cure but cannot be cured by
payment of money or cannot be cured by diligent efforts
within such thirty (30)-day period, but such diligent
efforts shall be properly commenced within such thirty (30)-
day cure period and the Lessee is diligently pursuing, and
shall continue to pursue diligently, remedy of such failure,
the cure period shall be extended for an additional 90 days,
but in no event beyond the Expiration Date; or
(e) Any representation or warranty made or deemed made
by or on behalf of Lessee (or any of its officers) in
connection with any Operative Document to which Lessee is a
party, or any certificate delivered in connection with any
Operative Document, shall prove to have been incorrect in
any material respect when made and Lessee shall fail to cure
such incorrect representation or warranty for a period of
thirty (30) days after a Responsible Officer of the Lessee
has knowledge of such incorrect representation or warranty
(in which case Lessee shall give prompt written notice
thereof to the Lessor) or the Lessor gives written notice
thereof to Lessee; or
(f) Lessee shall (i) fail to perform any term,
covenant or agreement contained in Section 9.1(a), (e), (i)
or (j) of the Participation Agreement or (ii) fail to comply
with any of its obligations set forth in paragraph 14 of the
Syndication Letter; or
(g) (i) (A) Failure of Lessee to pay any amount when
due under any agreement under which indebtedness aggregating
in excess of $50,000,000 has been issued ("MATERIAL
INDEBTEDNESS"); or (B) the default by Lessee in the
performance of any
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term, provision or condition contained in any agreement
under which any such Material Indebtedness was created or is
governed, or any other event shall occur or condition exist,
the effect of which default or event is to cause such
Material Indebtedness to become due prior to its stated
maturity; PROVIDED, HOWEVER, that no Event of Default shall
be deemed to have occurred under this Section 16.1(g)(i)(B)
if the Participants and their Affiliates, either
collectively or individually, have the ability to control
(by vote or otherwise) whether such Material Indebtedness
will become due prior to its stated maturity; or (C) Lessee
shall not pay, or shall admit in writing its inability to
pay, its debts generally as they become due; or
(ii) Lessee shall fail within 30 days to pay, bond or
otherwise discharge any judgment or order for the payment of
money in excess of $50,000,000 (either singly or in the
aggregate with other such judgments), which is not stayed on
appeal or otherwise being appropriately contested in good
faith; or
(iii) Any ERISA Plan Termination Event shall have
occurred with respect to a Plan which could reasonably be
expected to result in a Material Change, and, 30 days after
notice thereof shall have been given to the Lessee by the
Administrative Agent or any Participant, such ERISA Plan
Termination Event shall still exist; or
(h) Any authorization or approval or other action by
any governmental authority or regulatory body required for
the execution, delivery or performance of the Participation
Agreement or any other Operative Document by Lessee shall
fail to have been obtained or be terminated, revoked or
rescinded or shall otherwise no longer be in full force and
effect and such occurrence shall affect the enforceability
of the Operative Documents against the Lessee adversely; or
(i) The occurrence of an Insolvency Event; or
(j) Lessee shall fail to sell the Leased Property in
accordance with and satisfy each of the terms, covenants,
conditions and agreements set forth at Articles XX and XXI
in connection with and following its exercise of the Sale
Option, including each of Lessee's obligations at Sections
20.1 and 21.1; or
(k) Any Operative Document or the security interest
and lien granted under this Lease (except in accordance with
its terms), in whole or in part, terminates, ceases to be
effective or ceases to be the legal, valid and binding
enforceable obligation of Lessee on account of, or as a
result of, directly or indirectly, any act or omission of
Lessee, or Lessee, directly or indirectly, contests in any
manner in any court the effectiveness, validity, binding
nature or enforceability thereof; or the security interest
and lien securing Lessee's obligations under the Operative
Documents, in whole or in part, ceases to be a perfected
first priority security interest and lien (subject only to
Permitted Liens).
SECTION 16.2. REMEDIES. Upon the occurrence of any Event
of Default and at any time thereafter, the Lessor may, so long as
such Event of Default is continuing, do one or more of the
following (as modified and supplemented by the remedies set forth
in the Memorandum of
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Lease) as the Lessor in its sole discretion shall determine,
without limiting any other right or remedy the Lessor may have on
account of such Event of Default, but subject to the rights of
the Lessee to purchase the Leased Property pursuant to the terms
and within the time periods as set forth in Section 18.1:
(a) The Lessor may, by notice to the Lessee, rescind
or terminate this Lease as to any or all of the Leased
Property as of the date specified in such notice; however,
no reletting, or taking of possession of the Leased Property
(or any portion thereof) by the Lessor will be construed as
an election on the Lessor's part to terminate this Lease
unless a written notice of such intention is given to the
Lessee, notwithstanding any reletting, or taking of
possession, the Lessor may at any time thereafter elect to
terminate this Lease for a continuing Event of Default and
no act or thing done by the Lessor or any of its agents,
representatives or employees and no agreement accepting a
surrender of the Leased Property shall be valid unless the
same be made in writing and executed by the Lessor;
(b) The Lessor may demand that the Lessee, and the
Lessee shall upon the written demand of the Lessor, return
the Leased Property promptly to the Lessor in the manner and
condition required by, and otherwise in accordance with all
of the provisions of the Participation Agreement and Article
IX and Sections 8.2 and 14.2 hereof, and Lessee shall comply
with the requirements at Section 15.2 to the extent
requested by Lessor, as if the Leased Property were being
returned at the end of the Term, and the Lessor shall not be
liable for the reimbursement of the Lessee for any costs and
expenses incurred by the Lessee in connection therewith and
without prejudice to any other remedy which the Lessor may
have for possession of the Leased Property, and to the
extent and in the manner permitted by Applicable Laws, enter
upon the Site and take immediate possession of (to the
exclusion of the Lessee) the Leased Property or any part
thereof and expel or remove the Lessee, by summary
proceedings or otherwise, all without liability to the
Lessee for or by reason of such entry or taking of
possession (PROVIDED, HOWEVER, Lessor shall remain liable
for actual damages caused by its gross negligence or willful
misconduct), whether for the restoration of damage to
property caused by such taking or otherwise and, in addition
to the Lessor's other damages, the Lessee shall be
responsible for all costs and expenses (which costs and
expenses shall be reasonable if within the control of
Lessor) incurred by the Lessor and the Participants in
connection with any reletting, including, without
limitation, reasonable brokers' fees and all costs of any
alterations or repairs made by the Lessor;
(c) The Lessor may sell all or any part of the Leased
Property at public or private sale, as the Lessor may
determine, free and clear of any rights of the Lessee with
respect thereto (except to the extent required below if the
Lessor shall elect to exercise its rights thereunder and
except that the proceeds of sale shall be accounted for as
provided in Section 5.3(g) of the Participation Agreement as
hereinafter set forth) in which event the Lessee's
obligation to pay Basic Rent hereunder for periods
commencing after the date of such sale shall be terminated;
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(d) The Lessor may, at its option, elect not to
terminate this Lease with respect to the Leased Property and
continue to collect all Basic Rent, Supplemental Rent and
all other amounts due the Lessor (together with all costs of
collection) and enforce the Lessee's obligations under this
Lease as and when the same become due, or are to be
performed, and at the option of the Lessor, upon any
abandonment of the Leased Property by the Lessee, the Lessor
may, in its sole and absolute discretion, elect not to
terminate this Lease and may make the necessary repairs (and
the Lessee shall pay the reasonable costs of such repairs)
in order to relet the Leased Property, and relet the Leased
Property or any part thereof (in place, if so elected by
Lessor) for such term or terms (which may be for a term
extending beyond the Term of this Lease) and at such rental
or rentals and upon such other terms and conditions as the
Lessor in its reasonable discretion may deem advisable; and
upon each such reletting all rentals actually received by
the Lessor from such reletting shall be applied to the
Lessee's obligations hereunder and the other Operative
Documents in such order, proportion and priority as the
Lessor may elect in the Lessor's sole and absolute
discretion. If such rentals received from such reletting
during any period are less than the Rent with respect to the
Leased Property to be paid during that period by the Lessee
hereunder, the Lessee shall pay any deficiency, as
calculated by the Lessor, to the Lessor on the next Payment
Date;
(e) The Lessor may demand, by written notice to the
Lessee, that the Lessee pay to the Lessor within twenty (20)
days after receipt of such notice an amount equal to the
Permitted Lease Balance, and if the Permitted Lease Balance
is equal to the Lease Balance, the Lessor shall convey the
Leased Property to the Lessee in accordance with Article
XXI. The Lessor acknowledges and agrees that upon the
declaration of a Lease Event of Default, to the maximum
extent permitted by Applicable Law, and subject to Lessor's
obligations under the final paragraph of this Section 16.2,
the Lessee waives any right to contest that the payment of
the amount described in the preceding sentence constitutes
the correct liquidated recourse sum due upon acceleration of
this instrument;
(f) The Lessor may exercise any other right or remedy
that may be available to it under Applicable Laws, or
proceed by appropriate court action (legal or equitable) to
enforce the terms hereof or to recover damages for the
breach hereof. Separate suits may be brought to collect any
such damages for any period(s), and such suits shall not in
any manner prejudice the Lessor's right to collect any such
damages for any subsequent period(s), or the Lessor may
defer any such suit until after the expiration of the Term,
in which event such suit shall be deemed not to have accrued
until the expiration of the Term;
(g) The Lessor may retain and apply against the Lease
Balance, in accordance with Section 5.3 of the Participation
Agreement, all sums which the Lessor would, absent such
Event of Default, be required to pay to, or turn over to,
the Lessee pursuant to the terms of this Lease;
(h) If an Event of Default shall have occurred and be
continuing, the Lessor, as a matter of right and with notice
to the Lessee, shall have the right to apply to any court
having jurisdiction to appoint a receiver or receivers of
the Leased Property, and the
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Lessee hereby irrevocably consents to any such appointment.
Any such receiver(s) shall have all of the usual powers and
duties of receivers in like or similar cases and all of the
powers and duties of the Lessor in case of entry onto the
Site, and shall continue as such and exercise such powers
until the date of confirmation of the sale of the Leased
Property unless such receivership is sooner terminated; or
(i) Upon the occurrence of the Lease Event of Default
described in Section 16.1(i), whether or not another Lease
Event of Default described in one or more other clauses of
Section 16.1 shall have been or thereafter is declared, this
Lease shall terminate immediately without notice and Lessee
shall immediately pay to Agent, on behalf of Lessor, as and
for liquidated damages and without limitation on any other
remedies provided for herein, an amount equal to the
Permitted Lease Balance.
To the maximum extent permitted by Applicable Law, the
Lessee hereby waives (x) the benefit of any appraisement,
valuation, stay, extension, reinstatement and redemption laws now
or hereafter in force and all rights of marshaling in the event
of any sale of the Leased Property or any interest therein and
(y) any rights now or in the future conferred by statute or
otherwise which may require the Lessor to sell, lease or
otherwise use the Leased Property in mitigation of the Lessor's
damages or which may otherwise limit or modify any remedy of
damages.
The Lessor shall be entitled to enforce payment and
performance of the obligations secured hereby and to exercise all
rights and powers under this instrument or under any of the other
Operative Documents or other agreement 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
instrument nor its enforcement, shall prejudice or in any manner
affect the Lessor's right to realize upon or enforce any other
security now or hereafter held by the Lessor, it being agreed
that the Lessor shall be entitled to enforce this instrument and
any other security now or hereafter held by the Lessor in such
order and manner as the Lessor may determine in its absolute
discretion. No remedy herein conferred upon or reserved to the
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 Operative Documents to the
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 the Lessor. Without
limiting the foregoing, but subject to the limitation at Section
16.5, if applicable, each of the powers, rights and remedies as
set forth or otherwise permitted pursuant to this Article XVI are
independent of the provisions of Article XIII of the
Participation Agreement.
The proceeds derived from any sale of Leased Property and
other amounts recovered pursuant to the foregoing remedies after
an Event of Default shall be distributed pursuant to Section
5.3(g) of the Participation Agreement. The amount realized by
the Lessor upon a sale of a Leased Property shall be net of
Lessor's sale expenses and other expenses reasonably and
customarily incurred by the Lessor in connection with the Lessor
holding and owning such Leased Property until such time as the
Leased Property is sold. Notwithstanding anything herein
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to the contrary, and except for Lessee's obligation to pay
Nonconformance Amounts, there shall not be any personal recourse
against the Lessee (and Lessor shall have recourse only against
the Leased Property) pursuant to this Section 16.2 for any amount
in excess of the Permitted Lease Balance.
SECTION 16.3. WAIVER OF CERTAIN RIGHTS. If this Lease
shall be terminated pursuant to Section 16.2, the Lessee waives,
to the fullest extent permitted by law, (a) any notice of legal
proceedings to obtain possession; (b) any right of redemption or
repossession; (c) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt or
limiting the Lessor with respect to the election of remedies; and
(d) any other rights which might otherwise limit or modify any of
the Lessor's rights or remedies under this Article XVI.
SECTION 16.4. GRANT OF SECURITY INTEREST. The Lessee
hereby grants, transfers and pledges a lien and a security
interest to Lessor, for the benefit of the Participants, in all
of its right, title and interest in the Leased Property and the
other Collateral and hereby assigns to Lessor all of its right,
title and interest in and to the Collateral, in each case, to
secure payment and performance of its Obligations hereunder and
under the other Operative Documents. This Lease shall constitute
a security agreement within the meaning of the Uniform Commercial
Code of the state where the Leased Property and other Collateral
is located ("UCC"), and if an Event of Default has occurred and
is continuing, (i) Lessor shall, in addition to all other rights
available at law or equity, have all of the rights provided to a
secured party under Article 9 of the UCC and (ii) Lessor shall
have the power and authority, to the extent provided by law,
after proper notice and lapse of such time as may be required by
law, to sell the Leased Property and the other Collateral (or any
portion thereof), either as a whole, or in separate lots or
parcels or items and in such order as Lessor may elect all as
provided for herein. The proceeds derived from the exercise of
the foregoing rights shall be applied as set forth in the last
paragraph of Section 16.2.
SECTION 16.5. DETERMINATIONS OF CERTAIN EVENTS OF DEFAULT.
Lessor acknowledges that, in making a determination that an Event
of Default has occurred under Section 16.1(d), (e), (f), (g), (h)
or (j), to the extent Lessor exercises discretion in making such
determination, it shall exercise such discretion in a
commercially reasonable manner.
SECTION 16.6. LESSOR SALE. If Lessor has neither sold nor
foreclosed upon the Leased Property within two (2) years after
receipt of the Permitted Lease Balance, including pursuant to
Section 16.2(i), Lessor will appoint a qualified independent
sales agent to sell the Leased Property pursuant to the first
bonafide offer received from creditworthy offeror and for an all
cash purchase price at the then fair market value of the Leased
Property to the extent the conditions therefor are satisfied.
Any proceeds resulting from the operation of this Section 16.6
net of the costs and expenses of such sale and costs incurred to
maintain the leased property will be applied in accordance with
Section 5.3(g) of the Participation Agreement. Notwithstanding
the foregoing in no event shall Lessor have any liability to
Lessee for failure to sell the Leased Property pursuant to the
foregoing criteria in this Section 16.6 unless such failure is
due to the gross negligence or willful misconduct of the Lessor.
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ARTICLE XVII
LESSOR'S RIGHT TO CURE
SECTION 17.1. THE LESSOR'S RIGHT TO CURE THE LESSEE'S
DEFAULTS. The Lessor, without waiving or releasing any
obligation or Event of Default, may (but shall be under no
obligation to), upon five (5) Business Days' prior notice to the
Lessee, remedy any Event of Default for the account and at the
sole cost and expense of the Lessee, including the failure by the
Lessee to maintain the insurance required by Article XIII, and
may, to the fullest extent permitted by law, and notwithstanding
any right of quiet enjoyment in favor of the Lessee, enter upon
the Leased Property and the Site, for such purpose and take all
such action thereon as may be reasonably necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee.
All reasonable out-of-pocket costs and expenses so incurred
(including fees and expenses of counsel), together with interest
thereon at the Overdue Rate from the date on which such sums or
expenses are paid by the Lessor, shall be paid by the Lessee to
the Lessor on demand as Supplemental Rent.
ARTICLE XVIII
PURCHASE PROVISIONS
SECTION 18.1. EARLY TERMINATION OPTION. Subject to the
conditions contained herein, on (a) any Payment Date during the
Term provided Lessee has not elected the Sale Option or (b) on
any Business Day during the occurrence of an Event of Default of
the types described in clause (ii) of the next sentence, Lessee
may, at its option, purchase all, but not less than all, of the
Leased Property (the "EARLY TERMINATION OPTION") at a price equal
to the Purchase Amount. Lessee's right to purchase all of the
Leased Property pursuant to this Section 18.1 shall terminate
automatically and without notice upon (i) the occurrence of an
Event of Default arising as a result of an Insolvency Event, or
(ii) upon the occurrence of any other Event of Default, unless in
the case of an Event of Default described in this clause (ii)
Lessee delivers a written notice of its election to exercise this
option to purchase not less than three (3) days prior to the date
of the purchase and consummates the purchase within ten (10)
Business Days following (x) delivery of a notice of an Event of
Default by Lessee pursuant to Section 9.1(d)(i) of the
Participation Agreement, or (y) Lessee's receipt of a written
Purchase Acceleration Notice. "Purchase Acceleration Notice"
shall mean a notice from Lessor or Administrative Agent to Lessee
that an Event of Default has occurred. Lessee acknowledges that
the Purchase Acceleration Notice shall apply solely to this
Section 18.1 and will not affect the validity of any Event of
Default or the Lessor's remedies at Section 16.2. In order to
exercise its option to purchase the Leased Property pursuant to
this Section 18.1 and except as provided for in the clause (ii)
of the second sentence of this Section 18.1, Lessee shall give to
Lessor not less than thirty (30) days' prior written notice of
such election to exercise, which election shall be irrevocable
when made. If the Lessee exercises its option pursuant to this
Section 18.1 then, upon the Lessor's receipt of all amounts due
in connection therewith, the Lessor shall transfer to the Lessee
all of the Lessor's right, title and interest in and to the
Leased Property in accordance with the procedures set forth in
Section 21.1, such transfer to be effective as of the date
specified in the Purchase Notice. The Lessor agrees that it
shall cooperate with the Lessee in effecting any transfer to a
designee of the Lessee pursuant to this Section 18.1.
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ARTICLE XIX
END OF TERM OPTIONS
SECTION 19.1. END OF TERM OPTIONS. Before the Expiration
Date, Lessee shall, by delivery of written notice to Lessor and
Administrative Agent (given in accordance with clause (a) or (b)
below), exercise the option provided in paragraph (a)(i) or
(a)(ii) or the option provided in paragraph (b):
(a) At least 180 days before the Expiration Date of
the Term, Lessee shall, by delivery of written notice to
Lessor and the Administrative Agent, exercise one of the
following two options:
(i) Commit to renew this Lease with respect to
the Leased Property for an additional Lease Renewal
Term of one to four years (the "RENEWAL OPTION") on the
terms and conditions set forth herein and in the other
Operative Documents; PROVIDED, HOWEVER, that such
Renewal Option shall be available at the end of the
Base Term (or the Base Term as previously so renewed)
only if the conditions to the Extension Option set
forth in Section 4.7 of the Participation Agreement are
satisfied; and PROVIDED, FURTHER, that the Renewal
Option shall not be exercisable for a total of more
than two (2) Lease Renewal Terms; or
(ii) COMMIT TO PURCHASE FOR CASH FOR THE PURCHASE
AMOUNT ALL, BUT NOT LESS THAN ALL, of the Leased
Property on the last day of the Term (the "PURCHASE
OPTION"); and if Lessee shall have elected to purchase
the Leased Property, Lessor shall, upon the payment to
Lessor of the Purchase Amount then due and payable by
Lessee under the Operative Documents, transfer all of
Lessor's right, title and interest in and to the Leased
Property pursuant to Section 21.1; or
(b) At least 270 days before the Expiration Date of
the Term, Lessee shall, by delivery of written notice to
Lessor and the Administrative Agent, commit to sell on
behalf of Lessor for cash to a single purchaser not in any
way affiliated with Lessee or any of its Affiliates all, but
not less than all, of the Leased Property on the last day of
the Term (the "SALE OPTION"). Lessee's right to sell the
Leased Property pursuant to the Sale Option shall be
conditioned upon and subject to the fulfillment by Lessee of
each of the terms and conditions set forth in Article XX.
In addition, all subleases with respect to the Leased
Property shall have been terminated prior to Lessor's
receipt of Lessee's election of the Sale Option. Lessee
shall not enter into any additional subleases or renew any
subleases with respect to the Leased Property following
Lessee's election of the Sale Option. Following Lessee's
election of the Sale Option, Lessee shall not remove any
Modifications or commence any voluntary Modifications under
Section 10.1(a)(ii) without the consent of the Required
Participants.
SECTION 19.2. ELECTION OF OPTIONS. Unless Lessee shall
have (a) affirmatively elected the Sale Option within the time
period provided for in Section 19.1(b) and (b) satisfied each of
the requirements in Articles XX and XXI, Lessee shall be deemed
to have elected the Renewal Option. To the extent that the
Renewal Option is not available for any reason (including because
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of the Participants' refusal to consent to an Extension Option
Request), unless Lessee shall have (a) affirmatively elected the
Sale Option within the time period provided for in
Section 19.1(b) and (b) satisfied each of the requirements in
clause (ii) of Section 20.1(d), Lessee shall be deemed to have
elected the Purchase Option. In addition, the Sale Option shall
automatically be revoked if there exists a Default, Event of
Default, Significant Environmental Event, Significant Casualty or
Significant Condemnation at any time after the Sale Option is
properly elected or Lessee fails to comply with each of the other
terms and conditions set forth at Articles XX and XXI and Lessee
shall be deemed to have elected the Purchase Option. Lessee may
not elect the Sale Option if there exists on the date the
election is made a Default, an Event of Default, Significant
Environmental Event, Significant Casualty or Significant
Condemnation. Any election by Lessee pursuant to Section 19.1
shall be irrevocable at the time made.
SECTION 19.3. RENEWAL OPTIONS. The exercise of any Renewal
Option by Lessee shall be subject to satisfaction of the
following conditions:
(i) on the Expiration Date then in effect no Event of
Default or Default shall have occurred and be continuing,
and on the date Lessee gives notice of its exercise of the
Renewal Option, no Event of Default or Default shall have
occurred and be continuing; and
(ii) Lessee shall not have exercised the Sale Option or
the Purchase Option.
Lessee's exercise of a Renewal Option shall be deemed to be a
representation by Lessee that on both the Expiration Date then in
effect and the date Lessee gives notice of its exercise of the
Renewal Option, no Event of Default or Default shall have
occurred and be continuing.
ARTICLE XX
SALE OPTION
SECTION 20.1. SALE OPTION PROCEDURES. The Lessee's
effective exercise and consummation of the Sale Option with
respect to the Leased Property shall be subject to the due and
timely fulfillment of each of the following provisions as to the
Leased Property as of the dates set forth below.
(a) The Lessee shall have given to the Lessor and the
Administrative Agent written notice of the Lessee's exercise of
the Sale Option in accordance with Section 19.1.
(b) Prior to the Expiration Date, Lessee shall furnish to
Lessor, the Administrative Agent, the Participants and, if the
Leased Property is to be sold on the Expiration Date, the
independent purchaser hereunder a reasonably current Phase I
Environmental Site Assessment of the Leased Property dated no
earlier than forty-five (45) days prior to the Expiration Date
and addressed to each such party. Such Phase I Environmental
Site Assessment shall be prepared by an environmental consultant
selected by Lessor in Lessor's reasonable discretion and shall
conclude that the Leased Property is free of Environmental
Violations. If the Leased Property is sold during the Extended
Remarketing period pursuant to Section 20.3, such Environmental
Site Assessment shall be updated to a date not later than forty-
five (45) days prior to the date of such
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sale and shall be subject to the reevaluation of the Participants
and, if applicable, the independent purchaser, on the same basis
as provided for in the previous sentence. If any such Phase I
Environmental Site Assessment indicates any Environmental
Violations, Lessee shall take such remedial action as shall be
necessary to correct the same, and Lessee shall cause to be
delivered prior to the Expiration Date for the Leased Property a
Phase II environmental site assessment by such environmental
consultant and a written statement by such environmental
consultant indicating that all such exceptions have been remedied
in compliance with Applicable Laws.
(c) No Event of Default or Default shall exist on or at any
time following the date of the exercise of the Sale Option.
(d) Upon surrender of the Leased Property, (i) the Leased
Property shall be in the condition required by Section 9.1, (ii)
the Lessee shall have paid for and completed or caused to be
completed all Modifications required by Section 10.1 and all
Modifications commenced prior to the Expiration Date, and Lessee
shall have caused to be completed prior to the Expiration Date
the repair and rebuilding of the affected portions of the Leased
Property suffering a Casualty or Condemnation, (iii) there shall
be no deferred maintenance in respect of the Leased Property, and
(iv) Lessee shall have remediated any Environmental Violation in
accordance with the terms of this Lease.
(e) The Lessee shall, as nonexclusive agent for the Lessor,
use reasonable commercial efforts to obtain the highest cash
purchase price for the Leased Property. The Lessee will be
responsible for hiring brokers and making the Leased Property
available for inspection by prospective purchasers, and all
marketing of the Leased Property shall be at Lessee's expense.
The Lessee shall, upon reasonable notice during normal business
hours (subject to Lessee's customary security and safety
measures) upon request, permit inspection of the Leased Property
and any Leased Property Records by the Lessor, any Participant
and any potential purchasers, and shall otherwise do all things
reasonably necessary to sell and deliver possession of the Leased
Property to any purchaser.
(f) The Lessee shall use reasonable commercial efforts to
procure bids from one or more bona fide prospective purchasers to
purchase the Leased Property. No such purchaser shall be the
Lessee or any Subsidiary or Affiliate of the Lessee.
(g) The Lessee shall submit all bids to the Lessor and the
Participants, and the Lessor will have the right to review the
same and to submit any one or more bids. All bids shall be on an
all-cash basis unless the Lessor and the Required Participants
shall otherwise agree in their sole discretion. The Lessee shall
deliver to the Lessor and the Participants not less than ninety
(90) days prior to the Expiration Date a binding written
unconditional (except as set forth below), irrevocable offer by
such purchaser or purchasers offering the highest all cash bid to
purchase all, but not less than all, of the Leased Property
(unless otherwise agreed to by the Lessor and the Required
Participants). If Lessor in the exercise of its reasonable
judgment believes that the Gross Proceeds to be paid to the
Lessor pursuant to clause (k) below from a proposed bid which the
Lessee desires to accept is less than the lesser of (i) Fair
Market Value or (ii) the Purchase Amount, then Lessor may
condition its Obligation to accept any such bid and sell the
Leased Property upon Lessor's receipt of an Appraisal
demonstrating that such proposed bid is for an
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amount at least equal to the lesser of (i) Fair Market Value or
(ii) the Purchase Amount of the Leased Property as established by
such Appraisal. In such case then Lessor shall promptly
following the receipt of such bid, engage an appraiser,
reasonably satisfactory to the Required Participants and Lessee,
at Lessee's expense, to determine (by appraisal methods
reasonably satisfactory to the Required Participants) the Fair
Market Value of the Leased Property as of the Expiration Date. A
copy of such appraisal shall be delivered to each of the
Participants not later than five (5) Business Days prior to the
Expiration Date. The appraiser will be instructed to assume that
the Leased Property is in the condition required by and has been
maintained in accordance with this Lease. Any such appraisal
shall be at the sole cost and expense of Lessee.
(h) In connection with any such sale of the Leased
Property, the Lessee will provide to the purchaser all customary
"seller's" indemnities, representations and warranties regarding
title, absence of Liens (except Lessor Liens and Permitted Liens
of the type described in clauses (a) (excluding Liens relating to
the interest or rights of Lessee), (b), (c) or (g) of the
definition of "PERMITTED LIENS") and the condition of such Leased
Property. The Lessee shall have obtained, at its cost and
expense, all required governmental and regulatory consents and
approvals and shall have made all filings as required by
Applicable Laws in order to carry out and complete the transfer
of the Leased Property. As to the Lessor, any such sale shall be
made on an "as is, where is, with all faults" basis without
representation or warranty by the Lessor, other than the absence
of Lessor Liens. Any agreement as to such sale shall be in form
and substance reasonably satisfactory to the Lessor.
(i) The Lessee shall pay or cause to be paid directly, and
not from the sale proceeds, any prorations, credits, costs and
expenses of or arising from the sale of the Leased Property or
Taxes imposed on the sale of the Leased Property, whether
incurred by the Lessor or the Lessee, including the cost of all
title insurance, surveys, environmental audits, appraisals,
transfer taxes, the Lessor's reasonable attorneys' fees, the
Lessee's attorneys' fees, commissions, escrow fees, recording
fees, and all applicable documentary and other transfer and
document taxes.
(j) Whether or not a sale of the Leased Property is
completed on the Expiration Date, Lessee shall pay to the Lessor
on or prior to the Expiration Date (or in the case of
Supplemental Rent, to the Person entitled thereto) an amount
equal to (i) the Sale Option Recourse Amount plus (ii) all
accrued and unpaid Rent (including Supplemental Rent, if any) and
all other amounts hereunder which have accrued or will accrue
prior to or as of the Expiration Date, in the type of funds
specified in Section 3.4 hereof.
(k) If a sale of the Leased Property is consummated on the
Expiration Date, Lessee shall pay directly to Lessor the gross
proceeds (the "GROSS PROCEEDS") of such sale to be applied
pursuant to Section 5.3(d) of the Participation Agreement.
(l) [Intentionally Deleted].
(m) The Lessee shall, to the extent permitted by Applicable
Laws, assign, and shall cooperate with all reasonable requests of
the Lessor or the purchaser for obtaining any and all licenses,
permits, approvals and consents of any Governmental Authorities
or other Persons that
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are or will be required to be obtained by the Lessor or such
purchaser in connection with its use, operation, control or
maintenance of the Leased Property in compliance with Applicable
Laws.
If one or more of the foregoing provisions of this Section
20.1 shall not be fulfilled as of the date set forth in clauses
(a) through (n) above including Lessee's obligation at Section
20.1(g) to accept a bid for not less than the Fair Market Value
of the Leased Property, then the Lessor shall declare by written
notice to the Lessee the Sale Option to be null and void (whether
or not it has been theretofore exercised by the Lessee), in which
event Lessee's obligations at Section 19.2 shall be applicable.
Except as expressly set forth herein, the Lessee shall have
no right, power or authority to bind the Lessor in connection
with any proposed sale of the Leased Property.
SECTION 20.2. CERTAIN OBLIGATIONS CONTINUE. During the
period following Lessee's exercise of the Sale Option and until
and including the Expiration Date, the obligation of the Lessee
to pay Rent with respect to the Leased Property (including the
installment of Rent due on the Expiration Date) shall continue
undiminished. The Lessor shall have the right, but shall be
under no duty, to solicit bids, to inquire into the efforts of
the Lessee to obtain bids or otherwise to take action in
connection with any such sale, other than as expressly provided
in this Article XX.
SECTION 20.3. FAILURE TO SELL LEASED PROPERTY. If Lessee
shall exercise the Sale Option and shall fail to sell the Leased
Property on the Expiration Date in accordance with and subject to
the provisions of Section 20.1, then Lessee and Lessor hereby
agree as follows:
(a) Lessee shall continue to use reasonable commercial
efforts as non-exclusive agent for Lessor to sell the Leased
Property on behalf of Lessor in accordance with this Article
XX for the period (the "EXTENDED REMARKETING PERIOD")
commencing on the Lease Expiration Date and ending on the
earlier of (i) the sale of the Leased Property in accordance
with the provisions of this Article XX or such earlier date
as Lessor has received payment in full of the Lease Balance
and all accrued and unpaid Rent and (ii) the delivery of a
written notice from Lessor to Lessee at any time terminating
the Extended Remarketing Period, which notice shall indicate
that such termination is being made pursuant to this
Section 20.3(a)(ii) and the date such termination shall be
effective, which date shall be the Expiration Date if such
notice is given prior to the Expiration Date. Without
limiting the foregoing, each of Subsections at Section 20.1
(excluding subsection (j) thereof) shall be applicable to
the Extended Remarketing Period and any sale during such
period. Lessor's appointment of Lessee as Lessor's
nonexclusive agent to use its reasonable commercial efforts
to obtain the highest all-cash price for the purchase of the
Leased Property shall not restrict Lessor's right to market
or lease the Leased Property, to retain one or more sales
agents or brokers at Lessee's sole cost and expense,
provided that an Event of Default has not occurred and is
continuing, subject to Lessee's reasonable approval not to
be unreasonably withheld or the right of any Participant to
submit or cause to be submitted bids for the Leased Property
in the manner contemplated by Section 20.1.
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(b) On the Expiration Date, Lessee shall return
possession of the Leased Property to Lessor in the condition
required by this Lease (including each of the requirements
and conditions set forth at Section 20.1(b) and Section
20.1(d)). Thereafter, this Lease shall terminate except as
provided herein, Lessee shall have no further obligation to
pay Basic Rent. Following the Expiration Date, Lessor shall
be free to sell or lease the Leased Property to any party at
such reasonable times and for such amounts as Lessor deems
commercially reasonable and appropriate in order to maximize
Lessor's opportunity to recover the Lease Balance.
Following the Expiration Date, Lessor shall have the right
to enter into leases for the Leased Property at fair market
rentals and otherwise on commercially reasonable terms, and
the net operating cash flow therefrom shall be payable to
Lessor in reduction of the Lease Balance.
(c) Lessor reserves all rights under this Lease and
the other Operative Documents arising out of Lessee's breach
of any provisions of this Lease (including this Article XX),
occurring prior to or on the Expiration Date, including the
right to sue Lessee for damages.
(d) To the greatest extent permitted by Applicable
Laws and subject to Section 20.3(e) below, Lessee hereby
unconditionally and irrevocably waives, and releases Lessor
from, any right to require Lessor during or following the
Extended Remarketing Period to sell the Leased Property in a
timely manner or for any minimum purchase price or on any
particular terms and conditions, Lessee hereby agreeing that
if Lessee shall elect the Sale Option, its ability to sell
the Leased Property on or prior to the Expiration Date and
to cause any Person to submit a bid to Lessor pursuant to
Section 20.1 shall constitute full and complete protection
of Lessee's interest hereunder.
(e) In addition, if Lessor has not sold the Leased
Property within two (2) years after its termination of the
Extended Remarketing Period, Lessor shall appoint a
qualified independent sales agent to sell the Leased
Property pursuant to the first bonafide offer received by a
creditworthy offeror for an all cash purchase price at the
then Fair Market Value of the Leased Property to the extent
the conditions therefor are satisfied. Gross Proceeds
arising from the sale of the Leased Property shall be
applied in accordance with Section 5.3 of the Participation
Agreement net of any prorations, credits, costs and expenses
of or arising from the sale of the Leased Property or Taxes
imposed on the sale of the Leased Property, whether incurred
by the Lessor or the Lessee, including the cost of all title
insurance, surveys, environmental audits, appraisals,
transfer taxes, the Lessor's reasonable attorneys' fees, the
Lessee's attorneys' fees, commissions, escrow fees,
recording fees, and all applicable documentary and other
transfer and document taxes. To determine whether an offer
is for the Fair Market Value of the Leased Property, Lessor
may condition its obligation to sell on its receipt of an
appraisal in accordance with Section 20.1(m). Any
determination as to the bonafide nature of an offer or
creditworthiness of the offeror shall be made in the
reasonable judgment of Lessor and Administrative Agent.
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ARTICLE XXI
PROCEDURES RELATING TO PURCHASE OR SALE OPTION
SECTION 21.1. PROVISIONS RELATING TO CONVEYANCE OF THE
LEASED PROPERTY UPON PURCHASE BY THE LESSEE, SALES OR CERTAIN
OTHER EVENTS. In connection with any termination of this Lease
pursuant to the terms of Article XV, any purchase of the Leased
Property in accordance with Article XVIII, in connection with the
Lessee's obligations under Section 16.2(e), any other conveyance
or purchase of the Leased Property made pursuant to the terms of
this Lease or the Project Supervisory Agreement, then, upon the
date on which this Lease is to terminate with respect to the
Leased Property and upon tender by the Lessee of the amounts set
forth in Article XV, Sections 16.2(e), 18.1, 18.2 or Article VII
of the Project Supervisory Agreement, as applicable:
(i) the Lessor shall execute and deliver to the Lessee
(or to the Lessee's designee or other purchaser of the
Leased Property) at the Lessee's cost and expense a deed
bill of sale and deed with respect to the Leased Property,
in each case in recordable form and otherwise in conformity
with local custom, in respect of the Lessor's interest in
the Leased Property without representation and warranty
except as to the absence of any Lessor Liens attributable to
the Lessor;
(ii) the Leased Property shall be conveyed to the
Lessee "as is, where is" and in its then present physical
condition;
(iii) the Lessor will execute and deliver to Lessee
or its designee or other purchaser an assignment or
assignments, in form reasonably requested by Lessee or other
purchaser of the Leased Property, without warranty of any
kind except as to the absence of Lessor Liens, of Lessor's
rights, if any, under the Equipment Contracts, and the
Project Agreements, including any licenses granted under the
Project Agreements;
(iv) the Lessor shall execute and deliver to Lessee a
statement of termination of this Lease and/or the Project
Supervisory Agreement and shall use its best efforts to
cause the Administrative Agent to execute and deliver
releases of any Liens created by the Operative Documents
attributable to the Administrative Agent, and termination
statements for any financing statements which are then of
record naming the Administrative Agent as the secured party;
and
(v) If the Lessee properly exercises the Sale Option,
then the Lessee shall, upon a sale thereunder, and at its
own cost, transfer or cause to be transferred possession of
the Leased Property to the independent purchaser(s) thereof,
in each case by surrendering the same into the possession of
the Lessor or such purchaser, as the case may be, free and
clear of all Liens other than Permitted Liens of the type
described in clauses (a) (excluding Liens relating to the
rights and interests of Lessee), (b), (c) or (g) of the
definition of "Permitted Liens", in good condition (as
modified by Modifications permitted by this Lease), ordinary
wear and tear excepted, and in compliance in all material
respects with Applicable Laws and the provisions of this
Lease, and the Lessee shall execute and deliver, with
respect to Lessee's interest in the Leased Property, to the
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purchaser at the Lessee's cost and expense a bill of sale
and deed with respect to the Leased Property, in each case
in recordable form and otherwise in conformity with local
custom, warranting that such Leased Property is free and
clear of all Liens (other than Permitted Liens of the type
described in clauses (a) (relating to the rights and
interests of Lessee), (b), (c) or (g) of the definition of
"Permitted Liens"), together with an assignment, without
warranty of any kind, of Lessee's rights, if any, under the
Equipment Contracts and the Project Agreements; the Lessee
shall execute and deliver to the purchaser and the
purchaser's title insurance company an affidavit as to the
absence of any Liens (other than Permitted Liens), and such
other affidavits and certificates reasonably requested by
any title insurance company insuring title to the Leased
Property, as well as a FIRPTA affidavit, and an instrument
in recordable form declaring this Lease to be terminated on
the date of closing of the sale of the Leased Property; the
Lessor shall execute and deliver to purchaser an assignment
of Lessor's interest in the Ground Lease, without recourse,
representation or warranty. The Lessee shall, on and within
a reasonable time before and up to one year after the
Expiration Date, cooperate reasonably with the Lessor and
the purchaser of the Leased Property in order to facilitate
the purchase and use by such purchaser of the Leased
Property, which cooperation shall include the following, all
of which the Lessee shall do on or before the Expiration
Date or as soon thereafter as is reasonably practicable:
providing all books and records regarding the maintenance,
use and ownership of the Leased Property and all know-how,
data and technical information relating thereto to the
extent such information would typically be provided to a
purchaser of similar property, providing a current copy of
the Plans and Specifications, granting or assigning, to the
extent permitted by Applicable Laws, all licenses necessary
for the operation and maintenance of the Leased Property,
and cooperating reasonably in seeking and obtaining all
necessary Governmental Action. The obligations of the
Lessee under this paragraph shall survive the expiration or
termination of this Lease.
(vi) As a condition to any such transfer of the Leased
Property and Lessor's rights, if any, under the Equipment
Contracts, the Project Agreements and the Ground Lease to
Lessee or any third party transferee, and as a further
condition to Lessee's rights under Article XX, Lessee shall,
and shall cause any such third party transferee to, provide
any documentation, assurances and assumptions required under
and otherwise comply with the terms and conditions of the
Equipment Contracts, the Project Agreements and the Ground
Lease, and otherwise comply with the requirements under the
Equipment Contracts, the Project Agreements and the Ground
Lease for any transfer of the Leased Property and Lessor's
rights under the Equipment Contract, any Project Agreement
and the Ground Lease.
ARTICLE XXII
ACCEPTANCE OF SURRENDER
SECTION 22.1. ACCEPTANCE OF SURRENDER. No surrender to the
Lessor of this Lease or of the Leased Property or of any part of
any thereof or of any interest therein shall be valid or
effective unless agreed to and accepted in writing by the Lessor
and, prior to the payment or performance of all obligations under
the Loan Agreement and termination of the Commitments, the
Lenders,
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and no act by the Lessor or the Lenders or any representative or
agent of the Lessor or the Lenders, other than a written
acceptance, shall constitute an acceptance of any such surrender.
ARTICLE XXIII
NO MERGER OF TITLE
SECTION 23.1. NO MERGER OF TITLE. There shall be no merger
of this Lease or of the leasehold estate created hereby by reason
of the fact that the same Person may acquire, own or hold,
directly or indirectly, in whole or in part, (a) this Lease or
the leasehold estate created hereby or any interest in this Lease
or such leasehold estate, (b) title to the Leased Property,
except as may expressly be stated in a written instrument duly
executed and delivered by the appropriate Person or (c) a
beneficial interest in the Lessor.
ARTICLE XXIV
INTENT OF THE PARTIES
SECTION 24.1. NATURE OF TRANSACTION. It is the intention
of the parties that:
(a) the Overall Transaction constitutes an operating
lease from Lessor to Lessee for purposes of Lessee's
financial reporting, including, without limitation, under
Financial Accounting Standards Board Statement No. 13;
(b) for purposes of federal and all state and local
income and transfer taxes, bankruptcy, insolvency,
conservatorships and receiverships (including the
substantive law upon which bankruptcy, conservatorship and
insolvency and receivership proceedings are based) purposes
(i) the Overall Transaction (including the
transactions and activities prior to the Base Term
Commencement Date referred to or contemplated in the
Project Supervisory Agreement) constitutes a financing
by the Participants to Lessee and preserves beneficial
ownership in the Leased Property in Lessee, Lessee will
be entitled to all tax benefits ordinarily available to
owners of property similar to the Leased Property for
tax purposes and the obligations of Lessee to pay Basic
Rent shall be treated as payments of interest to the
Participants, and the payment by Lessee of any amounts
in respect of the Lease Balance shall be treated as
payments of principal to the Participants;
(ii) this Lease provides for a security interest
or a Lien, as the case may be, in the Lessee's interest
in the Leased Property and the other Collateral, in
favor of the Lessor, and for the benefit of the
Participants, to secure Lessee's payment and
performance of the Obligations; and
(iii) the Security Instruments create Liens on
and security interests in the Collateral in favor of
the Administrative Agent for the benefit of all of the
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Participants to secure Lessor's payment and performance
of its obligations under the Operative Documents.
Nevertheless, Lessee acknowledges and agrees that none of Lessor,
the Administrative Agent, Arranger or any Participant has made
any representations or warranties to it concerning the tax,
accounting or legal characteristics of the Operative Documents or
any aspect of the Overall Transaction and that Lessee has
obtained and relied upon such tax, accounting and legal advice
concerning the Operative Documents and the Overall Transaction as
it deems appropriate.
(c) Specifically, but without limiting the generality
of subsection (a) of this Section 24.1, the Lessor and the
Lessee intend and agree that for the purpose of securing the
Lessee's obligations for the repayment of the Obligations,
(i) the Lease shall also be deemed to be a security
agreement and financing statement within the meaning of
Article 9 of the Uniform Commercial Code; (ii) the
conveyance provided for hereby shall be deemed to be a grant
by the Lessee to the Lessor, for the benefit of the
Participants, of a Lien (including the Deed of Trust) on and
security interest in all of the Lessee's present and future
right, title and interest in and to the Leased Property,
including but not limited to the Lessee's leasehold estate
therein and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, investments,
securities or other property, whether in the form of cash,
investments, securities or other property to secure such
loans, effective on the date hereof, to have and to hold
such interests in the Leased Property and the other
Collateral unto the Lessor, for the benefit of the
Participants; (iii) to the extent permitted by Applicable
Law, the possession by the Lessor of notes and such other
items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be
"possession by the secured party" for purposes of perfecting
the security interest pursuant to Section 9-305 of the
Uniform Commercial Code; and (iv) to the extent permitted by
Applicable Law, notifications to Persons holding such
property, and acknowledgments, receipts or confirmations
from financial intermediaries, bankers or agents (as
applicable) of the Lessee shall be deemed to have been given
for the purpose of perfecting such security interest under
Applicable Laws. The Lessor and the Lessee shall, to the
extent consistent with the Lease, take such actions and
execute, deliver, file and record such other documents,
financing statements, mortgages and deeds of trust as may be
necessary to ensure that, if the Lease were deemed to create
a security interest in the Leased Property and the other
Collateral in accordance with this Section, such security
interest would be deemed to be a perfected security interest
in the Leased Property with priority over all Liens, other
than Permitted Liens, under Applicable Laws and will be
maintained as such throughout the Term.
SECTION 24.2. LESSEE GRANT OF MORTGAGE AND SECURITY
INTEREST. (a) For the purposes of the creation and enforcement
of this Lease as a Mortgage and security agreement, Lessee hereby
grants, conveys, assigns, mortgages and transfers lien and
security interest in its rights and interests in the Leased
Property and the other Collateral in favor of the Lessor, and for
the benefit of the Participants, and Lessee hereby irrevocably
grants, bargains, sells, alienates, remises, releases, confirms,
conveys, mortgages and warrants Lessee's interest in and to the
Leased Property and the other Collateral to Lessor and for the
benefit of the Participants, With (to the extent permitted by
law) Power of Sale, to have and to hold to secure all
Obligations.
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(b) In the event this Lease is deemed a security agreement
and a fixture filing, Lessee is the debtor and Lessor is the
secured party. The mailing addresses of the debtor (Lessee
herein) and of the secured party (Lessor herein) from which
information concerning security interests pursuant to this Lease
may be obtained are as set forth on the first page of this Lease.
A carbon, photographic or other reproduction of this Lease or of
any financing statement related to this Lease shall be sufficient
as a financing statement for any of the purposes referenced in
this Lease.
(c) Upon the occurrence of a Lease Event of Default under
the Lease, Lessor shall have the power and authority, to the
extent provided by law, after proper notice and lapse of such
time as may be required by law, to foreclose and/or sell such
interest in the Leased Property and the Other Collateral at the
time and place of sale fixed by Lessor in such notice of sale,
either as a whole, or in separate lots or parcels or items and in
such order as Lessor may elect, at auction to the highest bidder
for cash in lawful money of the United States payable at the time
of sale.
(d) Lessor may bid and become the purchaser of all or any
part of the Leased Property and the Other Collateral at any such
sale, and the amount of Lessor's successful bid may be credited
against the Obligations.
(e) Accordingly, it is acknowledged that (to the extent
permitted by law) a power of sale has been granted in this
instrument; a power of sale may allow lessor to take such
interest in the leased property and the Other Collateral and sell
it, either as a whole or in separate lots or parcels, without
going to court in a foreclosure action upon default by the lessee
under this instrument.
(f) Upon the occurrence and during the continuance of any
Event of Default under the Lease, Lessor, in lieu of or in
addition to exercising any power of sale hereinabove, may proceed
by a suit or suits in equity or at law, whether for a foreclosure
hereunder, or for the sale of such interest in the Leased
Property, for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any
power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of such interest in
the Leased Property, or for the enforcement of any other
appropriate legal or equitable remedy.
ARTICLE XXV
MISCELLANEOUS
SECTION 25.1. SURVIVAL; SEVERABILITY; ETC. Anything
contained in this Lease to the contrary notwithstanding, all
claims against and liabilities of the Lessee or the Lessor
arising from events commencing prior to the expiration or earlier
termination of this Lease shall survive such expiration or
earlier termination. To the extent permitted by Applicable Law,
if any term or provision of this Lease or any application thereof
shall be declared invalid or unenforceable, the remainder of this
Lease and any other application of such term or provision shall
not be affected thereby. If any right or option of the Lessee
provided in this Lease, including any right or option described
in Articles XIV, XV, XVIII, XIX or XX, would, in the absence of
the limitation imposed by this sentence, be invalid or
unenforceable as being in violation of the rule against
perpetuities or any other rule of law relating to the vesting of
an interest in or the suspension of
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the power of alienation of property, then such right or option
shall be exercisable only during the period which shall end
twenty-one (21) years after the date of death of the last
survivor of the descendants of Franklin D. Roosevelt, the former
President of the United States, Henry Ford, the deceased
automobile manufacturer, and John D. Rockefeller, the founder of
the Standard Oil Company, known to be alive on the date of the
execution, acknowledgment and delivery of this Lease.
SECTION 25.2. AMENDMENTS AND MODIFICATIONS. Subject to the
requirements, restrictions and conditions set forth in the
Participation Agreement, neither this Lease nor any provision
hereof may be amended, waived, discharged or terminated except by
an instrument in writing, in recordable form, signed by the
Lessor and the Lessee.
SECTION 25.3. NO WAIVER. No failure by the Lessor or the
Lessee to insist upon the strict performance of any term hereof
or to exercise any right, power or remedy upon a default
hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a
waiver of any such default or of any such term. To the fullest
extent permitted by law, no waiver of any default shall affect or
alter this Lease, and this Lease shall continue in full force and
effect with respect to any other then existing or subsequent
default.
SECTION 25.4. NOTICES. All notices, demands, requests,
consents, approvals and other communications hereunder shall be
in writing and directed to the address described in, and deemed
received in accordance with the provisions of, Section 15.3 of
the Participation Agreement.
SECTION 25.5. SUCCESSORS AND ASSIGNS. All the terms and
provisions of this Lease shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
SECTION 25.6. HEADINGS AND TABLE OF CONTENTS. The headings
and table of contents in this Lease are for convenience of
reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 25.7. COUNTERPARTS. This Lease may be executed in
any number of counterparts, each of which shall be an original,
but all of which shall together constitute one and the same
instrument.
SECTION 25.8. GOVERNING LAW. This Lease shall be governed
by, and construed and interpreted in accordance with, the laws of
the State of New York, without regard to Conflicts of Law
principles (other than Title 14 of Article 5 of the New York
General Obligations Law), except as to matters relating to the
creation of the leasehold estates hereunder and the exercise of
rights and remedies with respect to the Leased Property, which
shall be governed by and construed in accordance with the law of
the state in which the Leased Property is located. Without
limiting the foregoing, in the event that this lease is deemed to
constitute a financing, which is the intention of the parties for
this purpose, the laws of the State of New York, without regard
to conflicts of Laws principles (other than Title 14 of Article 5
of the New York General Obligations Law),
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shall govern the creation, terms and provisions of the
indebtedness evidenced hereby and the creating of the lien
granted hereunder, but perfection and enforcement of said lien
shall be governed by and construed in accordance with the law of
the state in which the leased property is located.
SECTION 25.9. ORIGINAL LEASE. The single executed original
of this Lease marked "This Counterpart Is the Original Executed
Counterpart" on the signature page thereof and containing the
receipt thereof of Administrative Agent, on or following the
signature page thereof shall be the Original Executed Counterpart
of this Lease (the "ORIGINAL EXECUTED COUNTERPART"). To the
extent that this Lease constitutes chattel paper, as such term is
defined in the Uniform Commercial Code, no security interest in
this Lease may be created through the transfer or possession of
any counterpart other than the Original Executed Counterpart.
SECTION 25.10. LIMITATIONS ON RECOURSE. The parties hereto
agree that, except as specifically set forth in the Lease or in
any other Operative Document, Wells Fargo Bank Northwest,
National Association shall have no personal liability whatsoever
to the Lessee or its respective successors and assigns for any
claim based on or in respect of this Lease or any of the other
Operative Documents or arising in any way from the Overall
Transaction; PROVIDED, HOWEVER, that Wells Fargo Bank Northwest,
National Association shall be liable in its individual capacity
(a) for its own willful misconduct or gross negligence (or
negligence in the handling of funds), (b) for any Tax based on,
with respect to or measured by any income, fees, commission,
compensation or other amounts received by it as compensation for
services (including for acting as the Lessor) or otherwise under,
or as contemplated by, the Operative Documents, (c) Lessor Liens
on the Leased Property which are attributable to it, (d) for its
representations and warranties made in its individual capacity in
the Participation Agreement or in any certificate or documents
delivered pursuant thereto, (e) for its failure to perform any of
its covenants and agreements set forth in the Participation
Agreement or any other Operative Document, and (f) as otherwise
expressly provided in the Operative Documents.
SECTION 25.11. TRANSFER OF LEASED PROPERTY. (i) Whenever
pursuant to any provision of this Lease Lessor is required to
transfer the Leased Property to Lessee or to an independent third
party, such transfer shall be made at Lessee's expense by the
transfer by a deed without covenants or warranties of title,
except for matters arising by, through or under Lessor, of all of
Lessor's interest in and to the Leased Property on an "as is,
where is, with all faults" basis but free and clear of all Lessor
Liens and otherwise without recourse, representation or warranty
of any kind, and together with the due assumption by Lessee (or
such third party) of, and due release of Lessor from, all
obligations relating to the Leased Property or any of the
Operative Documents. In connection with any transfer to an
independent third party, Lessee shall execute and deliver such
customary and reasonable documents, certificates and estoppels as
may reasonably be required to facilitate the transfer of the
Leased Property. Any provision in this Lease or any other
Operative Document to the contrary notwithstanding, Lessor shall
not be obligated to make any such transfer until Lessor and the
Participants have received all Rent and other amounts due and
owing hereunder and under the other Operative Documents including
any Break Costs. At or subsequent to the transfer or return of
the Leased Property, Lessee will provide Lessor with such lien
and title searches as Lessor may reasonably request to
demonstrate
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to Lessor's satisfaction that the Leased Property is subject to
no Liens for which Lessor would be liable under any warranties of
title.
(ii) Lessee may assign to another Person its right, upon a
purchase by Lessee, to take title to the Leased Property pursuant
to Section 20.1(b); PROVIDED, that (i) Lessee shall exercise any
option, (ii) such assignee shall be bound by the provisions of
Section 20.1(b), (iii) Lessee shall have represented by an
instrument in writing and delivered to Lessor that all necessary
Governmental Actions with respect to such transfer, including the
purchase of the Leased Property by any other Person as
contemplated herein, have been obtained or made, as applicable,
and (iv) no such assignment shall release Lessee from its
obligations under the Operative Documents, and Lessee shall
remain personally liable to Lessor for the payment of all amounts
due under any such Section and this Section 25.11.
SECTION 25.12. EFFECTIVE DATE. The parties hereto agree
that, for purposes of granting the lien hereunder, this Lease
shall be effective on the Document Closing Date.
[END OF PAGE]
[SIGNATURE PAGES FOLLOW]
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In Witness Whereof, the parties have caused this Lease be
duly executed and delivered as of the date first above written.
Kansas City Power & Light Company, as Lessee
By: /s/Andrea F. Bielsker
Name: Andrea F. Bielsker
Title: Vice President-Finance, Chief Financial
Officer and Treasurer
Lease
Wells Fargo Bank Northwest, National
Association, not in its individual
capacity, but solely as Certificate
Trustee, as Lessor
By: /s/Val T. Orton
Name: Val T. Orton
Title: Vice President
Exhibit 10-b
AMENDMENT NO. 4 TO CREDIT AGREEMENT
This Amendment No. 4 (this "Amendment") dated as of
April 30, 2001 is among KLT Inc. (the "Borrower"), the
undersigned Lenders and Bank One, NA, as agent for the
Lenders (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are
parties to a Second Amended and Restated Credit Agreement
dated as of June 30, 2000 (as previously amended, the
"Credit Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent desire
to amend the Credit Agreement in certain respects more fully
described below;
NOW, THEREFORE, for good and valuable consideration,
the receipt of which is hereby acknowledged, the parties
agree as follows:
SECTION 1 DEFINED TERMS. Capitalized terms used herein
and not otherwise defined shall have the meanings attributed
to such terms in the Credit Agreement.
SECTION 2 AMENDMENTS TO THE CREDIT AGREEMENT. Effective
upon the satisfaction of the conditions precedent set forth
in Section 4, the Credit Agreement shall be amended as
follows:
(a) The definition of "Tender Line Facility" in
Article I is amended in its entirety to read as
follows:
"Tender Line Facility" means a credit
facility entered into by DTI providing for loans
to DTI, in an aggregate amount not exceeding
$95,000,000, to finance the purchase of DTI Notes,
and refinancings of all or part thereof so long as
the principal amount of such credit facility and
such refinancings does not in the aggregate at any
time exceed $95,000,000.
(b) Clause (vii) of Section 6.11 is amended in its
entirety to read as follows:
(vii) Rate Hedging Obligations related to the Loans or
the Working Capital Facility.
(c) Section 6.11 is amended by adding the
following clause (xii):
(xii) Indebtedness of KLT Gas Inc. not
exceeding $17,000,000 in the aggregate
arranged by Bank One.
(d) Section 6.13 is amended by (1) deleting the
word "and" before clause (iv), substituting a
comma therefor and inserting the word "and" after
clause (iv) and (2) adding the following clause
(v):
(v) the sale by KLT Gas Inc. of its interest
in Patrick KLT Gas, LLC.
(e) Clause (vi) of Section 6.18 is amended in its
entirety to read as follows:
(vi) Liens in favor of the Lenders
granted pursuant to any Collateral
Document.
(f) Clause (xvii) of Section 6.18 is amended in
its entirety to read as follows:
(xvii) Liens on the assets and capital stock
of Subsidiaries of DTI to secure the
obligations of DTI and such Subsidiaries
under the Working Capital Facility.
(g) Section 6.19 is amended by deleting the
parenthetical phrase therein and substituting
the following therefor: "(other than (i)
Indebtedness of DTI and its Subsidiaries
described in Section 6.11(xi) or incurred
under the DTI Notes, the Exchange Notes, the
Tender Line Facility or the Working Capital
Facility,
PROVIDED that neither the Borrower nor any of
its Subsidiaries, other than DTI and its
Subsidiaries, shall have any obligations
(contingent or otherwise) with respect to
such Indebtedness, (ii) KLT Investments Debt
and (iii) Non-Recourse Debt)."
(h) Section 6.23 is amended by deleting the
parenthetical phrase therein and
substituting the following therefor: "(other
than (i) Indebtedness of DTI and its
Subsidiaries described in Section 6.11(xi) or
incurred under the DTI Notes, the Exchange
Notes, the Tender Line Facility or the
Working Capital Facility,
PROVIDED that neither the Borrower nor any of
its Subsidiaries, other than DTI and its
Subsidiaries, shall have any obligations
(contingent or otherwise) with respect to
such Indebtedness, (ii) KLT Investments Debt
and (iii) Non-Recourse Debt)."
SECTION 3 REPRESENTATIONS AND WARRANTIES. To induce the
Agent and the Lenders to enter into this Amendment, the
Borrower represents and warrants that:
(a) The representations and warranties set forth
in Article V of the Credit
Agreement are true, correct and complete on
the date hereof as if made on and as of the
date hereof.
(b) No Default or Unmatured Default exists on the
date hereof.
SECTION 4 EFFECTIVE DATE. This Amendment shall become
effective as of the date first written above upon receipt by
the Agent of each of the following counterparts of this
Amendment duly executed by the Borrower and the Required
Lenders.
SECTION 5 RATIFICATION. The Credit Agreement, as
amended hereby, is hereby ratified, approved and confirmed
in all respects.
SECTION 6 REFERENCES TO CREDIT AGREEMENT. From and
after the effective date hereof, each reference in the
Credit Agreement to "this Agreement", "hereof" or
"hereunder" or words of like import, and all references
to the Credit Agreement in any and all other agreements,
instruments, documents, notes, certificates and other
writings of every kind and nature, shall be deemed to
mean the Credit Agreement as amended by this Amendment.
SECTION 7 COSTS AND EXPENSES. The Borrower agrees to
pay all costs, fees and out-of-pocket expenses (including
attorneys' fees and charges of attorneys for the Agent,
which attorneys may be employees of the Agent) incurred by
the Agent in connection with the preparation, execution
and delivery of this Amendment.
SECTION 8 CHOICE OF LAW. THIS AMENDMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE
LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.
SECTION 9 EXECUTION IN COUNTERPARTS. This Amendment may
be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all
of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the Borrower, the undersigned
Lenders and the Agent have executed this Amendment as
of the date first above written.
KLT INC.
By: /s/ Gregory J. Orman
Name: Gregory J. Orman
Title: President and Chief Executive
Officer
BANK ONE, NA, individually and as Agent
By: /s/ Mary Lu D. Cramer
Name: Mary Lu D. Cramer
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ Jeffrey Dodd
Name: Jeffrey Dodd
Title: Group Vice President
By: /s/ Kris A. Grosshans
Name: Kris A. Grosshans
Title: Senior Vice President
W E S T D E U T S C HE L AN D E S B A NK
GIROZENTRALE, NEW YORK BRANCH
By: /s/ Lisa Walker
Name: Lisa Walker
Title: Associate Director
By: /s/ Walter T. Duffy III
Name: Walter T. Duffy III
Title: Associate Director
COMMERZBANK AKTIENGESELLSCHAFT, NEW YORK
AND GRAND CAYMAN BRANCHES
By:
Name:
Title:
By:
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD., CHICAGO
BRANCH
By: /s/ Nobuyasu Fukatsu
Name: Nobuyasu Fukatsu
Title: General Manager
Exhibit 10-c
AMENDMENT 2 TO CREDIT AGREEMENT
This Amendment 2 to Credit Agreement (the "Amendment")
is entered into as of June 4, 2001, by and between KLT
Telecom Inc. (the "Lender") and Digital Teleport, Inc. (the
"Borrower").
Whereas, Lender and Borrower have entered into a
certain Credit Agreement dated as of February 21, 2001,
providing for revolving credit loans of up to $25 million in
the aggregate, which was amended by Amendment 1 dated as of
April 30, 2001, to provide, among other things, an increase
in the available commitment to $35 million (as so amended,
the "Credit Agreement"), and
Whereas, Borrower has requested to increase the maximum
borrowing amount under the Credit Agreement, and Lender is
willing to increase such amount on the terms and conditions
herein.
Therefore, in consideration of the of the
undertakings set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged,
the parties hereto hereby agree as follows:
1. Capitalized terms used herein and not otherwise defined
shall have the meanings attributed to such terms in the
Credit Agreement.
2. The definition of "Commitment" in Article I of the
Credit Agreement is amended in its entirety to read as
follows:
"Commitment" means the obligation of the Lender to
make Loans not exceeding Forty Five Million Dollars
($45,000,000.00) in aggregate principal amount at any
time outstanding.
3. This Amendment shall take effect on the last to occur
of (i) the execution and delivery of this Amendment by
Borrower and Lender, and (ii) Lender executing and
delivering to Borrower a Second Amended and Restated Demand
Promissory Note, in the form attached hereto as Exhibit A.
4. To induce the Lender to enter into this Amendment, the
Borrower represents and warrants that:
(a) The representations and warranties set forth in
Article IV of the Credit Agreement are true, correct and
complete on the date hereof as if made on and as of the
dated hereof.
(b) No Default exists on the date hereof.
5. The Credit Agreement, as amended hereby, is hereby
ratified, approved and confirmed in all respects.
In witness whereof, Lender and Borrower have executed this
Amendment as of the date first above written.
Digital Teleport, Inc.
By: /s/ Gary W. Douglass
Name: Gary W. Douglass
Title: Senior Vice President
and Chief Financial
Officer
8112 Maryland Avenue, Suite 400
St. Louis, MO 63105
Telecopier: (314) 253-1999
KLT Telecom Inc.
By: /s/ Mark Schroeder
Name: Mark Schroeder
Title: Vice President
10740 Nall, Suite 230
Overland Park, KS 66211
Telecopier: (913) 967-4340