8-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) November 8, 2002

Xcel Energy Inc.

(Exact name of registrant as specified in its charter)

Minnesota

(State or other jurisdiction of incorporation)

1-3034	41-0448030
(Commission File Number)	(IRS Employer Identification No.)
800 Nicollet Mall, Mpls, MN	55402
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code 612-330-5500

(Former name or former address, if changed since last report)

Item 5. Other Events

     On November 8, 2002, Xcel Energy entered into a securities purchase agreement with institutional investors pursuant to which the investors purchased, in a private placement, $100 million of Xcel Energy 8% senior convertible debt securities. The debt securities are convertible into common stock of Xcel Energy. The proceeds were used to help pay down Xcel Energy’s 364 day line of credit which came due on November 8. The securities purchase agreement further provides for possible additional financings of up to $250 million. Please refer to the securities purchase agreement, forms of convertible notes and registration rights agreement, which are attached hereto as exhibits, for the terms of the transaction and such financings.

Item 7. Financial Statements and Exhibits

(c) Exhibits

Exhibit No	Description
99.01	Securities Purchase Agreement dated as of November 8, 2002 by and among Xcel Energy Inc. and the investors listed on the Schedule of Buyers attached thereto.
99.02	Form of First Notes
99.03	Form of Second Notes
99.04	Form of First Call Notes
99.05	Form of Second Call Notes
99.06	Form of Third Notes
99.07	Form of Third Call Notes
99.08	Registration Rights Agreement dated as of November 8, 2002 by and among Xcel Energy Inc. and the Buyers named therein

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 hereunto duly authorized.

Xcel Energy Inc.
(a Minnesota Corporation)

/s/ RICHARD C. KELLY
Richard C. Kelly
Vice President and Chief Financial Officer

November 12, 2002

EX-99.01 3 c73001exv99w01.txt EX-99.01 SECURITIES PURCHASE AGREEMENT EXHIBIT 99.01 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November 8, 2002, by and among XCEL ENERGY INC., a Minnesota corporation, with headquarters located at 800 Nicollet Mall, Minneapolis, MN 55401 (the "Company"), and the investors listed on the Schedule of Buyers attached hereto (individually, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. The Company and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the 1933 Act; B. The Company has authorized (i) a new series of senior convertible notes of the Company in the form attached hereto as Exhibit A (together with any convertible notes issued in replacement thereof in accordance with the terms thereof, the "FIRST NOTES"), which First Notes shall be convertible into shares of the Company's Common Stock, par value $2.50 per share (the "COMMON STOCK") (as converted, the "FIRST CONVERSION Shares"), in accordance with the terms of the First Notes, (ii) a new series of senior convertible notes of the Company in the form attached hereto as Exhibit B (together with any convertible notes issued in replacement thereof in accordance with the terms thereof, the "SECOND NOTES"), which Second Notes shall be convertible into shares of the Common Stock (as converted, the "SECOND CONVERSION SHARES"), in accordance with the terms of the Second Notes, (iii) a new series of senior convertible notes of the Company in the form attached hereto as Exhibit C (together with any convertible notes issued in replacement thereof in accordance with the terms thereof, the "FIRST CALL NOTES"), which First Call Notes shall be convertible into shares of the Common Stock (as converted, the "FIRST CALL CONVERSION SHARES"), in accordance with the terms of the First Call Notes, (iv) a new series of senior convertible notes of the Company in the form attached hereto as Exhibit D (together with any convertible notes issued in replacement thereof in accordance with the terms thereof, the "SECOND CALL NOTES"), which Second Call Notes shall be convertible into shares of the Common Stock (as converted, the "SECOND CALL CONVERSION SHARES"), in accordance with the terms of the Second Call Notes, (v) a new series of senior convertible notes of the Company in the form attached hereto as Exhibit E (together with any convertible notes issued in replacement thereof in accordance with the terms thereof, the "THIRD NOTES"), which Third Notes shall be convertible into shares of the Common Stock (as converted, the "THIRD CONVERSION SHARES"), in accordance with the terms of the Third Notes, and (vi) a new series of senior convertible notes of the Company in the form attached hereto as Exhibit F (together with any convertible notes issued in replacement thereof in accordance with the terms thereof, the "THIRD CALL NOTES"), which Third Call Notes shall be convertible into shares of the Common Stock (as converted, the "THIRD CALL CONVERSION SHARES" and collectively with the First Conversion Shares, the Second Conversion Shares, the First Call Conversion Shares, the Second Call Conversion Shares, the Third Conversion Shares, and the Company Optional Redemption Conversion Shares (as defined in the First Notes), the "CONVERSION SHARES"), in accordance with the terms of the Third Call Notes. The First Notes, the Second Notes, the First Call Notes, the Second Call Notes, the Third Notes and the Third Call Notes collectively are referred to in this Agreement as the "NOTES"; C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate principal amount of First Notes set forth opposite such Buyer's name on the Schedule of Buyers (which aggregate principal amount for all Buyers shall be $100,000,000); D. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate principal amount of Second Notes set forth opposite such Buyer's name on the Schedule of Buyers (which aggregate principal amount for all Buyers shall be $50,000,000); E. Subject to the terms and conditions set forth in this Agreement, each Buyer shall have the right to purchase, and the Company may be required to sell, up to an aggregate of $50,000,000 principal amount of First Call Notes (pro rata based on the principal amount of First Notes each Buyer purchased in relation to the aggregate principal amount of First Notes issued); F. Subject to the terms and conditions set forth in this Agreement, each Buyer may have the right to purchase, and the Company may be required to sell, up to an aggregate of $25,000,000 principal amount of Second Call Notes (pro rata based on the principal amount of Second Notes each Buyer purchased in relation to the aggregate principal amount of Second Notes issued); G. Subject to the terms and conditions set forth in this Agreement, the Company may have the right to cause the Buyers, and the Buyers may be required, to purchase up to an aggregate of $100,000,000 principal amount of Third Notes (pro rata based on the principal amount of First Notes each Buyer purchased in relation to the aggregate principal amount of First Notes issued); H. Subject to the terms and conditions set forth in this Agreement, each Buyer may have the right to purchase and the Company may be required to sell up to an aggregate principal amount of Third Call Notes equal to 25% of the aggregate principal amount of Third Notes issued (pro rata based on the principal amount of Third Notes each Buyer purchased in relation to the aggregate principal amount of Third Notes issued); and I. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit G (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to provide certain registration rights with respect to the Conversion Shares under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. J. The Notes and the Conversion Shares collectively are referred to herein as the "SECURITIES". 2 NOW THEREFORE, the Company and each Buyer hereby agree as follows: 1. PURCHASE AND SALE OF NOTES. (a) Purchase of Notes. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(a) below, the Company shall issue and sell to each Buyer, and each Buyer severally agrees to purchase from the Company, the First Notes, each in the principal amount as set forth opposite such Buyer's name on the Schedule of Buyers (the "FIRST CLOSING"). Subject to the satisfaction (or waiver) of the conditions set forth in Sections 1(c), 6(b) and 7(b) below, the Company shall issue and sell to each Buyer, and each Buyer severally agrees to purchase from the Company, the Second Notes, each in the principal amount as set forth opposite such Buyer's name on the Schedule of Buyers (the "SECOND CLOSING"). Subject to the satisfaction (or waiver) of the conditions set forth in Sections 1(d), 6(c) and 7(c), at the option of each Buyer, the Company shall issue at multiple closings, if applicable, and sell to each such Buyer, and each such Buyer may purchase from the Company, up to that principal amount of First Call Notes equal to such Buyer's pro rata portion of an aggregate of $50,000,000 principal amount of First Call Notes (based on the principal amount of First Notes each Buyer purchased in relation to the aggregate principal amount of First Notes issued) (each a "FIRST CALL CLOSING"). Subject to the satisfaction (or waiver) of the conditions set forth in Sections 1(e), 6(d) and 7(d), at the option of each Buyer, the Company shall issue at multiple closings, if applicable, and sell to each such Buyer, and each such Buyer may purchase from the Company, up to that principal amount of Second Call Notes equal to such Buyer's pro rata portion of an aggregate of $25,000,000 principal amount of Second Call Notes (based on the principal amount of Second Notes each Buyer purchased in relation to the aggregate principal amount of Second Notes issued) (each a "SECOND CALL CLOSING"). Subject to satisfaction (or waiver) of the conditions set forth in Sections 1(f), 6(e) and 7(e), the Company may require that each Buyer purchase that principal amount of Third Notes equal to such Buyer's pro rata portion of up to an aggregate of $100,000,000 principal amount of Third Notes (based on the principal amount of First Notes each Buyer purchased in relation to the aggregate principal amount of First Notes purchased by the Buyers) (the "THIRD CLOSING"). Subject to the satisfaction (or waiver) of the conditions set forth in Sections 1(g), 6(f) and 7(f), at the option of each Buyer, the Company shall issue at multiple closings, if applicable, and sell to each such Buyer, and each such Buyer may purchase from the Company, up to that principal amount of Third Call Notes equal to such Buyer's pro rata portion of 25% of the aggregate principal amount of Third Notes issued (based on the principal amount of Third Notes each Buyer purchased in relation to the aggregate principal amount of Third Notes issued) (each a "THIRD CALL CLOSING"). The First Closing, the Second Closing, the First Call Closing(s), the Second Call Closing(s), the Third Closing and the Third Call Closing(s) collectively are referred to in this Agreement as the "CLOSINGS". The purchase price for each Buyer (the "PURCHASE PRICE") of the Notes to be purchased by each such Buyer at each Closing shall be equal to $1.00 for each $1.00 of principal amount of Notes being purchased by such Buyer at such Closing. (b) First Closing Date. The date and time of the First Closing (the "FIRST CLOSING DATE") shall be 1:00 P.M. Central Time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the First Closing set forth in Sections 6(a) and 7(a) below (or such later date as is mutually agreed to by the Company and each Buyer). The First 3 Closing shall occur on the First Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (c) Second Closing Date. The date and time of the Second Closing (the "SECOND CLOSING DATE") shall be 10:00 A.M. Central Time, on the tenth Trading Day (as defined in the Notes) after the First Closing Date, subject to notification of satisfaction (or waiver) of the conditions to the Second Closing set forth in Sections 6(b) and 7(b) below and the conditions contained in this Section 1(c) (or such later date as is mutually agreed to by the Company and each Buyer). The Second Closing shall not occur if the Company has delivered timely a Company Optional Redemption Notice (as defined in the Notes). The Second Closing shall occur on the Second Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. Notwithstanding anything in this Agreement to the contrary, the Buyers shall not be obligated to purchase the Second Notes at the Second Closing unless the following condition (the "SECOND NOTE CONDITIONS") is satisfied or waived by the Buyers: during the period beginning on the First Closing Date and ending on and including the Second Closing Date, there shall not have occurred either (A) the consummation of a Change of Control or a public announcement of a pending, proposed or intended Change of Control which has not been abandoned or terminated or (B) an Event of Default (as defined in the Notes) or an event that with the passage of time or giving of notice would constitute an Event of Default. (d) First Call Closing Date. The date and time of each First Call Closing (a "FIRST CALL CLOSING DATE") shall be 10:00 a.m. Central time, on the date specified in the First Call Note Notice (as defined below), subject to satisfaction (or waiver) of the conditions to each First Call Closing set forth in Sections 6(c) and 7(c) and the conditions contained in this Section 1(d) (or such later date as is mutually agreed to by the Company and the applicable Buyer). The First Call Closing shall not occur if the Company has delivered timely a Company Optional Redemption Notice (as defined in the Notes). At any time during the period beginning after the thirty-fifth business day after the date hereof and ending on and including the date which is 365 days after the First Closing Date, but subject to the requirements of Sections 6(c) and 7(c) and the conditions contained in this Section 1(d), each Buyer may purchase, at such Buyer's option, First Call Notes by delivering written notice to the Company (a "FIRST CALL NOTE NOTICE") at least three business days (the "FIRST CALL NOTE NOTICE DATE") prior to the First Call Closing Date set forth in the First Call Note Notice. The First Call Note Notice shall set forth (i) the principal amount of First Call Notes to be purchased by such Buyer at the applicable First Call Closing Date, which principal amount, when added to the principal amount of any First Call Notes previously purchased by such Buyer, shall not exceed such Buyer's pro rata portion (based on the principal amount of First Notes such Buyer purchased in relation to the aggregate principal amount of First Notes purchased by all the Buyers) of the aggregate principal amount of First Call Notes which may be purchased by all Buyers at all First Call Closings, (ii) the aggregate Purchase Price for the First Call Notes to be purchased and (iii) the First Call Closing Date. Each such First Call Closing shall occur on the First Call Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (e) Second Call Closing Date. The date and time of each Second Call Closing (a "SECOND CALL CLOSING DATE") shall be 10:00 a.m. Central time, on the date specified in the Second Call Note Notice (as defined below), subject to satisfaction (or waiver) of the conditions 4 to each Second Call Closing set forth in Sections 6(d) and 7(d) and the conditions contained in this Section 1(e) (or such later date as is mutually agreed to by the Company and the applicable Buyer). The Second Call Closing shall not occur if the Company has delivered timely a Company Optional Redemption Notice (as defined in the Notes). At any time after the Second Closing and during the period beginning after the thirty-fifth business day after the date hereof and ending on and including the date which is 365 days after the First Closing Date, but subject to the requirements of Sections 6(d) and 7(d) and the conditions contained in this Section 1(e), each Buyer may purchase, at such Buyer's option, Second Call Notes by delivering written notice to the Company (a "SECOND CALL NOTE NOTICE") at least three business days (the "SECOND CALL NOTE NOTICE DATE") prior to the Second Call Closing Date set forth in the Second Call Note Notice. The Second Call Note Notice shall set forth (i) the principal amount of Second Call Notes to be purchased by such Buyer at the applicable Second Call Closing Date, which principal amount, when added to the principal amount of any Second Call Notes previously purchased by such Buyer, shall not exceed such Buyer's pro rata portion (based on the principal amount of Second Notes such Buyer purchased in relation to the aggregate principal amount of Second Notes purchased by all the Buyers) of the aggregate principal amount of Second Call Notes which may be purchased by all Buyers at all Second Call Closings, (ii) the aggregate Purchase Price for the Second Call Notes to be purchased and (iii) the Second Call Closing Date. Each such Second Call Closing shall occur on the Second Call Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. (f) Third Closing Date. Subject to timely delivery by the Company to the Buyers of the Third Note Notice (as defined below), the date and time of the Third Closing (the "THIRD CLOSING DATE") shall be 10:00 a.m. Central Time, on the date which is 120 days after the First Closing Date (or the first business day thereafter), subject to satisfaction (or waiver) of the conditions to the Third Closing set forth in Sections 6(e) and 7(e) and the conditions set forth in this Section 1(f) (or such later date as is mutually agreed to by the Company and the Buyers). The Third Closing shall not occur if the Company has delivered timely a Company Optional Redemption Notice (as defined in the Notes). The Company may require the Buyers to purchase Third Notes on the Third Closing Date by delivering written notice to each Buyer (the "THIRD NOTE NOTICE") no later than the date which is the business day prior to the date which is 90 days after the First Closing Date (the date of delivery of the Third Note Notice is referred to as the "THIRD NOTE NOTICE DATE"). The Company's Third Note Notice shall set forth (i) each Buyer's pro rata allocation (based on the principal amount of First Notes each Buyer purchased in relation to the aggregate principal amount of First Notes purchased by all the Buyers) of the aggregate principal amount of Third Notes (which aggregate principal amount shall not exceed $100,000,000) which the Company is requiring the Buyers to purchase at the Third Closing and (ii) the aggregate Purchase Price for each such Buyer's Third Notes. The Third Closing shall occur on the Third Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. Notwithstanding anything in this Agreement to the contrary, the Company shall not be entitled to require the Buyers to purchase the Third Notes unless, in addition to the requirements of Sections 6(e) and 7(e), all of the following conditions are satisfied: (i) during the period beginning on the First Closing Date and ending on and including the Third Closing Date, there shall not have occurred either (A) the consummation of a Change of Control or a public announcement of a pending, proposed or intended Change of Control which has not been abandoned or terminated or (B) an Event of Default or an event that with the 5 passage of time or giving of notice would constitute an Event of Default; (ii) the arithmetic average of the Weighted Average Prices (as defined in the Notes) of the Common Stock on each of the 20 consecutive Trading Days (as defined in the Notes) ending on and including the Trading Day immediately preceding the date which is 90 days after the First Closing Date is at least equal to 60% of the Weighted Average Price of the Common Stock on the First Closing Date; and (iii) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding the date which is 90 days after the First Closing Date is at least equal to 60% of the Weighted Average Price of the Common Stock on the First Closing Date. (g) Third Call Closing Date. The date and time of each Third Call Closing (a "THIRD CALL CLOSING DATE") shall be 10:00 a.m. Central time, on the date specified in the Third Call Note Notice (as defined below), subject to satisfaction (or waiver) of the conditions to each Third Call Closing set forth in Sections 6(f) and 7(f) and the conditions contained in this Section 1(g) (or such later date as is mutually agreed to by the Company and the applicable Buyer). At any time during the period beginning on the Third Closing Date and ending on and including the date which is 365 days after the Third Closing Date, but subject to the requirements of Sections 6(f) and 7(f) and the conditions contained in this Section 1(g), each Buyer may purchase, at such Buyer's option, Third Call Notes by delivering written notice to the Company (a "THIRD CALL NOTE NOTICE") at least three business days (the "THIRD CALL NOTE NOTICE DATE") prior to the Third Call Closing Date set forth in the Third Call Note Notice. The Third Call Note Notice shall set forth (i) the principal amount of Third Call Notes such Buyer will purchase at the applicable Third Call Closing, which principal amount, when added to the principal amount of Third Call Notes previously purchased by such Buyer, shall not exceed such Buyer's pro rata portion (based on the number of Third Notes such Buyer purchased in relation to the total number of Third Notes purchased by all the Buyers) of 25% of the aggregate principal amount of Third Notes issued on the Third Closing Date, (ii) the aggregate Purchase Price for the Third Call Notes to be purchased by such Buyer and (iii) the Third Call Closing Date. Each such Third Call Closing shall occur on the applicable Third Call Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. The First Closing Date, the Second Closing Date, the First Call Closing Date(s), the Second Call Closing Date(s), the Third Closing Date and the Third Call Closing Date(s) collectively are referred to in this Agreement as the "CLOSING DATES". (h) Form of Payment. On each Closing Date, (i) each Buyer shall pay its Purchase Price to the Company for the Notes to be issued and sold to such Buyer at the applicable Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, and (ii) the Company shall deliver to each Buyer, Notes (in the principal amounts as such Buyer shall request) (the "NOTE Certificates") representing such principal amount of the Notes which such Buyer is then purchasing hereunder, duly executed on behalf of the Company and registered in the name of such Buyer or its designee. 2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and warrants with respect to only itself that: (a) No Public Sale or Distribution. Such Buyer is acquiring the Notes, for its 6 own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. (b) Accredited Investor Status. Such Buyer is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D. (c) Reliance on Exemptions. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities. (d) Information. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained herein. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. (e) No Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. (f) Transfer or Resale. Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a reasonably acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively, "RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the 7 Securities under circumstances in which the seller (or the Person (as defined in Section 3(r)) through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. The Securities may be pledged in connection with a bona fide margin account or other loan secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation, this Section 2(f); provided, that in order to make any sale, transfer or assignment of Securities, such Buyer and its pledgee makes such disposition in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. (g) Legends. Such Buyer understands that the certificates or other instruments representing the Notes and, until such time as the sale of the Conversion Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Conversion Shares, except as set forth below, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for sale under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a reasonably acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, or (iii) such holder provides the Company with reasonable assurance that the Securities can be sold, assigned or transferred pursuant to Rule 144. 8 (h) Validity; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and are valid and binding agreements of such Buyer enforceable against such Buyer in accordance with their terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. (i) Residency. Such Buyer is a resident of that country specified in its address on the Schedule of Buyers. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Buyers that: (a) Organization and Qualification. The Company and its "SUBSIDIARIES" (which for purposes of this Agreement means any entity which is a Significant Subsidiary of the Company as such term is defined in Regulation S-X) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below). The Company has no Subsidiaries except as set forth in the SEC Documents (as defined below). (b) Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Notes, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "TRANSACTION DOCUMENTS") and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including without limitation the issuance of the Notes and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion thereof, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders. This Agreement and the other Transaction Documents of even date herewith have been duly executed and delivered by the Company, and constitute the valid and binding obligations of the Company enforceable against the Company in 9 accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. (c) Issuance of Securities. The Notes are duly authorized and, upon issuance in accordance with the terms hereof, shall be free from all taxes, liens and charges with respect to the issue thereof. At least 115% of the number of shares of Common Stock necessary to satisfy all of the Company's obligations pursuant to the First Notes and Second Notes have been duly authorized and reserved for issuance upon conversion of the Notes. Upon conversion in accordance with the Notes, the Conversion Shares will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Assuming the accuracy of the representations, warranties and covenants of the Buyers set forth herein, the issuance by the Company of the Securities is exempt from registration under the 1933 Act. (d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes and reservation for issuance and issuance of the Conversion Shares) will not (i) result in a violation of the certificate of incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock or bylaws of the Company or any Subsidiary or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state utilities and securities laws and regulations and the rules and regulations of the Principal Market (as defined below)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. (e) Consents. Except as specifically contemplated by this Agreement, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof, except for such consents, authorizations, orders, filings and registrations which have been obtained or effected on or prior to the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the foregoing. The Company is not in violation of the listing requirements of the Principal Market and has no actual knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. (f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and that no Buyer is (i) an officer or director of the Company, (ii) an 10 "affiliate" of the Company (as defined in Rule 144) or (iii) a "beneficial owner" of more than 5% of the Common Stock (as defined for purposes of Rule 13d-3 of the 1934 Act (as defined below)). The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer's purchase of the Securities. The Company further represents to each Buyer that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. (g) No General Solicitation; Placement Agent. Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. The Company acknowledges that it has engaged Merrill Lynch & Co. as placement agent (the "AGENT") in connection with the sale of the Notes, which Agent may have formally or informally engaged other agents on its behalf. The Company shall be responsible for the payment of any placement agent's fees, financial advisory fees, or brokers' commissions (other than for persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorney's fees and out-of-pocket expenses) arising in connection with any such claim. (h) No Integrated Offering. None of the Company, its Subsidiaries, any of their affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. None of the Company, its Subsidiaries, their affiliates and any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings. (i) Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Notes will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Notes in accordance with this Agreement and the Notes is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. (j) Application of Takeover Protections; Rights Agreement. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation 11 or the laws of the state of its incorporation which is or could become applicable to the Buyers as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and the Buyer's ownership of the Securities. (k) SEC Documents; Financial Statements. Since December 31, 2000, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and pursuant to the Public Utility Holding Company Act of 1935, as amended ("PUHCA") (all of the foregoing filed prior to the date hereof, or in connection with any Closing subsequent to the date hereof, filed prior to the date of such Closing, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC DOCUMENTS"). The Company has made available to the Buyers or their respective representatives true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and PUHCA, as applicable, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents, including, without limitation, information referred to in Section 2(d) of this Agreement, contains any untrue statement of a material fact or, other than in connection with NRG Energy Inc. and its subsidiaries (collectively, "NRG"), omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries nor any of their officers, directors, employees or agents have provided the Buyers with any material, nonpublic information. As of the date hereof, the Company meets the requirements for use of Form S-1 for registration of the resale of Registrable Securities (as defined in the Registration Rights Agreement) and does not have any knowledge or reason to believe that it does not meet such requirements or any actual knowledge of any fact which would reasonably result in its not meeting such requirements. The Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date hereof and to which the Company is a party or by which the Company is bound which has not been previously filed as an exhibit to its reports filed with the SEC under the 1934 Act and PUHCA. Except for the issuance of the Notes contemplated by this Agreement, no event, liability, development or circumstance has occurred 12 or exists, or is currently contemplated to occur, with respect to the Company or its Subsidiaries (other than in connection with NRG) or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws and which has not been publicly disclosed. (l) Absence of Certain Changes. Except as disclosed in the SEC Documents and except for those relating to NRG, since December 31, 2001, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), results of operations or prospects of the Company or its Subsidiaries. Except for NRG or to the extent that NRG affects the Company, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), results of operations or prospects of any Subsidiary of the Company. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings with respect to the Company or any of its Subsidiaries (other than such proceedings with respect to NRG). (m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except for those that relate to NRG or to the extent that NRG affects the Company, no event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced. (n) Conduct of Business; Regulatory Permits. Neither the Company nor its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or Bylaws or their organizational charter or bylaws, respectively. Except as disclosed in the SEC Documents, neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of The New York Stock Exchange (the "PRINCIPAL MARKET"), including, without limitation, the listing requirements set forth in Rule 312.03(c) of the Principal Market and has no knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future. Since December 31, 2001, (i) the Company's Common Stock has been designated for quotation or listed on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market. The Company and its Subsidiaries possess all certificates, authorizations and 13 permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. (o) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. (p) Transactions With Affiliates. Except as set forth in the SEC Documents filed at least ten days prior to the date hereof and other than the grant of stock options pursuant to option plans disclosed in such SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner. (q) Equity Capitalization. As of October 31, 2002, the outstanding Common Stock is 398,714,039 shares and the authorized capital stock of the Company is materially as set forth in the most recent SEC Documents filed by the Company. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed in the SEC Documents: (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) other than in connection with NRG, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no material amounts outstanding under, and there will be no material amounts due upon termination of, any credit agreement or credit facility; (v) there are no financing statements securing 14 obligations in any material amounts, either singly or in the aggregate, filed in connection with the Company; (vi) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (vii) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries (other than in connection with NRG as it relates to NRG's securities); (viii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (ix) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement; and (x) the Company and its Subsidiaries (other than in connection with NRG) have no liabilities or obligations required to be disclosed in the SEC Documents (as defined herein) but not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company's or its Subsidiaries' respective businesses and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. The Company has made available to the Buyer true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. (r) Indebtedness and Other Contracts. Except as disclosed in the SEC Documents and except as it relates to NRG, neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument would result in a Material Adverse Effect, (iii) is in violation of any term of or in default under any contract, agreement, instrument or Indebtedness, except where such violations and defaults would not result, either individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or instrument, the performance of which, in the judgement of the Company's officers, has or is expected to have a Material Adverse Effect. For purposes of this Agreement: (x) "INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or 15 otherwise, to be secured by) any mortgage, lien, pledge, change, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (s) Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, except as set forth in the SEC Documents or that would not otherwise have a Material Adverse Effect. (t) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Other than in connection with NRG, neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. (u) Employee Relations. (i) Neither the Company nor any of its Subsidiaries is involved in any material union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. (ii) The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. 16 (v) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the three foregoing cases, the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. (w) Subsidiary Rights. Other than restrictions that are not material and other than restrictions on dividends by NRG to the Company and on dividends within NRG, the Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its material Subsidiaries as owned by the Company or such Subsidiary. (x) Tax Status. The Company and each of its Subsidiaries (i) has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 4. COVENANTS. (a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. (b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before each of the Closing Dates, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at each of the Closings pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Dates. The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or 17 "Blue Sky" laws of the states of the United States following each of the Closing Dates. (c) Reporting Status. Until the date on which the Investors (as defined in the Registration Rights Agreement) shall have sold all the Conversion Shares and none of the Notes is outstanding (the "REPORTING PERIOD"), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. (d) Use of Proceeds. The Company will use the proceeds from the sale of the Securities for substantially the same purposes and in substantially the same amounts as has been disclosed to the Buyers. (e) Financial Information. The Company agrees to send the following to each Investor during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through EDGAR, within one (1) business day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. (f) Non-Consolidation Opinion. The Company shall deliver to each Buyer within ten (10) days after the First Closing Date, a reasoned legal opinion addressed to each Buyer from the Company's outside legal counsel in form, scope and substance reasonably satisfactory to such Buyer as to non-consolidation issues of the Company with the assets and liabilities of NRG (the "NON-CONSOLIDATION OPINION"). (g) Listing. The Company shall promptly secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock's authorization for quotation on the Principal Market. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(g). (h) Fees. The Company shall be responsible for the payment of any placement agent's fees or broker's commissions relating to or arising out of the transactions contemplated hereby, including without limitation, any fees or commissions payable to the Agent. Except as otherwise set forth in this Agreement or in the Registration Rights Agreement, 18 each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers. (i) Pledge of Securities. The Company acknowledges and agrees that the Securities may be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including without limitation, Section 2(f) of this Agreement; provided that an Investor and its pledgee shall be required to comply with the provisions of Section 2(f) hereof in order to effect a sale, transfer or assignment of Securities to such pledgee. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by an Investor. (j) Disclosure of Transactions and Other Material Information. On or before 8:00 am EST ON the first business day following the First Closing Date, the Company shall file a Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act, and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement), the forms of Notes and the Registration Rights Agreement) as exhibits to such filing (including all attachments, the "8-K FILING"). On or before 8:00 am EST on the first business day following the Second Closing Date, each First Call Closing Date, each Second Call Closing Date, the Third Closing Date, each Third Call Closing Date and the Third Note Notice Date, the Company shall file a Form 8-K with the SEC describing the transaction consummated or proposed on such date. From and after the filing of the 8-K Filing with the SEC, no Buyer shall be in possession of any material nonpublic information received from the Company, any of its subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall not, and shall cause each of its subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide any Buyer with any material nonpublic information regarding the Company or any of its subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of such Buyer. In the event of a breach of the foregoing covenant by the Company, any of its subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material nonpublic information without the prior approval by the Company, its subsidiaries, or any of its or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, its subsidiaries, or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided 19 that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). (k) Restriction on Redemption. So long as any Notes are outstanding, the Company shall not, directly or indirectly, redeem any Common Stock without the prior express written consent of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes. (l) Additional Notes. For so long as any Buyer beneficially owns any Securities, the Company will not issue any Notes other than to the Buyers as contemplated hereby and the Company shall not issue any other securities that would cause a breach or default under the Notes. (m) Conduct of Business. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect. (n) Variable Securities. The Company shall not, in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such security cannot be less than the then applicable Conversion Price (as defined in the Notes) under any Note. (o) Proxy Statement. If the Company at any time determines that in connection with the issuance of the Securities, Stockholder Approval is required by the Principal Market in connection with the Exchange Cap (as defined in the Notes), the Company shall provide each stockholder entitled to vote at the next meeting of stockholders of the Company, which meeting shall occur on or before ninety days from the date of such determination (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement, which has been previously reviewed by the Buyers and a counsel of their choice, soliciting each such stockholder's affirmative vote at such stockholder meeting for approval of the Company's issuance of all of the Securities as described in the Transaction Documents in accordance with applicable law and the rules and regulations of the Principal Market (such affirmative approval being referred to herein as the "STOCKHOLDER APPROVAL"), and the Company shall use its best efforts to solicit its stockholders' approval of such issuance of the Securities and to cause the Board of Directors of the Company to recommend to the stockholders that they approve such proposal. The Company shall be obligated to obtain the Stockholder Approval by the Stockholder Meeting Deadline. 5. REGISTER; TRANSFER AGENT INSTRUCTIONS. (a) Register. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Notes), a register for the Notes, in which the Company shall record the name and address of the Person in whose name the Notes have been issued (including the name and address of each 20 transferee) and the amount of Notes held by such Person. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives. (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Notes in the form of Exhibit I attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(f) hereof will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Notes and the Registration Rights Agreement. If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(f), the Company shall permit the transfer, and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves Conversion Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. (a) First Closing Date. The obligation of the Company hereunder to issue and sell the First Notes to each Buyer at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company. (ii) Such Buyer shall have delivered to the Company the Purchase Price for the Notes being purchased by such Buyer at the First Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (iii) The representations and warranties of such Buyer shall be true and 21 correct in all material respects as of the date when made and as of the First Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the First Closing Date. (b) Second Closing Date. The obligation of the Company hereunder to issue and sell the Second Notes to each Buyer at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have delivered to the Company the Purchase Price for the Notes being purchased by such Buyer at the Second Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (ii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Second Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Second Closing Date. (c) First Call Closing Date. The obligation of the Company hereunder to issue and sell the First Call Notes to each Buyer at each First Call Closing is subject to the satisfaction, at or before such First Call Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have delivered to the Company the Purchase Price for the First Call Notes being purchased by such Buyer at the First Call Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (ii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the applicable First Call Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the applicable First Call Closing Date. (d) Second Call Closing Date. The obligation of the Company hereunder to issue and sell the Second Call Notes to each Buyer at each Second Call Closing is subject to the satisfaction, at or before such Second Call Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the 22 Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have delivered to the Company the Purchase Price for the Second Call Notes being purchased by such Buyer at the Second Call Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (ii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the applicable Second Call Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the applicable Second Call Closing Date. (e) Third Closing Date. The obligation of the Company hereunder to issue and sell the Notes to each Buyer at the Third Closing is subject to the satisfaction, at or before the Third Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have delivered to the Company the Purchase Price for the NOTES being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (ii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Third Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Third Closing Date. (f) Third Call Closing Date. The obligation of the Company hereunder to issue and sell the Third Call Notes to each Buyer at each Third Call Closing is subject to the satisfaction, at or before such Third Call Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have delivered to the Company the Purchase Price for the Third Call Notes being purchased by such Buyer at the Third Call Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (ii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the applicable Third Call 23 Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the applicable Third Call Closing Date. 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. (a) First Closing Date. The obligation of each Buyer hereunder to purchase the First NOTES at the First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof and provided that if the there is any such waiver, the Company covenants and agrees to supply the missing items within 10 days of such First Closing: (i) The Company shall have executed and delivered to such Buyer (i) each of the Transaction Documents and (ii) the Note Certificates (in such principal amounts as such Buyer shall request) being purchased by such Buyer at the First Closing pursuant to this Agreement. (ii) Such Buyer shall have received the opinions of the Company's counsel dated as of the First Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto. (iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form of Exhibit I attached hereto, which instructions shall have been delivered to and acknowledged in writing by the Company's transfer agent. (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the First Closing Date. (v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Minnesota within 10 days of the First Closing Date. (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company dated as of the First Closing Date, as to (i) the resolutions described in Section 3 as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the form attached hereto as Exhibit J. (vii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the First Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company 24 shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the First Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the First Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit K. (viii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the First Closing Date. (ix) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (x) (A) The Common Stock shall be designated for quotation or listing on the Principal Market, (B) trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, and (C) the Conversion Shares shall be listed upon the Principal Market within 21 days after the First Closing. (b) Second Closing Date. The obligation of each Buyer hereunder to purchase the Second Notes at the Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed and delivered to such Buyer the Note Certificates (in such principal amounts as such Buyer shall request) being purchased by such Buyer at the Second Closing pursuant to this Agreement. (ii) Such Buyer shall have received the opinions of the Company's counsel dated as of the Second Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto. (iii) The Irrevocable Transfer Agent Instructions shall remain in effect as of the Second Closing Date and the Company shall cause its transfer agent to deliver a letter to such Buyer to that effect. (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the Second Closing Date. (v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Minnesota within 10 days of the Second Closing Date. 25 (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company dated as of the Second Closing Date, as to (i) the resolutions described in Section 3 as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the form attached hereto as Exhibit J. (vii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the Second Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Second Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Second Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit K. (viii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Second Closing Date. (ix) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (x) (A) The Common Stock shall be designated for quotation or listing on the Principal Market, (B) trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, and (C) the Conversion Shares shall be listed upon the Principal Market. (xi) Such Buyer shall have received the Non-Consolidation Opinion in accordance with Section 4(f). (c) First Call Closing Date. The obligation of each Buyer hereunder to purchase the First Call Notes at each of the applicable First Call Closings is subject to the satisfaction, at or before each of the First Call Closing Dates, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed and delivered to such Buyer the Note Certificates (in such principal amounts as such Buyer shall request) being purchased by such Buyer at the First Call Closing pursuant to this Agreement. (ii) Such Buyer shall have received the opinions of the Company's 26 counsel dated as of the applicable First Call Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto. (iii) The Irrevocable Transfer Agent Instructions shall remain in effect as of the applicable First Call Closing Date and the Company shall cause its transfer agent to deliver a letter to such Buyer to that effect. (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the applicable First Call Closing Date. (v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Minnesota within 10 days of the applicable First Call Closing Date. (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company dated as of the applicable First Call Closing Date, as to (i) the resolutions described in Section 3 as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the applicable First Call Closing, in the form attached hereto as Exhibit J. (vii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the applicable First Call Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the applicable First Call Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the applicable First Call Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit K. (viii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the First Call Closing Date. (ix) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (x) (A) The Common Stock shall be designated for quotation or listing on the Principal Market, (B) trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, and (C) the Conversion Shares shall be listed upon the Principal Market. 27 (d) Second Call Closing Date. The obligation of each Buyer hereunder to purchase the Second Call Notes at each of the applicable Second Call Closings is subject to the satisfaction, at or before each of the Second Call Closing Dates, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed and delivered to such Buyer the Note Certificates (in such principal amounts as such Buyer shall request) being purchased by such Buyer at the Second Call Closing pursuant to this Agreement. (ii) Such Buyer shall have received the opinions of the Company's counsel dated as of the applicable Second Call Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto. (iii) The Irrevocable Transfer Agent Instructions shall remain in effect as of the applicable Second Call Closing Date and the Company shall cause its transfer agent to deliver a letter to such Buyer to that effect. (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the applicable Second Call Closing Date. (v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Minnesota within 10 days of the applicable Second Call Closing Date. (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company dated as of the applicable Second Call Closing Date, as to (i) the resolutions described in Section 3 as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the applicable Second Call Closing, in the form attached hereto as Exhibit J. (vii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the applicable Second Call Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the applicable Second Call Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the applicable Second Call Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit K. 28 (viii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Second Call Closing Date. (ix) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (x) (A) The Common Stock shall be designated for quotation or listing on the Principal Market, (B) trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, and (C) the Conversion Shares shall be listed upon the Principal Market. (e) Third Closing Date. The obligation of each Buyer hereunder to purchase the Third Notes at the Third Closing is subject to the satisfaction, at or before the Third Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed and delivered to such Buyer the Note Certificates (in such principal amounts as such Buyer shall request) being purchased by such Buyer at the Third Closing pursuant to this Agreement. (ii) Such Buyer shall have received the opinions of the Company's counsel dated as of the Third Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto. (iii) The Irrevocable Transfer Agent Instructions shall remain in effect as of the Third Closing Date and the Company shall cause its transfer agent to deliver a letter to such Buyer to that effect. (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the Third Closing Date. (v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Minnesota within 10 days of the Third Closing Date. (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company dated as of the Third Closing Date, as to (i) the resolutions described in Section 3 as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, 29 each as in effect at the Third Closing, in the form attached hereto as Exhibit J. (vii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the Third Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Third Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Third Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit K. (viii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Third Closing Date. (ix) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (x) (A) The Common Stock shall be designated for quotation or listing on the Principal Market, (B) trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, and (C) the Conversion Shares shall be listed upon the Principal Market. (xi) The Company shall have delivered to each Buyer the Non-Consolidation Opinion in accordance with Section 4(f). (f) Third Call Closing Date. The obligation of each Buyer hereunder to purchase the Third Call Notes at each of the applicable Third Call Closings is subject to the satisfaction, at or before each of the Third Call Closing Dates, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed and delivered to such Buyer the Note Certificates (in such principal amounts as such Buyer shall request) being purchased by such Buyer at the Third Call Closing pursuant to this Agreement. (ii) Such Buyer shall have received the opinions of the Company's counsel dated as of the applicable Third Call Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto. (iii) The Irrevocable Transfer Agent Instructions shall remain in effect as of the applicable Third Call Closing Date and the Company shall cause its transfer agent to deliver a letter to such Buyer to that effect. 30 (iv) The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days of the applicable Third Call Closing Date. (v) The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Minnesota within 10 days of the applicable Third Call Closing Date. (vi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company dated as of the applicable Third Call Closing Date, as to (i) the resolutions described in Section 3 as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the applicable Third Call Closing, in the form attached hereto as Exhibit J. (vii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the applicable Third Call Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the applicable Third Call Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the applicable Third Call Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit K. (viii) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Third Call Closing Date. (ix) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. (x) (A) The Common Stock shall be designated for quotation or listing on the Principal Market, (B) trading in the Common Stock on the Principal Market shall not have been suspended by the SEC or the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, and (C) the Conversion Shares shall be listed upon the Principal Market. 8. TERMINATION. In the event that the First Closing shall not have occurred with respect to a Buyer on or before five (5) business days from the date hereof due to the Company's or such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall 31 have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party. 9. MISCELLANEOUS. (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of Chicago, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (b) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (e) Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither 32 the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Notes then outstanding. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents or holders of Notes, as the case may be. The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. (f) Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Xcel Energy Inc. 800 Nicollet Mall Minneapolis, Minnesota Telephone: (612) 215-4505 Facsimile: (612) 215-4501 Attention: General Counsel With a copy to: Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Telephone: (312) 269-1519 Facsimile: (312) 782-8585 Attention: Peter D. Clarke, Esq. If to the Transfer Agent: Wells Fargo Bank Minnesota, N.A. P.O. Box 64854 St. Paul, MN 55164-0854 USA Telephone: 1-877-778-6786 Facsimile: 612-205-8538 Attention: Shareholder Services Department 33 If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively. (g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Notes. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 5 of the Notes) with respect to which the Company is in compliance with Section 5 of the Notes. A Buyer may assign some or all of its rights hereunder without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights; provided, however, that the transferee has agreed in writing to be bound by the applicable provisions of this Agreement and provided further, that such assignment shall be in connection with a transfer of all or a portion of the Notes held by such Buyer and subject to the terms and conditions of the Notes. (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. (i) Survival. Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. (j) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (k) Indemnification. In consideration of each Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of 34 the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons' agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "INDEMNITEES") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(j), or (iv) the status of such Buyer or holder of the Securities as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights Agreement. (l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (m) Remedies. Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security. (n) Payment Set Aside. To the extent that the Company makes a payment or 35 payments to the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. [SIGNATURE PAGE FOLLOWS] 36 IN WITNESS WHEREOF, each Buyer and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above.

COMPANY: BUYERS: XCEL ENERGY INC. CITADEL EQUITY FUND LTD. By: Citadel Limited Partnership, Portfolio Manager By: By: GLB Partners, L.P., its General Partner ----------------------------------------- Name: By: Citadel Investment Group, L.L.C., its General Partner Title: Chief Executive Officer By: ------------------------------------------------------ Name: Kenneth A. Simpler Title: Managing Director CITADEL CREDIT TRADING LTD. By: Citadel Limited Partnership, Portfolio Manager By: GLB Partners, L.P., its General Partner By: Citadel Investment Group, L.L.C., its General Partner By: ------------------------------------------------------ Name: Kenneth A. Simpler Title: Managing Director JACKSON INVESTMENT FUND LTD. By: Citadel Limited Partnership, Portfolio Manager By: GLB Partners, L.P., its General Partner By: Citadel Investment Group, L.L.C., its General Partner By: ------------------------------------------------------ Name: Kenneth A. Simpler Title: Managing Director

SCHEDULE OF BUYERS

AGGREGATE AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF AMOUNT OF LEGAL REPRESENTATIVE'S BUYER ADDRESS AND FACSIMILE NUMBER FIRST NOTES SECOND NOTES ADDRESS AND FACSIMILE NUMBER ----- ---------------------------- ----------- ------------ ---------------------------- Citadel Equity Fund Ltd. c/o Citadel Investment Group, $80,000,000 $40,000,000 Eleazer Klein, Esq. L.L.C. Schulte Roth & Zabel LLP 225 West Washington Street 919 Third Avenue Chicago, Illinois 60606 New York, NY 10022 Attention: Kenneth A. Simpler Facsimile: (212) 593-5955 Facsimile: (312) 338-0780 Telephone: (312) 696-2100 Residence: Cayman Islands Citadel Credit Trading Ltd. c/o Citadel Investment Group, $10,000,000 $5,000,000 Eleazer Klein, Esq. L.L.C. Schulte Roth & Zabel LLP 225 West Washington Street 919 Third Avenue Chicago, Illinois 60606 New York, NY 10022 Attention: Kenneth A. Simpler Facsimile: (212) 593-5955 Facsimile: (312) 338-0780 Telephone: (312) 696-2100 Residence: Cayman Islands Jackson Investment Fund c/o Citadel Investment Group, $10,000,000 $5,000,000 Eleazer Klein, Esq. Ltd. L.L.C. Schulte Roth & Zabel LLP 225 West Washington Street 919 Third Avenue Chicago, Illinois 60606 New York, NY 10022 Attention: Kenneth A. Simpler Facsimile: (212) 593-5955 Facsimile: (312) 338-0780 Telephone: (312) 696-2100 Residence: Cayman Islands

EXHIBITS Exhibit A Form of First Notes Exhibit B Form of Second Notes Exhibit C Form of First Call Notes Exhibit D Form of Second Call Notes Exhibit E Form of Third Notes Exhibit F Form of Third Call Notes Exhibit G Form of Registration Rights Agreement Exhibit H-1 Form of Jones, Day, Reavis & Pogue Opinion Exhibit H-2 Form of Company General Counsel Opinion Exhibit I Form of Irrevocable Transfer Agent Instructions Exhibit J Form of Secretary's Certificate Exhibit K Form of Officer's Certificate EX-99.02 4 c73001exv99w02.txt EX-99.02 FORM OF FIRST NOTES EXHIBIT 99.02 SENIOR CONVERTIBLE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. XCEL ENERGY, INC. Issuance Date: November 8, 2002 Principal: U.S. FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), hereby promises to pay to the order of or registered assigns ("HOLDER") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal at the rate of eight percent (8%) per annum, subject to periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Final Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date pursuant to the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in Section 28 and terms used herein but not defined herein shall have the meanings set forth for such terms in the Securities Purchase Agreement. (1) MATURITY. On the Final Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance Date; provided that, if the Holder has given notice in writing to the Company of its desire to extend the Maturity Date on or prior to the date that is 10 Business Days prior to the Maturity Date, the Maturity Date shall be extended (on one or more occasions) for an additional 364 days; provided, further, that the Maturity Date shall not be extended (except as provided in the following proviso) to more than five years after the Issuance Date (such date that is five years after the Issuance Date or such earlier Maturity Date prior to which the Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and provided, further, that the Final Maturity Date may be extended at the option of the Holder (x) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing or any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in an Event of Default and (y) through the date that is ten days after a Change of Control Termination Date in the event that the Announcement Date giving rise to such Change of Control Termination Date occurred prior to the Final Maturity Date. (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of the actual days elapsed during any period, and a calendar year of 365 or 366 calendar days, as applicable, and shall be payable in cash on each May 1 and each November 1 during the period beginning on the Issuance Date and ending on, and including, the Final Maturity Date (each an "INTEREST DATE"); provided that interest on any Conversion Amount of this Note that is accrued but unpaid as of the Conversion Date of such Conversion Amount shall be paid in shares of Common Stock at the Conversion Rate. From and after the occurrence of an Event of Default (as defined in Section 4(a)) or the failure to deliver timely the Non-Consolidation Opinion (as defined in the Securities Purchase Agreement) pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG OPINION"), the Interest Rate shall be increased by two percentage points (2%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. If the Company shall fail to credit the Holder's balance account with DTC (as defined in Section 3(c)(i)) or, if requested in writing by the Holder, to issue a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount or to issue a new Note (in accordance with Section 18(d)) representing the Principal portion of the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is entitled, in each case within the time periods set out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"), then during each period beginning on and including the date of each such Conversion Failure and ending on and including the date such Conversion Failure is cured, the Interest Rate then in effect shall be increased by two percentage points (2%). If (i) the Registration Statement (as defined in the Registration Rights Agreement) covering all the Registrable Securities (as defined in the Registration Rights Agreement) issuable upon conversion of this Note and required to be filed by 2 the Company pursuant to the Registration Rights Agreement is not declared effective by the Securities and Exchange Commission (the "SEC") on or before the applicable Mandatory Effective Date (as defined in the Registration Rights Agreement) or (ii) on any day after such Registration Statement has been declared effective by the SEC that sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t) of the Registration Rights Agreement)) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Common Stock) (collectively with the event described in the immediately preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity) the Interest Rate then in effect shall be increased by two percentage points (2%) during each period beginning on and including the first date of each such Registration Failure and ending on and including the date such Registration Failure is cured. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Common Stock, on the terms and conditions set forth in this Section 3. (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise surrendered with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means 110% of the Weighted Average Price of the Common Stock during the Tranche A Pricing Period; provided that the Conversion Price (i) shall not exceed 110% of the Tranche A Base Price and (ii) shall equal the Company Optional Redemption Conversion Price until such time as the Tranche A Pricing Period has concluded; provided further, that in the event that the Company has not delivered a Company Optional Redemption Notice as of the date that is 35 Business Days after the 3 Issuance Date and 110% of the Closing Bid Price of the Common Stock on such date is less than the Conversion Price then in effect, then the Conversion Price shall be reduced to equal such price. (c) Mechanics of Conversion. (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(ii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first Business Day following the Company's receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Transfer Agent (as defined below). On or before the second Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below does not apply) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (Y) provided that the Company's transfer agent (the "TRANSFER AGENT") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If this Note is physically surrendered for conversion as required by Section 3(c)(ii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (ii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. 4 (iii) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Notes or the Separate Tranche Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes and the Separate Tranche Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Notes and the Separate Tranche Notes electing to have the Notes or Separate Tranche Notes converted on such date a pro rata amount of such holder's portion of its Notes or Separate Tranche Notes submitted for conversion based on the principal amount of the Notes or Separate Tranche Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all the Notes and the Separate Tranche Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23. (d) Limitations on Conversions. (i) Beneficial Ownership. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 5.0% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes, Separate Tranche Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. 5 (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to this Note if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue pursuant to the Notes and the Separate Tranche Notes without breaching the Company's obligations under the rules or regulations of the Principal Market (the "EXCHANGE CAP"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Notes and the Separate Tranche Notes representing a majority of the principal amounts of the Notes and the Separate Tranche Notes (voting as a single class) then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes or the Separate Tranche Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes or the Separate Tranche Notes, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of the Notes and the Separate Tranche Notes issued to such Purchaser pursuant to the Securities Purchase Agreement as of the date of such determination and the denominator of which is the aggregate principal amount of all the Notes and the Separate Tranche Notes issued to the Purchasers pursuant to the Securities Purchase Agreement as of the date of such determination (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes or Separate Tranche Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of the Notes or the Separate Tranche Notes shall convert all of such holder's Notes or Separate Tranche Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference between such holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of the Notes and the Separate Tranche Notes on a pro rata basis in proportion to the aggregate principal amount of the Notes and the Separate Tranche Notes then held by each such holder. (4) RIGHTS UPON EVENT OF DEFAULT. (a) Event of Default. Each of the following events shall constitute a "EVENT OF DEFAULT": (i) the failure of the Registration Statement covering all Registrable Securities (as defined in the Registration Rights Agreement) required to be registered pursuant to the Registration Rights Agreement to be declared effective by the SEC on or prior to the date that is 180 days after the Issuance Date, or, while such Registration Statement is required 6 to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five consecutive Business Days or for more than an aggregate of 20 Business Days in any 365-day period; (ii) the suspension from trading on the Principal Market for a period of three consecutive Business Days or for more than an aggregate of three Business Days in any 30-day Trading Day period or the delisting of the Common Stock from the Principal Market; (iii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock or a new Note (in accordance with section 18(d)), as applicable, within 10 days after the receipt by the Company of a Conversion Notice or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party; (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in Section 3(r) of the Securities Purchase Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) other than NRG (as defined below) (including, without limitation, the Other Notes) of at least $50,000,000; (vi) the Company or any of its Subsidiaries other than NRG (as defined below), pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries other than NRG (as defined below) in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries other than NRG (as defined below) or (C) orders the liquidation of the Company or any of its Subsidiaries other than NRG (as defined below); or 7 (viii) the Company breaches any representation, warranty, covenant (other than any covenant to deliver the NRG Opinion) or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby to which the Holder is a party, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least 10 consecutive days. (b) Redemption Right. Promptly after the occurrence of an Event of Default with respect to this Note or the Other Notes, the Company shall deliver written notice thereof via facsimile and overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately prior to such Event of Default by (B) the Conversion Price and (ii) the product of (x) the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. (5) RIGHTS UPON CHANGE OF CONTROL. (a) Change of Control. Each of the following events shall constitute a "CHANGE OF CONTROL": (i) the consolidation, merger or other business combination (including, without limitation, a reorganization or recapitalization) of the Company with or into another Person in which holders of the Company's voting power immediately prior to the transaction cease after the transaction to hold, directly or indirectly, a majority of the voting power of the surviving entity or entities or the voting power necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock. (b) Assumption. Prior to the consummation of any Change of Control, the Company will secure from any Person purchasing the Company's assets or Common Stock or any successor resulting from such Change of Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Notes representing a 8 majority of the aggregate principal amount of the Notes then outstanding) to deliver to each holder of Notes in exchange for such Notes, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by such holder, and satisfactory to the holders of Notes representing a majority of the principal amount of the Notes then outstanding. In the event that an Acquiring Entity is directly or indirectly controlled by a company or entity whose common stock or similar equity interest is listed, designated or quoted on a securities exchange or trading market, the holders of notes representing a majority of the aggregate principal amount of the Notes then outstanding may elect to treat such Person as the Acquiring Entity for purposes of this Section 5(b). (c) Redemption Right. No sooner than 15 days nor later than 10 days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice, "REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(c) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately following the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the "CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be made in accordance with the provisions of Section 10 and shall have priority to payments to other shareholders in connection with a Change of Control. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 9 (b) Other Corporate Events. Prior to the consummation of any recapitalization, reorganization, consolidation, merger or other business combination (other than a Change of Control) pursuant to which holders of Common Stock are entitled to receive securities or other assets with respect to or in exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Issuance Date, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or any employee benefit plan which has been approved by the Board of Directors of the Company or any of its Subsidiaries, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the Notes or the Separate Tranche Notes) for a consideration per share less than the higher of the Closing Sale Price of the Common Stock on the date of such issuance or sale or deemed issuance or sale and the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then immediately after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale and (y) the quotient determined by dividing (1) the sum of the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale or deemed issue or sale and the consideration, if any, received by the Company upon such issue or sale, by (2) the product of the Applicable Price multiplied by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale or deemed issue or sale. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the 10 exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. If the Company issues or sells any Options which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Securities, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock or Convertible Securities upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the exercise price a price which does not vary with the market price of the Common Stock. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion, exercise or exchange of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. If the Company issues or sells any Convertible Securities which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Security, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the conversion, exercise or exchange price a price which does not vary with the market price of the Common Stock. 11 (iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. If such parties are unable to reach agreement within ten days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. 12 (v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Notes or the Separate Tranche Notes. (vii) Delayed Adjustment. In addition to the foregoing provisions of this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing Bid Price shall be subject to adjustment, in accordance with the foregoing provisions, for any days during any measuring period, including, without limitation, the Tranche A Pricing Period, used herein that occur prior to any of the aforementioned events if such events occur prior to the end of such measuring period. (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (c) Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7. (8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of, or enter into any agreement which by its terms restricts or otherwise impairs the 13 Company's performance of the terms of, this Note or any of the other Transaction Documents (as defined in the Securities Purchase Agreement), and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. (9) RESERVATION OF AUTHORIZED SHARES. (a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the Conversion Rate with respect to the Conversion Amount of each such Note and Separate Tranche Note. Thereafter, the Company shall, so long as any of the Notes or Separate Tranche Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and Separate Tranche Note, at least 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes and the Separate Tranche Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and the Separate Tranche Note and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes and Separate Tranche Note based on the principal amount of the Notes and Separate Tranche Notes held by each holder at the time of Issuance Date or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes or Separate Tranche Note remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes and the Separate Tranche Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes and Separate Tranche Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. 14 (10) REDEMPTION. (a) Mechanics. In the event that the Holder has sent a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the Holder shall promptly submit this Note to the Company. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice and thereafter the Holder shall promptly deliver this Note to the Company. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five Business Days after the Company's receipt of such notice otherwise. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the Redemption Price to the Holder within the time period required above in this Section 10(a) at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Bid Price during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the Other Notes or the Separate Tranche Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices during the seven Business Day period beginning on and including the date which is three Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes and the Separate Tranche Notes (including the Holder) based on the principal amount of 15 the Notes and the Separate Tranche Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. (c) Redemption at the Option of the Company. (i) Except as provided in this Section 10(c) or in connection with the satisfaction by the Company of its obligations to redeem the Notes under Sections 4(b) and 5(c) hereof, without the prior written consent of the Holder the Company shall not have the right to prepay, redeem, repurchase, defease or otherwise retire any Note prior to the Maturity Date. (ii) Provided the Company has consummated a Qualified 144A Offering at any time during the Company Optional Redemption Period, the Company may deliver an irrevocable written notice to the Holder and the Transfer Agent (the "COMPANY OPTIONAL REDEMPTION NOTICE") within one (1) Business Day after consummation of the Qualified 144A Offering, indicating that the Company has elected to redeem, and is requiring the Holder to submit for redemption, in whole but not in part, the outstanding Principal of this Note plus accrued Interest thereon for the Company Optional Redemption Consideration (a "COMPANY OPTIONAL REDEMPTION"). The Company Optional Redemption Notice shall be sent by facsimile and overnight courier to the Holder and shall indicate (x) the date fixed for redemption, which shall be five (5) Business Days after the expiration of the Company Optional Redemption Period (the "COMPANY OPTIONAL REDEMPTION DATE") and (y) the place or places where this Note is to be surrendered for payment of the Company Optional Redemption Consideration. If the Company has elected a Company Optional Redemption, the Company shall on the Company Optional Redemption Date (A) deliver the Non-Cash Optional Redemption Consideration to the Holder at the Holder's address and (B) pay to the Holder the Cash Optional Redemption Consideration, by wire transfer of immediately available funds to an account designated in writing by such Holder. (11) RESTRICTION ON REDEMPTION. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem its capital stock without the prior express written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding. (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of Principal and Interest and other payments due under this Note shall rank pari passu in right of payment with all (and shall not be subordinated to any) unsecured, unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. (13) COVENANTS. (a) Indebtedness. The Company shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness and Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is unsecured and subordinated in right of payment to 16 the Notes and other obligations owing to the Holders in accordance with a subordination agreement in form and substance satisfactory to the Holders. "Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is not senior in right of payment to the Notes and is otherwise on terms that are no more favorable to the holders thereof than the terms of the Indebtedness evidenced by the Notes unless such more favorable terms are offered to the Holders. (b) Liens. The Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; sign or suffer to exist any security agreement authorizing any secured party thereunder to file a Uniform Commercial Code financing statement (or the equivalent thereof) as notice of a Lien on any property of the Company or its Subsidiaries; sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in the Bank Facility)) to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. As used herein, "Permitted Liens" shall have the meaning of that term as defined in the Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and the banks listed therein (as the same maybe amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. (c) Transactions With Affiliates. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, effect any transaction with any Affiliate (as defined in the Bank Facility) that is (a) outside the ordinary course of business or (b) on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party, provided that notwithstanding the foregoing, no loan, payment or other form of contribution shall be made to NRG unless it is in an amount not in excess of (i) $300 Million payable pursuant to the Support Agreement and Capital Subscription Agreement, dated as of May 29, 2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in respect of guarantee obligations relating to the power marketing business of NRG; provided further that with respect to any payment permitted pursuant to clause (ii) above, the Company shall, in the context of a restructuring of NRG, use its reasonable best efforts to obtain a full release of all obligations and liabilities of the Company relating to NRG. (d) Leverage Ratio. The Company shall not permit the Leverage Ratio set forth in the Bank Facility to be exceeded. (e) Restrictive Agreements. The Company shall not, and shall not permit any Significant Subsidiary (as defined in the Bank Facility) other than NRG to, enter into any agreement after the date of this Note that imposes any restriction on the ability of such Significant Subsidiary to make payments, directly or indirectly, to its shareholders by way of 17 dividends, advances, repayment of loans or intercompany charges, expenses or accruals or other returns on investments that is more restrictive than any such restriction applicable to such Significant Subsidiary on the Issuance Date. (f) Scope of Business. The Company shall, and shall cause each Subsidiary to, engage only in energy-related business, functionally related businesses (as interpreted under PUHCA, as defined in the Securities Purchase Agreement) or such other businesses as maybe permitted pursuant to an order issued by the SEC pursuant to PUHCA. (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to the Minnesota Business Corporation Act, and as expressly provided in this Note. (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to (i) all extraordinary or special dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions and (ii) regular cash dividends and distributions paid to the holders of the Common Stock only with respect to that portion of such dividends that exceeds $0.1875 per share of Common Stock in any calendar quarter (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions after the Issuance Date). Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes, shall be required for any change or amendment to this Note or the Other Notes. (17) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (18) REISSUANCE OF THIS NOTE. (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. 18 (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal. (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date. (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is 19 collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including but not limited to attorneys fees and disbursements. (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Redemption Price or the arithmetic calculation of the Conversion Rate or the Redemption Price or any other calculation hereunder, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one Business Day of receipt of the Conversion Notice or Redemption Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Conversion Rate within one Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Weighted Average Price, the Closing Bid Price or the Closing Sale Price or any other calculation hereunder to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (24) NOTICES; PAYMENTS. (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such 20 adjustment and (ii) at least twenty days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of Common Stock or (C) for determining rights to vote with respect to any Change of Control, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Notwithstanding the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to all notices given pursuant to this Note. (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Interest, Principal or other amount due under the Transaction Documents (as defined in the Securities Purchase Agreement) which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 12% per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). (25) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (27) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. 21 (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (b) "CASH OPTIONAL REDEMPTION CONSIDERATION" means an amount in cash equal to the greater of (i) 102% of the Conversion Amount of the Note being redeemed in the Company Optional Redemption and (ii) the sum of (A) the product determined by multiplying the Conversion Amount of the Note being redeemed in the Company Optional Redemption by a quotient determined by dividing (X) the Closing Bid Price of the Common Stock on the date of delivery of the Company Optional Redemption Notice by (Y) the Company Optional Redemption Conversion Price and (B) 12% of the Conversion Amount of the Note being redeemed in the Company Optional Redemption; provided, however, that in the event that the Company Optional Redemption Notice is delivered on or after the date that is 10 Business Days after the execution of the Securities Purchase Agreement, the Holder shall have the option, upon delivery of written notice thereof to the Company at any time prior to the Company Optional Redemption Date, to receive in lieu of all or any portion of the Cash Optional Redemption Consideration a number of shares of Common Stock not to exceed the Company Optional Redemption Conversion Shares, in which event the Cash Optional Redemption Consideration shall be reduced by an amount equal to the product determined by multiplying (I) the number of shares of Common Stock the Holder has elected to receive and (II) the Company Optional Redemption Conversion Price. (c) "CHANGE OF CONTROL TERMINATION DATE" shall mean, with respect to any proposed Change of Control for which a public announcement that it proposes or intends to effect a Change of Control of the Company (the date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon which the Company or other Person proposing to effect such Change of Control consummates or publicly announces the termination or abandonment of the proposed Change of Control which was the subject of the previous public announcement. (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on The New York Stock Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, 22 or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any applicable calculation period. (e) "COMMON STOCK" means (i) the Company's common stock, par value $2.50 per share, and (ii) any capital stock resulting from a reclassification of such Common Stock. (f) "COMPANY OPTIONAL REDEMPTION CONVERSION PRICE" shall mean 110% of the arithmetic average of the Weighted Average Price of the Common Stock for each of the Trading Days during the Tranche A Pricing Period through the date the Company delivers to the Holder the Company Optional Redemption Notice, but in no event shall the Company Optional Redemption Conversion Price exceed the Tranche A Base Price. (g) "COMPANY OPTIONAL REDEMPTION CONVERSION SHARES" shall mean that number of shares of Common Stock determined by dividing (i) the Conversion Amount of the Note being redeemed in the Company Optional Redemption by (ii) the Company Optional Redemption Conversion Price. (h) "COMPANY OPTIONAL REDEMPTION PERIOD" means the period commencing on the Business Day immediately following the Issuance Date and ending on and including the date that is 35 Business Days after the execution of the Securities Purchase Agreement. (i) "COMPANY OPTIONAL REDEMPTION CONSIDERATION" means the Non-Cash Optional Redemption Consideration plus the Cash Optional Redemption Consideration. (j) "NON-CASH OPTIONAL REDEMPTION CONSIDERATION" means a legally binding written agreement executed and delivered by the Company to the Holder, duly authorized by all necessary corporate action on the part of the Company and otherwise in form and substance reasonably satisfactory to the Holder, exercisable by the Holder at any time and from time to time during the one-year period commencing on the Company Optional Redemption Date and ending on the one-year anniversary thereafter, granting the Holder the right to purchase securities that are identical (other than as to the issuance date and other than that the Company shall be required to issue these securities to the Holder in a valid private placement) to the securities issued in the Qualified 144A Offering in an aggregate principal amount that does not exceed such Holder's pro rata portion (based on the Principal amount of this Note on the Issuance Date out of the total aggregate principal amount of all Notes issued by the Company on the Issuance Date) of 25% of the aggregate principal amount of securities issued by the Company in the Qualified 144A Offering. 23 (k) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (l) "QUALIFIED 144A OFFERING" shall mean an underwritten offering by the Company of debt securities of the Company that are convertible into Common Stock, with an effective conversion premium (as defined in Section (d)(3)(i) of Rule 144A of the Securities Act of 1933, as amended ("RULE 144A")) of not less than 10%, with such offering to be conducted either pursuant to Rule 144A or pursuant to a registered offering of such securities, in either case led by Merrill Lynch & Co. and yielding gross unrestricted cash proceeds to the Company of not less than $150 million. (m) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii), 115% or (ii) in the case of the Events of Default described in Section 4(a)(v) - (vii), 100%. (n) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement between the Company and the initial holders of the Notes relating to the registration of the resale of the shares of Common Stock issuable upon conversion of the Notes. (o) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement between the Company and the initial holders of the Notes pursuant to which the Company issued the Notes. (p) "SEPARATE TRANCHE NOTES" means the Second Notes, First Call Notes, Second Call Notes, Third Notes and the Third Call Notes, collectively. (q) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market or actually trades on such exchange or market for less than 4.5 hours. (r) "TRANCHE A BASE PRICE" means 110% of the Weighted Average Price of the Common Stock on the Issuance Date. (s) "TRANCHE A PRICING PERIOD" means the twenty consecutive Trading Days commencing on the fifth Trading Day immediately following the Issuance Date. (t) "VARIABLE SECURITIES" means any stock or securities other than Options directly or indirectly convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants or option to subscribe for or purchase Common Stock or Convertible Securities ("OPTIONS") that are convertible into or exchangeable, 24 directly or indirectly, for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more adjustments or resets to a fixed price (a "VARIABLE PRICE"). (u) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the Principal Market is not the principal securities exchange or trading market for such security, the dollar volume-weighted average price for such security on the principal securities exchange or trading market where such security is listed or traded during the period beginning at 9:30 a.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during applicable calculation period. [SIGNATURE PAGE FOLLOWS] 25 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Date of Issuance set out above. XCEL ENERGY INC. By: -------------------------------------- Name: Title: Chief Executive Officer EXHIBIT I XCEL ENERGY INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") issued to the undersigned by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $2.50 per share (the "COMMON STOCK"), of the Company as of the date specified below. Date of Conversion: ---------------------------------------------------- Aggregate Conversion Amount to be converted: --------------------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: ------------------------- Please issue the Common Stock into which the Note is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- Facsimile Number: ------------------------------------------------------ Authorization: --------------------------------------------------------- By: --------------------------------------------------------- Title: ----------------------------- Dated: -------------------------------------------------------------------------- Account Number: -------------------------------------------------------- (if electronic book entry transfer) Transaction Code Number: ----------------------------------------------- (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated November 8, 2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT]. XCEL ENERGY INC. By: ------------------------------------------- Name: Title: EX-99.03 5 c73001exv99w03.txt EX-99.02 FORM OF SECOND NOTES EXHIBIT 99.03 SENIOR CONVERTIBLE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. XCEL ENERGY, INC. Issuance Date: _______, 2002 Principal: U.S. $_____ FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), hereby promises to pay to the order of [__________________] or registered assigns ("HOLDER") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal at the rate of eight percent (8%) per annum, subject to periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Final Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date pursuant to the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in Section 28 and terms used herein but not defined herein shall have the meanings set forth for such terms in the Securities Purchase Agreement. (1) MATURITY. On the Final Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance Date; provided that, if the Holder has given notice in writing to the Company of its desire to extend the Maturity Date on or prior to the date that is 10 Business Days prior to the Maturity Date, the Maturity Date shall be extended (on one or more occasions) for an additional 364 days; provided, further, that the Maturity Date shall not be extended (except as provided in the following proviso) to more than five years after the Issuance Date (such date that is five years after the Issuance Date or such earlier Maturity Date prior to which the Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and provided, further, that the Final Maturity Date may be extended at the option of the Holder (x) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing or any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in an Event of Default and (y) through the date that is ten days after a Change of Control Termination Date in the event that the Announcement Date giving rise to such Change of Control Termination Date occurred prior to the Final Maturity Date. (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of the actual days elapsed during any period, and a calendar year of 365 or 366 calendar days, as applicable, and shall be payable in cash on each May 1 and each November 1 during the period beginning on the Issuance Date and ending on, and including, the Final Maturity Date (each an "INTEREST DATE"); provided that interest on any Conversion Amount of this Note that is accrued but unpaid as of the Conversion Date of such Conversion Amount shall be paid in shares of Common Stock at the Conversion Rate. From and after the occurrence of an Event of Default (as defined in Section 4(a)) or the failure to deliver timely the Non-Consolidation Opinion (as defined in the Securities Purchase Agreement) pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG OPINION"), the Interest Rate shall be increased by two percentage points (2%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. If the Company shall fail to credit the Holder's balance account with DTC (as defined in Section 3(c)(i)) or, if requested in writing by the Holder, to issue a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount or to issue a new Note (in accordance with Section 18(d)) representing the Principal portion of the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is entitled, in each case within the time periods set out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"), then during each period beginning on and including the date of each such Conversion Failure and ending on and including the date such Conversion Failure is cured, the Interest Rate then in effect shall be increased by two percentage points (2%). If (i) the Registration Statement (as defined in the Registration Rights Agreement) covering all the Registrable Securities (as defined in the Registration Rights Agreement) issuable upon conversion of this Note and required to be filed by 2 the Company pursuant to the Registration Rights Agreement is not declared effective by the Securities and Exchange Commission (the "SEC") on or before the applicable Mandatory Effective Date (as defined in the Registration Rights Agreement) or (ii) on any day after such Registration Statement has been declared effective by the SEC that sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t) of the Registration Rights Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Common Stock) (collectively with the event described in the immediately preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity) the Interest Rate then in effect shall be increased by two percentage points (2%) during each period beginning on and including the first date of each such Registration Failure and ending on and including the date such Registration Failure is cured. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Common Stock, on the terms and conditions set forth in this Section 3. (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise surrendered with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means, 110% of the Weighted Average Price of the Common Stock during the Tranche B Pricing Period; provided that the Conversion Price (i) shall not exceed 110% of the Tranche B Base Price and (ii) shall equal the Company Optional Redemption Conversion Price until such time as the Tranche B Pricing Period has concluded; provided further, that in the event that the Company has not delivered a Company Optional Redemption Notice as of the date that is 35 Business Days after the 3 date of issuance of the First Notes and 110% of the Closing Bid Price of the Common Stock on such date is less than the Conversion Price then in effect (after giving effect to the calculation of the Conversion Price through the end of such day and the conclusion of the Tranche B Pricing Period), then the Conversion Price shall be reduced to equal such price. (c) Mechanics of Conversion. (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(ii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first Business Day following the Company's receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Transfer Agent (as defined below). On or before the second Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below does not apply) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (Y) provided that the Company's transfer agent (the "TRANSFER AGENT") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If this Note is physically surrendered for conversion as required by Section 3(c)(ii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (ii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to 4 the Holder and the Company, so as not to require physical surrender of this Note upon conversion. (iii) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Notes or the Separate Tranche Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes and the Separate Tranche Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Notes and the Separate Tranche Notes electing to have the Notes or Separate Tranche Notes converted on such date a pro rata amount of such holder's portion of its Notes or Separate Tranche Notes submitted for conversion based on the principal amount of the Notes or Separate Tranche Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all the Notes and the Separate Tranche Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23. (d) Limitations on Conversions. (i) Beneficial Ownership. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 5.0% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes, Separate Tranche Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of 5 Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to this Note if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue pursuant to the Notes and the Separate Tranche Notes without breaching the Company's obligations under the rules or regulations of the Principal Market (the "EXCHANGE CAP"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Notes and the Separate Tranche Notes representing a majority of the principal amounts of the Notes and the Separate Tranche Notes (voting as a single class) then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes or the Separate Tranche Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes or the Separate Tranche Notes, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of the Notes and the Separate Tranche Notes issued to such Purchaser pursuant to the Securities Purchase Agreement as of the date of such determination and the denominator of which is the aggregate principal amount of all the Notes and the Separate Tranche Notes issued to the Purchasers pursuant to the Securities Purchase Agreement as of the date of such determination (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes or Separate Tranche Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of the Notes or the Separate Tranche Notes shall convert all of such holder's Notes or Separate Tranche Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference between such holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of the Notes and the Separate Tranche Notes on a pro rata basis in proportion to the aggregate principal amount of the Notes and the Separate Tranche Notes then held by each such holder. (4) RIGHTS UPON EVENT OF DEFAULT. (a) Event of Default. Each of the following events shall constitute a "EVENT OF DEFAULT": (i) the failure of the Registration Statement covering all Registrable Securities (as defined in the Registration Rights Agreement) required to be registered pursuant to the 6 Registration Rights Agreement to be declared effective by the SEC on or prior to the date that is 180 days after the Issuance Date, or, while such Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five consecutive Business Days or for more than an aggregate of 20 Business Days in any 365-day period; (ii) the suspension from trading on the Principal Market for a period of three consecutive Business Days or for more than an aggregate of three Business Days in any 30-day Trading Day period or the delisting of the Common Stock from the Principal Market; (iii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock or a new Note (in accordance with section 18(d)), as applicable, within 10 days after the receipt by the Company of a Conversion Notice or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party; (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in Section 3(r) of the Securities Purchase Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) other than NRG (as defined below) (including, without limitation, the Other Notes) of at least $50,000,000; (vi) the Company or any of its Subsidiaries other than NRG (as defined below), pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries other than NRG (as defined below) in an involuntary case, (B) appoints a Custodian of the Company or 7 any of its Subsidiaries other than NRG (as defined below) or (C) orders the liquidation of the Company or any of its Subsidiaries other than NRG (as defined below); or (viii) the Company breaches any representation, warranty, covenant (other than any covenant to deliver the NRG Opinion) or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby to which the Holder is a party, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least 10 consecutive days. (b) Redemption Right. Promptly after the occurrence of an Event of Default with respect to this Note or the Other Notes, the Company shall deliver written notice thereof via facsimile and overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately prior to such Event of Default by (B) the Conversion Price and (ii) the product of (x) the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. (5) RIGHTS UPON CHANGE OF CONTROL. (a) Change of Control. Each of the following events shall constitute a "CHANGE OF CONTROL": (i) the consolidation, merger or other business combination (including, without limitation, a reorganization or recapitalization) of the Company with or into another Person in which holders of the Company's voting power immediately prior to the transaction cease after the transaction to hold, directly or indirectly, a majority of the voting power of the surviving entity or entities or the voting power necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock. (b) Assumption. Prior to the consummation of any Change of Control, the Company will secure from any Person purchasing the Company's assets or Common Stock 8 or any successor resulting from such Change of Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding) to deliver to each holder of Notes in exchange for such Notes, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by such holder, and satisfactory to the holders of Notes representing a majority of the principal amount of the Notes then outstanding. In the event that an Acquiring Entity is directly or indirectly controlled by a company or entity whose common stock or similar equity interest is listed, designated or quoted on a securities exchange or trading market, the holders of notes representing a majority of the aggregate principal amount of the Notes then outstanding may elect to treat such Person as the Acquiring Entity for purposes of this Section 5(b). (c) Redemption Right. No sooner than 15 days nor later than 10 days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice, "REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(c) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately following the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the "CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be made in accordance with the provisions of Section 10 and shall have priority to payments to other shareholders in connection with a Change of Control. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 9 (b) Other Corporate Events. Prior to the consummation of any recapitalization, reorganization, consolidation, merger or other business combination (other than a Change of Control) pursuant to which holders of Common Stock are entitled to receive securities or other assets with respect to or in exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Issuance Date, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or any employee benefit plan which has been approved by the Board of Directors of the Company or any of its Subsidiaries, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the Notes or the Separate Tranche Notes) for a consideration per share less than the higher of the Closing Sale Price of the Common Stock on the date of such issuance or sale or deemed issuance or sale and the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then immediately after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale and (y) the quotient determined by dividing (1) the sum of the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale or deemed issue or sale and the consideration, if any, received by the Company upon such issue or sale, by (2) the product of the Applicable Price multiplied by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale or deemed issue or sale. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: 10 (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. If the Company issues or sells any Options which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Securities, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock or Convertible Securities upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the exercise price a price which does not vary with the market price of the Common Stock. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion, exercise or exchange of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. If the Company issues or sells any Convertible Securities which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Security, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock upon exercise of 11 such Variable Securities, except to the extent such Variable Security also includes as a component of the conversion, exercise or exchange price a price which does not vary with the market price of the Common Stock. (iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. If such parties are unable to reach agreement within ten days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. 12 (v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Notes or the Separate Tranche Notes. (vii) Delayed Adjustment. In addition to the foregoing provisions of this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing Bid Price shall be subject to adjustment, in accordance with the foregoing provisions, for any days during any measuring period, including, without limitation, the Tranche A Pricing Period, used herein that occur prior to any of the aforementioned events if such events occur prior to the end of such measuring period. (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (c) Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7. (8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or 13 any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of, or enter into any agreement which by its terms restricts or otherwise impairs the Company's performance of the terms of, this Note or any of the other Transaction Documents (as defined in the Securities Purchase Agreement), and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. (9) RESERVATION OF AUTHORIZED SHARES. (a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the Conversion Rate with respect to the Conversion Amount of each such Note and Separate Tranche Note. Thereafter, the Company shall, so long as any of the Notes or Separate Tranche Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and Separate Tranche Note, at least 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes and the Separate Tranche Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and the Separate Tranche Note and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes and Separate Tranche Note based on the principal amount of the Notes and Separate Tranche Notes held by each holder at the time of Issuance Date or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes or Separate Tranche Note remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes and the Separate Tranche Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes and Separate Tranche Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. 14 (10) REDEMPTION. (a) Mechanics. In the event that the Holder has sent a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the Holder shall promptly submit this Note to the Company. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice and thereafter the Holder shall promptly deliver this Note to the Company. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five Business Days after the Company's receipt of such notice otherwise. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the Redemption Price to the Holder within the time period required above in this Section 10(a) at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Bid Price during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the Other Notes or the Separate Tranche Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices during the seven Business Day period beginning on and including the date which is three Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven 15 Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes and the Separate Tranche Notes (including the Holder) based on the principal amount of the Notes and the Separate Tranche Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. (c) Redemption at the Option of the Company. (i) Except as provided in this Section 10(c) or in connection with the satisfaction by the Company of its obligations to redeem the Notes under Sections 4(b) and 5(c) hereof, without the prior written consent of the Holder the Company shall not have the right to prepay, redeem, repurchase, defease or otherwise retire any Note prior to the Maturity Date. (ii) Provided the Company has consummated a Qualified 144A Offering at any time during the Company Optional Redemption Period, the Company may deliver an irrevocable written notice to the Holder and the Transfer Agent (the "COMPANY OPTIONAL REDEMPTION NOTICE") within one (1) Business Day after consummation of the Qualified 144A Offering, indicating that the Company has elected to redeem, and is requiring the Holder to submit for redemption, in whole but not in part, the outstanding Principal of this Note plus accrued Interest thereon for the Company Optional Redemption Consideration (a "COMPANY OPTIONAL REDEMPTION"). The Company Optional Redemption Notice shall be sent by facsimile and overnight courier to the Holder and shall indicate (x) the date fixed for redemption, which shall be five (5) Business Days after the expiration of the Company Optional Redemption Period (the "COMPANY OPTIONAL REDEMPTION DATE") and (y) the place or places where this Note is to be surrendered for payment of the Company Optional Redemption Consideration. If the Company has elected a Company Optional Redemption, the Company shall on the Company Optional Redemption Date pay to the Holder the Cash Optional Redemption Consideration, by wire transfer of immediately available funds to an account designated in writing by such Holder. (11) RESTRICTION ON REDEMPTION. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem its capital stock without the prior express written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding. (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of Principal and Interest and other payments due under this Note shall rank pari passu in right of payment with all (and shall not be subordinated to any) unsecured, unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. (13) COVENANTS. (a) Indebtedness. The Company shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness and Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is unsecured and subordinated in right of payment to 16 the Notes and other obligations owing to the Holders in accordance with a subordination agreement in form and substance satisfactory to the Holders. "Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is not senior in right of payment to the Notes and is otherwise on terms that are no more favorable to the holders thereof than the terms of the Indebtedness evidenced by the Notes unless such more favorable terms are offered to the Holders. (b) Liens. The Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; sign or suffer to exist any security agreement authorizing any secured party thereunder to file a Uniform Commercial Code financing statement (or the equivalent thereof) as notice of a Lien on any property of the Company or its Subsidiaries; sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in the Bank Facility)) to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. As used herein, "Permitted Liens" shall have the meaning of that term as defined in the Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and the banks listed therein (as the same maybe amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. (c) Transactions With Affiliates. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, effect any transaction with any Affiliate (as defined in the Bank Facility) that is (a) outside the ordinary course of business or (b) on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party, provided that notwithstanding the foregoing, no loan, payment or other form of contribution shall be made to NRG unless it is in an amount not in excess of (i) $300 Million payable pursuant to the Support Agreement and Capital Subscription Agreement, dated as of May 29, 2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in respect of guarantee obligations relating to the power marketing business of NRG; provided further that with respect to any payment permitted pursuant to clause (ii) above, the Company shall, in the context of a restructuring of NRG, use its reasonable best efforts to obtain a full release of all obligations and liabilities of the Company relating to NRG. (d) Leverage Ratio. The Company shall not permit the Leverage Ratio set forth in the Bank Facility to be exceeded. (e) Restrictive Agreements. The Company shall not, and shall not permit any Significant Subsidiary (as defined in the Bank Facility) other than NRG to, enter into any agreement after the date of this Note that imposes any restriction on the ability of such Significant Subsidiary to make payments, directly or indirectly, to its shareholders by way of 17 dividends, advances, repayment of loans or intercompany charges, expenses or accruals or other returns on investments that is more restrictive than any such restriction applicable to such Significant Subsidiary on the Issuance Date. (f) Scope of Business. The Company shall, and shall cause each Subsidiary to, engage only in energy-related business, functionally related businesses (as interpreted under PUHCA, as defined in the Securities Purchase Agreement)or such other businesses as maybe permitted pursuant to an order issued by the SEC pursuant to PUHCA. (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to the Minnesota Business Corporation Act, and as expressly provided in this Note. (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to (i) all extraordinary or special dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions and (ii) regular cash dividends and distributions paid to the holders of the Common Stock only with respect to that portion of such dividends that exceeds $0.1875 per share of Common Stock in any calendar quarter (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions after the Issuance Date). Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes, shall be required for any change or amendment to this Note or the Other Notes. (17) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (18) REISSUANCE OF THIS NOTE. (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. 18 (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal. (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date. (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is 19 collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including but not limited to attorneys fees and disbursements. (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Redemption Price or the arithmetic calculation of the Conversion Rate or the Redemption Price or any other calculation hereunder, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one Business Day of receipt of the Conversion Notice or Redemption Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Conversion Rate within one Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Weighted Average Price, the Closing Bid Price or the Closing Sale Price or any other calculation hereunder to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (24) NOTICES; PAYMENTS. (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such 20 adjustment and (ii) at least twenty days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of Common Stock or (C) for determining rights to vote with respect to any Change of Control, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Notwithstanding the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to all notices given pursuant to this Note. (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Interest, Principal or other amount due under the Transaction Documents (as defined in the Securities Purchase Agreement) which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 12% per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). (25) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (27) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. 21 (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (b) "CASH OPTIONAL REDEMPTION CONSIDERATION" means an amount in cash equal to the greater of (i) 102% of the Conversion Amount of the Note being redeemed in the Company Optional Redemption and (ii) the sum of (A) the product determined by multiplying the Conversion Amount of the Note being redeemed in the Company Optional Redemption by a quotient determined by dividing (X) the Closing Bid Price of the Common Stock on the date of delivery of the Company Optional Redemption Notice by (Y) the Company Optional Redemption Conversion Price and (B) 12% of the Conversion Amount of the Note being redeemed in the Company Optional Redemption; provided, however, that in the event that the Company Optional Redemption Notice is delivered on or after the date that is 10 Business Days after the execution of the Securities Purchase Agreement, the Holder shall have the option, upon delivery of written notice thereof to the Company at any time prior to the Company Optional Redemption Date, to receive in lieu of all or any portion of the Cash Optional Redemption Consideration a number of shares of Common Stock not to exceed the Company Optional Redemption Conversion Shares, in which event the Cash Optional Redemption Consideration shall be reduced by an amount equal to the product determined by multiplying (I) the number of shares of Common Stock the Holder has elected to receive and (II) the Company Optional Redemption Conversion Price. (c) "CHANGE OF CONTROL TERMINATION DATE" shall mean, with respect to any proposed Change of Control for which a public announcement that it proposes or intends to effect a Change of Control of the Company (the date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon which the Company or other Person proposing to effect such Change of Control consummates or publicly announces the termination or abandonment of the proposed Change of Control which was the subject of the previous public announcement. (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on The New York Stock Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, 22 or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any applicable calculation period. (e) "COMMON STOCK" means (i) the Company's common stock, par value $2.50 per share, and (ii) any capital stock resulting from a reclassification of such Common Stock. (f) "COMPANY OPTIONAL REDEMPTION CONVERSION PRICE" shall mean 110% of the arithmetic average of the Weighted Average Price of the Common Stock for each of the Trading Days during the Tranche B Pricing Period through the date the Company delivers to the Holder the Company Optional Redemption Notice, but in no event shall the Company Optional Redemption Conversion Price exceed the Tranche B Base Price. (g) "COMPANY OPTIONAL REDEMPTION CONVERSION SHARES" shall mean that number of shares of Common Stock determined by dividing (i) the Conversion Amount of the Note being redeemed in the Company Optional Redemption by (ii) the Company Optional Redemption Conversion Price. (h) "COMPANY OPTIONAL REDEMPTION PERIOD" means the period commencing on the Business Day immediately following the Issuance Date and ending on and including the date that is 35 Business Days after the execution of the Securities Purchase Agreement. (i) "COMPANY OPTIONAL REDEMPTION CONSIDERATION" means the Non-Cash Optional Redemption Consideration plus the Cash Optional Redemption Consideration. (j) "NON-CASH OPTIONAL REDEMPTION CONSIDERATION" means a legally binding written agreement executed and delivered by the Company to the Holder, duly authorized by all necessary corporate action on the part of the Company and otherwise in form and substance reasonably satisfactory to the Holder, exercisable by the Holder at any time and from time to time during the one-year period commencing on the Company Optional Redemption Date and ending on the one-year anniversary thereafter, granting the Holder the right to purchase securities that are identical (other than as to the issuance date and other than that the Company shall be required to issue these securities to the Holder in a valid private placement) to the securities issued in the Qualified Rule 144A Offering in an aggregate principal amount that does not exceed such Holder's pro rata portion (based on the Principal amount of this Note on the Issuance Date out of the total aggregate principal amount of all Notes issued by the Company on the Issuance Date) of 25% of the aggregate principal amount of securities issued by the Company in the Qualified Rule 144A Offering. 23 (k) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (l) "QUALIFIED 144A OFFERING" shall mean an underwritten offering by the Company of debt securities of the Company that are convertible into Common Stock, with an effective conversion premium (as defined in Section (d)(3)(i) of Rule 144A of the Securities Act of 1933, as amended ("Rule 144A")) of not less than 10%, with such offering to be conducted either pursuant to Rule 144A or pursuant to a registered offering of such securities, in either case led by Merrill Lynch & Co. and yielding gross unrestricted cash proceeds to the Company of not less than $150 million. (m) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii), 115% or (ii) in the case of the Events of Default described in Section 4(a)(v) - (vii), 100%. (n) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement between the Company and the initial holders of the Notes relating to the registration of the resale of the shares of Common Stock issuable upon conversion of the Notes. (o) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement between the Company and the initial holders of the Notes pursuant to which the Company issued the Notes. (p) "SEPARATE TRANCHE NOTES" means the First Notes, First Call Notes, Second Call Notes, Third Notes and the Third Call Notes, collectively. (q) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market or actually trades on such exchange or market for less than 4.5 hours. (r) "TRANCHE A BASE PRICE" means the Weighted Average Price of the Common Stock on the issuance date of the First Notes. (s) "TRANCHE B BASE PRICE" means the Weighted Average Price of the Common Stock on the Tranche B Closing Date. (t) "TRANCHE A PRICING PERIOD" means the twenty consecutive Trading Days commencing on the fifth Trading Day immediately following the issuance date of the First Notes. 24 (u) "TRANCHE B PRICING PERIOD" means the ten consecutive Trading Days commencing on the first Trading Day immediately following the end of the Tranche A Pricing Period. (v) "VARIABLE SECURITIES" means any stock or securities other than Options directly or indirectly convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants or option to subscribe for or purchase Common Stock or Convertible Securities ("OPTIONS") that are convertible into or exchangeable, directly or indirectly, for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more adjustments or resets to a fixed price (a "VARIABLE PRICE"). (w) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the Principal Market is not the principal securities exchange or trading market for such security, the dollar volume-weighted average price for such security on the principal securities exchange or trading market where such security is listed or traded during the period beginning at 9:30 a.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during applicable calculation period. 25 [SIGNATURE PAGE FOLLOWS] 26 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Date of Issuance set out above. XCEL ENERGY INC. By: -------------------------------------- Name: Title: Chief Executive Officer EXHIBIT I XCEL ENERGY INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") issued to the undersigned by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $2.50 per share (the "COMMON STOCK"), of the Company as of the date specified below. Date of Conversion: ---------------------------------------------------- Aggregate Conversion Amount to be converted: --------------------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: ------------------------- Please issue the Common Stock into which the Note is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- Facsimile Number: ------------------------------------------------------ Authorization: --------------------------------------------------------- By: --------------------------------------------------------- Title: ------------------ - Dated: -------------------------------------------------------------------------- Account Number: -------------------------------------------------------- (if electronic book entry transfer) Transaction Code Number: ----------------------------------------------- (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated November 8, 2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT]. XCEL ENERGY INC. By: ----------------------------------------- Name: Title: EX-99.04 6 c73001exv99w04.txt EX-99.04 FORM OF FIRST CALL NOTES EXHIBIT 99.04 SENIOR CONVERTIBLE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. XCEL ENERGY, INC. Issuance Date: _______ __, 2002 Principal: U.S. $_______ FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), hereby promises to pay to the order of __________________ or registered assigns ("HOLDER") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal at the rate of eight percent (8%) per annum, subject to periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Final Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date pursuant to the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in Section 28 and terms used herein but not defined herein shall have the meanings set forth for such terms in the Securities Purchase Agreement. (1) MATURITY. On the Final Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance Date; provided that, if the Holder has given notice in writing to the Company of its desire to extend the Maturity Date on or prior to the date that is 10 Business Days prior to the Maturity Date, the Maturity Date shall be extended (on one or more occasions) for an additional 364 days; provided, further, that the Maturity Date shall not be extended (except as provided in the following proviso) to more than five years after the Issuance Date (such date that is five years after the Issuance Date or such earlier Maturity Date prior to which the Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and provided, further, that the Final Maturity Date may be extended at the option of the Holder (x) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing or any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in an Event of Default and (y) through the date that is ten days after a Change of Control Termination Date in the event that the Announcement Date giving rise to such Change of Control Termination Date occurred prior to the Final Maturity Date. (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of the actual days elapsed during any period, and a calendar year of 365 or 366 calendar days, as applicable, and shall be payable in cash on each May 1 and each November 1 during the period beginning on the Issuance Date and ending on, and including, the Final Maturity Date (each an "INTEREST DATE"); provided that interest on any Conversion Amount of this Note that is accrued but unpaid as of the Conversion Date of such Conversion Amount shall be paid in shares of Common Stock at the Conversion Rate. From and after the occurrence of an Event of Default (as defined in Section 4(a)) or the failure to deliver timely the Non-Consolidation Opinion (as defined in the Securities Purchase Agreement) pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG OPINION"), the Interest Rate shall be increased by two percentage points (2%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. If the Company shall fail to credit the Holder's balance account with DTC (as defined in Section 3(c)(i)) or, if requested in writing by the Holder, to issue a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount or to issue a new Note (in accordance with Section 18(d)) representing the Principal portion of the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is entitled, in each case within the time periods set out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"), then during each period beginning on and including the date of each such Conversion Failure and ending on and including the date such Conversion Failure is cured, the Interest Rate then in effect shall be increased by two percentage points (2%). If (i) the Registration Statement (as defined in the Registration Rights Agreement) covering all the Registrable Securities (as defined in the Registration Rights Agreement) issuable upon conversion of this Note and required to be filed by 2 the Company pursuant to the Registration Rights Agreement is not declared effective by the Securities and Exchange Commission (the "SEC") on or before the applicable Mandatory Effective Date (as defined in the Registration Rights Agreement) or (ii) on any day after such Registration Statement has been declared effective by the SEC that sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t) of the Registration Rights Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Common Stock) (collectively with the event described in the immediately preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity) the Interest Rate then in effect shall be increased by two percentage points (2%) during each period beginning on and including the first date of each such Registration Failure and ending on and including the date such Registration Failure is cured. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Common Stock, on the terms and conditions set forth in this Section 3. (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise surrendered with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means, 110% of the Weighted Average Price of the Common Stock during the Tranche A Pricing Period; provided that the Conversion Price shall not exceed 110% of the Tranche A Base Price; provided further, that in the event that the Company has not delivered a Company Optional Redemption Notice as of the date that is 35 Business Days after the issuance date of the First Notes and 110% of the 3 Closing Bid Price of the Common Stock on such date is less than the Conversion Price then in effect, then the Conversion Price shall be reduced to equal such price. (c) Mechanics of Conversion. (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(ii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first Business Day following the Company's receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Transfer Agent (as defined below). On or before the second Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below does not apply) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (Y) provided that the Company's transfer agent (the "TRANSFER AGENT") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If this Note is physically surrendered for conversion as required by Section 3(c)(ii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (ii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. 4 (iii) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Notes or the Separate Tranche Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes and the Separate Tranche Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Notes and the Separate Tranche Notes electing to have the Notes or Separate Tranche Notes converted on such date a pro rata amount of such holder's portion of its Notes or Separate Tranche Notes submitted for conversion based on the principal amount of the Notes or Separate Tranche Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all the Notes and the Separate Tranche Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23. (d) Limitations on Conversions. (i) Beneficial Ownership. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 5.0% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes, Separate Tranche Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. 5 (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to this Note if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue pursuant to the Notes and the Separate Tranche Notes without breaching the Company's obligations under the rules or regulations of the Principal Market (the "EXCHANGE CAP"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Notes and the Separate Tranche Notes representing a majority of the principal amounts of the Notes and the Separate Tranche Notes (voting as a single class) then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes or the Separate Tranche Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes or the Separate Tranche Notes, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of the Notes and the Separate Tranche Notes issued to such Purchaser pursuant to the Securities Purchase Agreement as of the date of such determination and the denominator of which is the aggregate principal amount of all the Notes and the Separate Tranche Notes issued to the Purchasers pursuant to the Securities Purchase Agreement as of the date of such determination (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes or Separate Tranche Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of the Notes or the Separate Tranche Notes shall convert all of such holder's Notes or Separate Tranche Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference between such holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of the Notes and the Separate Tranche Notes on a pro rata basis in proportion to the aggregate principal amount of the Notes and the Separate Tranche Notes then held by each such holder. (4) RIGHTS UPON EVENT OF DEFAULT. (a) Event of Default. Each of the following events shall constitute a "EVENT OF DEFAULT": (i) the failure of the Registration Statement covering all Registrable Securities (as defined in the Registration Rights Agreement) required to be registered pursuant to the Registration Rights Agreement to be declared effective by the SEC on or prior to the date that is 180 days after the Issuance Date, or, while such Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, 6 the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five consecutive Business Days or for more than an aggregate of 20 Business Days in any 365-day period; (ii) the suspension from trading on the Principal Market for a period of three consecutive Business Days or for more than an aggregate of three Business Days in any 30-day Trading Day period or the delisting of the Common Stock from the Principal Market; (iii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock or a new Note (in accordance with section 18(d)), as applicable, within 10 days after the receipt by the Company of a Conversion Notice or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party; (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in Section 3(r) of the Securities Purchase Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) other than NRG (as defined below) (including, without limitation, the Other Notes) of at least $50,000,000; (vi) the Company or any of its Subsidiaries other than NRG (as defined below), pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries other than NRG (as defined below) in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries other than NRG (as defined below) or (C) orders the liquidation of the Company or any of its Subsidiaries other than NRG (as defined below); or 7 (viii) the Company breaches any representation, warranty, covenant (other than any covenant to deliver the NRG Opinion) or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby to which the Holder is a party, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least 10 consecutive days. (b) Redemption Right. Promptly after the occurrence of an Event of Default with respect to this Note or the Other Notes, the Company shall deliver written notice thereof via facsimile and overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately prior to such Event of Default by (B) the Conversion Price and (ii) the product of (x) the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. (5) RIGHTS UPON CHANGE OF CONTROL. (a) Change of Control. Each of the following events shall constitute a "CHANGE OF CONTROL": (i) the consolidation, merger or other business combination (including, without limitation, a reorganization or recapitalization) of the Company with or into another Person in which holders of the Company's voting power immediately prior to the transaction cease after the transaction to hold, directly or indirectly, a majority of the voting power of the surviving entity or entities or the voting power necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock. (b) Assumption. Prior to the consummation of any Change of Control, the Company will secure from any Person purchasing the Company's assets or Common Stock or any successor resulting from such Change of Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding) to deliver to each 8 holder of Notes in exchange for such Notes, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by such holder, and satisfactory to the holders of Notes representing a majority of the principal amount of the Notes then outstanding. In the event that an Acquiring Entity is directly or indirectly controlled by a company or entity whose common stock or similar equity interest is listed, designated or quoted on a securities exchange or trading market, the holders of notes representing a majority of the aggregate principal amount of the Notes then outstanding may elect to treat such Person as the Acquiring Entity for purposes of this Section 5(b). (c) Redemption Right. No sooner than 15 days nor later than 10 days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice, "REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(c) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately following the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the "CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be made in accordance with the provisions of Section 10 and shall have priority to payments to other shareholders in connection with a Change of Control. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 9 (b) Other Corporate Events. Prior to the consummation of any recapitalization, reorganization, consolidation, merger or other business combination (other than a Change of Control) pursuant to which holders of Common Stock are entitled to receive securities or other assets with respect to or in exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the issuance date of the First Notes, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or any employee benefit plan which has been approved by the Board of Directors of the Company or any of its Subsidiaries, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the Notes or the Separate Tranche Notes) for a consideration per share less than the higher of the Closing Sale Price of the Common Stock on the date of such issuance or sale or deemed issuance or sale and the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then immediately after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale and (y) the quotient determined by dividing (1) the sum of the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale or deemed issue or sale and the consideration, if any, received by the Company upon such issue or sale, by (2) the product of the Applicable Price multiplied by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale or deemed issue or sale. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the 10 exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. If the Company issues or sells any Options which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Securities, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock or Convertible Securities upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the exercise price a price which does not vary with the market price of the Common Stock. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion, exercise or exchange of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. If the Company issues or sells any Convertible Securities which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Security, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a 11 component of the conversion, exercise or exchange price a price which does not vary with the market price of the Common Stock. (iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. If such parties are unable to reach agreement within ten days after the occurrence of an event requiring valuation (the "VALUATION Event"), the fair value of such consideration will be determined within five Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. 12 (v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Notes or the Separate Tranche Notes. (vii) Delayed Adjustment. In addition to the foregoing provisions of this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing Bid Price shall be subject to adjustment, in accordance with the foregoing provisions, for any days during any measuring period, including, without limitation, the Tranche A Pricing Period, used herein that occur prior to any of the aforementioned events if such events occur prior to the end of such measuring period. (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (c) Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7. (8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the 13 terms of, or enter into any agreement which by its terms restricts or otherwise impairs the Company's performance of the terms of, this Note or any of the other Transaction Documents (as defined in the Securities Purchase Agreement), and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. (9) RESERVATION OF AUTHORIZED SHARES. (a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the Conversion Rate with respect to the Conversion Amount of each such Note and Separate Tranche Note. Thereafter, the Company shall, so long as any of the Notes or Separate Tranche Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and Separate Tranche Note, at least 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes and the Separate Tranche Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and the Separate Tranche Note and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes and Separate Tranche Note based on the principal amount of the Notes and Separate Tranche Notes held by each holder at the time of Issuance Date or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes or Separate Tranche Note remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes and the Separate Tranche Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes and Separate Tranche Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. 14 (10) REDEMPTION. (a) Mechanics. In the event that the Holder has sent a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the Holder shall promptly submit this Note to the Company. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice and thereafter the Holder shall promptly deliver this Note to the Company. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five Business Days after the Company's receipt of such notice otherwise. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the Redemption Price to the Holder within the time period required above in this Section 10(a) at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Bid Price during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the Other Notes or the Separate Tranche Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices during the seven Business Day period beginning on and including the date which is three Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven Business Day period, then the Company shall redeem a pro rata amount from each holder of the 15 Notes and the Separate Tranche Notes (including the Holder) based on the principal amount of the Notes and the Separate Tranche Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. (11) RESTRICTION ON REDEMPTION. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem its capital stock without the prior express written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding. (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of Principal and Interest and other payments due under this Note shall rank pari passu in right of payment with all (and shall not be subordinated to any) unsecured, unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. (13) COVENANTS. (a) Indebtedness. The Company shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness and Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is unsecured and subordinated in right of payment to the Notes and other obligations owing to the Holders in accordance with a subordination agreement in form and substance satisfactory to the Holders. "Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is not senior in right of payment to the Notes and is otherwise on terms that are no more favorable to the holders thereof than the terms of the Indebtedness evidenced by the Notes unless such more favorable terms are offered to the Holders. (b) Liens. The Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; sign or suffer to exist any security agreement authorizing any secured party thereunder to file a Uniform Commercial Code financing statement (or the equivalent thereof) as notice of a Lien on any property of the Company or its Subsidiaries; sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in the Bank Facility)) to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. As used herein, "Permitted Liens" shall have the meaning of that term as defined in the Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and the banks listed therein (as the same maybe amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance 16 or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. (c) Transactions With Affiliates. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, effect any transaction with any Affiliate (as defined in the Bank Facility) that is (a) outside the ordinary course of business or (b) on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party, provided that notwithstanding the foregoing, no loan, payment or other form of contribution shall be made to NRG unless it is in an amount not in excess of (i) $300 Million payable pursuant to the Support Agreement and Capital Subscription Agreement, dated as of May 29, 2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in respect of guarantee obligations relating to the power marketing business of NRG; provided further that with respect to any payment permitted pursuant to clause (ii) above, the Company shall in the context of a restructuring of NRG, use its reasonable best efforts to obtain a full release of all obligations and liabilities of the Company relating to NRG. (d) Leverage Ratio. The Company shall not permit the Leverage Ratio set forth in the Bank Facility to be exceeded. (e) Restrictive Agreements. The Company shall not, and shall not permit any Significant Subsidiary (as defined in the Bank Facility) other than NRG to, enter into any agreement after the date of this Note that imposes any restriction on the ability of such Significant Subsidiary to make payments, directly or indirectly, to its shareholders by way of dividends, advances, repayment of loans or intercompany charges, expenses or accruals or other returns on investments that is more restrictive than any such restriction applicable to such Significant Subsidiary on the Issuance Date. (f) Scope of Business. The Company shall, and shall cause each Subsidiary to, engage only in energy-related business, functionally related businesses (as interpreted under PUHCA, as defined in the Securities Purchase Agreement)or such other businesses as maybe permitted pursuant to an order issued by the SEC pursuant to PUHCA. (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to the Minnesota Business Corporation Act, and as expressly provided in this Note. (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to (i) all extraordinary or special dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions and (ii) regular cash dividends and distributions paid to the holders of the Common Stock only with respect to that portion of such dividends that exceeds $0.1875 per share of Common Stock in any calendar quarter (subject to adjustment for stock splits, stock dividends, stock combinations and other 17 similar transactions after the Issuance Date). Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes, shall be required for any change or amendment to this Note or the Other Notes. (17) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (18) REISSUANCE OF THIS NOTE. (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal. (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal 18 remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date. (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including but not limited to attorneys fees and disbursements. (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Redemption Price or the arithmetic calculation of the Conversion Rate or the Redemption Price or any other calculation hereunder, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one Business Day of receipt of the Conversion 19 Notice or Redemption Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Conversion Rate within one Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Weighted Average Price, the Closing Bid Price or the Closing Sale Price or any other calculation hereunder to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (24) NOTICES; PAYMENTS. (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of Common Stock or (C) for determining rights to vote with respect to any Change of Control, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Notwithstanding the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to all notices given pursuant to this Note. (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall 20 not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Interest, Principal or other amount due under the Transaction Documents (as defined in the Securities Purchase Agreement) which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 12% per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). (25) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (27) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean, with respect to any proposed Change of Control for which a public announcement that it proposes or intends to effect a Change of Control of the Company (the date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon which the Company or other Person proposing to effect such Change of Control consummates or publicly announces the termination or abandonment of the proposed Change of Control which was the subject of the previous public announcement. (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on The New York Stock Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last 21 trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any applicable calculation period. (d) "COMMON STOCK" means (i) the Company's common stock, par value $2.50 per share, and (ii) any capital stock resulting from a reclassification of such Common Stock. (e) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (f) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii), 115% or (ii) in the case of the Events of Default described in Section 4(a)(v) - (vii), 100%. (g) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement between the Company and the initial holders of the Notes relating to the registration of the resale of the shares of Common Stock issuable upon conversion of the Notes. (h) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement between the Company and the initial holders of the Notes pursuant to which the Company issued the Notes. (i) "SEPARATE TRANCHE NOTES" means the First Notes, Second Notes, Second Call Notes, Third Notes and the Third Call Notes, collectively. (j) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market or actually trades on such exchange or market for less than 4.5 hours. 22 (k) "TRANCHE A BASE PRICE" means Weighted Average Price of the Common Stock on the issuance date of the First Notes. (l) "TRANCHE B BASE PRICE" means the Weighted Average Price of the Common Stock on the Tranche B Closing Date. (m) "TRANCHE A PRICING PERIOD" means the twenty consecutive Trading Days commencing on the fifth Trading Day immediately following the issuance date of the First Notes. (n) "TRANCHE B PRICING PERIOD" means the ten consecutive Trading Days commencing on the first Trading Day immediately following the end of the Tranche A Pricing Period. (o) "VARIABLE SECURITIES" means any stock or securities other than Options directly or indirectly convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants or option to subscribe for or purchase Common Stock or Convertible Securities ("OPTIONS") that are convertible into or exchangeable, directly or indirectly, for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more adjustments or resets to a fixed price (a "VARIABLE PRICE"). (m) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the Principal Market is not the principal securities exchange or trading market for such security, the dollar volume-weighted average price for such security on the principal securities exchange or trading market where such security is listed or traded during the period beginning at 9:30 a.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is 23 reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during applicable calculation period. [SIGNATURE PAGE FOLLOWS] 24 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Date of Issuance set out above. XCEL ENERGY INC. By: ---------------------------------- Name: Title: Chief Executive Officer EXHIBIT I XCEL ENERGY INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") issued to the undersigned by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $2.50 per share (the "COMMON STOCK"), of the Company as of the date specified below. Date of Conversion: -------------------------------------------------- Aggregate Conversion Amount to be converted: ------------------------- Please confirm the following information: Conversion Price: ---------------------------------------------------- Number of shares of Common Stock to be issued: ----------------------- Please issue the Common Stock into which the Note is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ Facsimile Number: ---------------------------------------------------- Authorization: ------------------------------------------------------- By: -------------------------------------------------------- Title: Dated: -------------------------------------------------------------------------- Account Number: ------------------------------------------------------ (if electronic book entry transfer) Transaction Code Number: --------------------------------------------- (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated November 8, 2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT]. XCEL ENERGY INC. By: ----------------------------------- Name: Title: EX-99.05 7 c73001exv99w05.txt EX-99.05 FORM OF SECOND CALL NOTES EXHIBIT 99.05 SENIOR CONVERTIBLE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. XCEL ENERGY, INC. Issuance Date: _______ __, 200_ Principal: U.S. $____________ FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), hereby promises to pay to the order of __________________ or registered assigns ("HOLDER") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal at the rate of eight percent (8%) per annum, subject to periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Final Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date pursuant to the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in Section 28 and terms used herein but not defined herein shall have the meanings set forth for such terms in the Securities Purchase Agreement. (1) MATURITY. On the Final Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance Date; provided that, if the Holder has given notice in writing to the Company of its desire to extend the Maturity Date on or prior to the date that is 10 Business Days prior to the Maturity Date, the Maturity Date shall be extended (on one or more occasions) for an additional 364 days; provided, further, that the Maturity Date shall not be extended (except as provided in the following proviso) to more than five years after the Issuance Date (such date that is five years after the Issuance Date or such earlier Maturity Date prior to which the Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and provided, further, that the Final Maturity Date may be extended at the option of the Holder (x) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing or any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in an Event of Default and (y) through the date that is ten days after a Change of Control Termination Date in the event that the Announcement Date giving rise to such Change of Control Termination Date occurred prior to the Final Maturity Date. (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of the actual days elapsed during any period, and a calendar year of 365 or 366 calendar days, as applicable, and shall be payable in cash on each May 1 and each November 1 during the period beginning on the Issuance Date and ending on, and including, the Final Maturity Date (each an "INTEREST DATE"); provided that interest on any Conversion Amount of this Note that is accrued but unpaid as of the Conversion Date of such Conversion Amount shall be paid in shares of Common Stock at the Conversion Rate. From and after the occurrence of an Event of Default (as defined in Section 4(a)) or the failure to deliver timely the Non-Consolidation Opinion (as defined in the Securities Purchase Agreement) pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG OPINION"), the Interest Rate shall be increased by two percentage points (2%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. If the Company shall fail to credit the Holder's balance account with DTC (as defined in Section 3(c)(i)) or, if requested in writing by the Holder, to issue a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount or to issue a new Note (in accordance with Section 18(d)) representing the Principal portion of the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is entitled, in each case within the time periods set out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"), then during each period beginning on and including the date of each such Conversion Failure and ending on and including the date such Conversion Failure is cured, the Interest Rate then in effect shall be increased by two percentage points (2%). If (i) the Registration Statement (as defined in the Registration Rights Agreement) covering all the Registrable Securities (as defined in the Registration Rights Agreement) issuable upon conversion of this Note and required to be filed by 2 the Company pursuant to the Registration Rights Agreement is not declared effective by the Securities and Exchange Commission (the "SEC") on or before the applicable Mandatory Effective Date (as defined in the Registration Rights Agreement) or (ii) on any day after such Registration Statement has been declared effective by the SEC that sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t) of the Registration Rights Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Common Stock) (collectively with the event described in the immediately preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity) the Interest Rate then in effect shall be increased by two percentage points (2%) during each period beginning on and including the first date of each such Registration Failure and ending on and including the date such Registration Failure is cured. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Common Stock, on the terms and conditions set forth in this Section 3. (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise surrendered with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means, 110% of the Weighted Average Price of the Common Stock during the Tranche B Pricing Period; provided that the Conversion Price shall not exceed 110% of the Tranche B Base Price; provided further, that in the event that the Company has not delivered a Company Optional Redemption Notice as of the date that is 35 Business Days after the date of issuance of the First Notes and 110% of the Closing Bid Price of the Common Stock on such date is less than the Conversion Price 3 then in effect (after giving effect to the calculation of the Conversion Price through the end of such day and the conclusion of the Tranche B Pricing Period), then the Conversion Price shall be reduced to equal such price. (c) Mechanics of Conversion. (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(ii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first Business Day following the Company's receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Transfer Agent (as defined below). On or before the second Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below does not apply) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (Y) provided that the Company's transfer agent (the "TRANSFER AGENT") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If this Note is physically surrendered for conversion as required by Section 3(c)(ii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (ii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. 4 (iii) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Notes or the Separate Tranche Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes and the Separate Tranche Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Notes and the Separate Tranche Notes electing to have the Notes or Separate Tranche Notes converted on such date a pro rata amount of such holder's portion of its Notes or Separate Tranche Notes submitted for conversion based on the principal amount of the Notes or Separate Tranche Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all the Notes and the Separate Tranche Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23. (d) Limitations on Conversions. (i) Beneficial Ownership. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 5.0% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes, Separate Tranche Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of 5 securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to this Note if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue pursuant to the Notes and the Separate Tranche Notes without breaching the Company's obligations under the rules or regulations of the Principal Market (the "EXCHANGE CAP"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Notes and the Separate Tranche Notes representing a majority of the principal amounts of the Notes and the Separate Tranche Notes (voting as a single class) then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes or the Separate Tranche Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes or the Separate Tranche Notes, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of the Notes and the Separate Tranche Notes issued to such Purchaser pursuant to the Securities Purchase Agreement as of the date of such determination and the denominator of which is the aggregate principal amount of all the Notes and the Separate Tranche Notes issued to the Purchasers pursuant to the Securities Purchase Agreement as of the date of such determination (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes or Separate Tranche Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of the Notes or the Separate Tranche Notes shall convert all of such holder's Notes or Separate Tranche Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference between such holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of the Notes and the Separate Tranche Notes on a pro rata basis in proportion to the aggregate principal amount of the Notes and the Separate Tranche Notes then held by each such holder. (4) RIGHTS UPON EVENT OF DEFAULT. (a) Event of Default. Each of the following events shall constitute a "EVENT OF DEFAULT": (i) the failure of the Registration Statement covering all Registrable Securities (as defined in the Registration Rights Agreement) required to be registered pursuant to the Registration Rights Agreement to be declared effective by the SEC on or prior to the date 6 that is 180 days after the Issuance Date, or, while such Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five consecutive Business Days or for more than an aggregate of 20 Business Days in any 365-day period; (ii) the suspension from trading on the Principal Market for a period of three consecutive Business Days or for more than an aggregate of three Business Days in any 30-day Trading Day period or the delisting of the Common Stock from the Principal Market; (iii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock or a new Note (in accordance with section 18(d)), as applicable, within 10 days after the receipt by the Company of a Conversion Notice or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party; (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in Section 3(r) of the Securities Purchase Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) other than NRG (as defined below) (including, without limitation, the Other Notes) of at least $50,000,000; (vi) the Company or any of its Subsidiaries other than NRG (as defined below), pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries other than NRG (as defined below) in an involuntary case, (B) appoints a Custodian of the Company or 7 any of its Subsidiaries other than NRG (as defined below) or (C) orders the liquidation of the Company or any of its Subsidiaries other than NRG (as defined below); or (viii) the Company breaches any representation, warranty, covenant (other than any covenant to deliver the NRG Opinion) or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Note or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby to which the Holder is a party, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least 10 consecutive days. (b) Redemption Right. Promptly after the occurrence of an Event of Default with respect to this Note or the Other Notes, the Company shall deliver written notice thereof via facsimile and overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately prior to such Event of Default by (B) the Conversion Price and (ii) the product of (x) the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. (5) RIGHTS UPON CHANGE OF CONTROL. (a) Change of Control. Each of the following events shall constitute a "CHANGE OF CONTROL": (i) the consolidation, merger or other business combination (including, without limitation, a reorganization or recapitalization) of the Company with or into another Person in which holders of the Company's voting power immediately prior to the transaction cease after the transaction to hold, directly or indirectly, a majority of the voting power of the surviving entity or entities or the voting power necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock. (b) Assumption. Prior to the consummation of any Change of Control, the Company will secure from any Person purchasing the Company's assets or Common Stock 8 or any successor resulting from such Change of Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding) to deliver to each holder of Notes in exchange for such Notes, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by such holder, and satisfactory to the holders of Notes representing a majority of the principal amount of the Notes then outstanding. In the event that an Acquiring Entity is directly or indirectly controlled by a company or entity whose common stock or similar equity interest is listed, designated or quoted on a securities exchange or trading market, the holders of notes representing a majority of the aggregate principal amount of the Notes then outstanding may elect to treat such Person as the Acquiring Entity for purposes of this Section 5(b). (c) Redemption Right. No sooner than 15 days nor later than 10 days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice, "REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(c) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately following the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the "CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be made in accordance with the provisions of Section 10 and shall have priority to payments to other shareholders in connection with a Change of Control. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, 9 or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Other Corporate Events. Prior to the consummation of any recapitalization, reorganization, consolidation, merger or other business combination (other than a Change of Control) pursuant to which holders of Common Stock are entitled to receive securities or other assets with respect to or in exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the issuance date of the Second Notes, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or any employee benefit plan which has been approved by the Board of Directors of the Company or any of its Subsidiaries, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the Notes or the Separate Tranche Notes) for a consideration per share less than the higher of the Closing Sale Price of the Common Stock on the date of such issuance or sale or deemed issuance or sale and the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then immediately after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale and (y) the quotient determined by dividing (1) the sum of the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale or deemed issue or sale and the consideration, if any, received by the Company upon such issue or sale, by (2) the product of the Applicable Price multiplied by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale or deemed issue or sale. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: 10 (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. If the Company issues or sells any Options which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Securities, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock or Convertible Securities upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the exercise price a price which does not vary with the market price of the Common Stock. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion, exercise or exchange of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. If the Company issues or sells any Convertible Securities which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Security, as a result of the issuance of such Variable Securities until the actual issuance 11 of Common Stock upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the conversion, exercise or exchange price a price which does not vary with the market price of the Common Stock. (iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. If such parties are unable to reach agreement within ten days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. The determination of such appraiser shall be deemed binding 12 upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Notes or the Separate Tranche Notes. (vii) Delayed Adjustment. In addition to the foregoing provisions of this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing Bid Price shall be subject to adjustment, in accordance with the foregoing provisions, for any days during any measuring period, including, without limitation, the Tranche A Pricing Period, used herein that occur prior to any of the aforementioned events if such events occur prior to the end of such measuring period. (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (c) Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7. (8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or through any 13 reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of, or enter into any agreement which by its terms restricts or otherwise impairs the Company's performance of the terms of, this Note or any of the other Transaction Documents (as defined in the Securities Purchase Agreement), and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. (9) RESERVATION OF AUTHORIZED SHARES. (a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the Conversion Rate with respect to the Conversion Amount of each such Note and Separate Tranche Note. Thereafter, the Company shall, so long as any of the Notes or Separate Tranche Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and Separate Tranche Note, at least 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes and the Separate Tranche Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and the Separate Tranche Note and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes and Separate Tranche Note based on the principal amount of the Notes and Separate Tranche Notes held by each holder at the time of Issuance Date or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes or Separate Tranche Note remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes and the Separate Tranche Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes and Separate Tranche Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders' approval of such increase 14 in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. (10) REDEMPTION. (a) Mechanics. In the event that the Holder has sent a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the Holder shall promptly submit this Note to the Company. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice and thereafter the Holder shall promptly deliver this Note to the Company. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five Business Days after the Company's receipt of such notice otherwise. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the Redemption Price to the Holder within the time period required above in this Section 10(a) at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Bid Price during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the Other Notes or the Separate Tranche Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices during the seven Business Day period beginning on and including the date which is three Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated 15 in such Redemption Notice and such Other Redemption Notices received during such seven Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes and the Separate Tranche Notes (including the Holder) based on the principal amount of the Notes and the Separate Tranche Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. (11) RESTRICTION ON REDEMPTION. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem its capital stock without the prior express written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding. (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of Principal and Interest and other payments due under this Note shall rank pari passu in right of payment with all (and shall not be subordinated to any) unsecured, unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. (13) COVENANTS. (a) Indebtedness. The Company shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness and Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is unsecured and subordinated in right of payment to the Notes and other obligations owing to the Holders in accordance with a subordination agreement in form and substance satisfactory to the Holders. "Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is not senior in right of payment to the Notes and is otherwise on terms that are no more favorable to the holders thereof than the terms of the Indebtedness evidenced by the Notes unless such more favorable terms are offered to the Holders. (b) Liens. The Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; sign or suffer to exist any security agreement authorizing any secured party thereunder to file a Uniform Commercial Code financing statement (or the equivalent thereof) as notice of a Lien on any property of the Company or its Subsidiaries; sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in the Bank Facility)) to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. As used herein, "Permitted Liens" shall have the meaning of that term as defined in the Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and the banks listed therein (as the same maybe 16 amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. (c) Transactions With Affiliates. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, effect any transaction with any Affiliate (as defined in the Bank Facility) that is (a) outside the ordinary course of business or (b) on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party, provided that notwithstanding the foregoing, no loan, payment or other form of contribution shall be made to NRG unless it is in an amount not in excess of (i) $300 Million payable pursuant to the Support Agreement and Capital Subscription Agreement, dated as of May 29, 2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in respect of guarantee obligations relating to the power marketing business of NRG; ; provided further that with respect to any payment permitted pursuant to clause (ii) above, the Company shall, in the context of a restructuring of NRG, use its reasonable best efforts to obtain a full release of all obligations and liabilities of the Company relating to NRG. (d) Leverage Ratio. The Company shall not permit the Leverage Ratio set forth in the Bank Facility to be exceeded. (e) Restrictive Agreements. The Company shall not, and shall not permit any Significant Subsidiary (as defined in the Bank Facility) other than NRG to, enter into any agreement after the date of this Note that imposes any restriction on the ability of such Significant Subsidiary to make payments, directly or indirectly, to its shareholders by way of dividends, advances, repayment of loans or intercompany charges, expenses or accruals or other returns on investments that is more restrictive than any such restriction applicable to such Significant Subsidiary on the Issuance Date. (f) Scope of Business. The Company shall, and shall cause each Subsidiary to, engage only in energy-related business, functionally related businesses (as interpreted under PUHCA, as defined in the Securities Purchase Agreement)or such other businesses as maybe permitted pursuant to an order issued by the SEC pursuant to PUHCA. (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to the Minnesota Business Corporation Act, and as expressly provided in this Note. (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to (i) all extraordinary or special dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions and (ii) regular cash dividends and distributions paid to the holders of the Common Stock only with respect to that portion of such dividends that exceeds $0.1875 per share of Common Stock in any calendar 17 quarter (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions after the Issuance Date). Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes, shall be required for any change or amendment to this Note or the Other Notes. (17) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (18) REISSUANCE OF THIS NOTE. (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal. (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the 18 other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date. (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including but not limited to attorneys fees and disbursements. (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Redemption Price or the arithmetic calculation of the Conversion Rate or the Redemption Price or any other calculation hereunder, the Company shall submit the disputed determinations 19 or arithmetic calculations via facsimile within one Business Day of receipt of the Conversion Notice or Redemption Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Conversion Rate within one Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Weighted Average Price, the Closing Bid Price or the Closing Sale Price or any other calculation hereunder to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (24) NOTICES; PAYMENTS. (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of Common Stock or (C) for determining rights to vote with respect to any Change of Control, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Notwithstanding the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to all notices given pursuant to this Note. (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date 20 which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Interest, Principal or other amount due under the Transaction Documents (as defined in the Securities Purchase Agreement) which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 12% per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). (25) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (27) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean, with respect to any proposed Change of Control for which a public announcement that it proposes or intends to effect a Change of Control of the Company (the date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon which the Company or other Person proposing to effect such Change of Control consummates or publicly announces the termination or abandonment of the proposed Change of Control which was the subject of the previous public announcement. (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on The New York Stock Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the Principal Market is not the 21 principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any applicable calculation period. (e) "COMMON STOCK" means (i) the Company's common stock, par value $2.50 per share, and (ii) any capital stock resulting from a reclassification of such Common Stock. (f) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (g) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii), 115% or (ii) in the case of the Events of Default described in Section 4(a)(v) - (vii), 100%. (h) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement between the Company and the initial holders of the Notes relating to the registration of the resale of the shares of Common Stock issuable upon conversion of the Notes. (i) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement between the Company and the initial holders of the Notes pursuant to which the Company issued the Notes. (j) "SEPARATE TRANCHE NOTES" means the First Notes, Second Notes, First Call Notes, Third Notes and the Third Call Notes, collectively. (k) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market or actually trades on such exchange or market for less than 4.5 hours. 22 (l) "TRANCHE A BASE PRICE" means the Weighted Average Price of the Common Stock on the issuance date of the First Notes. (m) "TRANCHE B BASE PRICE" means the Weighted Average Price of the Common Stock on the Tranche B Closing Date. (n) "TRANCHE A PRICING PERIOD" means the twenty consecutive Trading Days commencing on the fifth Trading Day immediately following the issuance date of the First Notes. (o) "TRANCHE B PRICING PERIOD" means the ten consecutive Trading Days commencing on the first Trading Day immediately following the end of the Tranche A Pricing Period. (p) "VARIABLE SECURITIES" means any stock or securities other than Options directly or indirectly convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants or option to subscribe for or purchase Common Stock or Convertible Securities ("OPTIONS") that are convertible into or exchangeable, directly or indirectly, for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more adjustments or resets to a fixed price (a "VARIABLE PRICE"). (q) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the Principal Market is not the principal securities exchange or trading market for such security, the dollar volume-weighted average price for such security on the principal securities exchange or trading market where such security is listed or traded during the period beginning at 9:30 a.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is 23 reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during applicable calculation period. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Date of Issuance set out above. XCEL ENERGY INC. By: -------------------------------------------- Name: Title: Chief Executive Officer EXHIBIT I XCEL ENERGY INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") issued to the undersigned by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $2.50 per share (the "COMMON STOCK"), of the Company as of the date specified below. Date of Conversion: ---------------------------------------------------- Aggregate Conversion Amount to be converted: --------------------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: Please issue the Common Stock into which the Note is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- Facsimile Number: ------------------------------------------------------ Authorization: --------------------------------------------------------- By: --------------------------------------------------------- Title: ---------------------------------- Dated: -------------------------------------------------------------------------- Account Number: -------------------------------------------------------- (if electronic book entry transfer) Transaction Code Number: ----------------------------------------------- (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated November 8, 2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT]. XCEL ENERGY INC. By: -------------------------------------- Name: Title: EX-99.06 8 c73001exv99w06.txt EX-99.06 FORM OF THIRD NOTES EXHIBIT 99.06 SENIOR CONVERTIBLE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. XCEL ENERGY, INC. Issuance Date: _______ __, ______ Principal: U.S. $____________ FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), hereby promises to pay to the order of __________________ or registered assigns ("HOLDER") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal at the rate of eight percent (8%) per annum, subject to periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Final Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date pursuant to the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in Section 28 and terms used herein but not defined herein shall have the meanings set forth for such terms in the Securities Purchase Agreement. (1) MATURITY. On the Final Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance Date; provided that, if the Holder has given notice in writing to the Company of its desire to extend the Maturity Date on or prior to the date that is 10 Business Days prior to the Maturity Date, the Maturity Date shall be extended (on one or more occasions) for an additional 364 days; provided, further, that the Maturity Date shall not be extended (except as provided in the following proviso) to more than five years after the Issuance Date (such date that is five years after the Issuance Date or such earlier Maturity Date prior to which the Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and provided, further, that the Final Maturity Date may be extended at the option of the Holder (x) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing or any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in an Event of Default and (y) through the date that is ten days after a Change of Control Termination Date in the event that the Announcement Date giving rise to such Change of Control Termination Date occurred prior to the Final Maturity Date. (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of the actual days elapsed during any period, and a calendar year of 365 or 366 calendar days, as applicable, and shall be payable in cash on each May 1 and each November 1 during the period beginning on the Issuance Date and ending on, and including, the Final Maturity Date (each an "INTEREST DATE"); provided that interest on any Conversion Amount of this Note that is accrued but unpaid as of the Conversion Date of such Conversion Amount shall be paid in shares of Common Stock at the Conversion Rate. From and after the occurrence of an Event of Default (as defined in Section 4(a)) or the failure to deliver timely the Non-Consolidation Opinion (as defined in the Securities Purchase Agreement) pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG OPINION"), the Interest Rate shall be increased by two percentage points (2%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. If the Company shall fail to credit the Holder's balance account with DTC (as defined in Section 3(c)(i)) or, if requested in writing by the Holder, to issue a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount or to issue a new Note (in accordance with Section 18(d)) representing the Principal portion of the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is entitled, in each case within the time periods set out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"), then during each period beginning on and including the date of each such Conversion Failure and ending on and including the date such Conversion Failure is cured, the Interest Rate then in effect shall be increased by two percentage points (2%). If (i) the Registration Statement (as defined in the Registration Rights Agreement) covering all the Registrable Securities (as defined in the Registration Rights Agreement) issuable upon conversion of this Note and required to be filed by 2 the Company pursuant to the Registration Rights Agreement is not declared effective by the Securities and Exchange Commission (the "SEC") on or before the applicable Mandatory Effective Date (as defined in the Registration Rights Agreement) or (ii) on any day after such Registration Statement has been declared effective by the SEC that sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t) of the Registration Rights Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Common Stock) (collectively with the event described in the immediately preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity) the Interest Rate then in effect shall be increased by two percentage points (2%) during each period beginning on and including the first date of each such Registration Failure and ending on and including the date such Registration Failure is cured. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Common Stock, on the terms and conditions set forth in this Section 3. (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise surrendered with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means, 110% of the arithmetic average of the Weighted Average Price of the Common Stock during the 20 Trading Day period beginning 90 days after the issuance date of the First Notes, not to exceed the Weighted Average Price of the Common Stock during the 20 Trading Day period ending on the Trading Day that is immediately prior to the 90th day after the issuance date of the First Notes. 3 (c) Mechanics of Conversion. (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(ii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first Business Day following the Company's receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Transfer Agent (as defined below). On or before the second Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below does not apply) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (Y) provided that the Company's transfer agent (the "TRANSFER AGENT") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If this Note is physically surrendered for conversion as required by Section 3(c)(ii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (ii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. (iii) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Notes or the Separate Tranche Notes for the same Conversion Date and the Company can convert some, but not all, of such 4 portions of the Notes and the Separate Tranche Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Notes and the Separate Tranche Notes electing to have the Notes or Separate Tranche Notes converted on such date a pro rata amount of such holder's portion of its Notes or Separate Tranche Notes submitted for conversion based on the principal amount of the Notes or Separate Tranche Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all the Notes and the Separate Tranche Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23. (d) Limitations on Conversions. (i) Beneficial Ownership. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 5.0% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes, Separate Tranche Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to this Note if the issuance of such shares of Common 5 Stock would exceed that number of shares of Common Stock which the Company may issue pursuant to the Notes and the Separate Tranche Notes without breaching the Company's obligations under the rules or regulations of the Principal Market (the "EXCHANGE CAP"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Notes and the Separate Tranche Notes representing a majority of the principal amounts of the Notes and the Separate Tranche Notes (voting as a single class) then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes or the Separate Tranche Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes or the Separate Tranche Notes, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of the Notes and the Separate Tranche Notes issued to such Purchaser pursuant to the Securities Purchase Agreement as of the date of such determination and the denominator of which is the aggregate principal amount of all the Notes and the Separate Tranche Notes issued to the Purchasers pursuant to the Securities Purchase Agreement as of the date of such determination (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes or Separate Tranche Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of the Notes or the Separate Tranche Notes shall convert all of such holder's Notes or Separate Tranche Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference between such holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of the Notes and the Separate Tranche Notes on a pro rata basis in proportion to the aggregate principal amount of the Notes and the Separate Tranche Notes then held by each such holder. (4) RIGHTS UPON EVENT OF DEFAULT. (a) Event of Default. Each of the following events shall constitute a "EVENT OF DEFAULT": (i) the failure of the Registration Statement covering all Registrable Securities (as defined in the Registration Rights Agreement) required to be registered pursuant to the Registration Rights Agreement to be declared effective by the SEC on or prior to the date that is 180 days after the Issuance Date, or, while such Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the terms of the 6 Registration Rights Agreement, and such lapse or unavailability continues for a period of five consecutive Business Days or for more than an aggregate of 20 Business Days in any 365-day period; (ii) the suspension from trading on the Principal Market for a period of three consecutive Business Days or for more than an aggregate of three Business Days in any 30-day Trading Day period or the delisting of the Common Stock from the Principal Market; (iii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock or a new Note (in accordance with section 17(d)), as applicable, within 10 days after the receipt by the Company of a Conversion Notice or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party; (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in Section 3(r) of the Securities Purchase Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) other than NRG (as defined below) (including, without limitation, the Other Notes) of at least $50,000,000; (vi) the Company or any of its Subsidiaries other than NRG (as defined below), pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries other than NRG (as defined below) in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries other than NRG (as defined below) or (C) orders the liquidation of the Company or any of its Subsidiaries other than NRG (as defined below); or (viii) the Company breaches any representation, warranty, covenant (other than any covenant to deliver the NRG Opinion) or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Note or any other 7 agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby to which the Holder is a party, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least 10 consecutive days. (b) Redemption Right. Promptly after the occurrence of an Event of Default with respect to this Note or the Other Notes, the Company shall deliver written notice thereof via facsimile and overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately prior to such Event of Default by (B) the Conversion Price and (ii) the product of (x) the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. (5) RIGHTS UPON CHANGE OF CONTROL. (a) Change of Control. Each of the following events shall constitute a "CHANGE OF CONTROL": (i) the consolidation, merger or other business combination (including, without limitation, a reorganization or recapitalization) of the Company with or into another Person in which holders of the Company's voting power immediately prior to the transaction cease after the transaction to hold, directly or indirectly, a majority of the voting power of the surviving entity or entities or the voting power necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock. (b) Assumption. Prior to the consummation of any Change of Control, the Company will secure from any Person purchasing the Company's assets or Common Stock or any successor resulting from such Change of Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding) to deliver to each holder of Notes in exchange for such Notes, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the 8 interest rates of the Notes held by such holder, and satisfactory to the holders of Notes representing a majority of the principal amount of the Notes then outstanding. In the event that an Acquiring Entity is directly or indirectly controlled by a company or entity whose common stock or similar equity interest is listed, designated or quoted on a securities exchange or trading market, the holders of notes representing a majority of the aggregate principal amount of the Notes then outstanding may elect to treat such Person as the Acquiring Entity for purposes of this Section 5(b). (c) Redemption Right. No sooner than 15 days nor later than 10 days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice, "REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(c) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately following the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the "CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be made in accordance with the provisions of Section 10 and shall have priority to payments to other shareholders in connection with a Change of Control. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Other Corporate Events. Prior to the consummation of any recapitalization, reorganization, consolidation, merger or other business combination (other than a Change of Control) pursuant to which holders of Common Stock are entitled to receive securities or other assets with respect to or in exchange for Common Stock (a "CORPORATE 9 EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the issuance date of the First Notes, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or any employee benefit plan which has been approved by the Board of Directors of the Company or any of its Subsidiaries, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the Notes or the Separate Tranche Notes) for a consideration per share less than the higher of the Closing Sale Price of the Common Stock on the date of such issuance or sale or deemed issuance or sale and the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then immediately after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale and (y) the quotient determined by dividing (1) the sum of the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale or deemed issue or sale and the consideration, if any, received by the Company upon such issue or sale, by (2) the product of the Applicable Price multiplied by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale or deemed issue or sale. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price 10 per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. If the Company issues or sells any Options which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Securities, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock or Convertible Securities upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the exercise price a price which does not vary with the market price of the Common Stock. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion, exercise or exchange of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. If the Company issues or sells any Convertible Securities which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Security, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the conversion, exercise or exchange price a price which does not vary with the market price of the Common Stock. (iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or 11 exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. If such parties are unable to reach agreement within ten days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed 12 to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Notes or the Separate Tranche Notes. (vii) Delayed Adjustment. In addition to the foregoing provisions of this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing Bid Price shall be subject to adjustment, in accordance with the foregoing provisions, for any days during any measuring period, including, without limitation, the Tranche A Pricing Period, used herein that occur prior to any of the aforementioned events if such events occur prior to the end of such measuring period. (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (c) Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7. (8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of, or enter into any agreement which by its terms restricts or otherwise impairs the Company's performance of the terms of, this Note or any of the other Transaction Documents (as defined in the Securities Purchase Agreement), and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. 13 (9) RESERVATION OF AUTHORIZED SHARES. (a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the Conversion Rate with respect to the Conversion Amount of each such Note and Separate Tranche Note. Thereafter, the Company shall, so long as any of the Notes or Separate Tranche Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and Separate Tranche Note, at least 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes and the Separate Tranche Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and the Separate Tranche Note and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes and Separate Tranche Note based on the principal amount of the Notes and Separate Tranche Notes held by each holder at the time of Issuance Date or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes or Separate Tranche Note remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes and the Separate Tranche Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes and Separate Tranche Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. (10) REDEMPTION. (a) Mechanics. In the event that the Holder has sent a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the Holder shall promptly 14 submit this Note to the Company. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice and thereafter the Holder shall promptly deliver this Note to the Company. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five Business Days after the Company's receipt of such notice otherwise. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the Redemption Price to the Holder within the time period required above in this Section 10(a) at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Bid Price during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the Other Notes or the Separate Tranche Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices during the seven Business Day period beginning on and including the date which is three Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes and the Separate Tranche Notes (including the Holder) based on the principal amount of the Notes and the Separate Tranche Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. 15 (11) RESTRICTION ON REDEMPTION. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem its capital stock without the prior express written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding. (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of Principal and Interest and other payments due under this Note shall rank pari passu in right of payment with all (and shall not be subordinated to any) unsecured, unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. (13) COVENANTS. (a) Indebtedness. The Company shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness and Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is unsecured and subordinated in right of payment to the Notes and other obligations owing to the Holders in accordance with a subordination agreement in form and substance satisfactory to the Holders. "Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is not senior in right of payment to the Notes and is otherwise on terms that are no more favorable to the holders thereof than the terms of the Indebtedness evidenced by the Notes unless such more favorable terms are offered to the Holders. (b) Liens. The Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; sign or suffer to exist any security agreement authorizing any secured party thereunder to file a Uniform Commercial Code financing statement (or the equivalent thereof) as notice of a Lien on any property of the Company or its Subsidiaries; sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in the Bank Facility)) to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. As used herein, "Permitted Liens" shall have the meaning of that term as defined in the Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and the banks listed therein (as the same maybe amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. 16 (c) Transactions With Affiliates. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, effect any transaction with any Affiliate (as defined in the Bank Facility) that is (a) outside the ordinary course of business or (b) on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party, provided that notwithstanding the foregoing, no loan, payment or other form of contribution shall be made to NRG unless it is in an amount not in excess of (i) $300 Million payable pursuant to the Support Agreement and Capital Subscription Agreement, dated as of May 29, 2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in respect of guarantee obligations relating to the power marketing business of NRG; provided further that with respect to any payment permitted pursuant to clause (ii) above, the Company shall, in the context of a restructuring of NRG, use its reasonable best efforts to obtain a full release of all obligations and liabilities of the Company relating to NRG. (d) Leverage Ratio. The Company shall not permit the Leverage Ratio set forth in the Bank Facility to be exceeded. (e) Restrictive Agreements. The Company shall not, and shall not permit any Significant Subsidiary (as defined in the Bank Facility) other than NRG to, enter into any agreement after the date of this Note that imposes any restriction on the ability of such Significant Subsidiary to make payments, directly or indirectly, to its shareholders by way of dividends, advances, repayment of loans or intercompany charges, expenses or accruals or other returns on investments that is more restrictive than any such restriction applicable to such Significant Subsidiary on the Issuance Date. (f) Scope of Business. The Company shall, and shall cause each Subsidiary to, engage only in energy-related business, functionally related businesses (as interpreted under PUHCA, as defined in the Securities Purchase Agreement)or such other businesses as maybe permitted pursuant to an order issued by the SEC pursuant to PUHCA. (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to the Minnesota Business Corporation Act, and as expressly provided in this Note. (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to (i) all extraordinary or special dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions and (ii) regular cash dividends and distributions paid to the holders of the Common Stock only with respect to that portion of such dividends that exceeds $0.1875 per share of Common Stock in any calendar quarter (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions after the Issuance Date). Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a 17 meeting, of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes, shall be required for any change or amendment to this Note or the Other Notes. (17) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (18) REISSUANCE OF THIS NOTE. (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal. (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date. 18 (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including but not limited to attorneys fees and disbursements. (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Redemption Price or the arithmetic calculation of the Conversion Rate or the Redemption Price or any other calculation hereunder, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one Business Day of receipt of the Conversion Notice or Redemption Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Conversion Rate within one Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Weighted Average Price, the Closing 19 Bid Price or the Closing Sale Price or any other calculation hereunder to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (24) NOTICES; PAYMENTS. (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of Common Stock or (C) for determining rights to vote with respect to any Change of Control, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Notwithstanding the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to all notices given pursuant to this Note. (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Interest, Principal or other amount due under the Transaction Documents (as defined in the Securities Purchase Agreement) which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 12% per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). 20 (25) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (27) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean, with respect to any proposed Change of Control for which a public announcement that it proposes or intends to effect a Change of Control of the Company (the date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon which the Company or other Person proposing to effect such Change of Control consummates or publicly announces the termination or abandonment of the proposed Change of Control which was the subject of the previous public announcement. (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on The New York Stock Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, 21 the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any applicable calculation period. (d) "COMMON STOCK" means (i) the Company's common stock, par value $2.50 per share, and (ii) any capital stock resulting from a reclassification of such Common Stock. (e) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (f) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii), 115% or (ii) in the case of the Events of Default described in Section 4(a)(v) - (vii), 100%. (g) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement between the Company and the initial holders of the Notes relating to the registration of the resale of the shares of Common Stock issuable upon conversion of the Notes. (h) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement between the Company and the initial holders of the Notes pursuant to which the Company issued the Notes. (i) "SEPARATE TRANCHE NOTES" means the First Notes, Second Notes, First Call Notes, Second Call Notes and the Third Call Notes, collectively. (j) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market or actually trades on such exchange or market for less than 4.5 hours. (k) "TRANCHE A BASE PRICE" means Weighted Average Price of the common Stock on the issuance date of the First Notes. (l) "TRANCHE B BASE PRICE" means the Weighted Average Price of the Common Stock on the Tranche B Closing Date. 22 (m) "TRANCHE A PRICING PERIOD" means the twenty consecutive Trading Days commencing on the fifth Trading Day immediately following the issuance date of the First Notes. (n) "TRANCHE B PRICING PERIOD" means the ten consecutive Trading Days commencing on the first Trading Day immediately following the end of the Tranche A Pricing Period. (o) "VARIABLE SECURITIES" means any stock or securities other than Options directly or indirectly convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants or option to subscribe for or purchase Common Stock or Convertible Securities ("OPTIONS") that are convertible into or exchangeable, directly or indirectly, for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more adjustments or resets to a fixed price (a "VARIABLE PRICE"). (p) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the Principal Market is not the principal securities exchange or trading market for such security, the dollar volume-weighted average price for such security on the principal securities exchange or trading market where such security is listed or traded during the period beginning at 9:30 a.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree 23 upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during applicable calculation period. [SIGNATURE PAGE FOLLOWS] 24 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Date of Issuance set out above. XCEL ENERGY INC. By: --------------------------------------- Name: Title: Chief Executive Officer EXHIBIT I XCEL ENERGY INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") issued to the undersigned by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $2.50 per share (the "COMMON STOCK"), of the Company as of the date specified below. Date of Conversion: ---------------------------------------------------- Aggregate Conversion Amount to be converted: --------------------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: Please issue the Common Stock into which the Note is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- Facsimile Number: ------------------------------------------------------ Authorization: --------------------------------------------------------- By: --------------------------------------------------------- Title: ---------------------------------- Dated: -------------------------------------------------------------------------- Account Number: -------------------------------------------------------- (if electronic book entry transfer) Transaction Code Number: ----------------------------------------------- (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated November 8, 2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT]. XCEL ENERGY INC. By: ----------------------------------------- Name: Title: EX-99.07 9 c73001exv99w07.txt EX-99.07 FORM OF THIRD CALL NOTES EXHIBIT 99.07 SENIOR CONVERTIBLE NOTE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE. XCEL ENERGY, INC. Issuance Date: _______ __, ______ Principal: U.S. $____________ FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), hereby promises to pay to the order of __________________ or registered assigns ("HOLDER") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as defined below), acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal at the rate of eight percent (8%) per annum, subject to periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Final Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Convertible Note (including all Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date pursuant to the Securities Purchase Agreement (as defined below). Certain capitalized terms are defined in Section 28 and terms used herein but not defined herein shall have the meanings set forth for such terms in the Securities Purchase Agreement. (1) MATURITY. On the Final Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance Date; provided that, if the Holder has given notice in writing to the Company of its desire to extend the Maturity Date on or prior to the date that is 10 Business Days prior to the Maturity Date, the Maturity Date shall be extended (on one or more occasions) for an additional 364 days; provided, further, that the Maturity Date shall not be extended (except as provided in the following proviso) to more than five years after the Issuance Date (such date that is five years after the Issuance Date or such earlier Maturity Date prior to which the Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and provided, further, that the Final Maturity Date may be extended at the option of the Holder (x) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing or any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in an Event of Default and (y) through the date that is ten days after a Change of Control Termination Date in the event that the Announcement Date giving rise to such Change of Control Termination Date occurred prior to the Final Maturity Date. (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of the actual days elapsed during any period, and a calendar year of 365 or 366 calendar days, as applicable, and shall be payable in cash on each May 1 and each November 1 during the period beginning on the Issuance Date and ending on, and including, the Final Maturity Date (each an "INTEREST DATE"); provided that interest on any Conversion Amount of this Note that is accrued but unpaid as of the Conversion Date of such Conversion Amount shall be paid in shares of Common Stock at the Conversion Rate. From and after the occurrence of an Event of Default (as defined in Section 4(a)) or the failure to deliver timely the Non-Consolidation Opinion (as defined in the Securities Purchase Agreement) pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG OPINION"), the Interest Rate shall be increased by two percentage points (2%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. If the Company shall fail to credit the Holder's balance account with DTC (as defined in Section 3(c)(i)) or, if requested in writing by the Holder, to issue a certificate to the Holder for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount or to issue a new Note (in accordance with Section 18(d)) representing the Principal portion of the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is entitled, in each case within the time periods set out in Section 3(c)(i) (in each case, a "CONVERSION FAILURE"), then during each period beginning on and including the date of each such Conversion Failure and ending on and including the date such Conversion Failure is cured, the Interest Rate then in effect shall be increased by two percentage points (2%). If (i) the Registration Statement (as defined in the Registration Rights Agreement) covering all the Registrable Securities (as defined in the Registration Rights Agreement) issuable upon conversion of this Note and required to be filed by 2 the Company pursuant to the Registration Rights Agreement is not declared effective by the Securities and Exchange Commission (the "SEC") on or before the applicable Mandatory Effective Date (as defined in the Registration Rights Agreement) or (ii) on any day after such Registration Statement has been declared effective by the SEC that sales of all the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(t) of the Registration Rights Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement or to register sufficient shares of Common Stock) (collectively with the event described in the immediately preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity) the Interest Rate then in effect shall be increased by two percentage points (2%) during each period beginning on and including the first date of each such Registration Failure and ending on and including the date such Registration Failure is cured. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Common Stock, on the terms and conditions set forth in this Section 3. (a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (as defined below) (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise surrendered with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means, 110% of the arithmetic average of the Weighted Average Price of the Common Stock during the 20 Trading Day period beginning 90 days after the issuance date of the First Notes, not to exceed the Weighted Average Price of the Common Stock during the 20 Trading Day period ending on the Trading Day that is immediately prior to the 90th day after the issuance date of the First Notes. 3 (c) Mechanics of Conversion. (i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(ii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the first Business Day following the Company's receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder and the Transfer Agent (as defined below). On or before the second Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below does not apply) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (Y) provided that the Company's transfer agent (the "TRANSFER AGENT") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If this Note is physically surrendered for conversion as required by Section 3(c)(ii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three Business Days after receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (ii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. (iii) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Notes or the Separate Tranche Notes for the same Conversion Date and the Company can convert some, but not all, of such 4 portions of the Notes and the Separate Tranche Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Notes and the Separate Tranche Notes electing to have the Notes or Separate Tranche Notes converted on such date a pro rata amount of such holder's portion of its Notes or Separate Tranche Notes submitted for conversion based on the principal amount of the Notes or Separate Tranche Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all the Notes and the Separate Tranche Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23. (d) Limitations on Conversions. (i) Beneficial Ownership. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 5.0% of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes, Separate Tranche Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock pursuant to this Note if the issuance of such shares of Common 5 Stock would exceed that number of shares of Common Stock which the Company may issue pursuant to the Notes and the Separate Tranche Notes without breaching the Company's obligations under the rules or regulations of the Principal Market (the "EXCHANGE CAP"), except that such limitation shall not apply in the event that the Company (A) obtains the approval of its shareholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Notes and the Separate Tranche Notes representing a majority of the principal amounts of the Notes and the Separate Tranche Notes (voting as a single class) then outstanding. Until such approval or written opinion is obtained, no purchaser of the Notes or the Separate Tranche Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of the Notes or the Separate Tranche Notes, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the principal amount of the Notes and the Separate Tranche Notes issued to such Purchaser pursuant to the Securities Purchase Agreement as of the date of such determination and the denominator of which is the aggregate principal amount of all the Notes and the Separate Tranche Notes issued to the Purchasers pursuant to the Securities Purchase Agreement as of the date of such determination (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Notes or Separate Tranche Notes, the transferee shall be allocated a pro rata portion of such Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee. In the event that any holder of the Notes or the Separate Tranche Notes shall convert all of such holder's Notes or Separate Tranche Notes into a number of shares of Common Stock which, in the aggregate, is less than such holder's Exchange Cap Allocation, then the difference between such holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of the Notes and the Separate Tranche Notes on a pro rata basis in proportion to the aggregate principal amount of the Notes and the Separate Tranche Notes then held by each such holder. (4) RIGHTS UPON EVENT OF DEFAULT. (a) Event of Default. Each of the following events shall constitute a "EVENT OF DEFAULT": (i) the failure of the Registration Statement covering all Registrable Securities (as defined in the Registration Rights Agreement) required to be registered pursuant to the Registration Rights Agreement to be declared effective by the SEC on or prior to the date that is 180 days after the Issuance Date, or, while such Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of such Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the terms of the 6 Registration Rights Agreement, and such lapse or unavailability continues for a period of five consecutive Business Days or for more than an aggregate of 20 Business Days in any 365-day period; (ii) the suspension from trading on the Principal Market for a period of three consecutive Business Days or for more than an aggregate of three Business Days in any 30-day Trading Day period or the delisting of the Common Stock from the Principal Market; (iii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock or a new Note (in accordance with section 18(d)), as applicable, within 10 days after the receipt by the Company of a Conversion Notice or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party; (v) any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in Section 3(r) of the Securities Purchase Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) other than NRG (as defined below) (including, without limitation, the Other Notes) of at least $50,000,000; (vi) the Company or any of its Subsidiaries other than NRG (as defined below), pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries other than NRG (as defined below) in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries other than NRG (as defined below) or (C) orders the liquidation of the Company or any of its Subsidiaries other than NRG (as defined below); or (viii) the Company breaches any representation, warranty, covenant (other than any covenant to deliver the NRG Opinion) or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Note or any other 7 agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby to which the Holder is a party, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least 10 consecutive days. (b) Redemption Right. Promptly after the occurrence of an Event of Default with respect to this Note or the Other Notes, the Company shall deliver written notice thereof via facsimile and overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately prior to such Event of Default by (B) the Conversion Price and (ii) the product of (x) the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 10. (5) RIGHTS UPON CHANGE OF CONTROL. (a) Change of Control. Each of the following events shall constitute a "CHANGE OF CONTROL": (i) the consolidation, merger or other business combination (including, without limitation, a reorganization or recapitalization) of the Company with or into another Person in which holders of the Company's voting power immediately prior to the transaction cease after the transaction to hold, directly or indirectly, a majority of the voting power of the surviving entity or entities or the voting power necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to and accepted by the holders of more than the 50% of the outstanding shares of Common Stock. (b) Assumption. Prior to the consummation of any Change of Control, the Company will secure from any Person purchasing the Company's assets or Common Stock or any successor resulting from such Change of Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding) to deliver to each holder of Notes in exchange for such Notes, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the 8 interest rates of the Notes held by such holder, and satisfactory to the holders of Notes representing a majority of the principal amount of the Notes then outstanding. In the event that an Acquiring Entity is directly or indirectly controlled by a company or entity whose common stock or similar equity interest is listed, designated or quoted on a securities exchange or trading market, the holders of notes representing a majority of the aggregate principal amount of the Notes then outstanding may elect to treat such Person as the Acquiring Entity for purposes of this Section 5(b). (c) Redemption Right. No sooner than 15 days nor later than 10 days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice, "REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5(c) shall be redeemed by the Company at a price equal to the greater of (i) the product of (x) the Conversion Amount and (y) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock immediately following the public announcement of such proposed Change of Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the "CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section 5(c) shall be made in accordance with the provisions of Section 10 and shall have priority to payments to other shareholders in connection with a Change of Control. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Other Corporate Events. Prior to the consummation of any recapitalization, reorganization, consolidation, merger or other business combination (other than a Change of Control) pursuant to which holders of Common Stock are entitled to receive securities or other assets with respect to or in exchange for Common Stock (a "CORPORATE 9 EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the holders of Notes representing a majority of the aggregate principal amount of the Notes then outstanding. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the issuance of the Third Notes, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or any employee benefit plan which has been approved by the Board of Directors of the Company or any of its Subsidiaries, pursuant to which the Company's securities may be issued to any employee, officer or director for services provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the Notes or the Separate Tranche Notes) for a consideration per share less than the higher of the Closing Sale Price of the Common Stock on the date of such issuance or sale or deemed issuance or sale and the Conversion Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then immediately after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale and (y) the quotient determined by dividing (1) the sum of the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale or deemed issue or sale and the consideration, if any, received by the Company upon such issue or sale, by (2) the product of the Applicable Price multiplied by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale or deemed issue or sale. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: (i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price 10 per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities. If the Company issues or sells any Options which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Securities, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock or Convertible Securities upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the exercise price a price which does not vary with the market price of the Common Stock. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "price per share for which one share of Common Stock is issuable upon such conversion, exercise or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion, exercise or exchange of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. If the Company issues or sells any Convertible Securities which are Variable Securities, no adjustment of the Conversion Price shall be made pursuant to this Section 7(a), and no shares of Common Stock shall be deemed outstanding with respect to such Variable Security, as a result of the issuance of such Variable Securities until the actual issuance of Common Stock upon exercise of such Variable Securities, except to the extent such Variable Security also includes as a component of the conversion, exercise or exchange price a price which does not vary with the market price of the Common Stock. (iii) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or 11 exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. If such parties are unable to reach agreement within ten days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Notes representing a majority of the principal amounts of the Notes then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (v) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed 12 to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Notes or the Separate Tranche Notes. (vii) Delayed Adjustment. In addition to the foregoing provisions of this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing Bid Price shall be subject to adjustment, in accordance with the foregoing provisions, for any days during any measuring period, including, without limitation, the Tranche A Pricing Period, used herein that occur prior to any of the aforementioned events if such events occur prior to the end of such measuring period. (b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (c) Other Events. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7. (8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of, or enter into any agreement which by its terms restricts or otherwise impairs the Company's performance of the terms of, this Note or any of the other Transaction Documents (as defined in the Securities Purchase Agreement), and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. 13 (9) RESERVATION OF AUTHORIZED SHARES. (a) Reservation. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the Conversion Rate with respect to the Conversion Amount of each such Note and Separate Tranche Note. Thereafter, the Company shall, so long as any of the Notes or Separate Tranche Notes are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes and Separate Tranche Note, at least 100% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes and the Separate Tranche Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and the Separate Tranche Note and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes and Separate Tranche Note based on the principal amount of the Notes and Separate Tranche Notes held by each holder at the time of Issuance Date or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) Insufficient Authorized Shares. If at any time while any of the Notes or Separate Tranche Note remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes and the Separate Tranche Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes and Separate Tranche Note then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than 60 days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its best efforts to solicit its shareholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. (10) REDEMPTION. (a) Mechanics. In the event that the Holder has sent a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the Holder shall promptly 14 submit this Note to the Company. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice and thereafter the Holder shall promptly deliver this Note to the Company. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(c), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five Business Days after the Company's receipt of such notice otherwise. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the Redemption Price to the Holder within the time period required above in this Section 10(a) at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option to, in lieu of redemption, require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Bid Price during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the Other Notes or the Separate Tranche Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b) or Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices during the seven Business Day period beginning on and including the date which is three Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes and the Separate Tranche Notes (including the Holder) based on the principal amount of the Notes and the Separate Tranche Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. 15 (11) RESTRICTION ON REDEMPTION. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem its capital stock without the prior express written consent of the holders of Notes representing at least two-thirds of the aggregate principal amount of the Notes then outstanding. (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of Principal and Interest and other payments due under this Note shall rank pari passu in right of payment with all (and shall not be subordinated to any) unsecured, unsubordinated indebtedness of the Company and will be senior in right of payment to all subordinated indebtedness of the Company. (13) COVENANTS. (a) Indebtedness. The Company shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness and Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is unsecured and subordinated in right of payment to the Notes and other obligations owing to the Holders in accordance with a subordination agreement in form and substance satisfactory to the Holders. "Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is not senior in right of payment to the Notes and is otherwise on terms that are no more favorable to the holders thereof than the terms of the Indebtedness evidenced by the Notes unless such more favorable terms are offered to the Holders. (b) Liens. The Company shall not create, incur, assume or suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; sign or suffer to exist any security agreement authorizing any secured party thereunder to file a Uniform Commercial Code financing statement (or the equivalent thereof) as notice of a Lien on any property of the Company or its Subsidiaries; sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in the Bank Facility)) to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. As used herein, "Permitted Liens" shall have the meaning of that term as defined in the Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and the banks listed therein (as the same maybe amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any capitalized lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. 16 (c) Transactions With Affiliates. The Company shall not, and shall not permit any Subsidiary to, directly or indirectly, effect any transaction with any Affiliate (as defined in the Bank Facility) that is (a) outside the ordinary course of business or (b) on a basis less favorable than would at the time be obtainable for a comparable transaction in arms-length dealing with an unrelated third party, provided that notwithstanding the foregoing, no loan, payment or other form of contribution shall be made to NRG unless it is in an amount not in excess of (i) $300 Million payable pursuant to the Support Agreement and Capital Subscription Agreement, dated as of May 29, 2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in respect of guarantee obligations relating to the power marketing business of NRG; provided further that with respect to any payment permitted pursuant to clause (ii) above, the Company shall, in the context of a restructuring of NRG, use its reasonable best efforts to obtain a full release of all obligations and liabilities of the Company relating to NRG. (d) Leverage Ratio. The Company shall not permit the Leverage Ratio set forth in the Bank Facility to be exceeded. (e) Restrictive Agreements. The Company shall not, and shall not permit any Significant Subsidiary (as defined in the Bank Facility) other than NRG to, enter into any agreement after the date of this Note that imposes any restriction on the ability of such Significant Subsidiary to make payments, directly or indirectly, to its shareholders by way of dividends, advances, repayment of loans or intercompany charges, expenses or accruals or other returns on investments that is more restrictive than any such restriction applicable to such Significant Subsidiary on the Issuance Date. (f) Scope of Business. The Company shall, and shall cause each Subsidiary to, engage only in energy-related business, functionally related businesses (as interpreted under PUHCA, as defined in the Securities Purchase Agreement)or such other businesses as maybe permitted pursuant to an order issued by the SEC pursuant to PUHCA. (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to the Minnesota Business Corporation Act, and as expressly provided in this Note. (15) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to (i) all extraordinary or special dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions and (ii) regular cash dividends and distributions paid to the holders of the Common Stock only with respect to that portion of such dividends that exceeds $0.1875 per share of Common Stock in any calendar quarter (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions after the Issuance Date). Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a 17 meeting, of the holders of Notes representing not less than two-thirds of the aggregate principal amount of the then outstanding Notes, shall be required for any change or amendment to this Note or the Other Notes. (17) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (18) REISSUANCE OF THIS NOTE. (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) and this Section 18(a), following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal. (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date. 18 (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, the Securities Purchase Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including but not limited to attorneys fees and disbursements. (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Redemption Price or the arithmetic calculation of the Conversion Rate or the Redemption Price or any other calculation hereunder, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within one Business Day of receipt of the Conversion Notice or Redemption Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Conversion Rate within one Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one Business Day submit via facsimile (a) the disputed determination of the Weighted Average Price, the Closing 19 Bid Price or the Closing Sale Price or any other calculation hereunder to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or the Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (24) NOTICES; PAYMENTS. (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grants, issues or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of Common Stock or (C) for determining rights to vote with respect to any Change of Control, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Notwithstanding the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to all notices given pursuant to this Note. (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Interest, Principal or other amount due under the Transaction Documents (as defined in the Securities Purchase Agreement) which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 12% per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). 20 (25) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note has been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (27) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean, with respect to any proposed Change of Control for which a public announcement that it proposes or intends to effect a Change of Control of the Company (the date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon which the Company or other Person proposing to effect such Change of Control consummates or publicly announces the termination or abandonment of the proposed Change of Control which was the subject of the previous public announcement. (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on The New York Stock Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, 21 the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during any applicable calculation period. (d) "COMMON STOCK" means (i) the Company's common stock, par value $2.50 per share, and (ii) any capital stock resulting from a reclassification of such Common Stock. (e) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (f) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii), 115% or (ii) in the case of the Events of Default described in Section 4(a)(v) - (vii), 100%. (g) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights agreement between the Company and the initial holders of the Notes relating to the registration of the resale of the shares of Common Stock issuable upon conversion of the Notes. (h) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement between the Company and the initial holders of the Notes pursuant to which the Company issued the Notes. (i) "SEPARATE TRANCHE NOTES" means the First Notes, Second Notes, First Call Notes, Second Call Notes and Third Notes, collectively. (j) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market or actually trades on such exchange or market for less than 4.5 hours. (k) "TRANCHE A BASE PRICE" means the Weighted average Price of the Common Stock on the issuance date of the First Notes. (l) "TRANCHE B BASE PRICE" means the Weighted Average Price of the Common Stock on the Tranche B Closing Date. 22 (m) "TRANCHE A PRICING PERIOD" means the twenty consecutive Trading Days commencing on the fifth Trading Day immediately following the issuance date of the First Notes. (n) "TRANCHE B PRICING PERIOD" means the ten consecutive Trading Days commencing on the first Trading Day immediately following the end of the Tranche A Pricing Period. (o) "VARIABLE SECURITIES" means any stock or securities other than Options directly or indirectly convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants or option to subscribe for or purchase Common Stock or Convertible Securities ("OPTIONS") that are convertible into or exchangeable, directly or indirectly, for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more adjustments or resets to a fixed price (a "VARIABLE PRICE"). (p) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the Principal Market is not the principal securities exchange or trading market for such security, the dollar volume-weighted average price for such security on the principal securities exchange or trading market where such security is listed or traded during the period beginning at 9:30 a.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as such principal securities exchange or trading market publicly announces is the official close of trading), as reported by Bloomberg through its "Volume at Price" functions (ignoring any trade of more than 100,000 shares of such security pursuant to an individual transaction (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions involving such security after the Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree 23 upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during applicable calculation period. [SIGNATURE PAGE FOLLOWS] 24 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Date of Issuance set out above. XCEL ENERGY INC. By: -------------------------------------- Name: Title: Chief Executive Officer EXHIBIT I XCEL ENERGY INC. CONVERSION NOTICE Reference is made to the Convertible Note (the "NOTE") issued to the undersigned by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock, par value $2.50 per share (the "COMMON STOCK"), of the Company as of the date specified below. Date of Conversion: ---------------------------------------------------- Aggregate Conversion Amount to be converted: --------------------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: ------------------------- Please issue the Common Stock into which the Note is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- Facsimile Number: ------------------------------------------------------ Authorization: --------------------------------------------------------- By: --------------------------------------------------------- Title: ------------------- Dated: -------------------------------------------------------------------------- Account Number: -------------------------------------------------------- (if electronic book entry transfer) Transaction Code Number: ----------------------------------------------- (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated November 8, 2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT]. XCEL ENERGY INC. By: ------------------------------------ Name: Title: EX-99.08 10 c73001exv99w08.txt EX-99.08 REGISTRATION RIGHTS AGREEMENT EXHIBIT 99.08 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November 8, 2002, by and among XCEL ENERGY INC., a Minnesota corporation, with headquarters located at 800 Nicollet Mall, Minneapolis, MN 55401 (the "Company"), and the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to each Buyer convertible notes of the Company (the "FIRST NOTES"), which will be convertible into shares of the Company's common stock, par value $2.50 per share (the "COMMON STOCK") (as converted, the "FIRST CONVERSION SHARES") in accordance with the terms of the First Notes; and B. In connection with the Securities Purchase Agreement, each Buyer has the right, upon the terms and subject to the conditions of the Securities Purchase Agreement, to require the Company to issue and sell to such Buyer convertible notes of the Company (the "FIRST CALL NOTES"), which will be convertible into shares of Common Stock (as converted, the "FIRST CALL CONVERSION SHARES") in accordance with the terms of the First Call Notes; and C. In connection with the Securities Purchase Agreement, the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to each Buyer convertible notes of the Company (the "SECOND NOTES"), which will be convertible into shares of Common Stock (as converted, the "SECOND CONVERSION SHARES") in accordance with the terms of the Second Notes; and D. In connection with the Securities Purchase Agreement, each Buyer has the right, upon the terms and subject to the conditions of the Securities Purchase Agreement, to require the Company to issue and sell to such Buyer convertible notes of the Company (the "SECOND CALL NOTES"), which will be convertible into shares of Common Stock (as converted, the "SECOND CALL CONVERSION SHARES") in accordance with the terms of the Second Call Notes; and E. In connection with the Securities Purchase Agreement, each Buyer may be required to purchase, upon the terms and subject to the conditions of the Securities Purchase Agreement, and the Company may issue and sell to each Buyer convertible notes of the Company (the "THIRD NOTES"), which will be convertible into shares of Common Stock (as converted, the "THIRD CONVERSION SHARES") in accordance with the terms of the Third Notes; and F. In connection with the Securities Purchase Agreement, each Buyer may have the right, upon the terms and subject to the conditions of the Securities Purchase Agreement, to require the Company to issue and sell to such Buyer convertible notes of the Company (the "THIRD CALL NOTES"), which will be convertible into shares of Common Stock (as converted, the "THIRD CALL CONVERSION SHARES") in accordance with the terms of the Third Call Notes; and G. In connection with the First Notes and the Second Notes, each Buyer may have the right, upon the terms and subject to the conditions of the First Notes and the Second Notes, respectively, to require the Company to issue to such Buyer shares of Common Stock in connection with a Company Optional Redemption (as defined in First Notes and the Second Notes) (the "COMPANY CALL CONVERSION SHARES") in accordance with the terms of the First Notes and Second Notes; and H. To induce each Buyer to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each Buyer hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: (a) "COVERED SECURITIES" means the Notes and the Company Call Conversion Shares. (b) "FIRST CALL REGISTRABLE SECURITIES" means the First Call Conversion Shares issued or issuable upon conversion of the First Call Notes and any shares of capital stock issued or issuable with respect to the First Call Conversion Shares or the First Call Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on conversions of the First Call Notes. (c) "FIRST CALL REGISTRATION STATEMENT" means a registration statement or registration statements of the Company filed under the 1933 Act covering the First Call Registrable Securities and Second Call Registrable Securities. (d) "FIRST REGISTRABLE SECURITIES" means the First Conversion Shares issued or issuable upon conversion of the First Notes and any shares of capital stock issued or issuable with respect to the First Conversion Shares or the First Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on conversions of the First Notes. (e) "FIRST REGISTRATION STATEMENT" means a registration statement or registration statements of the Company filed under the 1933 Act covering the First Registrable Securities, the Second Registrable Securities and the Third Registrable Securities. (f) "INVESTOR" means a Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9. 2 (g) "MANDATORY EFFECTIVE DATE" means the First Mandatory Effective Date, the First Call Mandatory Effective Date, the Third Call Mandatory Effective Date and the Redemption Mandatory Effective Date (each as defined below), as applicable. (h) "MANDATORY FILING DATE" means the First Mandatory Filing Date, the First Call Mandatory Filing Date, the Third Call Mandatory Filing Date and the Redemption Mandatory Filing Date (each as defined below), as applicable. (i) "NOTES" means the First Notes, the First Call Notes, the Second Notes, the Second Call Notes, the Third Notes and the Third Call Notes. (j) "PERSON" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. (k) "REDEMPTION REGISTRABLE SECURITIES" means the Company Call Conversion Shares and any shares of capital stock issued or issuable with respect to the Company Call Conversion Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise. (l) "REDEMPTION REGISTRATION STATEMENT" means a registration statement or registration statements of the Company filed under the 1933 Act covering the Redemption Registrable Securities. (m) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). (n) "REGISTRABLE SECURITIES" means the First Registrable Securities, the First Call Registrable Securities, the Second Registrable Securities, the Second Call Registrable Securities, the Third Registrable Securities, the Third Call Registrable Securities and the Redemption Registrable Securities; provided, however, that any such Registrable Securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such securities becomes effective under the 1933 Act and such securities are disposed of in accordance with such Registration Statement, (b) such securities are sold in accordance with Rule 144 (or any successor provision) under the 1933 Act or (c) such securities become transferable without any restrictions in accordance with Rule 144(k) (or any successor provision) under the 1933 Act. (o) "REGISTRATION STATEMENT" means the First Registration Statement, the First Call Registration Statement, the Third Call Registration Statement or the Redemption Registration Statement, as applicable. 3 (p) "SECOND CALL REGISTRABLE SECURITIES" means the Second Call Conversion Shares issued or issuable upon conversion of the Second Call Notes and any shares of capital stock issued or issuable with respect to the Second Call Conversion Shares or the Second Call Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on conversions of the Second Call Notes. (q) "SECOND REGISTRABLE SECURITIES" means the Second Conversion Shares issued or issuable upon conversion of the Second Notes and any shares of capital stock issued or issuable with respect to the Second Conversion Shares or the Second Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on conversions of the Second Notes. (r) "THIRD CALL REGISTRABLE SECURITIES" means the Third Call Conversion Shares issued or issuable upon conversion of the Third Call Notes and any shares of capital stock issued or issuable with respect to the Third Call Conversion Shares or the Third Call Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on conversions of the Third Call Notes. (s) "THIRD CALL REGISTRATION STATEMENT" means a registration statement or registration statements of the Company filed under the 1933 Act covering the Third Call Registrable Securities. (t) "THIRD REGISTRABLE SECURITIES" means the Third Conversion Shares issued or issuable upon conversion of the Third Notes and any shares of capital stock issued or issuable with respect to the Third Conversion Shares or the Third Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on conversions of the Third Notes. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. (a) Mandatory Registration. (i) First Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than 130 days after the First Closing Date (as defined in the Securities Purchase Agreement), subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "FIRST MANDATORY FILING DATE"), file with the SEC a First Registration Statement or First Registration Statements (as is necessary) on Form S-3 covering the resale of all of the First Registrable Securities, the Second Registrable Securities and the Third Registrable Securities. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the provisions of Section 2(d). The initial First Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the product of (x) 1.15 and (y) the number of First Registrable Securities, Second Registrable Securities and Third Registrable Securities calculated as of the trading day immediately preceding the date that the First Registration Statement is initially filed with the SEC. The Company shall use its best efforts to have the First 4 Registration Statement declared effective by the SEC as soon as practicable, but in no event later than 180 days after the First Closing Date, subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "MANDATORY EFFECTIVE DATE"). (ii) First Call Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than 30 days after a First Call Closing Date or a Second Call Closing Date (each as defined in the Securities Purchase Agreement), subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "FIRST CALL MANDATORY FILING DATE"), file with the SEC a First Call Registration Statement or First Call Registration Statements (as is necessary) on Form S-3 covering the resale of all of the First Call Registrable Securities and Second Call Registrable Securities then issued or issuable in connection with outstanding Notes. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the provisions of Section 2(d). Each First Call Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the product of (x) 1.15 and (y) the number of First Call Registrable Securities and Second Call Registrable Securities (not covered by a previously-filed Registration Statement) calculated as of the trading day immediately preceding the date that the First Call Registration Statement is initially filed with the SEC. The Company shall use its best efforts to have the First Call Registration Statement declared effective by the SEC as soon as practicable, but in no event later than 90 days after each First Call Closing Date, subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (a "FIRST CALL MANDATORY EFFECTIVE DATE"). (iii) Third Call Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than 30 days after a Third Call Closing Date (as defined in the Securities Purchase Agreement), subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "THIRD CALL MANDATORY FILING DATE"), file with the SEC a Third Call Registration Statement or Third Call Registration Statements (as is necessary) on Form S-3 covering the resale of all of the Third Call Registrable Securities then issued or issuable in connection with outstanding Notes. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the provisions of Section 2(d). Each Third Call Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the product of (x) 1.15 and (y) the number of Third Call Registrable Securities (not covered by a previously-filed Registration Statement) calculated as of the trading day immediately preceding the date that the Third Call Registration Statement is initially filed with the SEC. The Company shall use its best efforts to have the Third Call Registration Statement declared effective by the SEC as soon as practicable, but in no event later than 90 days after the Third Call Closing Date, subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "THIRD CALL MANDATORY EFFECTIVE DATE"). (iv) Redemption Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than 30 days after the Company Optional Redemption Date (as defined in the First Notes), subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "REDEMPTION MANDATORY FILING DATE"), file with the SEC a Redemption Registration Statement or Redemption Registration Statements (as is necessary) on Form S-3 covering the resale of all of the Redemption Registrable 5 Securities. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the provisions of Section 2(d). The initial Redemption Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the product of (x) 1.00 and (y) the number of Redemption Registrable Securities calculated as of the trading day immediately preceding the date that the Redemption Registration Statement is initially filed with the SEC. The Company shall use its best efforts to have the Redemption Registration Statement declared effective by the SEC as soon as practicable, but in no event later than 90 days after the Redemption Closing Date, subject to extension for any Allowable Grace Period (as defined in Section 3(t)) (the "REDEMPTION MANDATORY EFFECTIVE DATE"). (b) Allocation of Registrable Securities. The initial number of Registrable Securities included in any Registration Statement and each increase in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of applicable Registrable Securities held by each Investor at the time the Registration Statement covering such initial number of Registrable Securities or increase thereof is last filed with the SEC. In the event that an Investor sells or otherwise transfers any of such Person's Registrable Securities included in any Registration Statement in accordance with the terms of this Agreement, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor. Any shares of Common Stock included in a Registration Statement and which remain allocated to any Person which ceases to hold any applicable Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of applicable Registrable Securities then held by such Investors. (c) Legal Counsel. Subject to Section 5 hereof, the Buyers holding a majority of the Registrable Securities shall have the right to select one legal counsel to review the Registration Statement, any correspondence with the SEC relating thereto and any other relevant matters in connection with any offering pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the holders of a majority of Registrable Securities. The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations under this Agreement. (d) Eligibility for Form S-3. The Company represents and warrants that it does not currently meet the requirements for use of Form S-3 for registration of the resale of the Registrable Securities, but does meet the requirements for the use of Form S-1 for registration of the resale of the Registrable Securities. At any time while this Agreement is in effect, in the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form, reasonably acceptable to the holders of a majority of the Registrable Securities, and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC. (e) Sufficient Number of Shares Registered. In the event that the number of shares available under (i) a Registration Statement filed pursuant to Section 2(a) together with (ii) any Registration Statements filed pursuant to this Section 2(e) is insufficient to cover the 6 resale of 100% of the Registrable Securities required to be covered by such Registration Statement or an Investor's allocated portion of the registered shares pursuant to Section 2(b), the Company shall, subject to Section 3(t), amend any such Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least 100% of the Registrable Securities calculated as of the trading day immediately preceding the date of the filing of such amendment or new Registration Statement, in each case, as soon as practicable, but in any event not later than 15 days after the necessity therefor arises. The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. 3. RELATED OBLIGATIONS. In connection with the Company's obligation to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(e), the Company shall have the following obligations: (a) The Company shall submit to the SEC, within two (2) Business Days after the Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on a Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 48 hours after the submission of such request. The Company shall keep a particular Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which all the Investors are eligible to sell all of the Registrable Securities pursuant to Rule 144(k) under the 1933 Act (or any successor thereto) or (ii) the date the Investors have sold all the Covered Securities and Registrable Securities pursuant to an effective Registration Statement (the "REGISTRATION PERIOD"). The Company shall ensure that each Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not, when it becomes effective, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (b) Subject to Section 3(t), the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "1934 ACT"), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement. Without limiting the generality of the obligation set forth in this Section 3(b), the Company shall, from time to time as may be required by applicable laws, file a supplement to the prospectus included in a Registration Statement which updates the 7 information contained in the Registration Statement relating to (i) the aggregate principal amount of Registrable Securities outstanding, (ii) the conversion price of the Registrable Securities, (iii) the total number of shares of Common Stock issuable upon conversion of all outstanding Registrable Securities, (iv) the number of shares of Common Stock beneficially owned by each Investor whose shares are included in the Registration Statement, and (v) the number of shares of Common Stock being offered by each Investor whose shares are included in the Registration Statement. The Company shall file any such supplement with the SEC under Rule 424(b)(3) of the 1933 Act, or if the supplement may not be filed under Rule 424(b)(3) of the 1933 Act, then under such other applicable provisions of the 1933 Act. (c) The Company shall permit Legal Counsel to review and comment upon a Registration Statement and all amendments and supplements thereto at least five (5) Business Days prior to their filing with the SEC, and not file any document in a form to which Legal Counsel reasonably objects in writing prior to the filing date. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto. (d) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (ii) upon the effectiveness of any Registration Statement, ten copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. (e) The Company shall use its best efforts to (i) register and qualify, unless an exemption from registration or qualification applies, all the Registrable Securities covered by a Registration Statement under all securities or "blue sky" laws of such jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify as a foreign corporation in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify Legal Counsel and each Investor who holds Registrable Securities of the receipt by the 8 Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. (f) The Company shall (i) notify Legal Counsel and each Investor in writing (provided that in no event shall such notice include any material, nonpublic information) as promptly as practicable upon its discovery that the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omits a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and (iii) deliver ten copies of such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify Legal Counsel and each Investor in writing (provided that in no event shall such notice include any material, nonpublic information) (x) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and each Investor by facsimile on the same day of such effectiveness and by overnight mail), (y) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (z) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (g) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify (provided that in no event shall such notification include any material, nonpublic information) Legal Counsel and each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. (h) At the request of any Investor to satisfy its obligations, if any, in connection with offerings under the 1933 Act, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Investors, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors. (i) At the reasonable request of an Investor, the Company shall make available for inspection by (i) a single representative of the Investors, (ii) Legal Counsel and (iii) one firm of accountants retained by the Investors (collectively, the "INSPECTORS") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by such Inspector to satisfy its due diligence investigation under the 1933 Act, and cause the Company's officers, 9 directors and employees to supply all information which any Inspector may reasonably request that is customarily supplied in connection with such a transaction; provided, however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. (j) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement or (v) such information has been made available to the Company by a third party in good faith and not under or in breach of a requirement of confidentiality. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. (k) The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the Nasdaq National Market System or, if, despite the Company's best efforts to satisfy the preceding clause (i) or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(k). (l) The Company shall cooperate with the Investors who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request. 10 (m) The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of the applicable Registration Statement. (n) If requested by an Investor, the Company as promptly as practicable shall: (i) incorporate in a prospectus supplement or post-effective amendment to the extent required by the 1933 Act such information as an Investor requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor, the persons selling the Registrable Securities and any other terms of the offering of the Registrable Securities; (ii) make all required filings of such prospectus supplement or post-effective amendment promptly after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by a holder of such Registrable Securities. (o) The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary to consummate the disposition of such Registrable Securities. (p) The Company shall make generally available to its security holders as soon as practical, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. (q) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. (r) Within two (2) Business Days after any Registration Statement which includes the applicable Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A. (s) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. (t) Notwithstanding anything in this Agreement to the contrary, the Company shall have the right to defer filing any Registration Statement or, at any time after a Registration Statement has been filed with the SEC, the Company may suspend sales under any such filed Registration Statement or delay the disclosure of material, nonpublic information concerning the Company, if in the good faith opinion of the Board of Directors of the Company, after consultation with its outside counsel to be certain that any such disclosure is not required, it is in the best interest of the Company to do so (a "GRACE PERIOD"); provided, that the Company shall promptly (i) notify each Investor in writing of the existence of material, nonpublic information 11 giving rise to a Grace Period (provided that in no event shall such notice include any material, nonpublic information) and the date on which the Grace Period will begin, and (ii) notify each Investor in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed 10 consecutive days and during any 365 day period such Grace Periods shall not exceed an aggregate of 30 days (an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date that each Investor receives the notice referred to in clause (i) above and shall end on the date for which the Company provides the notice referred to in clause (ii) above (not to exceed 10 days). The provisions of Sections 2(a), 2(e), 3(a), 3(b), 3(g) and the first sentence of Section 3(f) hereof shall not be applicable during the period of any Allowable Grace Period. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of the notice of a Grace Period and for which the Investor has not yet settled. 4. OBLIGATIONS OF THE INVESTORS. (a) At least five (5) Business Days prior to the first anticipated filing date of a Registration Statement or an amendment thereto, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in such Registration Statement or, with respect to an amendment or supplement, if such Investor's Registrable Securities are included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. If an Investor fails to provide the Company with the information so requested which the Company reasonably requires within five (5) Business Days after the Investor's receipt of such request, then the applicable Mandatory Filing Date, Mandatory Effective Date and the 15-day period referred to in Section 2(e) shall be extended solely with respect to such Investor by one day for each day after such fifth (5th) Business Day that the Investor fails to provide such information; provided, however, that the failure of an Investor to timely provide such information pursuant to the Company's request shall not otherwise affect the Company's obligations under this Agreement to the other Investors; provided, further, however, that any Investor which fails to provide the Company with such information within the applicable time period set forth above in response to a request prior to the filing of a Registration Statement or amendment or supplement thereto shall bear the costs actually incurred by the Company of any additional Registration Statement or amendment(s) or supplement(s) thereto which the Company is required to file due solely to such failure. (b) Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statement. 12 (c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f) or notice from the Company of a Grace Period, such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f) or receipt of notice that no supplement or amendment is required or that the Grace Period has ended. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f) or notice from the Company of a Grace Period and for which the Investor has not yet settled. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any 13 material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any material violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS"). Subject to Section 6(d), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) and the agreement with respect to contribution contained in Section 7: (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(d); (ii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(d); and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. (b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an "INDEMNIFIED PARTY") against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other reasonable expenses incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. 14 (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be. In any such proceeding, any Indemnified Person or Indemnified Party may retain its own counsel, but the fees and expenses of that counsel will be at the expense of that Indemnified Person or Indemnified Party, as the case may be, unless (i) the indemnifying party and the Indemnified Person or Indemnified Party, as applicable, shall have mutually agreed to the retention of that counsel, (ii) the indemnifying party does not assume the defense of such proceeding in a timely manner or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the Indemnified Person or Indemnified Party, as applicable, and the indemnified party reasonably objects to such assumption on the ground that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party or another indemnifying party. The Company shall pay reasonable fees for only one separate legal counsel for the Investors, and such legal counsel shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. (d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. 15 (e) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no person involved in the sale of Registrable Securities which person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such transfer or assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, 16 furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee provides the Company with a writing agreeing to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 11. MISCELLANEOUS. (a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Xcel Energy Inc. 800 Nicollet Mall Minneapolis, Minnesota Telephone: (612) 215-4505 Facsimile: (612) 215-4501 Attention: General Counsel 17 With a copy to: Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Telephone: (312) 269-1519 Facsimile: (312) 782-8585 Attention: Peter D. Clarke, Esq. If to Legal Counsel: Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer Klein, Esq. If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached hereto, with copies to such Buyer's representatives as set forth on the Schedule of Buyers to the Securities Purchase Agreement, or to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting the City of Chicago, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be 18 invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. Each party hereby irrevocably waives any right it may have, and agrees not to request, a jury trial for the adjudication of any dispute hereunder or in connection herewith or arising out of this Agreement or any transaction contemplated hereby. (e) This Agreement, the Securities Purchase Agreement and the other Transaction Documents (as defined in the Securities Purchase Agreement) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement and the other Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. (f) Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. (g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (j) All consents and other determinations to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Investors holding a majority of the Registrable Securities. Any consent or other determination approved by Investors holding a majority of the Registrable Securities shall be binding on all Investors. (k) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. (l) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. 19 [SIGNATURE PAGE FOLLOWS] 20 IN WITNESS WHEREOF, each Buyer and the Company have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: BUYERS: XCEL ENERGY INC. CITADEL EQUITY FUND LTD. By: Citadel Limited Partnership, Portfolio Manager By: GLB Partners, L.P., its General Partner By: Citadel Investment Group, L.L.C., its General Partner By: ------------------------------------- Name: Title: Chief Executive Officer By: ----------------------------------------------------- Name: Kenneth A. Simpler Title: Managing Director CITADEL CREDIT TRADING LTD. By: Citadel Limited Partnership, Portfolio Manager By: GLB Partners, L.P., its General Partner By: Citadel Investment Group, L.L.C., its General Partner By: ----------------------------------------------------- Name: Kenneth A. Simpler Title: Managing Director JACKSON INVESTMENT FUND LTD. By: Citadel Limited Partnership, Portfolio Manager By: GLB Partners, L.P., its General Partner By: Citadel Investment Group, L.L.C., its General Partner By: ----------------------------------------------------- Name: Kenneth A. Simpler Title: Managing Director SCHEDULE OF BUYERS

BUYER ADDRESS AND FACSIMILE NUMBER - ---------------------------------- --------------------------------------- Citadel Equity Fund Ltd. c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Kenneth A. Simpler Facsimile: (312) 338-0780 Telephone: (312) 696-2100 Citadel Credit Trading Ltd. c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Kenneth A. Simpler Facsimile: (312) 338-0780 Telephone: (312) 696-2100 Jackson Investment Fund Ltd. c/o Citadel Investment Group, L.L.C. 225 West Washington Street Chicago, Illinois 60606 Attention: Kenneth A. Simpler Facsimile: (312) 338-0780 Telephone: (312) 696-2100

EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] ATTN: ------------------------------- RE: XCEL ENERGY INC. Ladies and Gentlemen: We are counsel to XCEL ENERGY INC., a Minnesota corporation (the "COMPANY"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and among the Company and the buyers named therein (collectively, the "HOLDERS") pursuant to which the Company issued to the Holders convertible notes of the Company (the "Notes") convertible into shares of the Company's common stock, par value $2.50 per share (the "COMMON STOCK"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion of the Notes, under the Securities Act of 1933, as amended (the "1933 ACT"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ___, 200__, the Company filed a Registration Statement on Form S-_ (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. Very truly yours, [ISSUER'S COUNSEL] By: -------------------------------- cc: [LIST HOLDERS] GRAPHIC 11 c73001xcellogo.gif GRAPHIC begin 644 c73001xcellogo.gif M1TE&.#EA_^UM;V]O?^,E%)24O]C:__& MQ@`````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M`````````````````/___R'Y!`$``/\`+`````!S`48```C_`/\)'$BPH,&# M`Q,H%,"PH<.&`Q0BG$BQHL6+&#-JW,BQH\>/($.*'$ERY($$`QZJ7.DP08&2 M,&/*G$FSILV;.$FB9,FSIX`!+W,*'4JTJ-&C2"L>2.FS*4^@2:-*G4JUJM0$ M/0<.J;]O2]+L2\./+F#/#Q"O9)F65EC6+'DTZ[6&A M/@>47LV:M&$!B#,_; MQ:-+)^I\0'*+GYEC%"X3@??OX+T3_Y@8OKSWN0@6J%^_WB+[]_#CJT

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EX-99.01

                                                                   EXHIBIT 99.01


                          SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
8, 2002, by and among XCEL ENERGY INC., a Minnesota corporation, with
headquarters located at 800 Nicollet Mall, Minneapolis, MN 55401 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").

                                    WHEREAS:

         A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act;

         B. The Company has authorized (i) a new series of senior convertible
notes of the Company in the form attached hereto as Exhibit A (together with any
convertible notes issued in replacement thereof in accordance with the terms
thereof, the "FIRST NOTES"), which First Notes shall be convertible into shares
of the Company's Common Stock, par value $2.50 per share (the "COMMON STOCK")
(as converted, the "FIRST CONVERSION Shares"), in accordance with the terms of
the First Notes, (ii) a new series of senior convertible notes of the Company in
the form attached hereto as Exhibit B (together with any convertible notes
issued in replacement thereof in accordance with the terms thereof, the "SECOND
NOTES"), which Second Notes shall be convertible into shares of the Common Stock
(as converted, the "SECOND CONVERSION SHARES"), in accordance with the terms of
the Second Notes, (iii) a new series of senior convertible notes of the Company
in the form attached hereto as Exhibit C (together with any convertible notes
issued in replacement thereof in accordance with the terms thereof, the "FIRST
CALL NOTES"), which First Call Notes shall be convertible into shares of the
Common Stock (as converted, the "FIRST CALL CONVERSION SHARES"), in accordance
with the terms of the First Call Notes, (iv) a new series of senior convertible
notes of the Company in the form attached hereto as Exhibit D (together with any
convertible notes issued in replacement thereof in accordance with the terms
thereof, the "SECOND CALL NOTES"), which Second Call Notes shall be convertible
into shares of the Common Stock (as converted, the "SECOND CALL CONVERSION
SHARES"), in accordance with the terms of the Second Call Notes, (v) a new
series of senior convertible notes of the Company in the form attached hereto as
Exhibit E (together with any convertible notes issued in replacement thereof in
accordance with the terms thereof, the "THIRD NOTES"), which Third Notes shall
be convertible into shares of the Common Stock (as converted, the "THIRD
CONVERSION SHARES"), in accordance with the terms of the Third Notes, and (vi) a
new series of senior convertible notes of the Company in the form attached
hereto as Exhibit F (together with any convertible notes issued in replacement
thereof in accordance with the terms thereof, the "THIRD CALL NOTES"), which
Third Call Notes shall be convertible into shares of the Common Stock (as
converted, the "THIRD CALL CONVERSION SHARES" and collectively with the First
Conversion Shares, the Second Conversion Shares, the First Call Conversion
Shares, the Second Call Conversion Shares, the Third Conversion Shares, and the
Company Optional Redemption Conversion Shares (as defined in the First Notes),
the "CONVERSION SHARES"), in accordance with the terms of the Third Call Notes.
The First Notes, the Second Notes, the First Call Notes, the





Second Call Notes, the Third Notes and the Third Call Notes collectively are
referred to in this Agreement as the "NOTES";

         C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, that aggregate principal
amount of First Notes set forth opposite such Buyer's name on the Schedule of
Buyers (which aggregate principal amount for all Buyers shall be $100,000,000);

         D. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, that aggregate principal
amount of Second Notes set forth opposite such Buyer's name on the Schedule of
Buyers (which aggregate principal amount for all Buyers shall be $50,000,000);

         E. Subject to the terms and conditions set forth in this Agreement,
each Buyer shall have the right to purchase, and the Company may be required to
sell, up to an aggregate of $50,000,000 principal amount of First Call Notes
(pro rata based on the principal amount of First Notes each Buyer purchased in
relation to the aggregate principal amount of First Notes issued);

         F. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase, and the Company may be required to
sell, up to an aggregate of $25,000,000 principal amount of Second Call Notes
(pro rata based on the principal amount of Second Notes each Buyer purchased in
relation to the aggregate principal amount of Second Notes issued);

         G. Subject to the terms and conditions set forth in this Agreement, the
Company may have the right to cause the Buyers, and the Buyers may be required,
to purchase up to an aggregate of $100,000,000 principal amount of Third Notes
(pro rata based on the principal amount of First Notes each Buyer purchased in
relation to the aggregate principal amount of First Notes issued);

         H. Subject to the terms and conditions set forth in this Agreement,
each Buyer may have the right to purchase and the Company may be required to
sell up to an aggregate principal amount of Third Call Notes equal to 25% of the
aggregate principal amount of Third Notes issued (pro rata based on the
principal amount of Third Notes each Buyer purchased in relation to the
aggregate principal amount of Third Notes issued); and

         I. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit G (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.

         J. The Notes and the Conversion Shares collectively are referred to
herein as the "SECURITIES".



                                       2


         NOW THEREFORE, the Company and each Buyer hereby agree as follows:

         1. PURCHASE AND SALE OF NOTES.

                  (a) Purchase of Notes. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to each Buyer, and each Buyer severally agrees to purchase from
the Company, the First Notes, each in the principal amount as set forth opposite
such Buyer's name on the Schedule of Buyers (the "FIRST CLOSING"). Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 1(c), 6(b)
and 7(b) below, the Company shall issue and sell to each Buyer, and each Buyer
severally agrees to purchase from the Company, the Second Notes, each in the
principal amount as set forth opposite such Buyer's name on the Schedule of
Buyers (the "SECOND CLOSING"). Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 1(d), 6(c) and 7(c), at the option of each
Buyer, the Company shall issue at multiple closings, if applicable, and sell to
each such Buyer, and each such Buyer may purchase from the Company, up to that
principal amount of First Call Notes equal to such Buyer's pro rata portion of
an aggregate of $50,000,000 principal amount of First Call Notes (based on the
principal amount of First Notes each Buyer purchased in relation to the
aggregate principal amount of First Notes issued) (each a "FIRST CALL CLOSING").
Subject to the satisfaction (or waiver) of the conditions set forth in Sections
1(e), 6(d) and 7(d), at the option of each Buyer, the Company shall issue at
multiple closings, if applicable, and sell to each such Buyer, and each such
Buyer may purchase from the Company, up to that principal amount of Second Call
Notes equal to such Buyer's pro rata portion of an aggregate of $25,000,000
principal amount of Second Call Notes (based on the principal amount of Second
Notes each Buyer purchased in relation to the aggregate principal amount of
Second Notes issued) (each a "SECOND CALL CLOSING"). Subject to satisfaction (or
waiver) of the conditions set forth in Sections 1(f), 6(e) and 7(e), the Company
may require that each Buyer purchase that principal amount of Third Notes equal
to such Buyer's pro rata portion of up to an aggregate of $100,000,000 principal
amount of Third Notes (based on the principal amount of First Notes each Buyer
purchased in relation to the aggregate principal amount of First Notes purchased
by the Buyers) (the "THIRD CLOSING"). Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 1(g), 6(f) and 7(f), at the option of each
Buyer, the Company shall issue at multiple closings, if applicable, and sell to
each such Buyer, and each such Buyer may purchase from the Company, up to that
principal amount of Third Call Notes equal to such Buyer's pro rata portion of
25% of the aggregate principal amount of Third Notes issued (based on the
principal amount of Third Notes each Buyer purchased in relation to the
aggregate principal amount of Third Notes issued) (each a "THIRD CALL CLOSING").
The First Closing, the Second Closing, the First Call Closing(s), the Second
Call Closing(s), the Third Closing and the Third Call Closing(s) collectively
are referred to in this Agreement as the "CLOSINGS". The purchase price for each
Buyer (the "PURCHASE PRICE") of the Notes to be purchased by each such Buyer at
each Closing shall be equal to $1.00 for each $1.00 of principal amount of Notes
being purchased by such Buyer at such Closing.

                  (b) First Closing Date. The date and time of the First Closing
(the "FIRST CLOSING DATE") shall be 1:00 P.M. Central Time, on the date hereof,
subject to notification of satisfaction (or waiver) of the conditions to the
First Closing set forth in Sections 6(a) and 7(a) below (or such later date as
is mutually agreed to by the Company and each Buyer). The First



                                       3


Closing shall occur on the First Closing Date at the offices of Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022.

                  (c) Second Closing Date. The date and time of the Second
Closing (the "SECOND CLOSING DATE") shall be 10:00 A.M. Central Time, on the
tenth Trading Day (as defined in the Notes) after the First Closing Date,
subject to notification of satisfaction (or waiver) of the conditions to the
Second Closing set forth in Sections 6(b) and 7(b) below and the conditions
contained in this Section 1(c) (or such later date as is mutually agreed to by
the Company and each Buyer). The Second Closing shall not occur if the Company
has delivered timely a Company Optional Redemption Notice (as defined in the
Notes). The Second Closing shall occur on the Second Closing Date at the offices
of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.
Notwithstanding anything in this Agreement to the contrary, the Buyers shall not
be obligated to purchase the Second Notes at the Second Closing unless the
following condition (the "SECOND NOTE CONDITIONS") is satisfied or waived by the
Buyers: during the period beginning on the First Closing Date and ending on and
including the Second Closing Date, there shall not have occurred either (A) the
consummation of a Change of Control or a public announcement of a pending,
proposed or intended Change of Control which has not been abandoned or
terminated or (B) an Event of Default (as defined in the Notes) or an event that
with the passage of time or giving of notice would constitute an Event of
Default.

                  (d) First Call Closing Date. The date and time of each First
Call Closing (a "FIRST CALL CLOSING DATE") shall be 10:00 a.m. Central time, on
the date specified in the First Call Note Notice (as defined below), subject to
satisfaction (or waiver) of the conditions to each First Call Closing set forth
in Sections 6(c) and 7(c) and the conditions contained in this Section 1(d) (or
such later date as is mutually agreed to by the Company and the applicable
Buyer). The First Call Closing shall not occur if the Company has delivered
timely a Company Optional Redemption Notice (as defined in the Notes). At any
time during the period beginning after the thirty-fifth business day after the
date hereof and ending on and including the date which is 365 days after the
First Closing Date, but subject to the requirements of Sections 6(c) and 7(c)
and the conditions contained in this Section 1(d), each Buyer may purchase, at
such Buyer's option, First Call Notes by delivering written notice to the
Company (a "FIRST CALL NOTE NOTICE") at least three business days (the "FIRST
CALL NOTE NOTICE DATE") prior to the First Call Closing Date set forth in the
First Call Note Notice. The First Call Note Notice shall set forth (i) the
principal amount of First Call Notes to be purchased by such Buyer at the
applicable First Call Closing Date, which principal amount, when added to the
principal amount of any First Call Notes previously purchased by such Buyer,
shall not exceed such Buyer's pro rata portion (based on the principal amount of
First Notes such Buyer purchased in relation to the aggregate principal amount
of First Notes purchased by all the Buyers) of the aggregate principal amount of
First Call Notes which may be purchased by all Buyers at all First Call
Closings, (ii) the aggregate Purchase Price for the First Call Notes to be
purchased and (iii) the First Call Closing Date. Each such First Call Closing
shall occur on the First Call Closing Date at the offices of Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022.

                  (e) Second Call Closing Date. The date and time of each Second
Call Closing (a "SECOND CALL CLOSING DATE") shall be 10:00 a.m. Central time, on
the date specified in the Second Call Note Notice (as defined below), subject to
satisfaction (or waiver) of the conditions



                                       4


to each Second Call Closing set forth in Sections 6(d) and 7(d) and the
conditions contained in this Section 1(e) (or such later date as is mutually
agreed to by the Company and the applicable Buyer). The Second Call Closing
shall not occur if the Company has delivered timely a Company Optional
Redemption Notice (as defined in the Notes). At any time after the Second
Closing and during the period beginning after the thirty-fifth business day
after the date hereof and ending on and including the date which is 365 days
after the First Closing Date, but subject to the requirements of Sections 6(d)
and 7(d) and the conditions contained in this Section 1(e), each Buyer may
purchase, at such Buyer's option, Second Call Notes by delivering written notice
to the Company (a "SECOND CALL NOTE NOTICE") at least three business days (the
"SECOND CALL NOTE NOTICE DATE") prior to the Second Call Closing Date set forth
in the Second Call Note Notice. The Second Call Note Notice shall set forth (i)
the principal amount of Second Call Notes to be purchased by such Buyer at the
applicable Second Call Closing Date, which principal amount, when added to the
principal amount of any Second Call Notes previously purchased by such Buyer,
shall not exceed such Buyer's pro rata portion (based on the principal amount of
Second Notes such Buyer purchased in relation to the aggregate principal amount
of Second Notes purchased by all the Buyers) of the aggregate principal amount
of Second Call Notes which may be purchased by all Buyers at all Second Call
Closings, (ii) the aggregate Purchase Price for the Second Call Notes to be
purchased and (iii) the Second Call Closing Date. Each such Second Call Closing
shall occur on the Second Call Closing Date at the offices of Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022.

                  (f) Third Closing Date. Subject to timely delivery by the
Company to the Buyers of the Third Note Notice (as defined below), the date and
time of the Third Closing (the "THIRD CLOSING DATE") shall be 10:00 a.m. Central
Time, on the date which is 120 days after the First Closing Date (or the first
business day thereafter), subject to satisfaction (or waiver) of the conditions
to the Third Closing set forth in Sections 6(e) and 7(e) and the conditions set
forth in this Section 1(f) (or such later date as is mutually agreed to by the
Company and the Buyers). The Third Closing shall not occur if the Company has
delivered timely a Company Optional Redemption Notice (as defined in the Notes).
The Company may require the Buyers to purchase Third Notes on the Third Closing
Date by delivering written notice to each Buyer (the "THIRD NOTE NOTICE") no
later than the date which is the business day prior to the date which is 90 days
after the First Closing Date (the date of delivery of the Third Note Notice is
referred to as the "THIRD NOTE NOTICE DATE"). The Company's Third Note Notice
shall set forth (i) each Buyer's pro rata allocation (based on the principal
amount of First Notes each Buyer purchased in relation to the aggregate
principal amount of First Notes purchased by all the Buyers) of the aggregate
principal amount of Third Notes (which aggregate principal amount shall not
exceed $100,000,000) which the Company is requiring the Buyers to purchase at
the Third Closing and (ii) the aggregate Purchase Price for each such Buyer's
Third Notes. The Third Closing shall occur on the Third Closing Date at the
offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.
Notwithstanding anything in this Agreement to the contrary, the Company shall
not be entitled to require the Buyers to purchase the Third Notes unless, in
addition to the requirements of Sections 6(e) and 7(e), all of the following
conditions are satisfied: (i) during the period beginning on the First Closing
Date and ending on and including the Third Closing Date, there shall not have
occurred either (A) the consummation of a Change of Control or a public
announcement of a pending, proposed or intended Change of Control which has not
been abandoned or terminated or (B) an Event of Default or an event that with
the



                                       5


passage of time or giving of notice would constitute an Event of Default; (ii)
the arithmetic average of the Weighted Average Prices (as defined in the Notes)
of the Common Stock on each of the 20 consecutive Trading Days (as defined in
the Notes) ending on and including the Trading Day immediately preceding the
date which is 90 days after the First Closing Date is at least equal to 60% of
the Weighted Average Price of the Common Stock on the First Closing Date; and
(iii) the Weighted Average Price of the Common Stock on the Trading Day
immediately preceding the date which is 90 days after the First Closing Date is
at least equal to 60% of the Weighted Average Price of the Common Stock on the
First Closing Date.

                  (g) Third Call Closing Date. The date and time of each Third
Call Closing (a "THIRD CALL CLOSING DATE") shall be 10:00 a.m. Central time, on
the date specified in the Third Call Note Notice (as defined below), subject to
satisfaction (or waiver) of the conditions to each Third Call Closing set forth
in Sections 6(f) and 7(f) and the conditions contained in this Section 1(g) (or
such later date as is mutually agreed to by the Company and the applicable
Buyer). At any time during the period beginning on the Third Closing Date and
ending on and including the date which is 365 days after the Third Closing Date,
but subject to the requirements of Sections 6(f) and 7(f) and the conditions
contained in this Section 1(g), each Buyer may purchase, at such Buyer's option,
Third Call Notes by delivering written notice to the Company (a "THIRD CALL NOTE
NOTICE") at least three business days (the "THIRD CALL NOTE NOTICE DATE") prior
to the Third Call Closing Date set forth in the Third Call Note Notice. The
Third Call Note Notice shall set forth (i) the principal amount of Third Call
Notes such Buyer will purchase at the applicable Third Call Closing, which
principal amount, when added to the principal amount of Third Call Notes
previously purchased by such Buyer, shall not exceed such Buyer's pro rata
portion (based on the number of Third Notes such Buyer purchased in relation to
the total number of Third Notes purchased by all the Buyers) of 25% of the
aggregate principal amount of Third Notes issued on the Third Closing Date, (ii)
the aggregate Purchase Price for the Third Call Notes to be purchased by such
Buyer and (iii) the Third Call Closing Date. Each such Third Call Closing shall
occur on the applicable Third Call Closing Date at the offices of Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022. The First Closing Date,
the Second Closing Date, the First Call Closing Date(s), the Second Call Closing
Date(s), the Third Closing Date and the Third Call Closing Date(s) collectively
are referred to in this Agreement as the "CLOSING DATES".

                  (h) Form of Payment. On each Closing Date, (i) each Buyer
shall pay its Purchase Price to the Company for the Notes to be issued and sold
to such Buyer at the applicable Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer, Notes (in the principal amounts as
such Buyer shall request) (the "NOTE Certificates") representing such principal
amount of the Notes which such Buyer is then purchasing hereunder, duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee.

         2. BUYER'S REPRESENTATIONS AND WARRANTIES.

                 Each Buyer represents and warrants with respect to only itself
that:

                  (a) No Public Sale or Distribution. Such Buyer is acquiring
the Notes, for its



                                       6


own account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.

                  (b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.

                  (c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

                  (d) Information. Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer. Such Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company.
Neither such inquiries nor any other due diligence investigations conducted by
such Buyer or its advisors, if any, or its representatives shall modify, amend
or affect such Buyer's right to rely on the Company's representations and
warranties contained herein. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

                  (e) No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

                  (f) Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a reasonably acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
"RULE 144"); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the



                                       7


Securities under circumstances in which the seller (or the Person (as defined in
Section 3(r)) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder. The Securities
may be pledged in connection with a bona fide margin account or other loan
secured by the Securities and such pledge of Securities shall not be deemed to
be a transfer, sale or assignment of the Securities hereunder, and no Buyer
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
this Section 2(f); provided, that in order to make any sale, transfer or
assignment of Securities, such Buyer and its pledgee makes such disposition in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.

                  (g) Legends. Such Buyer understands that the certificates or
other instruments representing the Notes and, until such time as the sale of the
Conversion Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
         SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
         TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN
         OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION
         IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
         (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
         NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
         CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
         ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a reasonably acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to
Rule 144.



                                       8


                  (h) Validity; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and are valid and binding agreements of such Buyer
enforceable against such Buyer in accordance with their terms, subject as to
enforceability to general principles of equity and to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.

                  (i) Residency. Such Buyer is a resident of that country
specified in its address on the Schedule of Buyers.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

                  The Company represents and warrants to each of the Buyers
that:

                  (a) Organization and Qualification. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any entity which is a
Significant Subsidiary of the Company as such term is defined in Regulation S-X)
are corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below). The Company has no Subsidiaries except as set forth in the SEC Documents
(as defined below).

                  (b) Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5) and each
of the other agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS") and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Notes and the
reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders. This Agreement and the other
Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the valid and binding obligations of
the Company enforceable against the Company in



                                       9


accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.

                  (c) Issuance of Securities. The Notes are duly authorized and,
upon issuance in accordance with the terms hereof, shall be free from all taxes,
liens and charges with respect to the issue thereof. At least 115% of the number
of shares of Common Stock necessary to satisfy all of the Company's obligations
pursuant to the First Notes and Second Notes have been duly authorized and
reserved for issuance upon conversion of the Notes. Upon conversion in
accordance with the Notes, the Conversion Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, with the holders being entitled to all rights accorded to
a holder of Common Stock. Assuming the accuracy of the representations,
warranties and covenants of the Buyers set forth herein, the issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

                  (d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Notes and reservation for issuance and issuance of the
Conversion Shares) will not (i) result in a violation of the certificate of
incorporation, any certificate of designations, preferences and rights of any
outstanding series of preferred stock or bylaws of the Company or any Subsidiary
or (ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state utilities and
securities laws and regulations and the rules and regulations of the Principal
Market (as defined below)) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected.

                  (e) Consents. Except as specifically contemplated by this
Agreement, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental
agency or any regulatory or self-regulatory agency or any other Person in order
for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents, in each case in accordance with the
terms hereof or thereof, except for such consents, authorizations, orders,
filings and registrations which have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the foregoing. The Company is not in violation of the listing requirements of
the Principal Market and has no actual knowledge of any facts which would
reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

                  (f) Acknowledgment Regarding Buyer's Purchase of Securities.
The Company acknowledges and agrees that each Buyer is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby, and that no Buyer is (i) an
officer or director of the Company, (ii) an



                                       10


"affiliate" of the Company (as defined in Rule 144) or (iii) a "beneficial
owner" of more than 5% of the Common Stock (as defined for purposes of Rule
13d-3 of the 1934 Act (as defined below)). The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

                  (g) No General Solicitation; Placement Agent. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in connection with the
offer or sale of the Securities. The Company acknowledges that it has engaged
Merrill Lynch & Co. as placement agent (the "AGENT") in connection with the sale
of the Notes, which Agent may have formally or informally engaged other agents
on its behalf. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim.

                  (h) No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated. None of the Company, its Subsidiaries, their affiliates
and any Person acting on their behalf will take any action or steps referred to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.

                  (i) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Notes will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.

                  (j) Application of Takeover Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation



                                       11


or the laws of the state of its incorporation which is or could become
applicable to the Buyers as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.

                  (k) SEC Documents; Financial Statements. Since December 31,
2000, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
ACT"), and pursuant to the Public Utility Holding Company Act of 1935, as
amended ("PUHCA") (all of the foregoing filed prior to the date hereof, or in
connection with any Closing subsequent to the date hereof, filed prior to the
date of such Closing, and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC DOCUMENTS"). The Company has made available
to the Buyers or their respective representatives true and complete copies of
the SEC Documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and PUHCA, as
applicable, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or, other than in connection with NRG
Energy Inc. and its subsidiaries (collectively, "NRG"), omits to state any
material fact necessary in order to make the statements therein, in the light of
the circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries nor any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information. As of the date hereof, the Company meets the requirements for use
of Form S-1 for registration of the resale of Registrable Securities (as defined
in the Registration Rights Agreement) and does not have any knowledge or reason
to believe that it does not meet such requirements or any actual knowledge of
any fact which would reasonably result in its not meeting such requirements. The
Company is not required to file and will not be required to file any agreement,
note, lease, mortgage, deed or other instrument entered into prior to the date
hereof and to which the Company is a party or by which the Company is bound
which has not been previously filed as an exhibit to its reports filed with the
SEC under the 1934 Act and PUHCA. Except for the issuance of the Notes
contemplated by this Agreement, no event, liability, development or circumstance
has occurred



                                       12


or exists, or is currently contemplated to occur, with respect to the Company or
its Subsidiaries (other than in connection with NRG) or their respective
business, properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws and which has
not been publicly disclosed.

                  (l) Absence of Certain Changes. Except as disclosed in the SEC
Documents and except for those relating to NRG, since December 31, 2001, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries. Except for NRG or to
the extent that NRG affects the Company, there has been no material adverse
change and no material adverse development in the business, properties,
operations, condition (financial or otherwise), results of operations or
prospects of any Subsidiary of the Company. The Company has not taken any steps,
and does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings with respect to the Company or any of its Subsidiaries
(other than such proceedings with respect to NRG).

                  (m) No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for those that relate to NRG or to the extent that NRG
affects the Company, no event, liability, development or circumstance has
occurred or exists, or is contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, prospects, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws on a registration statement on Form S-1 filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly announced.

                  (n) Conduct of Business; Regulatory Permits. Neither the
Company nor its Subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or Bylaws
or their organizational charter or bylaws, respectively. Except as disclosed in
the SEC Documents, neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute, ordinance, rule or
regulation applicable to the Company or its Subsidiaries, and neither the
Company nor any of its Subsidiaries will conduct its business in violation of
any of the foregoing, except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of The New York Stock Exchange (the
"PRINCIPAL MARKET"), including, without limitation, the listing requirements set
forth in Rule 312.03(c) of the Principal Market and has no knowledge of any
facts or circumstances which would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. Since
December 31, 2001, (i) the Company's Common Stock has been designated for
quotation or listed on the Principal Market, (ii) trading in the Common Stock
has not been suspended by the SEC or the Principal Market and (iii) the Company
has received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock from the
Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and



                                       13


permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

                  (o) Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other Person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

                  (p) Transactions With Affiliates. Except as set forth in the
SEC Documents filed at least ten days prior to the date hereof and other than
the grant of stock options pursuant to option plans disclosed in such SEC
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

                  (q) Equity Capitalization. As of October 31, 2002, the
outstanding Common Stock is 398,714,039 shares and the authorized capital stock
of the Company is materially as set forth in the most recent SEC Documents filed
by the Company. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
the SEC Documents: (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) other than in connection with NRG,
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no material amounts
outstanding under, and there will be no material amounts due upon termination
of, any credit agreement or credit facility; (v) there are no financing
statements securing



                                       14


obligations in any material amounts, either singly or in the aggregate, filed in
connection with the Company; (vi) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act (except the Registration Rights
Agreement); (vii) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries (other than
in connection with NRG as it relates to NRG's securities); (viii) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities; (ix) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (x) the Company and its Subsidiaries (other than
in connection with NRG) have no liabilities or obligations required to be
disclosed in the SEC Documents (as defined herein) but not so disclosed in the
SEC Documents, other than those incurred in the ordinary course of the Company's
or its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company and
its Subsidiaries taken as a whole. The Company has made available to the Buyer
true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the
date hereof (the "BYLAWS"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.

                  (r) Indebtedness and Other Contracts. Except as disclosed in
the SEC Documents and except as it relates to NRG, neither the Company nor any
of its Subsidiaries (i) has any outstanding Indebtedness (as defined below),
(ii) is a party to any contract, agreement or instrument, the violation of
which, or default under which, by the other party(ies) to such contract,
agreement or instrument would result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement, instrument
or Indebtedness, except where such violations and defaults would not result,
either individually or in the aggregate, in a Material Adverse Effect, or (iv)
is a party to any contract, agreement or instrument, the performance of which,
in the judgement of the Company's officers, has or is expected to have a
Material Adverse Effect. For purposes of this Agreement: (x) "INDEBTEDNESS" of
any Person means, without duplication (A) all indebtedness for borrowed money,
(B) all obligations issued, undertaken or assumed as the deferred purchase price
of property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or



                                       15


otherwise, to be secured by) any mortgage, lien, pledge, change, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
"PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

                  (s) Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as set forth in the
SEC Documents or that would not otherwise have a Material Adverse Effect.

                  (t) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Other than in connection with NRG, neither the Company
nor any such Subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

                  (u) Employee Relations. (i) Neither the Company nor any of its
Subsidiaries is involved in any material union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. The Company and its Subsidiaries believe that their relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.

                           (ii) The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.



                                       16


                  (v) Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all Environmental Laws (as hereinafter defined),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval where, in each of the three foregoing cases, the failure to
so comply could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.

                  (w) Subsidiary Rights. Other than restrictions that are not
material and other than restrictions on dividends by NRG to the Company and on
dividends within NRG, the Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
material Subsidiaries as owned by the Company or such Subsidiary.

                  (x) Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.

         4. COVENANTS.

                  (a) Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.

                  (b) Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Dates. The Company shall make all filings and reports relating to
the offer and sale of the Securities required under applicable securities or



                                       17


"Blue Sky" laws of the states of the United States following each of the Closing
Dates.

                  (c) Reporting Status. Until the date on which the Investors
(as defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares and none of the Notes is outstanding (the "REPORTING PERIOD"),
the Company shall file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.

                  (d) Use of Proceeds. The Company will use the proceeds from
the sale of the Securities for substantially the same purposes and in
substantially the same amounts as has been disclosed to the Buyers.

                  (e) Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period (i) unless the following
are filed with the SEC through EDGAR and are available to the public through
EDGAR, within one (1) business day after the filing thereof with the SEC, a copy
of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries, and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.

                  (f) Non-Consolidation Opinion. The Company shall deliver to
each Buyer within ten (10) days after the First Closing Date, a reasoned legal
opinion addressed to each Buyer from the Company's outside legal counsel in
form, scope and substance reasonably satisfactory to such Buyer as to
non-consolidation issues of the Company with the assets and liabilities of NRG
(the "NON-CONSOLIDATION OPINION").

                  (g) Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall maintain the Common Stock's authorization for quotation on the Principal
Market. Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
the Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(g).

                  (h) Fees. The Company shall be responsible for the payment of
any placement agent's fees or broker's commissions relating to or arising out of
the transactions contemplated hereby, including without limitation, any fees or
commissions payable to the Agent. Except as otherwise set forth in this
Agreement or in the Registration Rights Agreement,



                                       18


each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyers.

                  (i) Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Securities. The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including without limitation, Section 2(f) of this Agreement; provided
that an Investor and its pledgee shall be required to comply with the provisions
of Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.

                  (j) Disclosure of Transactions and Other Material Information.
On or before 8:00 am EST ON the first business day following the First Closing
Date, the Company shall file a Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act,
and attaching the material Transaction Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the forms of Notes and the
Registration Rights Agreement) as exhibits to such filing (including all
attachments, the "8-K FILING"). On or before 8:00 am EST on the first business
day following the Second Closing Date, each First Call Closing Date, each Second
Call Closing Date, the Third Closing Date, each Third Call Closing Date and the
Third Note Notice Date, the Company shall file a Form 8-K with the SEC
describing the transaction consummated or proposed on such date. From and after
the filing of the 8-K Filing with the SEC, no Buyer shall be in possession of
any material nonpublic information received from the Company, any of its
subsidiaries or any of its respective officers, directors, employees or agents,
that is not disclosed in the 8-K Filing. The Company shall not, and shall cause
each of its subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material
nonpublic information regarding the Company or any of its subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer. In the event of a breach of the foregoing covenant by the
Company, any of its subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material nonpublic information without the prior approval by the
Company, its subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, its subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Buyer shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided



                                       19


that in the case of clause (i) each Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release).

                  (k) Restriction on Redemption. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem any Common
Stock without the prior express written consent of the holders of Notes
representing not less than two-thirds of the aggregate principal amount of the
then outstanding Notes.

                  (l) Additional Notes. For so long as any Buyer beneficially
owns any Securities, the Company will not issue any Notes other than to the
Buyers as contemplated hereby and the Company shall not issue any other
securities that would cause a breach or default under the Notes.

                  (m) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

                  (n) Variable Securities. The Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) under any Note.

                  (o) Proxy Statement. If the Company at any time determines
that in connection with the issuance of the Securities, Stockholder Approval is
required by the Principal Market in connection with the Exchange Cap (as defined
in the Notes), the Company shall provide each stockholder entitled to vote at
the next meeting of stockholders of the Company, which meeting shall occur on or
before ninety days from the date of such determination (the "STOCKHOLDER MEETING
DEADLINE"), a proxy statement, which has been previously reviewed by the Buyers
and a counsel of their choice, soliciting each such stockholder's affirmative
vote at such stockholder meeting for approval of the Company's issuance of all
of the Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market (such
affirmative approval being referred to herein as the "STOCKHOLDER APPROVAL"),
and the Company shall use its best efforts to solicit its stockholders' approval
of such issuance of the Securities and to cause the Board of Directors of the
Company to recommend to the stockholders that they approve such proposal. The
Company shall be obligated to obtain the Stockholder Approval by the Stockholder
Meeting Deadline.

         5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

                  (a) Register. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Notes), a register for the Notes, in which
the Company shall record the name and address of the Person in whose name the
Notes have been issued (including the name and address of each



                                       20


transferee) and the amount of Notes held by such Person. The Company shall keep
the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

                  (b) Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates or credit shares to the applicable balance accounts
at DTC, registered in the name of each Buyer or its respective nominee(s), for
the Conversion Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes in the form of Exhibit I
attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(f) hereof will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Notes and the Registration Rights Agreement. If a Buyer effects a
sale, assignment or transfer of the Securities in accordance with Section 2(f),
the Company shall permit the transfer, and shall promptly instruct its transfer
agent to issue one or more certificates or credit shares to the applicable
balance accounts at DTC in such name and in such denominations as specified by
such Buyer to effect such sale, transfer or assignment. In the event that such
sale, assignment or transfer involves Conversion Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

         6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

                  (a) First Closing Date. The obligation of the Company
hereunder to issue and sell the First Notes to each Buyer at the First Closing
is subject to the satisfaction, at or before the First Closing Date, of each of
the following conditions, provided that these conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole discretion
by providing each Buyer with prior written notice thereof:

                           (i) Such Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.

                           (ii) Such Buyer shall have delivered to the Company
the Purchase Price for the Notes being purchased by such Buyer at the First
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

                           (iii) The representations and warranties of such
Buyer shall be true and



                                       21


correct in all material respects as of the date when made and as of the First
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the First Closing Date.

                  (b) Second Closing Date. The obligation of the Company
hereunder to issue and sell the Second Notes to each Buyer at the Second Closing
is subject to the satisfaction, at or before the Second Closing Date, of each of
the following conditions, provided that these conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole discretion
by providing each Buyer with prior written notice thereof:

                           (i) Such Buyer shall have delivered to the Company
the Purchase Price for the Notes being purchased by such Buyer at the Second
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

                           (ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Second Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Second Closing Date.

                  (c) First Call Closing Date. The obligation of the Company
hereunder to issue and sell the First Call Notes to each Buyer at each First
Call Closing is subject to the satisfaction, at or before such First Call
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:

                           (i) Such Buyer shall have delivered to the Company
the Purchase Price for the First Call Notes being purchased by such Buyer at the
First Call Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.

                           (ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the applicable First Call Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the
applicable First Call Closing Date.

                  (d) Second Call Closing Date. The obligation of the Company
hereunder to issue and sell the Second Call Notes to each Buyer at each Second
Call Closing is subject to the satisfaction, at or before such Second Call
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the



                                       22


Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

                           (i) Such Buyer shall have delivered to the Company
the Purchase Price for the Second Call Notes being purchased by such Buyer at
the Second Call Closing by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company.

                           (ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the applicable Second Call Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date),
and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the applicable Second Call Closing Date.

                  (e) Third Closing Date. The obligation of the Company
hereunder to issue and sell the Notes to each Buyer at the Third Closing is
subject to the satisfaction, at or before the Third Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:

                           (i) Such Buyer shall have delivered to the Company
the Purchase Price for the NOTES being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.

                           (ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the Third Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Third Closing Date.

                  (f) Third Call Closing Date. The obligation of the Company
hereunder to issue and sell the Third Call Notes to each Buyer at each Third
Call Closing is subject to the satisfaction, at or before such Third Call
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:

                           (i) Such Buyer shall have delivered to the Company
the Purchase Price for the Third Call Notes being purchased by such Buyer at the
Third Call Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.

                           (ii) The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of the applicable Third Call



                                       23


Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the applicable Third Call Closing
Date.

         7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

                  (a) First Closing Date. The obligation of each Buyer hereunder
to purchase the First NOTES at the First Closing is subject to the satisfaction,
at or before the First Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof and provided that if the there is any such
waiver, the Company covenants and agrees to supply the missing items within 10
days of such First Closing:

                           (i) The Company shall have executed and delivered to
such Buyer (i) each of the Transaction Documents and (ii) the Note Certificates
(in such principal amounts as such Buyer shall request) being purchased by such
Buyer at the First Closing pursuant to this Agreement.

                           (ii) Such Buyer shall have received the opinions of
the Company's counsel dated as of the First Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit H-1 and Exhibit H-2 attached hereto.

                           (iii) The Company shall have delivered to such Buyer
a copy of the Irrevocable Transfer Agent Instructions, in the form of Exhibit I
attached hereto, which instructions shall have been delivered to and
acknowledged in writing by the Company's transfer agent.

                           (iv) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the First Closing Date.

                           (v) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Minnesota within 10 days of the First Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the First
Closing Date, as to (i) the resolutions described in Section 3 as adopted by the
Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii)
the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit J.

                           (vii) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the First
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company



                                       24


shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the First Closing Date.
Such Buyer shall have received a certificate, executed by the Chief Executive
Officer or Chief Financial Officer of the Company, dated as of the First Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit K.

                           (viii) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the First Closing
Date.

                           (ix) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

                           (x) (A) The Common Stock shall be designated for
quotation or listing on the Principal Market, (B) trading in the Common Stock on
the Principal Market shall not have been suspended by the SEC or the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, and (C) the Conversion Shares shall be listed upon the Principal
Market within 21 days after the First Closing.

                  (b) Second Closing Date. The obligation of each Buyer
hereunder to purchase the Second Notes at the Second Closing is subject to the
satisfaction, at or before the Second Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:

                           (i) The Company shall have executed and delivered to
such Buyer the Note Certificates (in such principal amounts as such Buyer shall
request) being purchased by such Buyer at the Second Closing pursuant to this
Agreement.

                           (ii) Such Buyer shall have received the opinions of
the Company's counsel dated as of the Second Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit H-1 and Exhibit H-2 attached hereto.

                           (iii) The Irrevocable Transfer Agent Instructions
shall remain in effect as of the Second Closing Date and the Company shall cause
its transfer agent to deliver a letter to such Buyer to that effect.

                           (iv) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the Second Closing Date.

                           (v) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Minnesota within 10 days of the Second Closing Date.



                                       25


                           (vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the Second
Closing Date, as to (i) the resolutions described in Section 3 as adopted by the
Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii)
the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit J.

                           (vii) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the Second
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all respects with the covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Second Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer
or Chief Financial Officer of the Company, dated as of the Second Closing Date,
to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit K.

                           (viii) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Second Closing
Date.

                           (ix) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

                           (x) (A) The Common Stock shall be designated for
quotation or listing on the Principal Market, (B) trading in the Common Stock on
the Principal Market shall not have been suspended by the SEC or the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, and (C) the Conversion Shares shall be listed upon the Principal
Market.

                           (xi) Such Buyer shall have received the
Non-Consolidation Opinion in accordance with Section 4(f).

                  (c) First Call Closing Date. The obligation of each Buyer
hereunder to purchase the First Call Notes at each of the applicable First Call
Closings is subject to the satisfaction, at or before each of the First Call
Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

                           (i) The Company shall have executed and delivered to
such Buyer the Note Certificates (in such principal amounts as such Buyer shall
request) being purchased by such Buyer at the First Call Closing pursuant to
this Agreement.

                           (ii) Such Buyer shall have received the opinions of
the Company's



                                       26


counsel dated as of the applicable First Call Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit H-1 and Exhibit H-2 attached hereto.

                           (iii) The Irrevocable Transfer Agent Instructions
shall remain in effect as of the applicable First Call Closing Date and the
Company shall cause its transfer agent to deliver a letter to such Buyer to that
effect.

                           (iv) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the applicable First Call Closing Date.

                           (v) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Minnesota within 10 days of the applicable First Call
Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the applicable
First Call Closing Date, as to (i) the resolutions described in Section 3 as
adopted by the Company's Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as
in effect at the applicable First Call Closing, in the form attached hereto as
Exhibit J.

                           (vii) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the
applicable First Call Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the applicable First
Call Closing Date. Such Buyer shall have received a certificate, executed by the
Chief Executive Officer or Chief Financial Officer of the Company, dated as of
the applicable First Call Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer in the form attached
hereto as Exhibit K.

                           (viii) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the First Call Closing
Date.

                           (ix) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

                           (x) (A) The Common Stock shall be designated for
quotation or listing on the Principal Market, (B) trading in the Common Stock on
the Principal Market shall not have been suspended by the SEC or the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, and (C) the Conversion Shares shall be listed upon the Principal
Market.



                                       27


                  (d) Second Call Closing Date. The obligation of each Buyer
hereunder to purchase the Second Call Notes at each of the applicable Second
Call Closings is subject to the satisfaction, at or before each of the Second
Call Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

                           (i) The Company shall have executed and delivered to
such Buyer the Note Certificates (in such principal amounts as such Buyer shall
request) being purchased by such Buyer at the Second Call Closing pursuant to
this Agreement.

                           (ii) Such Buyer shall have received the opinions of
the Company's counsel dated as of the applicable Second Call Closing Date, in
form, scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto.

                           (iii) The Irrevocable Transfer Agent Instructions
shall remain in effect as of the applicable Second Call Closing Date and the
Company shall cause its transfer agent to deliver a letter to such Buyer to that
effect.

                           (iv) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the applicable Second Call Closing Date.

                           (v) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Minnesota within 10 days of the applicable Second Call
Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the applicable
Second Call Closing Date, as to (i) the resolutions described in Section 3 as
adopted by the Company's Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as
in effect at the applicable Second Call Closing, in the form attached hereto as
Exhibit J.

                           (vii) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the
applicable Second Call Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the applicable Second
Call Closing Date. Such Buyer shall have received a certificate, executed by the
Chief Executive Officer or Chief Financial Officer of the Company, dated as of
the applicable Second Call Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer in the form attached
hereto as Exhibit K.



                                       28


                           (viii) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Second Call
Closing Date.

                           (ix) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

                           (x) (A) The Common Stock shall be designated for
quotation or listing on the Principal Market, (B) trading in the Common Stock on
the Principal Market shall not have been suspended by the SEC or the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, and (C) the Conversion Shares shall be listed upon the Principal
Market.

                  (e) Third Closing Date. The obligation of each Buyer hereunder
to purchase the Third Notes at the Third Closing is subject to the satisfaction,
at or before the Third Closing Date, of each of the following conditions,
provided that these conditions are for each Buyer's sole benefit and may be
waived by such Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof:

                           (i) The Company shall have executed and delivered to
such Buyer the Note Certificates (in such principal amounts as such Buyer shall
request) being purchased by such Buyer at the Third Closing pursuant to this
Agreement.

                           (ii) Such Buyer shall have received the opinions of
the Company's counsel dated as of the Third Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit H-1 and Exhibit H-2 attached hereto.

                           (iii) The Irrevocable Transfer Agent Instructions
shall remain in effect as of the Third Closing Date and the Company shall cause
its transfer agent to deliver a letter to such Buyer to that effect.

                           (iv) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the Third Closing Date.

                           (v) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Minnesota within 10 days of the Third Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the Third
Closing Date, as to (i) the resolutions described in Section 3 as adopted by the
Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii)
the Certificate of Incorporation and (iii) the Bylaws,



                                       29


each as in effect at the Third Closing, in the form attached hereto as Exhibit
J.

                           (vii) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the Third
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all respects with the covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Third Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer
or Chief Financial Officer of the Company, dated as of the Third Closing Date,
to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit K.

                           (viii) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Third Closing
Date.

                           (ix) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

                           (x) (A) The Common Stock shall be designated for
quotation or listing on the Principal Market, (B) trading in the Common Stock on
the Principal Market shall not have been suspended by the SEC or the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, and (C) the Conversion Shares shall be listed upon the Principal
Market.

                           (xi) The Company shall have delivered to each Buyer
the Non-Consolidation Opinion in accordance with Section 4(f).

                  (f) Third Call Closing Date. The obligation of each Buyer
hereunder to purchase the Third Call Notes at each of the applicable Third Call
Closings is subject to the satisfaction, at or before each of the Third Call
Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

                           (i) The Company shall have executed and delivered to
such Buyer the Note Certificates (in such principal amounts as such Buyer shall
request) being purchased by such Buyer at the Third Call Closing pursuant to
this Agreement.

                           (ii) Such Buyer shall have received the opinions of
the Company's counsel dated as of the applicable Third Call Closing Date, in
form, scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit H-1 and Exhibit H-2 attached hereto.

                           (iii) The Irrevocable Transfer Agent Instructions
shall remain in effect as of the applicable Third Call Closing Date and the
Company shall cause its transfer agent to deliver a letter to such Buyer to that
effect.



                                       30


                           (iv) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the applicable Third Call Closing Date.

                           (v) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Minnesota within 10 days of the applicable Third Call
Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company dated as of the applicable
Third Call Closing Date, as to (i) the resolutions described in Section 3 as
adopted by the Company's Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as
in effect at the applicable Third Call Closing, in the form attached hereto as
Exhibit J.

                           (vii) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the
applicable Third Call Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the applicable Third
Call Closing Date. Such Buyer shall have received a certificate, executed by the
Chief Executive Officer or Chief Financial Officer of the Company, dated as of
the applicable Third Call Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer in the form attached
hereto as Exhibit K.

                           (viii) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Third Call Closing
Date.

                           (ix) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by this Agreement
as such Buyer or its counsel may reasonably request.

                           (x) (A) The Common Stock shall be designated for
quotation or listing on the Principal Market, (B) trading in the Common Stock on
the Principal Market shall not have been suspended by the SEC or the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, and (C) the Conversion Shares shall be listed upon the Principal
Market.

         8. TERMINATION. In the event that the First Closing shall not have
occurred with respect to a Buyer on or before five (5) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall



                                       31


have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party.

         9. MISCELLANEOUS.

                  (a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of Illinois,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Illinois or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
Illinois. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                  (b) Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

                  (c) Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

                  (d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

                  (e) Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyers, the Company,
their affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither



                                       32


the Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of Notes representing at least two-thirds of the aggregate principal
amount of the Notes then outstanding, and no provision hereof may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Notes then outstanding. No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of Notes, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.

                  (f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business day
after deposit with an overnight courier service, in each case properly addressed
to the party to receive the same. The addresses and facsimile numbers for such
communications shall be:

         If to the Company:

                  Xcel Energy Inc.
                  800 Nicollet Mall
                  Minneapolis, Minnesota
                  Telephone: (612) 215-4505
                  Facsimile: (612) 215-4501
                  Attention: General Counsel

         With a copy to:

                  Jones, Day, Reavis & Pogue
                  77 West Wacker
                  Chicago, Illinois 60601-1692
                  Telephone: (312) 269-1519
                  Facsimile: (312) 782-8585
                  Attention: Peter D. Clarke, Esq.

         If to the Transfer Agent:

                  Wells Fargo Bank Minnesota, N.A.
                  P.O. Box 64854
                  St. Paul, MN 55164-0854 USA
                  Telephone: 1-877-778-6786
                  Facsimile: 612-205-8538
                  Attention: Shareholder Services Department



                                       33


If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers, or to such other address and/or facsimile number and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

                  (g) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of Notes representing at least two-thirds of the
aggregate principal amount of the Notes then outstanding, including by merger or
consolidation, except pursuant to a Change of Control (as defined in Section 5
of the Notes) with respect to which the Company is in compliance with Section 5
of the Notes. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights; provided, however, that
the transferee has agreed in writing to be bound by the applicable provisions of
this Agreement and provided further, that such assignment shall be in connection
with a transfer of all or a portion of the Notes held by such Buyer and subject
to the terms and conditions of the Notes.

                  (h) No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.

                  (i) Survival. Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.

                  (j) Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                  (k) Indemnification. In consideration of each Buyer's
execution and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of



                                       34


the Company's other obligations under the Transaction Documents, the Company
shall defend, protect, indemnify and hold harmless each Buyer and each other
holder of the Securities and all of their stockholders, partners, members,
officers, directors, employees and direct or indirect investors and any of the
foregoing Persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim brought
or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, (iii) any disclosure made by such Buyer pursuant to Section
4(j), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.

                  (l) No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.

                  (m) Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under this Agreement, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

                  (n) Payment Set Aside. To the extent that the Company makes a
payment or



                                       35


payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.

                            [SIGNATURE PAGE FOLLOWS]





                                       36


         IN WITNESS WHEREOF, each Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.



COMPANY:                                               BUYERS:
                                                   

XCEL ENERGY INC.                                       CITADEL EQUITY FUND LTD.

                                                       By: Citadel Limited Partnership, Portfolio Manager

By:                                                    By: GLB Partners, L.P., its General Partner
   -----------------------------------------
     Name:                                             By: Citadel Investment Group, L.L.C., its General Partner
     Title:   Chief Executive Officer

                                                       By:
                                                          ------------------------------------------------------
                                                          Name:  Kenneth A. Simpler
                                                          Title: Managing Director

                                                       CITADEL CREDIT TRADING LTD.

                                                       By: Citadel Limited Partnership, Portfolio Manager

                                                       By: GLB Partners, L.P., its General Partner

                                                       By: Citadel Investment Group, L.L.C., its General Partner


                                                       By:
                                                          ------------------------------------------------------
                                                          Name:  Kenneth A. Simpler
                                                          Title: Managing Director

                                                       JACKSON INVESTMENT FUND LTD.

                                                       By: Citadel Limited Partnership, Portfolio Manager

                                                       By: GLB Partners, L.P., its General Partner

                                                       By: Citadel Investment Group, L.L.C., its General Partner


                                                       By:
                                                          ------------------------------------------------------
                                                          Name:  Kenneth A. Simpler
                                                          Title: Managing Director





                               SCHEDULE OF BUYERS




                                                                   AGGREGATE       AGGREGATE
                                                                   PRINCIPAL       PRINCIPAL
                                                                   AMOUNT OF       AMOUNT OF         LEGAL REPRESENTATIVE'S
        BUYER                 ADDRESS AND FACSIMILE NUMBER        FIRST NOTES     SECOND NOTES    ADDRESS AND FACSIMILE NUMBER
        -----                 ----------------------------        -----------     ------------    ----------------------------
                                                                                     

Citadel Equity Fund Ltd.      c/o Citadel Investment Group,        $80,000,000     $40,000,000   Eleazer Klein, Esq.
                              L.L.C.                                                             Schulte Roth & Zabel LLP
                              225 West Washington Street                                         919 Third Avenue
                              Chicago, Illinois 60606                                            New York, NY 10022
                              Attention:  Kenneth A. Simpler                                     Facsimile: (212) 593-5955
                              Facsimile: (312) 338-0780
                              Telephone: (312) 696-2100
                              Residence: Cayman Islands

Citadel Credit Trading Ltd.   c/o Citadel Investment Group,        $10,000,000      $5,000,000   Eleazer Klein, Esq.
                              L.L.C.                                                             Schulte Roth & Zabel LLP
                              225 West Washington Street                                         919 Third Avenue
                              Chicago, Illinois 60606                                            New York, NY 10022
                              Attention:  Kenneth A. Simpler                                     Facsimile: (212) 593-5955
                              Facsimile: (312) 338-0780
                              Telephone: (312) 696-2100
                              Residence: Cayman Islands

Jackson Investment Fund       c/o Citadel Investment Group,        $10,000,000      $5,000,000   Eleazer Klein, Esq.
Ltd.                          L.L.C.                                                             Schulte Roth & Zabel LLP
                              225 West Washington Street                                         919 Third Avenue
                              Chicago, Illinois 60606                                            New York, NY 10022
                              Attention:  Kenneth A. Simpler                                     Facsimile: (212) 593-5955
                              Facsimile: (312) 338-0780
                              Telephone: (312) 696-2100
                              Residence: Cayman Islands


                                    EXHIBITS


Exhibit A         Form of First Notes
Exhibit B         Form of Second Notes
Exhibit C         Form of First Call Notes
Exhibit D         Form of Second Call Notes
Exhibit E         Form of Third Notes
Exhibit F         Form of Third Call Notes
Exhibit G         Form of Registration Rights Agreement
Exhibit H-1       Form of Jones, Day, Reavis & Pogue Opinion
Exhibit H-2       Form of Company General Counsel Opinion
Exhibit I         Form of Irrevocable Transfer Agent Instructions
Exhibit J         Form of Secretary's Certificate
Exhibit K         Form of Officer's Certificate

EX-99.02

                                                                   EXHIBIT 99.02


                             SENIOR CONVERTIBLE NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.



                                XCEL ENERGY, INC.


Issuance Date: November 8, 2002                     Principal: U.S.

         FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), hereby promises to pay to the order of                          or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as
defined below), acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at the rate of eight percent (8%) per annum, subject to
periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date
set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Final
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and
such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 28 and terms used herein but not
defined herein shall have the meanings set forth for such terms in the
Securities Purchase Agreement.






                  (1) MATURITY. On the Final Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if
any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance
Date; provided that, if the Holder has given notice in writing to the Company of
its desire to extend the Maturity Date on or prior to the date that is 10
Business Days prior to the Maturity Date, the Maturity Date shall be extended
(on one or more occasions) for an additional 364 days; provided, further, that
the Maturity Date shall not be extended (except as provided in the following
proviso) to more than five years after the Issuance Date (such date that is five
years after the Issuance Date or such earlier Maturity Date prior to which the
Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and
provided, further, that the Final Maturity Date may be extended at the option of
the Holder (x) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (y) through the date
that is ten days after a Change of Control Termination Date in the event that
the Announcement Date giving rise to such Change of Control Termination Date
occurred prior to the Final Maturity Date.

                  (2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of the
actual days elapsed during any period, and a calendar year of 365 or 366
calendar days, as applicable, and shall be payable in cash on each May 1 and
each November 1 during the period beginning on the Issuance Date and ending on,
and including, the Final Maturity Date (each an "INTEREST DATE"); provided that
interest on any Conversion Amount of this Note that is accrued but unpaid as of
the Conversion Date of such Conversion Amount shall be paid in shares of Common
Stock at the Conversion Rate. From and after the occurrence of an Event of
Default (as defined in Section 4(a)) or the failure to deliver timely the
Non-Consolidation Opinion (as defined in the Securities Purchase Agreement)
pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG
OPINION"), the Interest Rate shall be increased by two percentage points (2%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default. If the Company
shall fail to credit the Holder's balance account with DTC (as defined in
Section 3(c)(i)) or, if requested in writing by the Holder, to issue a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount or to issue a new
Note (in accordance with Section 18(d)) representing the Principal portion of
the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is
entitled, in each case within the time periods set out in Section 3(c)(i) (in
each case, a "CONVERSION FAILURE"), then during each period beginning on and
including the date of each such Conversion Failure and ending on and including
the date such Conversion Failure is cured, the Interest Rate then in effect
shall be increased by two percentage points (2%). If (i) the Registration
Statement (as defined in the Registration Rights Agreement) covering all the
Registrable Securities (as defined in the Registration Rights Agreement)
issuable upon conversion of this Note and required to be filed by








                                       2


the Company pursuant to the Registration Rights Agreement is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
applicable Mandatory Effective Date (as defined in the Registration Rights
Agreement) or (ii) on any day after such Registration Statement has been
declared effective by the SEC that sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(t) of the
Registration Rights Agreement)) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock) (collectively with the event described in the immediately
preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief
for the damages to any holder by reason of any such delay in or reduction of its
ability to sell Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity) the Interest Rate then in
effect shall be increased by two percentage points (2%) during each period
beginning on and including the first date of each such Registration Failure and
ending on and including the date such Registration Failure is cured.

                  (3) CONVERSION OF NOTES. This Note shall be convertible into
shares of the Common Stock, on the terms and conditions set forth in this
Section 3.

                           (a) Conversion Right. Subject to the provisions of
Section 3(d), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock upon
any conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                           (b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a)
shall be determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (as defined below) (the "CONVERSION RATE").

         (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
         Principal to be converted, redeemed or otherwise surrendered with
         respect to which this determination is being made, (B) accrued and
         unpaid Interest with respect to such Principal and (C) accrued and
         unpaid Late Charges with respect to such Principal and Interest.

         (ii) "CONVERSION PRICE" means 110% of the Weighted Average Price of the
         Common Stock during the Tranche A Pricing Period; provided that the
         Conversion Price (i) shall not exceed 110% of the Tranche A Base Price
         and (ii) shall equal the Company Optional Redemption Conversion Price
         until such time as the Tranche A Pricing Period has concluded; provided
         further, that in the event that the Company has not delivered a Company
         Optional Redemption Notice as of the date that is 35 Business Days
         after the






                                       3


         Issuance Date and 110% of the Closing Bid Price of the Common Stock on
         such date is less than the Conversion Price then in effect, then the
         Conversion Price shall be reduced to equal such price.

                           (c) Mechanics of Conversion.

         (i) Optional Conversion. To convert any Conversion Amount into shares
         of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
         transmit by facsimile (or otherwise deliver), for receipt on or prior
         to 11:59 p.m., Central Time on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the "CONVERSION
         NOTICE") to the Company and (B) if required by Section 3(c)(ii),
         surrender this Note to a common carrier for delivery to the Company as
         soon as practicable on or following such date (or an indemnification
         undertaking with respect to this Note in the case of its loss, theft or
         destruction). On or before the first Business Day following the
         Company's receipt of a Conversion Notice, the Company shall transmit by
         facsimile a confirmation of receipt of such Conversion Notice to the
         Holder and the Transfer Agent (as defined below). On or before the
         second Business Day following the date of receipt of a Conversion
         Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below
         does not apply) issue and deliver to the address as specified in the
         Conversion Notice, a certificate, registered in the name of the Holder
         or its designee, for the number of shares of Common Stock to which the
         Holder shall be entitled, or (Y) provided that the Company's transfer
         agent (the "TRANSFER AGENT") is participating in The Depository Trust
         Company ("DTC") Fast Automated Securities Transfer Program, upon the
         request of the Holder, credit such aggregate number of shares of Common
         Stock to which the Holder shall be entitled to the Holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. If this Note is physically surrendered for
         conversion as required by Section 3(c)(ii) and the outstanding
         Principal of this Note is greater than the Principal portion of the
         Conversion Amount being converted, then the Company shall as soon as
         practicable and in no event later than three Business Days after
         receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense,
         issue and deliver to the holder a new Note (in accordance with Section
         18(d)) representing the outstanding Principal not converted. The person
         or persons entitled to receive the shares of Common Stock issuable upon
         a conversion of this Note shall be treated for all purposes as the
         record holder or holders of such shares of Common Stock on the
         Conversion Date.

         (ii) Book-Entry. Notwithstanding anything to the contrary set forth
         herein, upon conversion of any portion of this Note in accordance with
         the terms hereof, the Holder shall not be required to physically
         surrender this Note to the Company unless (A) the full Conversion
         Amount represented by this Note is being converted or (B) the Holder
         has provided the Company with prior written notice (which notice may be
         included in a Conversion Notice) requesting physical surrender and
         reissue of this Note. The Holder and the Company shall maintain records
         showing the Principal and Interest converted and the dates of such
         conversions or shall use such other method, reasonably satisfactory to
         the Holder and the Company, so as not to require physical surrender of
         this Note upon conversion.





                                       4


         (iii) Pro Rata Conversion; Disputes. In the event that the Company
         receives a Conversion Notice from more than one holder of the Notes or
         the Separate Tranche Notes for the same Conversion Date and the Company
         can convert some, but not all, of such portions of the Notes and the
         Separate Tranche Notes submitted for conversion, the Company, subject
         to Section 3(d), shall convert from each holder of the Notes and the
         Separate Tranche Notes electing to have the Notes or Separate Tranche
         Notes converted on such date a pro rata amount of such holder's portion
         of its Notes or Separate Tranche Notes submitted for conversion based
         on the principal amount of the Notes or Separate Tranche Notes
         submitted for conversion on such date by such holder relative to the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes submitted for conversion on such date. In the event of a dispute
         as to the number of shares of Common Stock issuable to the Holder in
         connection with a conversion of this Note, the Company shall issue to
         the Holder the number of shares of Common Stock not in dispute and
         resolve such dispute in accordance with Section 23.

                           (d) Limitations on Conversions.

         (i) Beneficial Ownership. The Company shall not effect any conversion
         of this Note, and the Holder of this Note shall not have the right to
         convert any portion of this Note pursuant to Section 3(a), to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates) would beneficially own in
         excess of 5.0% of the number of shares of Common Stock outstanding
         immediately after giving effect to such conversion. For purposes of the
         foregoing sentence, the number of shares of Common Stock beneficially
         owned by the Holder and its affiliates shall include the number of
         shares of Common Stock issuable upon conversion of this Note with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted portion of
         this Note beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any Other Notes, Separate Tranche Notes or warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Holder or any of its
         affiliates. Except as set forth in the preceding sentence, for purposes
         of this Section 3(d)(i), beneficial ownership shall be calculated in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended. For purposes of this Section 3(d)(i), in determining the
         number of outstanding shares of Common Stock, the Holder may rely on
         the number of outstanding shares of Common Stock as reflected in (x)
         the Company's most recent Form 10-Q or Form 10-K, as the case may be,
         (y) a more recent public announcement by the Company or (z) any other
         notice by the Company or the Transfer Agent setting forth the number of
         shares of Common Stock outstanding. For any reason at any time, upon
         the written or oral request of the Holder, the Company shall within one
         Business Day confirm orally and in writing to the Holder the number of
         shares of Common Stock then outstanding. In any case, the number of
         outstanding shares of Common Stock shall be determined after giving
         effect to the conversion or exercise of securities of the Company,
         including this Note, by the Holder or its affiliates since the date as
         of which such number of outstanding shares of Common Stock was
         reported.




                                       5


         (ii) Principal Market Regulation. The Company shall not be obligated to
         issue any shares of Common Stock pursuant to this Note if the issuance
         of such shares of Common Stock would exceed that number of shares of
         Common Stock which the Company may issue pursuant to the Notes and the
         Separate Tranche Notes without breaching the Company's obligations
         under the rules or regulations of the Principal Market (the "EXCHANGE
         CAP"), except that such limitation shall not apply in the event that
         the Company (A) obtains the approval of its shareholders as required by
         the applicable rules of the Principal Market for issuances of Common
         Stock in excess of such amount or (B) obtains a written opinion from
         outside counsel to the Company that such approval is not required,
         which opinion shall be reasonably satisfactory to the holders of the
         Notes and the Separate Tranche Notes representing a majority of the
         principal amounts of the Notes and the Separate Tranche Notes (voting
         as a single class) then outstanding. Until such approval or written
         opinion is obtained, no purchaser of the Notes or the Separate Tranche
         Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS")
         shall be issued, upon conversion of the Notes or the Separate Tranche
         Notes, shares of Common Stock in an amount greater than the product of
         the Exchange Cap multiplied by a fraction, the numerator of which is
         the principal amount of the Notes and the Separate Tranche Notes issued
         to such Purchaser pursuant to the Securities Purchase Agreement as of
         the date of such determination and the denominator of which is the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes issued to the Purchasers pursuant to the Securities Purchase
         Agreement as of the date of such determination (with respect to each
         Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any
         Purchaser shall sell or otherwise transfer any of such Purchaser's
         Notes or Separate Tranche Notes, the transferee shall be allocated a
         pro rata portion of such Purchaser's Exchange Cap Allocation, and the
         restrictions of the prior sentence shall apply to such transferee with
         respect to the portion of the Exchange Cap Allocation allocated to such
         transferee. In the event that any holder of the Notes or the Separate
         Tranche Notes shall convert all of such holder's Notes or Separate
         Tranche Notes into a number of shares of Common Stock which, in the
         aggregate, is less than such holder's Exchange Cap Allocation, then the
         difference between such holder's Exchange Cap Allocation and the number
         of shares of Common Stock actually issued to such holder shall be
         allocated to the respective Exchange Cap Allocations of the remaining
         holders of the Notes and the Separate Tranche Notes on a pro rata basis
         in proportion to the aggregate principal amount of the Notes and the
         Separate Tranche Notes then held by each such holder.

                  (4) RIGHTS UPON EVENT OF DEFAULT.

                           (a) Event of Default. Each of the following events
shall constitute a "EVENT OF DEFAULT":

         (i) the failure of the Registration Statement covering all Registrable
         Securities (as defined in the Registration Rights Agreement) required
         to be registered pursuant to the Registration Rights Agreement to be
         declared effective by the SEC on or prior to the date that is 180 days
         after the Issuance Date, or, while such Registration Statement is
         required






                                       6


         to be maintained effective pursuant to the terms of the Registration
         Rights Agreement, the effectiveness of such Registration Statement
         lapses for any reason (including, without limitation, the issuance of a
         stop order) or is unavailable to any holder of the Notes for sale of
         all of such holder's Registrable Securities in accordance with the
         terms of the Registration Rights Agreement, and such lapse or
         unavailability continues for a period of five consecutive Business Days
         or for more than an aggregate of 20 Business Days in any 365-day
         period;

         (ii) the suspension from trading on the Principal Market for a period
         of three consecutive Business Days or for more than an aggregate of
         three Business Days in any 30-day Trading Day period or the delisting
         of the Common Stock from the Principal Market;

         (iii) the Company's (A) failure to cure a Conversion Failure by
         delivery of the required number of shares of Common Stock or a new Note
         (in accordance with section 18(d)), as applicable, within 10 days after
         the receipt by the Company of a Conversion Notice or (B) notice,
         written or oral, to any holder of the Notes, including by way of public
         announcement or through any of its agents, at any time, of its
         intention not to comply with a request for conversion of any Notes into
         shares of Common Stock that is tendered in accordance with the
         provisions of the Notes;

         (iv) the Company's failure to pay to the Holder any amount of
         Principal, Interest, Late Charges or other amounts when and as due
         under this Note, the Securities Purchase Agreement, the Registration
         Rights Agreement or any other agreement, document, certificate or other
         instrument delivered in connection with the transactions contemplated
         hereby and thereby to which the Holder is a party;

         (v) any default under, redemption of or acceleration prior to maturity
         of any Indebtedness (as defined in Section 3(r) of the Securities
         Purchase Agreement) of the Company or any of its Subsidiaries (as
         defined in Section 3(a) of the Securities Purchase Agreement) other
         than NRG (as defined below) (including, without limitation, the Other
         Notes) of at least $50,000,000;

         (vi) the Company or any of its Subsidiaries other than NRG (as defined
         below), pursuant to or within the meaning of Title 11, U.S. Code, or
         any similar Federal or state law for the relief of debtors
         (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B)
         consents to the entry of an order for relief against it in an
         involuntary case, (C) consents to the appointment of a receiver,
         trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
         makes a general assignment for the benefit of its creditors or (E)
         admits in writing that it is generally unable to pay its debts as they
         become due;

         (vii) a court of competent jurisdiction enters an order or decree under
         any Bankruptcy Law that (A) is for relief against the Company or any of
         its Subsidiaries other than NRG (as defined below) in an involuntary
         case, (B) appoints a Custodian of the Company or any of its
         Subsidiaries other than NRG (as defined below) or (C) orders the
         liquidation of the Company or any of its Subsidiaries other than NRG
         (as defined below); or





                                       7


         (viii) the Company breaches any representation, warranty, covenant
         (other than any covenant to deliver the NRG Opinion) or other term or
         condition of the Securities Purchase Agreement, the Registration Rights
         Agreement, this Note or any other agreement, document, certificate or
         other instrument delivered in connection with the transactions
         contemplated thereby and hereby to which the Holder is a party, except,
         in the case of a breach of a covenant which is curable, only if such
         breach continues for a period of at least 10 consecutive days.

                           (b) Redemption Right. Promptly after the occurrence
of an Event of Default with respect to this Note or the Other Notes, the Company
shall deliver written notice thereof via facsimile and overnight courier (a
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount and (y) the quotient determined by
dividing (A) the Closing Sale Price of the Common Stock immediately prior to
such Event of Default by (B) the Conversion Price and (ii) the product of (x)
the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 10.

                  (5) RIGHTS UPON CHANGE OF CONTROL.

                           (a) Change of Control. Each of the following events
shall constitute a "CHANGE OF CONTROL":

         (i) the consolidation, merger or other business combination (including,
         without limitation, a reorganization or recapitalization) of the
         Company with or into another Person in which holders of the Company's
         voting power immediately prior to the transaction cease after the
         transaction to hold, directly or indirectly, a majority of the voting
         power of the surviving entity or entities or the voting power necessary
         to elect a majority of the members of the board of directors (or their
         equivalent if other than a corporation) of such entity or entities;

         (ii) the sale or transfer of all or substantially all of the Company's
         assets; or

         (iii) a purchase, tender or exchange offer made to and accepted by the
         holders of more than the 50% of the outstanding shares of Common Stock.

                           (b) Assumption. Prior to the consummation of any
Change of Control, the Company will secure from any Person purchasing the
Company's assets or Common Stock or any successor resulting from such Change of
Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and
substance satisfactory to the holders of Notes representing a






                                       8


majority of the aggregate principal amount of the Notes then outstanding) to
deliver to each holder of Notes in exchange for such Notes, a security of the
Acquiring Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes held by such holder, and satisfactory to the holders of Notes
representing a majority of the principal amount of the Notes then outstanding.
In the event that an Acquiring Entity is directly or indirectly controlled by a
company or entity whose common stock or similar equity interest is listed,
designated or quoted on a securities exchange or trading market, the holders of
notes representing a majority of the aggregate principal amount of the Notes
then outstanding may elect to treat such Person as the Acquiring Entity for
purposes of this Section 5(b).

                           (c) Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice,
"REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of
Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the
"CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default
Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section
5(c) shall be made in accordance with the provisions of Section 10 and shall
have priority to payments to other shareholders in connection with a Change of
Control.


                  (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

                           (a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.





                                       9


                           (b) Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger or other business
combination (other than a Change of Control) pursuant to which holders of Common
Stock are entitled to receive securities or other assets with respect to or in
exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event or (ii) in lieu of the shares of Common
Stock otherwise receivable upon such conversion, such securities or other assets
received by the holders of Common Stock in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the holders of Notes representing a majority of the aggregate
principal amount of the Notes then outstanding.

                  (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                           (a) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Issuance Date, the Company issues
or sells, or in accordance with this Section 7(a) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company (I) in
connection with the Xcel Energy Direct Purchase Plan or any employee benefit
plan which has been approved by the Board of Directors of the Company or any of
its Subsidiaries, pursuant to which the Company's securities may be issued to
any employee, officer or director for services provided to the Company or its
Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the
Notes or the Separate Tranche Notes) for a consideration per share less than the
higher of the Closing Sale Price of the Common Stock on the date of such
issuance or sale or deemed issuance or sale and the Conversion Price in effect
immediately prior to such issuance or sale or deemed issuance or sale (such
higher price is referred to herein as the "APPLICABLE PRICE"), then immediately
after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price
then in effect shall be reduced to an amount equal to the product of (x) the
Conversion Price in effect immediately prior to such issue or sale or deemed
issuance or sale and (y) the quotient determined by dividing (1) the sum of the
product of the Applicable Price and the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale or deemed issue or sale and
the consideration, if any, received by the Company upon such issue or sale, by
(2) the product of the Applicable Price multiplied by the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale or deemed
issue or sale. For purposes of determining the adjusted Conversion Price under
this Section 7(a), the following shall be applicable:

         (i) Issuance of Options. If the Company in any manner grants or sells
         any Options and the lowest price per share for which one share of
         Common Stock is issuable upon the






                                       10


         exercise of any such Option or upon conversion, exercise or exchange of
         any Convertible Securities issuable upon exercise of such Option is
         less than the Applicable Price, then such share of Common Stock shall
         be deemed to be outstanding and to have been issued and sold by the
         Company at the time of the granting or sale of such Option for such
         price per share. For purposes of this Section 7(a)(i), the "lowest
         price per share for which one share of Common Stock is issuable upon
         the exercise of any such Option or upon conversion, exercise or
         exchange of any Convertible Securities issuable upon exercise of such
         Option" shall be equal to the sum of the lowest amounts of
         consideration (if any) received or receivable by the Company with
         respect to any one share of Common Stock upon granting or sale of the
         Option, upon exercise of the Option and upon conversion, exercise or
         exchange of any Convertible Security issuable upon exercise of such
         Option. No further adjustment of the Conversion Price shall be made
         upon the actual issuance of such Common Stock or of such Convertible
         Securities upon the exercise of such Options or upon the actual
         issuance of such Common Stock upon conversion, exercise or exchange of
         such Convertible Securities. If the Company issues or sells any Options
         which are Variable Securities, no adjustment of the Conversion Price
         shall be made pursuant to this Section 7(a), and no shares of Common
         Stock shall be deemed outstanding with respect to such Variable
         Securities, as a result of the issuance of such Variable Securities
         until the actual issuance of Common Stock or Convertible Securities
         upon exercise of such Variable Securities, except to the extent such
         Variable Security also includes as a component of the exercise price a
         price which does not vary with the market price of the Common Stock.

         (ii) Issuance of Convertible Securities. If the Company in any manner
         issues or sells any Convertible Securities and the lowest price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange thereof is less than the Applicable
         Price, then such share of Common Stock shall be deemed to be
         outstanding and to have been issued and sold by the Company at the time
         of the issuance of sale of such Convertible Securities for such price
         per share. For the purposes of this Section 7(a)(ii), the "price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange" shall be equal to the sum of the
         lowest amounts of consideration (if any) received or receivable by the
         Company with respect to any one share of Common Stock upon the issuance
         or sale of the Convertible Security and upon the conversion, exercise
         or exchange of such Convertible Security. No further adjustment of the
         Conversion Price shall be made upon the actual issuance of such Common
         Stock upon conversion, exercise or exchange of such Convertible
         Securities, and if any such issue or sale of such Convertible
         Securities is made upon exercise of any Options for which adjustment of
         the Conversion Price had been or are to be made pursuant to other
         provisions of this Section 7(a), no further adjustment of the
         Conversion Price shall be made by reason of such issue or sale. If the
         Company issues or sells any Convertible Securities which are Variable
         Securities, no adjustment of the Conversion Price shall be made
         pursuant to this Section 7(a), and no shares of Common Stock shall be
         deemed outstanding with respect to such Variable Security, as a result
         of the issuance of such Variable Securities until the actual issuance
         of Common Stock upon exercise of such Variable Securities, except to
         the extent such Variable Security also includes as a component of the
         conversion, exercise or exchange price a price which does not vary with
         the market price of the Common Stock.






                                       11


         (iii) Change in Option Price or Rate of Conversion. If the purchase
         price provided for in any Options, the additional consideration, if
         any, payable upon the issue, conversion or exchange of any Convertible
         Securities, or the rate at which any Convertible Securities are
         convertible into or exercisable or exchangeable for Common Stock
         changes at any time, the Conversion Price in effect at the time of such
         change shall be adjusted to the Conversion Price which would have been
         in effect at such time had such Options or Convertible Securities
         provided for such changed purchase price, additional consideration or
         changed conversion rate, as the case may be, at the time initially
         granted, issued or sold. For purposes of this Section 7(a)(iii), if the
         terms of any Option or Convertible Security that was outstanding as of
         the Issuance Date are changed in the manner described in the
         immediately preceding sentence, then such Option or Convertible
         Security and the Common Stock deemed issuable upon exercise, conversion
         or exchange thereof shall be deemed to have been issued as of the date
         of such change. No adjustment shall be made if such adjustment would
         result in an increase of the Conversion Price then in effect.

         (iv) Calculation of Consideration Received. In case any Option is
         issued in connection with the issue or sale of other securities of the
         Company, together comprising one integrated transaction in which no
         specific consideration is allocated to such Options by the parties
         thereto, the Options will be deemed to have been issued for a
         consideration of $.01. If any Common Stock, Options or Convertible
         Securities are issued or sold or deemed to have been issued or sold for
         cash, the consideration received therefor will be deemed to be the net
         amount received by the Company therefor. If any Common Stock, Options
         or Convertible Securities are issued or sold for a consideration other
         than cash, the amount of the consideration other than cash received by
         the Company will be the fair value of such consideration, except where
         such consideration consists of securities, in which case the amount of
         consideration received by the Company will be the Closing Sale Price of
         such securities on the date of receipt. If any Common Stock, Options or
         Convertible Securities are issued to the owners of the non-surviving
         entity in connection with any merger in which the Company is the
         surviving entity, the amount of consideration therefor will be deemed
         to be the fair value of such portion of the net assets and business of
         the non-surviving entity as is attributable to such Common Stock,
         Options or Convertible Securities, as the case may be. The fair value
         of any consideration other than cash or securities will be determined
         jointly by the Company and the holders of Notes representing a majority
         of the principal amounts of the Notes then outstanding. If such parties
         are unable to reach agreement within ten days after the occurrence of
         an event requiring valuation (the "VALUATION EVENT"), the fair value of
         such consideration will be determined within five Business Days after
         the tenth day following the Valuation Event by an independent,
         reputable appraiser jointly selected by the Company and the holders of
         Notes representing a majority of the principal amounts of the Notes
         then outstanding. The determination of such appraiser shall be deemed
         binding upon all parties absent manifest error and the fees and
         expenses of such appraiser shall be borne by the Company.






                                       12


         (v) Record Date. If the Company takes a record of the holders of Common
         Stock for the purpose of entitling them (A) to receive a dividend or
         other distribution payable in Common Stock, Options or in Convertible
         Securities or (B) to subscribe for or purchase Common Stock, Options or
         Convertible Securities, then such record date will be deemed to be the
         date of the issue or sale of the shares of Common Stock deemed to have
         been issued or sold upon the declaration of such dividend or the making
         of such other distribution or the date of the granting of such right of
         subscription or purchase, as the case may be.

         (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING"
         means, at any given time, the number of shares of Common Stock actually
         outstanding at such time, plus the number of shares of Common Stock
         deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
         hereof regardless of whether the Options or Convertible Securities are
         actually exercisable at such time, but excluding any shares of Common
         Stock owned or held by or for the account of the Company or issuable
         upon conversion of the Notes or the Separate Tranche Notes.

         (vii) Delayed Adjustment. In addition to the foregoing provisions of
         this Section 7(a), the Weighted Average Price, Closing Sales Price and
         Closing Bid Price shall be subject to adjustment, in accordance with
         the foregoing provisions, for any days during any measuring period,
         including, without limitation, the Tranche A Pricing Period, used
         herein that occur prior to any of the aforementioned events if such
         events occur prior to the end of such measuring period.

                           (b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                           (c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

                  (8) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of, or enter
into any agreement which by its terms restricts or otherwise impairs the





                                       13


Company's performance of the terms of, this Note or any of the other Transaction
Documents (as defined in the Securities Purchase Agreement), and will at all
times in good faith carry out all of the provisions of this Note and take all
action as may be required to protect the rights of the Holder of this Note.

                  (9) RESERVATION OF AUTHORIZED SHARES.

                           (a) Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the
Conversion Rate with respect to the Conversion Amount of each such Note and
Separate Tranche Note. Thereafter, the Company shall, so long as any of the
Notes or Separate Tranche Notes are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes and Separate
Tranche Note, at least 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes and
the Separate Tranche Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Notes and the Separate
Tranche Note and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes and Separate Tranche Note
based on the principal amount of the Notes and Separate Tranche Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event
that a holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                           (b) Insufficient Authorized Shares. If at any time
while any of the Notes or Separate Tranche Note remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the
Notes and the Separate Tranche Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for the Notes and Separate Tranche Note
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the shareholders that they
approve such proposal.





                                       14


                  (10) REDEMPTION.

                           (a) Mechanics. In the event that the Holder has sent
a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the
Holder shall promptly submit this Note to the Company. The Company shall deliver
the applicable Event of Default Redemption Price to the Holder within five
Business Days after the Company's receipt of the Holder's Event of Default
Redemption Notice and thereafter the Holder shall promptly deliver this Note to
the Company. If the Holder has submitted a Change of Control Redemption Notice
in accordance with Section 5(c), the Company shall deliver the applicable Change
of Control Redemption Price to the Holder concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five Business Days after the Company's receipt
of such notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time
period required above in this Section 10(a) at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option to, in lieu of redemption, require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

                           (b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes or the Separate
Tranche Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b) or
Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately
forward to the Holder by facsimile a copy of such notice. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes and the Separate Tranche Notes (including the Holder) based on the
principal amount of






                                       15


the Notes and the Separate Tranche Notes submitted for redemption pursuant to
such Redemption Notice and such Other Redemption Notices received by the Company
during such seven Business Day period.

                  (c) Redemption at the Option of the Company. (i) Except as
provided in this Section 10(c) or in connection with the satisfaction by the
Company of its obligations to redeem the Notes under Sections 4(b) and 5(c)
hereof, without the prior written consent of the Holder the Company shall not
have the right to prepay, redeem, repurchase, defease or otherwise retire any
Note prior to the Maturity Date.

                  (ii) Provided the Company has consummated a Qualified 144A
Offering at any time during the Company Optional Redemption Period, the Company
may deliver an irrevocable written notice to the Holder and the Transfer Agent
(the "COMPANY OPTIONAL REDEMPTION NOTICE") within one (1) Business Day after
consummation of the Qualified 144A Offering, indicating that the Company has
elected to redeem, and is requiring the Holder to submit for redemption, in
whole but not in part, the outstanding Principal of this Note plus accrued
Interest thereon for the Company Optional Redemption Consideration (a "COMPANY
OPTIONAL REDEMPTION"). The Company Optional Redemption Notice shall be sent by
facsimile and overnight courier to the Holder and shall indicate (x) the date
fixed for redemption, which shall be five (5) Business Days after the expiration
of the Company Optional Redemption Period (the "COMPANY OPTIONAL REDEMPTION
DATE") and (y) the place or places where this Note is to be surrendered for
payment of the Company Optional Redemption Consideration. If the Company has
elected a Company Optional Redemption, the Company shall on the Company Optional
Redemption Date (A) deliver the Non-Cash Optional Redemption Consideration to
the Holder at the Holder's address and (B) pay to the Holder the Cash Optional
Redemption Consideration, by wire transfer of immediately available funds to an
account designated in writing by such Holder.

                  (11) RESTRICTION ON REDEMPTION. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem its capital stock without
the prior express written consent of the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

                  (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of
Principal and Interest and other payments due under this Note shall rank pari
passu in right of payment with all (and shall not be subordinated to any)
unsecured, unsubordinated indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness of the Company.

                  (13) COVENANTS.

                           (a) Indebtedness. The Company shall not create,
incur, assume, guarantee or suffer to exist, or otherwise become or remain
liable with respect to, any Indebtedness other than Permitted Indebtedness and
Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness
that is unsecured and subordinated in right of payment to






                                       16


the Notes and other obligations owing to the Holders in accordance with a
subordination agreement in form and substance satisfactory to the Holders.
"Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is
not senior in right of payment to the Notes and is otherwise on terms that are
no more favorable to the holders thereof than the terms of the Indebtedness
evidenced by the Notes unless such more favorable terms are offered to the
Holders.

                           (b) Liens. The Company shall not create, incur,
assume or suffer to exist, or permit any of its Subsidiaries (other than NRG
Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume
or suffer to exist, any Lien upon or with respect to any of its properties,
whether now owned or hereafter acquired; sign or suffer to exist any security
agreement authorizing any secured party thereunder to file a Uniform Commercial
Code financing statement (or the equivalent thereof) as notice of a Lien on any
property of the Company or its Subsidiaries; sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer, or permit any
of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in
the Bank Facility)) to assign or otherwise transfer, any account or other right
to receive income; other than, as to all of the above, Permitted Liens. As used
herein, "Permitted Liens" shall have the meaning of that term as defined in the
Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and
the banks listed therein (as the same maybe amended from time to time, the "BANK
FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge,
lien (statutory or otherwise), security interest, charge or other encumbrance or
security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any capitalized
lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.

                           (c) Transactions With Affiliates. The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, effect any
transaction with any Affiliate (as defined in the Bank Facility) that is (a)
outside the ordinary course of business or (b) on a basis less favorable than
would at the time be obtainable for a comparable transaction in arms-length
dealing with an unrelated third party, provided that notwithstanding the
foregoing, no loan, payment or other form of contribution shall be made to NRG
unless it is in an amount not in excess of (i) $300 Million payable pursuant to
the Support Agreement and Capital Subscription Agreement, dated as of May 29,
2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in
respect of guarantee obligations relating to the power marketing business of
NRG; provided further that with respect to any payment permitted pursuant to
clause (ii) above, the Company shall, in the context of a restructuring of NRG,
use its reasonable best efforts to obtain a full release of all obligations and
liabilities of the Company relating to NRG.

                           (d) Leverage Ratio. The Company shall not permit the
Leverage Ratio set forth in the Bank Facility to be exceeded.

                           (e) Restrictive Agreements. The Company shall not,
and shall not permit any Significant Subsidiary (as defined in the Bank
Facility) other than NRG to, enter into any agreement after the date of this
Note that imposes any restriction on the ability of such Significant Subsidiary
to make payments, directly or indirectly, to its shareholders by way of





                                       17


dividends, advances, repayment of loans or intercompany charges, expenses or
accruals or other returns on investments that is more restrictive than any such
restriction applicable to such Significant Subsidiary on the Issuance Date.

                           (f) Scope of Business. The Company shall, and shall
cause each Subsidiary to, engage only in energy-related business, functionally
related businesses (as interpreted under PUHCA, as defined in the Securities
Purchase Agreement) or such other businesses as maybe permitted pursuant to an
order issued by the SEC pursuant to PUHCA.


                  (14) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the Minnesota Business Corporation Act, and as expressly provided in this Note.

                  (15) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to (i) all extraordinary or special dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions and (ii)
regular cash dividends and distributions paid to the holders of the Common Stock
only with respect to that portion of such dividends that exceeds $0.1875 per
share of Common Stock in any calendar quarter (subject to adjustment for stock
splits, stock dividends, stock combinations and other similar transactions after
the Issuance Date). Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

                  (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of Notes representing not less than
two-thirds of the aggregate principal amount of the then outstanding Notes,
shall be required for any change or amendment to this Note or the Other Notes.

                  (17) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

                  (18) REISSUANCE OF THIS NOTE.

                           (a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 18(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 18(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 18(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.




                                       18


                           (b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal.

                           (c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

                           (d) Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 18(a) or Section 18(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Note immediately prior
to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note which is the same as the Issuance Date of this
Note, (iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.

                  (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, the Securities
Purchase Agreement and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                  (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is






                                       19


collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including but
not limited to attorneys fees and disbursements.

                  (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

                  (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                  (23) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price or any other calculation hereunder, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one Business Day of receipt of the Conversion Notice or
Redemption Notice giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such
determination or calculation of the Conversion Rate within one Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a)
the disputed determination of the Weighted Average Price, the Closing Bid Price
or the Closing Sale Price or any other calculation hereunder to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate or the Redemption
Price to the Company's independent, outside accountant. The Company, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the
time it receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

                  (24) NOTICES; PAYMENTS.

                           (a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such






                                       20


adjustment and (ii) at least twenty days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grants, issues or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to holders of Common Stock or
(C) for determining rights to vote with respect to any Change of Control,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to such holder. Notwithstanding the foregoing, Section 4(j) of the
Securities Purchase Agreement shall apply to all notices given pursuant to this
Note.

                           (b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date. Any amount of Interest,
Principal or other amount due under the Transaction Documents (as defined in the
Securities Purchase Agreement) which is not paid when due shall result in a late
charge being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of 12% per annum from the date such amount was due
until the same is paid in full ("LATE CHARGE").

                  (25) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

                  (26) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

                  (27) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.





                                       21


                  (28) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:

                           (a) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

                           (b) "CASH OPTIONAL REDEMPTION CONSIDERATION" means an
amount in cash equal to the greater of (i) 102% of the Conversion Amount of the
Note being redeemed in the Company Optional Redemption and (ii) the sum of (A)
the product determined by multiplying the Conversion Amount of the Note being
redeemed in the Company Optional Redemption by a quotient determined by dividing
(X) the Closing Bid Price of the Common Stock on the date of delivery of the
Company Optional Redemption Notice by (Y) the Company Optional Redemption
Conversion Price and (B) 12% of the Conversion Amount of the Note being redeemed
in the Company Optional Redemption; provided, however, that in the event that
the Company Optional Redemption Notice is delivered on or after the date that is
10 Business Days after the execution of the Securities Purchase Agreement, the
Holder shall have the option, upon delivery of written notice thereof to the
Company at any time prior to the Company Optional Redemption Date, to receive in
lieu of all or any portion of the Cash Optional Redemption Consideration a
number of shares of Common Stock not to exceed the Company Optional Redemption
Conversion Shares, in which event the Cash Optional Redemption Consideration
shall be reduced by an amount equal to the product determined by multiplying (I)
the number of shares of Common Stock the Holder has elected to receive and (II)
the Company Optional Redemption Conversion Price.

                           (c) "CHANGE OF CONTROL TERMINATION DATE" shall mean,
with respect to any proposed Change of Control for which a public announcement
that it proposes or intends to effect a Change of Control of the Company (the
date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon
which the Company or other Person proposing to effect such Change of Control
consummates or publicly announces the termination or abandonment of the proposed
Change of Control which was the subject of the previous public announcement.

                           (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on The New York Stock
Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg,






                                       22


or, if no closing bid price or last trade price, respectively, is reported for
such security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during any applicable calculation period.

                           (e) "COMMON STOCK" means (i) the Company's common
stock, par value $2.50 per share, and (ii) any capital stock resulting from a
reclassification of such Common Stock.

                           (f) "COMPANY OPTIONAL REDEMPTION CONVERSION PRICE"
shall mean 110% of the arithmetic average of the Weighted Average Price of the
Common Stock for each of the Trading Days during the Tranche A Pricing Period
through the date the Company delivers to the Holder the Company Optional
Redemption Notice, but in no event shall the Company Optional Redemption
Conversion Price exceed the Tranche A Base Price.

                           (g) "COMPANY OPTIONAL REDEMPTION CONVERSION SHARES"
shall mean that number of shares of Common Stock determined by dividing (i) the
Conversion Amount of the Note being redeemed in the Company Optional Redemption
by (ii) the Company Optional Redemption Conversion Price.

                           (h) "COMPANY OPTIONAL REDEMPTION PERIOD" means the
period commencing on the Business Day immediately following the Issuance Date
and ending on and including the date that is 35 Business Days after the
execution of the Securities Purchase Agreement.

                           (i) "COMPANY OPTIONAL REDEMPTION CONSIDERATION" means
the Non-Cash Optional Redemption Consideration plus the Cash Optional Redemption
Consideration.

                           (j) "NON-CASH OPTIONAL REDEMPTION CONSIDERATION"
means a legally binding written agreement executed and delivered by the Company
to the Holder, duly authorized by all necessary corporate action on the part of
the Company and otherwise in form and substance reasonably satisfactory to the
Holder, exercisable by the Holder at any time and from time to time during the
one-year period commencing on the Company Optional Redemption Date and ending on
the one-year anniversary thereafter, granting the Holder the right to purchase
securities that are identical (other than as to the issuance date and other than
that the Company shall be required to issue these securities to the Holder in a
valid private placement) to the securities issued in the Qualified 144A Offering
in an aggregate principal amount that does not exceed such Holder's pro rata
portion (based on the Principal amount of this Note on the Issuance Date out of
the total aggregate principal amount of all Notes issued by the Company on the
Issuance Date) of 25% of the aggregate principal amount of securities issued by
the Company in the Qualified 144A Offering.





                                       23


                           (k) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                           (l) "QUALIFIED 144A OFFERING" shall mean an
underwritten offering by the Company of debt securities of the Company that are
convertible into Common Stock, with an effective conversion premium (as defined
in Section (d)(3)(i) of Rule 144A of the Securities Act of 1933, as amended
("RULE 144A")) of not less than 10%, with such offering to be conducted either
pursuant to Rule 144A or pursuant to a registered offering of such securities,
in either case led by Merrill Lynch & Co. and yielding gross unrestricted cash
proceeds to the Company of not less than $150 million.

                           (m) "REDEMPTION PREMIUM" means (i) in the case of the
Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii),
115% or (ii) in the case of the Events of Default described in Section 4(a)(v) -
(vii), 100%.

                           (n) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares of
Common Stock issuable upon conversion of the Notes.

                           (o) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

                           (p) "SEPARATE TRANCHE NOTES" means the Second Notes,
First Call Notes, Second Call Notes, Third Notes and the Third Call Notes,
collectively.

                           (q) "TRADING DAY" means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market or actually trades on such
exchange or market for less than 4.5 hours.

                           (r) "TRANCHE A BASE PRICE" means 110% of the Weighted
Average Price of the Common Stock on the Issuance Date.

                           (s) "TRANCHE A PRICING PERIOD" means the twenty
consecutive Trading Days commencing on the fifth Trading Day immediately
following the Issuance Date.

                           (t) "VARIABLE SECURITIES" means any stock or
securities other than Options directly or indirectly convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants
or option to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS") that are convertible into or exchangeable,






                                       24


directly or indirectly, for Common Stock at a price which varies or may vary
with the market price of the Common Stock, including by way of one or more
adjustments or resets to a fixed price (a "VARIABLE PRICE").

                           (u) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price for such security on the principal securities exchange or trading market
where such security is listed or traded during the period beginning at 9:30
a.m., New York Time (or such other time as such principal securities exchange or
trading market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York Time (or such other time as such principal securities
exchange or trading market publicly announces is the official close of trading),
as reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m., New
York Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during applicable calculation period.


                            [SIGNATURE PAGE FOLLOWS]



                                       25




         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Date of Issuance set out above.

                                    XCEL ENERGY INC.



                                    By:
                                         --------------------------------------
                                             Name:
                                             Title:   Chief Executive Officer







                                    EXHIBIT I

                                XCEL ENERGY INC.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$2.50 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Conversion Amount to be converted:
                                                     ---------------------------

Please confirm the following information:

         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Common Stock to be issued:
                                                       -------------------------

Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

         Issue to:
                  --------------------------------------------------------------

                  --------------------------------------------------------------

                  --------------------------------------------------------------

         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------
                  By:
                       ---------------------------------------------------------
                                           Title:
                                                   -----------------------------
Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)





                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 8, 2002
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                             XCEL ENERGY INC.



                             By:
                                -------------------------------------------
                                      Name:
                                      Title:

EX-99.03

                                                                   EXHIBIT 99.03

                             SENIOR CONVERTIBLE NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.



                                XCEL ENERGY, INC.


Issuance Date: _______, 2002                              Principal: U.S. $_____

         FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), hereby promises to pay to the order of [__________________] or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as
defined below), acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at the rate of eight percent (8%) per annum, subject to
periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date
set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Final
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and
such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 28 and terms used herein but not
defined herein shall have the meanings set forth for such terms in the
Securities Purchase Agreement.






                  (1) MATURITY. On the Final Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if
any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance
Date; provided that, if the Holder has given notice in writing to the Company of
its desire to extend the Maturity Date on or prior to the date that is 10
Business Days prior to the Maturity Date, the Maturity Date shall be extended
(on one or more occasions) for an additional 364 days; provided, further, that
the Maturity Date shall not be extended (except as provided in the following
proviso) to more than five years after the Issuance Date (such date that is five
years after the Issuance Date or such earlier Maturity Date prior to which the
Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and
provided, further, that the Final Maturity Date may be extended at the option of
the Holder (x) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (y) through the date
that is ten days after a Change of Control Termination Date in the event that
the Announcement Date giving rise to such Change of Control Termination Date
occurred prior to the Final Maturity Date.

                  (2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of the
actual days elapsed during any period, and a calendar year of 365 or 366
calendar days, as applicable, and shall be payable in cash on each May 1 and
each November 1 during the period beginning on the Issuance Date and ending on,
and including, the Final Maturity Date (each an "INTEREST DATE"); provided that
interest on any Conversion Amount of this Note that is accrued but unpaid as of
the Conversion Date of such Conversion Amount shall be paid in shares of Common
Stock at the Conversion Rate. From and after the occurrence of an Event of
Default (as defined in Section 4(a)) or the failure to deliver timely the
Non-Consolidation Opinion (as defined in the Securities Purchase Agreement)
pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG
OPINION"), the Interest Rate shall be increased by two percentage points (2%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default. If the Company
shall fail to credit the Holder's balance account with DTC (as defined in
Section 3(c)(i)) or, if requested in writing by the Holder, to issue a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount or to issue a new
Note (in accordance with Section 18(d)) representing the Principal portion of
the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is
entitled, in each case within the time periods set out in Section 3(c)(i) (in
each case, a "CONVERSION FAILURE"), then during each period beginning on and
including the date of each such Conversion Failure and ending on and including
the date such Conversion Failure is cured, the Interest Rate then in effect
shall be increased by two percentage points (2%). If (i) the Registration
Statement (as defined in the Registration Rights Agreement) covering all the
Registrable Securities (as defined in the Registration Rights Agreement)
issuable upon conversion of this Note and required to be filed by


                                        2



the Company pursuant to the Registration Rights Agreement is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
applicable Mandatory Effective Date (as defined in the Registration Rights
Agreement) or (ii) on any day after such Registration Statement has been
declared effective by the SEC that sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(t) of the
Registration Rights Agreement) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock) (collectively with the event described in the immediately
preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief
for the damages to any holder by reason of any such delay in or reduction of its
ability to sell Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity) the Interest Rate then in
effect shall be increased by two percentage points (2%) during each period
beginning on and including the first date of each such Registration Failure and
ending on and including the date such Registration Failure is cured.

                  (3) CONVERSION OF NOTES. This Note shall be convertible into
shares of the Common Stock, on the terms and conditions set forth in this
Section 3.

                           (a) Conversion Right. Subject to the provisions of
Section 3(d), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock upon
any conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                           (b) Conversion Rate. The number of shares of Common
         Stock issuable upon conversion of any Conversion Amount pursuant to
         Section 3(a) shall be determined by dividing (x) such Conversion Amount
         by (y) the Conversion Price (as defined below) (the "CONVERSION RATE").

         (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
         Principal to be converted, redeemed or otherwise surrendered with
         respect to which this determination is being made, (B) accrued and
         unpaid Interest with respect to such Principal and (C) accrued and
         unpaid Late Charges with respect to such Principal and Interest.

         (ii) "CONVERSION PRICE" means, 110% of the Weighted Average Price of
         the Common Stock during the Tranche B Pricing Period; provided that the
         Conversion Price (i) shall not exceed 110% of the Tranche B Base Price
         and (ii) shall equal the Company Optional Redemption Conversion Price
         until such time as the Tranche B Pricing Period has concluded; provided
         further, that in the event that the Company has not delivered a Company
         Optional Redemption Notice as of the date that is 35 Business Days
         after the


                                       3



         date of issuance of the First Notes and 110% of the Closing Bid Price
         of the Common Stock on such date is less than the Conversion Price then
         in effect (after giving effect to the calculation of the Conversion
         Price through the end of such day and the conclusion of the Tranche B
         Pricing Period), then the Conversion Price shall be reduced to equal
         such price.

                           (c) Mechanics of Conversion.

         (i) Optional Conversion. To convert any Conversion Amount into shares
         of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
         transmit by facsimile (or otherwise deliver), for receipt on or prior
         to 11:59 p.m., Central Time on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the "CONVERSION
         NOTICE") to the Company and (B) if required by Section 3(c)(ii),
         surrender this Note to a common carrier for delivery to the Company as
         soon as practicable on or following such date (or an indemnification
         undertaking with respect to this Note in the case of its loss, theft or
         destruction). On or before the first Business Day following the
         Company's receipt of a Conversion Notice, the Company shall transmit by
         facsimile a confirmation of receipt of such Conversion Notice to the
         Holder and the Transfer Agent (as defined below). On or before the
         second Business Day following the date of receipt of a Conversion
         Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below
         does not apply) issue and deliver to the address as specified in the
         Conversion Notice, a certificate, registered in the name of the Holder
         or its designee, for the number of shares of Common Stock to which the
         Holder shall be entitled, or (Y) provided that the Company's transfer
         agent (the "TRANSFER AGENT") is participating in The Depository Trust
         Company ("DTC") Fast Automated Securities Transfer Program, upon the
         request of the Holder, credit such aggregate number of shares of Common
         Stock to which the Holder shall be entitled to the Holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. If this Note is physically surrendered for
         conversion as required by Section 3(c)(ii) and the outstanding
         Principal of this Note is greater than the Principal portion of the
         Conversion Amount being converted, then the Company shall as soon as
         practicable and in no event later than three Business Days after
         receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense,
         issue and deliver to the holder a new Note (in accordance with Section
         18(d)) representing the outstanding Principal not converted. The person
         or persons entitled to receive the shares of Common Stock issuable upon
         a conversion of this Note shall be treated for all purposes as the
         record holder or holders of such shares of Common Stock on the
         Conversion Date.

         (ii) Book-Entry. Notwithstanding anything to the contrary set forth
         herein, upon conversion of any portion of this Note in accordance with
         the terms hereof, the Holder shall not be required to physically
         surrender this Note to the Company unless (A) the full Conversion
         Amount represented by this Note is being converted or (B) the Holder
         has provided the Company with prior written notice (which notice may be
         included in a Conversion Notice) requesting physical surrender and
         reissue of this Note. The Holder and the Company shall maintain records
         showing the Principal and Interest converted and the dates of such
         conversions or shall use such other method, reasonably satisfactory to


                                       4



         the Holder and the Company, so as not to require physical surrender of
         this Note upon conversion.

         (iii) Pro Rata Conversion; Disputes. In the event that the Company
         receives a Conversion Notice from more than one holder of the Notes or
         the Separate Tranche Notes for the same Conversion Date and the Company
         can convert some, but not all, of such portions of the Notes and the
         Separate Tranche Notes submitted for conversion, the Company, subject
         to Section 3(d), shall convert from each holder of the Notes and the
         Separate Tranche Notes electing to have the Notes or Separate Tranche
         Notes converted on such date a pro rata amount of such holder's portion
         of its Notes or Separate Tranche Notes submitted for conversion based
         on the principal amount of the Notes or Separate Tranche Notes
         submitted for conversion on such date by such holder relative to the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes submitted for conversion on such date. In the event of a dispute
         as to the number of shares of Common Stock issuable to the Holder in
         connection with a conversion of this Note, the Company shall issue to
         the Holder the number of shares of Common Stock not in dispute and
         resolve such dispute in accordance with Section 23.

                           (d) Limitations on Conversions.

         (i) Beneficial Ownership. The Company shall not effect any conversion
         of this Note, and the Holder of this Note shall not have the right to
         convert any portion of this Note pursuant to Section 3(a), to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates) would beneficially own in
         excess of 5.0% of the number of shares of Common Stock outstanding
         immediately after giving effect to such conversion. For purposes of the
         foregoing sentence, the number of shares of Common Stock beneficially
         owned by the Holder and its affiliates shall include the number of
         shares of Common Stock issuable upon conversion of this Note with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted portion of
         this Note beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any Other Notes, Separate Tranche Notes or warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Holder or any of its
         affiliates. Except as set forth in the preceding sentence, for purposes
         of this Section 3(d)(i), beneficial ownership shall be calculated in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended. For purposes of this Section 3(d)(i), in determining the
         number of outstanding shares of Common Stock, the Holder may rely on
         the number of outstanding shares of Common Stock as reflected in (x)
         the Company's most recent Form 10-Q or Form 10-K, as the case may be,
         (y) a more recent public announcement by the Company or (z) any other
         notice by the Company or the Transfer Agent setting forth the number of
         shares of Common Stock outstanding. For any reason at any time, upon
         the written or oral request of the Holder, the Company shall within one
         Business Day confirm orally and in writing to the Holder the number of
         shares of


                                       5



         Common Stock then outstanding. In any case, the number of outstanding
         shares of Common Stock shall be determined after giving effect to the
         conversion or exercise of securities of the Company, including this
         Note, by the Holder or its affiliates since the date as of which such
         number of outstanding shares of Common Stock was reported.

         (ii) Principal Market Regulation. The Company shall not be obligated to
         issue any shares of Common Stock pursuant to this Note if the issuance
         of such shares of Common Stock would exceed that number of shares of
         Common Stock which the Company may issue pursuant to the Notes and the
         Separate Tranche Notes without breaching the Company's obligations
         under the rules or regulations of the Principal Market (the "EXCHANGE
         CAP"), except that such limitation shall not apply in the event that
         the Company (A) obtains the approval of its shareholders as required by
         the applicable rules of the Principal Market for issuances of Common
         Stock in excess of such amount or (B) obtains a written opinion from
         outside counsel to the Company that such approval is not required,
         which opinion shall be reasonably satisfactory to the holders of the
         Notes and the Separate Tranche Notes representing a majority of the
         principal amounts of the Notes and the Separate Tranche Notes (voting
         as a single class) then outstanding. Until such approval or written
         opinion is obtained, no purchaser of the Notes or the Separate Tranche
         Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS")
         shall be issued, upon conversion of the Notes or the Separate Tranche
         Notes, shares of Common Stock in an amount greater than the product of
         the Exchange Cap multiplied by a fraction, the numerator of which is
         the principal amount of the Notes and the Separate Tranche Notes issued
         to such Purchaser pursuant to the Securities Purchase Agreement as of
         the date of such determination and the denominator of which is the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes issued to the Purchasers pursuant to the Securities Purchase
         Agreement as of the date of such determination (with respect to each
         Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any
         Purchaser shall sell or otherwise transfer any of such Purchaser's
         Notes or Separate Tranche Notes, the transferee shall be allocated a
         pro rata portion of such Purchaser's Exchange Cap Allocation, and the
         restrictions of the prior sentence shall apply to such transferee with
         respect to the portion of the Exchange Cap Allocation allocated to such
         transferee. In the event that any holder of the Notes or the Separate
         Tranche Notes shall convert all of such holder's Notes or Separate
         Tranche Notes into a number of shares of Common Stock which, in the
         aggregate, is less than such holder's Exchange Cap Allocation, then the
         difference between such holder's Exchange Cap Allocation and the number
         of shares of Common Stock actually issued to such holder shall be
         allocated to the respective Exchange Cap Allocations of the remaining
         holders of the Notes and the Separate Tranche Notes on a pro rata basis
         in proportion to the aggregate principal amount of the Notes and the
         Separate Tranche Notes then held by each such holder.

                  (4) RIGHTS UPON EVENT OF DEFAULT.

                           (a) Event of Default. Each of the following events
         shall constitute a

"EVENT OF DEFAULT":

         (i) the failure of the Registration Statement covering all Registrable
         Securities (as defined in the Registration Rights Agreement) required
         to be registered pursuant to the


                                       6



         Registration Rights Agreement to be declared effective by the SEC on or
         prior to the date that is 180 days after the Issuance Date, or, while
         such Registration Statement is required to be maintained effective
         pursuant to the terms of the Registration Rights Agreement, the
         effectiveness of such Registration Statement lapses for any reason
         (including, without limitation, the issuance of a stop order) or is
         unavailable to any holder of the Notes for sale of all of such holder's
         Registrable Securities in accordance with the terms of the Registration
         Rights Agreement, and such lapse or unavailability continues for a
         period of five consecutive Business Days or for more than an aggregate
         of 20 Business Days in any 365-day period;

         (ii) the suspension from trading on the Principal Market for a period
         of three consecutive Business Days or for more than an aggregate of
         three Business Days in any 30-day Trading Day period or the delisting
         of the Common Stock from the Principal Market;

         (iii) the Company's (A) failure to cure a Conversion Failure by
         delivery of the required number of shares of Common Stock or a new Note
         (in accordance with section 18(d)), as applicable, within 10 days after
         the receipt by the Company of a Conversion Notice or (B) notice,
         written or oral, to any holder of the Notes, including by way of public
         announcement or through any of its agents, at any time, of its
         intention not to comply with a request for conversion of any Notes into
         shares of Common Stock that is tendered in accordance with the
         provisions of the Notes;

         (iv) the Company's failure to pay to the Holder any amount of
         Principal, Interest, Late Charges or other amounts when and as due
         under this Note, the Securities Purchase Agreement, the Registration
         Rights Agreement or any other agreement, document, certificate or other
         instrument delivered in connection with the transactions contemplated
         hereby and thereby to which the Holder is a party;

         (v) any default under, redemption of or acceleration prior to maturity
         of any Indebtedness (as defined in Section 3(r) of the Securities
         Purchase Agreement) of the Company or any of its Subsidiaries (as
         defined in Section 3(a) of the Securities Purchase Agreement) other
         than NRG (as defined below) (including, without limitation, the Other
         Notes) of at least $50,000,000;

         (vi) the Company or any of its Subsidiaries other than NRG (as defined
         below), pursuant to or within the meaning of Title 11, U.S. Code, or
         any similar Federal or state law for the relief of debtors
         (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B)
         consents to the entry of an order for relief against it in an
         involuntary case, (C) consents to the appointment of a receiver,
         trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
         makes a general assignment for the benefit of its creditors or (E)
         admits in writing that it is generally unable to pay its debts as they
         become due;

         (vii) a court of competent jurisdiction enters an order or decree under
         any Bankruptcy Law that (A) is for relief against the Company or any of
         its Subsidiaries other than NRG (as defined below) in an involuntary
         case, (B) appoints a Custodian of the Company or


                                       7



         any of its Subsidiaries other than NRG (as defined below) or (C) orders
         the liquidation of the Company or any of its Subsidiaries other than
         NRG (as defined below); or

         (viii) the Company breaches any representation, warranty, covenant
         (other than any covenant to deliver the NRG Opinion) or other term or
         condition of the Securities Purchase Agreement, the Registration Rights
         Agreement, this Note or any other agreement, document, certificate or
         other instrument delivered in connection with the transactions
         contemplated thereby and hereby to which the Holder is a party, except,
         in the case of a breach of a covenant which is curable, only if such
         breach continues for a period of at least 10 consecutive days.

                           (b) Redemption Right. Promptly after the occurrence
         of an Event of Default with respect to this Note or the Other Notes,
         the Company shall deliver written notice thereof via facsimile and
         overnight courier (a "EVENT OF DEFAULT NOTICE") to the Holder. At any
         time after the earlier of the Holder's receipt of an Event of Default
         Notice and the Holder becoming aware of an Event of Default, the Holder
         may require the Company to redeem all or any portion of this Note by
         delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION
         NOTICE") to the Company, which Event of Default Redemption Notice shall
         indicate the portion of this Note the Holder is electing to redeem.
         Each portion of this Note subject to redemption by the Company pursuant
         to this Section 4(b) shall be redeemed by the Company at a price equal
         to the greater of (i) the product of (x) the Conversion Amount and (y)
         the quotient determined by dividing (A) the Closing Sale Price of the
         Common Stock immediately prior to such Event of Default by (B) the
         Conversion Price and (ii) the product of (x) the Conversion Amount and
         (y) the Redemption Premium (the "EVENT OF DEFAULT REDEMPTION PRICE").
         Redemptions required by this Section 4(b) shall be made in accordance
         with the provisions of Section 10.

                  (5) RIGHTS UPON CHANGE OF CONTROL.

                           (a) Change of Control. Each of the following events
         shall constitute a "CHANGE OF CONTROL":

         (i) the consolidation, merger or other business combination (including,
         without limitation, a reorganization or recapitalization) of the
         Company with or into another Person in which holders of the Company's
         voting power immediately prior to the transaction cease after the
         transaction to hold, directly or indirectly, a majority of the voting
         power of the surviving entity or entities or the voting power necessary
         to elect a majority of the members of the board of directors (or their
         equivalent if other than a corporation) of such entity or entities;

         (ii) the sale or transfer of all or substantially all of the Company's
         assets; or

         (iii) a purchase, tender or exchange offer made to and accepted by the
         holders of more than the 50% of the outstanding shares of Common Stock.

                           (b) Assumption. Prior to the consummation of any
Change of Control, the Company will secure from any Person purchasing the
Company's assets or Common Stock


                                       8



or any successor resulting from such Change of Control (in each case, an
"ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to
the holders of Notes representing a majority of the aggregate principal amount
of the Notes then outstanding) to deliver to each holder of Notes in exchange
for such Notes, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes held by such holder, and
satisfactory to the holders of Notes representing a majority of the principal
amount of the Notes then outstanding. In the event that an Acquiring Entity is
directly or indirectly controlled by a company or entity whose common stock or
similar equity interest is listed, designated or quoted on a securities exchange
or trading market, the holders of notes representing a majority of the aggregate
principal amount of the Notes then outstanding may elect to treat such Person as
the Acquiring Entity for purposes of this Section 5(b).

                           (c) Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice,
"REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of
Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the
"CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default
Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section
5(c) shall be made in accordance with the provisions of Section 10 and shall
have priority to payments to other shareholders in connection with a Change of
Control.


                  (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

                           (a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.


                                       9



                           (b) Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger or other business
combination (other than a Change of Control) pursuant to which holders of Common
Stock are entitled to receive securities or other assets with respect to or in
exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event or (ii) in lieu of the shares of Common
Stock otherwise receivable upon such conversion, such securities or other assets
received by the holders of Common Stock in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the holders of Notes representing a majority of the aggregate
principal amount of the Notes then outstanding.

                  (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                           (a) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Issuance Date, the Company issues
or sells, or in accordance with this Section 7(a) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company (I) in
connection with the Xcel Energy Direct Purchase Plan or any employee benefit
plan which has been approved by the Board of Directors of the Company or any of
its Subsidiaries, pursuant to which the Company's securities may be issued to
any employee, officer or director for services provided to the Company or its
Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon conversion of the
Notes or the Separate Tranche Notes) for a consideration per share less than the
higher of the Closing Sale Price of the Common Stock on the date of such
issuance or sale or deemed issuance or sale and the Conversion Price in effect
immediately prior to such issuance or sale or deemed issuance or sale (such
higher price is referred to herein as the "APPLICABLE PRICE"), then immediately
after such issue or sale (subject to Section 7(a)(vi)), the Conversion Price
then in effect shall be reduced to an amount equal to the product of (x) the
Conversion Price in effect immediately prior to such issue or sale or deemed
issuance or sale and (y) the quotient determined by dividing (1) the sum of the
product of the Applicable Price and the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale or deemed issue or sale and
the consideration, if any, received by the Company upon such issue or sale, by
(2) the product of the Applicable Price multiplied by the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale or deemed
issue or sale. For purposes of determining the adjusted Conversion Price under
this Section 7(a), the following shall be applicable:


                                       10



         (i) Issuance of Options. If the Company in any manner grants or sells
         any Options and the lowest price per share for which one share of
         Common Stock is issuable upon the exercise of any such Option or upon
         conversion, exercise or exchange of any Convertible Securities issuable
         upon exercise of such Option is less than the Applicable Price, then
         such share of Common Stock shall be deemed to be outstanding and to
         have been issued and sold by the Company at the time of the granting or
         sale of such Option for such price per share. For purposes of this
         Section 7(a)(i), the "lowest price per share for which one share of
         Common Stock is issuable upon the exercise of any such Option or upon
         conversion, exercise or exchange of any Convertible Securities issuable
         upon exercise of such Option" shall be equal to the sum of the lowest
         amounts of consideration (if any) received or receivable by the Company
         with respect to any one share of Common Stock upon granting or sale of
         the Option, upon exercise of the Option and upon conversion, exercise
         or exchange of any Convertible Security issuable upon exercise of such
         Option. No further adjustment of the Conversion Price shall be made
         upon the actual issuance of such Common Stock or of such Convertible
         Securities upon the exercise of such Options or upon the actual
         issuance of such Common Stock upon conversion, exercise or exchange of
         such Convertible Securities. If the Company issues or sells any Options
         which are Variable Securities, no adjustment of the Conversion Price
         shall be made pursuant to this Section 7(a), and no shares of Common
         Stock shall be deemed outstanding with respect to such Variable
         Securities, as a result of the issuance of such Variable Securities
         until the actual issuance of Common Stock or Convertible Securities
         upon exercise of such Variable Securities, except to the extent such
         Variable Security also includes as a component of the exercise price a
         price which does not vary with the market price of the Common Stock.

         (ii) Issuance of Convertible Securities. If the Company in any manner
         issues or sells any Convertible Securities and the lowest price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange thereof is less than the Applicable
         Price, then such share of Common Stock shall be deemed to be
         outstanding and to have been issued and sold by the Company at the time
         of the issuance of sale of such Convertible Securities for such price
         per share. For the purposes of this Section 7(a)(ii), the "price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange" shall be equal to the sum of the
         lowest amounts of consideration (if any) received or receivable by the
         Company with respect to any one share of Common Stock upon the issuance
         or sale of the Convertible Security and upon the conversion, exercise
         or exchange of such Convertible Security. No further adjustment of the
         Conversion Price shall be made upon the actual issuance of such Common
         Stock upon conversion, exercise or exchange of such Convertible
         Securities, and if any such issue or sale of such Convertible
         Securities is made upon exercise of any Options for which adjustment of
         the Conversion Price had been or are to be made pursuant to other
         provisions of this Section 7(a), no further adjustment of the
         Conversion Price shall be made by reason of such issue or sale. If the
         Company issues or sells any Convertible Securities which are Variable
         Securities, no adjustment of the Conversion Price shall be made
         pursuant to this Section 7(a), and no shares of Common Stock shall be
         deemed outstanding with respect to such Variable Security, as a result
         of the issuance of such Variable Securities until the actual issuance
         of Common Stock upon exercise of


                                       11



         such Variable Securities, except to the extent such Variable Security
         also includes as a component of the conversion, exercise or exchange
         price a price which does not vary with the market price of the Common
         Stock.

         (iii) Change in Option Price or Rate of Conversion. If the purchase
         price provided for in any Options, the additional consideration, if
         any, payable upon the issue, conversion or exchange of any Convertible
         Securities, or the rate at which any Convertible Securities are
         convertible into or exercisable or exchangeable for Common Stock
         changes at any time, the Conversion Price in effect at the time of such
         change shall be adjusted to the Conversion Price which would have been
         in effect at such time had such Options or Convertible Securities
         provided for such changed purchase price, additional consideration or
         changed conversion rate, as the case may be, at the time initially
         granted, issued or sold. For purposes of this Section 7(a)(iii), if the
         terms of any Option or Convertible Security that was outstanding as of
         the Issuance Date are changed in the manner described in the
         immediately preceding sentence, then such Option or Convertible
         Security and the Common Stock deemed issuable upon exercise, conversion
         or exchange thereof shall be deemed to have been issued as of the date
         of such change. No adjustment shall be made if such adjustment would
         result in an increase of the Conversion Price then in effect.

         (iv) Calculation of Consideration Received. In case any Option is
         issued in connection with the issue or sale of other securities of the
         Company, together comprising one integrated transaction in which no
         specific consideration is allocated to such Options by the parties
         thereto, the Options will be deemed to have been issued for a
         consideration of $.01. If any Common Stock, Options or Convertible
         Securities are issued or sold or deemed to have been issued or sold for
         cash, the consideration received therefor will be deemed to be the net
         amount received by the Company therefor. If any Common Stock, Options
         or Convertible Securities are issued or sold for a consideration other
         than cash, the amount of the consideration other than cash received by
         the Company will be the fair value of such consideration, except where
         such consideration consists of securities, in which case the amount of
         consideration received by the Company will be the Closing Sale Price of
         such securities on the date of receipt. If any Common Stock, Options or
         Convertible Securities are issued to the owners of the non-surviving
         entity in connection with any merger in which the Company is the
         surviving entity, the amount of consideration therefor will be deemed
         to be the fair value of such portion of the net assets and business of
         the non-surviving entity as is attributable to such Common Stock,
         Options or Convertible Securities, as the case may be. The fair value
         of any consideration other than cash or securities will be determined
         jointly by the Company and the holders of Notes representing a majority
         of the principal amounts of the Notes then outstanding. If such parties
         are unable to reach agreement within ten days after the occurrence of
         an event requiring valuation (the "VALUATION EVENT"), the fair value of
         such consideration will be determined within five Business Days after
         the tenth day following the Valuation Event by an independent,
         reputable appraiser jointly selected by the Company and the holders of
         Notes representing a majority of the principal amounts of the Notes
         then outstanding. The determination of such appraiser shall be deemed
         binding upon all parties absent manifest error and the fees and
         expenses of such appraiser shall be borne by the Company.


                                       12



         (v) Record Date. If the Company takes a record of the holders of Common
         Stock for the purpose of entitling them (A) to receive a dividend or
         other distribution payable in Common Stock, Options or in Convertible
         Securities or (B) to subscribe for or purchase Common Stock, Options or
         Convertible Securities, then such record date will be deemed to be the
         date of the issue or sale of the shares of Common Stock deemed to have
         been issued or sold upon the declaration of such dividend or the making
         of such other distribution or the date of the granting of such right of
         subscription or purchase, as the case may be.

         (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING"
         means, at any given time, the number of shares of Common Stock actually
         outstanding at such time, plus the number of shares of Common Stock
         deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
         hereof regardless of whether the Options or Convertible Securities are
         actually exercisable at such time, but excluding any shares of Common
         Stock owned or held by or for the account of the Company or issuable
         upon conversion of the Notes or the Separate Tranche Notes.

         (vii) Delayed Adjustment. In addition to the foregoing provisions of
this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing
Bid Price shall be subject to adjustment, in accordance with the foregoing
provisions, for any days during any measuring period, including, without
limitation, the Tranche A Pricing Period, used herein that occur prior to any of
the aforementioned events if such events occur prior to the end of such
measuring period.

                           (b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                           (c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

                  (8) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or



                                       13

any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of, or enter into any agreement which by its terms restricts
or otherwise impairs the Company's performance of the terms of, this Note or any
of the other Transaction Documents (as defined in the Securities Purchase
Agreement), and will at all times in good faith carry out all of the provisions
of this Note and take all action as may be required to protect the rights of the
Holder of this Note.

                  (9) RESERVATION OF AUTHORIZED SHARES.

                           (a) Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the
Conversion Rate with respect to the Conversion Amount of each such Note and
Separate Tranche Note. Thereafter, the Company shall, so long as any of the
Notes or Separate Tranche Notes are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes and Separate
Tranche Note, at least 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes and
the Separate Tranche Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Notes and the Separate
Tranche Note and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes and Separate Tranche Note
based on the principal amount of the Notes and Separate Tranche Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event
that a holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                           (b) Insufficient Authorized Shares. If at any time
while any of the Notes or Separate Tranche Note remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the
Notes and the Separate Tranche Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for the Notes and Separate Tranche Note
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the shareholders that they
approve such proposal.


                                       14



                  (10) REDEMPTION.

                           (a) Mechanics. In the event that the Holder has sent
a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the
Holder shall promptly submit this Note to the Company. The Company shall deliver
the applicable Event of Default Redemption Price to the Holder within five
Business Days after the Company's receipt of the Holder's Event of Default
Redemption Notice and thereafter the Holder shall promptly deliver this Note to
the Company. If the Holder has submitted a Change of Control Redemption Notice
in accordance with Section 5(c), the Company shall deliver the applicable Change
of Control Redemption Price to the Holder concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five Business Days after the Company's receipt
of such notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time
period required above in this Section 10(a) at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option to, in lieu of redemption, require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

                           (b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes or the Separate
Tranche Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b) or
Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately
forward to the Holder by facsimile a copy of such notice. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven


                                       15



Business Day period, then the Company shall redeem a pro rata amount from each
holder of the Notes and the Separate Tranche Notes (including the Holder) based
on the principal amount of the Notes and the Separate Tranche Notes submitted
for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven Business Day period.

                  (c) Redemption at the Option of the Company. (i) Except as
provided in this Section 10(c) or in connection with the satisfaction by the
Company of its obligations to redeem the Notes under Sections 4(b) and 5(c)
hereof, without the prior written consent of the Holder the Company shall not
have the right to prepay, redeem, repurchase, defease or otherwise retire any
Note prior to the Maturity Date.

                  (ii) Provided the Company has consummated a Qualified 144A
Offering at any time during the Company Optional Redemption Period, the Company
may deliver an irrevocable written notice to the Holder and the Transfer Agent
(the "COMPANY OPTIONAL REDEMPTION NOTICE") within one (1) Business Day after
consummation of the Qualified 144A Offering, indicating that the Company has
elected to redeem, and is requiring the Holder to submit for redemption, in
whole but not in part, the outstanding Principal of this Note plus accrued
Interest thereon for the Company Optional Redemption Consideration (a "COMPANY
OPTIONAL REDEMPTION"). The Company Optional Redemption Notice shall be sent by
facsimile and overnight courier to the Holder and shall indicate (x) the date
fixed for redemption, which shall be five (5) Business Days after the expiration
of the Company Optional Redemption Period (the "COMPANY OPTIONAL REDEMPTION
DATE") and (y) the place or places where this Note is to be surrendered for
payment of the Company Optional Redemption Consideration. If the Company has
elected a Company Optional Redemption, the Company shall on the Company Optional
Redemption Date pay to the Holder the Cash Optional Redemption Consideration, by
wire transfer of immediately available funds to an account designated in writing
by such Holder.

                  (11) RESTRICTION ON REDEMPTION. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem its capital stock without
the prior express written consent of the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

                  (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of
Principal and Interest and other payments due under this Note shall rank pari
passu in right of payment with all (and shall not be subordinated to any)
unsecured, unsubordinated indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness of the Company.

                  (13) COVENANTS.

                           (a) Indebtedness. The Company shall not create,
incur, assume, guarantee or suffer to exist, or otherwise become or remain
liable with respect to, any Indebtedness other than Permitted Indebtedness and
Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness
that is unsecured and subordinated in right of payment to


                                       16



the Notes and other obligations owing to the Holders in accordance with a
subordination agreement in form and substance satisfactory to the Holders.
"Permitted Indebtedness" shall mean any Indebtedness that is unsecured and is
not senior in right of payment to the Notes and is otherwise on terms that are
no more favorable to the holders thereof than the terms of the Indebtedness
evidenced by the Notes unless such more favorable terms are offered to the
Holders.

                           (b) Liens. The Company shall not create, incur,
assume or suffer to exist, or permit any of its Subsidiaries (other than NRG
Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume
or suffer to exist, any Lien upon or with respect to any of its properties,
whether now owned or hereafter acquired; sign or suffer to exist any security
agreement authorizing any secured party thereunder to file a Uniform Commercial
Code financing statement (or the equivalent thereof) as notice of a Lien on any
property of the Company or its Subsidiaries; sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer, or permit any
of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in
the Bank Facility)) to assign or otherwise transfer, any account or other right
to receive income; other than, as to all of the above, Permitted Liens. As used
herein, "Permitted Liens" shall have the meaning of that term as defined in the
Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and
the banks listed therein (as the same maybe amended from time to time, the "BANK
FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge,
lien (statutory or otherwise), security interest, charge or other encumbrance or
security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any capitalized
lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.

                           (c) Transactions With Affiliates. The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, effect any
transaction with any Affiliate (as defined in the Bank Facility) that is (a)
outside the ordinary course of business or (b) on a basis less favorable than
would at the time be obtainable for a comparable transaction in arms-length
dealing with an unrelated third party, provided that notwithstanding the
foregoing, no loan, payment or other form of contribution shall be made to NRG
unless it is in an amount not in excess of (i) $300 Million payable pursuant to
the Support Agreement and Capital Subscription Agreement, dated as of May 29,
2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in
respect of guarantee obligations relating to the power marketing business of
NRG; provided further that with respect to any payment permitted pursuant to
clause (ii) above, the Company shall, in the context of a restructuring of NRG,
use its reasonable best efforts to obtain a full release of all obligations and
liabilities of the Company relating to NRG.

                           (d) Leverage Ratio. The Company shall not permit the
Leverage Ratio set forth in the Bank Facility to be exceeded.

                           (e) Restrictive Agreements. The Company shall not,
and shall not permit any Significant Subsidiary (as defined in the Bank
Facility) other than NRG to, enter into any agreement after the date of this
Note that imposes any restriction on the ability of such Significant Subsidiary
to make payments, directly or indirectly, to its shareholders by way of


                                       17



dividends, advances, repayment of loans or intercompany charges, expenses or
accruals or other returns on investments that is more restrictive than any such
restriction applicable to such Significant Subsidiary on the Issuance Date.

                           (f) Scope of Business. The Company shall, and shall
cause each Subsidiary to, engage only in energy-related business, functionally
related businesses (as interpreted under PUHCA, as defined in the Securities
Purchase Agreement)or such other businesses as maybe permitted pursuant to an
order issued by the SEC pursuant to PUHCA.


                  (14) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the Minnesota Business Corporation Act, and as expressly provided in this Note.

                  (15) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to (i) all extraordinary or special dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions and (ii)
regular cash dividends and distributions paid to the holders of the Common Stock
only with respect to that portion of such dividends that exceeds $0.1875 per
share of Common Stock in any calendar quarter (subject to adjustment for stock
splits, stock dividends, stock combinations and other similar transactions after
the Issuance Date). Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

                  (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of Notes representing not less than
two-thirds of the aggregate principal amount of the then outstanding Notes,
shall be required for any change or amendment to this Note or the Other Notes.

                  (17) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

                  (18) REISSUANCE OF THIS NOTE.

                           (a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 18(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 18(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 18(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.


                                       18



                           (b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal.

                           (c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

                           (d) Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 18(a) or Section 18(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Note immediately prior
to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note which is the same as the Issuance Date of this
Note, (iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.

                  (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, the Securities
Purchase Agreement and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                  (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is


                                       19



collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including but
not limited to attorneys fees and disbursements.

                  (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

                  (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                  (23) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price or any other calculation hereunder, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one Business Day of receipt of the Conversion Notice or
Redemption Notice giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such
determination or calculation of the Conversion Rate within one Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a)
the disputed determination of the Weighted Average Price, the Closing Bid Price
or the Closing Sale Price or any other calculation hereunder to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate or the Redemption
Price to the Company's independent, outside accountant. The Company, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the
time it receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

                  (24) NOTICES; PAYMENTS.

                           (a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such


                                       20



adjustment and (ii) at least twenty days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grants, issues or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to holders of Common Stock or
(C) for determining rights to vote with respect to any Change of Control,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to such holder. Notwithstanding the foregoing, Section 4(j) of the
Securities Purchase Agreement shall apply to all notices given pursuant to this
Note.

                           (b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date. Any amount of Interest,
Principal or other amount due under the Transaction Documents (as defined in the
Securities Purchase Agreement) which is not paid when due shall result in a late
charge being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of 12% per annum from the date such amount was due
until the same is paid in full ("LATE CHARGE").

                  (25) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

                  (26) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

                  (27) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.


                                       21



                  (28) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:

                           (a) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

                           (b) "CASH OPTIONAL REDEMPTION CONSIDERATION" means an
amount in cash equal to the greater of (i) 102% of the Conversion Amount of the
Note being redeemed in the Company Optional Redemption and (ii) the sum of (A)
the product determined by multiplying the Conversion Amount of the Note being
redeemed in the Company Optional Redemption by a quotient determined by dividing
(X) the Closing Bid Price of the Common Stock on the date of delivery of the
Company Optional Redemption Notice by (Y) the Company Optional Redemption
Conversion Price and (B) 12% of the Conversion Amount of the Note being redeemed
in the Company Optional Redemption; provided, however, that in the event that
the Company Optional Redemption Notice is delivered on or after the date that is
10 Business Days after the execution of the Securities Purchase Agreement, the
Holder shall have the option, upon delivery of written notice thereof to the
Company at any time prior to the Company Optional Redemption Date, to receive in
lieu of all or any portion of the Cash Optional Redemption Consideration a
number of shares of Common Stock not to exceed the Company Optional Redemption
Conversion Shares, in which event the Cash Optional Redemption Consideration
shall be reduced by an amount equal to the product determined by multiplying (I)
the number of shares of Common Stock the Holder has elected to receive and (II)
the Company Optional Redemption Conversion Price.

                           (c) "CHANGE OF CONTROL TERMINATION DATE" shall mean,
with respect to any proposed Change of Control for which a public announcement
that it proposes or intends to effect a Change of Control of the Company (the
date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon
which the Company or other Person proposing to effect such Change of Control
consummates or publicly announces the termination or abandonment of the proposed
Change of Control which was the subject of the previous public announcement.

                           (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on The New York Stock
Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg,


                                       22



or, if no closing bid price or last trade price, respectively, is reported for
such security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during any applicable calculation period.

                           (e) "COMMON STOCK" means (i) the Company's common
stock, par value $2.50 per share, and (ii) any capital stock resulting from a
reclassification of such Common Stock.


                           (f) "COMPANY OPTIONAL REDEMPTION CONVERSION PRICE"
shall mean 110% of the arithmetic average of the Weighted Average Price of the
Common Stock for each of the Trading Days during the Tranche B Pricing Period
through the date the Company delivers to the Holder the Company Optional
Redemption Notice, but in no event shall the Company Optional Redemption
Conversion Price exceed the Tranche B Base Price.

                           (g) "COMPANY OPTIONAL REDEMPTION CONVERSION SHARES"
shall mean that number of shares of Common Stock determined by dividing (i) the
Conversion Amount of the Note being redeemed in the Company Optional Redemption
by (ii) the Company Optional Redemption Conversion Price.

                           (h) "COMPANY OPTIONAL REDEMPTION PERIOD" means the
period commencing on the Business Day immediately following the Issuance Date
and ending on and including the date that is 35 Business Days after the
execution of the Securities Purchase Agreement.

                           (i) "COMPANY OPTIONAL REDEMPTION CONSIDERATION" means
the Non-Cash Optional Redemption Consideration plus the Cash Optional Redemption
Consideration.

                           (j) "NON-CASH OPTIONAL REDEMPTION CONSIDERATION"
means a legally binding written agreement executed and delivered by the Company
to the Holder, duly authorized by all necessary corporate action on the part of
the Company and otherwise in form and substance reasonably satisfactory to the
Holder, exercisable by the Holder at any time and from time to time during the
one-year period commencing on the Company Optional Redemption Date and ending on
the one-year anniversary thereafter, granting the Holder the right to purchase
securities that are identical (other than as to the issuance date and other than
that the Company shall be required to issue these securities to the Holder in a
valid private placement) to the securities issued in the Qualified Rule 144A
Offering in an aggregate principal amount that does not exceed such Holder's pro
rata portion (based on the Principal amount of this Note on the Issuance Date
out of the total aggregate principal amount of all Notes issued by the Company
on the Issuance Date) of 25% of the aggregate principal amount of securities
issued by the Company in the Qualified Rule 144A Offering.


                                       23



                           (k) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                           (l) "QUALIFIED 144A OFFERING" shall mean an
underwritten offering by the Company of debt securities of the Company that are
convertible into Common Stock, with an effective conversion premium (as defined
in Section (d)(3)(i) of Rule 144A of the Securities Act of 1933, as amended
("Rule 144A")) of not less than 10%, with such offering to be conducted either
pursuant to Rule 144A or pursuant to a registered offering of such securities,
in either case led by Merrill Lynch & Co. and yielding gross unrestricted cash
proceeds to the Company of not less than $150 million.

                           (m) "REDEMPTION PREMIUM" means (i) in the case of the
Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii),
115% or (ii) in the case of the Events of Default described in Section 4(a)(v) -
(vii), 100%.

                           (n) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares of
Common Stock issuable upon conversion of the Notes.

                           (o) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

                           (p) "SEPARATE TRANCHE NOTES" means the First Notes,
First Call Notes, Second Call Notes, Third Notes and the Third Call Notes,
collectively.

                           (q) "TRADING DAY" means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market or actually trades on such
exchange or market for less than 4.5 hours.

                           (r) "TRANCHE A BASE PRICE" means the Weighted Average
Price of the Common Stock on the issuance date of the First Notes.

                           (s) "TRANCHE B BASE PRICE" means the Weighted Average
Price of the Common Stock on the Tranche B Closing Date.

                           (t) "TRANCHE A PRICING PERIOD" means the twenty
consecutive Trading Days commencing on the fifth Trading Day immediately
following the issuance date of the First Notes.


                                       24



                           (u) "TRANCHE B PRICING PERIOD" means the ten
consecutive Trading Days commencing on the first Trading Day immediately
following the end of the Tranche A Pricing Period.

                           (v) "VARIABLE SECURITIES" means any stock or
securities other than Options directly or indirectly convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants
or option to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS") that are convertible into or exchangeable, directly or indirectly,
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more adjustments or resets to a
fixed price (a "VARIABLE PRICE").

                           (w) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price for such security on the principal securities exchange or trading market
where such security is listed or traded during the period beginning at 9:30
a.m., New York Time (or such other time as such principal securities exchange or
trading market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York Time (or such other time as such principal securities
exchange or trading market publicly announces is the official close of trading),
as reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m., New
York Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during applicable calculation period.



                                       25


                            [SIGNATURE PAGE FOLLOWS]

                                       26





         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Date of Issuance set out above.

                                       XCEL ENERGY INC.



                                       By:
                                          --------------------------------------
                                          Name:
                                          Title: Chief Executive Officer







                                    EXHIBIT I

                                XCEL ENERGY INC.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$2.50 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Conversion Amount to be converted:
                                                     ---------------------------

Please confirm the following information:


         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Common Stock to be issued:
                                                       -------------------------

Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

         Issue to:
                  --------------------------------------------------------------

                  --------------------------------------------------------------

                  --------------------------------------------------------------

         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------
                  By:
                       ---------------------------------------------------------
                                                        Title:
                                                              ------------------
                                                                               -

Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)





                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 8, 2002
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                  XCEL ENERGY INC.



                                  By:
                                     -----------------------------------------
                                     Name:
                                     Title:

EX-99.04

                                                                   EXHIBIT 99.04

                             SENIOR CONVERTIBLE NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.



                                XCEL ENERGY, INC.


Issuance Date: _______ __, 2002                        Principal: U.S. $_______

         FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as
defined below), acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at the rate of eight percent (8%) per annum, subject to
periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date
set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Final
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and
such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 28 and terms used herein but not
defined herein shall have the meanings set forth for such terms in the
Securities Purchase Agreement.






                  (1) MATURITY. On the Final Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if
any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance
Date; provided that, if the Holder has given notice in writing to the Company of
its desire to extend the Maturity Date on or prior to the date that is 10
Business Days prior to the Maturity Date, the Maturity Date shall be extended
(on one or more occasions) for an additional 364 days; provided, further, that
the Maturity Date shall not be extended (except as provided in the following
proviso) to more than five years after the Issuance Date (such date that is five
years after the Issuance Date or such earlier Maturity Date prior to which the
Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and
provided, further, that the Final Maturity Date may be extended at the option of
the Holder (x) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (y) through the date
that is ten days after a Change of Control Termination Date in the event that
the Announcement Date giving rise to such Change of Control Termination Date
occurred prior to the Final Maturity Date.

                  (2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of the
actual days elapsed during any period, and a calendar year of 365 or 366
calendar days, as applicable, and shall be payable in cash on each May 1 and
each November 1 during the period beginning on the Issuance Date and ending on,
and including, the Final Maturity Date (each an "INTEREST DATE"); provided that
interest on any Conversion Amount of this Note that is accrued but unpaid as of
the Conversion Date of such Conversion Amount shall be paid in shares of Common
Stock at the Conversion Rate. From and after the occurrence of an Event of
Default (as defined in Section 4(a)) or the failure to deliver timely the
Non-Consolidation Opinion (as defined in the Securities Purchase Agreement)
pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG
OPINION"), the Interest Rate shall be increased by two percentage points (2%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default. If the Company
shall fail to credit the Holder's balance account with DTC (as defined in
Section 3(c)(i)) or, if requested in writing by the Holder, to issue a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount or to issue a new
Note (in accordance with Section 18(d)) representing the Principal portion of
the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is
entitled, in each case within the time periods set out in Section 3(c)(i) (in
each case, a "CONVERSION FAILURE"), then during each period beginning on and
including the date of each such Conversion Failure and ending on and including
the date such Conversion Failure is cured, the Interest Rate then in effect
shall be increased by two percentage points (2%). If (i) the Registration
Statement (as defined in the Registration Rights Agreement) covering all the
Registrable Securities (as defined in the Registration Rights Agreement)
issuable upon conversion of this Note and required to be filed by


                                       2



the Company pursuant to the Registration Rights Agreement is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
applicable Mandatory Effective Date (as defined in the Registration Rights
Agreement) or (ii) on any day after such Registration Statement has been
declared effective by the SEC that sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(t) of the
Registration Rights Agreement) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock) (collectively with the event described in the immediately
preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief
for the damages to any holder by reason of any such delay in or reduction of its
ability to sell Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity) the Interest Rate then in
effect shall be increased by two percentage points (2%) during each period
beginning on and including the first date of each such Registration Failure and
ending on and including the date such Registration Failure is cured.

                  (3) CONVERSION OF NOTES. This Note shall be convertible into
shares of the Common Stock, on the terms and conditions set forth in this
Section 3.

                           (a) Conversion Right. Subject to the provisions of
Section 3(d), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock upon
any conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                           (b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a)
shall be determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (as defined below) (the "CONVERSION RATE").

         (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
         Principal to be converted, redeemed or otherwise surrendered with
         respect to which this determination is being made, (B) accrued and
         unpaid Interest with respect to such Principal and (C) accrued and
         unpaid Late Charges with respect to such Principal and Interest.

         (ii) "CONVERSION PRICE" means, 110% of the Weighted Average Price of
         the Common Stock during the Tranche A Pricing Period; provided that the
         Conversion Price shall not exceed 110% of the Tranche A Base Price;
         provided further, that in the event that the Company has not delivered
         a Company Optional Redemption Notice as of the date that is 35 Business
         Days after the issuance date of the First Notes and 110% of the


                                       3



         Closing Bid Price of the Common Stock on such date is less than the
         Conversion Price then in effect, then the Conversion Price shall be
         reduced to equal such price.

                           (c) Mechanics of Conversion.

         (i) Optional Conversion. To convert any Conversion Amount into shares
         of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
         transmit by facsimile (or otherwise deliver), for receipt on or prior
         to 11:59 p.m., Central Time on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the "CONVERSION
         NOTICE") to the Company and (B) if required by Section 3(c)(ii),
         surrender this Note to a common carrier for delivery to the Company as
         soon as practicable on or following such date (or an indemnification
         undertaking with respect to this Note in the case of its loss, theft or
         destruction). On or before the first Business Day following the
         Company's receipt of a Conversion Notice, the Company shall transmit by
         facsimile a confirmation of receipt of such Conversion Notice to the
         Holder and the Transfer Agent (as defined below). On or before the
         second Business Day following the date of receipt of a Conversion
         Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below
         does not apply) issue and deliver to the address as specified in the
         Conversion Notice, a certificate, registered in the name of the Holder
         or its designee, for the number of shares of Common Stock to which the
         Holder shall be entitled, or (Y) provided that the Company's transfer
         agent (the "TRANSFER AGENT") is participating in The Depository Trust
         Company ("DTC") Fast Automated Securities Transfer Program, upon the
         request of the Holder, credit such aggregate number of shares of Common
         Stock to which the Holder shall be entitled to the Holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. If this Note is physically surrendered for
         conversion as required by Section 3(c)(ii) and the outstanding
         Principal of this Note is greater than the Principal portion of the
         Conversion Amount being converted, then the Company shall as soon as
         practicable and in no event later than three Business Days after
         receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense,
         issue and deliver to the holder a new Note (in accordance with Section
         18(d)) representing the outstanding Principal not converted. The person
         or persons entitled to receive the shares of Common Stock issuable upon
         a conversion of this Note shall be treated for all purposes as the
         record holder or holders of such shares of Common Stock on the
         Conversion Date.

         (ii) Book-Entry. Notwithstanding anything to the contrary set forth
         herein, upon conversion of any portion of this Note in accordance with
         the terms hereof, the Holder shall not be required to physically
         surrender this Note to the Company unless (A) the full Conversion
         Amount represented by this Note is being converted or (B) the Holder
         has provided the Company with prior written notice (which notice may be
         included in a Conversion Notice) requesting physical surrender and
         reissue of this Note. The Holder and the Company shall maintain records
         showing the Principal and Interest converted and the dates of such
         conversions or shall use such other method, reasonably satisfactory to
         the Holder and the Company, so as not to require physical surrender of
         this Note upon conversion.


                                       4



         (iii) Pro Rata Conversion; Disputes. In the event that the Company
         receives a Conversion Notice from more than one holder of the Notes or
         the Separate Tranche Notes for the same Conversion Date and the Company
         can convert some, but not all, of such portions of the Notes and the
         Separate Tranche Notes submitted for conversion, the Company, subject
         to Section 3(d), shall convert from each holder of the Notes and the
         Separate Tranche Notes electing to have the Notes or Separate Tranche
         Notes converted on such date a pro rata amount of such holder's portion
         of its Notes or Separate Tranche Notes submitted for conversion based
         on the principal amount of the Notes or Separate Tranche Notes
         submitted for conversion on such date by such holder relative to the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes submitted for conversion on such date. In the event of a dispute
         as to the number of shares of Common Stock issuable to the Holder in
         connection with a conversion of this Note, the Company shall issue to
         the Holder the number of shares of Common Stock not in dispute and
         resolve such dispute in accordance with Section 23.

                           (d) Limitations on Conversions.

         (i) Beneficial Ownership. The Company shall not effect any conversion
         of this Note, and the Holder of this Note shall not have the right to
         convert any portion of this Note pursuant to Section 3(a), to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates) would beneficially own in
         excess of 5.0% of the number of shares of Common Stock outstanding
         immediately after giving effect to such conversion. For purposes of the
         foregoing sentence, the number of shares of Common Stock beneficially
         owned by the Holder and its affiliates shall include the number of
         shares of Common Stock issuable upon conversion of this Note with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted portion of
         this Note beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any Other Notes, Separate Tranche Notes or warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Holder or any of its
         affiliates. Except as set forth in the preceding sentence, for purposes
         of this Section 3(d)(i), beneficial ownership shall be calculated in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended. For purposes of this Section 3(d)(i), in determining the
         number of outstanding shares of Common Stock, the Holder may rely on
         the number of outstanding shares of Common Stock as reflected in (x)
         the Company's most recent Form 10-Q or Form 10-K, as the case may be,
         (y) a more recent public announcement by the Company or (z) any other
         notice by the Company or the Transfer Agent setting forth the number of
         shares of Common Stock outstanding. For any reason at any time, upon
         the written or oral request of the Holder, the Company shall within one
         Business Day confirm orally and in writing to the Holder the number of
         shares of Common Stock then outstanding. In any case, the number of
         outstanding shares of Common Stock shall be determined after giving
         effect to the conversion or exercise of securities of the Company,
         including this Note, by the Holder or its affiliates since the date as
         of which such number of outstanding shares of Common Stock was
         reported.


                                       5



         (ii) Principal Market Regulation. The Company shall not be obligated to
         issue any shares of Common Stock pursuant to this Note if the issuance
         of such shares of Common Stock would exceed that number of shares of
         Common Stock which the Company may issue pursuant to the Notes and the
         Separate Tranche Notes without breaching the Company's obligations
         under the rules or regulations of the Principal Market (the "EXCHANGE
         CAP"), except that such limitation shall not apply in the event that
         the Company (A) obtains the approval of its shareholders as required by
         the applicable rules of the Principal Market for issuances of Common
         Stock in excess of such amount or (B) obtains a written opinion from
         outside counsel to the Company that such approval is not required,
         which opinion shall be reasonably satisfactory to the holders of the
         Notes and the Separate Tranche Notes representing a majority of the
         principal amounts of the Notes and the Separate Tranche Notes (voting
         as a single class) then outstanding. Until such approval or written
         opinion is obtained, no purchaser of the Notes or the Separate Tranche
         Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS")
         shall be issued, upon conversion of the Notes or the Separate Tranche
         Notes, shares of Common Stock in an amount greater than the product of
         the Exchange Cap multiplied by a fraction, the numerator of which is
         the principal amount of the Notes and the Separate Tranche Notes issued
         to such Purchaser pursuant to the Securities Purchase Agreement as of
         the date of such determination and the denominator of which is the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes issued to the Purchasers pursuant to the Securities Purchase
         Agreement as of the date of such determination (with respect to each
         Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any
         Purchaser shall sell or otherwise transfer any of such Purchaser's
         Notes or Separate Tranche Notes, the transferee shall be allocated a
         pro rata portion of such Purchaser's Exchange Cap Allocation, and the
         restrictions of the prior sentence shall apply to such transferee with
         respect to the portion of the Exchange Cap Allocation allocated to such
         transferee. In the event that any holder of the Notes or the Separate
         Tranche Notes shall convert all of such holder's Notes or Separate
         Tranche Notes into a number of shares of Common Stock which, in the
         aggregate, is less than such holder's Exchange Cap Allocation, then the
         difference between such holder's Exchange Cap Allocation and the number
         of shares of Common Stock actually issued to such holder shall be
         allocated to the respective Exchange Cap Allocations of the remaining
         holders of the Notes and the Separate Tranche Notes on a pro rata basis
         in proportion to the aggregate principal amount of the Notes and the
         Separate Tranche Notes then held by each such holder.

                  (4) RIGHTS UPON EVENT OF DEFAULT.

                           (a) Event of Default. Each of the following events
shall constitute a

"EVENT OF DEFAULT":

         (i) the failure of the Registration Statement covering all Registrable
         Securities (as defined in the Registration Rights Agreement) required
         to be registered pursuant to the Registration Rights Agreement to be
         declared effective by the SEC on or prior to the date that is 180 days
         after the Issuance Date, or, while such Registration Statement is
         required to be maintained effective pursuant to the terms of the
         Registration Rights Agreement,


                                       6



         the effectiveness of such Registration Statement lapses for any reason
         (including, without limitation, the issuance of a stop order) or is
         unavailable to any holder of the Notes for sale of all of such holder's
         Registrable Securities in accordance with the terms of the Registration
         Rights Agreement, and such lapse or unavailability continues for a
         period of five consecutive Business Days or for more than an aggregate
         of 20 Business Days in any 365-day period;

         (ii) the suspension from trading on the Principal Market for a period
         of three consecutive Business Days or for more than an aggregate of
         three Business Days in any 30-day Trading Day period or the delisting
         of the Common Stock from the Principal Market;

         (iii) the Company's (A) failure to cure a Conversion Failure by
         delivery of the required number of shares of Common Stock or a new Note
         (in accordance with section 18(d)), as applicable, within 10 days after
         the receipt by the Company of a Conversion Notice or (B) notice,
         written or oral, to any holder of the Notes, including by way of public
         announcement or through any of its agents, at any time, of its
         intention not to comply with a request for conversion of any Notes into
         shares of Common Stock that is tendered in accordance with the
         provisions of the Notes;

         (iv) the Company's failure to pay to the Holder any amount of
         Principal, Interest, Late Charges or other amounts when and as due
         under this Note, the Securities Purchase Agreement, the Registration
         Rights Agreement or any other agreement, document, certificate or other
         instrument delivered in connection with the transactions contemplated
         hereby and thereby to which the Holder is a party;

         (v) any default under, redemption of or acceleration prior to maturity
         of any Indebtedness (as defined in Section 3(r) of the Securities
         Purchase Agreement) of the Company or any of its Subsidiaries (as
         defined in Section 3(a) of the Securities Purchase Agreement) other
         than NRG (as defined below) (including, without limitation, the Other
         Notes) of at least $50,000,000;

         (vi) the Company or any of its Subsidiaries other than NRG (as defined
         below), pursuant to or within the meaning of Title 11, U.S. Code, or
         any similar Federal or state law for the relief of debtors
         (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B)
         consents to the entry of an order for relief against it in an
         involuntary case, (C) consents to the appointment of a receiver,
         trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
         makes a general assignment for the benefit of its creditors or (E)
         admits in writing that it is generally unable to pay its debts as they
         become due;

         (vii) a court of competent jurisdiction enters an order or decree under
         any Bankruptcy Law that (A) is for relief against the Company or any of
         its Subsidiaries other than NRG (as defined below) in an involuntary
         case, (B) appoints a Custodian of the Company or any of its
         Subsidiaries other than NRG (as defined below) or (C) orders the
         liquidation of the Company or any of its Subsidiaries other than NRG
         (as defined below); or


                                       7



         (viii) the Company breaches any representation, warranty, covenant
         (other than any covenant to deliver the NRG Opinion) or other term or
         condition of the Securities Purchase Agreement, the Registration Rights
         Agreement, this Note or any other agreement, document, certificate or
         other instrument delivered in connection with the transactions
         contemplated thereby and hereby to which the Holder is a party, except,
         in the case of a breach of a covenant which is curable, only if such
         breach continues for a period of at least 10 consecutive days.

                           (b) Redemption Right. Promptly after the occurrence
of an Event of Default with respect to this Note or the Other Notes, the Company
shall deliver written notice thereof via facsimile and overnight courier (a
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount and (y) the quotient determined by
dividing (A) the Closing Sale Price of the Common Stock immediately prior to
such Event of Default by (B) the Conversion Price and (ii) the product of (x)
the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 10.

                     (5)       RIGHTS UPON CHANGE OF CONTROL.

                           (a) Change of Control. Each of the following events
shall constitute a "CHANGE OF CONTROL":

         (i) the consolidation, merger or other business combination (including,
         without limitation, a reorganization or recapitalization) of the
         Company with or into another Person in which holders of the Company's
         voting power immediately prior to the transaction cease after the
         transaction to hold, directly or indirectly, a majority of the voting
         power of the surviving entity or entities or the voting power necessary
         to elect a majority of the members of the board of directors (or their
         equivalent if other than a corporation) of such entity or entities;

         (ii) the sale or transfer of all or substantially all of the Company's
         assets; or

         (iii) a purchase, tender or exchange offer made to and accepted by the
         holders of more than the 50% of the outstanding shares of Common Stock.

                           (b) Assumption. Prior to the consummation of any
Change of Control, the Company will secure from any Person purchasing the
Company's assets or Common Stock or any successor resulting from such Change of
Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and
substance satisfactory to the holders of Notes representing a majority of the
aggregate principal amount of the Notes then outstanding) to deliver to each


                                       8



holder of Notes in exchange for such Notes, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Notes, including, without limitation, having a principal amount and interest
rate equal to the principal amounts and the interest rates of the Notes held by
such holder, and satisfactory to the holders of Notes representing a majority of
the principal amount of the Notes then outstanding. In the event that an
Acquiring Entity is directly or indirectly controlled by a company or entity
whose common stock or similar equity interest is listed, designated or quoted on
a securities exchange or trading market, the holders of notes representing a
majority of the aggregate principal amount of the Notes then outstanding may
elect to treat such Person as the Acquiring Entity for purposes of this Section
5(b).

                           (c) Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice,
"REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of
Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the
"CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default
Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section
5(c) shall be made in accordance with the provisions of Section 10 and shall
have priority to payments to other shareholders in connection with a Change of
Control.


                  (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

                           (a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.


                                       9



                           (b) Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger or other business
combination (other than a Change of Control) pursuant to which holders of Common
Stock are entitled to receive securities or other assets with respect to or in
exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event or (ii) in lieu of the shares of Common
Stock otherwise receivable upon such conversion, such securities or other assets
received by the holders of Common Stock in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the holders of Notes representing a majority of the aggregate
principal amount of the Notes then outstanding.

                  (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                           (a) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the issuance date of the First Notes,
the Company issues or sells, or in accordance with this Section 7(a) is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued or sold
by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or
any employee benefit plan which has been approved by the Board of Directors of
the Company or any of its Subsidiaries, pursuant to which the Company's
securities may be issued to any employee, officer or director for services
provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or
(II) upon conversion of the Notes or the Separate Tranche Notes) for a
consideration per share less than the higher of the Closing Sale Price of the
Common Stock on the date of such issuance or sale or deemed issuance or sale and
the Conversion Price in effect immediately prior to such issuance or sale or
deemed issuance or sale (such higher price is referred to herein as the
"APPLICABLE PRICE"), then immediately after such issue or sale (subject to
Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an
amount equal to the product of (x) the Conversion Price in effect immediately
prior to such issue or sale or deemed issuance or sale and (y) the quotient
determined by dividing (1) the sum of the product of the Applicable Price and
the number of shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale or deemed issue or sale and the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of the
Applicable Price multiplied by the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale or deemed issue or sale. For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

         (i) Issuance of Options. If the Company in any manner grants or sells
         any Options and the lowest price per share for which one share of
         Common Stock is issuable upon the


                                       10


         exercise of any such Option or upon conversion, exercise or exchange of
         any Convertible Securities issuable upon exercise of such Option is
         less than the Applicable Price, then such share of Common Stock shall
         be deemed to be outstanding and to have been issued and sold by the
         Company at the time of the granting or sale of such Option for such
         price per share. For purposes of this Section 7(a)(i), the "lowest
         price per share for which one share of Common Stock is issuable upon
         the exercise of any such Option or upon conversion, exercise or
         exchange of any Convertible Securities issuable upon exercise of such
         Option" shall be equal to the sum of the lowest amounts of
         consideration (if any) received or receivable by the Company with
         respect to any one share of Common Stock upon granting or sale of the
         Option, upon exercise of the Option and upon conversion, exercise or
         exchange of any Convertible Security issuable upon exercise of such
         Option. No further adjustment of the Conversion Price shall be made
         upon the actual issuance of such Common Stock or of such Convertible
         Securities upon the exercise of such Options or upon the actual
         issuance of such Common Stock upon conversion, exercise or exchange of
         such Convertible Securities. If the Company issues or sells any Options
         which are Variable Securities, no adjustment of the Conversion Price
         shall be made pursuant to this Section 7(a), and no shares of Common
         Stock shall be deemed outstanding with respect to such Variable
         Securities, as a result of the issuance of such Variable Securities
         until the actual issuance of Common Stock or Convertible Securities
         upon exercise of such Variable Securities, except to the extent such
         Variable Security also includes as a component of the exercise price a
         price which does not vary with the market price of the Common Stock.

         (ii) Issuance of Convertible Securities. If the Company in any manner
         issues or sells any Convertible Securities and the lowest price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange thereof is less than the Applicable
         Price, then such share of Common Stock shall be deemed to be
         outstanding and to have been issued and sold by the Company at the time
         of the issuance of sale of such Convertible Securities for such price
         per share. For the purposes of this Section 7(a)(ii), the "price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange" shall be equal to the sum of the
         lowest amounts of consideration (if any) received or receivable by the
         Company with respect to any one share of Common Stock upon the issuance
         or sale of the Convertible Security and upon the conversion, exercise
         or exchange of such Convertible Security. No further adjustment of the
         Conversion Price shall be made upon the actual issuance of such Common
         Stock upon conversion, exercise or exchange of such Convertible
         Securities, and if any such issue or sale of such Convertible
         Securities is made upon exercise of any Options for which adjustment of
         the Conversion Price had been or are to be made pursuant to other
         provisions of this Section 7(a), no further adjustment of the
         Conversion Price shall be made by reason of such issue or sale. If the
         Company issues or sells any Convertible Securities which are Variable
         Securities, no adjustment of the Conversion Price shall be made
         pursuant to this Section 7(a), and no shares of Common Stock shall be
         deemed outstanding with respect to such Variable Security, as a result
         of the issuance of such Variable Securities until the actual issuance
         of Common Stock upon exercise of such Variable Securities, except to
         the extent such Variable Security also includes as a


                                       11



         component of the conversion, exercise or exchange price a price which
         does not vary with the market price of the Common Stock.

         (iii) Change in Option Price or Rate of Conversion. If the purchase
         price provided for in any Options, the additional consideration, if
         any, payable upon the issue, conversion or exchange of any Convertible
         Securities, or the rate at which any Convertible Securities are
         convertible into or exercisable or exchangeable for Common Stock
         changes at any time, the Conversion Price in effect at the time of such
         change shall be adjusted to the Conversion Price which would have been
         in effect at such time had such Options or Convertible Securities
         provided for such changed purchase price, additional consideration or
         changed conversion rate, as the case may be, at the time initially
         granted, issued or sold. For purposes of this Section 7(a)(iii), if the
         terms of any Option or Convertible Security that was outstanding as of
         the Issuance Date are changed in the manner described in the
         immediately preceding sentence, then such Option or Convertible
         Security and the Common Stock deemed issuable upon exercise, conversion
         or exchange thereof shall be deemed to have been issued as of the date
         of such change. No adjustment shall be made if such adjustment would
         result in an increase of the Conversion Price then in effect.

         (iv) Calculation of Consideration Received. In case any Option is
         issued in connection with the issue or sale of other securities of the
         Company, together comprising one integrated transaction in which no
         specific consideration is allocated to such Options by the parties
         thereto, the Options will be deemed to have been issued for a
         consideration of $.01. If any Common Stock, Options or Convertible
         Securities are issued or sold or deemed to have been issued or sold for
         cash, the consideration received therefor will be deemed to be the net
         amount received by the Company therefor. If any Common Stock, Options
         or Convertible Securities are issued or sold for a consideration other
         than cash, the amount of the consideration other than cash received by
         the Company will be the fair value of such consideration, except where
         such consideration consists of securities, in which case the amount of
         consideration received by the Company will be the Closing Sale Price of
         such securities on the date of receipt. If any Common Stock, Options or
         Convertible Securities are issued to the owners of the non-surviving
         entity in connection with any merger in which the Company is the
         surviving entity, the amount of consideration therefor will be deemed
         to be the fair value of such portion of the net assets and business of
         the non-surviving entity as is attributable to such Common Stock,
         Options or Convertible Securities, as the case may be. The fair value
         of any consideration other than cash or securities will be determined
         jointly by the Company and the holders of Notes representing a majority
         of the principal amounts of the Notes then outstanding. If such parties
         are unable to reach agreement within ten days after the occurrence of
         an event requiring valuation (the "VALUATION Event"), the fair value of
         such consideration will be determined within five Business Days after
         the tenth day following the Valuation Event by an independent,
         reputable appraiser jointly selected by the Company and the holders of
         Notes representing a majority of the principal amounts of the Notes
         then outstanding. The determination of such appraiser shall be deemed
         binding upon all parties absent manifest error and the fees and
         expenses of such appraiser shall be borne by the Company.


                                       12



         (v) Record Date. If the Company takes a record of the holders of Common
         Stock for the purpose of entitling them (A) to receive a dividend or
         other distribution payable in Common Stock, Options or in Convertible
         Securities or (B) to subscribe for or purchase Common Stock, Options or
         Convertible Securities, then such record date will be deemed to be the
         date of the issue or sale of the shares of Common Stock deemed to have
         been issued or sold upon the declaration of such dividend or the making
         of such other distribution or the date of the granting of such right of
         subscription or purchase, as the case may be.

         (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING"
         means, at any given time, the number of shares of Common Stock actually
         outstanding at such time, plus the number of shares of Common Stock
         deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
         hereof regardless of whether the Options or Convertible Securities are
         actually exercisable at such time, but excluding any shares of Common
         Stock owned or held by or for the account of the Company or issuable
         upon conversion of the Notes or the Separate Tranche Notes.

         (vii) Delayed Adjustment. In addition to the foregoing provisions of
         this Section 7(a), the Weighted Average Price, Closing Sales Price and
         Closing Bid Price shall be subject to adjustment, in accordance with
         the foregoing provisions, for any days during any measuring period,
         including, without limitation, the Tranche A Pricing Period, used
         herein that occur prior to any of the aforementioned events if such
         events occur prior to the end of such measuring period.

                           (b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                           (c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

                  (8) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the


                                       13



terms of, or enter into any agreement which by its terms restricts or otherwise
impairs the Company's performance of the terms of, this Note or any of the other
Transaction Documents (as defined in the Securities Purchase Agreement), and
will at all times in good faith carry out all of the provisions of this Note and
take all action as may be required to protect the rights of the Holder of this
Note.

                  (9) RESERVATION OF AUTHORIZED SHARES.

                           (a) Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the
Conversion Rate with respect to the Conversion Amount of each such Note and
Separate Tranche Note. Thereafter, the Company shall, so long as any of the
Notes or Separate Tranche Notes are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes and Separate
Tranche Note, at least 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes and
the Separate Tranche Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Notes and the Separate
Tranche Note and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes and Separate Tranche Note
based on the principal amount of the Notes and Separate Tranche Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event
that a holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                           (b) Insufficient Authorized Shares. If at any time
while any of the Notes or Separate Tranche Note remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the
Notes and the Separate Tranche Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for the Notes and Separate Tranche Note
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the shareholders that they
approve such proposal.


                                       14



                  (10) REDEMPTION.

                           (a) Mechanics. In the event that the Holder has sent
a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the
Holder shall promptly submit this Note to the Company. The Company shall deliver
the applicable Event of Default Redemption Price to the Holder within five
Business Days after the Company's receipt of the Holder's Event of Default
Redemption Notice and thereafter the Holder shall promptly deliver this Note to
the Company. If the Holder has submitted a Change of Control Redemption Notice
in accordance with Section 5(c), the Company shall deliver the applicable Change
of Control Redemption Price to the Holder concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five Business Days after the Company's receipt
of such notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time
period required above in this Section 10(a) at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option to, in lieu of redemption, require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

                           (b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes or the Separate
Tranche Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b) or
Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately
forward to the Holder by facsimile a copy of such notice. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each holder of the


                                       15



Notes and the Separate Tranche Notes (including the Holder) based on the
principal amount of the Notes and the Separate Tranche Notes submitted for
redemption pursuant to such Redemption Notice and such Other Redemption Notices
received by the Company during such seven Business Day period.

                  (11) RESTRICTION ON REDEMPTION. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem its capital stock without
the prior express written consent of the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

                  (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of
Principal and Interest and other payments due under this Note shall rank pari
passu in right of payment with all (and shall not be subordinated to any)
unsecured, unsubordinated indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness of the Company.

                  (13) COVENANTS.

                           (a) Indebtedness. The Company shall not create,
incur, assume, guarantee or suffer to exist, or otherwise become or remain
liable with respect to, any Indebtedness other than Permitted Indebtedness and
Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness
that is unsecured and subordinated in right of payment to the Notes and other
obligations owing to the Holders in accordance with a subordination agreement in
form and substance satisfactory to the Holders. "Permitted Indebtedness" shall
mean any Indebtedness that is unsecured and is not senior in right of payment to
the Notes and is otherwise on terms that are no more favorable to the holders
thereof than the terms of the Indebtedness evidenced by the Notes unless such
more favorable terms are offered to the Holders.

                           (b) Liens. The Company shall not create, incur,
assume or suffer to exist, or permit any of its Subsidiaries (other than NRG
Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume
or suffer to exist, any Lien upon or with respect to any of its properties,
whether now owned or hereafter acquired; sign or suffer to exist any security
agreement authorizing any secured party thereunder to file a Uniform Commercial
Code financing statement (or the equivalent thereof) as notice of a Lien on any
property of the Company or its Subsidiaries; sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer, or permit any
of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in
the Bank Facility)) to assign or otherwise transfer, any account or other right
to receive income; other than, as to all of the above, Permitted Liens. As used
herein, "Permitted Liens" shall have the meaning of that term as defined in the
Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and
the banks listed therein (as the same maybe amended from time to time, the "BANK
FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge,
lien (statutory or otherwise), security interest, charge or other encumbrance


                                       16



or security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any capitalized
lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.

                           (c) Transactions With Affiliates. The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, effect any
transaction with any Affiliate (as defined in the Bank Facility) that is (a)
outside the ordinary course of business or (b) on a basis less favorable than
would at the time be obtainable for a comparable transaction in arms-length
dealing with an unrelated third party, provided that notwithstanding the
foregoing, no loan, payment or other form of contribution shall be made to NRG
unless it is in an amount not in excess of (i) $300 Million payable pursuant to
the Support Agreement and Capital Subscription Agreement, dated as of May 29,
2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in
respect of guarantee obligations relating to the power marketing business of
NRG; provided further that with respect to any payment permitted pursuant to
clause (ii) above, the Company shall in the context of a restructuring of NRG,
use its reasonable best efforts to obtain a full release of all obligations and
liabilities of the Company relating to NRG.

                           (d) Leverage Ratio. The Company shall not permit the
Leverage Ratio set forth in the Bank Facility to be exceeded.

                           (e) Restrictive Agreements. The Company shall not,
and shall not permit any Significant Subsidiary (as defined in the Bank
Facility) other than NRG to, enter into any agreement after the date of this
Note that imposes any restriction on the ability of such Significant Subsidiary
to make payments, directly or indirectly, to its shareholders by way of
dividends, advances, repayment of loans or intercompany charges, expenses or
accruals or other returns on investments that is more restrictive than any such
restriction applicable to such Significant Subsidiary on the Issuance Date.

                           (f) Scope of Business. The Company shall, and shall
cause each Subsidiary to, engage only in energy-related business, functionally
related businesses (as interpreted under PUHCA, as defined in the Securities
Purchase Agreement)or such other businesses as maybe permitted pursuant to an
order issued by the SEC pursuant to PUHCA.


                  (14) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the Minnesota Business Corporation Act, and as expressly provided in this Note.

                  (15) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to (i) all extraordinary or special dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions and (ii)
regular cash dividends and distributions paid to the holders of the Common Stock
only with respect to that portion of such dividends that exceeds $0.1875 per
share of Common Stock in any calendar quarter (subject to adjustment for stock
splits, stock dividends, stock combinations and other


                                       17



similar transactions after the Issuance Date). Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Common Stock.

                  (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of Notes representing not less than
two-thirds of the aggregate principal amount of the then outstanding Notes,
shall be required for any change or amendment to this Note or the Other Notes.

                  (17) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

                  (18) REISSUANCE OF THIS NOTE.

                           (a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 18(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 18(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 18(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.

                           (b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal.

                           (c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

                           (d) Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 18(a) or Section 18(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal


                                       18



remaining outstanding under this Note immediately prior to such issuance of new
Notes), (iii) shall have an issuance date, as indicated on the face of such new
Note which is the same as the Issuance Date of this Note, (iv) shall have the
same rights and conditions as this Note, and (v) shall represent accrued
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.

                  (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, the Securities
Purchase Agreement and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                  (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors' rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including but not limited to attorneys fees
and disbursements.

                  (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

                  (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                  (23) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price or any other calculation hereunder, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one Business Day of receipt of the Conversion


                                       19



Notice or Redemption Notice giving rise to such dispute, as the case may be, to
the Holder. If the Holder and the Company are unable to agree upon such
determination or calculation of the Conversion Rate within one Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a)
the disputed determination of the Weighted Average Price, the Closing Bid Price
or the Closing Sale Price or any other calculation hereunder to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate or the Redemption
Price to the Company's independent, outside accountant. The Company, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the
time it receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.

                  (24) NOTICES; PAYMENTS.

                           (a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grants, issues or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
holders of Common Stock or (C) for determining rights to vote with respect to
any Change of Control, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder. Notwithstanding the foregoing,
Section 4(j) of the Securities Purchase Agreement shall apply to all notices
given pursuant to this Note.

                           (b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall


                                       20



not be taken into account for purposes of determining the amount of Interest due
on such date. Any amount of Interest, Principal or other amount due under the
Transaction Documents (as defined in the Securities Purchase Agreement) which is
not paid when due shall result in a late charge being incurred and payable by
the Company in an amount equal to interest on such amount at the rate of 12% per
annum from the date such amount was due until the same is paid in full ("LATE
CHARGE").

                  (25) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

                  (26) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

                  (27) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.

                  (28) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:

                           (a) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

                           (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean,
with respect to any proposed Change of Control for which a public announcement
that it proposes or intends to effect a Change of Control of the Company (the
date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon
which the Company or other Person proposing to effect such Change of Control
consummates or publicly announces the termination or abandonment of the proposed
Change of Control which was the subject of the previous public announcement.

                           (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on The New York Stock
Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last


                                       21



trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during any applicable calculation period.

                           (d) "COMMON STOCK" means (i) the Company's common
stock, par value $2.50 per share, and (ii) any capital stock resulting from a
reclassification of such Common Stock.

                           (e) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                           (f) "REDEMPTION PREMIUM" means (i) in the case of the
Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii),
115% or (ii) in the case of the Events of Default described in Section 4(a)(v) -
(vii), 100%.

                           (g) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares of
Common Stock issuable upon conversion of the Notes.

                           (h) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

                           (i) "SEPARATE TRANCHE NOTES" means the First Notes,
Second Notes, Second Call Notes, Third Notes and the Third Call Notes,
collectively.

                           (j) "TRADING DAY" means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market or actually trades on such
exchange or market for less than 4.5 hours.


                                       22



                           (k) "TRANCHE A BASE PRICE" means Weighted Average
Price of the Common Stock on the issuance date of the First Notes.

                           (l) "TRANCHE B BASE PRICE" means the Weighted Average
Price of the Common Stock on the Tranche B Closing Date.

                           (m) "TRANCHE A PRICING PERIOD" means the twenty
consecutive Trading Days commencing on the fifth Trading Day immediately
following the issuance date of the First Notes.

                           (n) "TRANCHE B PRICING PERIOD" means the ten
consecutive Trading Days commencing on the first Trading Day immediately
following the end of the Tranche A Pricing Period.

                           (o) "VARIABLE SECURITIES" means any stock or
securities other than Options directly or indirectly convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants
or option to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS") that are convertible into or exchangeable, directly or indirectly,
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more adjustments or resets to a
fixed price (a "VARIABLE PRICE").

                           (m) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price for such security on the principal securities exchange or trading market
where such security is listed or traded during the period beginning at 9:30
a.m., New York Time (or such other time as such principal securities exchange or
trading market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York Time (or such other time as such principal securities
exchange or trading market publicly announces is the official close of trading),
as reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m., New
York Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is


                                       23



reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during applicable calculation period.


                            [SIGNATURE PAGE FOLLOWS]



                                       24





         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Date of Issuance set out above.

                                         XCEL ENERGY INC.



                                         By:
                                            ----------------------------------
                                              Name:
                                              Title:   Chief Executive Officer







                                    EXHIBIT I

                                XCEL ENERGY INC.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$2.50 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

           Date of Conversion:
                              --------------------------------------------------

           Aggregate Conversion Amount to be converted:
                                                       -------------------------

Please confirm the following information:

           Conversion Price:
                            ----------------------------------------------------

           Number of shares of Common Stock to be issued:
                                                         -----------------------

Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

           Issue to:
                    ------------------------------------------------------------

                    ------------------------------------------------------------

                    ------------------------------------------------------------
           Facsimile Number:
                            ----------------------------------------------------

           Authorization:
                         -------------------------------------------------------

                     By:
                        --------------------------------------------------------
                                              Title:

Dated:
      --------------------------------------------------------------------------

           Account Number:
                          ------------------------------------------------------
             (if electronic book entry transfer)

           Transaction Code Number:
                                   ---------------------------------------------
             (if electronic book entry transfer)





                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 8, 2002
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                         XCEL ENERGY INC.



                                         By:
                                            -----------------------------------
                                             Name:
                                             Title:

EX-99.05

                                                                   EXHIBIT 99.05

                             SENIOR CONVERTIBLE NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.



                                XCEL ENERGY, INC.


Issuance Date: _______ __, 200_                    Principal: U.S. $____________

         FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as
defined below), acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at the rate of eight percent (8%) per annum, subject to
periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date
set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Final
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and
such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 28 and terms used herein but not
defined herein shall have the meanings set forth for such terms in the
Securities Purchase Agreement.






                  (1) MATURITY. On the Final Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if
any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance
Date; provided that, if the Holder has given notice in writing to the Company of
its desire to extend the Maturity Date on or prior to the date that is 10
Business Days prior to the Maturity Date, the Maturity Date shall be extended
(on one or more occasions) for an additional 364 days; provided, further, that
the Maturity Date shall not be extended (except as provided in the following
proviso) to more than five years after the Issuance Date (such date that is five
years after the Issuance Date or such earlier Maturity Date prior to which the
Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and
provided, further, that the Final Maturity Date may be extended at the option of
the Holder (x) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (y) through the date
that is ten days after a Change of Control Termination Date in the event that
the Announcement Date giving rise to such Change of Control Termination Date
occurred prior to the Final Maturity Date.

                  (2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of the
actual days elapsed during any period, and a calendar year of 365 or 366
calendar days, as applicable, and shall be payable in cash on each May 1 and
each November 1 during the period beginning on the Issuance Date and ending on,
and including, the Final Maturity Date (each an "INTEREST DATE"); provided that
interest on any Conversion Amount of this Note that is accrued but unpaid as of
the Conversion Date of such Conversion Amount shall be paid in shares of Common
Stock at the Conversion Rate. From and after the occurrence of an Event of
Default (as defined in Section 4(a)) or the failure to deliver timely the
Non-Consolidation Opinion (as defined in the Securities Purchase Agreement)
pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG
OPINION"), the Interest Rate shall be increased by two percentage points (2%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default. If the Company
shall fail to credit the Holder's balance account with DTC (as defined in
Section 3(c)(i)) or, if requested in writing by the Holder, to issue a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount or to issue a new
Note (in accordance with Section 18(d)) representing the Principal portion of
the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is
entitled, in each case within the time periods set out in Section 3(c)(i) (in
each case, a "CONVERSION FAILURE"), then during each period beginning on and
including the date of each such Conversion Failure and ending on and including
the date such Conversion Failure is cured, the Interest Rate then in effect
shall be increased by two percentage points (2%). If (i) the Registration
Statement (as defined in the Registration Rights Agreement) covering all the
Registrable Securities (as defined in the Registration Rights Agreement)
issuable upon conversion of this Note and required to be filed by




                                       2


the Company pursuant to the Registration Rights Agreement is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
applicable Mandatory Effective Date (as defined in the Registration Rights
Agreement) or (ii) on any day after such Registration Statement has been
declared effective by the SEC that sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(t) of the
Registration Rights Agreement) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock) (collectively with the event described in the immediately
preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief
for the damages to any holder by reason of any such delay in or reduction of its
ability to sell Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity) the Interest Rate then in
effect shall be increased by two percentage points (2%) during each period
beginning on and including the first date of each such Registration Failure and
ending on and including the date such Registration Failure is cured.

                  (3) CONVERSION OF NOTES. This Note shall be convertible into
shares of the Common Stock, on the terms and conditions set forth in this
Section 3.

                           (a) Conversion Right. Subject to the provisions of
Section 3(d), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock upon
any conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                           (b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a)
shall be determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (as defined below) (the "CONVERSION RATE").

         (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
         Principal to be converted, redeemed or otherwise surrendered with
         respect to which this determination is being made, (B) accrued and
         unpaid Interest with respect to such Principal and (C) accrued and
         unpaid Late Charges with respect to such Principal and Interest.

         (ii) "CONVERSION PRICE" means, 110% of the Weighted Average Price of
         the Common Stock during the Tranche B Pricing Period; provided that the
         Conversion Price shall not exceed 110% of the Tranche B Base Price;
         provided further, that in the event that the Company has not delivered
         a Company Optional Redemption Notice as of the date that is 35 Business
         Days after the date of issuance of the First Notes and 110% of the
         Closing Bid Price of the Common Stock on such date is less than the
         Conversion Price





                                       3


         then in effect (after giving effect to the calculation of the
         Conversion Price through the end of such day and the conclusion of the
         Tranche B Pricing Period), then the Conversion Price shall be reduced
         to equal such price.

                           (c) Mechanics of Conversion.

         (i) Optional Conversion. To convert any Conversion Amount into shares
         of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
         transmit by facsimile (or otherwise deliver), for receipt on or prior
         to 11:59 p.m., Central Time on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the "CONVERSION
         NOTICE") to the Company and (B) if required by Section 3(c)(ii),
         surrender this Note to a common carrier for delivery to the Company as
         soon as practicable on or following such date (or an indemnification
         undertaking with respect to this Note in the case of its loss, theft or
         destruction). On or before the first Business Day following the
         Company's receipt of a Conversion Notice, the Company shall transmit by
         facsimile a confirmation of receipt of such Conversion Notice to the
         Holder and the Transfer Agent (as defined below). On or before the
         second Business Day following the date of receipt of a Conversion
         Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below
         does not apply) issue and deliver to the address as specified in the
         Conversion Notice, a certificate, registered in the name of the Holder
         or its designee, for the number of shares of Common Stock to which the
         Holder shall be entitled, or (Y) provided that the Company's transfer
         agent (the "TRANSFER AGENT") is participating in The Depository Trust
         Company ("DTC") Fast Automated Securities Transfer Program, upon the
         request of the Holder, credit such aggregate number of shares of Common
         Stock to which the Holder shall be entitled to the Holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. If this Note is physically surrendered for
         conversion as required by Section 3(c)(ii) and the outstanding
         Principal of this Note is greater than the Principal portion of the
         Conversion Amount being converted, then the Company shall as soon as
         practicable and in no event later than three Business Days after
         receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense,
         issue and deliver to the holder a new Note (in accordance with Section
         18(d)) representing the outstanding Principal not converted. The person
         or persons entitled to receive the shares of Common Stock issuable upon
         a conversion of this Note shall be treated for all purposes as the
         record holder or holders of such shares of Common Stock on the
         Conversion Date.

         (ii) Book-Entry. Notwithstanding anything to the contrary set forth
         herein, upon conversion of any portion of this Note in accordance with
         the terms hereof, the Holder shall not be required to physically
         surrender this Note to the Company unless (A) the full Conversion
         Amount represented by this Note is being converted or (B) the Holder
         has provided the Company with prior written notice (which notice may be
         included in a Conversion Notice) requesting physical surrender and
         reissue of this Note. The Holder and the Company shall maintain records
         showing the Principal and Interest converted and the dates of such
         conversions or shall use such other method, reasonably satisfactory to
         the Holder and the Company, so as not to require physical surrender of
         this Note upon conversion.



                                       4


         (iii) Pro Rata Conversion; Disputes. In the event that the Company
         receives a Conversion Notice from more than one holder of the Notes or
         the Separate Tranche Notes for the same Conversion Date and the Company
         can convert some, but not all, of such portions of the Notes and the
         Separate Tranche Notes submitted for conversion, the Company, subject
         to Section 3(d), shall convert from each holder of the Notes and the
         Separate Tranche Notes electing to have the Notes or Separate Tranche
         Notes converted on such date a pro rata amount of such holder's portion
         of its Notes or Separate Tranche Notes submitted for conversion based
         on the principal amount of the Notes or Separate Tranche Notes
         submitted for conversion on such date by such holder relative to the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes submitted for conversion on such date. In the event of a dispute
         as to the number of shares of Common Stock issuable to the Holder in
         connection with a conversion of this Note, the Company shall issue to
         the Holder the number of shares of Common Stock not in dispute and
         resolve such dispute in accordance with Section 23.

                           (d) Limitations on Conversions.

         (i) Beneficial Ownership. The Company shall not effect any conversion
         of this Note, and the Holder of this Note shall not have the right to
         convert any portion of this Note pursuant to Section 3(a), to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates) would beneficially own in
         excess of 5.0% of the number of shares of Common Stock outstanding
         immediately after giving effect to such conversion. For purposes of the
         foregoing sentence, the number of shares of Common Stock beneficially
         owned by the Holder and its affiliates shall include the number of
         shares of Common Stock issuable upon conversion of this Note with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted portion of
         this Note beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any Other Notes, Separate Tranche Notes or warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Holder or any of its
         affiliates. Except as set forth in the preceding sentence, for purposes
         of this Section 3(d)(i), beneficial ownership shall be calculated in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended. For purposes of this Section 3(d)(i), in determining the
         number of outstanding shares of Common Stock, the Holder may rely on
         the number of outstanding shares of Common Stock as reflected in (x)
         the Company's most recent Form 10-Q or Form 10-K, as the case may be,
         (y) a more recent public announcement by the Company or (z) any other
         notice by the Company or the Transfer Agent setting forth the number of
         shares of Common Stock outstanding. For any reason at any time, upon
         the written or oral request of the Holder, the Company shall within one
         Business Day confirm orally and in writing to the Holder the number of
         shares of Common Stock then outstanding. In any case, the number of
         outstanding shares of Common Stock shall be determined after giving
         effect to the conversion or exercise of




                                       5


         securities of the Company, including this Note, by the Holder or its
         affiliates since the date as of which such number of outstanding shares
         of Common Stock was reported.

         (ii) Principal Market Regulation. The Company shall not be obligated to
         issue any shares of Common Stock pursuant to this Note if the issuance
         of such shares of Common Stock would exceed that number of shares of
         Common Stock which the Company may issue pursuant to the Notes and the
         Separate Tranche Notes without breaching the Company's obligations
         under the rules or regulations of the Principal Market (the "EXCHANGE
         CAP"), except that such limitation shall not apply in the event that
         the Company (A) obtains the approval of its shareholders as required by
         the applicable rules of the Principal Market for issuances of Common
         Stock in excess of such amount or (B) obtains a written opinion from
         outside counsel to the Company that such approval is not required,
         which opinion shall be reasonably satisfactory to the holders of the
         Notes and the Separate Tranche Notes representing a majority of the
         principal amounts of the Notes and the Separate Tranche Notes (voting
         as a single class) then outstanding. Until such approval or written
         opinion is obtained, no purchaser of the Notes or the Separate Tranche
         Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS")
         shall be issued, upon conversion of the Notes or the Separate Tranche
         Notes, shares of Common Stock in an amount greater than the product of
         the Exchange Cap multiplied by a fraction, the numerator of which is
         the principal amount of the Notes and the Separate Tranche Notes issued
         to such Purchaser pursuant to the Securities Purchase Agreement as of
         the date of such determination and the denominator of which is the
         aggregate principal amount of all the Notes and the Separate Tranche
         Notes issued to the Purchasers pursuant to the Securities Purchase
         Agreement as of the date of such determination (with respect to each
         Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any
         Purchaser shall sell or otherwise transfer any of such Purchaser's
         Notes or Separate Tranche Notes, the transferee shall be allocated a
         pro rata portion of such Purchaser's Exchange Cap Allocation, and the
         restrictions of the prior sentence shall apply to such transferee with
         respect to the portion of the Exchange Cap Allocation allocated to such
         transferee. In the event that any holder of the Notes or the Separate
         Tranche Notes shall convert all of such holder's Notes or Separate
         Tranche Notes into a number of shares of Common Stock which, in the
         aggregate, is less than such holder's Exchange Cap Allocation, then the
         difference between such holder's Exchange Cap Allocation and the number
         of shares of Common Stock actually issued to such holder shall be
         allocated to the respective Exchange Cap Allocations of the remaining
         holders of the Notes and the Separate Tranche Notes on a pro rata basis
         in proportion to the aggregate principal amount of the Notes and the
         Separate Tranche Notes then held by each such holder.

                  (4) RIGHTS UPON EVENT OF DEFAULT.

                           (a) Event of Default. Each of the following events
shall constitute a "EVENT OF DEFAULT":

         (i) the failure of the Registration Statement covering all Registrable
         Securities (as defined in the Registration Rights Agreement) required
         to be registered pursuant to the Registration Rights Agreement to be
         declared effective by the SEC on or prior to the date




                                       6


         that is 180 days after the Issuance Date, or, while such Registration
         Statement is required to be maintained effective pursuant to the terms
         of the Registration Rights Agreement, the effectiveness of such
         Registration Statement lapses for any reason (including, without
         limitation, the issuance of a stop order) or is unavailable to any
         holder of the Notes for sale of all of such holder's Registrable
         Securities in accordance with the terms of the Registration Rights
         Agreement, and such lapse or unavailability continues for a period of
         five consecutive Business Days or for more than an aggregate of 20
         Business Days in any 365-day period;

         (ii) the suspension from trading on the Principal Market for a period
         of three consecutive Business Days or for more than an aggregate of
         three Business Days in any 30-day Trading Day period or the delisting
         of the Common Stock from the Principal Market;

         (iii) the Company's (A) failure to cure a Conversion Failure by
         delivery of the required number of shares of Common Stock or a new Note
         (in accordance with section 18(d)), as applicable, within 10 days after
         the receipt by the Company of a Conversion Notice or (B) notice,
         written or oral, to any holder of the Notes, including by way of public
         announcement or through any of its agents, at any time, of its
         intention not to comply with a request for conversion of any Notes into
         shares of Common Stock that is tendered in accordance with the
         provisions of the Notes;

         (iv) the Company's failure to pay to the Holder any amount of
         Principal, Interest, Late Charges or other amounts when and as due
         under this Note, the Securities Purchase Agreement, the Registration
         Rights Agreement or any other agreement, document, certificate or other
         instrument delivered in connection with the transactions contemplated
         hereby and thereby to which the Holder is a party;

         (v) any default under, redemption of or acceleration prior to maturity
         of any Indebtedness (as defined in Section 3(r) of the Securities
         Purchase Agreement) of the Company or any of its Subsidiaries (as
         defined in Section 3(a) of the Securities Purchase Agreement) other
         than NRG (as defined below) (including, without limitation, the Other
         Notes) of at least $50,000,000;

         (vi) the Company or any of its Subsidiaries other than NRG (as defined
         below), pursuant to or within the meaning of Title 11, U.S. Code, or
         any similar Federal or state law for the relief of debtors
         (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B)
         consents to the entry of an order for relief against it in an
         involuntary case, (C) consents to the appointment of a receiver,
         trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
         makes a general assignment for the benefit of its creditors or (E)
         admits in writing that it is generally unable to pay its debts as they
         become due;

         (vii) a court of competent jurisdiction enters an order or decree under
         any Bankruptcy Law that (A) is for relief against the Company or any of
         its Subsidiaries other than NRG (as defined below) in an involuntary
         case, (B) appoints a Custodian of the Company or




                                       7


         any of its Subsidiaries other than NRG (as defined below) or (C) orders
         the liquidation of the Company or any of its Subsidiaries other than
         NRG (as defined below); or

         (viii) the Company breaches any representation, warranty, covenant
         (other than any covenant to deliver the NRG Opinion) or other term or
         condition of the Securities Purchase Agreement, the Registration Rights
         Agreement, this Note or any other agreement, document, certificate or
         other instrument delivered in connection with the transactions
         contemplated thereby and hereby to which the Holder is a party, except,
         in the case of a breach of a covenant which is curable, only if such
         breach continues for a period of at least 10 consecutive days.

                           (b) Redemption Right. Promptly after the occurrence
of an Event of Default with respect to this Note or the Other Notes, the Company
shall deliver written notice thereof via facsimile and overnight courier (a
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount and (y) the quotient determined by
dividing (A) the Closing Sale Price of the Common Stock immediately prior to
such Event of Default by (B) the Conversion Price and (ii) the product of (x)
the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 10.

                  (5) RIGHTS UPON CHANGE OF CONTROL.

                      (a) Change of Control. Each of the following events shall
constitute a "CHANGE OF CONTROL":

         (i) the consolidation, merger or other business combination (including,
         without limitation, a reorganization or recapitalization) of the
         Company with or into another Person in which holders of the Company's
         voting power immediately prior to the transaction cease after the
         transaction to hold, directly or indirectly, a majority of the voting
         power of the surviving entity or entities or the voting power necessary
         to elect a majority of the members of the board of directors (or their
         equivalent if other than a corporation) of such entity or entities;

         (ii) the sale or transfer of all or substantially all of the Company's
         assets; or

         (iii) a purchase, tender or exchange offer made to and accepted by the
         holders of more than the 50% of the outstanding shares of Common Stock.

                           (b) Assumption. Prior to the consummation of any
Change of Control, the Company will secure from any Person purchasing the
Company's assets or Common Stock




                                       8


or any successor resulting from such Change of Control (in each case, an
"ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to
the holders of Notes representing a majority of the aggregate principal amount
of the Notes then outstanding) to deliver to each holder of Notes in exchange
for such Notes, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes held by such holder, and
satisfactory to the holders of Notes representing a majority of the principal
amount of the Notes then outstanding. In the event that an Acquiring Entity is
directly or indirectly controlled by a company or entity whose common stock or
similar equity interest is listed, designated or quoted on a securities exchange
or trading market, the holders of notes representing a majority of the aggregate
principal amount of the Notes then outstanding may elect to treat such Person as
the Acquiring Entity for purposes of this Section 5(b).

                           (c) Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice,
"REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of
Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the
"CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default
Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section
5(c) shall be made in accordance with the provisions of Section 10 and shall
have priority to payments to other shareholders in connection with a Change of
Control.


                  (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

                           (a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,





                                       9


or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

                           (b) Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger or other business
combination (other than a Change of Control) pursuant to which holders of Common
Stock are entitled to receive securities or other assets with respect to or in
exchange for Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event or (ii) in lieu of the shares of Common
Stock otherwise receivable upon such conversion, such securities or other assets
received by the holders of Common Stock in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to shares of Common Stock) at a conversion
rate for such consideration commensurate with the Conversion Rate. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the holders of Notes representing a majority of the aggregate
principal amount of the Notes then outstanding.

                  (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                      (a) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or after the issuance date of the Second Notes, the
Company issues or sells, or in accordance with this Section 7(a) is deemed to
have issued or sold, any shares of Common Stock (including the issuance or sale
of shares of Common Stock owned or held by or for the account of the Company,
but excluding shares of Common Stock deemed to have been issued or sold by the
Company (I) in connection with the Xcel Energy Direct Purchase Plan or any
employee benefit plan which has been approved by the Board of Directors of the
Company or any of its Subsidiaries, pursuant to which the Company's securities
may be issued to any employee, officer or director for services provided to the
Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon
conversion of the Notes or the Separate Tranche Notes) for a consideration per
share less than the higher of the Closing Sale Price of the Common Stock on the
date of such issuance or sale or deemed issuance or sale and the Conversion
Price in effect immediately prior to such issuance or sale or deemed issuance or
sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then
immediately after such issue or sale (subject to Section 7(a)(vi)), the
Conversion Price then in effect shall be reduced to an amount equal to the
product of (x) the Conversion Price in effect immediately prior to such issue or
sale or deemed issuance or sale and (y) the quotient determined by dividing (1)
the sum of the product of the Applicable Price and the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue or sale or
deemed issue or sale and the consideration, if any, received by the Company upon
such issue or sale, by (2) the product of the Applicable Price multiplied by the
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale or deemed issue or sale. For purposes of determining the adjusted
Conversion Price under this Section 7(a), the following shall be applicable:



                                       10


         (i) Issuance of Options. If the Company in any manner grants or sells
         any Options and the lowest price per share for which one share of
         Common Stock is issuable upon the exercise of any such Option or upon
         conversion, exercise or exchange of any Convertible Securities issuable
         upon exercise of such Option is less than the Applicable Price, then
         such share of Common Stock shall be deemed to be outstanding and to
         have been issued and sold by the Company at the time of the granting or
         sale of such Option for such price per share. For purposes of this
         Section 7(a)(i), the "lowest price per share for which one share of
         Common Stock is issuable upon the exercise of any such Option or upon
         conversion, exercise or exchange of any Convertible Securities issuable
         upon exercise of such Option" shall be equal to the sum of the lowest
         amounts of consideration (if any) received or receivable by the Company
         with respect to any one share of Common Stock upon granting or sale of
         the Option, upon exercise of the Option and upon conversion, exercise
         or exchange of any Convertible Security issuable upon exercise of such
         Option. No further adjustment of the Conversion Price shall be made
         upon the actual issuance of such Common Stock or of such Convertible
         Securities upon the exercise of such Options or upon the actual
         issuance of such Common Stock upon conversion, exercise or exchange of
         such Convertible Securities. If the Company issues or sells any Options
         which are Variable Securities, no adjustment of the Conversion Price
         shall be made pursuant to this Section 7(a), and no shares of Common
         Stock shall be deemed outstanding with respect to such Variable
         Securities, as a result of the issuance of such Variable Securities
         until the actual issuance of Common Stock or Convertible Securities
         upon exercise of such Variable Securities, except to the extent such
         Variable Security also includes as a component of the exercise price a
         price which does not vary with the market price of the Common Stock.

         (ii) Issuance of Convertible Securities. If the Company in any manner
         issues or sells any Convertible Securities and the lowest price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange thereof is less than the Applicable
         Price, then such share of Common Stock shall be deemed to be
         outstanding and to have been issued and sold by the Company at the time
         of the issuance of sale of such Convertible Securities for such price
         per share. For the purposes of this Section 7(a)(ii), the "price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange" shall be equal to the sum of the
         lowest amounts of consideration (if any) received or receivable by the
         Company with respect to any one share of Common Stock upon the issuance
         or sale of the Convertible Security and upon the conversion, exercise
         or exchange of such Convertible Security. No further adjustment of the
         Conversion Price shall be made upon the actual issuance of such Common
         Stock upon conversion, exercise or exchange of such Convertible
         Securities, and if any such issue or sale of such Convertible
         Securities is made upon exercise of any Options for which adjustment of
         the Conversion Price had been or are to be made pursuant to other
         provisions of this Section 7(a), no further adjustment of the
         Conversion Price shall be made by reason of such issue or sale. If the
         Company issues or sells any Convertible Securities which are Variable
         Securities, no adjustment of the Conversion Price shall be made
         pursuant to this Section 7(a), and no shares of Common Stock shall be
         deemed outstanding with respect to such Variable Security, as a result
         of the issuance of such Variable Securities until the actual issuance



                                       11


         of Common Stock upon exercise of such Variable Securities, except to
         the extent such Variable Security also includes as a component of the
         conversion, exercise or exchange price a price which does not vary with
         the market price of the Common Stock.

         (iii) Change in Option Price or Rate of Conversion. If the purchase
         price provided for in any Options, the additional consideration, if
         any, payable upon the issue, conversion or exchange of any Convertible
         Securities, or the rate at which any Convertible Securities are
         convertible into or exercisable or exchangeable for Common Stock
         changes at any time, the Conversion Price in effect at the time of such
         change shall be adjusted to the Conversion Price which would have been
         in effect at such time had such Options or Convertible Securities
         provided for such changed purchase price, additional consideration or
         changed conversion rate, as the case may be, at the time initially
         granted, issued or sold. For purposes of this Section 7(a)(iii), if the
         terms of any Option or Convertible Security that was outstanding as of
         the Issuance Date are changed in the manner described in the
         immediately preceding sentence, then such Option or Convertible
         Security and the Common Stock deemed issuable upon exercise, conversion
         or exchange thereof shall be deemed to have been issued as of the date
         of such change. No adjustment shall be made if such adjustment would
         result in an increase of the Conversion Price then in effect.

         (iv) Calculation of Consideration Received. In case any Option is
         issued in connection with the issue or sale of other securities of the
         Company, together comprising one integrated transaction in which no
         specific consideration is allocated to such Options by the parties
         thereto, the Options will be deemed to have been issued for a
         consideration of $.01. If any Common Stock, Options or Convertible
         Securities are issued or sold or deemed to have been issued or sold for
         cash, the consideration received therefor will be deemed to be the net
         amount received by the Company therefor. If any Common Stock, Options
         or Convertible Securities are issued or sold for a consideration other
         than cash, the amount of the consideration other than cash received by
         the Company will be the fair value of such consideration, except where
         such consideration consists of securities, in which case the amount of
         consideration received by the Company will be the Closing Sale Price of
         such securities on the date of receipt. If any Common Stock, Options or
         Convertible Securities are issued to the owners of the non-surviving
         entity in connection with any merger in which the Company is the
         surviving entity, the amount of consideration therefor will be deemed
         to be the fair value of such portion of the net assets and business of
         the non-surviving entity as is attributable to such Common Stock,
         Options or Convertible Securities, as the case may be. The fair value
         of any consideration other than cash or securities will be determined
         jointly by the Company and the holders of Notes representing a majority
         of the principal amounts of the Notes then outstanding. If such parties
         are unable to reach agreement within ten days after the occurrence of
         an event requiring valuation (the "VALUATION EVENT"), the fair value of
         such consideration will be determined within five Business Days after
         the tenth day following the Valuation Event by an independent,
         reputable appraiser jointly selected by the Company and the holders of
         Notes representing a majority of the principal amounts of the Notes
         then outstanding. The determination of such appraiser shall be deemed
         binding




                                       12


         upon all parties absent manifest error and the fees and expenses of
         such appraiser shall be borne by the Company.

         (v) Record Date. If the Company takes a record of the holders of Common
         Stock for the purpose of entitling them (A) to receive a dividend or
         other distribution payable in Common Stock, Options or in Convertible
         Securities or (B) to subscribe for or purchase Common Stock, Options or
         Convertible Securities, then such record date will be deemed to be the
         date of the issue or sale of the shares of Common Stock deemed to have
         been issued or sold upon the declaration of such dividend or the making
         of such other distribution or the date of the granting of such right of
         subscription or purchase, as the case may be.

         (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING"
         means, at any given time, the number of shares of Common Stock actually
         outstanding at such time, plus the number of shares of Common Stock
         deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
         hereof regardless of whether the Options or Convertible Securities are
         actually exercisable at such time, but excluding any shares of Common
         Stock owned or held by or for the account of the Company or issuable
         upon conversion of the Notes or the Separate Tranche Notes.

         (vii) Delayed Adjustment. In addition to the foregoing provisions of
this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing
Bid Price shall be subject to adjustment, in accordance with the foregoing
provisions, for any days during any measuring period, including, without
limitation, the Tranche A Pricing Period, used herein that occur prior to any of
the aforementioned events if such events occur prior to the end of such
measuring period.

                           (b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                           (c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

                  (8) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Articles of Incorporation or
through any




                                       13


reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of, or enter into any agreement
which by its terms restricts or otherwise impairs the Company's performance of
the terms of, this Note or any of the other Transaction Documents (as defined in
the Securities Purchase Agreement), and will at all times in good faith carry
out all of the provisions of this Note and take all action as may be required to
protect the rights of the Holder of this Note.

                  (9) RESERVATION OF AUTHORIZED SHARES.

                           (a) Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the
Conversion Rate with respect to the Conversion Amount of each such Note and
Separate Tranche Note. Thereafter, the Company shall, so long as any of the
Notes or Separate Tranche Notes are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes and Separate
Tranche Note, at least 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes and
the Separate Tranche Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Notes and the Separate
Tranche Note and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes and Separate Tranche Note
based on the principal amount of the Notes and Separate Tranche Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event
that a holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                           (b) Insufficient Authorized Shares. If at any time
while any of the Notes or Separate Tranche Note remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the
Notes and the Separate Tranche Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for the Notes and Separate Tranche Note
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase




                                       14


in authorized shares of Common Stock and to cause its board of directors to
recommend to the shareholders that they approve such proposal.

                  (10) REDEMPTION.

                       (a) Mechanics. In the event that the Holder has sent a
Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the
Holder shall promptly submit this Note to the Company. The Company shall deliver
the applicable Event of Default Redemption Price to the Holder within five
Business Days after the Company's receipt of the Holder's Event of Default
Redemption Notice and thereafter the Holder shall promptly deliver this Note to
the Company. If the Holder has submitted a Change of Control Redemption Notice
in accordance with Section 5(c), the Company shall deliver the applicable Change
of Control Redemption Price to the Holder concurrently with the consummation of
such Change of Control if such notice is received prior to the consummation of
such Change of Control and within five Business Days after the Company's receipt
of such notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time
period required above in this Section 10(a) at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option to, in lieu of redemption, require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

                           (b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes or the Separate
Tranche Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b) or
Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately
forward to the Holder by facsimile a copy of such notice. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated




                                       15


in such Redemption Notice and such Other Redemption Notices received during such
seven Business Day period, then the Company shall redeem a pro rata amount from
each holder of the Notes and the Separate Tranche Notes (including the Holder)
based on the principal amount of the Notes and the Separate Tranche Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.

                  (11) RESTRICTION ON REDEMPTION. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem its capital stock without
the prior express written consent of the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

                  (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of
Principal and Interest and other payments due under this Note shall rank pari
passu in right of payment with all (and shall not be subordinated to any)
unsecured, unsubordinated indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness of the Company.

                  (13) COVENANTS.

                       (a) Indebtedness. The Company shall not create, incur,
assume, guarantee or suffer to exist, or otherwise become or remain liable with
respect to, any Indebtedness other than Permitted Indebtedness and Subordinated
Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness that is
unsecured and subordinated in right of payment to the Notes and other
obligations owing to the Holders in accordance with a subordination agreement in
form and substance satisfactory to the Holders. "Permitted Indebtedness" shall
mean any Indebtedness that is unsecured and is not senior in right of payment to
the Notes and is otherwise on terms that are no more favorable to the holders
thereof than the terms of the Indebtedness evidenced by the Notes unless such
more favorable terms are offered to the Holders.

                       (b) Liens. The Company shall not create, incur, assume or
suffer to exist, or permit any of its Subsidiaries (other than NRG Energy Inc.
or its subsidiaries (collectively, "NRG")) to create, incur, assume or suffer to
exist, any Lien upon or with respect to any of its properties, whether now owned
or hereafter acquired; sign or suffer to exist any security agreement
authorizing any secured party thereunder to file a Uniform Commercial Code
financing statement (or the equivalent thereof) as notice of a Lien on any
property of the Company or its Subsidiaries; sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer, or permit any
of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in
the Bank Facility)) to assign or otherwise transfer, any account or other right
to receive income; other than, as to all of the above, Permitted Liens. As used
herein, "Permitted Liens" shall have the meaning of that term as defined in the
Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and
the banks listed therein (as the same maybe




                                       16


amended from time to time, the "BANK FACILITY"). As used herein, "Liens" means
any mortgage, deed of trust, pledge, lien (statutory or otherwise), security
interest, charge or other encumbrance or security or preferential arrangement of
any nature, including, without limitation, any conditional sale or title
retention arrangement, any capitalized lease and any assignment, deposit
arrangement or financing lease intended as, or having the effect of, security.

                           (c) Transactions With Affiliates. The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, effect any
transaction with any Affiliate (as defined in the Bank Facility) that is (a)
outside the ordinary course of business or (b) on a basis less favorable than
would at the time be obtainable for a comparable transaction in arms-length
dealing with an unrelated third party, provided that notwithstanding the
foregoing, no loan, payment or other form of contribution shall be made to NRG
unless it is in an amount not in excess of (i) $300 Million payable pursuant to
the Support Agreement and Capital Subscription Agreement, dated as of May 29,
2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in
respect of guarantee obligations relating to the power marketing business of
NRG; ; provided further that with respect to any payment permitted pursuant to
clause (ii) above, the Company shall, in the context of a restructuring of NRG,
use its reasonable best efforts to obtain a full release of all obligations and
liabilities of the Company relating to NRG.

                           (d) Leverage Ratio. The Company shall not permit the
Leverage Ratio set forth in the Bank Facility to be exceeded.

                           (e) Restrictive Agreements. The Company shall not,
and shall not permit any Significant Subsidiary (as defined in the Bank
Facility) other than NRG to, enter into any agreement after the date of this
Note that imposes any restriction on the ability of such Significant Subsidiary
to make payments, directly or indirectly, to its shareholders by way of
dividends, advances, repayment of loans or intercompany charges, expenses or
accruals or other returns on investments that is more restrictive than any such
restriction applicable to such Significant Subsidiary on the Issuance Date.

                           (f) Scope of Business. The Company shall, and shall
cause each Subsidiary to, engage only in energy-related business, functionally
related businesses (as interpreted under PUHCA, as defined in the Securities
Purchase Agreement)or such other businesses as maybe permitted pursuant to an
order issued by the SEC pursuant to PUHCA.

                  (14) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the Minnesota Business Corporation Act, and as expressly provided in this Note.

                  (15) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to (i) all extraordinary or special dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions and (ii)
regular cash dividends and distributions paid to the holders of the Common Stock
only with respect to that portion of such dividends that exceeds $0.1875 per
share of Common Stock in any calendar




                                       17


quarter (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions after the Issuance Date). Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.

                  (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of Notes representing not less than
two-thirds of the aggregate principal amount of the then outstanding Notes,
shall be required for any change or amendment to this Note or the Other Notes.

                  (17) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

                  (18) REISSUANCE OF THIS NOTE.

                           (a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 18(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 18(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 18(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.

                           (b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal.

                           (c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

                           (d) Issuance of New Notes.  Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 18(a) or Section 18(c), the
Principal designated by the Holder which, when added to the principal
represented by the





                                       18


other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued Interest and Late Charges on the Principal and Interest of this Note,
from the Issuance Date.

                  (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, the Securities
Purchase Agreement and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                  (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors' rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including but not limited to attorneys fees
and disbursements.

                  (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

                  (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                  (23) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price or any other calculation hereunder, the
Company shall submit the disputed determinations



                                       19


or arithmetic calculations via facsimile within one Business Day of receipt of
the Conversion Notice or Redemption Notice giving rise to such dispute, as the
case may be, to the Holder. If the Holder and the Company are unable to agree
upon such determination or calculation of the Conversion Rate within one
Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one Business Day submit
via facsimile (a) the disputed determination of the Weighted Average Price, the
Closing Bid Price or the Closing Sale Price or any other calculation hereunder
to an independent, reputable investment bank selected by the Company and
approved by the Holder or (b) the disputed arithmetic calculation of the
Conversion Rate or the Redemption Price to the Company's independent, outside
accountant. The Company, at the Company's expense, shall cause the investment
bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
five Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

                  (24) NOTICES; PAYMENTS.

                           (a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grants, issues or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
holders of Common Stock or (C) for determining rights to vote with respect to
any Change of Control, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder. Notwithstanding the foregoing,
Section 4(j) of the Securities Purchase Agreement shall apply to all notices
given pursuant to this Note.

                           (b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date



                                       20


which is not the date on which this Note is paid in full, the extension of the
due date thereof shall not be taken into account for purposes of determining the
amount of Interest due on such date. Any amount of Interest, Principal or other
amount due under the Transaction Documents (as defined in the Securities
Purchase Agreement) which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest on such
amount at the rate of 12% per annum from the date such amount was due until the
same is paid in full ("LATE CHARGE").

                  (25) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

                  (26) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

                  (27) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.

                  (28) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:

                           (a) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

                           (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean,
with respect to any proposed Change of Control for which a public announcement
that it proposes or intends to effect a Change of Control of the Company (the
date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon
which the Company or other Person proposing to effect such Change of Control
consummates or publicly announces the termination or abandonment of the proposed
Change of Control which was the subject of the previous public announcement.

                           (d) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on The New York Stock
Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by
Bloomberg, or, if the Principal Market is not the




                                       21


principal securities exchange or trading market for such security, the last
closing bid price or last trade price, respectively, of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 23. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during any applicable
calculation period.

                           (e) "COMMON STOCK" means (i) the Company's common
stock, par value $2.50 per share, and (ii) any capital stock resulting from a
reclassification of such Common Stock.

                           (f) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                           (g) "REDEMPTION PREMIUM" means (i) in the case of the
Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii),
115% or (ii) in the case of the Events of Default described in Section 4(a)(v) -
(vii), 100%.

                           (h) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares of
Common Stock issuable upon conversion of the Notes.

                           (i) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

                           (j) "SEPARATE TRANCHE NOTES" means the First Notes,
Second Notes, First Call Notes, Third Notes and the Third Call Notes,
collectively.

                           (k) "TRADING DAY" means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market or actually trades on such
exchange or market for less than 4.5 hours.



                                       22


                           (l) "TRANCHE A BASE PRICE" means the Weighted Average
Price of the Common Stock on the issuance date of the First Notes.

                           (m) "TRANCHE B BASE PRICE" means the Weighted Average
Price of the Common Stock on the Tranche B Closing Date.

                           (n) "TRANCHE A PRICING PERIOD" means the twenty
consecutive Trading Days commencing on the fifth Trading Day immediately
following the issuance date of the First Notes.

                           (o) "TRANCHE B PRICING PERIOD" means the ten
consecutive Trading Days commencing on the first Trading Day immediately
following the end of the Tranche A Pricing Period.

                           (p) "VARIABLE SECURITIES" means any stock or
securities other than Options directly or indirectly convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants
or option to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS") that are convertible into or exchangeable, directly or indirectly,
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more adjustments or resets to a
fixed price (a "VARIABLE PRICE").

                           (q) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price for such security on the principal securities exchange or trading market
where such security is listed or traded during the period beginning at 9:30
a.m., New York Time (or such other time as such principal securities exchange or
trading market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York Time (or such other time as such principal securities
exchange or trading market publicly announces is the official close of trading),
as reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m., New
York Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is




                                       23


reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during applicable calculation period.


                            [SIGNATURE PAGE FOLLOWS]





         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Date of Issuance set out above.

                                 XCEL ENERGY INC.



                                 By:
                                    --------------------------------------------
                                      Name:
                                      Title:  Chief Executive Officer







                                    EXHIBIT I

                                XCEL ENERGY INC.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$2.50 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Conversion Amount to be converted:
                                                     ---------------------------
Please confirm the following information:

         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

         Issue to:
                  --------------------------------------------------------------

                  --------------------------------------------------------------

                  --------------------------------------------------------------

         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------
                  By:
                       ---------------------------------------------------------
                                        Title:
                                              ----------------------------------
Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)





                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 8, 2002
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                       XCEL ENERGY INC.



                                       By:
                                          --------------------------------------
                                             Name:
                                             Title:

EX-99.06

                                                                   EXHIBIT 99.06


                             SENIOR CONVERTIBLE NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.



                                XCEL ENERGY, INC.


Issuance Date: _______ __, ______                  Principal: U.S. $____________

         FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as
defined below), acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at the rate of eight percent (8%) per annum, subject to
periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date
set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Final
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and
such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 28 and terms used herein but not
defined herein shall have the meanings set forth for such terms in the
Securities Purchase Agreement.






                  (1) MATURITY. On the Final Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if
any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance
Date; provided that, if the Holder has given notice in writing to the Company of
its desire to extend the Maturity Date on or prior to the date that is 10
Business Days prior to the Maturity Date, the Maturity Date shall be extended
(on one or more occasions) for an additional 364 days; provided, further, that
the Maturity Date shall not be extended (except as provided in the following
proviso) to more than five years after the Issuance Date (such date that is five
years after the Issuance Date or such earlier Maturity Date prior to which the
Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and
provided, further, that the Final Maturity Date may be extended at the option of
the Holder (x) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (y) through the date
that is ten days after a Change of Control Termination Date in the event that
the Announcement Date giving rise to such Change of Control Termination Date
occurred prior to the Final Maturity Date.

                  (2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of the
actual days elapsed during any period, and a calendar year of 365 or 366
calendar days, as applicable, and shall be payable in cash on each May 1 and
each November 1 during the period beginning on the Issuance Date and ending on,
and including, the Final Maturity Date (each an "INTEREST DATE"); provided that
interest on any Conversion Amount of this Note that is accrued but unpaid as of
the Conversion Date of such Conversion Amount shall be paid in shares of Common
Stock at the Conversion Rate. From and after the occurrence of an Event of
Default (as defined in Section 4(a)) or the failure to deliver timely the
Non-Consolidation Opinion (as defined in the Securities Purchase Agreement)
pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG
OPINION"), the Interest Rate shall be increased by two percentage points (2%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default. If the Company
shall fail to credit the Holder's balance account with DTC (as defined in
Section 3(c)(i)) or, if requested in writing by the Holder, to issue a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount or to issue a new
Note (in accordance with Section 18(d)) representing the Principal portion of
the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is
entitled, in each case within the time periods set out in Section 3(c)(i) (in
each case, a "CONVERSION FAILURE"), then during each period beginning on and
including the date of each such Conversion Failure and ending on and including
the date such Conversion Failure is cured, the Interest Rate then in effect
shall be increased by two percentage points (2%). If (i) the Registration
Statement (as defined in the Registration Rights Agreement) covering all the
Registrable Securities (as defined in the Registration Rights Agreement)
issuable upon conversion of this Note and required to be filed by






                                       2


the Company pursuant to the Registration Rights Agreement is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
applicable Mandatory Effective Date (as defined in the Registration Rights
Agreement) or (ii) on any day after such Registration Statement has been
declared effective by the SEC that sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(t) of the
Registration Rights Agreement) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock) (collectively with the event described in the immediately
preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief
for the damages to any holder by reason of any such delay in or reduction of its
ability to sell Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity) the Interest Rate then in
effect shall be increased by two percentage points (2%) during each period
beginning on and including the first date of each such Registration Failure and
ending on and including the date such Registration Failure is cured.

                  (3) CONVERSION OF NOTES. This Note shall be convertible into
shares of the Common Stock, on the terms and conditions set forth in this
Section 3.

                      (a) Conversion Right. Subject to the provisions of Section
3(d), at any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion Amount
(as defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                      (b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(as defined below) (the "CONVERSION RATE").

         (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
         Principal to be converted, redeemed or otherwise surrendered with
         respect to which this determination is being made, (B) accrued and
         unpaid Interest with respect to such Principal and (C) accrued and
         unpaid Late Charges with respect to such Principal and Interest.

         (ii) "CONVERSION PRICE" means, 110% of the arithmetic average of the
         Weighted Average Price of the Common Stock during the 20 Trading Day
         period beginning 90 days after the issuance date of the First Notes,
         not to exceed the Weighted Average Price of the Common Stock during the
         20 Trading Day period ending on the Trading Day that is immediately
         prior to the 90th day after the issuance date of the First Notes.




                                       3


                      (c) Mechanics of Conversion.

         (i) Optional Conversion. To convert any Conversion Amount into shares
         of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
         transmit by facsimile (or otherwise deliver), for receipt on or prior
         to 11:59 p.m., Central Time on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the "CONVERSION
         NOTICE") to the Company and (B) if required by Section 3(c)(ii),
         surrender this Note to a common carrier for delivery to the Company as
         soon as practicable on or following such date (or an indemnification
         undertaking with respect to this Note in the case of its loss, theft or
         destruction). On or before the first Business Day following the
         Company's receipt of a Conversion Notice, the Company shall transmit by
         facsimile a confirmation of receipt of such Conversion Notice to the
         Holder and the Transfer Agent (as defined below). On or before the
         second Business Day following the date of receipt of a Conversion
         Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below
         does not apply) issue and deliver to the address as specified in the
         Conversion Notice, a certificate, registered in the name of the Holder
         or its designee, for the number of shares of Common Stock to which the
         Holder shall be entitled, or (Y) provided that the Company's transfer
         agent (the "TRANSFER AGENT") is participating in The Depository Trust
         Company ("DTC") Fast Automated Securities Transfer Program, upon the
         request of the Holder, credit such aggregate number of shares of Common
         Stock to which the Holder shall be entitled to the Holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. If this Note is physically surrendered for
         conversion as required by Section 3(c)(ii) and the outstanding
         Principal of this Note is greater than the Principal portion of the
         Conversion Amount being converted, then the Company shall as soon as
         practicable and in no event later than three Business Days after
         receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense,
         issue and deliver to the holder a new Note (in accordance with Section
         18(d)) representing the outstanding Principal not converted. The person
         or persons entitled to receive the shares of Common Stock issuable upon
         a conversion of this Note shall be treated for all purposes as the
         record holder or holders of such shares of Common Stock on the
         Conversion Date.

         (ii) Book-Entry. Notwithstanding anything to the contrary set forth
         herein, upon conversion of any portion of this Note in accordance with
         the terms hereof, the Holder shall not be required to physically
         surrender this Note to the Company unless (A) the full Conversion
         Amount represented by this Note is being converted or (B) the Holder
         has provided the Company with prior written notice (which notice may be
         included in a Conversion Notice) requesting physical surrender and
         reissue of this Note. The Holder and the Company shall maintain records
         showing the Principal and Interest converted and the dates of such
         conversions or shall use such other method, reasonably satisfactory to
         the Holder and the Company, so as not to require physical surrender of
         this Note upon conversion.

         (iii) Pro Rata Conversion; Disputes. In the event that the Company
         receives a Conversion Notice from more than one holder of the Notes or
         the Separate Tranche Notes for the same Conversion Date and the Company
         can convert some, but not all, of such




                                       4


         portions of the Notes and the Separate Tranche Notes submitted for
         conversion, the Company, subject to Section 3(d), shall convert from
         each holder of the Notes and the Separate Tranche Notes electing to
         have the Notes or Separate Tranche Notes converted on such date a pro
         rata amount of such holder's portion of its Notes or Separate Tranche
         Notes submitted for conversion based on the principal amount of the
         Notes or Separate Tranche Notes submitted for conversion on such date
         by such holder relative to the aggregate principal amount of all the
         Notes and the Separate Tranche Notes submitted for conversion on such
         date. In the event of a dispute as to the number of shares of Common
         Stock issuable to the Holder in connection with a conversion of this
         Note, the Company shall issue to the Holder the number of shares of
         Common Stock not in dispute and resolve such dispute in accordance with
         Section 23.

                      (d) Limitations on Conversions.

         (i) Beneficial Ownership. The Company shall not effect any conversion
         of this Note, and the Holder of this Note shall not have the right to
         convert any portion of this Note pursuant to Section 3(a), to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates) would beneficially own in
         excess of 5.0% of the number of shares of Common Stock outstanding
         immediately after giving effect to such conversion. For purposes of the
         foregoing sentence, the number of shares of Common Stock beneficially
         owned by the Holder and its affiliates shall include the number of
         shares of Common Stock issuable upon conversion of this Note with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted portion of
         this Note beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any Other Notes, Separate Tranche Notes or warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Holder or any of its
         affiliates. Except as set forth in the preceding sentence, for purposes
         of this Section 3(d)(i), beneficial ownership shall be calculated in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended. For purposes of this Section 3(d)(i), in determining the
         number of outstanding shares of Common Stock, the Holder may rely on
         the number of outstanding shares of Common Stock as reflected in (x)
         the Company's most recent Form 10-Q or Form 10-K, as the case may be,
         (y) a more recent public announcement by the Company or (z) any other
         notice by the Company or the Transfer Agent setting forth the number of
         shares of Common Stock outstanding. For any reason at any time, upon
         the written or oral request of the Holder, the Company shall within one
         Business Day confirm orally and in writing to the Holder the number of
         shares of Common Stock then outstanding. In any case, the number of
         outstanding shares of Common Stock shall be determined after giving
         effect to the conversion or exercise of securities of the Company,
         including this Note, by the Holder or its affiliates since the date as
         of which such number of outstanding shares of Common Stock was
         reported.

         (ii) Principal Market Regulation. The Company shall not be obligated to
         issue any shares of Common Stock pursuant to this Note if the issuance
         of such shares of Common





                                       5

         Stock would exceed that number of shares of Common Stock which the
         Company may issue pursuant to the Notes and the Separate Tranche Notes
         without breaching the Company's obligations under the rules or
         regulations of the Principal Market (the "EXCHANGE CAP"), except that
         such limitation shall not apply in the event that the Company (A)
         obtains the approval of its shareholders as required by the applicable
         rules of the Principal Market for issuances of Common Stock in excess
         of such amount or (B) obtains a written opinion from outside counsel to
         the Company that such approval is not required, which opinion shall be
         reasonably satisfactory to the holders of the Notes and the Separate
         Tranche Notes representing a majority of the principal amounts of the
         Notes and the Separate Tranche Notes (voting as a single class) then
         outstanding. Until such approval or written opinion is obtained, no
         purchaser of the Notes or the Separate Tranche Notes pursuant to the
         Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon
         conversion of the Notes or the Separate Tranche Notes, shares of Common
         Stock in an amount greater than the product of the Exchange Cap
         multiplied by a fraction, the numerator of which is the principal
         amount of the Notes and the Separate Tranche Notes issued to such
         Purchaser pursuant to the Securities Purchase Agreement as of the date
         of such determination and the denominator of which is the aggregate
         principal amount of all the Notes and the Separate Tranche Notes issued
         to the Purchasers pursuant to the Securities Purchase Agreement as of
         the date of such determination (with respect to each Purchaser, the
         "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell
         or otherwise transfer any of such Purchaser's Notes or Separate Tranche
         Notes, the transferee shall be allocated a pro rata portion of such
         Purchaser's Exchange Cap Allocation, and the restrictions of the prior
         sentence shall apply to such transferee with respect to the portion of
         the Exchange Cap Allocation allocated to such transferee. In the event
         that any holder of the Notes or the Separate Tranche Notes shall
         convert all of such holder's Notes or Separate Tranche Notes into a
         number of shares of Common Stock which, in the aggregate, is less than
         such holder's Exchange Cap Allocation, then the difference between such
         holder's Exchange Cap Allocation and the number of shares of Common
         Stock actually issued to such holder shall be allocated to the
         respective Exchange Cap Allocations of the remaining holders of the
         Notes and the Separate Tranche Notes on a pro rata basis in proportion
         to the aggregate principal amount of the Notes and the Separate Tranche
         Notes then held by each such holder.

                  (4) RIGHTS UPON EVENT OF DEFAULT.

                      (a) Event of Default.  Each of the following events shall
constitute a "EVENT OF DEFAULT":

         (i) the failure of the Registration Statement covering all Registrable
         Securities (as defined in the Registration Rights Agreement) required
         to be registered pursuant to the Registration Rights Agreement to be
         declared effective by the SEC on or prior to the date that is 180 days
         after the Issuance Date, or, while such Registration Statement is
         required to be maintained effective pursuant to the terms of the
         Registration Rights Agreement, the effectiveness of such Registration
         Statement lapses for any reason (including, without limitation, the
         issuance of a stop order) or is unavailable to any holder of the Notes
         for sale of all of such holder's Registrable Securities in accordance
         with the terms of the



                                       6


         Registration Rights Agreement, and such lapse or unavailability
         continues for a period of five consecutive Business Days or for more
         than an aggregate of 20 Business Days in any 365-day period;

         (ii) the suspension from trading on the Principal Market for a period
         of three consecutive Business Days or for more than an aggregate of
         three Business Days in any 30-day Trading Day period or the delisting
         of the Common Stock from the Principal Market;

         (iii) the Company's (A) failure to cure a Conversion Failure by
         delivery of the required number of shares of Common Stock or a new Note
         (in accordance with section 17(d)), as applicable, within 10 days after
         the receipt by the Company of a Conversion Notice or (B) notice,
         written or oral, to any holder of the Notes, including by way of public
         announcement or through any of its agents, at any time, of its
         intention not to comply with a request for conversion of any Notes into
         shares of Common Stock that is tendered in accordance with the
         provisions of the Notes;

         (iv) the Company's failure to pay to the Holder any amount of
         Principal, Interest, Late Charges or other amounts when and as due
         under this Note, the Securities Purchase Agreement, the Registration
         Rights Agreement or any other agreement, document, certificate or other
         instrument delivered in connection with the transactions contemplated
         hereby and thereby to which the Holder is a party;

         (v) any default under, redemption of or acceleration prior to maturity
         of any Indebtedness (as defined in Section 3(r) of the Securities
         Purchase Agreement) of the Company or any of its Subsidiaries (as
         defined in Section 3(a) of the Securities Purchase Agreement) other
         than NRG (as defined below) (including, without limitation, the Other
         Notes) of at least $50,000,000;

         (vi) the Company or any of its Subsidiaries other than NRG (as defined
         below), pursuant to or within the meaning of Title 11, U.S. Code, or
         any similar Federal or state law for the relief of debtors
         (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B)
         consents to the entry of an order for relief against it in an
         involuntary case, (C) consents to the appointment of a receiver,
         trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
         makes a general assignment for the benefit of its creditors or (E)
         admits in writing that it is generally unable to pay its debts as they
         become due;

         (vii) a court of competent jurisdiction enters an order or decree under
         any Bankruptcy Law that (A) is for relief against the Company or any of
         its Subsidiaries other than NRG (as defined below) in an involuntary
         case, (B) appoints a Custodian of the Company or any of its
         Subsidiaries other than NRG (as defined below) or (C) orders the
         liquidation of the Company or any of its Subsidiaries other than NRG
         (as defined below); or

         (viii) the Company breaches any representation, warranty, covenant
         (other than any covenant to deliver the NRG Opinion) or other term or
         condition of the Securities Purchase Agreement, the Registration Rights
         Agreement, this Note or any other





                                       7


         agreement, document, certificate or other instrument delivered in
         connection with the transactions contemplated thereby and hereby to
         which the Holder is a party, except, in the case of a breach of a
         covenant which is curable, only if such breach continues for a period
         of at least 10 consecutive days.

                           (b) Redemption Right. Promptly after the occurrence
of an Event of Default with respect to this Note or the Other Notes, the Company
shall deliver written notice thereof via facsimile and overnight courier (a
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount and (y) the quotient determined by
dividing (A) the Closing Sale Price of the Common Stock immediately prior to
such Event of Default by (B) the Conversion Price and (ii) the product of (x)
the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 10.

                  (5) RIGHTS UPON CHANGE OF CONTROL.

                           (a) Change of Control. Each of the following events
shall constitute a "CHANGE OF CONTROL":

         (i) the consolidation, merger or other business combination (including,
         without limitation, a reorganization or recapitalization) of the
         Company with or into another Person in which holders of the Company's
         voting power immediately prior to the transaction cease after the
         transaction to hold, directly or indirectly, a majority of the voting
         power of the surviving entity or entities or the voting power necessary
         to elect a majority of the members of the board of directors (or their
         equivalent if other than a corporation) of such entity or entities;

         (ii) the sale or transfer of all or substantially all of the Company's
         assets; or

         (iii) a purchase, tender or exchange offer made to and accepted by the
         holders of more than the 50% of the outstanding shares of Common Stock.

                           (b) Assumption. Prior to the consummation of any
Change of Control, the Company will secure from any Person purchasing the
Company's assets or Common Stock or any successor resulting from such Change of
Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and
substance satisfactory to the holders of Notes representing a majority of the
aggregate principal amount of the Notes then outstanding) to deliver to each
holder of Notes in exchange for such Notes, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Notes, including, without limitation, having a principal amount and interest
rate equal to the principal amounts and the




                                       8


interest rates of the Notes held by such holder, and satisfactory to the holders
of Notes representing a majority of the principal amount of the Notes then
outstanding. In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
holders of notes representing a majority of the aggregate principal amount of
the Notes then outstanding may elect to treat such Person as the Acquiring
Entity for purposes of this Section 5(b).

                           (c) Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice,
"REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of
Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the
"CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default
Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section
5(c) shall be made in accordance with the provisions of Section 10 and shall
have priority to payments to other shareholders in connection with a Change of
Control.

                  (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

                           (a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

                           (b) Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger or other business
combination (other than a Change of Control) pursuant to which holders of Common
Stock are entitled to receive securities or other assets with respect to or in
exchange for Common Stock (a "CORPORATE




                                       9


EVENT"), the Company shall make appropriate provision to insure that the Holder
will thereafter have the right to receive upon a conversion of this Note, (i) in
addition to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event or (ii) in lieu of
the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of Common Stock in connection
with the consummation of such Corporate Event in such amounts as the Holder
would have been entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate. Provision made pursuant to the preceding sentence shall be in a
form and substance satisfactory to the holders of Notes representing a majority
of the aggregate principal amount of the Notes then outstanding.

                  (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                           (a) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the issuance date of the First Notes,
the Company issues or sells, or in accordance with this Section 7(a) is deemed
to have issued or sold, any shares of Common Stock (including the issuance or
sale of shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued or sold
by the Company (I) in connection with the Xcel Energy Direct Purchase Plan or
any employee benefit plan which has been approved by the Board of Directors of
the Company or any of its Subsidiaries, pursuant to which the Company's
securities may be issued to any employee, officer or director for services
provided to the Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or
(II) upon conversion of the Notes or the Separate Tranche Notes) for a
consideration per share less than the higher of the Closing Sale Price of the
Common Stock on the date of such issuance or sale or deemed issuance or sale and
the Conversion Price in effect immediately prior to such issuance or sale or
deemed issuance or sale (such higher price is referred to herein as the
"APPLICABLE PRICE"), then immediately after such issue or sale (subject to
Section 7(a)(vi)), the Conversion Price then in effect shall be reduced to an
amount equal to the product of (x) the Conversion Price in effect immediately
prior to such issue or sale or deemed issuance or sale and (y) the quotient
determined by dividing (1) the sum of the product of the Applicable Price and
the number of shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale or deemed issue or sale and the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of the
Applicable Price multiplied by the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale or deemed issue or sale. For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

         (i) Issuance of Options. If the Company in any manner grants or sells
         any Options and the lowest price per share for which one share of
         Common Stock is issuable upon the exercise of any such Option or upon
         conversion, exercise or exchange of any Convertible Securities issuable
         upon exercise of such Option is less than the Applicable Price, then
         such share of Common Stock shall be deemed to be outstanding and to
         have been issued and sold by the Company at the time of the granting or
         sale of such Option for such price





                                       10


         per share. For purposes of this Section 7(a)(i), the "lowest price per
         share for which one share of Common Stock is issuable upon the exercise
         of any such Option or upon conversion, exercise or exchange of any
         Convertible Securities issuable upon exercise of such Option" shall be
         equal to the sum of the lowest amounts of consideration (if any)
         received or receivable by the Company with respect to any one share of
         Common Stock upon granting or sale of the Option, upon exercise of the
         Option and upon conversion, exercise or exchange of any Convertible
         Security issuable upon exercise of such Option. No further adjustment
         of the Conversion Price shall be made upon the actual issuance of such
         Common Stock or of such Convertible Securities upon the exercise of
         such Options or upon the actual issuance of such Common Stock upon
         conversion, exercise or exchange of such Convertible Securities. If the
         Company issues or sells any Options which are Variable Securities, no
         adjustment of the Conversion Price shall be made pursuant to this
         Section 7(a), and no shares of Common Stock shall be deemed outstanding
         with respect to such Variable Securities, as a result of the issuance
         of such Variable Securities until the actual issuance of Common Stock
         or Convertible Securities upon exercise of such Variable Securities,
         except to the extent such Variable Security also includes as a
         component of the exercise price a price which does not vary with the
         market price of the Common Stock.

         (ii) Issuance of Convertible Securities. If the Company in any manner
         issues or sells any Convertible Securities and the lowest price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange thereof is less than the Applicable
         Price, then such share of Common Stock shall be deemed to be
         outstanding and to have been issued and sold by the Company at the time
         of the issuance of sale of such Convertible Securities for such price
         per share. For the purposes of this Section 7(a)(ii), the "price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange" shall be equal to the sum of the
         lowest amounts of consideration (if any) received or receivable by the
         Company with respect to any one share of Common Stock upon the issuance
         or sale of the Convertible Security and upon the conversion, exercise
         or exchange of such Convertible Security. No further adjustment of the
         Conversion Price shall be made upon the actual issuance of such Common
         Stock upon conversion, exercise or exchange of such Convertible
         Securities, and if any such issue or sale of such Convertible
         Securities is made upon exercise of any Options for which adjustment of
         the Conversion Price had been or are to be made pursuant to other
         provisions of this Section 7(a), no further adjustment of the
         Conversion Price shall be made by reason of such issue or sale. If the
         Company issues or sells any Convertible Securities which are Variable
         Securities, no adjustment of the Conversion Price shall be made
         pursuant to this Section 7(a), and no shares of Common Stock shall be
         deemed outstanding with respect to such Variable Security, as a result
         of the issuance of such Variable Securities until the actual issuance
         of Common Stock upon exercise of such Variable Securities, except to
         the extent such Variable Security also includes as a component of the
         conversion, exercise or exchange price a price which does not vary with
         the market price of the Common Stock.

         (iii) Change in Option Price or Rate of Conversion. If the purchase
         price provided for in any Options, the additional consideration, if
         any, payable upon the issue, conversion or




                                       11


         exchange of any Convertible Securities, or the rate at which any
         Convertible Securities are convertible into or exercisable or
         exchangeable for Common Stock changes at any time, the Conversion Price
         in effect at the time of such change shall be adjusted to the
         Conversion Price which would have been in effect at such time had such
         Options or Convertible Securities provided for such changed purchase
         price, additional consideration or changed conversion rate, as the case
         may be, at the time initially granted, issued or sold. For purposes of
         this Section 7(a)(iii), if the terms of any Option or Convertible
         Security that was outstanding as of the Issuance Date are changed in
         the manner described in the immediately preceding sentence, then such
         Option or Convertible Security and the Common Stock deemed issuable
         upon exercise, conversion or exchange thereof shall be deemed to have
         been issued as of the date of such change. No adjustment shall be made
         if such adjustment would result in an increase of the Conversion Price
         then in effect.

         (iv) Calculation of Consideration Received. In case any Option is
         issued in connection with the issue or sale of other securities of the
         Company, together comprising one integrated transaction in which no
         specific consideration is allocated to such Options by the parties
         thereto, the Options will be deemed to have been issued for a
         consideration of $.01. If any Common Stock, Options or Convertible
         Securities are issued or sold or deemed to have been issued or sold for
         cash, the consideration received therefor will be deemed to be the net
         amount received by the Company therefor. If any Common Stock, Options
         or Convertible Securities are issued or sold for a consideration other
         than cash, the amount of the consideration other than cash received by
         the Company will be the fair value of such consideration, except where
         such consideration consists of securities, in which case the amount of
         consideration received by the Company will be the Closing Sale Price of
         such securities on the date of receipt. If any Common Stock, Options or
         Convertible Securities are issued to the owners of the non-surviving
         entity in connection with any merger in which the Company is the
         surviving entity, the amount of consideration therefor will be deemed
         to be the fair value of such portion of the net assets and business of
         the non-surviving entity as is attributable to such Common Stock,
         Options or Convertible Securities, as the case may be. The fair value
         of any consideration other than cash or securities will be determined
         jointly by the Company and the holders of Notes representing a majority
         of the principal amounts of the Notes then outstanding. If such parties
         are unable to reach agreement within ten days after the occurrence of
         an event requiring valuation (the "VALUATION EVENT"), the fair value of
         such consideration will be determined within five Business Days after
         the tenth day following the Valuation Event by an independent,
         reputable appraiser jointly selected by the Company and the holders of
         Notes representing a majority of the principal amounts of the Notes
         then outstanding. The determination of such appraiser shall be deemed
         binding upon all parties absent manifest error and the fees and
         expenses of such appraiser shall be borne by the Company.

         (v) Record Date. If the Company takes a record of the holders of Common
         Stock for the purpose of entitling them (A) to receive a dividend or
         other distribution payable in Common Stock, Options or in Convertible
         Securities or (B) to subscribe for or purchase Common Stock, Options or
         Convertible Securities, then such record date will be deemed



                                       12


         to be the date of the issue or sale of the shares of Common Stock
         deemed to have been issued or sold upon the declaration of such
         dividend or the making of such other distribution or the date of the
         granting of such right of subscription or purchase, as the case may be.

         (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING"
         means, at any given time, the number of shares of Common Stock actually
         outstanding at such time, plus the number of shares of Common Stock
         deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
         hereof regardless of whether the Options or Convertible Securities are
         actually exercisable at such time, but excluding any shares of Common
         Stock owned or held by or for the account of the Company or issuable
         upon conversion of the Notes or the Separate Tranche Notes.

         (vii) Delayed Adjustment. In addition to the foregoing provisions of
this Section 7(a), the Weighted Average Price, Closing Sales Price and Closing
Bid Price shall be subject to adjustment, in accordance with the foregoing
provisions, for any days during any measuring period, including, without
limitation, the Tranche A Pricing Period, used herein that occur prior to any of
the aforementioned events if such events occur prior to the end of such
measuring period.

                           (b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                           (c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

                  (8) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of, or enter
into any agreement which by its terms restricts or otherwise impairs the
Company's performance of the terms of, this Note or any of the other Transaction
Documents (as defined in the Securities Purchase Agreement), and will at all
times in good faith carry out all of the provisions of this Note and take all
action as may be required to protect the rights of the Holder of this Note.



                                       13


                  (9) RESERVATION OF AUTHORIZED SHARES.

                           (a) Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the
Conversion Rate with respect to the Conversion Amount of each such Note and
Separate Tranche Note. Thereafter, the Company shall, so long as any of the
Notes or Separate Tranche Notes are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes and Separate
Tranche Note, at least 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes and
the Separate Tranche Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Notes and the Separate
Tranche Note and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes and Separate Tranche Note
based on the principal amount of the Notes and Separate Tranche Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event
that a holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                           (b) Insufficient Authorized Shares. If at any time
while any of the Notes or Separate Tranche Note remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the
Notes and the Separate Tranche Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for the Notes and Separate Tranche Note
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the shareholders that they
approve such proposal.

                  (10) REDEMPTION.

                           (a) Mechanics. In the event that the Holder has sent
a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the
Holder shall promptly




                                       14


submit this Note to the Company. The Company shall deliver the applicable Event
of Default Redemption Price to the Holder within five Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice and
thereafter the Holder shall promptly deliver this Note to the Company. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(c), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the consummation of such Change
of Control and within five Business Days after the Company's receipt of such
notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time
period required above in this Section 10(a) at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option to, in lieu of redemption, require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

                           (b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes or the Separate
Tranche Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b) or
Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately
forward to the Holder by facsimile a copy of such notice. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes and the Separate Tranche Notes (including the Holder) based on the
principal amount of the Notes and the Separate Tranche Notes submitted for
redemption pursuant to such Redemption Notice and such Other Redemption Notices
received by the Company during such seven Business Day period.



                                       15


                  (11) RESTRICTION ON REDEMPTION. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem its capital stock without
the prior express written consent of the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

                  (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of
Principal and Interest and other payments due under this Note shall rank pari
passu in right of payment with all (and shall not be subordinated to any)
unsecured, unsubordinated indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness of the Company.

                  (13) COVENANTS.

                           (a) Indebtedness. The Company shall not create,
incur, assume, guarantee or suffer to exist, or otherwise become or remain
liable with respect to, any Indebtedness other than Permitted Indebtedness and
Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness
that is unsecured and subordinated in right of payment to the Notes and other
obligations owing to the Holders in accordance with a subordination agreement in
form and substance satisfactory to the Holders. "Permitted Indebtedness" shall
mean any Indebtedness that is unsecured and is not senior in right of payment to
the Notes and is otherwise on terms that are no more favorable to the holders
thereof than the terms of the Indebtedness evidenced by the Notes unless such
more favorable terms are offered to the Holders.

                           (b) Liens. The Company shall not create, incur,
assume or suffer to exist, or permit any of its Subsidiaries (other than NRG
Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume
or suffer to exist, any Lien upon or with respect to any of its properties,
whether now owned or hereafter acquired; sign or suffer to exist any security
agreement authorizing any secured party thereunder to file a Uniform Commercial
Code financing statement (or the equivalent thereof) as notice of a Lien on any
property of the Company or its Subsidiaries; sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer, or permit any
of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in
the Bank Facility)) to assign or otherwise transfer, any account or other right
to receive income; other than, as to all of the above, Permitted Liens. As used
herein, "Permitted Liens" shall have the meaning of that term as defined in the
Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and
the banks listed therein (as the same maybe amended from time to time, the "BANK
FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge,
lien (statutory or otherwise), security interest, charge or other encumbrance or
security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any capitalized
lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.



                                       16


                           (c) Transactions With Affiliates. The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, effect any
transaction with any Affiliate (as defined in the Bank Facility) that is (a)
outside the ordinary course of business or (b) on a basis less favorable than
would at the time be obtainable for a comparable transaction in arms-length
dealing with an unrelated third party, provided that notwithstanding the
foregoing, no loan, payment or other form of contribution shall be made to NRG
unless it is in an amount not in excess of (i) $300 Million payable pursuant to
the Support Agreement and Capital Subscription Agreement, dated as of May 29,
2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in
respect of guarantee obligations relating to the power marketing business of
NRG; provided further that with respect to any payment permitted pursuant to
clause (ii) above, the Company shall, in the context of a restructuring of NRG,
use its reasonable best efforts to obtain a full release of all obligations and
liabilities of the Company relating to NRG.

                           (d) Leverage Ratio. The Company shall not permit the
Leverage Ratio set forth in the Bank Facility to be exceeded.

                           (e) Restrictive Agreements. The Company shall not,
and shall not permit any Significant Subsidiary (as defined in the Bank
Facility) other than NRG to, enter into any agreement after the date of this
Note that imposes any restriction on the ability of such Significant Subsidiary
to make payments, directly or indirectly, to its shareholders by way of
dividends, advances, repayment of loans or intercompany charges, expenses or
accruals or other returns on investments that is more restrictive than any such
restriction applicable to such Significant Subsidiary on the Issuance Date.

                           (f) Scope of Business. The Company shall, and shall
cause each Subsidiary to, engage only in energy-related business, functionally
related businesses (as interpreted under PUHCA, as defined in the Securities
Purchase Agreement)or such other businesses as maybe permitted pursuant to an
order issued by the SEC pursuant to PUHCA.

                  (14) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the Minnesota Business Corporation Act, and as expressly provided in this Note.

                  (15) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to (i) all extraordinary or special dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions and (ii)
regular cash dividends and distributions paid to the holders of the Common Stock
only with respect to that portion of such dividends that exceeds $0.1875 per
share of Common Stock in any calendar quarter (subject to adjustment for stock
splits, stock dividends, stock combinations and other similar transactions after
the Issuance Date). Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

                  (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a




                                       17


meeting, of the holders of Notes representing not less than two-thirds of the
aggregate principal amount of the then outstanding Notes, shall be required for
any change or amendment to this Note or the Other Notes.

                  (17) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

                  (18) REISSUANCE OF THIS NOTE.

                           (a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 18(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 18(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 18(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.

                           (b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal.

                           (c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

                           (d) Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 18(a) or Section 18(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Note immediately prior
to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note which is the same as the Issuance Date of this
Note, (iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.



                                       18


                  (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, the Securities
Purchase Agreement and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                  (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors' rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including but not limited to attorneys fees
and disbursements.

                  (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

                  (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                  (23) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price or any other calculation hereunder, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one Business Day of receipt of the Conversion Notice or
Redemption Notice giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such
determination or calculation of the Conversion Rate within one Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a)
the disputed determination of the Weighted Average Price, the Closing




                                       19


Bid Price or the Closing Sale Price or any other calculation hereunder to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company's independent, outside accountant. The
Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

                  (24) NOTICES; PAYMENTS.

                           (a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grants, issues or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
holders of Common Stock or (C) for determining rights to vote with respect to
any Change of Control, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder. Notwithstanding the foregoing,
Section 4(j) of the Securities Purchase Agreement shall apply to all notices
given pursuant to this Note.

                           (b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date. Any amount of Interest,
Principal or other amount due under the Transaction Documents (as defined in the
Securities Purchase Agreement) which is not paid when due shall result in a late
charge being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of 12% per annum from the date such amount was due
until the same is paid in full ("LATE CHARGE").



                                       20


                  (25) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

                  (26) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

                  (27) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.

                  (28) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:

                           (a) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

                           (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean,
with respect to any proposed Change of Control for which a public announcement
that it proposes or intends to effect a Change of Control of the Company (the
date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon
which the Company or other Person proposing to effect such Change of Control
consummates or publicly announces the termination or abandonment of the proposed
Change of Control which was the subject of the previous public announcement.

                           (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on The New York Stock
Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price or last trade price, respectively, is reported for such
security by Bloomberg,




                                       21


the average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot
be calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 23. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during any applicable calculation period.

                           (d) "COMMON STOCK" means (i) the Company's common
stock, par value $2.50 per share, and (ii) any capital stock resulting from a
reclassification of such Common Stock.

                           (e) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                           (f) "REDEMPTION PREMIUM" means (i) in the case of the
Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii),
115% or (ii) in the case of the Events of Default described in Section 4(a)(v) -
(vii), 100%.

                           (g) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares of
Common Stock issuable upon conversion of the Notes.

                           (h) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

                           (i) "SEPARATE TRANCHE NOTES" means the First Notes,
Second Notes, First Call Notes, Second Call Notes and the Third Call Notes,
collectively.

                           (j) "TRADING DAY" means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market or actually trades on such
exchange or market for less than 4.5 hours.

                           (k) "TRANCHE A BASE PRICE" means Weighted Average
Price of the common Stock on the issuance date of the First Notes.

                           (l) "TRANCHE B BASE PRICE" means the Weighted Average
Price of the Common Stock on the Tranche B Closing Date.



                                       22


                           (m) "TRANCHE A PRICING PERIOD" means the twenty
consecutive Trading Days commencing on the fifth Trading Day immediately
following the issuance date of the First Notes.

                           (n) "TRANCHE B PRICING PERIOD" means the ten
consecutive Trading Days commencing on the first Trading Day immediately
following the end of the Tranche A Pricing Period.

                           (o) "VARIABLE SECURITIES" means any stock or
securities other than Options directly or indirectly convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants
or option to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS") that are convertible into or exchangeable, directly or indirectly,
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more adjustments or resets to a
fixed price (a "VARIABLE PRICE").

                           (p) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price for such security on the principal securities exchange or trading market
where such security is listed or traded during the period beginning at 9:30
a.m., New York Time (or such other time as such principal securities exchange or
trading market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York Time (or such other time as such principal securities
exchange or trading market publicly announces is the official close of trading),
as reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m., New
York Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree



                                       23


upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 23. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during applicable calculation period.


                            [SIGNATURE PAGE FOLLOWS]



                                       24





         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Date of Issuance set out above.

                                      XCEL ENERGY INC.



                                      By:
                                         ---------------------------------------
                                         Name:
                                         Title: Chief Executive Officer







                                    EXHIBIT I

                                XCEL ENERGY INC.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$2.50 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Conversion Amount to be converted:
                                                     ---------------------------
Please confirm the following information:

         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

         Issue to:
                  --------------------------------------------------------------

                  --------------------------------------------------------------

                  --------------------------------------------------------------

         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------
                  By:
                       ---------------------------------------------------------
                                        Title:
                                              ----------------------------------
Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)







                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 8, 2002
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                    XCEL ENERGY INC.



                                    By:
                                       -----------------------------------------
                                         Name:
                                         Title:

EX-99.07

                                                                   EXHIBIT 99.07


                             SENIOR CONVERTIBLE NOTE

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN
THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.



                                XCEL ENERGY, INC.


Issuance Date: _______ __, ______                  Principal: U.S. $____________

         FOR VALUE RECEIVED, XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns ("HOLDER") the amount set out above as the Principal (as
reduced pursuant to the terms hereof pursuant to redemption, conversion or
otherwise, the "PRINCIPAL") when due, whether upon the Final Maturity Date (as
defined below), acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("INTEREST") on any
outstanding Principal at the rate of eight percent (8%) per annum, subject to
periodic adjustment pursuant to Section 2 (the "INTEREST RATE"), from the date
set out above as the Issuance Date (the "ISSUANCE DATE") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Final
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Convertible Note (including all
Convertible Notes issued in exchange, transfer or replacement hereof, this
"NOTE") is one of an issue of Convertible Notes (collectively, the "NOTES" and
such other Convertible Notes, the "OTHER NOTES") issued on the Issuance Date
pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 28 and terms used herein but not
defined herein shall have the meanings set forth for such terms in the
Securities Purchase Agreement.






                  (1) MATURITY. On the Final Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges (as defined in Section 24(b)), if
any. The "MATURITY DATE" shall be the date that is 364 days after the Issuance
Date; provided that, if the Holder has given notice in writing to the Company of
its desire to extend the Maturity Date on or prior to the date that is 10
Business Days prior to the Maturity Date, the Maturity Date shall be extended
(on one or more occasions) for an additional 364 days; provided, further, that
the Maturity Date shall not be extended (except as provided in the following
proviso) to more than five years after the Issuance Date (such date that is five
years after the Issuance Date or such earlier Maturity Date prior to which the
Holder has not requested an extension thereof, the "FINAL MATURITY DATE"); and
provided, further, that the Final Maturity Date may be extended at the option of
the Holder (x) in the event that, and for so long as, an Event of Default (as
defined in Section 4(a)) shall have occurred and be continuing or any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in an Event of Default and (y) through the date
that is ten days after a Change of Control Termination Date in the event that
the Announcement Date giving rise to such Change of Control Termination Date
occurred prior to the Final Maturity Date.

                  (2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of the
actual days elapsed during any period, and a calendar year of 365 or 366
calendar days, as applicable, and shall be payable in cash on each May 1 and
each November 1 during the period beginning on the Issuance Date and ending on,
and including, the Final Maturity Date (each an "INTEREST DATE"); provided that
interest on any Conversion Amount of this Note that is accrued but unpaid as of
the Conversion Date of such Conversion Amount shall be paid in shares of Common
Stock at the Conversion Rate. From and after the occurrence of an Event of
Default (as defined in Section 4(a)) or the failure to deliver timely the
Non-Consolidation Opinion (as defined in the Securities Purchase Agreement)
pursuant to Section 4(f) of the Securities Purchase Agreement (the "NRG
OPINION"), the Interest Rate shall be increased by two percentage points (2%).
In the event that such Event of Default is subsequently cured, the adjustment
referred to in the preceding sentence shall cease to be effective as of the date
of such cure; provided that the Interest as calculated at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default. If the Company
shall fail to credit the Holder's balance account with DTC (as defined in
Section 3(c)(i)) or, if requested in writing by the Holder, to issue a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon conversion of any Conversion Amount or to issue a new
Note (in accordance with Section 18(d)) representing the Principal portion of
the Conversion Amount (as defined in Section 3(b)(i)) to which the Holder is
entitled, in each case within the time periods set out in Section 3(c)(i) (in
each case, a "CONVERSION FAILURE"), then during each period beginning on and
including the date of each such Conversion Failure and ending on and including
the date such Conversion Failure is cured, the Interest Rate then in effect
shall be increased by two percentage points (2%). If (i) the Registration
Statement (as defined in the Registration Rights Agreement) covering all the
Registrable Securities (as defined in the Registration Rights Agreement)
issuable upon conversion of this Note and required to be filed by


                                       2


the Company pursuant to the Registration Rights Agreement is not declared
effective by the Securities and Exchange Commission (the "SEC") on or before the
applicable Mandatory Effective Date (as defined in the Registration Rights
Agreement) or (ii) on any day after such Registration Statement has been
declared effective by the SEC that sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(t) of the
Registration Rights Agreement) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient shares
of Common Stock) (collectively with the event described in the immediately
preceding clause (i), each a "REGISTRATION FAILURE"), then, as partial relief
for the damages to any holder by reason of any such delay in or reduction of its
ability to sell Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity) the Interest Rate then in
effect shall be increased by two percentage points (2%) during each period
beginning on and including the first date of each such Registration Failure and
ending on and including the date such Registration Failure is cured.

                  (3) CONVERSION OF NOTES. This Note shall be convertible into
shares of the Common Stock, on the terms and conditions set forth in this
Section 3.

                           (a) Conversion Right. Subject to the provisions of
Section 3(d), at any time or times on or after the Issuance Date, the Holder
shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares of
Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock upon
any conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

                           (b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a)
shall be determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (as defined below) (the "CONVERSION RATE").

         (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
         Principal to be converted, redeemed or otherwise surrendered with
         respect to which this determination is being made, (B) accrued and
         unpaid Interest with respect to such Principal and (C) accrued and
         unpaid Late Charges with respect to such Principal and Interest.

         (ii) "CONVERSION PRICE" means, 110% of the arithmetic average of the
         Weighted Average Price of the Common Stock during the 20 Trading Day
         period beginning 90 days after the issuance date of the First Notes,
         not to exceed the Weighted Average Price of the Common Stock during the
         20 Trading Day period ending on the Trading Day that is immediately
         prior to the 90th day after the issuance date of the First Notes.


                                       3


                           (c) Mechanics of Conversion.

         (i) Optional Conversion. To convert any Conversion Amount into shares
         of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A)
         transmit by facsimile (or otherwise deliver), for receipt on or prior
         to 11:59 p.m., Central Time on such date, a copy of an executed notice
         of conversion in the form attached hereto as Exhibit I (the "CONVERSION
         NOTICE") to the Company and (B) if required by Section 3(c)(ii),
         surrender this Note to a common carrier for delivery to the Company as
         soon as practicable on or following such date (or an indemnification
         undertaking with respect to this Note in the case of its loss, theft or
         destruction). On or before the first Business Day following the
         Company's receipt of a Conversion Notice, the Company shall transmit by
         facsimile a confirmation of receipt of such Conversion Notice to the
         Holder and the Transfer Agent (as defined below). On or before the
         second Business Day following the date of receipt of a Conversion
         Notice (the "SHARE DELIVERY DATE"), the Company shall (X) (if (Y) below
         does not apply) issue and deliver to the address as specified in the
         Conversion Notice, a certificate, registered in the name of the Holder
         or its designee, for the number of shares of Common Stock to which the
         Holder shall be entitled, or (Y) provided that the Company's transfer
         agent (the "TRANSFER AGENT") is participating in The Depository Trust
         Company ("DTC") Fast Automated Securities Transfer Program, upon the
         request of the Holder, credit such aggregate number of shares of Common
         Stock to which the Holder shall be entitled to the Holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. If this Note is physically surrendered for
         conversion as required by Section 3(c)(ii) and the outstanding
         Principal of this Note is greater than the Principal portion of the
         Conversion Amount being converted, then the Company shall as soon as
         practicable and in no event later than three Business Days after
         receipt of this Note (the "NOTE DELIVERY DATE") and at its own expense,
         issue and deliver to the holder a new Note (in accordance with Section
         18(d)) representing the outstanding Principal not converted. The person
         or persons entitled to receive the shares of Common Stock issuable upon
         a conversion of this Note shall be treated for all purposes as the
         record holder or holders of such shares of Common Stock on the
         Conversion Date.

         (ii) Book-Entry. Notwithstanding anything to the contrary set forth
         herein, upon conversion of any portion of this Note in accordance with
         the terms hereof, the Holder shall not be required to physically
         surrender this Note to the Company unless (A) the full Conversion
         Amount represented by this Note is being converted or (B) the Holder
         has provided the Company with prior written notice (which notice may be
         included in a Conversion Notice) requesting physical surrender and
         reissue of this Note. The Holder and the Company shall maintain records
         showing the Principal and Interest converted and the dates of such
         conversions or shall use such other method, reasonably satisfactory to
         the Holder and the Company, so as not to require physical surrender of
         this Note upon conversion.

         (iii) Pro Rata Conversion; Disputes. In the event that the Company
         receives a Conversion Notice from more than one holder of the Notes or
         the Separate Tranche Notes for the same Conversion Date and the Company
         can convert some, but not all, of such


                                       4


         portions of the Notes and the Separate Tranche Notes submitted for
         conversion, the Company, subject to Section 3(d), shall convert from
         each holder of the Notes and the Separate Tranche Notes electing to
         have the Notes or Separate Tranche Notes converted on such date a pro
         rata amount of such holder's portion of its Notes or Separate Tranche
         Notes submitted for conversion based on the principal amount of the
         Notes or Separate Tranche Notes submitted for conversion on such date
         by such holder relative to the aggregate principal amount of all the
         Notes and the Separate Tranche Notes submitted for conversion on such
         date. In the event of a dispute as to the number of shares of Common
         Stock issuable to the Holder in connection with a conversion of this
         Note, the Company shall issue to the Holder the number of shares of
         Common Stock not in dispute and resolve such dispute in accordance with
         Section 23.

                           (d) Limitations on Conversions.

         (i) Beneficial Ownership. The Company shall not effect any conversion
         of this Note, and the Holder of this Note shall not have the right to
         convert any portion of this Note pursuant to Section 3(a), to the
         extent that after giving effect to such conversion, the Holder
         (together with the Holder's affiliates) would beneficially own in
         excess of 5.0% of the number of shares of Common Stock outstanding
         immediately after giving effect to such conversion. For purposes of the
         foregoing sentence, the number of shares of Common Stock beneficially
         owned by the Holder and its affiliates shall include the number of
         shares of Common Stock issuable upon conversion of this Note with
         respect to which the determination of such sentence is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (A) conversion of the remaining, nonconverted portion of
         this Note beneficially owned by the Holder or any of its affiliates and
         (B) exercise or conversion of the unexercised or nonconverted portion
         of any other securities of the Company (including, without limitation,
         any Other Notes, Separate Tranche Notes or warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Holder or any of its
         affiliates. Except as set forth in the preceding sentence, for purposes
         of this Section 3(d)(i), beneficial ownership shall be calculated in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended. For purposes of this Section 3(d)(i), in determining the
         number of outstanding shares of Common Stock, the Holder may rely on
         the number of outstanding shares of Common Stock as reflected in (x)
         the Company's most recent Form 10-Q or Form 10-K, as the case may be,
         (y) a more recent public announcement by the Company or (z) any other
         notice by the Company or the Transfer Agent setting forth the number of
         shares of Common Stock outstanding. For any reason at any time, upon
         the written or oral request of the Holder, the Company shall within one
         Business Day confirm orally and in writing to the Holder the number of
         shares of Common Stock then outstanding. In any case, the number of
         outstanding shares of Common Stock shall be determined after giving
         effect to the conversion or exercise of securities of the Company,
         including this Note, by the Holder or its affiliates since the date as
         of which such number of outstanding shares of Common Stock was
         reported.

         (ii) Principal Market Regulation. The Company shall not be obligated to
         issue any shares of Common Stock pursuant to this Note if the issuance
         of such shares of Common


                                       5


         Stock would exceed that number of shares of Common Stock which the
         Company may issue pursuant to the Notes and the Separate Tranche Notes
         without breaching the Company's obligations under the rules or
         regulations of the Principal Market (the "EXCHANGE CAP"), except that
         such limitation shall not apply in the event that the Company (A)
         obtains the approval of its shareholders as required by the applicable
         rules of the Principal Market for issuances of Common Stock in excess
         of such amount or (B) obtains a written opinion from outside counsel to
         the Company that such approval is not required, which opinion shall be
         reasonably satisfactory to the holders of the Notes and the Separate
         Tranche Notes representing a majority of the principal amounts of the
         Notes and the Separate Tranche Notes (voting as a single class) then
         outstanding. Until such approval or written opinion is obtained, no
         purchaser of the Notes or the Separate Tranche Notes pursuant to the
         Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon
         conversion of the Notes or the Separate Tranche Notes, shares of Common
         Stock in an amount greater than the product of the Exchange Cap
         multiplied by a fraction, the numerator of which is the principal
         amount of the Notes and the Separate Tranche Notes issued to such
         Purchaser pursuant to the Securities Purchase Agreement as of the date
         of such determination and the denominator of which is the aggregate
         principal amount of all the Notes and the Separate Tranche Notes issued
         to the Purchasers pursuant to the Securities Purchase Agreement as of
         the date of such determination (with respect to each Purchaser, the
         "EXCHANGE CAP ALLOCATION"). In the event that any Purchaser shall sell
         or otherwise transfer any of such Purchaser's Notes or Separate Tranche
         Notes, the transferee shall be allocated a pro rata portion of such
         Purchaser's Exchange Cap Allocation, and the restrictions of the prior
         sentence shall apply to such transferee with respect to the portion of
         the Exchange Cap Allocation allocated to such transferee. In the event
         that any holder of the Notes or the Separate Tranche Notes shall
         convert all of such holder's Notes or Separate Tranche Notes into a
         number of shares of Common Stock which, in the aggregate, is less than
         such holder's Exchange Cap Allocation, then the difference between such
         holder's Exchange Cap Allocation and the number of shares of Common
         Stock actually issued to such holder shall be allocated to the
         respective Exchange Cap Allocations of the remaining holders of the
         Notes and the Separate Tranche Notes on a pro rata basis in proportion
         to the aggregate principal amount of the Notes and the Separate Tranche
         Notes then held by each such holder.

                  (4) RIGHTS UPON EVENT OF DEFAULT.

                           (a) Event of Default. Each of the following events
shall constitute a "EVENT OF DEFAULT":

         (i) the failure of the Registration Statement covering all Registrable
         Securities (as defined in the Registration Rights Agreement) required
         to be registered pursuant to the Registration Rights Agreement to be
         declared effective by the SEC on or prior to the date that is 180 days
         after the Issuance Date, or, while such Registration Statement is
         required to be maintained effective pursuant to the terms of the
         Registration Rights Agreement, the effectiveness of such Registration
         Statement lapses for any reason (including, without limitation, the
         issuance of a stop order) or is unavailable to any holder of the Notes
         for sale of all of such holder's Registrable Securities in accordance
         with the terms of the


                                       6



         Registration Rights Agreement, and such lapse or unavailability
         continues for a period of five consecutive Business Days or for more
         than an aggregate of 20 Business Days in any 365-day period;

         (ii) the suspension from trading on the Principal Market for a period
         of three consecutive Business Days or for more than an aggregate of
         three Business Days in any 30-day Trading Day period or the delisting
         of the Common Stock from the Principal Market;

         (iii) the Company's (A) failure to cure a Conversion Failure by
         delivery of the required number of shares of Common Stock or a new Note
         (in accordance with section 18(d)), as applicable, within 10 days after
         the receipt by the Company of a Conversion Notice or (B) notice,
         written or oral, to any holder of the Notes, including by way of public
         announcement or through any of its agents, at any time, of its
         intention not to comply with a request for conversion of any Notes into
         shares of Common Stock that is tendered in accordance with the
         provisions of the Notes;

         (iv) the Company's failure to pay to the Holder any amount of
         Principal, Interest, Late Charges or other amounts when and as due
         under this Note, the Securities Purchase Agreement, the Registration
         Rights Agreement or any other agreement, document, certificate or other
         instrument delivered in connection with the transactions contemplated
         hereby and thereby to which the Holder is a party;

         (v) any default under, redemption of or acceleration prior to maturity
         of any Indebtedness (as defined in Section 3(r) of the Securities
         Purchase Agreement) of the Company or any of its Subsidiaries (as
         defined in Section 3(a) of the Securities Purchase Agreement) other
         than NRG (as defined below) (including, without limitation, the Other
         Notes) of at least $50,000,000;

         (vi) the Company or any of its Subsidiaries other than NRG (as defined
         below), pursuant to or within the meaning of Title 11, U.S. Code, or
         any similar Federal or state law for the relief of debtors
         (collectively, "BANKRUPTCY LAW"), (A) commences a voluntary case, (B)
         consents to the entry of an order for relief against it in an
         involuntary case, (C) consents to the appointment of a receiver,
         trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
         makes a general assignment for the benefit of its creditors or (E)
         admits in writing that it is generally unable to pay its debts as they
         become due;

         (vii) a court of competent jurisdiction enters an order or decree under
         any Bankruptcy Law that (A) is for relief against the Company or any of
         its Subsidiaries other than NRG (as defined below) in an involuntary
         case, (B) appoints a Custodian of the Company or any of its
         Subsidiaries other than NRG (as defined below) or (C) orders the
         liquidation of the Company or any of its Subsidiaries other than NRG
         (as defined below); or

         (viii) the Company breaches any representation, warranty, covenant
         (other than any covenant to deliver the NRG Opinion) or other term or
         condition of the Securities Purchase Agreement, the Registration Rights
         Agreement, this Note or any other


                                       7


         agreement, document, certificate or other instrument delivered in
         connection with the transactions contemplated thereby and hereby to
         which the Holder is a party, except, in the case of a breach of a
         covenant which is curable, only if such breach continues for a period
         of at least 10 consecutive days.

                           (b) Redemption Right. Promptly after the occurrence
of an Event of Default with respect to this Note or the Other Notes, the Company
shall deliver written notice thereof via facsimile and overnight courier (a
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount and (y) the quotient determined by
dividing (A) the Closing Sale Price of the Common Stock immediately prior to
such Event of Default by (B) the Conversion Price and (ii) the product of (x)
the Conversion Amount and (y) the Redemption Premium (the "EVENT OF DEFAULT
REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in
accordance with the provisions of Section 10.

                  (5) RIGHTS UPON CHANGE OF CONTROL.

                           (a) Change of Control. Each of the following events
shall constitute a "CHANGE OF CONTROL":

         (i) the consolidation, merger or other business combination (including,
         without limitation, a reorganization or recapitalization) of the
         Company with or into another Person in which holders of the Company's
         voting power immediately prior to the transaction cease after the
         transaction to hold, directly or indirectly, a majority of the voting
         power of the surviving entity or entities or the voting power necessary
         to elect a majority of the members of the board of directors (or their
         equivalent if other than a corporation) of such entity or entities;

         (ii) the sale or transfer of all or substantially all of the Company's
         assets; or

         (iii) a purchase, tender or exchange offer made to and accepted by the
         holders of more than the 50% of the outstanding shares of Common Stock.

                           (b) Assumption. Prior to the consummation of any
Change of Control, the Company will secure from any Person purchasing the
Company's assets or Common Stock or any successor resulting from such Change of
Control (in each case, an "ACQUIRING ENTITY") a written agreement (in form and
substance satisfactory to the holders of Notes representing a majority of the
aggregate principal amount of the Notes then outstanding) to deliver to each
holder of Notes in exchange for such Notes, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Notes, including, without limitation, having a principal amount and interest
rate equal to the principal amounts and the


                                       8


interest rates of the Notes held by such holder, and satisfactory to the holders
of Notes representing a majority of the principal amount of the Notes then
outstanding. In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
holders of notes representing a majority of the aggregate principal amount of
the Notes then outstanding may elect to treat such Person as the Acquiring
Entity for purposes of this Section 5(b).

                           (c) Redemption Right. No sooner than 15 days nor
later than 10 days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). At any time on or after consummation of such
Change of Control, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE" and, collectively with an Event of Default Redemption Notice,
"REDEMPTION NOTICES" and, individually, each a "REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject to
redemption pursuant to this Section 5(c) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (x) the Conversion Amount and
(y) the quotient determined by dividing (A) the Closing Sale Price of the Common
Stock immediately following the public announcement of such proposed Change of
Control by (B) the Conversion Price and (ii) 115% of the Conversion Amount (the
"CHANGE OF CONTROL REDEMPTION PRICE" and, together with the Event of Default
Redemption Price, the "REDEMPTION PRICE"). Redemptions required by this Section
5(c) shall be made in accordance with the provisions of Section 10 and shall
have priority to payments to other shareholders in connection with a Change of
Control.


                  (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

                           (a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

                           (b) Other Corporate Events. Prior to the consummation
of any recapitalization, reorganization, consolidation, merger or other business
combination (other than a Change of Control) pursuant to which holders of Common
Stock are entitled to receive securities or other assets with respect to or in
exchange for Common Stock (a "CORPORATE


                                       9


EVENT"), the Company shall make appropriate provision to insure that the Holder
will thereafter have the right to receive upon a conversion of this Note, (i) in
addition to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event or (ii) in lieu of
the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of Common Stock in connection
with the consummation of such Corporate Event in such amounts as the Holder
would have been entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate. Provision made pursuant to the preceding sentence shall be in a
form and substance satisfactory to the holders of Notes representing a majority
of the aggregate principal amount of the Notes then outstanding.

                  (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                           (a) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the issuance of the Third Notes, the
Company issues or sells, or in accordance with this Section 7(a) is deemed to
have issued or sold, any shares of Common Stock (including the issuance or sale
of shares of Common Stock owned or held by or for the account of the Company,
but excluding shares of Common Stock deemed to have been issued or sold by the
Company (I) in connection with the Xcel Energy Direct Purchase Plan or any
employee benefit plan which has been approved by the Board of Directors of the
Company or any of its Subsidiaries, pursuant to which the Company's securities
may be issued to any employee, officer or director for services provided to the
Company or its Subsidiaries (each, an "APPROVED STOCK PLAN") or (II) upon
conversion of the Notes or the Separate Tranche Notes) for a consideration per
share less than the higher of the Closing Sale Price of the Common Stock on the
date of such issuance or sale or deemed issuance or sale and the Conversion
Price in effect immediately prior to such issuance or sale or deemed issuance or
sale (such higher price is referred to herein as the "APPLICABLE PRICE"), then
immediately after such issue or sale (subject to Section 7(a)(vi)), the
Conversion Price then in effect shall be reduced to an amount equal to the
product of (x) the Conversion Price in effect immediately prior to such issue or
sale or deemed issuance or sale and (y) the quotient determined by dividing (1)
the sum of the product of the Applicable Price and the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue or sale or
deemed issue or sale and the consideration, if any, received by the Company upon
such issue or sale, by (2) the product of the Applicable Price multiplied by the
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale or deemed issue or sale. For purposes of determining the adjusted
Conversion Price under this Section 7(a), the following shall be applicable:

         (i) Issuance of Options. If the Company in any manner grants or sells
         any Options and the lowest price per share for which one share of
         Common Stock is issuable upon the exercise of any such Option or upon
         conversion, exercise or exchange of any Convertible Securities issuable
         upon exercise of such Option is less than the Applicable Price, then
         such share of Common Stock shall be deemed to be outstanding and to
         have been issued and sold by the Company at the time of the granting or
         sale of such Option for such price


                                       10


         per share. For purposes of this Section 7(a)(i), the "lowest price per
         share for which one share of Common Stock is issuable upon the exercise
         of any such Option or upon conversion, exercise or exchange of any
         Convertible Securities issuable upon exercise of such Option" shall be
         equal to the sum of the lowest amounts of consideration (if any)
         received or receivable by the Company with respect to any one share of
         Common Stock upon granting or sale of the Option, upon exercise of the
         Option and upon conversion, exercise or exchange of any Convertible
         Security issuable upon exercise of such Option. No further adjustment
         of the Conversion Price shall be made upon the actual issuance of such
         Common Stock or of such Convertible Securities upon the exercise of
         such Options or upon the actual issuance of such Common Stock upon
         conversion, exercise or exchange of such Convertible Securities. If the
         Company issues or sells any Options which are Variable Securities, no
         adjustment of the Conversion Price shall be made pursuant to this
         Section 7(a), and no shares of Common Stock shall be deemed outstanding
         with respect to such Variable Securities, as a result of the issuance
         of such Variable Securities until the actual issuance of Common Stock
         or Convertible Securities upon exercise of such Variable Securities,
         except to the extent such Variable Security also includes as a
         component of the exercise price a price which does not vary with the
         market price of the Common Stock.

         (ii) Issuance of Convertible Securities. If the Company in any manner
         issues or sells any Convertible Securities and the lowest price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange thereof is less than the Applicable
         Price, then such share of Common Stock shall be deemed to be
         outstanding and to have been issued and sold by the Company at the time
         of the issuance of sale of such Convertible Securities for such price
         per share. For the purposes of this Section 7(a)(ii), the "price per
         share for which one share of Common Stock is issuable upon such
         conversion, exercise or exchange" shall be equal to the sum of the
         lowest amounts of consideration (if any) received or receivable by the
         Company with respect to any one share of Common Stock upon the issuance
         or sale of the Convertible Security and upon the conversion, exercise
         or exchange of such Convertible Security. No further adjustment of the
         Conversion Price shall be made upon the actual issuance of such Common
         Stock upon conversion, exercise or exchange of such Convertible
         Securities, and if any such issue or sale of such Convertible
         Securities is made upon exercise of any Options for which adjustment of
         the Conversion Price had been or are to be made pursuant to other
         provisions of this Section 7(a), no further adjustment of the
         Conversion Price shall be made by reason of such issue or sale. If the
         Company issues or sells any Convertible Securities which are Variable
         Securities, no adjustment of the Conversion Price shall be made
         pursuant to this Section 7(a), and no shares of Common Stock shall be
         deemed outstanding with respect to such Variable Security, as a result
         of the issuance of such Variable Securities until the actual issuance
         of Common Stock upon exercise of such Variable Securities, except to
         the extent such Variable Security also includes as a component of the
         conversion, exercise or exchange price a price which does not vary with
         the market price of the Common Stock.

         (iii) Change in Option Price or Rate of Conversion. If the purchase
         price provided for in any Options, the additional consideration, if
         any, payable upon the issue, conversion or


                                       11


         exchange of any Convertible Securities, or the rate at which any
         Convertible Securities are convertible into or exercisable or
         exchangeable for Common Stock changes at any time, the Conversion Price
         in effect at the time of such change shall be adjusted to the
         Conversion Price which would have been in effect at such time had such
         Options or Convertible Securities provided for such changed purchase
         price, additional consideration or changed conversion rate, as the case
         may be, at the time initially granted, issued or sold. For purposes of
         this Section 7(a)(iii), if the terms of any Option or Convertible
         Security that was outstanding as of the Issuance Date are changed in
         the manner described in the immediately preceding sentence, then such
         Option or Convertible Security and the Common Stock deemed issuable
         upon exercise, conversion or exchange thereof shall be deemed to have
         been issued as of the date of such change. No adjustment shall be made
         if such adjustment would result in an increase of the Conversion Price
         then in effect.

         (iv) Calculation of Consideration Received. In case any Option is
         issued in connection with the issue or sale of other securities of the
         Company, together comprising one integrated transaction in which no
         specific consideration is allocated to such Options by the parties
         thereto, the Options will be deemed to have been issued for a
         consideration of $.01. If any Common Stock, Options or Convertible
         Securities are issued or sold or deemed to have been issued or sold for
         cash, the consideration received therefor will be deemed to be the net
         amount received by the Company therefor. If any Common Stock, Options
         or Convertible Securities are issued or sold for a consideration other
         than cash, the amount of the consideration other than cash received by
         the Company will be the fair value of such consideration, except where
         such consideration consists of securities, in which case the amount of
         consideration received by the Company will be the Closing Sale Price of
         such securities on the date of receipt. If any Common Stock, Options or
         Convertible Securities are issued to the owners of the non-surviving
         entity in connection with any merger in which the Company is the
         surviving entity, the amount of consideration therefor will be deemed
         to be the fair value of such portion of the net assets and business of
         the non-surviving entity as is attributable to such Common Stock,
         Options or Convertible Securities, as the case may be. The fair value
         of any consideration other than cash or securities will be determined
         jointly by the Company and the holders of Notes representing a majority
         of the principal amounts of the Notes then outstanding. If such parties
         are unable to reach agreement within ten days after the occurrence of
         an event requiring valuation (the "VALUATION EVENT"), the fair value of
         such consideration will be determined within five Business Days after
         the tenth day following the Valuation Event by an independent,
         reputable appraiser jointly selected by the Company and the holders of
         Notes representing a majority of the principal amounts of the Notes
         then outstanding. The determination of such appraiser shall be deemed
         binding upon all parties absent manifest error and the fees and
         expenses of such appraiser shall be borne by the Company.

         (v) Record Date. If the Company takes a record of the holders of Common
         Stock for the purpose of entitling them (A) to receive a dividend or
         other distribution payable in Common Stock, Options or in Convertible
         Securities or (B) to subscribe for or purchase Common Stock, Options or
         Convertible Securities, then such record date will be deemed


                                       12


         to be the date of the issue or sale of the shares of Common Stock
         deemed to have been issued or sold upon the declaration of such
         dividend or the making of such other distribution or the date of the
         granting of such right of subscription or purchase, as the case may be.

         (vi) Common Stock Deemed Outstanding. "COMMON STOCK DEEMED OUTSTANDING"
         means, at any given time, the number of shares of Common Stock actually
         outstanding at such time, plus the number of shares of Common Stock
         deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii)
         hereof regardless of whether the Options or Convertible Securities are
         actually exercisable at such time, but excluding any shares of Common
         Stock owned or held by or for the account of the Company or issuable
         upon conversion of the Notes or the Separate Tranche Notes.

         (vii) Delayed Adjustment. In addition to the foregoing provisions of
         this Section 7(a), the Weighted Average Price, Closing Sales Price and
         Closing Bid Price shall be subject to adjustment, in accordance with
         the foregoing provisions, for any days during any measuring period,
         including, without limitation, the Tranche A Pricing Period, used
         herein that occur prior to any of the aforementioned events if such
         events occur prior to the end of such measuring period.

                           (b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                           (c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

                  (8) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of, or enter
into any agreement which by its terms restricts or otherwise impairs the
Company's performance of the terms of, this Note or any of the other Transaction
Documents (as defined in the Securities Purchase Agreement), and will at all
times in good faith carry out all of the provisions of this Note and take all
action as may be required to protect the rights of the Holder of this Note.


                                       13


                  (9) RESERVATION OF AUTHORIZED SHARES.

                           (a) Reservation. The Company shall initially reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes and the Separate Tranche Notes equal to 115% of the
Conversion Rate with respect to the Conversion Amount of each such Note and
Separate Tranche Note. Thereafter, the Company shall, so long as any of the
Notes or Separate Tranche Notes are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes and Separate
Tranche Note, at least 100% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes and
the Separate Tranche Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number
of shares of Common Stock reserved for conversions of the Notes and the Separate
Tranche Note and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes and Separate Tranche Note
based on the principal amount of the Notes and Separate Tranche Notes held by
each holder at the time of Issuance Date or increase in the number of reserved
shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event
that a holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                           (b) Insufficient Authorized Shares. If at any time
while any of the Notes or Separate Tranche Note remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon conversion of the
Notes and the Separate Tranche Notes at least a number of shares of Common Stock
equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the
Company shall immediately take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company
to reserve the Required Reserve Amount for the Notes and Separate Tranche Note
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than 60 days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its shareholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the shareholders that they
approve such proposal.

                  (10) REDEMPTION.

                           (a) Mechanics. In the event that the Holder has sent
a Redemption Notice to the Company pursuant to Section 4(b) or Section 5(c), the
Holder shall promptly


                                       14


submit this Note to the Company. The Company shall deliver the applicable Event
of Default Redemption Price to the Holder within five Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice and
thereafter the Holder shall promptly deliver this Note to the Company. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(c), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder concurrently with the consummation of such Change
of Control if such notice is received prior to the consummation of such Change
of Control and within five Business Days after the Company's receipt of such
notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the Redemption Price to the Holder within the time
period required above in this Section 10(a) at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option to, in lieu of redemption, require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.

                           (b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes or the Separate
Tranche Notes for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 4(b) or
Section 5(c) (each an "OTHER REDEMPTION NOTICE"), the Company shall immediately
forward to the Holder by facsimile a copy of such notice. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes and the Separate Tranche Notes (including the Holder) based on the
principal amount of the Notes and the Separate Tranche Notes submitted for
redemption pursuant to such Redemption Notice and such Other Redemption Notices
received by the Company during such seven Business Day period.


                                       15


                  (11) RESTRICTION ON REDEMPTION. Until all of the Notes have
been converted, redeemed or otherwise satisfied in accordance with their terms,
the Company shall not, directly or indirectly, redeem its capital stock without
the prior express written consent of the holders of Notes representing at least
two-thirds of the aggregate principal amount of the Notes then outstanding.

                  (12) SUBORDINATION; ADDITIONAL INDEBTEDNESS. Payments of
Principal and Interest and other payments due under this Note shall rank pari
passu in right of payment with all (and shall not be subordinated to any)
unsecured, unsubordinated indebtedness of the Company and will be senior in
right of payment to all subordinated indebtedness of the Company.

                  (13) COVENANTS.

                           (a) Indebtedness. The Company shall not create,
incur, assume, guarantee or suffer to exist, or otherwise become or remain
liable with respect to, any Indebtedness other than Permitted Indebtedness and
Subordinated Indebtedness. "Subordinated Indebtedness" shall mean Indebtedness
that is unsecured and subordinated in right of payment to the Notes and other
obligations owing to the Holders in accordance with a subordination agreement in
form and substance satisfactory to the Holders. "Permitted Indebtedness" shall
mean any Indebtedness that is unsecured and is not senior in right of payment to
the Notes and is otherwise on terms that are no more favorable to the holders
thereof than the terms of the Indebtedness evidenced by the Notes unless such
more favorable terms are offered to the Holders.

                           (b) Liens. The Company shall not create, incur,
assume or suffer to exist, or permit any of its Subsidiaries (other than NRG
Energy Inc. or its subsidiaries (collectively, "NRG")) to create, incur, assume
or suffer to exist, any Lien upon or with respect to any of its properties,
whether now owned or hereafter acquired; sign or suffer to exist any security
agreement authorizing any secured party thereunder to file a Uniform Commercial
Code financing statement (or the equivalent thereof) as notice of a Lien on any
property of the Company or its Subsidiaries; sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or any of its Subsidiaries or assign or otherwise transfer, or permit any
of its Subsidiaries (other than the Existing Utility Subsidiaries (as defined in
the Bank Facility)) to assign or otherwise transfer, any account or other right
to receive income; other than, as to all of the above, Permitted Liens. As used
herein, "Permitted Liens" shall have the meaning of that term as defined in the
Five-Year Credit Agreement, dated as of November 10, 2000, among the Company and
the banks listed therein (as the same maybe amended from time to time, the "BANK
FACILITY"). As used herein, "Liens" means any mortgage, deed of trust, pledge,
lien (statutory or otherwise), security interest, charge or other encumbrance or
security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any capitalized
lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.


                                       16


                           (c) Transactions With Affiliates. The Company shall
not, and shall not permit any Subsidiary to, directly or indirectly, effect any
transaction with any Affiliate (as defined in the Bank Facility) that is (a)
outside the ordinary course of business or (b) on a basis less favorable than
would at the time be obtainable for a comparable transaction in arms-length
dealing with an unrelated third party, provided that notwithstanding the
foregoing, no loan, payment or other form of contribution shall be made to NRG
unless it is in an amount not in excess of (i) $300 Million payable pursuant to
the Support Agreement and Capital Subscription Agreement, dated as of May 29,
2002, by and between the Company and NRG Energy Inc. and (ii) $250 Million in
respect of guarantee obligations relating to the power marketing business of
NRG; provided further that with respect to any payment permitted pursuant to
clause (ii) above, the Company shall, in the context of a restructuring of NRG,
use its reasonable best efforts to obtain a full release of all obligations and
liabilities of the Company relating to NRG.

                           (d) Leverage Ratio. The Company shall not permit the
Leverage Ratio set forth in the Bank Facility to be exceeded.

                           (e) Restrictive Agreements. The Company shall not,
and shall not permit any Significant Subsidiary (as defined in the Bank
Facility) other than NRG to, enter into any agreement after the date of this
Note that imposes any restriction on the ability of such Significant Subsidiary
to make payments, directly or indirectly, to its shareholders by way of
dividends, advances, repayment of loans or intercompany charges, expenses or
accruals or other returns on investments that is more restrictive than any such
restriction applicable to such Significant Subsidiary on the Issuance Date.

                           (f) Scope of Business. The Company shall, and shall
cause each Subsidiary to, engage only in energy-related business, functionally
related businesses (as interpreted under PUHCA, as defined in the Securities
Purchase Agreement)or such other businesses as maybe permitted pursuant to an
order issued by the SEC pursuant to PUHCA.

                  (14) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the Minnesota Business Corporation Act, and as expressly provided in this Note.

                  (15) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to (i) all extraordinary or special dividends paid and
distributions made to the holders of Common Stock to the same extent as if the
Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions and (ii)
regular cash dividends and distributions paid to the holders of the Common Stock
only with respect to that portion of such dividends that exceeds $0.1875 per
share of Common Stock in any calendar quarter (subject to adjustment for stock
splits, stock dividends, stock combinations and other similar transactions after
the Issuance Date). Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

                  (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a


                                       17


meeting, of the holders of Notes representing not less than two-thirds of the
aggregate principal amount of the then outstanding Notes, shall be required for
any change or amendment to this Note or the Other Notes.

                  (17) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

                  (18) REISSUANCE OF THIS NOTE.

                           (a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 18(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 18(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 18(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.

                           (b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 18(d)) representing the outstanding
Principal.

                           (c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

                           (d) Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 18(a) or Section 18(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal remaining outstanding under this Note immediately prior
to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note which is the same as the Issuance Date of this
Note, (iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.


                                       18


                  (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note, the Securities
Purchase Agreement and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                  (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors' rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including but not limited to attorneys fees
and disbursements.

                  (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

                  (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

                  (23) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Redemption Price or the arithmetic calculation of the
Conversion Rate or the Redemption Price or any other calculation hereunder, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one Business Day of receipt of the Conversion Notice or
Redemption Notice giving rise to such dispute, as the case may be, to the
Holder. If the Holder and the Company are unable to agree upon such
determination or calculation of the Conversion Rate within one Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a)
the disputed determination of the Weighted Average Price, the Closing


                                       19


Bid Price or the Closing Sale Price or any other calculation hereunder to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company's independent, outside accountant. The
Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

                  (24) NOTICES; PAYMENTS.

                           (a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grants, issues or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
holders of Common Stock or (C) for determining rights to vote with respect to
any Change of Control, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder. Notwithstanding the foregoing,
Section 4(j) of the Securities Purchase Agreement shall apply to all notices
given pursuant to this Note.

                           (b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers (as defined in Section 3(d)(ii)), shall
initially be as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a payment of
cash via wire transfer of immediately available funds by providing the Company
with prior written notice setting out such request and the Holder's wire
transfer instructions. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date. Any amount of Interest,
Principal or other amount due under the Transaction Documents (as defined in the
Securities Purchase Agreement) which is not paid when due shall result in a late
charge being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of 12% per annum from the date such amount was due
until the same is paid in full ("LATE CHARGE").


                                       20


                  (25) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

                  (26) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

                  (27) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of Illinois, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Illinois or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of Illinois.

                  (28) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:

                           (a) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

                           (b) "CHANGE OF CONTROL TERMINATION DATE" shall mean,
with respect to any proposed Change of Control for which a public announcement
that it proposes or intends to effect a Change of Control of the Company (the
date of such announcement, the "ANNOUNCEMENT DATE") has been made, the date upon
which the Company or other Person proposing to effect such Change of Control
consummates or publicly announces the termination or abandonment of the proposed
Change of Control which was the subject of the previous public announcement.

                           (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on The New York Stock
Exchange, Inc. (the "PRINCIPAL MARKET") as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m. Eastern Time as reported by
Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade
price, respectively, of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price or last trade price, respectively, is reported for such
security by Bloomberg,


                                       21


the average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price or the Closing Sale Price cannot
be calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 23. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during any applicable calculation period.

                           (d) "COMMON STOCK" means (i) the Company's common
stock, par value $2.50 per share, and (ii) any capital stock resulting from a
reclassification of such Common Stock.

                           (e) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                           (f) "REDEMPTION PREMIUM" means (i) in the case of the
Events of Default described in Section 4(a)(i), (ii), (iii), (iv) and (viii),
115% or (ii) in the case of the Events of Default described in Section 4(a)(v) -
(vii), 100%.

                           (g) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares of
Common Stock issuable upon conversion of the Notes.

                           (h) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

                           (i) "SEPARATE TRANCHE NOTES" means the First Notes,
Second Notes, First Call Notes, Second Call Notes and Third Notes, collectively.

                           (j) "TRADING DAY" means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market or actually trades on such
exchange or market for less than 4.5 hours.

                           (k) "TRANCHE A BASE PRICE" means the Weighted average
Price of the Common Stock on the issuance date of the First Notes.

                           (l) "TRANCHE B BASE PRICE" means the Weighted Average
Price of the Common Stock on the Tranche B Closing Date.


                                       22


                           (m) "TRANCHE A PRICING PERIOD" means the twenty
consecutive Trading Days commencing on the fifth Trading Day immediately
following the issuance date of the First Notes.

                           (n) "TRANCHE B PRICING PERIOD" means the ten
consecutive Trading Days commencing on the first Trading Day immediately
following the end of the Tranche A Pricing Period.

                           (o) "VARIABLE SECURITIES" means any stock or
securities other than Options directly or indirectly convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or any rights, warrants
or option to subscribe for or purchase Common Stock or Convertible Securities
("OPTIONS") that are convertible into or exchangeable, directly or indirectly,
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more adjustments or resets to a
fixed price (a "VARIABLE PRICE").

                           (p) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading), as
reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price for such security on the principal securities exchange or trading market
where such security is listed or traded during the period beginning at 9:30
a.m., New York Time (or such other time as such principal securities exchange or
trading market publicly announces is the official open of trading), and ending
at 4:00 p.m., New York Time (or such other time as such principal securities
exchange or trading market publicly announces is the official close of trading),
as reported by Bloomberg through its "Volume at Price" functions (ignoring any
trade of more than 100,000 shares of such security pursuant to an individual
transaction (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar transactions involving such security after the
Issuance Date)), or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30 a.m., New
York Time (or such other time as the Principal Market publicly announces is the
official open of trading), and ending at 4:00 p.m., New York Time (or such other
time as the Principal Market publicly announces is the official close of
trading), as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree


                                       23


upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 23. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during applicable calculation period.


                            [SIGNATURE PAGE FOLLOWS]


                                       24



         IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Date of Issuance set out above.

                                     XCEL ENERGY INC.



                                     By:
                                          --------------------------------------
                                          Name:
                                          Title: Chief Executive Officer







                                    EXHIBIT I

                                XCEL ENERGY INC.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by XCEL ENERGY INC. (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into shares of Common Stock, par value
$2.50 per share (the "COMMON STOCK"), of the Company as of the date specified
below.

         Date of Conversion:
                            ----------------------------------------------------

         Aggregate Conversion Amount to be converted:
                                                     ---------------------------
Please confirm the following information:

         Conversion Price:
                          ------------------------------------------------------

         Number of shares of Common Stock to be issued:
                                                       -------------------------

Please issue the Common Stock into which the Note is being converted and, if
applicable, any check drawn on an account of the Company in the following name
and to the following address:

         Issue to:
                  --------------------------------------------------------------

                  --------------------------------------------------------------

                  --------------------------------------------------------------

         Facsimile Number:
                          ------------------------------------------------------

         Authorization:
                       ---------------------------------------------------------
                  By:
                       ---------------------------------------------------------
                                                      Title:
                                                             -------------------

Dated:
      --------------------------------------------------------------------------

         Account Number:
                        --------------------------------------------------------
           (if electronic book entry transfer)

         Transaction Code Number:
                                 -----------------------------------------------
           (if electronic book entry transfer)





                                 ACKNOWLEDGMENT


         The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated November 8, 2002
from the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                        XCEL ENERGY INC.



                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

EX-99.08

                                                                   EXHIBIT 99.08


                          REGISTRATION RIGHTS AGREEMENT


         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November
8, 2002, by and among XCEL ENERGY INC., a Minnesota corporation, with
headquarters located at 800 Nicollet Mall, Minneapolis, MN 55401 (the
"Company"), and the undersigned buyers (each, a "BUYER" and collectively, the
"BUYERS").

         WHEREAS:

         A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to each Buyer convertible notes
of the Company (the "FIRST NOTES"), which will be convertible into shares of the
Company's common stock, par value $2.50 per share (the "COMMON STOCK") (as
converted, the "FIRST CONVERSION SHARES") in accordance with the terms of the
First Notes; and

         B. In connection with the Securities Purchase Agreement, each Buyer has
the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell to such Buyer
convertible notes of the Company (the "FIRST CALL NOTES"), which will be
convertible into shares of Common Stock (as converted, the "FIRST CALL
CONVERSION SHARES") in accordance with the terms of the First Call Notes; and

         C. In connection with the Securities Purchase Agreement, the Company
has agreed, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell to each Buyer convertible notes of the
Company (the "SECOND NOTES"), which will be convertible into shares of Common
Stock (as converted, the "SECOND CONVERSION SHARES") in accordance with the
terms of the Second Notes; and

         D. In connection with the Securities Purchase Agreement, each Buyer has
the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell to such Buyer
convertible notes of the Company (the "SECOND CALL NOTES"), which will be
convertible into shares of Common Stock (as converted, the "SECOND CALL
CONVERSION SHARES") in accordance with the terms of the Second Call Notes; and

         E. In connection with the Securities Purchase Agreement, each Buyer may
be required to purchase, upon the terms and subject to the conditions of the
Securities Purchase Agreement, and the Company may issue and sell to each Buyer
convertible notes of the Company (the "THIRD NOTES"), which will be convertible
into shares of Common Stock (as converted, the "THIRD CONVERSION SHARES") in
accordance with the terms of the Third Notes; and

         F. In connection with the Securities Purchase Agreement, each Buyer may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to issue and sell to such Buyer
convertible notes of the Company (the "THIRD CALL NOTES"), which will be
convertible into shares of Common Stock (as converted, the "THIRD CALL
CONVERSION SHARES") in accordance with the terms of the Third Call Notes; and






         G. In connection with the First Notes and the Second Notes, each Buyer
may have the right, upon the terms and subject to the conditions of the First
Notes and the Second Notes, respectively, to require the Company to issue to
such Buyer shares of Common Stock in connection with a Company Optional
Redemption (as defined in First Notes and the Second Notes) (the "COMPANY CALL
CONVERSION SHARES") in accordance with the terms of the First Notes and Second
Notes; and

         H. To induce each Buyer to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
Buyer hereby agree as follows:

         1. DEFINITIONS.

                  As used in this Agreement, the following terms shall have the
following meanings:

                  (a) "COVERED SECURITIES" means the Notes and the Company Call
Conversion Shares.

                  (b) "FIRST CALL REGISTRABLE SECURITIES" means the First Call
Conversion Shares issued or issuable upon conversion of the First Call Notes and
any shares of capital stock issued or issuable with respect to the First Call
Conversion Shares or the First Call Notes as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitation on conversions of the First Call Notes.

                  (c) "FIRST CALL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the First Call Registrable Securities and Second Call Registrable
Securities.

                  (d) "FIRST REGISTRABLE SECURITIES" means the First Conversion
Shares issued or issuable upon conversion of the First Notes and any shares of
capital stock issued or issuable with respect to the First Conversion Shares or
the First Notes as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitation on conversions of the First Notes.

                  (e) "FIRST REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the First Registrable Securities, the Second Registrable Securities and
the Third Registrable Securities.

                  (f) "INVESTOR" means a Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.




                                       2


                  (g) "MANDATORY EFFECTIVE DATE" means the First Mandatory
Effective Date, the First Call Mandatory Effective Date, the Third Call
Mandatory Effective Date and the Redemption Mandatory Effective Date (each as
defined below), as applicable.

                  (h) "MANDATORY FILING DATE" means the First Mandatory Filing
Date, the First Call Mandatory Filing Date, the Third Call Mandatory Filing Date
and the Redemption Mandatory Filing Date (each as defined below), as applicable.

                  (i) "NOTES" means the First Notes, the First Call Notes, the
Second Notes, the Second Call Notes, the Third Notes and the Third Call Notes.

                  (j) "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.

                  (k) "REDEMPTION REGISTRABLE SECURITIES" means the Company Call
Conversion Shares and any shares of capital stock issued or issuable with
respect to the Company Call Conversion Shares as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise.

                  (l) "REDEMPTION REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Redemption Registrable Securities.

                  (m) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

                  (n) "REGISTRABLE SECURITIES" means the First Registrable
Securities, the First Call Registrable Securities, the Second Registrable
Securities, the Second Call Registrable Securities, the Third Registrable
Securities, the Third Call Registrable Securities and the Redemption Registrable
Securities; provided, however, that any such Registrable Securities shall cease
to be Registrable Securities when (a) a Registration Statement with respect to
the sale of such securities becomes effective under the 1933 Act and such
securities are disposed of in accordance with such Registration Statement, (b)
such securities are sold in accordance with Rule 144 (or any successor
provision) under the 1933 Act or (c) such securities become transferable without
any restrictions in accordance with Rule 144(k) (or any successor provision)
under the 1933 Act.

                  (o) "REGISTRATION STATEMENT" means the First Registration
Statement, the First Call Registration Statement, the Third Call Registration
Statement or the Redemption Registration Statement, as applicable.




                                       3


                  (p) "SECOND CALL REGISTRABLE SECURITIES" means the Second Call
Conversion Shares issued or issuable upon conversion of the Second Call Notes
and any shares of capital stock issued or issuable with respect to the Second
Call Conversion Shares or the Second Call Notes as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitation on conversions of the Second Call Notes.

                  (q) "SECOND REGISTRABLE SECURITIES" means the Second
Conversion Shares issued or issuable upon conversion of the Second Notes and any
shares of capital stock issued or issuable with respect to the Second Conversion
Shares or the Second Notes as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitation on conversions of the Second Notes.

                  (r) "THIRD CALL REGISTRABLE SECURITIES" means the Third Call
Conversion Shares issued or issuable upon conversion of the Third Call Notes and
any shares of capital stock issued or issuable with respect to the Third Call
Conversion Shares or the Third Call Notes as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitation on conversions of the Third Call Notes.

                  (s) "THIRD CALL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Third Call Registrable Securities.

                  (t) "THIRD REGISTRABLE SECURITIES" means the Third Conversion
Shares issued or issuable upon conversion of the Third Notes and any shares of
capital stock issued or issuable with respect to the Third Conversion Shares or
the Third Notes as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitation on conversions of the Third Notes.


Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.

         2. REGISTRATION.

                  (a) Mandatory Registration.

         (i) First Mandatory Registration. The Company shall prepare, and, as
         soon as practicable but in no event later than 130 days after the First
         Closing Date (as defined in the Securities Purchase Agreement), subject
         to extension for any Allowable Grace Period (as defined in Section
         3(t)) (the "FIRST MANDATORY FILING DATE"), file with the SEC a First
         Registration Statement or First Registration Statements (as is
         necessary) on Form S-3 covering the resale of all of the First
         Registrable Securities, the Second Registrable Securities and the Third
         Registrable Securities. In the event that Form S-3 is unavailable for
         such a registration, the Company shall use such other form as is
         available for such a registration, subject to the provisions of Section
         2(d). The initial First Registration Statement prepared pursuant hereto
         shall register for resale at least that number of shares of Common
         Stock equal to the product of (x) 1.15 and (y) the number of First
         Registrable Securities, Second Registrable Securities and Third
         Registrable Securities calculated as of the trading day immediately
         preceding the date that the First Registration Statement is initially
         filed with the SEC. The Company shall use its best efforts to have the
         First






                                       4


         Registration Statement declared effective by the SEC as soon as
         practicable, but in no event later than 180 days after the First
         Closing Date, subject to extension for any Allowable Grace Period (as
         defined in Section 3(t)) (the "MANDATORY EFFECTIVE DATE").

         (ii) First Call Mandatory Registration. The Company shall prepare, and,
         as soon as practicable but in no event later than 30 days after a First
         Call Closing Date or a Second Call Closing Date (each as defined in the
         Securities Purchase Agreement), subject to extension for any Allowable
         Grace Period (as defined in Section 3(t)) (the "FIRST CALL MANDATORY
         FILING DATE"), file with the SEC a First Call Registration Statement or
         First Call Registration Statements (as is necessary) on Form S-3
         covering the resale of all of the First Call Registrable Securities and
         Second Call Registrable Securities then issued or issuable in
         connection with outstanding Notes. In the event that Form S-3 is
         unavailable for such a registration, the Company shall use such other
         form as is available for such a registration, subject to the provisions
         of Section 2(d). Each First Call Registration Statement prepared
         pursuant hereto shall register for resale at least that number of
         shares of Common Stock equal to the product of (x) 1.15 and (y) the
         number of First Call Registrable Securities and Second Call Registrable
         Securities (not covered by a previously-filed Registration Statement)
         calculated as of the trading day immediately preceding the date that
         the First Call Registration Statement is initially filed with the SEC.
         The Company shall use its best efforts to have the First Call
         Registration Statement declared effective by the SEC as soon as
         practicable, but in no event later than 90 days after each First Call
         Closing Date, subject to extension for any Allowable Grace Period (as
         defined in Section 3(t)) (a "FIRST CALL MANDATORY EFFECTIVE DATE").

         (iii) Third Call Mandatory Registration. The Company shall prepare,
         and, as soon as practicable but in no event later than 30 days after a
         Third Call Closing Date (as defined in the Securities Purchase
         Agreement), subject to extension for any Allowable Grace Period (as
         defined in Section 3(t)) (the "THIRD CALL MANDATORY FILING DATE"), file
         with the SEC a Third Call Registration Statement or Third Call
         Registration Statements (as is necessary) on Form S-3 covering the
         resale of all of the Third Call Registrable Securities then issued or
         issuable in connection with outstanding Notes. In the event that Form
         S-3 is unavailable for such a registration, the Company shall use such
         other form as is available for such a registration, subject to the
         provisions of Section 2(d). Each Third Call Registration Statement
         prepared pursuant hereto shall register for resale at least that number
         of shares of Common Stock equal to the product of (x) 1.15 and (y) the
         number of Third Call Registrable Securities (not covered by a
         previously-filed Registration Statement) calculated as of the trading
         day immediately preceding the date that the Third Call Registration
         Statement is initially filed with the SEC. The Company shall use its
         best efforts to have the Third Call Registration Statement declared
         effective by the SEC as soon as practicable, but in no event later than
         90 days after the Third Call Closing Date, subject to extension for any
         Allowable Grace Period (as defined in Section 3(t)) (the "THIRD CALL
         MANDATORY EFFECTIVE DATE").

         (iv) Redemption Mandatory Registration. The Company shall prepare, and,
         as soon as practicable but in no event later than 30 days after the
         Company Optional Redemption Date (as defined in the First Notes),
         subject to extension for any Allowable Grace Period (as defined in
         Section 3(t)) (the "REDEMPTION MANDATORY FILING DATE"), file with the
         SEC a Redemption Registration Statement or Redemption Registration
         Statements (as is necessary) on Form S-3 covering the resale of all of
         the Redemption Registrable






                                       5


         Securities. In the event that Form S-3 is unavailable for such a
         registration, the Company shall use such other form as is available for
         such a registration, subject to the provisions of Section 2(d). The
         initial Redemption Registration Statement prepared pursuant hereto
         shall register for resale at least that number of shares of Common
         Stock equal to the product of (x) 1.00 and (y) the number of Redemption
         Registrable Securities calculated as of the trading day immediately
         preceding the date that the Redemption Registration Statement is
         initially filed with the SEC. The Company shall use its best efforts to
         have the Redemption Registration Statement declared effective by the
         SEC as soon as practicable, but in no event later than 90 days after
         the Redemption Closing Date, subject to extension for any Allowable
         Grace Period (as defined in Section 3(t)) (the "REDEMPTION MANDATORY
         EFFECTIVE DATE").

                  (b) Allocation of Registrable Securities. The initial number
of Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors based on the number of applicable
Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is last filed with the SEC. In the event that an Investor sells or
otherwise transfers any of such Person's Registrable Securities included in any
Registration Statement in accordance with the terms of this Agreement, each
transferee shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement and
which remain allocated to any Person which ceases to hold any applicable
Registrable Securities shall be allocated to the remaining Investors, pro rata
based on the number of applicable Registrable Securities then held by such
Investors.

                  (c) Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review the Registration Statement, any correspondence with
the SEC relating thereto and any other relevant matters in connection with any
offering pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be Schulte
Roth & Zabel LLP or such other counsel as thereafter designated by the holders
of a majority of Registrable Securities. The Company shall reasonably cooperate
with Legal Counsel in performing the Company's obligations under this Agreement.

                  (d) Eligibility for Form S-3. The Company represents and
warrants that it does not currently meet the requirements for use of Form S-3
for registration of the resale of the Registrable Securities, but does meet the
requirements for the use of Form S-1 for registration of the resale of the
Registrable Securities. At any time while this Agreement is in effect, in the
event that Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the resale of
the Registrable Securities on another appropriate form, reasonably acceptable to
the holders of a majority of the Registrable Securities, and (ii) undertake to
register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.

                  (e) Sufficient Number of Shares Registered. In the event that
the number of shares available under (i) a Registration Statement filed pursuant
to Section 2(a) together with (ii) any Registration Statements filed pursuant to
this Section 2(e) is insufficient to cover the






                                       6


resale of 100% of the Registrable Securities required to be covered by such
Registration Statement or an Investor's allocated portion of the registered
shares pursuant to Section 2(b), the Company shall, subject to Section 3(t),
amend any such Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least 100% of the Registrable Securities calculated as of the trading day
immediately preceding the date of the filing of such amendment or new
Registration Statement, in each case, as soon as practicable, but in any event
not later than 15 days after the necessity therefor arises. The Company shall
use its best efforts to cause such amendment and/or new Registration Statement
to become effective as soon as practicable following the filing thereof.

         3. RELATED OBLIGATIONS.

         In connection with the Company's obligation to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(e), the Company shall have
the following obligations:

                  (a) The Company shall submit to the SEC, within two (2)
Business Days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on a Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than 48 hours after the submission of such request. The
Company shall keep a particular Registration Statement effective pursuant to
Rule 415 at all times until the earlier of (i) the date as of which all the
Investors are eligible to sell all of the Registrable Securities pursuant to
Rule 144(k) under the 1933 Act (or any successor thereto) or (ii) the date the
Investors have sold all the Covered Securities and Registrable Securities
pursuant to an effective Registration Statement (the "REGISTRATION PERIOD"). The
Company shall ensure that each Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not, when it
becomes effective, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.

                  (b) Subject to Section 3(t), the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the 1933 Act with respect
to the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 ACT"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement. Without limiting the generality of the
obligation set forth in this Section 3(b), the Company shall, from time to time
as may be required by applicable laws, file a supplement to the prospectus
included in a Registration Statement which updates the







                                       7


information contained in the Registration Statement relating to (i) the
aggregate principal amount of Registrable Securities outstanding, (ii) the
conversion price of the Registrable Securities, (iii) the total number of shares
of Common Stock issuable upon conversion of all outstanding Registrable
Securities, (iv) the number of shares of Common Stock beneficially owned by each
Investor whose shares are included in the Registration Statement, and (v) the
number of shares of Common Stock being offered by each Investor whose shares are
included in the Registration Statement. The Company shall file any such
supplement with the SEC under Rule 424(b)(3) of the 1933 Act, or if the
supplement may not be filed under Rule 424(b)(3) of the 1933 Act, then under
such other applicable provisions of the 1933 Act.

                  (c) The Company shall permit Legal Counsel to review and
comment upon a Registration Statement and all amendments and supplements thereto
at least five (5) Business Days prior to their filing with the SEC, and not file
any document in a form to which Legal Counsel reasonably objects in writing
prior to the filing date. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.

                  (d) The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (ii) upon the effectiveness of any Registration
Statement, ten copies of the prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number of copies as
such Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.

                  (e) The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration or qualification applies, all the
Registrable Securities covered by a Registration Statement under all securities
or "blue sky" laws of such jurisdictions in the United States, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify as a foreign corporation in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(e), (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction. The Company
shall promptly notify Legal Counsel and each Investor who holds Registrable
Securities of the receipt by the






                                       8


Company of any notification with respect to the suspension of the registration
or qualification of any of the Registrable Securities for sale under the
securities or "blue sky" laws of any jurisdiction in the United States or its
receipt of actual notice of the initiation or threatening of any proceeding for
such purpose.

                  (f) The Company shall (i) notify Legal Counsel and each
Investor in writing (provided that in no event shall such notice include any
material, nonpublic information) as promptly as practicable upon its discovery
that the prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, (ii)
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and (iii) deliver ten copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (provided
that in no event shall such notice include any material, nonpublic information)
(x) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (y) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (z) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

                  (g) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify (provided that in no event shall such
notification include any material, nonpublic information) Legal Counsel and each
Investor who holds Registrable Securities being sold of the issuance of such
order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

                  (h) At the request of any Investor to satisfy its obligations,
if any, in connection with offerings under the 1933 Act, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the Investors, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors.

                  (i) At the reasonable request of an Investor, the Company
shall make available for inspection by (i) a single representative of the
Investors, (ii) Legal Counsel and (iii) one firm of accountants retained by the
Investors (collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed necessary by such
Inspector to satisfy its due diligence investigation under the 1933 Act, and
cause the Company's officers,






                                       9


directors and employees to supply all information which any Inspector may
reasonably request that is customarily supplied in connection with such a
transaction; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge. Each Investor
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.

                  (j) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement or (v) such information has been made available to the Company by a
third party in good faith and not under or in breach of a requirement of
confidentiality. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

                  (k) The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or, if,
despite the Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for quotation on The Nasdaq SmallCap Market for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(k).

                  (l) The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request.





                                       10


                  (m) The Company shall provide a transfer agent and registrar
of all such Registrable Securities not later than the effective date of the
applicable Registration Statement.

                  (n) If requested by an Investor, the Company as promptly as
practicable shall: (i) incorporate in a prospectus supplement or post-effective
amendment to the extent required by the 1933 Act such information as an Investor
requests to be included therein relating to the sale and distribution of
Registrable Securities, including, without limitation, information with respect
to the number of Registrable Securities being offered or sold, the purchase
price being paid therefor, the persons selling the Registrable Securities and
any other terms of the offering of the Registrable Securities; (ii) make all
required filings of such prospectus supplement or post-effective amendment
promptly after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement if reasonably requested by a holder of
such Registrable Securities.

                  (o) The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
in the United States as may be necessary to consummate the disposition of such
Registrable Securities.

                  (p) The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.

                  (q) The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.

                  (r) Within two (2) Business Days after any Registration
Statement which includes the applicable Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.

                  (s) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.

                  (t) Notwithstanding anything in this Agreement to the
contrary, the Company shall have the right to defer filing any Registration
Statement or, at any time after a Registration Statement has been filed with the
SEC, the Company may suspend sales under any such filed Registration Statement
or delay the disclosure of material, nonpublic information concerning the
Company, if in the good faith opinion of the Board of Directors of the Company,
after consultation with its outside counsel to be certain that any such
disclosure is not required, it is in the best interest of the Company to do so
(a "GRACE PERIOD"); provided, that the Company shall promptly (i) notify each
Investor in writing of the existence of material, nonpublic information





                                       11


giving rise to a Grace Period (provided that in no event shall such notice
include any material, nonpublic information) and the date on which the Grace
Period will begin, and (ii) notify each Investor in writing of the date on which
the Grace Period ends; and, provided further, that no Grace Period shall exceed
10 consecutive days and during any 365 day period such Grace Periods shall not
exceed an aggregate of 30 days (an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date that each Investor receives the notice referred to in
clause (i) above and shall end on the date for which the Company provides the
notice referred to in clause (ii) above (not to exceed 10 days). The provisions
of Sections 2(a), 2(e), 3(a), 3(b), 3(g) and the first sentence of Section 3(f)
hereof shall not be applicable during the period of any Allowable Grace Period.
Notwithstanding anything to the contrary, the Company shall cause its transfer
agent to deliver unlegended shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
the notice of a Grace Period and for which the Investor has not yet settled.

         4. OBLIGATIONS OF THE INVESTORS.

                  (a) At least five (5) Business Days prior to the first
anticipated filing date of a Registration Statement or an amendment thereto, the
Company shall notify each Investor in writing of the information the Company
requires from each such Investor if such Investor elects to have any of such
Investor's Registrable Securities included in such Registration Statement or,
with respect to an amendment or supplement, if such Investor's Registrable
Securities are included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. If an Investor fails to provide the Company with
the information so requested which the Company reasonably requires within five
(5) Business Days after the Investor's receipt of such request, then the
applicable Mandatory Filing Date, Mandatory Effective Date and the 15-day period
referred to in Section 2(e) shall be extended solely with respect to such
Investor by one day for each day after such fifth (5th) Business Day that the
Investor fails to provide such information; provided, however, that the failure
of an Investor to timely provide such information pursuant to the Company's
request shall not otherwise affect the Company's obligations under this
Agreement to the other Investors; provided, further, however, that any Investor
which fails to provide the Company with such information within the applicable
time period set forth above in response to a request prior to the filing of a
Registration Statement or amendment or supplement thereto shall bear the costs
actually incurred by the Company of any additional Registration Statement or
amendment(s) or supplement(s) thereto which the Company is required to file due
solely to such failure.

                  (b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.





                                       12


                  (c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f) or notice from the Company of a Grace Period, such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to any Registration Statement(s) covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(g) or the first sentence of 3(f) or receipt
of notice that no supplement or amendment is required or that the Grace Period
has ended. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) or notice from the Company of a Grace
Period and for which the Investor has not yet settled.

         5. EXPENSES OF REGISTRATION.

                  All reasonable expenses, other than underwriting discounts and
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.

         6. INDEMNIFICATION.

                  In the event any Registrable Securities are included in a
Registration Statement under this Agreement:

                  (a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "CLAIMS") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any






                                       13


material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any material
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, "VIOLATIONS"). Subject to Section 6(d), the Company
shall reimburse the Indemnified Persons, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) and the agreement with respect to
contribution contained in Section 7: (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(d); (ii) shall not be available to the extent such Claim
is based on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.

                  (b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each an
"INDEMNIFIED PARTY") against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other reasonable expenses incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.




                                       14


                  (c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be. In any such proceeding, any
Indemnified Person or Indemnified Party may retain its own counsel, but the fees
and expenses of that counsel will be at the expense of that Indemnified Person
or Indemnified Party, as the case may be, unless (i) the indemnifying party and
the Indemnified Person or Indemnified Party, as applicable, shall have mutually
agreed to the retention of that counsel, (ii) the indemnifying party does not
assume the defense of such proceeding in a timely manner or (iii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the Indemnified Person or Indemnified Party, as
applicable, and the indemnified party reasonably objects to such assumption on
the ground that there may be legal defenses available to it that are different
from or in addition to those available to the indemnifying party or another
indemnifying party. The Company shall pay reasonable fees for only one separate
legal counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates. The Indemnified Party
or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or Claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or Claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent, provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

                  (d) The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.




                                       15


                  (e) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

         7. CONTRIBUTION.

                  To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no person involved in the sale of Registrable Securities which person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person involved in such
sale of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities pursuant to such Registration
Statement.

         8. REPORTS UNDER THE 1934 ACT.

                  With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to:

                  (a) make and keep public information available, as those terms
are understood and defined in Rule 144;

                  (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

                  (c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.


         9. ASSIGNMENT OF REGISTRATION RIGHTS.

                  The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such transfer or
assignment; (ii) the Company is, within a reasonable time after such transfer or
assignment,






                                       16


furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee provides the Company
with a writing agreeing to be bound by all of the provisions contained herein;
and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.

         10. AMENDMENT OF REGISTRATION RIGHTS.

                  Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold a majority of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of this Agreement unless
the same consideration also is offered to all of the parties to this Agreement.

         11. MISCELLANEOUS.

                  (a) A Person is deemed to be a holder of Registrable
Securities whenever such Person owns or is deemed to own of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

                  (b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be:

                  If to the Company:

                  Xcel Energy Inc.
                  800 Nicollet Mall
                  Minneapolis, Minnesota
                  Telephone:        (612) 215-4505
                  Facsimile:        (612) 215-4501
                  Attention:        General Counsel






                                       17


                  With a copy to:

                  Jones, Day, Reavis & Pogue
                  77 West Wacker
                  Chicago, Illinois  60601-1692
                  Telephone:        (312) 269-1519
                  Facsimile:        (312) 782-8585
                  Attention:        Peter D. Clarke, Esq.


                  If to Legal Counsel:

                  Schulte Roth & Zabel LLP
                  919 Third Avenue
                  New York, NY 10022
                  Telephone: (212) 756-2000
                  Facsimile: (212) 593-5955
                  Attention: Eleazer Klein, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers to the Securities Purchase Agreement, or to such other
address and/or facsimile number and/or to the attention of such other person as
the recipient party has specified by written notice given to each other party
five days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight
courier service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from an overnight courier service in accordance with clause
(i), (ii) or (iii) above, respectively.

                  (c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                  (d) All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Illinois or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Illinois. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of Chicago, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be







                                       18


invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Each party hereby irrevocably waives any right it may have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder or in
connection herewith or arising out of this Agreement or any transaction
contemplated hereby.

                  (e) This Agreement, the Securities Purchase Agreement and the
other Transaction Documents (as defined in the Securities Purchase Agreement)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement and the other
Transaction Documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.

                  (f) Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.

                  (g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

                  (h) This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  (i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                  (j) All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities. Any consent or other determination approved by Investors holding a
majority of the Registrable Securities shall be binding on all Investors.

                  (k) The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.

                  (l) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.






                                       19


                            [SIGNATURE PAGE FOLLOWS]






                                       20


         IN WITNESS WHEREOF, each Buyer and the Company have caused this
Registration Rights Agreement to be duly executed as of day and year first above
written.

                                                    
COMPANY:                                               BUYERS:

XCEL ENERGY INC.                                       CITADEL EQUITY FUND LTD.
                                                       By: Citadel Limited Partnership, Portfolio Manager
                                                       By: GLB Partners, L.P., its General Partner
                                                       By: Citadel Investment Group, L.L.C., its General Partner
By:
   -------------------------------------
     Name:
     Title:   Chief Executive Officer                  By:
                                                          -----------------------------------------------------
                                                            Name:  Kenneth A. Simpler
                                                            Title: Managing Director

                                                       CITADEL CREDIT TRADING LTD.
                                                       By: Citadel Limited Partnership, Portfolio Manager
                                                       By: GLB Partners, L.P., its General Partner
                                                       By: Citadel Investment Group, L.L.C., its General Partner


                                                       By:
                                                          -----------------------------------------------------
                                                            Name:  Kenneth A. Simpler
                                                            Title: Managing Director

                                                       JACKSON INVESTMENT FUND LTD.
                                                       By: Citadel Limited Partnership, Portfolio Manager
                                                       By: GLB Partners, L.P., its General Partner
                                                       By: Citadel Investment Group, L.L.C., its General Partner


                                                       By:
                                                          -----------------------------------------------------
                                                            Name:  Kenneth A. Simpler
                                                            Title: Managing Director










                               SCHEDULE OF BUYERS






              BUYER                       ADDRESS AND FACSIMILE NUMBER
- ----------------------------------   ---------------------------------------


                                  
Citadel Equity Fund Ltd.             c/o Citadel Investment Group, L.L.C.
                                     225 West Washington Street
                                     Chicago, Illinois  60606
                                     Attention: Kenneth A. Simpler
                                     Facsimile: (312) 338-0780
                                     Telephone: (312) 696-2100


Citadel Credit Trading Ltd.          c/o Citadel Investment Group, L.L.C.
                                     225 West Washington Street
                                     Chicago, Illinois  60606
                                     Attention: Kenneth A. Simpler
                                     Facsimile: (312) 338-0780
                                     Telephone: (312) 696-2100


Jackson Investment Fund Ltd.         c/o Citadel Investment Group, L.L.C.
                                     225 West Washington Street
                                     Chicago, Illinois  60606
                                     Attention: Kenneth A. Simpler
                                     Facsimile: (312) 338-0780
                                     Telephone: (312) 696-2100











                                                                       EXHIBIT A
                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[TRANSFER AGENT]
ATTN:
     -------------------------------

                  RE:      XCEL ENERGY INC.

Ladies and Gentlemen:

         We are counsel to XCEL ENERGY INC., a Minnesota corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and
among the Company and the buyers named therein (collectively, the "HOLDERS")
pursuant to which the Company issued to the Holders convertible notes of the
Company (the "Notes") convertible into shares of the Company's common stock, par
value $2.50 per share (the "COMMON STOCK"). Pursuant to the Purchase Agreement,
the Company also has entered into a Registration Rights Agreement with the
Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the shares of Common Stock
issuable upon conversion of the Notes, under the Securities Act of 1933, as
amended (the "1933 ACT"). In connection with the Company's obligations under the
Registration Rights Agreement, on ____________ ___, 200__, the Company filed a
Registration Statement on Form S-_ (File No. 333-_____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.

         In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

                                         Very truly yours,

                                         [ISSUER'S COUNSEL]

                                         By:
                                            --------------------------------
cc:      [LIST HOLDERS]