-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VxxijzLeUaz6fuIjw+x5n5paYmqn4OBB9uwwCAlrfM/74ZKy2im6wh9oi3CSpOIC jX1MtvTvu03zO/kFXIuJIg== 0000795185-97-000010.txt : 19971222 0000795185-97-000010.hdr.sgml : 19971222 ACCESSION NUMBER: 0000795185-97-000010 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19971219 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NRG GENERATING U S INC CENTRAL INDEX KEY: 0000795185 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 592076187 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-09208 FILM NUMBER: 97741723 BUSINESS ADDRESS: STREET 1: 1221 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55403 BUSINESS PHONE: 6123735300 MAIL ADDRESS: STREET 1: 1221 NICOLLET MALL CITY: MINNEAPOLIS STATE: MN ZIP: 55403 FORMER COMPANY: FORMER CONFORMED NAME: O BRIEN ENVIRONMENTAL ENERGY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OBRIEN ENERGY SYSTEMS INC DATE OF NAME CHANGE: 19910804 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-K/A (Amendment No. 2) FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________________. Commission File Number: 1-9208 NRG GENERATING (U.S.) INC. (Exact name of registrant as specified in its charter) Delaware 59-2076187 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403 (612) 373- 8834 (Address of principal executive offices) (Zip Code) (Telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X As of December 12, 1997, there were outstanding 6,836,769 shares of Common Stock. Based on the last sales price at which such stock was sold on that date, the approximate aggregate market value of such shares held by non-affiliates was $63,720,000. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. X Yes No The undersigned Registrant hereby amends the items, financial statements, exhibits or other portions of its Annual Report on Form 10-K for the fiscal year ended June 30, 1996 as set forth below. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. 3. Exhibits The "Index to Exhibits" following the Consolidated Financial Statements of the Company and its subsidiaries in the Company's Annual Report on Form 10-K, as filed, is amended to substitute therefor the "Exhibit Index" which follows the signature page hereof, which is incorporated herein by reference, and to file certain exhibits which are included herewith. 1 Signature In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NRG GENERATING (U.S.) INC. /s/ Timothy P. Hunstad By: Timothy P. Hunstad Title: Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Robert T. Sherman President and December 15, 1997 By: Robert T. Sherman, Jr. Chief Executive Officer /s/ Timothy P. Hunstad Vice President and December 15, 1997 By: Timothy P. Hunstad Chief Financial Officer /s/ Leonard Bluhm Chairman of the December 15, 1997 By: Leonard A. Bluhm Board of Directors /s/ Lawrence Littman Director December 15, 1997 By: Lawrence I. Littman /s/ Craig A. Mataczynski Director December 15, 1997 By: Craig A. Mataczynski /s/ David H. Peterson Director December 15, 1997 By: David H. Peterson /s/ Spyros Skouras, Jr. Director December 15, 1997 By: Spyros S. Skouras, Jr. /s/ Charles Thayer Director December 15, 1997 By: Charles J. Thayer /s/ Ronald J. Will Director December 15, 1997 By: Ronald J. Will 2 Index to Exhibits Exhibit No. Description 2.1** Composite Fourth Amended and Restated Plan of Reorganization for the Company dated January 31, 1996 and proposed by the Company, the Official Committee of Equity Security Holders, Wexford Management Corp. ("Wexford") and NRG Energy, Inc. ("NRG Energy"). 2.2** Order confirming Composite Fourth Amended and Restated Plan of Reorganization for the Company proposed by the Company, the Official Committee of Equity Security Holders, Wexford and NRG Energy dated February 13, 1996 and entered on February 22, 1996 and filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated February 13, 1996 and incorporated herein by this reference. 2.3** Amended and Restated Stock Purchase and Reorganization Agreement dated January 31, 1996 between the Company and NRG Energy filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 13, 1996 and incorporated herein by this reference. 2.4** Letter Agreement dated April 26, 1996 between the Company and NRG Energy amending the Stock Purchase and Reorganization Agreement. 3.1** Amended and Restated Certificate of Incorporation of the Company. 3.2** Preferred Stock Certificate of Designation of the Company filed as Exhibit 3.3 to the Company's Current Report on Form 8-K dated April 30, 1996 and incorporated herein by this reference. 3.3** Bylaws of the Company filed as Exhibit 3.2 to the Company's Current Report on Form 8-K dated April 30, 1996 and incorporated herein by this reference. 10.1** Co-Investment Agreement dated April 30, 1996 between the Company and NRG Energy. 10.2.1** Chapter 11 Financing Agreement dated August 30, 1995 between the Company and NRG Energy. 10.2.2** Letter Agreement dated February 20, 1996 between the Company and NRG Energy amending the Chapter 11 Financing Agreement. 10.2.3** Letter Agreement dated April 30, 1996 between the Company and NRG Energy further amending the Chapter 11 Financing Agreement. 10.3** Liquidating Asset Management Agreement dated April 30, 1996 between the Company and Wexford. 10.4** Management Services Agreement dated as of January 31, 1996 between the Company and NRG Energy. 10.5.1** Loan Agreement dated April 30, 1996 between the Company and NRG Energy. 3 10.5.2** Note dated April 30, 1996 from the Company to NRG Energy in the principal amount of $45,000,000. 10.6.1** Supplemental Loan Agreement dated April 30, 1996 between NRG Energy and the Company. 10.6.2** Note dated April 30, 1996 from the Company to NRG Energy in the principal amount of $15,855,545.25. 10.7.1 NRG Newark Cogen Loan Agreement dated April 30, 1996 between NRG Energy and the Company. 10.7.2** Note dated April 30, 1996 from the Company to NRG Energy in the principal amount of $24,000,000. 10.8.1** Credit Agreement dated May 17, 1996 between NRG Generating (Newark) Cogeneration Inc. ("NRGG Newark"), NRG Generating (Parlin) Cogeneration Inc. ("NRGG Parlin"), Credit Suisse, Greenwich Funding Corporation and any Purchasing lender, as Lenders under the Credit Agreement. 10.8.2** Amendment No. 1 to the Credit Agreement dated June 28, 1996 between NRG Generating (Newark) Inc., NRG Generating (Newark) Inc. and Credit Suisse, Greenwich Funding Corporation and any Purchase Lender (as defined therein). 10.8.3** Stock Pledge Agreement dated June 28, 1996 between the Company as Pledgor and Credit Suisse. 10.8.4** Guaranty dated as of May 17, 1996 by NRG Energy, as Guarantor, to Credit Suisse, as Agent for the benefit of Credit Suisse, Greenwich Funding Corporation and any Purchasing lender, as Lenders under the Credit Agreement. 10.8.5** Guaranty dated as of June 28, 1996 by the Company as Guarantor to Credit Suisse as Agent for the benefit of Credit Suisse, Greenwich Funding Corporation and any Purchasing lender, as Lenders under the Credit Agreement. 10.8.6** Tax Indemnification Agreement dated June 28, 1996 between the Company, NRGG Newark, NRGG Parlin and Credit Suisse. 10.8.7** Assignment and Security Agreement dated June 28, 1996 between NRGG Parlin and Credit Suisse 10.8.8 Amended and Restated Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated June 28, 1996 between NRGG Newark and Credit Suisse 10.8.9 Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated June 28, 1996 between NRGG Parlin and Credit Suisse. 10.8.10** Interest Rate Swap Agreement dated August 2, 1996 between NRGG Newark, NRGG Parlin and Credit Suisse. 10.9.1 Loan Agreement dated March 8, 1996 between O'Brien (Schuylkill) Cogeneration Inc. and NRG Energy in connection with the Grays Ferry Partnership. 4 10.9.2 Option Agreement dated May 1, 1996 between O'Brien (Schuylkill) Cogeneration Inc. and NRG Energy. 10.10.1** Gas Supply Agreement dated June 30, 1992 between the Company and The Philadelphia Municipal Authority (the "PMA") regarding the NE Plant (Philadelphia Project) and filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 and incorporated herein by this reference. 10.10.2** Gas Supply Agreement dated June 30, 1992 between the Company and the PMA regarding the SW Plant (Philadelphia Project) and filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 and incorporated herein by this reference. 10.10.3** Energy Service Agreement dated June 30, 1992 between the Company and the PMA regarding the NE Plant (Philadelphia Project) and filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 and incorporated herein by this reference. 10.10.4** Energy Service Agreement dated June 30, 1992 between the Company and the PMA regarding the SW Plant (Philadelphia Project) and filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 and incorporated herein by this reference. 10.10.5** Stock Purchase Agreement dated November 12, 1993 between the Company, OPC Acquisition, Inc. and BioGas Acquisition, Inc. and filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993 and incorporated herein by this reference. 10.10.6 Loan Agreement between the Company and PECO. 10.11.1** Long Term Power Purchase Contract for Cogeneration and Small Power Production dated March 10, 1986 between the Company and Jersey Central Power and Light ("JCP&L") and filed as an exhibit to the Company's Registration Statement (File No. 33-11789) and incorporated herein by this reference. 10.11.2** Letter Agreement dated June 2, 1986 between the Company and JCP&L amending the Long Term Power Purchase Contract. 10.11.3** Second Amendment to Power Purchase Agreement dated March 1, 1988 between the Company and JCP&L. 10.11.4** Letter Agreement dated April 30, 1996 between O'Brien (Newark) Cogeneration, O'Brien (Parlin) Cogeneration and JCP&L. 10.11.5** Third Amendment to Power Purchase Agreement dated April 30, 1996 between O'Brien (Newark) Cogeneration and JCP&L. 10.14 Transmission Service and Interconnection Agreement dated November 17, 1987 between O'Brien Energy Systems, Inc. and Public Service Electric and Gas Company. 5 10.15.1 Steam Purchase Agreement dated October 3, 1986 between O'Brien Cogeneration IV, Inc. and Newark Boxboard Co. 10.15.2** Amendment to Steam Purchase Agreement dated March 15, 1988 between O'Brien Cogeneration IV, Inc. and Newark Boxboard Co. 10.15.3** Amendment to Steam Purchase Agreement dated July 18, 1988 between O'Brien (Newark) Cogeneration, Inc. and Newark Group Industries, Inc. 10.16.1 Operating and Maintenance Agreement dated May 1, 1996 between NRGG Newark and Stewart & Stevenson Operations, Inc. 10.16.2 Letter Agreement dated May 10, 1996 between the Company and Stewart & Stevenson Operations, Inc. 10.16.3 Letter Agreement dated May 20, 1996 between NRG Generating (Newark) Cogeneration and Stewart & Stevenson Operations, Inc. 10.17.1** Agreement for Purchase and Sale of Electric Power dated October 20. 1986 between the Company and JCP&L and filed as an exhibit to the Company's Registration Statement (File No. 33-11789) and incorporated herein by this reference. 10.17.2 First Amendment to Agreement for Purchase and Sale Electric Power dated June 11, 1991 between the Company and JCP&L. 10.17.3** Amended and Restated Agreement for Purchase and Sale of Electric Power dated April 30, 1996 between O'Brien (Parlin) Cogeneration, Inc. and JCP&L. 10.17.4** Letter Agreement dated April 30, 1996 between O'Brien (Parlin) Cogeneration, Inc. and JCP&L. 10.20.1** Steam Purchase Contract dated December 8, 1986 between the Company and E.I. du Pont de Nemours("E.I. du Pont") and Company. 10.20.2** Amendment No. 1 to Steam Purchase Contract dated January 12, 1988 between the Company and E.I. du Pont. 10.20.3** Letter Agreement dated July 25, 1988 between the Company and E.I. du Pont. 10.20.4** Amendment No. 3 to Steam Purchase Agreement dated December 12, 1988 between the Company and E.I. du Pont. 10.20.5** Amendment No. 4 to Steam Purchase Contract dated July 14, 1989 between the Company and E.I. du Pont. 10.20.6** Amendment No. 5 to Steam Purchase Contract dated February 16, 1993 between the Company and E.I. du Pont. 10.21.1** Electricity Purchase Contract dated January 18, 1988 between the Company and E.I. du Pont. 10.21.2** Electricity Purchase Contract dated April 30, 1996 between O'Brien (Parlin) Cogeneration Inc. and NRG Parlin Inc. 6 10.21.3** Assignment of Electricity Purchase Contract dated April 30, 1996 between O'Brien (Parlin) Cogeneration, Inc., NRG Parlin, Inc. and E.I. du Pont. 10.22.1 Operating & Maintenance Agreement dated May 1, 1996 between NRG Generating (Parlin) Cogeneration, Inc. and Stewart Stevenson Operations, Inc. 10.22.2 Agreement dated May 1, 1996 between the Company, NRGG Newark, NRGG Parlin and Stewart & Stevenson Operations, Inc. 10.22.3 Letter Agreement dated May 20, 1996 between NRG Generating (Parlin) Cogeneration, Inc. and Stewart & Stevenson Operations, Inc. 10.23** Amended and Restated Partnership Agreement of Grays Ferry Cogeneration Partnership ("Grays Ferry") dated March 1, 1996, between Adwin (Schuylkill) Cogeneration, Inc. ("Adwin Schuylkill"), O'Brien (Schuylkill) Cogeneration, Inc. ("O'Brien Schuylkill") and Trigen-Schuylkill Cogeneration, Inc. ("Trigen- Schuylkill"). 10.24.1** Acquisition Agreement dated March 1, 1996 between Adwin Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill. 10.24.2** Side Agreement dated March 1, 1996 between Adwin Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill. 10.25.1** Contingent Capacity Purchase Addendum to the Agreement for Purchase of Electric Output (Phase I) dated September 17, 1993 between PECO and Grays Ferry. 10.25.2** Contingent Capacity Purchase Addendum to the Agreement for Purchase of Electric Output (Phase II) dated September 17, 1993 between PECO and Grays Ferry. 10.25.3 Amendment Agreement dated January 31, 1994 between PECO and Grays Ferry. 10.25.4 Agreement for Purchase of Electric Output (Phase I) dated July 28, 1992 between PECO Energy Company ("PECO") and Grays Ferry. 10.25.5 Agreement for Purchase of Electric Output (Phase II) dated July 28, 1992 between PECO and Grays Ferry. 10.26.1** Amended and Restated Steam Purchase Agreement dated September 17, 1993 among Philadelphia Thermal Energy Corporation ("PTEC"), Adwin Equipment Company ("Adwin"), O'Brien Environmental Energy, Inc. ("O'Brien") and Grays Ferry. 10.26.2** Amended and Restated Steam Venture Agreement dated September 17, 1993 among PTEC, Philadelphia United Power Corporation ("PUPCO"), Adwin and O'Brien. 10.27.1 Amended and Restated Project Services and Development Agreement dated September 17, 1993 by and between PUPCO and Grays Ferry 7 10.27.2** Consent to Assignment of Agreement dated March 1, 1996 between PUPCO, Grays Ferry Cogeneration Partnership and The Chase Manhattan Bank, N.A. 10.28** Amended and Restated Site lease, dated September 17, 1993 between PTEC and Grays Ferry. 10.29 Newark Lease. 10.30 Parlin Lease. 10.31.1** NRG Generating (U.S.) Inc. 1996 Stock Option Plan dated September 20, 1996 and filed as Appendix A to the Company's Proxy Statement dated October 28, 1996 and incorporated herein by reference. 10.31.2** Form of an Incentive Stock Option Agreement. 10.31.3** Form of a Nonqualified Stock Option Agreement. 10.31.4** Form of a Nonemployee Director Nonqualified Stock Option Agreement. 10.32** Employment Agreement dated April 30, 1996 between the Company and Leonard A. Bluhm. 11** Computation of Earnings 21** List of Subsidiaries of the Registrant. 23.1** Consent of Price Waterhouse LLP. 23.2** Consent of Coopers & Lybrand LLP. 27** Financial Data Schedule. _____ ** Previously filed. 8 EX-10.7.1 2 EXHIBIT 10.7.1 NRG NEWARK COGEN LOAN AGREEMENT DATED APRIL 30, 1996 BETWEEN NRG ENERGY AND THE COMPANY. Exhibit 10.7.1 NRG NEWARK COGEN LOAN AGREEMENT dated as of April 30, 1996 $24,000,000 Between NRG ENERGY, INC. and NRG GENERATING (U.S.) INC. NRG NEWARK COGEN LOAN AGREEMENT, dated as of April 30, 1996, between NRG GENERATING (U.S.) INC., a Delaware corporation (the "Company") and NRG ENERGY, INC., a Delaware corporation (the "Lender"). WITNESSETH: WHEREAS, immediately prior to the execution and delivery of this Agreement, the Company was the debtor and the debtor in possession in Chapter 11 case number 94-26723 (the "Case") pending before the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"); WHEREAS, pursuant to the Fourth Amended and Restated Plan of Reorganization for the Company proposed by the Lender, Wexford Management Corp. and the official Committee of Equity Security Holders dated November 17, 1995 (as amended and confirmed by order of the Bankruptcy Court entered on February 22, 1996, the "NRG Plan"; capitalized terms used herein without definition shall have the respective meanings assigned to them in the NRG Plan), and subject to the terms and conditions of the Amended and Restated Stock Purchase and Reorganization dated as of January 31, 1996 between the Lender and the Company, the Lender is acquiring on the date hereof 41.86% of the outstanding shares of Common Stock of the Company and in that connection has agreed to make certain loans to the Company; WHEREAS, the NRG Plan contemplates that a Newark Project Refinancing may occur on the Effective Date pursuant to which Newark Refinancing Proceeds of up to $24 million may be generated for purposes of funding distributions to creditors under the NRG Plan but, to the extent Newark Refinancing Proceeds of $24 million for any reason are not available on the Effective Date, the Lender is to make the NRG Newark Cogen Loan in an amount equal to the amount (if any) by which $24 million exceeds the Newark Refinancing Proceeds, which amount equals $24,000,000. WHEREAS, the Lender agrees to make the NRG Newark Cogen Loan to the Company contemplated by the NRG Plan on the terms and conditions set forth below. NOW, THEREFORE, the Company and the Lender agree as follows: ARTICLE 1 Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the terms defined in the caption hereto shall have the meanings set forth therein, and the following terms have the following meanings: "Acquisition" means the acquisition by the Company pursuant to the Acquisition Agreement of 41.86% of the issued and outstanding capital stock of the company as reorganized under the NRG Plan and all of the capital stock of each of certain of the Company's subsidiaries. "Acquisition Agreement" means the Amended and Restated Stock Purchase and Reorganization Agreement, dated as of January 31, 1996, between the Lender and O'Brien Environmental Energy, Inc., a Delaware corporation, the predecessor in interest to the Company. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person or (ii) any Person who is a director or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person described in clause (i) above. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 6.04 and 6.05 only, "Affiliate" shall also mean any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and 2 any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Affiliate Transaction" shall have the meaning assigned thereto in Section 6.05(a). "Agreement" means this Loan Agreement, as amended, supplemented or modified from time to time. "Asset Disposition" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly owned Subsidiary, (ii) a disposition of property or assets in the ordinary course of business, (iii) for purposes of Section 6.04 only, a disposition subject to Section 6.02 and (iv) a disposition of Liquidating Assets in accordance with and pursuant to the terms of the Liquidating Asset Management Agreement. "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bankruptcy Law" shall have the meaning assigned thereto in Section 8.01. "Base Rate" means for any day, a rate per annum equal to 9.5%. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in 3 (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease. "Closing Date" means the date, which shall be on the Effective Date, on which the Lender makes the Loan. "Code" means the Internal Revenue Code of 1986, as amended. "Co-Investment Agreement" shall mean that certain Co-Investment Agreement dated the date hereof between the Lender and the Company and as provided for by the NRG Plan. "Co-Investment Indebtedness" means Indebtedness incurred by the Company to finance the Company's investment in a project offered to the Company pursuant to the terms of the Co-Investment Agreement. "Commercial L/C11 means a commercial documentary letter of credit under which the issuer agrees to make payments in Dollars for the account of the Company, on behalf of the Company or a Subsidiary thereof, in respect of obligations of the Company or such Subsidiary in connection with the purchase of goods or services in the ordinary course of business. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 414(b) or (c) of the Code. "Company" means the party named as such in this Agreement until a successor replaces it and, thereafter, means the successor. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the 4 beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition assets occurred on the first day of such period. For purposes of this 5 definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term as at the date of determination in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total interest expense of the company and its consolidated Subsidiaries, plus, to the extent incurred by the Company and its Subsidiaries in such period but not included in such interest expense, (i) interest expense attributable to Capitalized Lease obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges attributable to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging obligations (including amortization of fees), (viii) the product of (a) all Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of the Company and Redeemable Stock of the Company held by Persons other than the Company or a Wholly Owned Subsidiary multiplied by (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of the Company, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust; provided, however, that there shall be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by the Company or any Restricted Subsidiary. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: 6 (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income, (ii) any net income (loss) of any person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income (loss) of any Restricted subsidiary if such subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income, (iv) any gain (but not loss) realized upon the sale or other disposition of any asset of the Company or its consolidated Subsidiaries (including pursuant to any sale/leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) any extraordinary gain or loss, and (vi) the cumulative effect of a change in accounting principles. 7 "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and the Restricted Subsidiaries, determined on a consolidated basis, as of the end of the most recent fiscal quarter of the Company ending prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Contingent obligation" means as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Contingent obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent obligation shall be deemed to be an amount equal to the stated or determinable amount (based upon the maximum reasonably anticipated net liability in respect thereof as determined by the Company in good faith) of the primary obligation or portion thereof in respect of which such Contingent obligation is made or, if not stated or determinable, the maximum reasonably anticipated net liability in respect thereof (assuming such Person is required to perform thereunder) as determined by the Company in good faith. "Contractual Obligation" means as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of the property owned by it is bound. "Credit Documents" means the collective reference to this Agreement and the Note. 8 "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Custodian" shall have the meaning assigned thereto in Section 8.01. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes. "Dollars" and "$11 means dollars in lawful currency of the United States of America. "EBITDA" means, for any period the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and (iv) amortization expense, in each case for such period. "Effective Date" shall have the meaning assigned thereto in the NRG Plan, which definition is incorporated herein by this reference. "Environmental Laws" means any and all Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority or requirements of law (including court-ordered requirements of common law) regulating or imposing liability or standards of conduct concerning environmental or public health protection matters, including Hazardous Materials, as now or may at any time hereafter be in effect. "ERISAII means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Default" shall have the meaning assigned thereto in Section 8.01. 9 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fee Property" shall have the meaning assigned thereto in Section 3.10. "Final Maturity Date" shall have the meaning assigned thereto in Section 2.04. "Fiscal Date" means the Saturday closest to February 1, May 1, August 1 or November 1, as the case may be, in any calendar year. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. "Governmental Authority" means any nation or government, any state or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keepwell, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous pesticides, hazardous or toxic substances, defined, listed, classified or regulated as such in or under any Environmental Law, including asbestos, petroleum, any other petroleum products (including gasoline, crude oil or any fraction thereof) polychlorinated biphenyls and urea-formaldehyde insulation. 10 "Hedging obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Highest Lawful Rate" shall have the meaning assigned thereto in Section 9.10. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more that six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, (v) all Capitalized Lease obligations of such Person, (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends), (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such 11 asset at such date of determination and (B) the amount of such Indebtedness of such other Persons, (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person, and (ix) to the extent not otherwise included in this definition, Hedging obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "indemnified liabilities" shall have the meaning assigned thereto in Section 9.05(d). "Initial Maturity Date" shall have the meaning assigned thereto in Section 2.04. "Insolvency" means, with respect to a Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA. "Interest Payment Date" means the last day of each March, June, September and December, commencing on the first such day to occur after the Loan is made. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and Section 6.02, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is 12 designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Leased Properties" shall have the meaning assigned thereto in Section 3.10. "Lender" means the party named in this Agreement until one or more successors replace it, and thereafter means the successor or successors. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Liquidating Assets" shall have the meaning assigned thereto in the Liquidating Asset Management Agreement which definition shall be incorporated herein by this reference. "Liquidating Asset Management Agreement" means that certain Liquidating Asset Management Agreement dated the date hereof by and between the Company and Wexford Management Corp., a Delaware corporation and as provided for by the NRG Plan. "Loan" shall have the meaning set forth in Section 2.01. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other 13 fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds" means, with respect to any Newark Loan Refinancing, the cash proceeds thereof, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees and expenses actually incurred in connection therewith and net of taxes paid or payable as a result thereof. "Newark Loan Refinancing" shall mean Indebtedness that is incurred to enable the Company to repay, retire, or refinance the mortgage indebtedness of Newark Cogen. "Note" means the Note substantially in the form attached hereto as Exhibit A. "Notice Event" shall have the meaning assigned thereto in Section 5.08. "NRG Plan" has the meaning set forth in the recitals. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary or Clerk of the Company. "Officers" Certificate" means a certificate signed by two officers. "0pinion of counsel" means a written opinion from legal counsel who is acceptable to the Lender. The counsel may be an employee of or counsel to the Company or the Lender. 14 "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary, the Company or a Person which will, upon the making of such Investment, become a Restricted subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) any Investment pursuant to and in accordance with the terms of the Co-Investment Agreement. "Permitted Liens" means: (a) Liens for taxes, assessments or other governmental charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (b) carriers', warehousemen's, mechanics' landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations which are not yet due or which are bonded or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; 15 (c) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements (including reciprocal easement agreements), rights-of- way, building, zoning and similar restrictions, utility agreements, covenants, reservations, restrictions, encroachments, changes, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in the aggregate materially detract from the aggregate value of the properties of the Company and its Subsidiaries, taken as a whole or in the aggregate materially interfere with or adversely affect in any material respect the ordinary conduct of the business of the Company and its Subsidiaries on the properties subject thereto, taken as a whole; (f) Bankers' liens arising by operation of law; (g) Liens on documents of title and the property covered thereby securing Indebtedness in respect of any Commercial L/Cs; (h) (i) mortgages, liens, security interests, restrictions or encumbrances that have been placed by any developer, landlord or other third party on property over which the Company or any Subsidiary of the Company has easement rights or on any Leased Property and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (i) Liens on goods (and Proceeds thereof) held by the Company or any of its Subsidiaries to be sold on a consignment basis in the ordinary course of business; (j) leases or subleases to third parties; (k) Liens in connection with workmen's compensation obligations and general liability exposure of the Company and its Subsidiaries; and 16 (l) Liens securing Indebtedness Incurred under Section 6.01(b)(ii) or (iii). "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Plan" means at any particular time, any employee benefit plan as defined in Section 3(3) of ERISA and not , excluded by Section 4(b) of ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Preferred Stock" as applied to the Capital Stock of any corporation means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "principal" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances" and "refinanced" shall have a correlative meaning) any Indebtedness existing on the Closing Date or Incurred in compliance with this Agreement (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in this Agreement) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced; provided further, however, that Refinancing Indebtedness shall not 17 include (x) Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Register" shall have the meaning assigned thereto in Section 2.10(b). "Regulation U11 means Regulation U of the Board of Governors of the Federal Reserve System, as from time to time in effect. "Related Business" means those businesses in which the Company or any of its Subsidiaries is engaged on the date of this Agreement, or which are directly related thereto. "Reorganization" means with respect to a Multiemployer Plan, the condition that such Plan is in reorganization as such term is used in Section 4241 of ERISA. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA other than those events as to which the thirty day notice period is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. S 2615. "Requirement of Law" means, as to any Person, the Articles or Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, order, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property, or to which such Person or any of its property is subject. "Responsible Officer" means, with respect to any Person, the president, chief executive officer, the chief operating officer, the chief financial officer, treasurer, controller or any vice president of such Person. "Restricted Payment" shall have the meaning assigned thereto in Section 6.02(a). "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Single Employer Plan" means any Plan which is covered by Title IV of ERISA and which is not a Multiemployer Plan. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due 18 and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated obligation" means any Indebtedness of the company (whether outstanding on the Closing Date or thereafter Incurred) which is subordinate or junior in right of payment to the Note pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Successor Company" shall have the meaning assigned hereto in Section 7.01(i). "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $300,000,000 (or the foreign currency equivalent thereof), (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) or (ii) above entered into with a bank meeting the qualifications described in clause (ii) above, and (iv) investments in commercial paper, maturing not more than six months after the date of acquisition, issued by the Lender or the parent corporation of the Lender, and commercial paper with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-11" (or higher) according to Standard and Poor's Ratings Group. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed 19 by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Transferee" shall have the meaning set forth in Section 9.06(b). "Uniform Commercial Code" means the New York Uniform commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary of the company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total consolidated assets of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than $1,000, then such designation would be permitted under Section 6.02. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company's Consolidated Coverage Ratio would exceed 1.6:1.00 and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Lender by promptly filing with the Lender a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly owned Subsidiary. SECTION 1.02. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) as used herein and in the Note and any certificate or other document made or delivered pursuant 20 hereto, accounting terms relating to the Company and its Subsidiaries not defined in Section 1.01 and accounting terms partly defined in Section 1.01 to the extent not defined shall have the respective meanings given to them under GAAP. All computations determining compliance with financial covenants or terms, including definitions used therein, shall be prepared in accordance with generally accepted accounting principles in effect at the time of the preparation of, and in conformity with those used to prepare, the historical financial statements of the Company; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to secured Indebtedness merely by virtue of its nature as unsecured indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP and accretion of principal on such security shall be deemed to be the Incurrence of Indebtedness; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; (9) unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Note or any certificate or other document made or delivered pursuant hereto; (10) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, Section, schedule and exhibit references are to this Agreement unless otherwise specified; and (11) as used in this Agreement, references to a fiscal year of the Company identified only by a year 21 refer to the fiscal year of the Company ended on the Fiscal Date at the end of the fourth fiscal quarter of the company which falls in the immediately succeeding calendar year. References to the last day of any fiscal year or fiscal quarter of the Company, or to a fiscal year or quarter ended on a certain date, shall be deemed to refer to the Fiscal Date at the end of such fiscal year or quarter. ARTICLE 2 Loan SECTION 2.01. Loan. Subject to the terms and conditions hereof, the Lender agrees to make a loan in Dollars (the "Loan") to the Company on the Closing Date, in an aggregate principal amount of [twenty-four million dollars ($24,000,000)]. SECTION 2.02. Use of Proceeds. The proceeds of the Loan shall be used for the purposes set forth in the NRG Plan and shall be applied in accordance with the NRG Plan. SECTION 2.03. Borrowing. The Company shall borrow the entire amount of the Loan on the Closing Date. SECTION 2.04. Maturity: Refinancing. (a) The Loan will mature on the date that is twelve (12) years following the Closing Date (the "Maturity Date"). (b) The Company hereby covenants and agrees to use its reasonable best efforts to obtain Newark Loan Refinancing the Net Cash Proceeds of which will enable and permit the Company to repay the Loan in its entirety, including principal and interest thereon. SECTION 2.05. Optional and Mandatory Prepayments; Principal Amortization. (a) The Company may at any time and from time to time prepay the Loan, in whole or in part, without premium or penalty, upon at least five days irrevocable notice to the Lender. If such notice is given, the Company shall make such prepayment, and the payment amount specified in such notice shall be due and payable, on the date specified therein. Partial prepayments of the Loan shall be in an aggregate principal amount equal to the lesser of (A) $2,000,000, or a whole multiple of $1,000,000 in excess thereof and (B) the aggregate unpaid principal amount of the Loan. 22 (b) (i) If, subsequent to the Closing Date, there shall be obtained a Newark Loan Refinancing, 100% of the Net Cash Proceeds thereof, after paying in full the mortgage debt of Newark Cogen being refinanced, shall be promptly applied toward the payment of the Loan. (ii) The Company shall give the Lender at least one Business Day's notice of each prepayment or mandatory reduction pursuant to this Section 2.05(b) setting forth the date and amount thereof. (c) Accrued interest on the amount of any prepayments shall be paid on the date of such prepayment. (d) The principal amount of the loan shall be repaid in semi- annual installments of [$800,000] on every other Interest Payment Date, commencing with the second Interest Payment Date after the Closing Date. SECTION 2.06. Interest Rate and Payment Dates. (a) The Loan shall bear interest for the period from and including the date the Loan is made to, but excluding, the maturity date thereof an the unpaid principal thereof at a rate per annum equal to the Base Rate. (b) If all or a portion of (i) the principal amount of the Loan or (ii) any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise) the Loan, and any such overdue amount shall, without limiting the rights of the Lender under Section 8, bear interest at a rate per annum which is 2.00% above the Base Rate from the date of such non-payment until paid in full (as well after as before judgment). (c) Interest shall be payable in arrears on each Interest Payment Date. SECTION 2.07. Computation of Interest. Interest in respect of the Loan, shall be calculated on the basis of a 365 (or 366 as the case may be) day year for the actual days elapsed. SECTION 2.08. Treatment of Payments. (a) Whenever any payment received by the Lender under this Agreement or the Note is insufficient to pay in full all amounts then due and payable to the Lender under this Agreement or the Note such payment shall be applied by the Lender in the following order: First, to the payment of fees and expenses, if any, due and payable to the Lender under and 23 in connection with this Agreement and the Note including the payment of all expenses due and payable under Section 9.05; Second, to the payment of interest then due and payable on the Loan; and Third, to the payment of the principal amount of the Loan which is then due and payable; or (b) All payments (including prepayments) to be made by the Company on account of principal, interest and fees shall be made without set-off or counterclaim and shall be made to the Lender, for the account of the Lender at the office of the Lender located at 1221 Nicollet Mall, Suite 700, Minneapolis, MN 55403 in lawful money of the United States of America and in immediately available funds. If any payment hereunder would become due and payable on a day other than a Business Day, such payment shall become due and payable on the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. SECTION 2.9. Indemnity. The Company agrees to indemnify the Lender and to hold the Lender harmless from any loss or expense (but without duplication of any amounts payable as default interest) which the Lender may sustain or incur as a consequence of default by the Company in making any prepayment after the Company has given a notice in accordance with Section 2.05. This covenant shall survive termination of this Agreement and repayment of the Loan. SECTION 2.10. Repayment of the Loan: Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Lender the then unpaid principal amount of the Loan in accordance with the terms hereof and the Note. The Company hereby further agrees to pay interest on the unpaid principal amount of the Loan from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.06. (b) The Lender shall maintain a Register (the "Register") in which shall be recorded (i) the amount of the Loan made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to the Lender hereunder and (iii) the amount of any sum received by the Lender hereunder from the Company. (c) The entries made in the Register to the extent permitted by applicable law, shall be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of the Lender to maintain the Register, or any error therein, shall not in any manner affect the obligation of the Company to 24 repay (with applicable interest) the Loan made to the Company by the Lender in accordance with the terms of this Agreement. (d) The Company agrees that, upon the request of the Lender, the Company will execute and deliver to the Lender the Note evidencing the Loan, with appropriate insertions as to date and principal amount. ARTICLE 3 Representations and Warranties In order to induce the Lender to enter into this Agreement and to make the Loan, the Company hereby represents and warrants to the Lender, as follows (all representations and warranties are made with respect to the Closing Date and with respect to the entire period following the Closing Date during which any amounts are due and owing from the Company to the Lender hereunder, as if made at any time during such period): SECTION 3.01. No Change. There has been no change, and no development or event involving a prospective change, which has had or could reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of, the Company and its Subsidiaries taken as a whole. SECTION 3.02. Corporate Existence; Compliance with Law. Except for those exceptions to the following which the Lender has actual knowledge of on the Closing Date, each of the Company and its Subsidiaries (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation, (b) has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to use its corporate name and to own, lease or otherwise hold its properties and assets and to carry on its business as presently conducted other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, (c) is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership, leasing or holding of its properties makes such qualification necessary, except such jurisdictions where the failure so to qualify would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, 25 taken as a whole, and (d) is in compliance with all applicable statutes, laws, ordinances, rules, orders, permits and regulations of any Governmental Authority (including those related to Hazardous Materials and substances), except where noncompliance would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Neither the Company nor any of its Subsidiaries has received any written communication from a Governmental Authority that alleges that the Company or any of its Subsidiaries is not in compliance, in all material respects, with all material federal, state, local or foreign laws, ordinances, rules and regulations. SECTION 3.03. Corporate Power; Authorization. Each of the Company and its Subsidiaries has the corporate power and authority to make, deliver and perform each of the Credit Documents to which it is a party, and the Company has the corporate power and authority and legal right to borrow hereunder. Each of the Company and its Subsidiaries has taken all necessary corporate action to authorize the execution, delivery and performance of each of the Credit Documents to which it is or will be a party and the Company has taken all necessary corporate action to authorize the borrowings hereunder. No consent or authorization of, or filing with, any Person (including any Governmental Authority) is required in connection with the execution, delivery or performance by the Company or any of the Company's Subsidiaries, or for the validity or enforceability against the Company or any of the Company's Subsidiaries, of any Credit Document except for consents, authorizations and filings (a) which have been obtained or made and are in full force and effect, and except such consents, authorizations and filings, the failure to obtain or perform (i) which would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole and (ii) which would not adversely affect the validity or enforceability of any of the Credit Documents or the rights or remedies of the Lender thereunder. SECTION 3.04. Enforceable Obligations. This Agreement, and each of the other Credit Documents has been, duly executed and delivered on behalf of the Company. This Agreement and each of the other Credit Documents constitutes the legal, valid and binding obligation of the Company, and is enforceable against the Company in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 26 SECTION 3.05. No Legal Bar. The execution, delivery and performance of each Credit Document and the incurrence or issuance of and use of the proceeds of the Loan do not violate any Requirement of Law or any Contractual obligation applicable to or binding upon the Company or any Subsidiary of the Company or any of their respective properties or assets, in any manner which, individually or in the aggregate, (i) would have a material adverse effect on the ability of the Company or any such Subsidiary to perform its obligations under the Credit Documents to which it is a party, (ii) would give rise to any liability on the part of the Lender, or (iii) would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, and do not result in the creation or imposition of any Lien on any of its properties or assets pursuant to any Requirement of Law applicable to it, as the case may be, or any of its Contractual Obligations, except for Permitted Liens. SECTION 3.06. No Material Litigation. No litigation by, investigation known to the company by, or proceeding of, any Governmental Authority is pending against the Company or any of its Subsidiaries with respect to the validity, binding effect or enforceability of any Credit Document, the Loan made hereunder or the use of proceeds thereof. No lawsuits, claims, proceedings or investigations pending or, to the best knowledge of the Company, threatened against or affecting the Company or a subsidiary of the Company or any of their respective properties, assets, operations or businesses, in which there is a probability of an adverse determination that is reasonably likely, if adversely decided, to have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. SECTION 3.07. Investment Company Act. Neither the company nor any Subsidiary of the Company is an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). SECTION 3.08. Federal Regulation. No part of the proceeds of the Loan are being or are to be used for any purpose which violates the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. Neither the Company nor any of its Subsidiaries is engaged or will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" 27 within the respective meanings of each of the quoted terms under said Regulation U. SECTION 3.09. No Default. The Company and each of its Subsidiaries have performed all material obligations required to be performed by them under their respective Contractual obligations on and after the Closing Date and they are not (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, except to the extent that such breach or default would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries is in default under any material judgment, order or decree of any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, applicable to it or any of its respective properties, assets, operations or business, except to the extent that any such defaults would not, in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. SECTION 3.10. Ownership of Property: Liens. Each of the Company and its Subsidiaries has good and valid title to all of its material tangible and intangible personal property, in each case free and clear of all mortgages, liens, security interests or encumbrances of any nature whatsoever except Permitted Liens. With respect to real property or interests in real property, as of the Closing Date, each of the Company and its Subsidiaries has (i) fee title to all of the real property listed on Schedule 3.10 (each, a "Fee Property"), and (ii) good and valid title to the leasehold estates in all of the real property leased by it and listed on Schedule 3.10 under the heading "Leased Properties" (each, a "Leased Property"), in each case free and clear of all mortgages, liens, security interests, easements, covenants, rights-of-way and other similar restrictions of any nature whatsoever, except (A) Permitted Liens, (B) any conditions that may be shown by a current, accurate survey or physical inspection of any Fee Property or Leased Property, (C) as to Leased Property, the terms and provisions of the respective lease therefor and any matters affecting the fee title and any estate superior to the leasehold estate related thereto, and (D) title defects, or leases or subleases granted to others, which are not material to the Fee Properties or the Leased Properties, as the case may be, taken as a whole. The Fee Properties and the Leased Properties (collectively the "Real Properties") constitute, as of the Closing Date, all of the real property owned in fee or leased by the Company and its subsidiaries. 28 SECTION 3.11. ERISA. None of the Company, any Subsidiary of the Company or any Commonly Controlled Entity would be liable for any amount pursuant to Section 4062, 4063, 4064 or 4069 of ERISA, if any Single Employer Plan were to terminate. Neither the Company nor any Commonly Controlled Entity has been involved in any transaction that would cause the Company to be subject to liability with respect to a Plan to which the Company or any Commonly Controlled Entity contributed or was obligated to contribute during the six-year period ending on the date this representation is made or deemed made under Section 4062, 4069 or 4212(c) of ERISA. Neither the Company nor any Commonly Controlled Entity has incurred any material liability under Title IV of ERISA which could become or remain a liability of the Company after the Closing Date. None of the Company, any Subsidiary of the Company, or any director, officer or employee thereof, or any of the Plans (to the best knowledge of the Company with respect to any Multiemployer Plan), or any trust created thereunder, or any fiduciary thereof, has engaged in a transaction or taken any other action or omitted to take any action involving any Plan which could constitute a prohibited transaction within the meaning of Section 406 of ERISA which is not otherwise exempted, or would cause it to be subject to either a material liability or civil penalty assessed pursuant to Section 409 or 502 of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code. Each of the Plans (to the best knowledge of the Company with respect to any Multiemployer Plan) has been operated and administered in all material respects in accordance with applicable laws, including but not limited to ERISA and the Code. There are no material pending or, to the best knowledge of the Company, threatened claims by or on behalf of any of the Plans or any fiduciary, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan or fiduciary (other than routine claims for benefits). No condition exists and no event has occurred with respect to any Multiemployer Plan which presents a material risk of a complete or partial withdrawal under Subtitle E of Title IV of ERISA, nor has the Company or any Commonly Controlled Entity been notified that any such Multiemployer Plan is insolvent or in reorganization within the meaning of Section 4241 of ERISA. Neither the Company nor any Commonly Controlled Entity nor any Subsidiary has been a party to any transaction or agreement to which the provisions of Section 4204 of ERISA were applicable. Neither the Company nor any Commonly Controlled Entity nor any subsidiary is obligated to contribute to a Multiemployer Plan, on behalf of any current or former employee of the Company, any Commonly Controlled Entity or any Subsidiary. None of the Plans or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each of the 29 Plans. No contribution failure has occurred with respect to any Plan sufficient to give rise to a lien under Section 302(f) of ERISA. SECTION 3.12. Copyrights, Patents, Trademarks and Licenses. The Company or a Subsidiary of the Company owns or has the right to use, without payment to any other party, all material patents, patent applications, trademarks (registered or unregistered), trade names, service marks and copyrights owned, used or filed by or licensed to the Company and its Subsidiaries. To the best knowledge of the Company, no claims are pending by any Person with respect to the ownership, validity, enforceability or the Company's or any Subsidiary's use of any such patents, patent applications, trademarks (registered or unregistered), trade names, service marks, copyrights challenging or questioning the validity or effectiveness of any of the foregoing, in any jurisdiction, domestic or foreign. SECTION 3.13. Environmental Matters. (a) To the best knowledge of the Company, the Real Properties do not contain in, on or under including the soil and groundwater thereunder, any Hazardous Materials in amounts or concentrations that constitute or constituted a material violation of, or could reasonably give rise to material liability under, Environmental Laws. (b) To the best knowledge of the Company, the Real Properties and all operations and facilities at the Real Properties are in material compliance with all Environmental Laws, and there is no contamination or violation of any Environmental Law which could materially interfere with the continued operation of, or materially impair the fair salable value of, the Real Properties. (c) To the best knowledge of the Company, neither the Company nor any of its Subsidiaries has received or is aware of any complaint, notice of violation, alleged violation, or notice of investigation or of potential liability under Environmental Laws with regard to the Real Properties or the operations of the Company or its subsidiaries, nor does the Company or any of its Subsidiaries have knowledge that any such action is being contemplated, considered or threatened. (d) To the best knowledge of the Company, Hazardous Materials have not been generated, treated, stored, disposed of, at, on or under the Real Properties, nor have any Hazardous Materials been transported from the Real Properties, in material violation of or in a manner that could reasonably give rise to liability under any Environmental Laws. 30 (e) There are no governmental administrative actions or judicial proceedings pending or, to the knowledge of the Company and its Subsidiaries, threatened, under any Environmental Law to which the Company or any of its Subsidiaries is a party with respect to the Real Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements, other than permits authorizing operations at facilities at the Real Properties, outstanding under any Environmental Law with respect to the Real Properties. ARTICLE 4 Conditions Precedent SECTION 4.01. Conditions to Loans. The obligation of the Lender to make the Loan on the Closing Date is subject to the satisfaction, or waiver by the Lender, immediately prior to or concurrently with the making of the Loan, of the following conditions: (a) Note. The Lender shall have received the Note conforming to the requirements hereof and executed by a duly authorized officer of the Company. (b) Consummation of Acquisition and NRG Plan. The Acquisition shall have been consummated at the Closing (as defined in the Acquisition Agreement) and concurrently therewith the KRG Plan shall have been consisted on the Effective Date (as defined in the NRG Plan). ARTICLE 5 Affirmative Covenants The Company hereby agrees that, so long as the Loan remains outstanding and unpaid, or any other amount is owing to the Lender hereunder or under any of the other Credit Documents, it shall, and, in the case of the agreements contained in Sections 5.04 through 5.07 and 5.09, the Company shall cause each of its Subsidiaries to: SECTION 5.01. Financial Statements. Furnish to the Lender: (a) as soon as available after the end of each fiscal year of the Company, but in any event within 10 days of filing them with the Securities and Exchange commission, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated 31 statements of stockholders, equity and cash flows and the consolidated statements of income of the Company and its Subsidiaries for such fiscal year, setting forth in each case (other than for the financial statements delivered with respect to the first fiscal year of the Company ended following the Closing Date) in comparative form the figures for the previous year, reported on by independent certified public accountants of nationally recognized standing; and (b) as soon as available after the end of each of the first three quarterly periods of each fiscal year of the Company, but in any event within 10 days of filing them with the Securities and Exchange Commission, the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of each such quarter and the related unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and the portion of the fiscal year of the Company through such date, setting forth in each case (other than for the financial statements delivered with respect to fiscal quarters occurring during the first fiscal year of the Company ended following the Closing Date) in comparative form the figures for the corresponding quarter in, and year to date portion of, the previous year; together with a comparison showing the figures for such periods in the budget prepared by the Company and furnished to the Lender, certified by the chief financial officer, controller or treasurer of the Company as being fairly stated in all material respects. SECTION 5.02. Certificates; Other Information. Furnish to the Lender: (a) concurrently with the delivery of the consolidated financial statements referred to in Section 5.01(a), so long as not contrary to the then current recommendations of the American Institute of Certified Accountants, a letter from the independent certified public accountants reporting on such financial statements stating that in making the examination necessary to express their opinion on such financial statements, nothing has come to their attention which would lead them to believe that there exists any Default or Event of Default under Sections 6.01 and 6.02, except as specified in such letter; (b) within 15 days of the delivery of the financial statements referred to in Sections 5.01(a) and (b) (except that the certificate referred to in clause (i) below shall be delivered concurrently with such financial statements), a certificate of the chief 32 financial officer of the Company (i) stating that, to the best of such officer's knowledge, each of the Company and its respective Subsidiaries has observed or performed all of its covenants and other agreements, and satisfied every material condition, contained in this Agreement and the other Credit Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, (ii) showing in detail as of the end of the related fiscal period the figures and calculations supporting such statement in respect of Sections 6.02 and 6.05 and (iii) if not specified in the financial statements delivered pursuant to Section 5.01, specifying the aggregate amount of interest paid or accrued by the Company and its Subsidiaries, and the aggregate amount of depreciation, depletion and amortization charged on the books of the Company and its Subsidiaries, during such accounting period; and (c) promptly, such additional financial and other information as the Lender may from time to time reasonably request. SECTION 5.03. SEC Reports. The Company shall furnish to the Lender, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available to the public generally by the Company or any of its Subsidiaries, if any, and all regular and periodic reports and all final registration statements and final prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any Governmental Authority succeeding to any of its functions. SECTION 5.04. Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations and liabilities of whatever nature, except (a) when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or any of its Subsidiaries, as the case may be, (b) for delinquent obligations which do not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole and (c) for trade and other accounts payable in the ordinary course of business which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of the Company or any of its Subsidiaries, as the case may be. 33 SECTION 5.05. Conduct of Business and Maintenance of Existence. Except as otherwise contemplated or permitted by the Co-Investment Agreement or the Liquidating Asset Management Agreement, continue to engage in business of the same general type as now conducted by it, and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all material rights, material privileges, franchises, patents, patent applications, copyrights, trademarks and trade names, necessary or desirable in the normal conduct of its business except for rights, privileges, franchises, patents, patent applications, copyrights, trademarks and tradenames the loss of which would not in the aggregate have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, and comply with all applicable Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. SECTION 5.06. Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition (ordinary wear and tear excepted); and (b) Maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and with only such deductibles as are usually maintained by, and against at least such risks (but including, in any event, public liability insurance) as are usually insured against in the same general area, by companies engaged in the same or a similar business and furnish to the Lender, upon written request of the Lender, full information as to the insurance carried; Provided that the Company may implement programs of self-insurance in the ordinary course of business and in accordance with industry standards for a company of similar size so long as reserves are maintained in accordance with GAAP for the liabilities associated therewith. SECTION 5.07. Inspection of Property: Books and Records; Discussions. Keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities which permit financial statements to be prepared in conformity with GAAP and all Requirements of Law; and permit representatives of the Lender upon reasonable notice (but no more frequently than monthly), to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may 34 reasonably be requested upon reasonable notice, and to discuss the business, operations, assets and financial and other condition of the Company and its Subsidiaries with officers and employees thereof and with their independent certified public accountants. SECTION 5.08. Notices. Subject to the last sentence of this section promptly give notice to the Lender of any of the following (a "Notice Event"): (a) of the occurrence of any Default or Event of Default; (b) of any (i) default or event of default under any instrument or other agreement, guarantee or collateral document of the Company or any of its Subsidiaries which default or event of default has not been waived and would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole, or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, or receipt of any notice of any environmental claim or assessment against the company or any of its Subsidiaries by any Governmental Authority which in any such case would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole; (c) of any litigation or proceeding against the company or any of its Subsidiaries (i) in which more than $500,000 of the amount claimed is not covered by insurance or (ii) in which injunctive or similar relief is sought which if obtained would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole; (d) of the following events, as soon as practicable after, and in any event within 30 days after, the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan which Reportable Event could reasonably result in material liability to the Company and its Subsidiaries taken as a whole, or (ii) the institution of proceedings or the taking of any other action by PBGC, the Company or any Commonly Controlled Entity to terminate, withdraw or partially withdraw from any Plan and, with respect to a Multiemployer Plan, the Reorganization or Insolvency of the Plan, in each of the foregoing cases which could 35 reasonably result in material liability to the Company and its Subsidiaries taken as a whole, and in addition to such notice, deliver to the Lender whichever of the following may be applicable: (A) a certificate of a Responsible officer of the Company setting forth details as to such Reportable Event and the action that the Company or such Commonly Controlled Entity proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or (B) any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be; and (e) of a material adverse change known to the Company or its Subsidiaries in the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole. Each notice pursuant to this Section 5.08 shall be accompanied by a statement of a Responsible officer setting forth details of the occurrence referred to therein and (in the cases of clauses (a) through (d)) stating what action the Company proposes to take with respect thereto. The company shall not be deemed in breach or default of its obligations under this Section 5.08 due to the failure to notify the Lender of any Notice Event of which the Lender shall have had actual knowledge as of the date notice of such Notice Event was to have been provided. SECTION 5.09. Environmental Laws. (a) Comply with, and use all reasonable efforts to insure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and require that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except to the extent that failure to do so would not have any reasonable likelihood of having a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole or on the validity or enforceability of any of the Credit Documents or the rights and remedies of the Lender thereunder; (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions, required under applicable Environmental Laws, and promptly comply with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, 36 except to the extent that the same are being contested in good faith by appropriate proceedings; and (c) In regard to this Agreement or in any way relating to the Company or its Subsidiaries or their current or former operations, defend, indemnify and hold harmless the Lender, and its respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to Hazardous Material or Environmental Laws, including any orders, requirements or demands of Governmental Authorities related thereto, including reasonable attorney's and consultant's fees, investigation and laboratory fees, remediation costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this Section 5.09(c) shall survive repayment of the Loan and all other amounts payable hereunder. SECTION 5.10. Further Instruments and Acts. Upon request of the Lender, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Agreement. SECTION 5.11 Taxes. Each of the Company and its Subsidiaries will file or cause to be filed all material tax returns which, to the knowledge of the Company, are required to be filed and will pay all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any amount of which is currently being contested in good faith by appropriate proceeds and with respect to which reserves (or other sufficient provisions) in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be). ARTICLE 6 Negative Covenants So long as the Loan remains outstanding and unpaid, or any other amount is owing to the Lender hereunder or under any other Credit Document (it being understood that each of the permitted exceptions to each of the covenants in this Article 6 is in addition to, and not overlapping with, any other of such permitted exceptions except to the extent expressly provided): 37 SECTION 6.01. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that on or after the first anniversary of the Closing Date the Company may Incur Indebtedness if on the date thereof the Consolidated Coverage Ratio would be greater than 1.6:1.0. (b) Notwithstanding Section 6.01(a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness (A) of the Company to any Subsidiary, and (B) of any Subsidiary to the Company or any other Subsidiary; (ii) Indebtedness represented by (w) the Loan, (x) any Indebtedness outstanding or to be issued or incurring pursuant to the NRG Plan, (y) any Co-Investment Indebtedness and (z) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (ii) or Section 6.01(a); (iii) Indebtedness of the Company or any of its Subsidiariestn an aggregate principal amount at any one time outstanding (excluding any Indebtedness permitted to be incurred under clause (ii) or (iii) of this Section 6.01(b)) not in excess of $5,000,000; (iv) Indebtedness in connection with workmen's compensation obligations and related general liability exposure of the Company and its Subsidiaries; and (v) Capitalized Lease Obligations in respect of (A) sale/leaseback transactions of property owned by the Company on the Closing Date, and (B) fixtures and equipment and other personal property acquired after the Closing Date. (c) The Company shall not Incur any Indebtedness pursuant to Section 6.01(b) if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Loan to at least the same extent as such Subordinated obligations. SECTION 6.02. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with 38 any merger or consolidation involving the Company) except dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and except dividends or distributions payable to the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary is not wholly owned, to its other shareholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Restricted Subsidiary held by Persons other than the Company or another Restricted Subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (Or would result therefrom); (2) the Consolidated Coverage Ratio of the Company would be less than 1.6:1.0; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to the Closing Date would exceed the sum of: (A) 25% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fourth fiscal quarter in 1995, to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); and (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Closing Date (other than an issuance or sale to a subsidiary of the Company or an employee stock 39 ownership plan or other trust established by the Company or any of its Subsidiaries). (b) The provisions of Section 6.02(a) shall not prohibit: (i) any purchase or redemption of Capital Stock of the Company or Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); provided, however, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clause (3)(B) of Section 6.02(a); (ii) any purchase or redemption of Subordinated obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 6.01; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iii) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by Section 6.04; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iv) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with Section 6.02(a); provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; or (v) so long as the entire principal and accrued interest on the Loan shall not have been accelerated and become due and payable pursuant to Section 8.02 or so long as such acceleration shall have been rescinded, the payment of dividends upon or the redemption of the Company's Class A Preferred Stock in accordance with the terms of such stock. SECTION 6.03. Limitation on Restrictions on Distributions from Subsidiaries. The company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any 40 consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company, (ii) make any Loan or advances to the Company or (iii) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the closing Date; (2) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) of this Section or this clause (2) or contained in any amendment to an agreement referred to in clause (1) of this Section or this clause (2); provided, however, that the encumbrances and restrictions contained in any such refinancing agreement or amendment are no less favorable to the Lender than encumbrances and restrictions contained in such agreements; (3) in the case of clause (iii), any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract or (B) contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such security agreements; and (4) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition. SECTION 6.04. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition, (ii) at least 80% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such 41 Restricted Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any Senior Indebtedness or Indebtedness of a Wholly owned Subsidiary), to prepay, repay or purchase such Indebtedness of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 6 months after the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary) within 6 months from the later of such Asset Disposition or the receipt of such Net Available Cash; and (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to repay the Loan, provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this Section, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this Section exceed $500,000. For the purposes of this Section, the following are deemed to be cash: (x) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. SECTION 6.05. Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") on terms (i) that are less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such 42 transaction in arm's-length dealings with a Person who is not such an Affiliate and (ii) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $500,000, are not in writing and have not been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction. (b) The provisions of Section 6.05(a) shall not prohibit (i) any Restricted Payment permitted to be paid pursuant to Section 6.02, (ii) the performance of the Company's or Subsidiary's obligations under any employment contract, collective bargaining agreement, employee benefit plan, related trust agreement or any other similar arrangement heretofore or hereafter entered into in the ordinary course of business, (iii) payment of compensation to employees, officers, directors or consultants in the ordinary course of business, (iv) maintenance in the ordinary course of business of benefit programs or arrangements for employees, officers or directors, including vacation plans, health and life insurance plans, deferred compensation plans, and retirement or savings plans and similar plans or (v) any transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries (v) any transaction between the Lender and the Company and (vi) any transaction pursuant to and in accordance with the Liquidating Asset Management Agreement. SECTION 6.06. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien an any of its property or assets (including Capital Stock), whether owned on the date of this Agreement or thereafter acquired, securing any obligation other than Permitted Liens. SECTION 6.07. Limitation on Lines of Business. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business, other than (i) those businesses in which the Company or such Restricted subsidiary is engaged on the date of this Agreement (or which are directly related thereto or (ii) those businesses in which the Company or any of its Subsidiaries may engage in connection with any Investment made pursuant to and in accordance with the terms of the Co-Investment Agreement. SECTION 6.08. When the Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a corporation organized and existing under the laws of the United States of America, any State thereof or the District of 43 Columbia and the Successor Company (if not the Company) shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Lender, in form satisfactory to the Lender, all the obligations of the Company under the Note and this Agreement; (ii) immediately after giving affect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii)immediately after giving effect to such transaction, the Consolidated Coverage Ratio of the Successor Company would be greater than 1.6:1.0; (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) the Company shall have delivered to the Lender an Officers' Certificate and an opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Agreement. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement, but the predecessor Company in the case of a lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Note. Notwithstanding, the foregoing clauses (ii), (iii) and (iv), (1) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (2) the Company may merge with an Affiliate incorporated for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. ARTICLE 7 Security Interest SECTION 7.01. Assignment and Grant of Security. To secure the prompt and unconditional payment, performance and discharge, when due, of all of the Company's obligations under 44 this Agreement and the Note (collectively, the "Secured Obligations"), the Company hereby assigns, pledges, conveys, sets over, delivers and transfers to the Lender and grants a security interest to the Lender in and to all of the Company's right, title and interest in and to each and all of the following: (a) any and all payments received or receivable by the company from Newark Cogen, including without limitation any and all such payments made pursuant to any management agreement between O'Brien and Newark Cogen and all dividends or other distributions, but excluding any dividends or distributions that are subject to any prior security interest granted to any holder of Indebtedness secured by a mortgage on the Newark Project (the "Designated Payments"); and (b) all Proceeds of any Designated Payments (the Designated Payments, together with the Proceeds thereof, are referred to as the "Collateral"). As used herein, the terms "Proceeds" shall refer to and include (i) whatever is now or hereafter received by the Company upon the sale, exchange, collection or other disposition of any of the Collateral, whether such Proceeds constitute accounts, accounts receivable, general intangibles, instruments, securities, credits, documents', deposit accounts, money, or contract rights; (ii) personal property of any type or nature whatsoever which is now or hereafter acquired by the Company with any Proceeds of the Collateral; and (iii) any insurance now or hereafter payable by reason of any loss, damage or destruction to or of any or all of the Collateral. SECTION 7.02 Covenants In Respect Of Collateral. (a) The Company shall not voluntarily, involuntarily or by operation of law, sell, assign, hypothecate, pledge, encumber, grant any other security interest or lien in, dispose of or otherwise transfer the Collateral, or any portion thereof or any interest therein, or permit any of the foregoing to occur and shall not otherwise do, suffer or permit anything to be done or occur that may impair the Collateral as security hereunder or the liens and security interests therein created hereunder in favor of the Lender. (b) The Company shall do all such other acts and things as may be necessary or appropriate or which the Lender may from time to time reasonably request as necessary in the opinion of the Lender to establish and maintain a first priority perfected security interest in the Collateral, including, without limitation, the Proceeds, subject to no other liens, security interests or encumbrances; and the Company shall pay the cost of all filings or recordings of 45 this Agreement or any other document or instrument in all public offices whenever it is reasonably deemed by the Lender to be necessary or desirable. The Company hereby irrevocably constitutes and appoints the Lender the attorney-in-fact of the Company to execute, deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements, continuation statements, notices to the institutions or other entities with which the Collateral or any portion thereof is maintained or such other documents or instruments as the Lender may request or require in order to confirm, impose, perfect or continue the perfection of the liens and security interests created hereby. The foregoing power-of-attorney is coupled with an interest and shall survive any dissolution, bankruptcy, or insolvency of the Company as an entity. (c) The Company shall provide to the Lender any information which the Lender may at any time and from time to time hereafter require, in its sole and absolute discretion, pertaining to the Collateral. The Company shall promptly notify the Lender of any change of the Company's place of business, chief executive office or mailing address. (d) The Company shall not make any assignment, conveyance, transfer or agreement in conflict herewith or constituting an assignment, conveyance, transfer or encumbrance on any Designated Payment. ARTICLE 8 1. Defaults and Remedies SECTION 8.01. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest or any other amount (other than those specified in (2) below) with respect to the Loan when the same becomes due and payable and such default continues for a period of 10 (or, from and after the Initial Maturity Date, 30) days; (2) the Company (i) defaults in the payment of the principal of the Loan when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration or otherwise or (ii) fails to redeem or purchase the Note when required pursuant to this Agreement or the Note; (3) at any time during which the Lender shall own less than 26% of the outstanding common stock of the Company, or, persons designated by the Lender or which 46 the Lender shall have the right to appoint shall constitute less than a one- half of the Board of Directors: (i) any representation or warranty made or deemed made by the company in any Credit Document shall prove to have been incorrect in any material respect on or as of the date, or at any time during the period, that such representation or warranty is made or deemed made; (ii) the facts or circumstances giving rise to such incorrect representation or warranty would have a material adverse effect on the Company's ability to pay the amounts outstanding under the Loan (including principal and interest) as they become due and payable; and (iii) both of the conditions in preceding subclauses (i) and (ii) continue for 30 days after the notice specified below; (4) the Company fails to comply with Section 6.08 at any time during which the Lender shall own less than 26% of the outstanding common stock of the Company, or persons designated by the Lender or, which the Lender shall have the right to appoint, shall constitute less than a one- half of the Board of Directors; (5) the Company shall default in the observance or performance of any agreement contained in Section 5.08(a) or Article 6 of this Agreement; (6) the Company fails to comply with any of its agreements in the Credit Documents (other than those referred to in (1) through (5) above) and such failure continues for 30 days after the notice specified below; provided that, in the case of Sections 5.04, 5.05 and 5.11, the Lender shall then own less than 26% of the outstanding common stock of the Company, or persons designated by the Lender or which the Lender shall have the right to appoint shall constitute less than a one-half of the Board of Directors; (7) Indebtedness of the Company or any subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $2,000,000 or its foreign currency equivalent at the time; (8) the company or any Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; 47 (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (10) any judgment or decree for the payment of money in excess of $2,000,000 or its foreign currency equivalent at the time is entered against the Company or any Subsidiary and is not discharged and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; (11) (i) any Person shall engage in any "prohibited transaction" (as defined in Section 4.06 of ERISA or Section 4975 of the Code) involving any Plan which is not otherwise exempted, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Lender, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the 48 Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Lender is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions relating to a Plan, if any, would be reasonably likely to subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, assets, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries taken as a whole; or (12) any Credit Document shall cease, for any reason, to be in full force and effect or the Company or any of its subsidiaries shall so assert in writing. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clauses (3) and (6) is not an Event of Default until the Lender notifies the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". SECTION 8.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 8.01(8) or (9) with respect to the Company) occurs and is continuing, the Lender by notice to the Company may declare the principal of and accrued interest on the Loan to be due and payable. upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 8.01(8) or (9) with respect to the Company (but not any Subsidiary) occurs, the principal of and interest on the Loan Note shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Lender. The Lender by notice to the Company may rescind an acceleration and its consequences. No such rescission 49 shall affect any subsequent Default or impair any right consequent thereto. SECTION 8.03. Default and Remedies. (a) If an Event of Default occurs and is continuing, the Lender shall have all of the remedies of a secured party under the Uniform Commercial Code, including, without limitation, the right, to notify the account debtors from which the Designated Payments are owing to pay directly to the Lender the amount owing from such account debtors to the Company in respect of the respective Designated Receivable. In addition to and not in derogation of any or all of the rights and remedies granted hereunder to the Lender or otherwise available to the Lender under applicable law, following such an Event of Default, the Lender shall have the further right and power, at its sole option, to sell, or otherwise dispose of, the Collateral (other than Collateral consisting of cash), or any part thereof, at any one or more public or private sales as permitted by applicable law, and for that purpose the Lender may take immediate and exclusive possession of such Collateral, or any part thereof, to the extent capable of possession. (b) To the fullest extent permitted by law, the Company irrevocably and expressly waives any right to receive any notice of sale or notice of any other disposition of all or any part of the Collateral that does not consist of cash, except that to the extent the Company may be entitled by applicable law to any notice of sale or other disposition of such Collateral, the Company agrees that if such notice is mailed, postage prepaid, to the Company at the Company's address hereinafter specified not less than five (5) days before the time of the sale or other disposition contemplated therein, such notice shall conclusively be deemed commercially reasonable and shall fully satisfy any requirement for giving of said notice. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) The proceeds realized upon any such disposition, after deduction for the expenses of retaking, holding, preparing for sale, selling or the like and reasonable attorneys' fees, legal expenses and costs incurred by the Lender, shall be applied in accordance with Section 5.06. (d) The remedies of the Lender hereunder are cumulative and the exercise of any one or more of the remedies 50 provided for herein, or under the Uniform Commercial Code, shall not be construed as a waiver of any other rights or remedies of the Lender so long as any part of the Secured obligations remains unsatisfied or unperformed. The making of this Agreement shall not waive or impair any other security the Lender may have or hereafter acquire for the payment or performance of the Secured Obligations, nor shall the making of any such additional security waive or impair this Agreement; but the Lender may resort to any security it may have in the order it may deem proper. SECTION 8.04. Other Remedies. If an Event of Default occurs and is continuing, the Lender may pursue any available remedy to collect the payment of principal of or interest on the Note or to enforce the performance of any provision of the Note or this Agreement. The Lender may maintain a proceeding even if it does not possess the Note or does not produce it in the proceeding. A delay or omission by the Lender in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 8.05. Waiver of Past Defaults. The Lender by notice to the Company may waive an existing Default and its consequences. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 8.06. Priorities. If the Lender collects any money or property pursuant to this Article 8, it shall pay out the money or property in the following order: FIRST: to itself in accordance with the priority set forth in Section 2.08; and SECOND: to the extent of any excess, to the Company. SECTION 8.07. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Agreement a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. 51 SECTION 8.08. Waiver of Stay or Extension Laws. The company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Agreement; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Lender, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 9 Miscellaneous SECTION 9.01. Amendments and Waivers. Except as otherwise expressly set forth in this Agreement, no Credit Document nor any terms thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this Section 9.01. SECTION 9.02. Notices. All notices, requests and demands to or upon-the respective parties hereto to be effective shall be in writing (including by telecopy or telex, if one is listed), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when sent, confirmation of receipt received, or, in the case of telex notice, when sent, answerback received, addressed as follows, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Note: The Company: NRG GENERATING (U.S.) INC. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403 Attention: President and Chief Executive Officer Telephone: (612) 373-5300 Telecopier: (612) 373-5430 With a copy to: Troutman Sanders NationsBank Plaza, Suite 5200 Attention: Hazen Dempster Telephone: (404) 885-3000 Telecopier: (404) 885-3900 52 if to Lender NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403 Attention: Vice President, Business Development Telephone: (612) 373-5300 Telecopier: (612) 373-5430 with copies to:NRG Energy Inc. Legal Department 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403 Attention: Vice President and General Counsel Telephone: (612) 373-5300 Telecopier (612) 373-5392 provided that any notice, request or demand to or upon the Lender pursuant to Section 2.05 shall not be effective until received. SECTION 9.03. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 9.04. Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Note. SECTION 9.05. Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Lender for all its costs and expenses incurred in connection with, and to pay, indemnify, and hold the Lender harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever arising out of or in connection with, the enforcement or preservation of any rights under any Credit Document and any such other documents, including reasonable fees and disbursements of counsel to the Lender incurred in connection with the foregoing (b) to pay, 53 indemnify, and to hold the Lender harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes (other than withholding taxes), if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, any Credit Document and any such other documents, and (c) to pay, indemnify, and hold the Lender and its respective Affiliates, officers and directors harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable fees and disbursements of counsel) which may be incurred by or asserted against the Lender or such Affiliates, officers or directors arising out of or in connection with any investigation, litigation or proceeding related to this Agreement, the other Credit Documents, the proceeds of the Loan and the transactions contemplated by or in respect of such use of proceeds, or any of the other transactions contemplated hereby, whether or not the Lender or such Affiliates, officers or directors is a party thereto, including any of the foregoing relating to the violation of, noncompliance with-or liability under, any Environmental Law applicable to the operations of the Company, any of its Subsidiaries or any of the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (all the foregoing, collectively, the "indemnified liabilities"); provided that the Company shall have no obligation hereunder with respect to indemnified liabilities of the Lender or any of its respective Affiliates, officers and directors arising from (i) the gross negligence or willful misconduct of the Lender or its respective directors or officers; (ii) legal proceedings commenced against the Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such; (iii) legal proceedings commenced against the Lender by any Transferee; or (iv) actions taken by the Company either at the direction of the Board of Directors of the Company or pursuant to the Management Agreement at such time as persons designated by the Lender or which the Lender shall have the right to appoint, shall constitute at least one-half of the Board. The agreements in this Section 9.05 shall survive repayment of the Note and all other amounts payable hereunder. SECTION 9.06. Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lender all future holders 54 of the Note and the Loan, and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender. (b) The company hereby agrees that the Lender may, in accordance with applicable law, at any time and from time to time assign all or any part of its rights and obligations under this Agreement and the Note to any Person (a "Transferee"); provided, however, that any rights the Lender may have pursuant to Article 3 and Section 8.01(3) shall not survive or be effective as to any Transferee. (c) The Company authorizes the Lender to disclose to any prospective Transferee any and all financial information in the Lender's possession concerning the Company and its Subsidiaries and Affiliates which has been delivered to the Lender by or on behalf of the Company, subject to receipt of a confidentiality agreement from such prospective Transferee in form and substance reasonably satisfactory to the Company. SECTION 9.07. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. SECTION 9.08. Governing Law; No Third Party Rights. This Agreement and the Note and the rights and obligations of the parties under this Agreement and the Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York and applicable laws of the United States of America. This Agreement is solely for the benefit of the parties hereto and their respective successors and assigns, and, except as set forth in Section 9.06, no other Persons shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. SECTION 9.09. Submission to Jurisdiction; Waivers. (a) Each party to this Agreement hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or any of the other Credit Documents, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of 55 America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in Section 9.02; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (b) Each party hereto unconditionally waives trial by jury in any legal action or proceeding referred to in paragraph (a) above and any counterclaim therein. SECTION 9.10. Interest. Each provision in this Agreement and each other Credit Document is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, by the Company for the use, forbearance or detention of the money to be loaned under this Agreement or any other Credit Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Credit Document which is for the use, forbearance or detention of such money) , exceed that amount of money which would cause the effective rate of interest to exceed the highest lawful rate permitted by applicable law (the "Highest Lawful Rate"), and all amounts owed under this Agreement and each other Credit Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Agreement or such Credit Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Notwithstanding any provision in this Agreement or any other Credit Document to the contrary, if the maturity of the Loan or the obligations in respect of the other Credit Documents are accelerated for any reason, or in the event of any prepayment of all or any portion of the Loan or the obligations in respect of the other Credit Documents by the Company or in any other event, earned interest on the Loan and such other obligations of the Company may never exceed the Highest Lawful Rate, and any unearned interest otherwise 56 payable on the Loan or the obligations in respect of the other Credit Documents that is in excess of the Highest Lawful Rate shall be canceled automatically as of the date of such acceleration or prepayment or other such event and (if theretofore paid) shall, at the option of the holder of the Loan or such other obligations, be either refunded to the Company or credited on the principal of the Loan. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, the Company and the Lender shall, to the maximum extent permitted by applicable law, amortize, prorate, allocate and spread, in equal parts during the period of the actual term of this Agreement, all interest at any time contracted for, charged, received or reserved in connection with this Agreement. 57 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. NRG GENERATING (U.S.) INC. by /s/ Leonard Bluhm Name: Leonard A. Bluhm Title: President and Chief Executive Officer NRG ENERGY, INC. by /s/ Craig A. Mataczynski Name: Craig A. Mataczynski Title: Vice President, Domestic Business Development 58 EXHIBIT A New York, New York April 30, 1996 NOTE FOR VALUE RECEIVED, the undersigned, NRG GENERATING (U.S.) INC., a Delaware corporation (the "Company"), hereby promises to pay to the order of NRG ENERGY, INC., a Delaware corporation, or registered assigns (the "Lender"), at the office of the Lender at 1221 Nicollet Mall, Suite 700, Minneapolis, MN 55403, in lawful money of the United States of America and in immediately available funds, the principal amount of TWENTY FOUR MILLION DOLLARS ($24,000,000), or, if less, the aggregate unpaid principal amount of the loan made by the lender pursuant to Section 2.01 of the Loan Agreement referred to below (in either case, to be paid together with any accrued interest not required to be paid currently in cash), which sum shall be due and payable in such amounts and on such dates as are set forth in the NRG Newark Cogen Loan Agreement, dated as of April 30, 1996 between the Company and the Lender (the "Loan Agreement"; terms defined therein being used herein as so defined). The undersigned further agrees to pay interest at said office, in like money, from the date hereof on the unpaid principally amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.06 of the Loan Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive diligence, presentment, demand, protest and notice of any kind whatsoever. The nonexercise by the holder of this Note of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. This Note is the Note referred to in the Loan Agreement, which Loan Agreement, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Loan Agreement, all upon the terms and conditions therein specified. This Note shall be construed in accordance with and governed by the laws of the State of New York and any applicable laws of the United States of America. THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH TERMS OF THE LOAN AGREEMENT. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE LENDER PURSUANT TO THE TERMS OF THE LOAN AGREEMENT. NRG GENERATING (U.S.) INC., by Name: Leonard A. Bluhm Title: President and Chief Executive Officer 2 EXHIBIT B A. NOTICE OF BORROWING TO: NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, Minnesota 55403 Attention: Pursuant to Section 2.07 of that certain Supplemental Loan Agreement dated as of , 1996 (the "Loan Agreement") between NRG Energy, Inc. (the "Lender and NRG Generating (U.S.) Inc. (the "Company'), this notice represents the Company's request as follows: The Lender advance to the Company the sum of $ as a Deferred Administrative Shortfall Loan under Section 2.01 of the Loan Agreement. The effective date of the Borrowing requested hereunder shall be 19 , The undersigned officer of the Company certifies that: (i) The Unresolved Administrative and Priority Claim of .. (the "Claimant") has become Allowed in the amount of $ by Final Order entered by the Bankruptcy Court on 199 [or, if applicable, has become due and payable in accordance with its terms]; and (ii) The amount of funds held in the Administrative and Priority Claim Reserve that is available to satisfy the Unresolved Administrative and Priority Claim of the Claimant to the extent that it has become Allowed, is $ . Each capitalized term used but not definedin this notice has the meaning ascribed thereto in the Loan Agreement. DATED: 199 NRG GENERATING (U.S.) INC., a Delaware corporation By: Title: EX-10.8.8 3 EXHIBIT 10.8.8 AMENDED AND RESTATED LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT DATED JUNE 28, 1996 BETWEEN NRGG NEWARK AND CREDIT SUISSE. Exhibit 10.8.8 NRG GENERATING (NEWARK) COGENERATION INC., as Mortgagor to CREDIT SUISSE, AS AGENT FOR THE SECURED PARTIES, as Mortgagee AMENDED AND RESTATED LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (Leasehold and Easements) Dated: As of June 28, 1996 Location: Portion of Lots 75 and 58 in Block 2412, Newark Municipal Tax Map, County of Essex State of New Jersey RECORD AND RETURN TO: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Richard Sonkin, Esq. ESSEX COUNTY, NEW JERSEY This instrument prepared by: /s/ Christopher C. Beers Name: Christopher C. Beers AMENDED AND RESTATED LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT THIS AMENDED AND RESTATED LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (this "Mortgage") made as of the 28th day of June, 1996 by NRG GENERATING (NEWARK) COGENERATION INC., a Delaware corporation having an address at c/o NRG Energy, Inc., 1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403 ("Mortgagor") and CREDIT SUISSE having an address at Tower 49, 12 East 49th Street, New York, New York 10017, as agent (in such capacity, "Agent") on behalf of and for the benefit of the Secured Parties under the Credit Agreement (defined below) (the Agent, acting on its own behalf and on behalf of the Secured Parties pursuant to the Credit Agreement being hereinafter referred to as "Mortgagee"), W I T N E S S E T H : WHEREAS, Mortgagor is the owner and holder of a leasehold estate in the premises described in Exhibit A attached hereto (hereinafter referred to as the "Leasehold Premises") pursuant to a certain Ground Lease dated as of July 18, 1988 between Newark Group Industries, Inc. and O'Brien (Newark) Cogeneration, Inc., a memorandum of which was recorded in the Essex County Clerk's office on July 21, 1988, in Deed Book 5036, page 617, as amended pursuant to Agreement dated July 20, 1988, Amendment dated November 14, 1990, and in connection with which Amendment, a Memorandum of Lease Amendment was recorded in said Essex County Clerk's Office on April 23, 1991, in Mortgage Book 5925, page 834 and as further amended pursuant to a Stipulation of Settlement (among Newark Group Industries, Inc., Calpine Corporation and NRG Energy, Inc.) dated January 23, 1996 (hereinafter collectively referred to as the "Ground Lease"); WHEREAS, Mortgagor is also the holder of the rights to use the easements described in Exhibit B attached hereto (collectively, the "Easements"), which Easements pertain to the premises, or to portions thereof, described in Exhibit C attached hereto (collectively, the "Easement Premises" and together with the Leasehold Premises being hereinafter collectively referred to as the "Premises"); WHEREAS, Mortgagor proposes to operate on the Leasehold Premises an existing 52 MW power plant, including the related electric power transmission, fuel supply and fuel transportation facilities, fuel storage facilities and other facilities and goods that are ancillary, incidental, necessary or reasonably related to the marketing, management, servicing, ownership or operation of the foregoing (the "Newark Plant"); WHEREAS, portions of the Newark Plant are located on the Easement Premises; WHEREAS, Mortgagee has heretofor extended to Mortgagor a certain loan in the principal amount of SIXTY MILLION and No/100 DOLLARS ($60,000,000) (the "Initial Loan") which Initial Loan was advanced pursuant to the terms and conditions of a certain Credit Agreement dated as of May 17, 1996 (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement") among Mortgagee, NRG Generating (Parlin) Cogeneration Inc. ("NRG (Parlin)"; Mortgagor and NRG (Parlin) being hereinafter collectively referred to as "Borrowers"), Mortgagor, Credit Suisse, Greenwich Funding Corporation and any other Purchasing Lender and is evidenced by the Initial Loan Notes (as defined in the Credit Agreement) and which Initial Loan is secured, in part, by a certain Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement executed and delivered by Mortgagor to Mortgagee dated as of May 17, 1996 and securing the principal amount of SIXTY MILLION and No/100 DOLLARS ($60,000,000), which was recorded in the Essex County Clerk's office on May 30, 1996, in Mortgage Book 6659, page 50 (the "Existing Mortgage"). WHEREAS, pursuant to the Credit Agreement, Mortgagee has agreed to advance to the Borrowers W certain loans in the aggregate principal amount of ONE HUNDRED FIFTY-FIVE MILLION and No/100 DOLLARS ($155,000,000) including amounts already advanced under the Initial Loan (collectively, the "Funding Loans") and (ii) a certain debt service line of credit facility commitment in the principal amount of up to FIVE MILLION and No/100 DOLLARS ($5,000,000) (the "Debt Service Loans"), which (a) Funding Loans are to be advanced pursuant and subject to the terms and conditions of the Credit Agreement and shall be evidenced by the Funding Loan Notes, and (b) Debt Service Loans are to be advanced pursuant and subject to the terms and conditions of the Credit Agreement and shall be evidenced by the Debt Service Loan Notes, and which Funding Loans and Debt Service Loans shall be secured, in part, by this Mortgage; WHEREAS, the Borrowers are to be jointly and severally liable for the repayment of the Funding Loans and the Debt Service Loans; 1 WHEREAS, all capitalized terms not otherwise defined in this Mortgage shall have the meaning given such terms in the Credit Agreement; WHEREAS, it is a condition precedent to the funding of the balance of the Funding Loans and the availability of the Debt Service Loans under the Credit Agreement that Mortgagee and Mortgagor shall amend and restate in their entirety the terms, covenants and conditions of the Existing Mortgage and that Mortgagor shall execute and deliver this Mortgage and grant the security interests pursuant to this Mortgage to the Agent for the benefit of the Secured Parties as security for the obligations of Borrowers under the Credit Agreement and the other Loan Instruments; NOW, THEREFORE, to secure the payment and performance of the Debt (hereinafter defined) and the performance of the Borrowers, obligations under the Credit Agreement and the Loan Instruments and the performance of Mortgagor's obligations under this Mortgage, Mortgagor has mortgaged, given, granted, bargained, sold, aliened, enfeoffed, conveyed, confirmed and assigned, and by these presents does mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm and assign unto Mortgagee all right, title and interest of Mortgagor now owned, or hereafter acquired, in and to the following property, rights and interests (such property, rights and interests being hereinafter collectively referred to as the "Mortgaged Property"): (a) the Leasehold Premises; (b) all buildings, improvements and fixtures now or hereafter located on the Leasehold Premises, including, but not limited to, the Newark Plant (the "Leasehold Premises Improvements"); (c) the Ground Lease and the leasehold estate created thereunder and all other rights and interests of the tenant thereunder; (d) all modifications, extensions and renewals of the Ground Lease and all credits, deposits, options, privileges and rights of tenant under the Ground Lease, including, but not limited to, the right to exercise options, to give consents and to receive moneys payable 2 to the tenant thereunder or in connection therewith (including the option to purchase the Leasehold Premises pursuant to Section 39 of the Ground Lease); (e) the Easements and the interests created thereunder and in connection therewith; (f) any and all portions of the Newark Plant now or hereafter located on the Easement Premises (the "Easement Improvements" and, together with the Leasehold Premises Improvements, being hereinafter collectively referred to as the "Improvements"); (g) all the estate, right, title, claim or demand of any nature whatsoever of Mortgagor, either in law or in equity, in possession or expectancy, in and to the Mortgaged Property or any part thereof; (h) any and all easements (other than the Easements), rights-of- way, gores of land, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments, revocable consents, options, appendages and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Mortgaged Property (including, but not limited to, any and all development rights, option rights, air rights or similar or comparable rights of any nature whatsoever now or hereafter appurtenant to the Premises or now or hereafter transferred to the Premises) and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Premises to the center line thereof; (i) all machinery, apparatus, equipment, fittings, fixtures and other property of every kind and nature whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter located upon the Premises, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Mortgaged Property and all equipment, materials, supplies, apparatus and other items now or hereafter attached to, installed in or used on the Premises (temporarily or permanently) of any nature whatsoever and all renewals, replacements and substitutions thereof and additions 3 thereto, including but not limited to any and all partitions, ducts, shafts, pipes, radiators, conduits, wiring, floor coverings, awnings, motors, engines, boilers, stokers, pumps, dynamos, transformers, turbines, generators, fans, blowers, vents, switchboards, elevators, mail or coal conveyors, escalators, compressors, furnaces, cleaning equipment, call and sprinkler systems, fire extinguishing apparatus, water and other tanks, heating, ventilating, plumbing, laundry, incinerating, air conditioning and air cooling systems and water, gas, telephone, telecommunications, telemetry and electric equipment (collectively, the "Equipment"), and the right, title and interest of Mortgagor in and to any of the ,Equipment which may be subject to any security agreements (as defined in the Uniform Commercial Code of the State of New Jersey (the "Uniform Commercial Code")), superior in lien to the lien of this Mortgage; (j) all awards or payments, including interest thereon, and the right to receive the same, which may be made with respect to the Mortgaged Property, whether from state fund sharing or from the exercise of the right of eminent domain (including any transfer made in lieu of the exercise of said right), changes of grade of street or for any other injury to or decrease in the value of the Mortgaged Property, whether direct or consequential, which said awards and payments are hereby assigned to Mortgagee, and Mortgagee is hereby authorized to collect and receive the proceeds thereof and to give proper receipts and acquittances therefor; (k) all refunds or rebates of Taxes (as hereinafter defined) or charges in lieu of Taxes, now or hereafter assessed or levied against the Mortgaged Property; (l) all leases (including oil, gas and other mineral leases), subleases, franchises, licenses, concessions, permits, contracts (including, without limitation, the Newark Power Purchase Agreement and the Newark Steam Agreement) and other agreements (other than the Ground Lease and the Easements) affecting the use or occupancy of the Mortgaged Property now or hereafter entered into and any renewals or extensions thereof (collectively, the "Other Leases"); 4 (m) the right to receive and apply the rents, issues and profits of the Mortgaged Property under the Other Leases (collectively, the "Rents") to the payment of the Debt; (n) all inventory, accounts and general intangibles owned by Mortgagor or in which Mortgagor now or hereafter shall have any right, title or interest, now or hereafter located upon, arising in connection with or concerning the Mortgaged Property; (o) all proceeds of and any unearned premiums on any insurance policies covering the Mortgaged Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Mortgaged Property; (p) to the extent permitted by law, the right, in the name and on behalf of Mortgagor, to appear in and defend any action or proceeding brought with respect to the Mortgaged Property and to commence any action or proceeding to protect the interest of Mortgagee in the Mortgaged Property; (q) all of Mortgagor's right, title and interest in and to all plans and specifications prepared for or in connection with the Improvements and all studies, data and drawings related thereto; and (r) all products and proceeds of any of the Mortgaged Property herein described. TO HAVE AND TO HOLD the above granted and described Mortgaged Property unto and to the proper use and benefit of Mortgagee, and the successors and assigns of Mortgagee, forever, to secure the following obligations (hereinafter collectively referred to as the "Debt"): (i) payment of the indebtedness evidenced by the Funding Loan Notes; (ii) payment of the indebtedness evidenced by the Debt Service Loan Notes (the Funding Loan Notes and the Debt Service Loan Notes being hereinafter collectively referred to as the "Notes"); 5 (iii) payment of all amounts owing pursuant to any Interest Rate Hedge Agreement; (iv) payment, performance and observance of each term, covenant and condition to be paid, performed or observed by Borrowers under the Credit Agreement, the Notes and the other Loan Instruments; (v) payment of all sums required to be paid and performance and observance of each term, covenant and condition contained in this mortgage to be performed or observed by Mortgagor under this Mortgage; and (vi) payment of all sums expended or advanced by Mortgagee pursuant to the terms of this Mortgage, the Credit Agreement or any other Loan Instruments. PROVIDED, ALWAYS, and these presents are upon this express condition, if Borrowers shall well and truly pay to Mortgagee the Debt at the time and in the manner provided in the Notes, the Credit Agreement and the Loan Instruments and shall well and truly abide by and comply with each and every covenant and condition set forth herein, in the Notes, the Credit Agreement and the Loan Instruments then these presents and the estate hereby granted shall cease, determine and be void. AND Mortgagor covenants with and represents and warrants to Mortgagee as follows: 1. Payment of Debt. Mortgagor shall pay the Debt at the time and in the manner provided for its payment in the Notes, the Credit Agreement and the Loan Instruments. 2. Warranty of Title. Subject only to the Permitted Liens, Mortgagor warrants that Mortgagor is the owner and holder of (i) a leasehold estate in and to the Leasehold Premises, (ii) the right to use and enjoy each of the Easements, (iii) marketable title to the Improvements and Equipment, and (iv) good title to all other portions of the Mortgaged Property. Mortgagor covenants that Mortgagor will at all times and at Mortgagor's sole expense warrant and defend the title to the Mortgaged Property against the claims and demands of all persons whomsoever except for Permitted Liens. In addition, Mortgagor represents and warrants that (i) the Ground Lease is in full force and effect and has not been modified or amended in any manner 6 whatsoever, (ii) there are no uncured defaults under the Ground Lease and no event has occurred, which but for the passage of time, or notice, or both, would constitute a default under the Ground Lease, (iii) all rents and other payments due and payable under the Ground Lease have been paid in full and (iv) no action is pending and no notice has been given or received for the purpose of terminating, and no event has occurred or condition exists that could result in termination of, the Ground Lease. 3. Insurance. Mortgagor will keep the Improvements and the Equipment insured as shall, from time to time, be required in accordance with Sections 4.25 and 5.12 of the Credit Agreement. If at any time Mortgagee is not in receipt of written evidence that all insurance required hereunder and under the Credit Agreement is in full force and effect, Mortgagee shall have the right without notice to Mortgagor to take such action as Mortgagee deems necessary to protect the Mortgaged Property, including, without limitation, the obtaining of such insurance coverage as Mortgagee in its sole discretion deems appropriate, and all expenses incurred by Mortgagee in connection with such action or in obtaining such insurance and keeping it in ,effect shall be paid by Mortgagor to Mortgagee upon demand. Any amounts not so paid by Mortgagor shall be deemed secured by this Mortgage. Mortgagor shall at all times comply with and shall cause the Improvements and Equipment and the use, occupancy, operation, maintenance, alteration, repair and restoration thereof to comply with the terms, conditions, stipulations and requirements of the insurance policies procured and maintained pursuant to Sections 4.25 and 5.12 of the Credit Agreement (the "Policies"). If the Premises, or any portion thereof, is determined to be located in a Federally designated "special flood hazard area", in addition to the other Policies required under this paragraph, a flood insurance policy shall be delivered by Mortgagor to Mortgagee. If no portion of the ?remises is located in a Federally designated "special flood hazard area", such fact shall be substantiated by a certificate in form reasonably satisfactory to Mortgagee from a licensed surveyor, appraiser or professional engineer or other qualified person. If the Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire or other property hazard or casualty, Mortgagor shall give prompt notice thereof to Mortgagee and any Proceeds received by Mortgagee shall be held and disbursed as set forth in Section 5.18 of the Credit Agreement. 7 4. Payment of Taxes, etc. Mortgagor shall pay, or cause to be paid, all taxes or charges in lieu of taxes, assessments, water rates, sewer rents and other charges, including vault charges and license or permit fees for the use of vaults, chutes and similar areas on or adjoining the Premises, now or hereafter levied or assessed against the Mortgaged Property (the "Taxes") prior to the date upon which any fine, penalty, interest or cost may be added thereto or imposed by law for the nonpayment thereof, subject, in all events, to Mortgagor's rights to contest Taxes in accordance with Section 5.13 of the Credit Agreement. Mortgagor shall deliver to Mortgagee, upon request, receipted bills, canceled checks and other evidence satisfactory to Mortgagee evidencing the payment of the Taxes prior to the date upon which any fine, penalty, interest or cost may be added thereto or imposed by law for the nonpayment thereof (as any such date may be extended pursuant to exercise of said right of Mortgagor to contest Taxes in accordance with Section 5.13 of the Credit Agreement). 5. Condemnation. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise, Mortgagor shall continue to pay the Debt at the time and in the manner provided for its payment in the Notes, the Credit Agreement and the Loan Instruments and the Debt shall not be reduced until (and only to the extent).any award or payment therefor shall have been actually received and applied by Mortgagee to the discharge of the Debt in accordance with the provisions of the Credit Agreement. Mortgagee shall apply the amount of any such award or payment in accordance with Section 5.18 of the Credit Agreement. If the Mortgaged Property is sold, through foreclosure or otherwise, prior to the receipt by Mortgagee of such award or payment, Mortgagee shall have the right, whether or not a deficiency judgment on the Debt shall have been sought, recovered or denied, to receive such award or payment, or a portion thereof sufficient to pay the Debt, whichever is less. Mortgagor shall file and prosecute its claim or claims for any such award or payment in good faith and with due diligence and cause the same to be collected and paid over to Mortgagee. Mortgagor hereby irrevocably authorizes and empowers Mortgagee, in the name of Mortgagor or otherwise to collect and receipt for any such award or payment and to file and prosecute such claim or claims if (a) Mortgagor fails to do so within a reasonable time prior to the expiration of the period allowed therefor under 8 applicable law, or (b) an Event of Default has occurred and is continuing. Although it is hereby expressly agreed that the same shall not be necessary in any event, Mortgagor shall, upon demand of Mortgagee, make, execute and deliver any and all assignments and other instruments sufficient for the purpose of assigning any such award or payment to Mortgagee, free and clear of any encumbrances of any kind or nature whatsoever. 6. Leases and Rents. (a) Mortgagor hereby assigns to Mortgagee as security for the payment of the Debt and the observance and performance by Borrowers of all of the terms, covenants and provisions of this Mortgage, the Credit Agreement and the Loan Instruments on the Borrowers' part to be observed or performed, all of Mortgagor's right, title and interest in and to the Other Leases and the Rents. Subject to the terms of this paragraph, Mortgagee waives the right to enter the Mortgaged Property for the purpose of collecting the Rents, and grants Mortgagor the right to collect the Rents. Mortgagor shall hold the Rents, or an amount sufficient to discharge all sums then currently due on the Debt, in trust for use in payment of the Debt. The right of Mortgagor to collect the Rents may be revoked by Mortgagee upon the occurrence of any Event of Default by giving notice of such revocation to Mortgagor. Following such notice, Mortgagee may retain and apply the Rents toward payment of the Debt in accordance with the provisions of the Credit Agreement, or to the operation, maintenance and repair of the Mortgaged Property, and irrespective of whether Mortgagee shall have commenced a foreclosure of this Mortgage or shall have applied or arranged for the appointment of a receiver. Mortgagor shall not, without the consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed, make, or suffer to be made, any Other Leases or modify or cancel any Other Leases or accept prepayments of installments of the Rents for a period of more than one (1) month in advance or further assign the whole or any part of the Rents. Mortgagor shall (i) fulfill or perform each and every provision of the Other Leases on the part of Mortgagor to be fulfilled or performed, (ii) promptly send copies of all notices of default which Mortgagor shall send or receive under the Other Leases to Mortgagee, and (iii) enforce, short of termination of the Other Leases, the performance or observance of the provisions thereof by the other parties thereto. 9 (b) Mortgagor agrees that it will not further pledge or assign its interest in any of the Other Leases, or further assign the Rents so long as any part of the Debt remains unpaid. (c) Nothing contained in this paragraph shall be construed as imposing on Mortgagee any of the obligations of the tenant under the Ground Lease or of the lessor under the Other Leases. 7. Maintenance of the Mortgaged Property. (a) Mortgagor shall cause the Mortgaged Property to be maintained in good condition and repair in accordance with the provisions of the Credit Agreement and will not commit or suffer to be committed any waste of the Mortgaged Property. The Improvements and the Equipment shall not be removed, demolished or materially altered (except for normal replacement of the Equipment), without the consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed. (b) Mortgagor shall promptly comply with all Laws and Environmental Requirements affecting the Mortgaged Property, or any portion thereof or the use thereof, in accordance with the provisions of the Credit Agreement. Mortgagor shall observe and perform every term to be observed and performed by Mortgagor (as tenant) under the Ground Lease and shall also comply with the requirements of all Easements, rights-of-way, easements, grants, privileges, licenses, franchises and restrictive covenants which from time to time benefit or pertain to the whole or any portion of the Mortgaged Property, and Mortgagor shall not modify, amend or terminate, or surrender any of its rights under, the Ground Lease or any of the Easements or such rights-of-way, easements, grants, privileges, licenses, franchises or restrictive covenants. Except as otherwise specifically permitted by the terms of the Credit Agreement, Mortgagor will not alter the use of the Mortgaged Property without the prior consent of Mortgagee, and Mortgagor will not, without obtaining the prior consent of Mortgagee, initiate, join in or consent to any private restrictive covenant, zoning ordinance, or other public or private restrictions, limiting or affecting the uses which may be made of the Mortgaged Property or any part thereof. 8. Estoppel Certificates. Mortgagor, within ten (10) days after request by Mortgagee and at its expense, 10 will furnish mortgagee with a statement, duly acknowledged and certified, setting forth the amount of the Debt and the offsets or defenses thereto, if any. 9. Transfer or Encumbrance of the Mortgaged Property. Except as otherwise specifically permitted by the terms of the Credit Agreement, no part of the Mortgaged Property and no legal or beneficial interest in Mortgagor shall in any manner be further encumbered, sold, transferred, assigned or conveyed, or permitted to be further encumbered, sold, transferred, assigned or conveyed without the consent of Mortgagee. The provisions of this paragraph shall apply to each and every such further encumbrance, sale, transfer, assignment or conveyance, regardless of whether or not Mortgagee has consented to, or waived by its action or inaction its rights hereunder with respect to any such previous further encumbrance, sale, transfer, assignment or conveyance and irrespective of whether such further encumbrance, sale, transfer, assignment or conveyance is voluntary, by reason of operation of law or is otherwise made. 10. Notice. All notices, consents, directions, approvals, authorizations, instructions, demands, statements, requests and other communications given or made hereunder or in connection herewith shall be sent in accordance with the provisions of and to the addresses set forth in Section 8.1 of the Credit Agreement. 11. Changes in Laws Regarding Taxation. In the event of the passage after the date of this mortgage of any law of the State of New Jersey deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or changing in any way the laws for the taxation of mortgages or deeds of trust or debts secured by mortgages or deeds of trust for state or local purposes or the manner of the collection of any such taxes, and imposing a tax, either directly or indirectly, on this Mortgage, the Notes, the Credit Agreement, any of the Loan Instruments or the Debt, Mortgagor shall, if permitted by law, pay any tax imposed as a result of any such law within the statutory period or within thirty (30) days after demand by Mortgagee, whichever is less, provided, however, that if, in the opinion of the attorneys for Mortgagee, Mortgagor is not permitted by law to pay such taxes, Mortgagee shall have the right, at its option, to declare the Debt due and payable on 11 a date specified in a prior notice to Mortgagor of not less than sixty (60) days. 12. [Intentionally Omitted] 13. Sale of Mortgaged Property. If this Mortgage is foreclosed, the Mortgaged Property, or any interest therein, may, at the discretion of Mortgagee, be sold in one or more parcels or in several interests or portions and in any order or manner. 14. No Credits on Account of the Debt. Mortgagor will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes assessed against the Mortgaged Property or any part thereof and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Property, or any part thereof, by reason of this Mortgage or the Debt. 15. Other Security for the Debt. Mortgagor shall observe and perform all of the terms, covenants and provisions on the part of Mortgagor to be observed and performed contained in the Credit Agreement and the Loan 'Instruments and in all other mortgages and other instruments or documents evidencing, securing or guaranteeing payment of the Debt, in whole or in part, or otherwise executed and delivered in connection with the Credit Agreement, the Notes or this Mortgage. 16. Documentary Stamps. If at any time the United States of America, any state thereof or any governmental subdivision of any such state, shall require revenue or other stamps to be affixed to the Notes or this Mortgage, Mortgagor will pay the same, with interest and penalties thereon, if any. 17. Right of Entry. Mortgagee and its agents shall have the right to enter and inspect the Mortgaged Property as provided in the Credit Agreement. 18. Books and Records. Mortgagor will comply with all of the provisions and requirements of the Credit Agreement concerning its books, records and accounts reflecting the financial affairs of Mortgagor and the Newark Plant. 12 19. Ground Lease. (a) Mortgagor shall (i) pay all rents, additional rents and other sums required to be paid by the tenant under and pursuant to the provisions of the Ground Lease, (ii) diligently perform and observe all of the terms, covenants and conditions of the Ground Lease on the part of the tenant thereunder to be performed and observed, unless such performance or observance shall be waived or not required by the landlord under the Ground Lease, to the end that all things shall be done which are necessary to keep unimpaired the rights of the tenant under the Ground Lease, and (iii) promptly notify Mortgagee of the giving of any notice by the landlord under the Ground Lease of any default in the performance or observance of any of the terms, covenants or conditions of the Ground Lease on the part of the tenant thereunder to be performed or observed and deliver to Mortgagee a true copy of each such notice. Mortgagor shall not, without the prior consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed, surrender the leasehold estate created by the Ground Lease or terminate or cancel the Ground Lease or modify, change, supplement, alter or amend the Ground Lease, in any respect, either orally or in writing, and Mortgagor hereby assigns to Mortgagee, as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of this Mortgage, the Credit Agreement and the other Loan Instruments, all of the rights, privileges and prerogatives of the tenant under the Ground Lease to surrender any leasehold estate or easement interests created by the Ground Lease or to terminate, cancel, modify, change, supplement, alter or amend the Ground Lease, and any such surrender of the leasehold estate or easement interests created by the Ground Lease or termination, cancellation, modification, change, supplement, alteration or amendment of the Ground Lease without the prior consent of Mortgagee, shall be void and of no force and effect. If Mortgagor shall default in the performance or observance of any term, covenant or condition of the Ground Lease to be performed or observed by the tenant thereunder, then, without limiting the generality of the other provisions of this Mortgage, and without waiving or releasing Mortgagor from any of its obligations hereunder, Mortgagee shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of the Ground 13 Lease on the part of the tenant thereunder to be performed or observed, to be promptly performed or observed on behalf of Mortgagor, to the end that the rights of Mortgagor in, to and under the Ground Lease shall be kept unimpaired and free from default. If Mortgagee shall make any payment or perform any act or take action in accordance with the preceding sentence, Mortgagee will notify Mortgagor of the making of any such payment, the performance of any such act, or taking of any such action. In any such event, subject to the rights of lessees, and other occupants under the Other Leases, Mortgagee and any person designated by Mortgagee shall have, and are hereby granted, the right to enter upon the Mortgaged Property at any time and from time to time for the purpose of taking any such action. If the landlord under the Ground Lease shall deliver to Mortgagee a copy of any notice of default sent by said landlord to Mortgagor, as tenant under such Ground Lease, such notice shall constitute full protection to Mortgagee for any action taken or omitted to be taken by Mortgagee, in good faith, in reliance thereon. Mortgagor shall, from time to time, use its reasonable efforts to obtain from the landlord under the Ground Lease such certificates of estoppel with respect to compliance by Mortgagor with the terms of the Ground Lease as may be reasonably requested by Mortgagee. Mortgagor shall exercise each individual option, if any, to extend or renew the term of the Ground Lease, or option to purchase or right of first refusal with respect to purchase of the Leasehold Premises, as the case may be, upon demand by Mortgagee made at any time within one (1) year of the last day upon which any such option may be exercised, and Mortgagor hereby expressly authorizes and appoints Mortgagee its attorney-in-fact to exercise, either jointly or individually, any such option or right of first refusal in the name of and upon behalf of Mortgagor, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. (b) Mortgagor shall not, without Mortgagee's prior written consent, elect to treat either the Ground Lease or the leasehold estate created thereby as terminated under Subsection 365(h)(1) of the Bankruptcy Code, after rejection or disaffirmance of the Ground Lease by the landlord thereunder or by any trustee of such party, and any such election made without such consent shall be void and ineffective. 14 (c) Subject to the Mortgagor's right to seek and retain certain offsets as permitted hereunder, Mortgagor hereby unconditionally assigns, transfers and sets over to Mortgagee all of Mortgagor's claims and rights to the payment of damages that may hereafter arise as a result of any rejection or disaffirmance of the Ground Lease by the landlord thereunder or by any trustee of such party, pursuant to the Bankruptcy Code. Mortgagee shall have and is hereby granted the right to proceed, in its own name or in the name of the Mortgagor, in respect of any claim, suit, action or proceeding relating to the rejection or disaffirmance of the Ground Lease (including, without limitation, the right to file and prosecute, to the exclusion of Mortgagor, any proofs of claim, complaints, motions, applications, notices and other documents) in any case in respect of the landlord under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until the Debt secured by this Mortgage shall have been satisfied and discharged in full. Any amounts received by Mortgagee as damages arising out of any such rejection of the Ground Lease shall be applied toward payment of the Debt in such order and priority as contemplated under the Credit Agreement. (d) In the event that, pursuant to Subsection 365(h)(2) of the Bankruptcy Code, Mortgagor seeks to offset against the rent payable under the Ground Lease the amount of any damages caused by the nonperformance by the landlord of such party's obligations under the Ground Lease after rejection or disaffirmance thereof under the Bankruptcy Code, Mortgagor shall, prior to effecting such offset, notify Mortgagee in writing of Mortgagor's intent to do so, setting forth the amounts proposed to be so offset and the basis therefor. Mortgagee shall have the right to object in writing (stating the reasons therefor) to all Dr any part of such offset, and, in the event of such objection, Mortgagor shall not effect any offset of the amounts so objected to by Mortgagee. If Mortgagee shall have failed to object as aforesaid within twenty (20) days after such notice, Mortgagor may proceed to effect such offset in the amounts set forth in such notice. Neither Mortgagee's failure to object as aforesaid nor any objection or other communication between Mortgagor and Mortgagee relating to such offset shall constitute an approval by Mortgagee of any such offset. If, in the best business judgment of the Mortgagor, 15 such offset is justified and Mortgagee has received the aforesaid notices and has not objected but its time to do so has not expired, the Mortgagor shall have the right to make such offset and shall set aside the offset amount as a reserve to be paid only if Mortgagee objects within the aforesaid time. Mortgagor shall indemnify and hold Mortgagee and its officers, directors, employees and agents harmless from and against any and all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever actually incurred (including, without limitation, reasonable legal fees and disbursements) arising from or relating to any such offset by Mortgagor. (e) Mortgagor shall, promptly after obtaining knowledge thereof, use its best efforts to give prompt oral notice to Mortgagee of any actual or contemplated filing by or against the landlord under the Ground Lease of a petition under the Bankruptcy Code, and give prompt written notice thereof to Mortgagee of such actual or contemplated filing. The aforesaid written notice shall set forth any information available to Mortgagor concerning the date or anticipated date of such filing, the court in which such petition was filed or is expected to be filed, and the relief sought or reasonably expected to be sought therein. Mortgagor shall, promptly after receipt thereof, deliver to Mortgagee any and all notices, summonses, pleadings, applications and other documents received by Mortgagor in connection with any such petition and any proceedings related thereto. (f) In the event that any action, proceeding, motion or notice shall be commenced or. filed in respect of the landlord under the Ground Lease or the Mortgaged Property or any part thereof, in connection with any case under the Bankruptcy Code, Mortgagee shall have, and is hereby granted, the option, to the exclusion of Mortgagor, exercisable upon notice from Mortgagee to Mortgagor, to conduct and control any such litigation with counsel of Mortgagee's choice. Mortgagee may proceed, in its own name or in the name of Mortgagor, in connection with any such litigation, and Mortgagor agrees to execute any and all powers, authorizations, consents and other documents required by Mortgagee in connection therewith. Mortgagor shall, upon demand, pay to Mortgagee all costs and expenses (including without limitation, legal fees and disbursements) paid or incurred by Mortgagee in connection with the prosecution or conduct of any such proceedings, and, to the 16 extent permitted by law, such costs and expenses shall be deemed expenses incurred in upholding the lien of this Mortgage and added to the indebtedness secured by this Mortgage. Mortgagor shall not, without the prior written consent of Mortgagee, commence any action, suit, proceeding or case, or file any application or make any motion, in respect of the Ground Lease in any such case under the Bankruptcy Code. (g) In the event that a petition under the Bankruptcy Code shall be filed by or against Mortgagor, and Mortgagor, or anyone claiming through or under Mortgagor or a trustee in bankruptcy shall have the right to reject the Ground Lease pursuant to Section 365(a) of the Bankruptcy Code or a successor statute, Mortgagor shall give Mortgagee at least ten (10) days' prior written notice of the date on which application shall be made to the court for authority to reject the Ground Lease; provided, however, that if a trustee in bankruptcy shall have a right to reject the Ground Lease in less than ten (10) days, then Mortgagor shall give such notice to Mortgagee immediately upon Mortgagor's knowledge of such application. Mortgagee shall have the exclusive right, but not the obligation (subject to ,the rights of a trustee in bankruptcy), to exercise said right and Mortgagor hereby assigns said right to Mortgagee. If at any time the landlord under the Ground Lease, or anyone holding by, through or under the landlord under the Ground Lease or a trustee in bankruptcy shall elect to reject the Ground Lease pursuant to Section 365(a) of the Bankruptcy Code, or a successor statute, thereby giving to Mortgagor the right to elect to treat the Ground Lease as terminated pursuant to Section 365kri)(l) of the Bankruptcy Code, or a successor statute, Mortgagee shall have the exclusive right to exercise said right and Mortgagor hereby assigns said right to Mortgagee. If either of the assignments provided for in this paragraph is held to be enforceable, then Mortgagor, anyone claiming by, through or under Mortgagor or a trustee in bankruptcy, shall not exercise rights purportedly assigned to Mortgagee without the prior written consent of Mortgagee, and if Mortgagee shall give such consent, Mortgagor, anyone claiming by, through or under Mortgagor or a trustee in bankruptcy shall promptly exercise either of said rights. (h) To the extent permitted by applicable law, Mortgagor hereby assigns, transfers and sets over to Mortgagee an exclusive right to apply to the Bankruptcy 17 Court under Subsection 365(d)(4) of the Bankruptcy Code for an order extending the period during which the Ground Lease may be rejected or assumed after the entry of any order for relief in respect of Mortgagor under Chapter 7 or Chapter 11 of the Bankruptcy Code. 20. No Merger of Fee and Leasehold Estates. So long as any portion of the Debt shall remain unpaid, unless Mortgagee shall otherwise consent, then the fee title to the Leasehold Premises and the leasehold estate therein created pursuant to the provisions of the Ground Lease and the fee title to the Improvements and all Equipment constituting a fixture, and the fee title to the Easement Premises and the interests in real property arising under the provisions of the Easements, shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates in Mortgagor, or in any other person (including Mortgagee) by purchase, operation of law or otherwise (including without limitation a union of estates arising from a foreclosure sale purchase or deed in lieu of foreclosure). 21. Performance of Other Agreements. Mortgagor shall observe and perform each and every term to be observed or performed by Mortgagor pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Mortgaged Property. 22. Defaults. The Debt shall become due at the option of Mortgagee upon the occurrence of any one of the following events: (a) if any Event of Default under the Credit Agreement shall occur; (b) if Mortgagor shall be in default beyond the expiration of any applicable notice and cure period under any mortgage or deed of trust covering any part of the Mortgaged Property whether superior or inferior in lien to this Mortgage. 23. Right to Cure Defaults. If default in the performance of any of the covenants of Mortgagor herein occurs, Mortgagee, without waiving any default or releasing Mortgagor from any obligation, may (but shall be under no obligation to) remedy the same for the account and at the cost and expense of Mortgagor, and for such purpose shall 18 have the right to enter upon the Mortgaged Property without thereby becoming liable to Mortgagor or any person in possession thereof holding under Mortgagor. If Mortgagee shall remedy such a Default or appear in, defend or bring any action or proceeding to protect its interest in the Mortgaged Property or to foreclose this Mortgage or collect the Debt, all costs and expenses actually incurred (including, without limitation, reasonable attorneys' fees) shall be paid by Mortgagor to Mortgagee on demand with interest to the date of payment to Mortgagee at the Default Interest Rate. All such costs and expenses incurred by Mortgagee, with interest at the Default Interest Rate. shall be secured by this Mortgage. 24. Appointment of Receiver. Mortgagee, in any action to foreclose this Mortgage or upon the actual or threatened waste to any part of the Mortgaged Property or upon the occurrence of any default hereunder, shall be at liberty, without notice, to apply for the appointment of a receiver of the Rents, and shall be entitled to the appointment of such receiver as a matter of right, without regard to the value of the Mortgaged Property as security for the Debt, or the solvency or insolvency of any person then liable for the payment of the Debt. 25. Remedies Upon an Event of Default. Upon the occurrence of any event described in paragraph 22 of this Mortgage, then Mortgagee may, to the extent permitted by law, exercise any right, power or remedy permitted to it hereunder, under the Credit Agreement or under any other Loan Instruments, and, without limiting the generality of the foregoing, Mortgagee may, personally or by its agents, do any or all of the following: (a) declare the Debt to be immediately due and payable, and if the same is not paid on demand, at Mortgagee's option, bring suit for any delinquent payments under the Notes and take any and all steps and any and all other proceedings that Mortgagee deems necessary to enforce the indebtedness and obligations secured hereby and to protect the lien of this Mortgage; and (b) enter and take possession of the Mortgaged Property or any part thereof, exclude the Mortgagor and all persons claiming under the Mortgagor whose claims are junior to this Mortgage, wholly or partly 19 therefrom, and use, operate, manage and control the same either in the name of the Mortgagor or otherwise as Mortgagee shall deem best, and upon such entry, from time to time at the expense of the Mortgagor and the Mortgaged Property, make all such repairs, replacements, alterations, additions or improvements to the Mortgaged Property or any part thereof as Mortgagee may deem proper and, whether or not Mortgagee has so entered and taken possession of the Mortgaged Property or any part thereof, collect and receive all the Rents and apply the same, to the extent permitted by law, to the payment of all expenses which Mortgagee may be authorized to incur under this Mortgage, the remainder to be applied to the payment of the Debt until the same shall have been repaid in full; if Mortgagee demands or attempts to take possession of the Mortgaged Property or any portion thereof in the exercise of any rights hereunder, Mortgagor shall promptly turn over and deliver complete possession thereto to Mortgagee; and (c) proceed to protect and enforce its rights under this Mortgage by suit for specific performance of any covenant contained herein, in the Credit Agreement or in the Loan Instruments or in aid of the execution of any power granted herein, in the Credit Agreement or in the Loan Instruments, or for the foreclosure of this Mortgage and the sale of the Mortgaged Property under the judgment or decree of a court of competent jurisdiction, or for the enforcement of any other right as Mortgagee shall deem effectual for such purpose; provided that in the event of a sale, by foreclosure or otherwise, of less than ail of the Mortgaged Property, this Mortgage shall continue as a lien on, and security interest in, the remaining portion of the Mortgaged Property; and (d) exercise any or all of the remedies available to a secured party under the Uniform Commercial Code as provided in paragraph 35 hereof; and (e) without in any way limiting the rights hereunder pursuant to paragraphs 6, 24 and 35 apply for the appointment of a receiver as a matter of right, without regard to the adequacy of the security for the Debt or the solvency of the Mortgagor. Mortgagor hereby irrevocably consents to such appointment. Specifically, the Mortgagee or any receiver shall be 20 entitled to take possession of the Mortgaged Property from the owners, tenants and/or occupants of the whole or any part thereof and to collect and receive the Rents and the value of the use and occupation of the Mortgaged Property, or any part thereof, from the then owner, tenants and/or occupants thereof for the benefit of Mortgagee. 26. Mortgagor as Tenant Holding over. In the event of any foreclosure sale contemplated under paragraph 25 hereof, Mortgagor shall be deemed to be a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. 27. Discontinuance of Proceedings. In case Mortgagee shall have proceeded to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceeding shall have been withdrawn, discontinued or abandoned for any reason, or shall have been determined adverse to Mortgagee, then in every such case (a) Mortgagor and Mortgagee shall be restored to their former positions and rights, (b) all rights, powers and remedies of Mortgagee shall continue as if no such proceeding had been taken, (c) each and every uncured default declared or occurring prior or subsequent to such withdrawal, discontinuance or abandonment shall be or shall be deemed to be a continuing default and (d) neither the Debt, this Mortgage, the Notes, the Credit Agreement nor the other Loan Instruments, shall be or shall be deemed to have been affected by such withdrawal, discontinuance or abandonment; and Mortgagor hereby expressly waives the benefit of any statute or rule of law now provided, or which may hereafter conflict with the above. 28. No Reinstatement. If a default shall have occurred and Mortgagee shall have proceeded to enforce any right, power or remedy permitted hereunder, then a tender of payment by Mortgagor or by anyone on behalf of Mortgagor of any amount less than the amount necessary to satisfy the Debt in full, or the acceptance by Mortgagee of any such payment so tendered, shall not constitute a reinstatement of this Mortgage, the Notes, the Credit Agreement or any Loan Instrument. 21 29. Mortgagor's Waiver of Rights. To the full extent permitted by law, except as otherwise specifically and expressly provided in this Mortgage, the Credit Agreement or any Loan Instrument, Mortgagor waives the benefit of all laws now existing or that hereafter may be enacted providing for (i) any appraisement before sale of any portion of the Mortgaged Property and (ii) the benefit of all Laws that may be hereafter enacted in any way extending the time for the enforcement of the collection of the Debt, or creating or extending a period of redemption from any sale made in collecting said Debt. To the full extent that Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, or any so-called "Moratorium Laws" and Mortgagor, for Mortgagor and its successors and assigns, and for any and all persons ever claiming any interest in the Mortgaged Property, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of the secured indebtedness and marshaling in the event of foreclosure of the liens hereby created. If any .Law referred to in this paragraph and now in force, of which Mortgagor, Mortgagor's successors and assigns or any other person might take advantage despite this paragraph, shall hereafter be repealed or cease to be in force, such Law shall not thereafter be deemed to preclude the application of this paragraph. 30. Non-Waiver. The failure of Mortgagee to insist upon strict performance of any term of this Mortgage shall not be deemed to be a waiver of any term of this Mortgage. Borrowers shall not be relieved of their obligation to pay the Debt at the time and in the manner provided for its payment in the Notes, the Credit Agreement and the Loan Instruments (nor shall any of Mortgagor's other obligations hereunder, under the Credit Agreement or the other Loan Instruments, nor shall the other Borrowers' obligations under the Credit Agreement or the other Loan Instruments be in any way affected) by reason of (i) failure of Mortgagee to comply with any request of Mortgagor or the other Borrowers to take any action to foreclose this Mortgage or otherwise enforce any of the provisions hereof or of the Notes, the Credit Agreement, any other Loan Instruments or any other mortgage, instrument or document evidencing, securing or guaranteeing payment of the Debt or 22 any portion thereof, (ii) the release, regardless of consideration, of the whole or any part of the Mortgaged Property or any other security for the Debt, or (iii) any agreement or stipulation between mortgagee and any subsequent owner or owners of the Mortgaged Property or other person extending the time of payment or otherwise modifying or supplementing the terms of the Notes, the Credit Agreement, the Loan Instruments, this Mortgage or any other mortgage, instrument or document evidencing, securing or guaranteeing payment of the Debt or any portion thereof, without first having obtained the consent of Mortgagor, and in the latter event, Mortgagor shall continue to be obligated to pay the Debt at the time and in the manner provided in the Notes, the Credit Agreement, the Loan Instruments, and this Mortgage (as so extended, modified or supplemented, if such be the case) and shall continue to be obligated to perform its other obligations hereunder and under the Credit Agreement and the Loan Instruments (in each case, as so extended, modified and supplemented) unless expressly released and discharged from such obligation by Mortgagee in writing. Regardless of consideration, and without the necessity for any notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Mortgaged Property, Mortgagee may release any person at any time liable for the payment of the Debt or any portion thereof or any part of the security held for the Debt and may extend the time of payment or otherwise modify the terms of the Notes, the Credit Agreement, the Loan Instruments or this Mortgage (including, without limitation, a modification of the interest rate payable on the principal balance of the Notes) without in any manner impairing or affecting this Mortgage or the lien thereof or the priority of this Mortgage, as so extended and modified, as security for the Debt over any such subordinate lien, encumbrance, right, title or interest. 31. Remedies Cumulative. Mortgagee may resort for the payment of the Debt to any other security held by Mortgagee in such order and manner as Mortgagee, in its discretion, may elect. Mortgagee may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the rights of Mortgagee thereafter to foreclose this Mortgage. Mortgagee shall not be limited exclusively to the rights and remedies herein stated but shall be entitled to every additional right and remedy now or hereafter afforded by Law or equity. The rights of mortgagee under this Mortgage shall be separate, 23 distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Mortgagee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Mortgagee shall be entitled to enforce payment of the Debt and performance of any of the obligations of the Mortgagor and to exercise all rights and powers under this Mortgage or under any other Loan Instrument or any Laws now or hereafter in force, notwithstanding that some or all of such obligations may now or hereafter be otherwise secured, whether by mortgage, pledge, lien, assignment or otherwise; neither the acceptance of this Mortgage nor its enforcement, whether by court action or pursuant to other powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by the Mortgagor, it being stipulated that Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held by Mortgagee in such order and manner as Mortgagee, in accordance with the terms hereof, may determine; every power or remedy given by the Credit Agreement, this Mortgage or any of the other Loan Instruments to the Mortgagee or to which the Mortgagee is otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. 32. Liability. If Mortgagor consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. 33. Prepayment After Default. If following the occurrence of any default under this mortgage and an exercise by Mortgagee of its option to declare the Debt immediately due, Mortgagor shall tender payment of an amount sufficient to satisfy the entire Debt at any time prior to a sale of the Mortgaged Property any such payment shall be accepted by Mortgagee only if such payment is permitted at such time under the provisions of the Credit Agreement. 34. Construction. The terms of this Mortgage shall be construed in accordance with the laws of the State of New Jersey. 35. Security Agreement. This Mortgage constitutes both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code of the State of New Jersey and the Mortgaged Property 24 includes both real and personal property and all other rights and interest, whether tangible or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor, by executing and delivering this Mortgage, has granted to Mortgagee, as security for the Debt, a security interest in such of the Mortgaged Property as is governed by the Uniform Commercial Code. Upon the occurrence and continuation of an Event of Default hereunder, Mortgagee, in addition to any other rights and remedies which it may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code including, without limiting the generality of the foregoing, the right to take possession of such of the Mortgaged Property as is governed by the Uniform Commercial Code personally, through an agent or by means of a court-appointed receiver, and to take such other measures as Mortgage may deem necessary for the care, protection and preservation of such part of the Mortgaged Property. Upon request or demand of Mortgagee, Mortgagor shall at its expense assemble such of the Mortgaged Property as is governed by the Uniform Commercial Code and make it available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses, including reasonable legal expense and attorneys' fees, incurred or paid by Mortgagee in protecting the interest in the Mortgaged Property herein granted and in enforcing its rights hereunder with respect to such part of the Mortgaged Property. Any notice of sale, disposition or other intended action by Mortgagee with respect to such part of the Mortgaged Property sent to Mortgagor in accordance with the provisions of this mortgage at least five (5) days prior to the date of any such sale, disposition or other action, shall constitute reasonable notice to Mortgagor, and the method of sale or disposition or other intended action set forth or specified in such notice shall conclusively be deemed to be commercially reasonable within the meaning of the Uniform Commercial Code unless objected to in writing by Mortgagor within three (3) days after receipt by Mortgagor of such notice. 36. Further Acts, etc. Mortgagor will, at the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Mortgagee shall, from time to time, require, for the better assuring, conveying, assigning, transferring and confirming unto 25 mortgagee the property and rights hereby mortgaged or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage or for filing, registering or recording this Mortgage and, on demand, will execute and deliver and hereby authorizes Mortgagee to execute in the name of Mortgagor to the extent Mortgagee may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments, to evidence more effectively the lien hereof upon the Mortgaged Property. 37. Headings, etc. The headings and captions of various paragraphs of this Mortgage are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. 38. Recording of Mortgage, etc. Mortgagor forthwith upon the execution and delivery of this Mortgage and thereafter, from time to time, will cause this Mortgage, and any security instrument creating a lien or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the interest of Mortgagee in the Mortgaged Property. Mortgagor will pay all filing, registration or recording fees, and all expenses actually incurred incident to the preparation, execution and acknowledgment of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Mortgaged Property and any instrument of further assurance, and all Federal, state, county and municipal taxes, duties, imposts, assessments and charges (including, without limitation, documentary stamp taxes and intangible personal property taxes) arising out of or in connection with the execution and delivery of this Mortgage or the Debt secured hereby, any mortgage supplemental hereto, any security instrument or financing statement with respect to the Mortgaged Property or any instrument of further assurance. Mortgagor shall hold harmless and indemnify Mortgagee, its successors and assigns, against any liability incurred by reason of the imposition of any tax on the making and recording of this Mortgage. 26 39. Usury Laws. This Mortgage, the Credit Agreement and the Notes are subject to the express condition that at no time shall Mortgagor be obligated or required to pay interest on the principal balance due under the Notes at a rate which could subject the holder of the Notes to either civil or criminal liability as a result of being in excess of the maximum interest rate which Mortgagor is permitted by Law to contract or agree to pay. If by the terms of this Mortgage, the Credit Agreement or the Notes, Mortgagor is at any time required or obligated to pay interest on the principal balance due under the Notes at a rate in excess of such maximum rate, the rate of interest under the Notes (and the Credit Agreement) shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Notes. 40. Sole Discretion of Mortgagee. Except as otherwise specifically provided in this Mortgage, wherever pursuant to this Mortgage, Mortgagee exercises any right given to it to consent or to withhold its consent, to approve or disapprove, or any arrangement or term is to be satisfactory to Mortgagee, the decision of Mortgagee to consent or to withhold its consent, to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Mortgagee and shall be final and conclusive. 41. Recovery of Sums Required To Be Paid. Mortgagee shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Debt as the same become due, without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Mortgagee thereafter to bring an action of foreclosure, or any other action, f(r a default or defaults by Mortgagor existing at the time such earlier action was commenced. 42. Absolute and Unconditional Obligation. Mortgagor acknowledges that Borrower's obligation to pay the Debt in accordance with the provisions of the Notes, the Credit Agreement and the Loan Instruments is and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any 27 nature whatsoever which might otherwise constitute a defense to the Notes, the Credit Agreement or any of the Loan Instruments or the obligation of Borrowers thereunder to pay the Debt or the obligations of any other person relating to the Notes, the Credit Agreement or any of the Loan Instruments or the obligations of Borrowers under the Notes, the Credit Agreement or any of the Loan Instruments, and to the full extent permitted by law, Mortgagor absolutely, unconditionally and irrevocably waives any and all right to assert any defense, setoff, counterclaim or crossclaim of any nature whatsoever with respect to the obligation of Borrowers to pay the Debt in accordance with the provisions of the Notes, the Credit Agreement and the Loan Instruments or the obligations of any other person relating to the Notes, the Credit Agreement or any of the Loan Instruments or the obligations of Borrowers under the Notes, the Credit Agreement or any of the Loan Instruments, or in any action or proceeding brought by Mortgagee to collect the Debt, or any portion thereof, or to enforce, foreclose and realize upon the lien and security interest created by this Mortgage or any other document or instrument securing repayment of the Debt, in whole or in part. 43. Indemnification; Waiver of Offset. (a) If Mortgagee, Agent or any of the Secured Parties are made a party defendant to any litigation concerning the Notes, the Credit Agreement, this Mortgage, any other Loan Instrument or the Mortgaged Property or any part thereof or interest therein, or the occupancy thereof by Mortgagor, then Mortgagor shall indemnify, defend and hold Mortgagee and/or such Secured Parties, as the case may be, harmless from all liability by reason of said litigation, including reasonable attorneys' fees and expenses incurred by Mortgagee and/or such Secured Parties, as the case may be, in any such litigation, whether or not any such litigation is prosecuted to judgment. If Mortgagee commences an action against Mortgagor to enforce any of the terms hereof or because of the breach by Mortgagor of any of the terms hereof or for the recovery of any sum secured hereby, Mortgagor shall pay the Mortgagee's attorneys' fees and expenses, together with interest thereon at the Default Interest Rate from the date the same are paid to the date of reimbursement by Mortgagor and the right to such reasonable attorneys' fees and expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. If 28 Mortgagor breaches any term of this Mortgage, the Mortgagee may engage an attorney or attorneys to protect Mortgagee's rights hereunder, and in the event of such engagement following any breach by Mortgagor, Mortgagor shall pay the Mortgagee's reasonable attorneys' fees and expenses so incurred, whether or not an action is actually commenced against Mortgagor by reason of breach. (b) All sums secured by this Mortgage shall be paid in accordance with the Credit Agreement, the Notes, and any other Loan Instruments, as applicable, and without counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Mortgagor hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of (i) any claim which any of the Borrowers (or Mortgagor) have or might have against Mortgagee or any of the Secured Parties or (ii) any default or failure on the part of the Mortgagee to perform or comply with any of the terms hereof or of any other agreement with any of the Borrowers (or Mortgagor). 44. Authority. Mortgagor (and the undersigned representative of Mortgagor) has full power, authority and legal right to execute this Mortgage and to mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm and assign the Mortgaged Property pursuant to the terms hereof and to keep and observe all of the terms of this mortgage on Mortgagor's part to be kept and observed. 45. Actions and Proceedings. Mortgagee shall have the right to appear in and defend any action or proceeding brought with respect to the Mortgaged Property and to bring any action or proceeding, in the name and on behalf of Mortgagor, which the Mortgagee, in its reasonable discretion, feels should be brought to protect the Mortgagee's interest in the Mortgaged Property. 46. Inapplicable Provisions. If any term, covenant or condition of this Mortgage shall be held to be invalid, illegal or unenforceable in any respect, this mortgage shall be construed without such provision. 47. Duplicate originals. This Mortgage may be executed in any number of duplicate originals and each such 29 duplicate original shall be deemed to constitute but one and the same instrument. 48. Certain Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Mortgage shall be used interchangeably in singular or plural form and the word "Mortgagor" shall mean Mortgagor and any subsequent owner or owners of the Mortgaged Property or any part thereof or interest therein; the word "Agent" shall mean Agent or any successor agent appointed by the Secured Parties; the word "Notes" shall mean each of the Notes or any other evidence of indebtedness secured by this Mortgage; the word "Borrowers" shall mean each of the Mortgagor and NRG Generating (Newark) Cogeneration Inc. or either of them, as the context requires, and any person becoming a borrower under the Credit Agreement and their respective heirs, executors, administrators, legal representatives, successors and assigns; the word "Mortgagee', shall mean all of or any of the entities constituting Mortgagee, as the context requires, and shall include the rights of Agent to act on behalf of the Secured Parties under and pursuant to the Credit Agreement; and the words "Mortgaged Property" shall include any portion of the Mortgaged Property or interest therein; the word "Debt" shall mean all sums and performance secured by this Mortgage. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. 49. Remedies Not Exclusive. Mortgagee shall be entitled to enforce payment and performance of any indebtedness or obligations secured hereby and to exercise all rights and powers granted under this Mortgage or under the Credit Agreement or the Notes or under any of the Loan Instruments or under any Laws now or hereafter in force, notwithstanding some or all of the said indebtedness and obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its enforcement, whether by court action or other powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held 30 by Mortgagee, in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other remedy herein or by Law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at Law or in equity or by statute. Every right, power or remedy given by the Credit Agreement, this Mortgage or any of the Loan Instruments to Mortgagee may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. Every right, power or remedy given by this Mortgage to the Mortgagee may be exercised by Agent on behalf of all Secured Parties pursuant to the Credit Agreement, whether so expressed or not. 50. Joinder of Individual Special CO-Agent. An individual, appointed by Agent in its discretion, may be joined as special co-agent (in such capacity, the "Special Co-Agent") hereunder in order to comply with any legal requirements respecting agents under mortgages of property in the jurisdiction in which the Mortgaged Property or any part thereof is or may be situated so that if, by any present or future law in New Jersey or in any jurisdiction in which it may be necessary to perform any act in the exercise of the rights of Mortgagee hereunder, the Agent shall be incompetent or unqualified to so act, then all of the acts required to be performed in such jurisdiction in the exercise of the rights of Mortgagee hereunder created hereby shall be performed by the Special CO-Agent and the Agent jointly, or the Special Co-Agent acting alone. In case the Special Co-Agent shall resign or be removed, or die or become incapable of acting, Mortgagee's interest in the Mortgaged Property, and all rights, powers, trusts, duties and obligations of Mortgagee shall, so far as permitted by law, vest in and be exercised by the Agent, unless and until a successor Special Co-Agent shall be appointed. The Special Co-Agent shall not be personally liable by reason of any act or omission of the Agent or any co- agent or separate agent or by reason of any act or omission of the Special Co-Agent taken or omitted to be taken pursuant to written instructions received by him from the Agent. Notice to the Agent or a co-agent or separate agent shall not constitute notice to the Special Co-Agent unless and until such notice is actually received by the Special Co-Agent. 31 51. Relationship. The relationship of Mortgagee to Mortgagor hereunder is strictly and solely that of lender and borrower and nothing contained in the Notes, this Mortgage, the Credit Agreement, or any other Loan Instrument is intended to create, or shall in any event or under any circumstance be construed as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or other relationship of any nature whatsoever between Mortgagee and Mortgagor other than as lender and borrower. 52. Waiver of Notice. Mortgagor shall not be entitled to any notices of any nature whatsoever from Mortgagee except with respect to matters for which this Mortgage specifically and expressly provides for the giving of notice by Mortgagee to Mortgagor and Mortgagor hereby expressly waives the right to receive any notice from Mortgagee with respect to any matter for which this mortgage does not specifically and expressly provide for the giving of notice by Mortgagee to Mortgagor. 53. Waiver of Trial by Jury. Mortgagor hereby irrevocably and unconditionally waives, and Mortgagee by its acceptance of the Notes and this Mortgage irrevocably and I unconditionally waives, any and all rights to trial by jury in any action, suit or counterclaim arising in connection with, out of or otherwise relating to the Notes, this Mortgage, the Credit Agreement, or the other Loan Instruments. 54. Waiver of Statutory Rights. Mortgagor shall not and will not apply for or avail itself of any appraisement, valuation, stay, extension or exemption laws, or any so-called "moratorium laws," now existing or hereafter enacted, in order to prevent or hinder the enforcement or foreclosure of this Mortgage, but hereby waives the benefit of such laws to the full extent that Mortgagor may do so under applicable law. Mortgagor, for itself and all who may claim through or under it, waives any and all right to have the property and estates comprising the Mortgaged Property marshalled upon any foreclosure of the lien of this Mortgage and agrees that any court having jurisdiction to foreclose such lien may order the Mortgaged Property sold as an entirety. Mortgagor hereby waives for itself and all who may claim through or under it, and to the full extent Mortgagor may do so under applicable law, any and all rights of redemption from sale under any order or 32 decree of foreclosure of this Mortgage or granted under any statute now existing or hereafter enacted. 55. Credit Agreement. This Mortgage is subject to all of the terms, covenants and conditions of the Credit Agreement, which Credit Agreement and all of the terms, covenants and conditions thereof are by this reference incorporated herein and made a part hereof with the same force and effect as if set forth at length herein. The proceeds of the Funding Loans and Debt Service Loans secured hereby are to be advanced by Mortgagee to Mortgagor in accordance with the provisions of the Credit Agreement. Mortgagor shall observe and perform all of the terms, covenants and conditions of the Credit Agreement on Mortgagor's part to be observed or performed. All advances made and all indebtedness arising and accruing under the Credit Agreement with respect to the Funding Loans or Debt Service Loans thereunder from time to time shall be secured hereby. In the event of any conflict or ambiguity between the terms, covenants and conditions of this Mortgage and the Credit Agreement, the terms, covenants and conditions which shall enlarge the rights and remedies of Mortgagee and the interest of Mortgagee in the Mortgaged Property, afford Mortgagee greater financial security in the Mortgaged Property and better assure Payment of the Debt in full, shall control. 56. No Oral Change. This Mortgage may only be modified or amended by an agreement in writing signed by Mortgagor and Mortgagee, and may only be released, discharged or satisfied of record by an agreement in writing signed by Mortgagee. No waiver of any term, covenant or provision of this Mortgage shall be effective unless given in writing by Mortgagee and if so given by Mortgagee shall only be effective in the specific instance in which given. Mortgagor acknowledges that the Notes, this Mortgage, the Credit Agreement and the other Loan Instruments set forth the entire agreement and understanding of Mortgagor and Borrowers with respect to the Debt secured hereby and that no oral or other agreements, understanding, representation or warranties exist with respect to the Debt secured hereby other than those set forth in the Notes, this Mortgage, the Credit Agreement and the other Loan Instruments. 57. True Copy. Mortgagor acknowledges receipt of a true copy of this Mortgage. 33 58. Amendment and Restatement of Existing Mortgage. The terms covenants and conditions of this Mortgage supersede and restate in their entirety the terms, covenants and conditions of the Existing mortgage. IN WITNESS WHEREOF, This Mortgage has been duly executed as of the day and year first above written under seal. ATTEST: NRG GENERATING (NEWARK) COGENERATION INC. /s/ By: /s/ Leonard Bluhm Name: Name: Leonard A. Bluhm Title: Title: President 34 STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK ) Be it remembered that on this 28th day of June, 1996, before me, /s/ Barbara J. Vitale, a notary public, personally appeared Leonard A. Bluhm, the President of NRG GENERATING (NEWARK) COGENERATION INC., who I am satisfied is the person who has signed the foregoing instrument, and he did acknowledge that he signed, sealed with the seal of the said corporation, and delivered said instrument as the officer above stated, and that the foregoing instrument is the voluntary act and deed of said corporation, made by virtue of the authority of its board of directors. /s/ Barbara J. Vitale Notary Public My commission expires: [Seal] EXHIBIT A (Description of Premises) ALL THAT CERTAIN TRACT, PARCEL AND LOT OF LAND LYING AND BEING SITUATE IN THE CITY OF NEWARK, COUNTY OF ESSEX, STATE OF NEW JERSEY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE NORTHEASTERLY SECTION OF LOT 75 BLOCK 2412 AS SHOWN ON THE CITY OF NEWARK TAX MAPS, WHICH POINT IS DISTANT SOUTHERLY 28.01 FEET MEASURED AT RIGHT ANGLES FROM THE SOUTHERLY LINE OF LANDS NOW OR FORMERLY OF CENTRAL RAILROAD OF NEW JERSEY AND DISTANT WESTERLY 62.74 FEET MEASURED AT RIGHT ANGLES FROM THE WESTERLY SIDE OF BLANCHARD STREET (50 FEET WIDE); THENCE (1) SOUTH 13 DEGREES 04 MINUTES 40 SECONDS EAST 98.26 FEET; THENCE (2) SOUTH 01 DEGREES 30 MINUTES WEST 73.90 FEET; THENCE (3) NORTH 88 DEGREES 30 MINUTES WEST 191.00 FEET; THENCE (4) NORTH 01 DEGREES 30 MINUTES EAST 175.00 FEET; THENCE (5) SOUTH 86 DEGREES 26 MINUTES EAST 166.37 FEET TO THE POINT OR PLACE OF BEGINNING. EXHIBIT B (Description of Easements) SPECIFIC ACCESS EASEMENT SURROUNDING THE ABOVE MENTIONED PROPERTY: PROVIDED THAT TENANT SHALL NOT INTERFERE WITH THE CONDUCT OF LANDLORD'S BUSINESS OPERATION AT THE ENTIRE PROPERTY, TENANT, ITS AGENT, CONTRACTORS, EMPLOYEES AND INVITEES SHALL RAVE THE NON-EXCLUSIVE RIGHT OF ACCESS TO AND INGRESS AND EGRESS FOR PERSONNEL, TRUCKS AND OTHER VEHICLES OVER THAT PORTION OF THE ENTIRE PREMISES WHICH IS DESCRIBED AS TRACT I DESCRIBED ON EXHIBIT C HERETO. TOGETHER WITH THOSE CERTAIN EASEMENTS FOR PARKING, INTERCONNECTION FACILITIES, REPAIR EASEMENTS, DRY WELL SYSTEMS, UTILITIES, ACCESS, AND OTHER EASEMENTS GRANTED BY NEWARK GROUP INDUSTRIES, INC., TO O'BRIEN (NEWARK) COGENERATION, INC., PURSUANT TO THAT CERTAIN UNRECORDED LEASE DATED JULY 18, 1988, A MEMORANDUM OF WHICH WAS RECORDED IN DEED BOOK 5036 PAGE 617, ESSEX COUNTY, NEW JERSEY RECORDS OVER ALL OR PART OF THE PREMISES DESCRIBED AS .TRACT II DESCRIBED ON EXHIBIT C HERETO. BEING IN ACCORDANCE WITH A SURVEY PREPARED BY CASEY & KELLER, INC., DATED APRIL 29, 1996. EXHIBIT C (Description of Easement Premises) TRACT I BEGINNING AT A POINT IN THE WESTERLY SIDE OF BLANCHARD STREET (50 FEET WIDE) WHERE THE SAME IS INTERSECTED BY THE SOUTHERLY LINE OF LANDS NOW OR FORMERLY OF CENTRAL RAILROAD OF NEW JERSEY, LOT 90 BLOCK 2412 AS SHOWN ON THE CITY OF NEWARK TAX MAPS; THENCE (1) ALONG SAID SIDE OF BLANCHARD STREET SOUTH 01 DEGREES 30 MINUTES WEST 202.50 FEET; THENCE (2) NORTH 88 DEGREES 30 MINUTES WEST 249.00 FEET; THENCE (3) NORTH 01 DEGREES 30 MINUTES EAST 204.17 FEET TO A POINT ON THE SOUTHERLY LINE OF LANDS NOW OR FORMERLY CENTRAL RAILROAD OF NEW JERSEY AFORESAID; THENCE (4) ALONG SAID LANDS EASTERLY ON THE ARC OF A CURVE, CURVING TO THE RIGHT WITH A RADIUS OF 298.45 FEET FOR DISTANCE OF 66.20 FEET TO A POINT OF TANGENCY IN THE SAME; THENCE (5) STILL ALONG SAID LANDS SOUTH 86 DEGREES 26 MINUTES EAST 183.24 FEET TO THE WESTERLY SIDE OF BLANCHARD STREET AND THE POINT OR PLACE OF BEGINNING. TRACT II THOSE CERTAIN LANDS OWNED BY NEWARK GROUP INDUSTRIES, INC. (FORMERLY KNOWN AS PAPERBOARD MANUFACTURERS OF NEWARK, INC.), WITH A STREET ADDRESS AT 60 LOCKWOOD STREET, NEWARK, NEW JERSEY AND BEING TAX LOTS 75 AND 58 IN BLOCK 2412 ON THE NEWARK, NEW JERSEY MUNICIPAL TAX MAP. EX-10.8.9 4 EXHIBIT 10.8.9 LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT DATED JUNE 28, 1996 BETWEEN NRGG PARLIN AND CREDIT SUISSE. Exhibit 10.8.9 NRG GENERATING (PARLIN) COGENERATION INC., as Mortgagor to CREDIT SUISSE, AS AGENT FOR THE SECURED PARTIES, as Mortgagee LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (Leasehold and Easements) Dated: As of June 28, 1996 Location: Part of Lot 1, Block 41 and Lot 1.04, Block 42 Borough of Sayreville County of Middlesex State of New Jersey RECORD AND RETURN TO: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Richard Sonkin, Esq. MIDDLESEX COUNTY, NEW JERSEY This instrument prepared by: /s/ Christopher C. Beers Name: Christopher C. Beers LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT THIS LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (this "Mortgage") made as of the 28th day of June, 1996 by NRG GENERATING (PARLIN) COGENERATION INC., a Delaware corporation having an address at c/o NRG Energy, Inc., 1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403 ("Mortgagor") and CREDIT SUISSE having an address at Tower 49, 12 East 49th Street, New York, New York 10017, as agent (in such capacity, "Agent") on behalf of and for the benefit of the Secured Parties under the Credit Agreement (defined below) (the Agent, acting on its own behalf and on behalf of the Secured Parties pursuant to the Credit Agreement being hereinafter referred to as "Mortgagee"), W I T N E S S E T H : WHEREAS, Mortgagor is the owner and holder of a leasehold estate in the premises described in Exhibit A attached hereto (hereinafter referred to as the "Leasehold Premises") pursuant to a certain Ground Lease dated as of January 2, 1987 between E. I. Du Pont de Nemours and Company and O'Brien Energy Systems, Inc., a memorandum of which was recorded in the Middlesex County Clerk's office on December 15, 1988, in Deed Book 3751, page 4 (hereinafter referred to as the "Ground Lease"); WHEREAS, Mortgagor is also the holder of the those easement rights pursuant to the instruments described in Exhibit B attached hereto (collectively, the "Easements"), which Easements pertain to the premises, or to portions thereof, described therein (collectively, the "Easement Premises" and together with the Leasehold Premises being hereinafter collectively referred to as the "Premises"); WHEREAS, Mortgagor proposes to operate on the Premises an existing 122 MW power plant, including the related electric power transmission, fuel supply and fuel transportation facilities, fuel storage facilities and other facilities and goods that are ancillary, incidental, necessary or reasonably related to the marketing, management, servicing, ownership or operation of the foregoing (the "Parlin Plant"); WHEREAS, Mortgagee has simultaneously herewith extended to Mortgagor and NRG Generating (Newark) Cogeneration Inc. ("NRG (Newark)"; Mortgagor and NRG (Newark) being hereinafter collectively referred to as "Borrowers") (i) certain loans in the aggregate principal amount of ONE HUNDRED FIFTY-FIVE MILLION and No/100 DOLLARS ($155,000,000) (collectively, the "Funding Loans") and (ii) a certain debt service line of credit facility commitment in the principal amount of up to FIVE MILLION and No/100 DOLLARS ($5,000,000) (the "Debt Service Loans"), which (a) Funding Loans are to be advanced pursuant and subject to the terms and conditions of a certain Credit Agreement dated as of May 17, 1996 among Mortgagee, Credit Suisse, Greenwich Funding Corporation and any other Purchasing Lender and the Borrowers (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement") and shall be evidenced by the Funding Loan Notes, and (b) Debt Service Loans are to be advanced pursuant and subject to the terms and conditions of the Credit Agreement and shall be evidenced by the Debt Service Loan Notes, and which Funding Loans and Debt Service Loans shall be secured, in part, by this Mortgage; WHEREAS, the Borrowers are to be jointly and severally liable for the repayment of the Funding Loans and the Debt Service Loans; WHEREAS, all capitalized terms not otherwise defined in this Mortgage shall have the meaning given such terms in the Credit Agreement; WHEREAS, it is a condition precedent to the making of certain of the Funding Loans and the availability of the Debt Service Loans under the Credit Agreement that Mortgagor shall execute and deliver this Mortgage and grant the security interests pursuant to this Mortgage to the Agent for the benefit of the Secured Parties as security for the obligations of Borrowers under the Credit Agreement and the other Loan Instruments; NOW, THEREFORE, to secure the payment and performance of the Debt (hereinafter defined) and the performance of the Borrowers' obligations under the Credit Agreement and the Loan Instruments and the performance of the Mortgagor's obligations under this Mortgage, Mortgagor has mortgaged, given, granted, bargained, sold, aliened, enfeoffed, conveyed, confirmed and assigned, and by these presents does mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm and assign unto Mortgagee all right, title and interest of Mortgagor now owned, or hereafter acquired, in and to the following property, rights and interests (such property, rights and interests being hereinafter collectively referred to as the "Mortgaged Property"): 2 (a) the Leasehold Premises; (b) all buildings, improvements and fixtures now or hereafter located on the Leasehold Premises, including, but not limited to, the Parlin Plant (the "Leasehold Premises Improvements"); (c) the Ground Lease and the leasehold estate created thereunder and all other rights and interests of the tenant thereunder; (d) all modifications, extensions and renewals of the Ground Lease and all credits, deposits, options, privileges and rights of tenant under the Ground Lease, including, but not limited to, the right to exercise options, to give consents and to receive moneys payable to the tenant thereunder or in connection therewith; (e) the Easements and the interests created thereunder and in connection therewith; (f) any and all portions of the Parlin Plant now or hereafter located on the Easement Premises (the "Easement Improvements" and, together with the Leasehold Premises Improvements, being hereinafter collectively referred to as the "Improvements"); (g) all the estate, right, title, claim or demand of any nature whatsoever of Mortgagor, either in law or in equity, in possession or expectancy, in and to the Mortgaged Property or any part thereof; (h) any and all easements (other than the Easements), rights-of-way, gores of land, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments, revocable consents, options, appendages and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Mortgaged Property (including, but not limited to, any and all development rights, option rights, air rights or similar or comparable rights of any nature whatsoever now or hereafter appurtenant to the Premises or now or hereafter transferred to the Premises) and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Premises to the center line thereof; 3 (i) all machinery, apparatus, equipment, fittings, fixtures and other property of every kind and nature whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter located upon the Premises, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Mortgaged Property and all equipment, materials, supplies, apparatus and other items now or hereafter attached to, installed in or used on the Premises (temporarily or permanently) of any nature whatsoever and all renewals, replacements and substitutions thereof and additions thereto, including but not limited to any and all partitions, ducts, shafts, pipes, radiators, conduits, wiring, floor coverings, awnings, motors, engines, boilers, stokers, pumps, dynamos, transformers, turbines, generators, fans, blowers, vents, switchboards, elevators, mail or coal conveyors, escalators, compressors, furnaces, cleaning equipment, call and sprinkler systems, fire extinguishing apparatus, water and other tanks, heating, ventilating, plumbing, laundry, incinerating, air conditioning and air cooling systems and water, gas, telephone, telecommunications, telemetry and electric equipment (collectively, the "Equipment"), and the right, title and interest of Mortgagor in and to any of the Equipment which may be subject to any security agreements (as defined in the Uniform Commercial Code of the State of New Jersey (the "Uniform Commercial Code")), superior in lien to the lien of this Mortgage; (j) all awards or payments, including interest thereon, and the right to receive the same, which may be made with respect to the Mortgaged Property, whether from state fund sharing or from the exercise of the right of eminent domain (including any transfer made in lieu of the exercise of said right), changes of grade of street or for any other injury to or decrease in the value of the Mortgaged Property, whether direct or consequential, which said awards and payments are hereby assigned to Mortgagee, and Mortgagee is hereby authorized to collect and receive the proceeds thereof and to give proper receipts and acquittances therefor; (k) all refunds or rebates of Taxes (as hereinafter defined) or charges in lieu of Taxes, now or hereafter assessed or levied against the Mortgaged Property; 4 (1) all leases (including oil, gas and other mineral leases), subleases, franchises, licenses, concessions, permits, contracts (including, without limitation, the Parlin Power Purchase Agreement and the Parlin Steam Agreement) and other agreements (other than the Ground Lease and the Easements) affecting the use or occupancy of the Mortgaged Property now or hereafter entered into and any renewals or extensions thereof (collectively, the "Other Leases"); (m) the right to receive and apply the rents, issues and profits of the Mortgaged Property under the Other Leases (collectively, the "Rents") to the payment of the Debt; (n) all inventory, accounts and general intangibles owned by Mortgagor or in which Mortgagor now or hereafter shall have any right, title or interest, now or hereafter located upon, arising in connection with or concerning the Mortgaged Property; (o) all proceeds of and any unearned premiums on any insurance policies covering the Mortgaged Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Mortgaged Property; (p) to the extent permitted by law, the right, in the name and on behalf of Mortgagor, to appear in and defend any action or proceeding brought with respect to the Mortgaged Property and to commence any action or proceeding to protect the interest of Mortgagee in the Mortgaged Property; (q) all of Mortgagor's right, title and interest in and to all plans and specifications prepared for or in connection with the Improvements and all studies, data and drawings related thereto; and (r) all products and proceeds of any of the Mortgaged Property herein described. TO HAVE AND TO HOLD the above granted and described Mortgaged Property unto and to the proper use and benefit of Mortgagee, and the successors and assigns of Mortgagee, forever, to secure the following obligations (hereinafter collectively referred to as the "Debt"): 5 (i) payment of the indebtedness evidenced by the Funding Loan Notes; (ii) payment of the indebtedness evidenced by the Debt Service Loan Notes (the Funding Loan Notes and the Debt Service Loan Notes being hereinafter collectively referred to as the "Notes"); (iii) payment of all amounts owing pursuant to any Interest Rate Hedge Agreement; (iv) payment, performance and observance of each term, covenant and condition to be paid, performed or observed by Borrowers under the Credit Agreement, the Notes and the other Loan Instruments; (v) payment of all sums required to be paid and performance and observance of each term, covenant and condition contained in this Mortgage to be performed or observed by Mortgagor under this mortgage; and (vi) payment of all sums expended or advanced by Mortgagee pursuant to the terms of this Mortgage, the Credit Agreement or any other Loan Instruments. PROVIDED, ALWAYS, and these presents are upon this express condition, if Borrowers shall well and truly pay to Mortgagee the Debt at the time and in the manner provided in the Notes, the Credit Agreement and the Loan Instruments and shall well and truly abide by and comply with each and every covenant and condition set forth herein, in the Notes, the Credit Agreement and the Loan Instruments then these presents and the estate hereby granted shall cease, determine and be void. AND Mortgagor covenants with and represents and warrants to Mortgagee as follows: 1. Payment of Debt. Mortgagor shall pay the Debt at the time and in the manner provided for its payment in the Notes, the Credit Agreement and the Loan Instruments. 2. Warranty of Title. Subject only to the Permitted Liens, Mortgagor warrants that Mortgagor is the owner and holder of W a leasehold estate in and to the Leasehold Premises, (ii) the right to use and enjoy the Easements, (iii) marketable title to the improvements and Equipment, and (iv) good title to all other portions of the Mortgaged Property. Mortgagor covenants that Mortgagor will at all times and at Mortgagor's sole expense warrant and 6 defend the title to the Mortgaged Property against the claims and demands of all persons whomsoever except for Permitted Liens. In addition, Mortgagor represents and warrants that (i) the Ground Lease is in full force and effect and has not been modified or amended in any manner whatsoever, (ii) there are no uncured defaults under the Ground Lease and no event has occurred, which but for the passage of time, or notice, or both, would constitute a default under the Ground Lease, (iii) all rents and other payments due and payable under the Ground Lease have been paid in full and (iv) no action is pending and no notice has been given or received for the purpose of terminating, and no event has occurred or condition exists that could result in termination of, the Ground Lease. 3. Insurance. Mortgagor will keep the Improvements and the Equipment insured as shall, from time to time, be required in accordance with Sections 4.25 and 5.12 of the Credit Agreement. If at any time Mortgagee is not in receipt of written evidence that all insurance required hereunder and under the Credit Agreement is in full force and effect, Mortgagee shall have the right without notice to Mortgagor to take such action as Mortgagee deems necessary to protect the Mortgaged Property, including, without limitation, the obtaining of such insurance coverage as Mortgagee in its sole discretion deems appropriate, and all expenses incurred by Mortgagee in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Mortgagor to Mortgagee upon demand. Any amounts not so paid by Mortgagor shall be deemed secured by this Mortgage. Mortgagor shall at all times comply with and shall cause the Improvements and Equipment and the use, occupancy, operation, maintenance, alteration, repair and restoration thereof to comply with the terms, conditions, stipulations and requirements of the insurance policies procured and maintained pursuant to Sections 4.25 and 5.12 of the Credit Agreement (the "Policies"). If the Premises, or any portion thereof, is determined to be located in a Federally designated "special flood hazard area", in addition to the other Policies required under this paragraph, a flood insurance policy shall be delivered by Mortgagor to Mortgagee. If no portion of the Premises is located in a Federally designated "special flood hazard area", such fact shall be substantiated by a certificate in form reasonably satisfactory to Mortgagee from a licensed surveyor, appraiser or professional engineer or other qualified person. If the Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire or other property hazard or casualty, Mortgagor shall give prompt notice thereof to Mortgagee and any Proceeds received by 7 Mortgagee shall be held and disbursed as set forth in Section 5.18 of the Credit Agreement. 4. Payment of Taxes, etc. Mortgagor shall pay, or cause to be paid, all taxes or charges in lieu of taxes, assessments, water rates, sewer rents and other charges, including vault charges and license or permit fees for the use of vaults, chutes and similar areas on or adjoining the Premises, now or hereafter levied or assessed against the Mortgaged Property (the "Taxes") prior to the date upon which any fine, penalty, interest or cost may be added thereto or imposed by law for the nonpayment thereof, subject, in all events, to Mortgagor's rights to contest Taxes in accordance with Section 5.13 of the Credit Agreement. Mortgagor shall deliver to Mortgagee, upon request, receipted bills, canceled checks and other evidence satisfactory to Mortgagee evidencing the payment of the Taxes prior to the date upon which any fine, penalty, interest or cost may be added thereto or imposed by law for the nonpayment thereof (as any such date may be extended pursuant to exercise of said right of Mortgagor to contest Taxes in accordance with Section 5.13 of the Credit Agreement). 5. Condemnation. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise, Mortgagor shall continue to pay the Debt at the time and in the manner provided for its payment in the Notes, the Credit Agreement and the Loan Instruments and the Debt shall not be reduced until (and only to the extent) any award or payment therefor shall have been actually received and applied by Mortgagee to the discharge of the Debt in accordance with the provisions of the Credit Agreement. Mortgagee shall apply the amount of any such award or payment in accordance with Section 5.18 of the Credit Agreement. If the Mortgaged Property is sold, through foreclosure or otherwise, prior to the receipt by Mortgagee of such award or payment, Mortgagee shall have the right, whether or not a deficiency judgment on the Debt shall have been sought, recovered or denied, to receive such award or payment, or a portion thereof sufficient to pay the Debt, whichever is less. Mortgagor shall file and prosecute its claim or claims for any such award or payment in good faith and with due diligence and cause the same to be collected and paid over to Mortgagee. Mortgagor hereby irrevocably authorizes and empowers Mortgagee, in the name of Mortgagor or otherwise to collect and receipt for any such award or payment and to file and prosecute such claim or claims if (a) Mortgagor fails to do so within a reasonable time prior to the expiration of the period allowed therefor under 8 applicable law, or (b) an Event of Default has occurred and is continuing. Although it is hereby expressly agreed that the same shall not be necessary in any event, Mortgagor shall, upon demand of Mortgagee, make, execute and deliver any and all assignments and other instruments sufficient for the purpose of assigning any such award or payment to Mortgagee, free and clear of any encumbrances of any kind or nature whatsoever. 6. Leases and Rents. (a) Mortgagor hereby assigns to Mortgagee as security for the payment of the Debt and the observance and performance by Borrowers of all of the terms, covenants and provisions of this Mortgage, the Credit Agreement and the Loan Instruments on the Borrowers' part to be observed or performed, all of Mortgagor's right, title and interest in and to the Other Leases and the Rents. Subject to the terms of this paragraph, Mortgagee waives the right to enter the Mortgaged Property for the purpose of collecting the Rents, and grants Mortgagor the right to collect the Rents. Mortgagor shall hold the Rents, or an amount sufficient to discharge all sums then currently due on the Debt, in trust for use in payment of the Debt. The right of Mortgagor to collect the Rents may be revoked by Mortgagee upon the occurrence of any Event of Default by giving notice of such revocation to Mortgagor. Following such notice, Mortgagee may retain and apply the Rents toward payment of the Debt in accordance with the provisions of the Credit Agreement, or to the operation, maintenance and repair of the Mortgaged Property, and irrespective of whether Mortgagee shall have commenced a foreclosure of this Mortgage or shall have applied or arranged for the appointment of a receiver. Mortgagor shall not, without the consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed, make, or suffer to be made, any Other Leases or modify or cancel any Other Leases or accept prepayments of installments of the Rents for a period of more than one (1) month in advance or further assign the whole or any part of the Rents. Mortgagor shall (i) fulfill or perform each and every provision of the Other Leases on the part of Mortgagor to be fulfilled or performed, (ii) promptly send copies of all notices of default which Mortgagor shall send or receive under the Other Leases to Mortgagee, and (iii) enforce, short of termination of the Other Leases, the performance or observance of the provisions thereof by the other parties thereto. (b) Mortgagor agrees that it will not further pledge or assign its interest in any of the Other Leases, or 9 further assign the Rents so long as any part of the Debt remains unpaid. (c) Nothing contained in this paragraph shall be construed as imposing on Mortgagee any of the obligations of the tenant under the Ground Lease or of the lessor under the Other Leases. 7. Maintenance of the Mortgaged Property. (a) Mortgagor shall cause the Mortgaged Property to be maintained in good condition and-repair in accordance with the provisions of the Credit Agreement and will not commit or suffer to be committed any waste of the Mortgaged Property. The Improvements and the Equipment shall not be removed, demolished or materially altered (except for normal replacement of the Equipment), without the consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed. (b) Mortgagor shall promptly comply with all Laws and Environmental Requirements affecting the Mortgaged Property, or any portion thereof or the use thereof, in accordance with the provisions of the Credit Agreement. Mortgagor shall observe and perform every term to be observed and performed by Mortgagor (as tenant) under the Ground Lease and shall also comply with the requirements of the Easements and all other rights-of- way, easements, grants, privileges, licenses, franchises and restrictive covenants which from time to time benefit or pertain to the whole or any portion of the Mortgaged Property, and Mortgagor shall not modify, amend or terminate, or surrender any of its rights under, the Ground Lease, the Easements or any such rights-of-way, easements, grants, privileges, licenses, franchises or restrictive covenants. Except as otherwise specifically permitted by the terms of the Credit Agreement, Mortgagor will not alter the use of the Mortgaged Property without the prior consent of Mortgagee, and Mortgagor will not, without obtaining the prior consent of Mortgagee, initiate, join in or consent to any private restrictive covenant, zoning ordinance, or other public or private restrictions, limiting or affecting the uses which may be made of the Mortgaged Property or any part thereof. 8. Estoppel Certificates. Mortgagor, within ten (10) days after request by Mortgagee and at its expense, will furnish Mortgagee with a statement, duly acknowledged and certified, setting forth the amount of the Debt and the offsets or defenses thereto, if any. 10 9. Transfer or Encumbrance of the Mortgaged Property. Except as otherwise specifically permitted by the terms of the Credit Agreement, no part of the Mortgaged Property and no legal or beneficial interest in Mortgagor shall in any manner be further encumbered, sold, transferred, assigned or conveyed, or permitted to be further encumbered, sold, transferred, assigned or conveyed without the consent of Mortgagee. The provisions of this paragraph shall apply to each and every such further encumbrance, sale, transfer, assignment or conveyance, regardless of whether or not Mortgagee has consented to, or waived by its action or inaction its rights hereunder with respect to any such previous further encumbrance, sale, transfer, assignment or conveyance and irrespective of whether such further encumbrance, sale, transfer, assignment or conveyance is voluntary, by reason of operation of law or is otherwise made. 10. Notice. All notices, consents, directions, approvals, authorizations, instructions, demands, statements, requests and other communications given or made hereunder or in connection herewith shall be sent in accordance with the provisions of and to the addresses set forth in Section 8.1 of the Credit Agreement. 11. Changes in Laws Regarding Taxation. In the event of the passage after the date of this Mortgage of any law of the State of New Jersey deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or changing in any way the laws for the taxation of mortgages or deeds of trust or debts secured by mortgages or deeds of trust for state or local purposes or the manner of the collection of any such taxes, and imposing a tax, either directly or indirectly, on this Mortgage, the Notes, the Credit Agreement, any of the Loan Instruments or the Debt, Mortgagor shall, if permitted by law, pay any tax imposed as a result of any such law within the statutory period or within thirty (30) days after demand by Mortgagee, whichever is less, provided, however, that if, in the opinion of the attorneys for Mortgagee, Mortgagor is not permitted by law to pay such taxes, Mortgagee shall have the right, at its option, to declare the Debt due and payable on a date specified in a prior notice to Mortgagor of not less than sixty (60) days. 12. [Intentionally Omitted] 13. Sale of Mortgaged Property. If this Mortgage is foreclosed, the Mortgaged Property, or any interest therein, may, at the discretion of Mortgagee, be sold in one 11 or more parcels or in several interests or portions and in any order or manner. 14. No Credits on Account of the Debt. Mortgagor will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes assessed against the Mortgaged Property or any part thereof and no deduction shall otherwise be made or claimed from the taxable value of the Mortgaged Property, or any part thereof, by reason of this Mortgage or the Debt. 15. Other Security for the Debt. Mortgagor shall observe and perform all of the terms, covenants and provisions on the part of Mortgagor to be observed and performed contained in the Credit Agreement and the Loan Instruments and in all other mortgages and other instruments or documents evidencing, securing or guaranteeing payment of the Debt, in whole or in part, or otherwise executed and delivered in connection with the Credit Agreement, the Notes or this Mortgage. 16. Documentary Stamps. If at any time the United States of America, any state thereof or any governmental subdivision of any such state, shall require revenue or other stamps to be affixed to the Notes or this Mortgage, Mortgagor will pay the same, with interest and penalties thereon, if any. 17. Right of Entry. Mortgagee and its agents shall have the right to enter and inspect the Mortgaged Property as provided in the Credit Agreement. 18. Books and Records. Mortgagor will comply with all of the provisions and requirements of the Credit Agreement concerning its books, records and accounts reflecting the financial affairs of Mortgagor and the Parlin Plant. 19. Ground Lease. (a) Mortgagor shall (i) pay all rents, additional rents and other sums required to be paid by the tenant under and pursuant to the provisions of the Ground Lease, (ii) diligently perform and observe all of the terms, covenants and conditions of the Ground Lease on the part of the tenant thereunder to be performed and observed, unless such performance or observance shall be waived or not required by the landlord under the Ground Lease, to the end that all things shall be done which are necessary to keep unimpaired the rights of the tenant under the Ground Lease, 12 and (iii) promptly notify Mortgagee of the giving of any notice by the landlord under the Ground Lease of any default in the performance or observance of any of the terms, covenants or conditions of the Ground Lease on the part of the tenant thereunder to be performed or observed and deliver to Mortgagee a true copy of each such notice. Mortgagor shall not, without the prior consent of Mortgagee, which consent shall not be unreasonably withheld, conditioned or delayed, surrender the leasehold estate created by the Ground Lease or terminate or cancel the Ground Lease or modify, change, supplement, alter or amend the Ground Lease, in any respect, either orally or in writing, and Mortgagor hereby assigns to Mortgagee, as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of this Mortgage, the Credit Agreement and the other Loan Instruments, all of the rights, privileges and prerogatives of the tenant under the Ground Lease to surrender any leasehold estate or easement interests created by the Ground Lease or to terminate, cancel, modify, change, supplement, alter or amend the Ground Lease, and any such surrender of the leasehold estate or easement interests created by the Ground Lease or termination, cancellation, modification, change, supplement, alteration or amendment of the Ground Lease without the prior consent of Mortgagee, shall be void and of no force and effect. If Mortgagor shall default in the performance or observance of any term, covenant or condition of the Ground Lease to be performed or observed by the tenant thereunder, then, without limiting the generality of the other provisions of this Mortgage, and without waiving or releasing Mortgagor from any of its obligations hereunder, Mortgagee shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of the Ground Lease on the part of the tenant thereunder to be performed or observed, to be promptly performed or observed on behalf of Mortgagor, to the end that the rights of Mortgagor in, to and under the Ground Lease shall be kept unimpaired and free from default. If Mortgagee shall make any payment or perform any act or take action in accordance with the preceding sentence, Mortgagee will notify Mortgagor of the making of any such payment, the performance of any such act, or taking of any such action. In any such event, subject to the rights of lessees, and other occupants under the Other Leases, Mortgagee and any person designated by Mortgagee shall have, and are hereby granted, the right to enter upon the Mortgaged Property at any time and from time to time for the purpose of taking any such action. If the landlord under the Ground Lease shall deliver to Mortgagee a copy of 13 any notice of default sent by said landlord to Mortgagor, as tenant under such Ground Lease, such notice shall constitute full protection to Mortgagee for any action taken or omitted to be taken by Mortgagee, in good faith, in reliance thereon. Mortgagor shall, from time to time, use its reasonable efforts to obtain from the landlord under the Ground Lease such certificates of estoppel with respect to compliance by Mortgagor with the terms of the Ground Lease as may be reasonably requested by Mortgagee. Mortgagor shall exercise each individual option, if any, to extend or renew the term of the Ground Lease, or option to purchase or right of first refusal with respect to purchase of the Leasehold Premises, as the case may be, upon demand by Mortgagee made at any time within one (1) year of the last day upon which any such option may be exercised, and Mortgagor hereby expressly authorizes and appoints Mortgagee its attorney-in-fact to exercise, either jointly or individually, any such option or right of first refusal in the name of and upon behalf of Mortgagor, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest. (b) Mortgagor shall not, without Mortgagee's prior written consent, elect to treat either the Ground Lease or the leasehold estate created thereby as terminated under Subsection 365(h)(1) of the Bankruptcy Code, after rejection or disaffirmance of the Ground Lease by the landlord thereunder or by any trustee of such party, and any such election made without such consent shall be void and ineffective. (c) Subject to the Mortgagor's right to seek and retain certain offsets as permitted hereunder, Mortgagor hereby unconditionally assigns, transfers and sets over to Mortgagee all of Mortgagor's claims and rights to the payment of damages that may hereafter arise as a result of any rejection or disaffirmance of the Ground Lease by the landlord thereunder or by any trustee of such party, pursuant to the Bankruptcy Code. Mortgagee shall have and is hereby granted the right to proceed, in its own name or in the name of the Mortgagor, in respect of any claim, suit, action or proceeding relating to the rejection or disaffirmance of the Ground Lease (including, without limitation, the right to file and prosecute, to the exclusion of Mortgagor, any proofs of claim, complaints, motions, applications, notices and other documents) in any case in respect of the landlord under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until the Debt 14 secured by this Mortgage shall have been satisfied and discharged in full. Any amounts received by Mortgagee as damages arising out of any such rejection of the Ground Lease shall be applied toward payment of the Debt in such order and priority as contemplated under the Credit Agreement. (d) In the event that, pursuant to Subsection 365(h)(2) of the Bankruptcy Code, Mortgagor seeks to offset against the rent payable under the Ground Lease the amount of any damages caused by the nonperformance by the landlord of such party's obligations under the Ground Lease after rejection or disaffirmance thereof under the Bankruptcy Code, Mortgagor shall, prior to effecting such offset, notify Mortgagee in writing of Mortgagor's intent to do so, setting forth the amounts proposed to be so offset and the basis therefor. Mortgagee shall have the right to object in writing (stating the reasons therefor) to all or any part of such offset, and, in the event of such objection, Mortgagor shall not effect any offset of the amounts so objected to by Mortgagee. If Mortgagee shall have failed to object as aforesaid within twenty (20) days after such notice, Mortgagor may proceed to effect such offset in the amounts set forth in such notice. Neither Mortgagee's failure to object as aforesaid nor any objection or other communication between Mortgagor and Mortgagee relating to such offset shall constitute an approval by Mortgagee of any such offset. If, in the best business judgment of the Mortgagor, such offset is justified and Mortgagee has received the aforesaid notices and has not objected but its time to do so has not expired, the Mortgagor shall have the right to make such offset and shall set aside t@,- offset amount as a reserve to be paid only if Mortgagee objects within the aforesaid time. Mortgagor shall indemnify and hold Mortgagee and its officers, directors, employees and agents harmless from and against any and all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever actually incurred (including, without limitation, reasonable legal fees and disbursements) arising from or relating to any such offset by Mortgagor. (e) Mortgagor shall, promptly after obtaining knowledge thereof, use its best efforts to give prompt oral notice to Mortgagee of any actual or contemplated filing by or against the landlord under the Ground Lease of a petition under the Bankruptcy Code, and give prompt written notice thereof to Mortgagee of such actual or contemplated filing. The aforesaid written notice shall set forth any information available to Mortgagor concerning the date or anticipated 15 date of such filing, the court in which such petition was filed or is expected to be filed, and the relief sought or reasonably expected to be sought therein. Mortgagor shall, promptly after receipt thereof, deliver to Mortgagee any and all notices, summonses, pleadings, applications and other documents received by Mortgagor in connection with any such petition and any proceedings related thereto. (f) In the event that any action, proceeding, motion or notice shall be commenced or filed in respect of the landlord under the Ground Lease or the Mortgaged Property or any part thereof, in connection with any case under the Bankruptcy Code, Mortgagee shall have, and is hereby granted, the option, to the exclusion of Mortgagor, exercisable upon notice from Mortgagee to Mortgagor, to conduct and control any such litigation with counsel of Mortgagee's choice. Mortgagee may proceed, in its own name or in the name of Mortgagor, in connection with any such litigation, and Mortgagor agrees to execute any and all powers, authorizations, consents and other documents required by Mortgagee in connection therewith. Mortgagor shall, upon demand, pay to Mortgagee all costs and expenses (including without limitation, legal fees and disbursements) paid or incurred by Mortgagee in connection with the prosecution or conduct of any such proceedings, and, to the extent permitted by law, such costs and expenses shall be deemed expenses incurred in upholding the lien of this Mortgage and added to the indebtedness secured by this Mortgage. Mortgagor shall not, without the prior written consent of Mortgagee, commence any action, suit, proceeding or case, or file any application or make any motion, in respect of the Ground Lease in any such case under the Bankruptcy Code. (g) In the event that a petition under the Bankruptcy Code shall be filed by or against Mortgagor, and Mortgagor, or anyone claiming through or under Mortgagor or a trustee in bankruptcy shall have the right to reject the Ground Lease pursuant to Section 365(a) of the Bankruptcy Code or a successor statute, Mortgagor shall give Mortgagee at least ten (10) days' prior written notice of the date on which application shall be made to the court for authority to reject the Ground Lease; provided, however, that if a trustee in bankruptcy shall have a right to reject the Ground Lease in less than ten (10) days, then Mortgagor shall give such notice to Mortgagee immediately upon Mortgagor's knowledge of such application. Mortgagee shall have the exclusive right, but not the obligation (subject to the rights of a trustee in bankruptcy), to exercise said right and Mortgagor hereby assigns said right to Mortgagee. 16 If at any time the landlord under the Ground Lease, or anyone holding by, through or under the landlord under the Ground Lease or a trustee in bankruptcy shall elect to reject the Ground Lease pursuant to Section 365(a) of the Bankruptcy Code, or a successor statute, thereby giving to Mortgagor the right to elect to treat the Ground Lease as terminated pursuant to Section 365(h)(1) of the Bankruptcy Code, or a successor statute, Mortgagee shall have the exclusive right to exercise said right and Mortgagor hereby assigns said right to Mortgagee. If either of the assignments provided for in this paragraph is held to be enforceable, then Mortgagor, anyone claiming by, through or under Mortgagor or a trustee in bankruptcy, shall not exercise rights purportedly assigned to Mortgagee without the prior written consent of Mortgagee, and if Mortgagee shall give such consent, Mortgagor, anyone claiming by, through or under Mortgagor or a trustee in bankruptcy shall promptly exercise either of said rights. (h) To the extent permitted by applicable law, Mortgagor hereby assigns, transfers and sets over to Mortgagee an exclusive right to apply to the Bankruptcy Court under Subsection 365(d)(4) of the Bankruptcy Code for an order extending the period during which the Ground Lease may be rejected or assumed after the entry of any order for relief in respect of Mortgagor under Chapter 7 or Chapter 11 of the Bankruptcy Code. 20. No Merger of Fee and Leasehold Estates. So long as any portion of the Debt shall remain unpaid, unless Mortgagee shall otherwise consent, then the fee title to the Leasehold Premises and the leasehold estate therein created pursuant to the provisions of the Ground Lease and the fee title to the Improvements and all Equipment constituting a fixture, and the fee title to the Easement Premises and the interests in real property arising under the provisions of the Easements, shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates in Mortgagor, or in any other person (including Mortgagee) by purchase, operation of law or otherwise (including without limitation a union of estates arising from a foreclosure sale purchase or deed in lieu of foreclosure). 21. Performance of Other Agreements. Mortgagor shall observe and perform each and every term to be observed or performed by Mortgagor pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Mortgaged Property. 17 22. Defaults. The Debt shall become due at the option of Mortgagee upon the occurrence of any one of the following events: (a) if any Event of Default under the Credit Agreement shall occur; (b) if Mortgagor shall be in default beyond the expiration of any applicable notice and cure period under any mortgage or deed of trust covering any part of the Mortgaged Property whether superior or inferior in lien to this Mortgage. 23. Right to Cure Defaults. If default in the performance of any of the covenants of Mortgagor herein occurs, Mortgagee, without waiving any default or releasing Mortgagor from any obligation, may (but shall be under no obligation to) remedy the same for the account and at the cost and expense of Mortgagor, and for such purpose shall have the right to enter upon the Mortgaged Property without thereby becoming liable to Mortgagor or any person in possession thereof holding under Mortgagor. If Mortgagee shall remedy such a Default or appear in, defend or bring any action or proceeding to protect its interest in the Mortgaged Property or to foreclose this mortgage or collect the Debt, all costs and expenses actually incurred (including, without limitation, reasonable attorneys' fees) shall be paid by Mortgagor to Mortgagee on demand with interest to the date of payment to Mortgagee at the Default Interest Rate. All such costs and expenses incurred by Mortgagee, with interest at the Default Interest Rate, shall be secured by this Mortgage 24. Appointment of Receiver. Mortgagee, in any action to foreclose this Mortgage or upon the actual or threatened waste to any part of the Mortgaged Property or upon the occurrence of any default hereunder, shall be at liberty, without notice, to apply for the appointment of a receiver of the Rents, and shall be entitled to the appointment of such receiver as a matter of right, without regard to the value of the Mortgaged Property as security for the Debt, or the solvency or insolvency of any person then liable for the payment of the Debt. 25. Remedies Upon an Event of Default. Upon the occurrence of any event described in paragraph 22 of this Mortgage, then Mortgagee may, to the extent permitted by law, exercise any right, power or remedy permitted to it hereunder, under the Credit Agreement or under any other Loan Instruments, and, without limiting the generality of 18 the foregoing, Mortgagee may, personally or by its agents, do any or all of the following: (a) declare the Debt to be immediately due and payable, and if the same is not paid on demand, at Mortgagee's option, bring suit for any delinquent payments under the Notes and take any and all steps and any and all other proceedings that Mortgagee deems necessary to enforce the indebtedness and obligations secured hereby and to protect the lien of this Mortgage; and (b) enter and take possession of the Mortgaged Property or any part thereof, exclude the Mortgagor and all persons claiming under the Mortgagor whose claims are junior to this Mortgage, wholly or partly therefrom, and use, operate, manage and control the same either in the name of the Mortgagor or otherwise as Mortgagee shall deem best, and upon such entry, from time to time at the expense of the Mortgagor and the Mortgaged Property, make all such repairs, replacements, alterations, additions or improvements to the Mortgaged Property or any part thereof as Mortgagee may deem proper and, whether or not Mortgagee has so entered and taken possession of the Mortgaged Property or any part thereof, collect and receive all the Rents and apply the same, to the extent permitted by law, to the payment of all expenses which Mortgagee may be authorized to incur under this Mortgage, the remainder to be applied to the payment of the Debt until the same shall have been repaid in full; if Mortgagee demands or attempts to take possession of the Mortgaged Property or any portion thereof in the exercise of any rights hereunder, Mortgagor shall promptly turn over and deliver complete possession thereto to Mortgagee; and (c) proceed to protect and enforce its rights under this Mortgage by suit for specific performance of any covenant contained herein, in the Credit Agreement or in the Loan Instruments or in aid of the execution of any power granted herein, in the Credit Agreement or in the Loan Instruments, or for the foreclosure of this Mortgage and the sale of the Mortgaged Property under the judgment or decree of a court of competent jurisdiction, or for the enforcement of any other right as Mortgagee shall deem effectual for such purpose; provided that in the event of a sale, by foreclosure or otherwise, of less than all of the Mortgaged Property, this Mortgage shall continue as a lien on, and security 19 interest in, the remaining portion of the Mortgaged Property; and (d) exercise any or all of the remedies available to a secured party under the Uniform Commercial Code as provided in paragraph 35 hereof; and (e) without in any way limiting the rights hereunder pursuant to paragraphs 6, 24 and 35 apply for the appointment of a receiver as a matter of right, without regard to the adequacy of the security for the Debt or the solvency of the Mortgagor. Mortgagor hereby irrevocably consents to such appointment. Specifically, the Mortgagee or any receiver shall be entitled to take possession of the Mortgaged Property from the owners, tenants and/or occupants of the whole or any part thereof and to collect and receive the Rents and the value of the use and occupation of the Mortgaged Property, or any part thereof, from the then owner, tenants and/or occupants thereof for the benefit of Mortgagee. 26. Mortgagor as Tenant Holding Over. In the event of any foreclosure sale contemplated under paragraph 25 hereof, Mortgagor shall be deemed to be a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. 27. Discontinuance of Proceedings. In case Mortgagee shall have proceeded to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceeding shall have been withdrawn, discontinued or abandoned for any reason, or shall have been determined adverse to Mortgagee, then in every such case (a) Mortgagor and Mortgagee shall be restored to their former positions and rights, (b) all rights, powers and remedies of Mortgagee shall continue as if no such proceeding had been taken, (c) each and every uncured default declared or occurring prior or subsequent to such withdrawal, discontinuance or abandonment shall be or shall be deemed to be a continuing default and (d) neither the Debt, this Mortgage, the Notes, the Credit Agreement nor the other Loan Instruments, shall be or shall be deemed to have been affected by such withdrawal, discontinuance or abandonment; and Mortgagor hereby expressly waives the benefit of any statute or rule of law now provided, or which may hereafter conflict with the above. 20 28. No Reinstatement. If a default shall have occurred and Mortgagee shall have proceeded to enforce any right, power or remedy permitted hereunder, then a tender of payment by Mortgagor or by anyone on behalf of Mortgagor of any amount less than the amount necessary to satisfy the Debt in full, or the acceptance by Mortgagee of any such payment so tendered, shall not constitute a reinstatement of this Mortgage, the Notes, the Credit Agreement or any Loan Instrument. 29. Mortgagor's Waiver of Rights. To the full extent permitted by law, except as otherwise specifically and expressly provided in this Mortgage, the Credit Agreement or any Loan Instrument, Mortgagor waives the benefit of all laws now existing or that hereafter may be enacted providing for (i) any appraisement before sale of any portion of the Mortgaged Property and (ii) the benefit of all Laws that may be hereafter enacted in any way extending the time for the enforcement of the collection of the Debt, or creating or extending a period of redemption from any sale made in collecting said Debt. To the full extent that Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, or any so-called "Moratorium Laws" and Mortgagor, for Mortgagor and its successors and assigns, and for any and all persons ever claiming any interest in the Mortgaged Property, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of the secured indebtedness and marshaling in the event of foreclosure of the liens hereby created. If any Law referred to in this paragraph and now in force, of which Mortgagor, Mortgagor's successors and assigns or any other person might take advantage despite this paragraph, shall hereafter be repealed or cease to be in force, such Law shall not thereafter be deemed to preclude the application of this paragraph. 30. Non-Waiver. The failure of Mortgagee to insist upon strict performance of any term of this Mortgage shall not be deemed to be a waiver of any term of this Mortgage. Borrowers shall not be relieved of their obligation to pay the Debt at the time and in the manner provided for its payment in the Notes, the Credit Agreement and the Loan Instruments (nor shall any of Mortgagor's other obligations hereunder, under the Credit Agreement or the other Loan Instruments, nor shall the other Borrowers' obligations under the Credit Agreement or the other Loan 21 Instruments be in any way affected) by reason of (i) failure of Mortgagee to comply with any request of Mortgagor or the other Borrowers to take any action to foreclose this Mortgage or otherwise enforce any of the provisions hereof or of the Notes, the Credit Agreement, any other Loan Instruments or any other mortgage, instrument or document evidencing, securing or guaranteeing payment of the Debt or any portion thereof, (ii) the release, regardless of consideration, of the whole or any part of the Mortgaged Property or any other security for the Debt, or (iii) any agreement or stipulation between Mortgagee and any subsequent owner or owners of the Mortgaged Property or other person extending the time of payment or otherwise modifying or supplementing the terms of the Notes, the Credit Agreement, the Loan Instruments, this Mortgage or any other mortgage, instrument or document evidencing, securing or guaranteeing payment of the Debt or any portion thereof, without first having obtained the consent of Mortgagor, and in the latter event, Mortgagor shall continue to be obligated to pay the Debt at the time and in the manner provided in the Notes, the Credit Agreement, the Loan Instruments, and this Mortgage (as so extended, modified or supplemented, if such be the case) and shall continue to be obligated to perform its other obligations hereunder and under the Credit Agreement and the Loan Instruments (in each case, as so extended, modified and supplemented) unless expressly released and discharged from such obligation by Mortgagee in writing. Regardless of consideration, and without the necessity for any notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Mortgaged Property, Mortgagee may release any person at any time liable for the payment of the Debt or any portion thereof or any part of the security held for the Debt and may extend the time of payment or otherwise modify the terms of the Notes, the Credit Agreement, the Loan Instruments or this Mortgage (including, without limitation, a modification of the interest rate payable on the principal balance of the Notes) without in any manner impairing or affecting this Mortgage or the lien thereof or the priority of this Mortgage, as so extended and modified, as security for the Debt over any such subordinate lien, encumbrance, right, title or interest. 31. Remedies Cumulative. Mortgagee may resort for the payment of the Debt to any other security held by Mortgagee in such order and manner as Mortgagee, in its discretion, may elect. Mortgagee may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the rights of Mortgagee thereafter to foreclose this mortgage. Mortgagee shall not 22 be limited exclusively to the rights and remedies herein stated but shall be entitled to every additional right and remedy now or hereafter afforded by Law or equity. The rights of Mortgagee under this Mortgage shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Mortgagee shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Mortgagee shall be entitled to enforce payment of the Debt and performance of any of the obligations of the Mortgagor and to exercise all rights and powers under this Mortgage or under any other Loan Instrument or any Laws now or hereafter in force, notwithstanding that some or all of such obligations may now or hereafter be otherwise secured, whether by mortgage, pledge, lien, assignment or otherwise; neither the acceptance of this Mortgage nor its enforcement, whether by court action or pursuant to other powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by the Mortgagor, it being stipulated that Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held by Mortgagee in such order and manner as Mortgagee, in accordance with the terms hereof, may determine; every power or remedy given by the Credit Agreement, this Mortgage or any of the other Loan Instruments to the Mortgagee or to which the Mortgagee is otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. 32. Liability. It Mortgagor consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. 33. Prepayment After Default. If following the occurrence of any default under this Mortgage and an exercise by Mortgagee of its option to declare the Debt immediately due, Mortgagor shall tender payment of an amount sufficient to satisfy the entire Debt at any time prior to a sale of the Mortgaged Property any such payment shall be accepted by Mortgagee only if such payment is permitted at such time under the provisions of the Credit Agreement. 34. Construction. The terms of this Mortgage shall be construed in accordance with the laws of the State of New Jersey. 35. Security Agreement. This Mortgage constitutes both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code 23 of the State of New Jersey and the Mortgaged Property includes both real and personal property and all other rights and interest, whether tangible or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor, by executing and delivering this Mortgage, has granted to Mortgagee, as security for the Debt, a security interest in such of the Mortgaged Property as is governed by the Uniform Commercial Code. Upon the occurrence and continuation of an Event of Default hereunder, Mortgagee, in addition to any other rights and remedies which it may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code including, without limiting the generality of the foregoing, the right to take possession of such of the Mortgaged Property as is governed by the Uniform Commercial Code personally, through an agent or by means of a court-appointed receiver, and to take such other measures as Mortgage may deem necessary for the care, protection and preservation of such part of the Mortgaged Property. Upon request or demand of Mortgagee, Mortgagor shall at its expense assemble such of the Mortgaged Property as is governed by the Uniform Commercial Code and make it available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses, including reasonable legal expense and attorneys' fees, incurred or paid by Mortgagee in protecting the interest in the Mortgaged Property herein granted and in enforcing its rights hereunder with respect to such part of the Mortgaged Property. Any notice of sale, disposition or other intended action by Mortgagee with respect to such part of the Mortgaged Property sent to Mortgagor in accordance with the provisions of this Mortgage at least five (5) days prior to the date of any such sale, disposition or other action, shall constitute reasonable notice to Mortgagor, and the method of sale or disposition or other intended action set forth or specified in such notice shall conclusively be deemed to be commercially reasonable within the meaning of the Uniform Commercial Code unless objected to in writing by Mortgagor within three (3) days after receipt by Mortgagor of such notice. 36. Further Acts, etc. Mortgagor will, at the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Mortgagee shall, from time to time, require, for the better assuring, conveying, assigning, transferring and confirming unto Mortgagee the property and rights hereby mortgaged or intended now or hereafter so to be, or which Mortgagor may 24 be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage or for filing, registering or recording this Mortgage and, on demand, will execute and deliver and hereby authorizes Mortgagee to execute in the name of Mortgagor to the extent Mortgagee may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments, to evidence more effectively the lien hereof upon the Mortgaged Property. 37. Headings. etc. The headings and captions of various paragraphs of this Mortgage are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. 38. Recording of Mortgage, etc. Mortgagor forthwith upon the execution and delivery of this Mortgage and thereafter, from time to time, will cause this Mortgage, and any security instrument creating a lien or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the interest of Mortgagee in the Mortgaged Property. Mortgagor will pay all filing, registration or recording fees, and all expenses actually incurred incident to the preparation, execution and acknowledgment of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Mortgaged Property and any instrument of further assurance, and all Federal, state, county and municipal taxes, duties, imposts, assessments and charges (including, without limitation, documentary stamp taxes and intangible personal property taxes) arising out of or in connection with the execution and delivery of this Mortgage or the Debt secured hereby, any mortgage supplemental hereto, any security instrument or financing statement with respect to the Mortgaged Property or any instrument of further assurance. Mortgagor shall hold harmless and indemnify Mortgagee, its successors and assigns, against any liability incurred by reason of the imposition of any tax on the making and recording of this Mortgage. 39. Usury Laws. This Mortgage, the Credit Agreement and the Notes are subject to the express condition that at no time shall Mortgagor be obligated or required to pay interest on the principal balance due under the Notes at a rate which could subject the holder of the Notes to either 25 civil or criminal liability as a result of being in excess of the maximum interest rate which Mortgagor is permitted by Law to contract or agree to pay. If by the terms of this Mortgage, the Credit Agreement or the Notes, Mortgagor is at any time required or obligated to pay interest on the principal balance due under the Notes at a rate in excess of such maximum rate, the rate of interest under the Notes (and the Credit Agreement) shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Notes. 40. Sole Discretion of Mortgagee. Except as otherwise specifically provided in this Mortgage, wherever pursuant to this Mortgage, Mortgagee exercises any right given to it to consent or to withhold its consent, to approve or disapprove, or any arrangement or term is to be satisfactory to Mortgagee, the decision of Mortgagee to consent or to withhold its consent, to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Mortgagee and shall be final and conclusive. 41. Recovery of Sums Required To Be Paid. Mortgagee shall have the right from time to time to take action to recover any sum or sums which Constitute a part of the Debt as the same become due, without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Mortgagee thereafter to bring an action of foreclosure, or any other action, for a default or defaults by Mortgagor existing at the time such earlier action was commenced. 42. Absolute and Unconditional Obligation. Mortgagor acknowledges that Borrower's obligation to pay the Debt in accordance with the provisions of the Notes, the Credit Agreement and the Loan Instruments is and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to the Notes, the Credit Agreement or any of the Loan Instruments or the obligation of Borrowers thereunder to pay the Debt or the obligations of any other person relating to the Notes, the Credit Agreement or any of the Loan Instruments or the obligations of Borrowers under the Notes, the Credit Agreement or any of the Loan Instruments, and to the full extent permitted by law, Mortgagor absolutely, 26 unconditionally and irrevocably waives any and all right to assert any defense, setoff, counterclaim or crossclaim of any nature whatsoever with respect to the obligation of Borrowers to pay the Debt in accordance with the provisions of the Notes, the Credit Agreement and the Loan Instruments or the obligations of any other person relating to the Notes, the Credit Agreement or any of the Loan Instruments or the obligations of Borrowers under the Notes, the Credit Agreement or any of the Loan Instruments, or in any action or proceeding brought by Mortgagee to collect the Debt, or any portion thereof, or to enforce, foreclose and realize upon the lien and security interest created by this mortgage or any other document or instrument securing repayment of the Debt, in whole or in part. 43. Indemnification; Waiver of Offset. (a) If Mortgagee, Agent or any of the Secured Parties are made a party defendant to any litigation concerning the Notes, the Credit Agreement, this Mortgage, any other Loan Instrument or the Mortgaged Property or any part thereof or interest therein, or the occupancy thereof by Mortgagor, then Mortgagor shall indemnify, defend and hold Mortgagee and/or such Secured Parties, as the case may be, harmless from all liability by reason of said litigation, including reasonable attorneys' fees and expenses incurred by Mortgagee and/or such Secured Parties, as the case may be, in any such litigation, whether or not any such litigation is prosecuted to judgment. If Mortgagee commences an action against Mortgagor to enforce any of the terms hereof or because of the breach by Mortgagor of any of the terms hereof or for the recovery of any sum secured hereby, Mortgagor shall pay the Mortgagee's attorneys' fees and expenses, together with interest thereon at the Default Interest Rate from the date the same are paid to the date of reimbursement by Mortgagor and the right to such reasonable attorneys' fees and expenses shall be deemed to have accrued on the commencement of such action, and shall be enforceable whether or not such action is prosecuted to judgment. if Mortgagor breaches any term of this Mortgage, the Mortgagee may engage an attorney or attorneys to protect Mortgagee's rights hereunder, and in the event of such engagement following any breach by Mortgagor, Mortgagor shall pay the Mortgagee's reasonable attorneys' fees and expenses so incurred, whether or not an action is actually commenced against mortgagor by reason of breach. (b) All sums secured by this Mortgage shall be paid in accordance with the Credit Agreement, the Notes, and any other Loan Instruments, as applicable, and without 27 counterclaim, setoff, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Mortgagor hereunder shall in no way be released, discharged or otherwise affected (except as expressly provided herein) by reason of (i) any claim which any of the Borrowers (or Mortgagor) have or might have against Mortgagee or any of the Secured Parties or (ii) any default or failure on the part of the Mortgagee to perform or comply with any of the terms hereof or of any other agreement with any of the Borrowers (or Mortgagor). 44. Authority. Mortgagor (and the undersigned representative of Mortgagor) has full power, authority and legal right to execute this Mortgage and to mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm and assign the Mortgaged Property pursuant to the terms hereof and to keep and observe all of the terms of this Mortgage on Mortgagor's part to be kept and observed. 45. Actions and Proceedings. Mortgagee shall have the right to appear in and defend any action or proceeding brought with respect to the Mortgaged Property and to bring any action or proceeding, in the name and on behalf of Mortgagor, which the Mortgagee, in its reasonable discretion, feels should be brought to protect the Mortgagee's interest in the Mortgaged Property. 46. Inapplicable Provisions. If any term, covenant or condition of this Mortgage shall be held to be invalid, illegal or unenforceable in any respect, this Mortgage shall be construed without such provision. 47. Duplicate Originals. This mortgage may be executed in any number of duplicate originals and each such duplicate original shall be deemed to constitute but one and the same instrument. 48. Certain Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Mortgage shall be used interchangeably in singular or plural form and the word "Mortgagor" shall mean Mortgagor and any subsequent owner or owners of the Mortgaged Property or any part thereof or interest therein; the word "Agent" shall mean Agent or any successor agent appointed by the Secured Parties; the word "Notes" shall mean each of the Notes or any other evidence of indebtedness secured by this Mortgage; the word "Borrowers" shall mean each of the Mortgagor and NRG Generating (Newark) Cogeneration Inc. or either of them, 28 as the context requires, and any person becoming a borrower under the Credit Agreement and their respective heirs, executors, administrators, legal representatives, successors and assigns; the word "Mortgagee" shall mean all of or any of the entities constituting Mortgagee, as the context requires, and shall include the rights of Agent to act on behalf of the Secured Parties under and pursuant to the Credit Agreement; and the words "Mortgaged Property" shall include any portion of the Mortgaged Property or interest therein; the word "Debt" shall mean all sums and performance secured by this Mortgage. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. 49. Remedies Not Exclusive. Mortgagee shall be entitled to enforce payment and performance of any indebtedness or obligations secured hereby and to exercise all rights and powers granted under this Mortgage or under the Credit Agreement or the Notes or under any of the Loan Instruments or under any Laws now or hereafter in force, notwithstanding some or all of the said indebtedness and obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Mortgage nor its enforcement, whether by court action or other powers herein contained, shall prejudice or in any manner affect Mortgagee's right to realize upon or enforce any other security now or hereafter held by Mortgagee, it being agreed that Mortgagee shall be entitled to enforce this Mortgage and any other security now or hereafter held by Mortgagee, in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to Mortgagee is intended to be exclusive of any other remedy herein or by Law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at Law or in equity or by statute. Every right, power or remedy given by the Credit Agreement, this Mortgage or any of the Loan Instruments to Mortgagee may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Mortgagee. Every right, power or remedy given by this Mortgage to the Mortgagee may be exercised by Agent on behalf of all Secured Parties pursuant to the Credit Agreement, whether so expressed or not. 50. Joinder of Individual Special Co-Agent. An individual, appointed by Agent in its discretion, may be 29 joined as special co-agent (in such capacity, the "Special Co-Agent") hereunder in order to comply with any legal requirements respecting agents under mortgages of property in the jurisdiction in which the Mortgaged Property or any part thereof is or may be situated so that if, by any present or future law in New Jersey or in any jurisdiction in which it may be necessary to perform any act in the exercise of the rights of Mortgagee hereunder, the Agent shall be incompetent or unqualified to so act, then all of the acts required to be performed in such jurisdiction in the exercise of the rights of Mortgagee hereunder created hereby shall be performed by the Special Co-Agent and the Agent jointly, or the Special Co- Agent acting alone. In case the Special Co-Agent shall resign or be removed, or die or become incapable of acting, Mortgagee's interest in the Mortgaged Property, and all rights, powers, trusts, duties and obligations of Mortgagee shall, so far as permitted by law, vest in and be exercised by the Agent, unless and until a successor Special Co-Agent shall be appointed. The Special Co-Agent shall not be personally liable by reason of any act or omission of the Agent or any co-agent or separate agent or by reason of any act or omission of the Special Co-Agent taken or omitted to be taken pursuant to written instructions received by him from the Agent. Notice to the Agent or a co-agent or separate agent shall not constitute notice to the Special Co-Agent unless and until such notice is actually received by the Special Co-Agent. 51. Relationship. The relationship of Mortgagee to Mortgagor hereunder is strictly and solely that of lender and borrower and nothing contained in the Notes, this Mortgage, the Credit Agreement, or any other Loan Instrument is intended to create, or shall in any event or under any circumstance be construed as creating, a partnership, joint venture, tenancy-in-common, joint tenancy or other relationship of any nature whatsoever between Mortgagee and Mortgagor other than as lender and borrower. 52. Waiver of Notice. Mortgagor shall not be entitled to any notices of any nature whatsoever from Mortgagee except with respect to matters for which this Mortgage specifically and expressly provides for the giving of notice by Mortgagee to Mortgagor and Mortgagor hereby expressly waives the right to receive any notice from Mortgagee with respect to any matter for which this Mortgage does not specifically and expressly provide for the giving of notice by Mortgagee to Mortgagor. 53. Waiver of Trial by Jury. Mortgagor hereby irrevocably and unconditionally waives, and Mortgagee by its 30 acceptance of the Notes and this Mortgage irrevocably and unconditionally waives, any and all rights to trial by jury in any action, suit or counterclaim arising in connection with, out of or otherwise relating to the Notes, this Mortgage, the Credit Agreement, or the other Loan Instruments. 54. Waiver of Statutory Rights. Mortgagor shall not and will not apply for or avail itself of any appraisement, valuation, stay, extension or exemption laws, or any so-called "moratorium laws," now existing or hereafter enacted, in order to prevent or hinder the enforcement or foreclosure of this Mortgage, but hereby waives the benefit of such laws to the full extent that Mortgagor may do so under applicable law. Mortgagor, for itself and all who may claim through or under it, waives any and all right to have the property and estates comprising the Mortgaged Property marshalled upon any foreclosure of the lien of this Mortgage and agrees that any court having jurisdiction to foreclose such lien may order the Mortgaged Property sold as an entirety. Mortgagor hereby waives for itself and all who may claim through or under it, and to the full extent Mortgagor may do so under applicable law, any and all rights of redemption from sale under any order or decree of foreclosure of this Mortgage or granted under any statute now existing or hereafter enacted. 55. Credit Agreement. This Mortgage is subject to all of the terms, covenants and conditions of the Credit Agreement, which Credit Agreement and all of the terms, covenants and conditions thereof are by this reference incorporated herein and made a part hereof with the same force and effect as if set forth at length herein. The proceeds of the Funding Loans and Debt Service Loans secured hereby are to be advanced by Mortgagee to Mortgagor in accordance with the provisions of the Credit Agreement. Mortgagor shall observe and perform all of the terms, covenants and conditions of the Credit Agreement on Mortgagor's part to be observed or performed. All advances made and all indebtedness arising and accruing under the Credit Agreement with respect to the Funding Loans or Debt Service Loans thereunder from time to time shall be secured hereby. In the event of any conflict or ambiguity between the terms, covenants and conditions of this Mortgage and the Credit Agreement, the terms, covenants and conditions which shall enlarge the rights and remedies of Mortgagee and the 31 interest of Mortgagee in the Mortgaged Property, afford Mortgagee greater financial security in the Mortgaged Property and better assure payment of the Debt in full, shall control. 56. No Oral Change. This Mortgage may only be modified or amended by an agreement in writing signed by Mortgagor and Mortgagee, and may only be released, discharged or satisfied of record by an agreement in writing signed by Mortgagee. No waiver of any term, covenant or provision of this Mortgage shall be effective unless given in writing by Mortgagee and if so given by Mortgagee shall only be effective in the specific instance in which given. Mortgagor acknowledges that the Notes, this mortgage, the Credit Agreement and the other Loan Instruments set forth the entire agreement and understanding of Mortgagor and Borrowers with respect to the Debt secured hereby and that no oral or other agreements, understanding, representation or warranties exist with respect to the Debt secured hereby other than those set forth in the Notes, this Mortgage, the Credit Agreement and the other Loan Instruments. 57. True Copy. Mortgagor acknowledges receipt of a true copy of this Mortgage. IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage as of the day and year first above written under seal. ATTEST: NRG GENERATING (PARLIN) COGENERATION INC. /s/ By: /s/ Leonard Bluhm Name: Name: Leonard A. Bluhm Title: Title: President 32 STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK ) Be it remembered that on this 28th day of June, 1996, before me, /s/ Barbara J. Vitale, a notary public, personally appeared Leonard A. Bluhm, the President of NRG GENERATING (PARLIN) COGENERATION INC., who I am satisfied is the person who has signed the foregoing instrument, and he did acknowledge that he signed, sealed with the seal of the said corporation, and delivered said instrument as the officer above stated, and that the foregoing instrument is the voluntary act and deed of said corporation, made by virtue of the authority of its board of directors. /s/ Barbara J. Vitale Notary Public My commission expires: [Seal] EXHIBIT A (Description of Premises) BEGINNING at a point in the southerly line of Washington Road, said point being the dividing line between the easterly line of Lot 1.04 in Block 42 and the westerly line of Lot 1.03 in Block 42 of Middlesex County now or formerly Young Mens Christian Association of Perth Amboy and running; thence (1) along the dividing line of Lots 1.03 and 1.04 in Block 42 and along the westerly line of lands now or formerly Young Mens Christian Association of Perth Amboy S 1 deg. 06 min. E 338.19 feet; thence (2) S 86 deg.47 min.09 sec. E 156.06 feet; thence (3) S 28 deg.49 min.27 sec. W 450.74 feet; thence (4) S 33 deg.30 min.27 sec. W 175.92 feet; thence (5) N 61 deg.10 min.33 sec. W 267.36 feet; thence (6) N 28 deg.49 min.27 sec. E 445.00 feet; thence (7) S 82 deg.53 min.33 sec. E 110.00 feet; thence (8) N 1 deg. 06 min W 382.02 feet, partially along the easterly line of Lot 1.01 in Block 42, now or formerly E. I. Du Pont De Nemours & Co., to the southerly line of Washington Road; thence (9) along said southerly line of Washington Road, N 88 deg. 54 min. E 70.00 feet to the point or place of BEGINNING. CONTAINING 175,124.6 square feet or 4.020 acres, as described and depicted on that certain survey prepared by Casey & Keller, Inc., certified by Herbert H. Keller, N.J. P.L.S. Reg. #8225; N.J. P.P. Req.# 747, dated June 19, 1996. TOGETHER WITH, rights under that certain Easement for Common Roadway, recorded in Deed Book 3899, Page 340, as amended in Deed Book 3899, Page 348, Middlesex County records. TOGETHER WITH, rights under that certain Reciprocal Easement Agreement, dated June 28, 1996, between E. I. Du Pont De Nemours & Company and NRG Generating (Parlin) Cogeneration Inc., to be recorded in Middlesex County, New Jersey records. EXHIBIT B (Description of the Easements) 1. Easement dated February 4, 1991 by and among E. I. Du Pont de Nemours and Company, Borough of Sayreville and O'Brien (Parlin) Cogeneration, Inc. recorded in the Middlesex County Clerk's Office on February 19, 1991 in Deed Book 3899, page 340 and re-recorded in said Clerk's Office on February 19, 1991 in Deed Book 3899, page 348. 2. Reciprocal Easement Agreement dated June 28, 1996 between NRG Generating (Parlin) Cogeneration Inc. and E. I. Du Pont de Nemours and Company to be recorded in the Middlesex County Clerk's Office prior to the recordation of this Mortgage. EX-10.9.1 5 EXHIBIT 10.9.1 LOAN AGREEMENT DATED MARCH 8, 1996 BETWEEN O'BRIEN (SCHUYLKILL) COGENERATION INC. AND NRG ENERGY IN CONNECTION WITH THE GRAYS FERRY PARTNERSHIP. Exhibit 10.9.1 $10,000,000 LOAN AGREEMENT Dated as of March 8, 1996 Between NRG ENERGY, INC. And O'BRIEN (SCHUYLKILL) COGENERATION, INC. LOAN AGREEMENT, dated as of March 8, 1996, between O'BRIEN (SCHUYKILL) COGENERATION, INC., a Delaware corporation (the "Company") and NRG ENERGY, INC., a Delaware corporation (the "Lender"). W I T N E S S E T H: WHEREAS, all the outstanding capital stock of the Company is owned by O'Brien Environmental Energy, Inc., a Delaware corporation (the "Parent"); WHEREAS, the Parent is the debtor and the debtor in possession in Chapter 11 case number 94-26723 (the "Case") pending before the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"); WHEREAS, pursuant to the Composite Fourth Amended and Restated Plan of Reorganization for the Parent proposed by the Lender, Wexford Management Corp. and the official Committee of Equity Security Holders dated January 31, 1995 (as amended and confirmed by order of the Bankruptcy Court entered on February 22, 1996, the "NRG Plan"; capitalized terms used herein without definition shall have the respective meanings assigned to them in the NRG Plan), and subject to the terms and conditions of the Amended and Restated Stock Purchase and Reorganization Agreement dated as of January 31, 1996 between the Lender and the Parent, the Lender has the right, subject to the fulfillment of certain conditions precedent by the Parent and the Lender, to acquire 41.86% of the outstanding shares of common Stock of the Parent; WHEREAS, the Company is a partner in the Grays Ferry Cogeneration Partnership (the "Partnership") established under the law of the State of Pennsylvania pursuant to an Amended and Restated Partnership Agreement, dated as of March 1, 1996 (as amended, supplemented or otherwise modified, the "Partnership Agreement"), among the Company, Adwin (Schuykill) Cogeneration, Inc., a Pennsylvania corporation, and Trigen-Schuylkill Cogeneration, Inc., a Pennsylvania corporation; WHEREAS, the Partnership is developing a cogeneration facility (the "Facility") to be constructed in Philadelphia, Pennsylvania; WHEREAS, it is a condition of the construction financing for the Facility being obtained as of March 1, 1996 by the Partnership from a syndicate of lenders (the "Banks") for whom The Chase Manhattan Bank, N.A. is acting as agent (the "Agent") that the Partnership pay $30,000,000 (the "Partnership Equity Contribution") to the Agent on the terms and conditions set forth in the Credit Agreement, dated as of March 1, 1996 (the "Partnership Credit Agreement"), among the Partnership, the Banks and Chase; WHEREAS, pursuant to the Partnership Credit Agreement and the Partnership Agreement, the Partnership Equity Contribution has been subdivided into three $10,000,000 tranches -- A, B and C, and the Company is responsible for contributing $10,000,000 (the "Required Equity Contribution") to the Partnership so that the Partnership may make the $10,000,000 Tranche A portion (the "Tranche A Obligation") of the Partnership Equity contribution to the Agent; WHEREAS, in order to provide assurance to the Banks and the Agent that the Company will make the Required Equity Contribution and that the Partnership will make the payment of the Tranche C Obligation, the Company has requested that the Lender enter into a Guarantee, dated as of March 1, 1996 (the "Chase Guarantee"), in favor of the Agent pursuant to which the Lender guarantees the payment by the Partnership of Tranche A obligation; WHEREAS, the Company has agreed to reimburse the Lender for any drawings under the Chase Guarantee; WHEREAS, the Company has requested that the Lender agree to provide the Company, with a loan in a principal amount of up to $10,000,000 on the terms and conditions set forth herein to fund the Required Equity contribution; WHEREAS, the Lender is willing to enter into the Chase Guarantee and to lend up to $10,000,000 to the Company an the terms and conditions set forth herein; WHEREAS, the Parent is willing to guarantee to the Lender the repayment by the Company of such reimbursement obligations and/or such loan and to secure its guarantee obligations with a pledge of the shares of the Company; WHEREAS, the Lender and the Parent have agreed that upon the effectiveness of the NRG Plan, the Lender shall have the option under its agreement with the Parent to forgive $3 million of any loan-outstanding hereunder in exchange for 5.767% of the equity of the Parent; NOW, THEREFORE, the Company and the Lender agree as follows: 2 A. ARTICLE 1 B. Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the terms defined in the caption hereto shall have the meanings set forth therein, and the following terms have the following meanings: "Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Parson or (ii) any Person who is a director or officer (a) of such Person, (b) of any subsidiary of such Person or (c) of any Person described in clause (i) above. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "Controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 11.04 and 11.05 of the Guaranty only, "Affiliate,, shall also mean any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Parent or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Agent" shall have the meaning assigned thereto in the Recitals. "Agreement" means this Loan Agreement, as amended, supplemented or Modified from time to time. "Asset Disposition" means, with respect to any Person, any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (as defined in the Parent Guaranty) (other than directors, qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by such Person or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction). "Bank Pledge Agreement" means a pledge agreement to be made by the Parent in favor of the Agent for the ratable benefit of the Banks with respect to the Pledged Shares. "Bankruptcy Court" shall have the meaning assigned thereto in the Recitals. 3 "Bankruptcy Law" shall have the meaning assigned thereto in Section 8.01. "Banks" shall have the meaning assigned thereto in the Recitals. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York city are authorized or required by law to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, Warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease. "Case" shall have the meaning assigned thereto in the Recitals. "Chase Guarantee" shall have the meaning assigned thereto in the Recitals. "Closing Date" means the date on which the Lender makes the Loan. "Code" means the Internal Revenue Code of 1986, as amended. "Commercial L/C" means a commercial documentary letter of credit under which the issuer agrees to make payments in Dollars for the account of the Parent, on behalf of the Parent or a Subsidiary thereof, in respect of obligations of the Parent or such Subsidiary in connection with the purchase of goods or services in the ordinary course of business. "Commonly Controlled Entity" means, with respect to any Person, an entity, whether or not incorporated, which is 4 under Common Control with such Person within the meaning of Section 414(b) or (c) of the Code. "Company" means the party named as such in this Agreement until a successor replaces it and, thereafter, means the successor. "Contingent obligation" means as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term contingent obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent obligation shall be deemed to be an amount equal to the stated or determinable amount (based upon the maximum reasonably anticipated net liability in respect thereof as determined by the Company in good faith) of the primary obligation or portion thereof in respect of which such Contingent obligation is made or, if not stated or determinable, the maximum reasonably anticipated net liability in respect thereof (assuming such Person is required to perform thereunder) as determined by the Company in good faith. "Contractual Obligation" means as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of the property owned by it is bound. "Credit Documents" means the collective reference to this Agreement, the Note, the Parent Guarantee, the Parent option Agreement and the Parent Pledge Agreement. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. 5 "Custodian" shall have the meaning assigned thereto in Section 8.01. 6. "Default means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case an or prior to the first anniversary of the Stated Maturity of the Note. "Dollars" and "$" means dollars in lawful currency of the United States of America. 7. "Effective Date" shall have the meaning assigned thereto in Section 4.01. "Equity Contribution Agreement" shall have the meaning assigned thereto in the Recitals. "Event of Default" shall have the meaning assigned thereto in Section 8.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Facility" shall have the meaning assigned thereto in the Recitals. "Final Order" shall have the meaning assigned thereto in Section 4.01. "Fiscal Date" means the Saturday closest to February 1, May 1, August 1 or November 1, as the case may be, in any calendar year. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. "Governmental Authority" means any nation or government, any state or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 6 "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keepwell, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) ; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Highest Lawful Rate" shall have the meaning assigned thereto in section 9.10. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; Provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication) : (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto) , (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables) , which purchase price is 7 due more that six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, (v) all Capitalized Lease Obligations of such Person, (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends), (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons, (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person, and (ix) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Indemnified Liabilities" shall have the meaning assigned thereto in Section 9.05(c). "Interest Payment Date" means the last day of each March, June, September and December, commencing on the first such day to occur after the Loan is made. "Interest Period: (i) initially, the period commencing on the Closing Date and ending one month thereafter; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period and ending one month thereafter; 8 Provided that, all of the foregoing Provisions relating to Interest Periods are subject to the following: (1) if any Interest Period would otherwise and on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period that would otherwise extend beyond the Maturity Date shall end an the Maturity Date; and (3) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable an the balance sheet of such Person) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Leased Properties" shall have the meaning assigned thereto in Section 3.10. "Lender" means the party named in this Agreement, until one or more successors replace it, and thereafter means the successor or successors. 9 "LIBOR": with respect to each day during each Interest Period, the rate per annum equal to arithmetic mean of quotations provided by four major banks in the London interbank market selected by the Servicer as such quotations appear an Telerate Page 3875 of the Dow Jones Telerate Service (or such other page as may replace Telerate Page 3875 on that service for the purpose of displaying London interbank offered rates of major banks) as of 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest Period. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Loan" shall have the meaning set forth in Section 2.01. "Maturity Date's shall have the meaning assigned thereto in Section 2.04. "Note" means the Note substantially in the form attached hereto as Exhibit A. "Notice Event" shall have the meaning assigned thereto in section 5.08. "INRG Plan" shall have the meaning assigned thereto in the Recitals. "NRG Plan Effective Date" shall have mean the date on which the NRG Plan shall become effective. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary or Clerk of the Company. "Officers, Certificate" means a certificate signed by two Officers. "Outside Date" means May 15, 1996, as the same may extended in writing by the Company and the Lender. "Parent" shall have the meaning assigned thereto in the Recitals. "Parent Guarantee" means a guarantee, substantially in the form of Exhibit B, to be made by the Parent in favor of the Lender. 10 "Parent option Agreement" means an agreement, substantially in the form of Exhibit D, to be made by the Parent in favor of the Lender. "Parent Pledge Agreement" means a pledge substantially in the form of Exhibit C, to be made Parent in favor of the Lender. "Partnership" shall have the meaning assigned thereto in the Recitals. "Partnership credit Agreement" shall have the meaning assigned thereto in the Recitals. "Partnership Equity Contribution" shall have the meaning assigned thereto in the Recitals. "Partnership interest" shall have the meaning assigned thereto in Section 7.01. "Permitted Liens" means, with respect to any Person: (a) Liens for taxes, assessments or other governmental charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the such Person in accordance with GAAP; (b) carriers', warehousemen's, mechanics', landlords', materialmen's, repairman's or other like Liens arising in the ordinary course of business in respect of obligations which are not yet due or which are bonded or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP; (c) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements (including reciprocal easement agreements), rights-of- way, building, zoning and similar restrictions, utility agreements, covenants, 11 reservations, restrictions, encroachments, changes, and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in the aggregate materially detract from the aggregate value of the properties of such Person or in the aggregate materially interfere with or adversely affect in any material respect the ordinary conduct of the business of such person or the properties subject thereto; (f) Bankers' liens arising by operation of law; (g) With respect to the Parent, Liens on documents of title and the property covered thereby securing Indebtedness in respect of any Commercial L/Cs; (h) (i) mortgages, liens, security interests, restrictions or encumbrances that have been placed by any developer, landlord or other third party on property over which such Person has easement rights or on any Leased Property and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (i) Liens an goods (and Proceeds thereof) held by such Person to be sold on a consignment basis in the ordinary course of business; (j) Leases or subleases to third parties; (k) Liens in connection with workmen's compensation obligations and general liability exposure of such Person; and (l) Liens securing Indebtedness Incurred by the Company under Section 6.01(b)(ii) or (iii) or by the Parent under Section 11.01(b)(ii) or (iii) of the Parent Guarantee. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Pledged Shares" shall have the meaning assigned thereto in the Parent Pledge Agreement. "Preferred Stock" as applied to the Capital Stock of any corporation means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such 12 corporation, over shares of capital Stock of any other class of such corporation. "principal" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. a. "Register" shall have the meaning assigned thereto in Section 2.10(b). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as from time to time in effect. "Reimbursement Obligation" means the obligation of the Company to reimburse the Lender pursuant to Section 2.02 for amounts paid by the Lender under the Chase Guarantee. "Related Business" means, with respect to any Person, those businesses in which such Person or any of its Subsidiaries is engaged on the date of this Agreement, or which are directly related thereto. "Required Equity Contribution" shall have the meaning assigned thereto in the Recitals. "Requirement of Law" means, as to any Person, the Articles or Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, order, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property, or to which such Person or any of its property is subject. "Responsible officer" means, with respect to any Person, the president, chief executive officer, the chief operating officer, the chief financial officer, treasurer, controller or any vice president of such Person. "Restricted Payment" shall have the meaning assigned thereto in Section 6.02(a). "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). 13 "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Tranche A Obligation" shall have the meaning assigned thereto in the Recitals. "Transferee', shall have the meaning set forth in Section 9.06(b). "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. SECTION 1.02. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) as used herein and in the Note and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the company and its Subsidiaries not defined in Section 1.01 and accounting terms partly d6fined in Section 1.01 to the extent not defined shall have the respective meanings given to them under GAAP. All computations determining compliance with financial covenants or terms, including definitions used therein, shall be prepared in accordance with generally accepted accounting principles in effect at the time of the preparation of, and in conformity with those used to prepare, the historical financial statements of the Company; (3) "or" is not exclusive; (4) "including" means including without limitation; 14 (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to secured indebtedness merely by virtue of its nature as unsecured indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP and accretion of principal on such security shall be deemed to be the Incurrence of Indebtedness; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred stock, whichever is greater; (9) unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Note or any certificate or other document made or delivered pursuant hereto; (10) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, Section, schedule and exhibit references are to this Agreement unless otherwise specified; and (11) as used in this Agreement, references to a fiscal year of the Company identified only by a year refer to the fiscal year of the Company ended on the Fiscal Date at the end of the fourth fiscal quarter of the Company which falls in the immediately succeeding calendar year. References to the last day of any fiscal year or fiscal quarter of the Company, or to a fiscal year or quarter ended on a certain date, shall be deemed to refer to the Fiscal Date at the end of such fiscal year or quarter. B. ARTICLE 2 C. Loan and Reimbursement Obligation SECTION 2.01. Loan. (a) Subject to the terms and conditions hereof, the Lender agrees to make a loan in Dollars (the "Loan") to the Company on the Closing Date, in 15 aggregate principal amount not in excess of ten million dollars ($10,ooo,ooo). (b) The proceeds of the Loan shall be used solely to make the Required Equity Contribution to the Partnership. SECTION 2.02. Chase Guarantee and Reimbursement Obligation. (a) Subject to the terms and conditions hereof, the Lender, in reliance on the agreement of the Company set forth in paragraph (b), agrees to enter into the Chase Guarantee on the Effective Date. (b) (i) The Company agrees to reimburse the Lender on each date on which the Lender notifies the Company of the date and amount of demand for payment presented under the Chase Guarantee and paid by the Lender for the amount of such demand so paid and any taxes, fees, charges or other costs or expenses incurred by the Lender in connection with such payment. Each such payment shall be made to the Lender at the office of the Lender located at 1221 Nicollet Mall, Minneapolis, Minnesota in Dollars and in immediately available funds. (ii) Interest shall be payable on any and all amounts remaining unpaid by the Company under this section 2.02(b) from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at LIBOR plus 4.00%. (iii) The Company's obligations under this Section 2.02 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the Lender or any beneficiary of the Chase Guarantee. (iv) The Company also agrees with the Lender that the Lender shall not be responsible for, and the Reimbursement Obligations of the Company hereunder shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company and any beneficiary of the Chase Guarantee or any claims whatsoever of the Company against any beneficiary of the Chase Guarantee. (v) The Company agrees that any action taken or omitted by the Lender under or in connection with the Chase Guarantee, if done in the absence of gross negligence of willful misconduct, shall be binding on the Company and shall not result in any liability of the Lender to the Company. SECTION 2.03. Borrowing. The Company shall borrow the entire amount of the Loan on the Closing Date. The 16 company shall give the Lender not less than three Business Days' prior written notice of the Closing Date, specifying the principal amount of the Loan it is requesting. SECTION 2.04. Maturity. The Loan will mature on the date that is eight years following the closing Data (the "Maturity Date"). SECTION 2.05. Optional and Mandatory Prepayments; Repayments of Loan. (a) The Company may at any time and from time to time prepay the Loan, in whole or in part, without premium or penalty, upon at least five days irrevocable notice to the Lender. If such notice is given, the Company shall make such prepayment, and the payment amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments of the Loan shall be in an aggregate principal amount equal to the lesser of (A) $500,000, or a whole multiple of $100,000 in excess thereof and (B) the aggregate unpaid principal amount of the Loan. (b) (i) If, subsequent to the Closing Date, the Company or any of its Subsidiaries shall obtain any dividend or other distributions from the Partnership, 100% of the cash proceeds thereof less (A) appropriate reserves for any taxes or other charges imposed by any Governmental Authority an the Company or its property, or allocable to the Company, and (B) appropriate reserves for any other operating expenses of the Company shall be promptly applied toward the prepayment of the Loan. (ii) The Company shall give the Lender at least one Business Day's notice of each prepayment or mandatory reduction pursuant to this Section 2.05(b) setting forth the date and amount thereof. (c) Accrued interest on the amount of any prepayments shall be paid on the date Of such prepayment. SECTION 2.06. Interest Rate and Payment Dates. (a) The Loan shall bear interest for each day during each Interest Period on the unpaid principal thereof at a rate per annum equal to LIBOR determined for such day plus 4.00%. (b) If all or a portion of (i) the principal amount of the Loan or (ii) any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise) the Loan, and-any such overdue amount shall, without limiting the rights of the Lender under Section 8, 17 bear interest at a rate per annum which is 2.00% above the rate of interest otherwise applicable to the Loan from the date of such non-payment until paid in full (as well after as before judgment). (c) Interest shall be payable in arrears on each Interest Payment Date. SECTION 2.07. Computation of Interest and Fees. Interest in respect of the Loan, shall be calculated on the basis of a 365 (or 366 as the case may be) day year for the actual days elapsed. SECTION 2.08. Treatment of Payments. (a) Whenever any payment received by the Lender under this Agreement or the Note is insufficient to pay in full all amounts then due and payable to the Lender under this Agreement or the Note such payment shall be applied by the Lender in the following order: first, to the payment of fees and expenses due and payable to the Lender under and in connection with this Agreement and the Note including the payment of all expenses due and payable under Section 9.05; second, to the payment of interest then due and payable on the Loan; and third, to the payment of the principal amount of the Loan which is then due and payable; or (b) All payments (including prepayments) to be made by the company on account of principal, interest and fees shall be made without set-off or counterclaim and shall be made to the Lender at the office of the Lender located at 1221 Nicollet Mall, Minneapolis, Minnesota in lawful money of the United States of America and in immediately available funds. If any payment hereunder would become due and payable on a day other than a Business Day, such payment shall become due and payable on the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. SECTION 2.09. Indemnity. The Company agrees to indemnify the Lender and to hold the Lender harmless from any loss or expense (but without duplication of any amounts payable as default interest) which the Lender may sustain or incur as a consequence of default by the Company in making any prepayment after the Company has given a notice in accordance with Section 2.05. This covenant shall survive termination of this Agreement and repayment of the Loan. 18 SECTION 2.10. Repayment of the Loan; Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Lender the then unpaid principal amount of the Loan in accordance with the terms hereof and the Note. The Company hereby further agrees to pay interest on the unpaid principal amount of the Loan from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.06. (b) The Lender shall maintain a Register (the 'Register") in which shall be recorded (i) the aX0unt of the Loan made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to the Lender hereunder and (iii) the amount of any sum received by the Lender hereunder from the Company. (c) The entries made in the Register to the extent permitted by applicable law, shall be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; Provided, however, that the failure of the Lender to maintain the Register, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Loan made to the company by the Lender in accordance with the terms of this Agreement. (d) The Company agrees that, on the Effective Date, the Company will execute and deliver to the Lender the Note evidencing the Loan: The parties hereto acknowledge and agree that the "issue price" of the Note, within the meaning of Section 1273(b) of the Internal Revenue code of 1986, as .amended, is $10 million, that for purposes of Treasury Regulation S 1.1273-2(h) no amount is allocated to the right granted to the Lender by the Guarantor pursuant to that certain letter agreement dated February 28, 1996 from the Guarantor to the Lender, and that, consistent with Treasury Regulation S 1. 1273-2 (j) , no amount will be allocated to the option to convert a portion of the Note into stock of the Parent pursuant to the Parent option Agreement for purposes of determining the issue price of the Note. SECTION 2.11. Termination of the Commitment. The Company shall have the right at any time prior to the making of the Loan, upon prior written notice to the Lender, to terminate this Agreement and the obligation of the Lender to make the Loan. 19 ARTICLE 3 Representations and Warranties In order to induce the Lender to enter into this Agreement and to make the Loan, the Company hereby represents and warrants to the Lender, as follows (all representations and warranties are made as of the Effective Date, as of the Closing Date and with respect to the entire period following the Effective Date, as if made at any time during such period): SECTION 3.01. Corporate Existence. The Company is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation. SECTION 3.02, Corporate Power; Authorization. The Company has the corporate power and authority to make, deliver and perform each of the Credit Documents to which it is a party, and the Company has the corporate power and authority and legal right to borrow hereunder. The Company has taken all necessary corporate action to authorize the execution, delivery and performance of each of the Credit Documents to which it is or will be a party and the Company has taken all necessary corporate action to authorize the borrowings hereunder. No consent or authorization of, or filing with, any Person (including any Governmental Authority) is required in connection with the execution, delivery or performance by the Company, or for the validity or enforceability against the Company, of any credit Document except for consents, authorizations and filings (a) which have been obtained or made and are in full force and effect, and except such consents, authorizations and filings, the failure to obtain or perform (i) which would not have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and (ii) which would not adversely affect the validity or enforceability of any of the Credit Documents or the rights or remedies of the Lender thereunder. SECTION 3.03. Enforceable Obligations. This Agreement, and each of the other Credit Documents has been, duly executed and delivered on behalf of the Company. This Agreement and each of the other Credit Documents constitutes the legal, valid and binding obligation of the Company, and is enforceable against the Company in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors, rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 20 SECTION 3.04. No Legal Bar. The execution, delivery and performance of each credit Document and the incurrence or issuance of and use of the proceeds of the Loan do not violate any Requirement of Law or any Contractual Obligation applicable to or binding upon the Company or any of its properties or assets, in any manner which, individually or in the aggregate, (i) would have a material adverse effect on the ability of the Company to perform its obligations under the Credit Documents to which it is a party or (ii) would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company, and do not result in the creation or imposition of any Lien on any of its properties or assets pursuant to any Requirement of Law applicable to it, as the case may be, or any of its Contractual Obligations, except for Permitted Liens. D. ARTICLE 4 Conditions Precedent SECTION 4:01. conditions to Effectiveness. This Agreement shall become effective on the date (the "Effective Date") on which the following conditions are satisfied to the satisfaction of the Lender: (a) Credit Documents. The Lender shall have received (i) this Agreement and the Note, each executed and delivered by a duly authorized officer of the Company and(ii) each of the Parent Guarantee, the Parent Option Agreement and the Parent Pledge Agreement, each executed and delivered by a duly authorized officer of the Parent. (b) Corporate Proceedings of the Company. The Lender shall have received a copy of the resolutions, in form and substance reasonably satisfactory to the Lender, of the Board of Directors of the Company authorizing (i) the execution, delivery and performance of this Agreement, the Note and the other credit Documents to which it is a party and (ii) the borrowings contemplated hereunder, certified by the Secretary or an Assistant Secretary of the Company as of the Effective Date, which certificate shall be in form and substance reasonably satisfactory to the Lender and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. 21 (c) Company Incumbency Certificate. The Lender shall have received a Certificate of the Company, dated the Effective Date, as to the incumbency and signature of the officers of the Company executing any credit Document reasonably satisfactory in form and substance to the Lender, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Company. (d) Corporate Documents. The Lender shall have received true and complete copies Of the certificate of incorporation and by-laws of the Company, certified as of the Effective Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Company. (e) Pledged Stock: Stock Powers. The Agent shall have received the certificates representing the shares pledged pursuant to the Parent Pledge Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof. (f) Final order. The Lender shall have received a certified copy of an order of the Bankruptcy court in form and substance reasonably satisfactory to the Lender (the "Final order") which (i) shall be in full force and effect, (ii) shall have been entered no later than March 8, 1996, and (iii) shall not have been reversed, modified or amended in any respect. SECTION 4.02. Condition to Loan. The obligation of the Lender to make the Loan on the Closing Date is subject to the satisfaction, or waiver by the Lender, immediately prior to or concurrently with the making of the Loan, of the following conditions: (a) Representations and Warranties. Each of the representations and warranties made by the Company in or pursuant to the Credit Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing 22 on such date or after giving effect to the Loan requested to be made on such date. ARTICLE 5 Affirmative Covenants The company hereby agrees that, so long as this Agreement remains in effect, so long an (A) the Loan or the Chase Guarantee remains outstanding and unpaid, or any other amount is owing to the Lender hereunder or under any of the other credit Documents and (B) either (I) the closing of the transactions contemplated by the Acquisition Agreement (as defined in the NRG Plan) has occurred or (II) the Acquisition Agreement has been terminated in accordance with its terms, except if the Guarantor has or had (as mutually agreed by the parties hereto in writing or as finally determined by a court) the right to terminate the Acquisition Agreement in accordance with Section 7.2(b) or 7.2(d) of thereof, it shall: SECTION 5.01. Notices. Subject to the last sentence of this section promptly give notice to the Lender of any of the following (a "Notice Event") : (a) of the occurrence of any Default or Event of Default; and (b) of a material adverse change known to the Company in the business, assets, condition (financial or otherwise) or results of operations of the Company. Each notice pursuant to this Section 5.0a shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and (in the cases of clauses (a) through (b)) stating what action the Company proposes to take with respect thereto. The Company shall not be deemed in breach or default of its obligations under this Section 5.01 due to the failure to notify the Lender of any Notice Event of which the Lender shall have had actual knowledge as of the date notice of such Notice Event was to have been provided. SECTION 5.02. Maintenance of Books and Records. Maintain its books and records in accordance with generally accepted accounting principles and, during reasonable business hours and upon reasonable notice, make available to the Lender the Company's books and records. The Lender shall be entitled to make such investigation of the business of the Company as the Lender reasonably requests; provided, however, that (i) the Company shall not be required to provide its books and records to the extent disclosure of them would compromise any attorney-client privilege between the Company and its counsel 23 and (ii) other than as any be provided in any order entered by the Bankruptcy court, the Lender shall not be entitled to receive any document or information concerning bids for the Guarantor or its assets submitted by entities other than the Lender and its affiliates; and, provided, further, that the Lender will continue to comply with the confidentiality agreement previously entered into by the Lender with the Guarantor. ARTICLE 6 So long as (A) this Agreement remains in effect or the Loan or the Chase Guarantee remains outstanding and unpaid, or any other amount is owing to the Lender hereunder or under any other Credit Document (it being understood that each of the permitted exceptions to each of the covenants in this Article 6 is in addition to, and not overlapping with, any other of such permitted exceptions except to the extent expressly provided) and (B) either (I) the closing of the transactions contemplated by the Acquisition Agreement has occurred or (11) the Acquisition Agreement has been terminated in accordance with its terms, except if the Guarantor has or had (as mutually agreed by the parties hereto in writing or as finally determined by a court) the right to terminate the Acquisition Agreement in accordance with Section 7.2(b) or 7.2(d) of thereof: SECTION 6.01. Limitation on Indebtedness. (a) The Company shall not Incur any Indebtedness. (b) Notwithstanding Section 6.01(a), the Company may Incur the following Indebtedness: (i) Indebtedness to the Banks or other Indebtedness incurred by the Partnership to finance the construction or operation of the Facility; (ii) Indebtedness represented by the Loan; (iii) Indebtedness of the Company in an aggregate principal amount at any one time outstanding (excluding Indebtedness that is permitted to be incurred pursuant to clause (ii) of this Section 6.01(b)) not in excess of $250,000; and (iv) Indebtedness in connection with workmen's compensation obligations and related general liability exposure of the company. 24 SECTION 6.02. Limitation on Sales of Assets. The Company shall not make any Asset Disposition. SECTION 6.03. Limitation on Liens. The Company shall not, directly or indirectly, create or permit to exist any Lien an any of its property or assets, whether owned on the date of this Agreement or thereafter acquired, securing any obligation other than Permitted Liens. SECTION 6.04. Limitation on Lines of Business. The Company shall not engage in any business other than the construction, management and ownership of the Facility or the ownership of an interest in the Partnership. SECTION 6.05. Limitation on Merger, Etc. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person. ARTICLE 7 [RESERVED) ARTICLE 8 Defaults and Remedies SECTION 8.01. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest or any other amount (other than those specified in (2) below) with respect to the Loan or the Reimbursement obligations when the same becomes due and payable and such default continues for a period of 10 days and the Guarantor fails to make payment with respect thereto under the Guarantee; (2) the Company (i) defaults in the payment of the principal of the Loan or the Reimbursement Obligations when the same become due and payable at its Stated Maturity, upon redemption, upon declaration or otherwise or (ii) fails to redeem or purchase the Note when required pursuant to this Agreement or the Note and, in either case, the Guarantor fails to make payment with respect thereto under the Guarantee; (3) at any time during which (A) either (1) the Lender shall beneficially own (as such term is defined in the Securities Exchange Act of 1924, as amended) less than 26% of the equity securities (including, without limitation, all capital Stock and any securities 25 convertible into Capital Stock) of the Parent on a fully diluted basis or (II) the Lender, directly or indirectly (e.g., through any Person that "controls" (as defined in the Securities Exchange Act of 1934, as amended) or is "controlled by" the Lender), shall have the right to appoint one-half or more of the members of the Board of Directors of the Parent and (B) either (I) the closing of the transactions contemplated by the Acquisition Agreement has occurred or (11) the Acquisition Agreement has been terminated in accordance with its terms, except if the Guarantor has or had (as mutually agreed by the parties hereto in writing or as finally determined by a court) the right to terminate the Acquisition Agreement in accordance with Section 7.2(b) or 7.2(d) of thereof: (i) any representation or warranty made or deemed made by the Company or the Parent in any Credit Document shall prove to have been incorrect in any material respect on or as of the date, or at any time during the period, that such representation or warranty is made or deemed made; (ii) the facts or circumstances giving rise to such incorrect representation or warranty would have a material adverse effect on the Company's or the Parent's ability to pay the amounts outstanding under the Loan (including principal and interest) as they become due and payable; and (iii) both of the conditions in preceding subclauses (i) and (ii) continue for 30 days after the notice specified below; (4) [RESERVED]; (5) at any time during which (A) either (1) the Lender shall beneficially own (as such term is defined in the Securities Exchange Act of 1934, as amended) less than 26% of the equity securities (including, without limitation, all Capital Stock and any securities convertible into Capital Stock) of the Parent on a fully diluted basis or (11) the Lender, directly or indirectly (e.g., through any Person that "controls" (as defined in the securities Exchange Act of 1934, as amended) or is "controlled by" the Lender), shall have the right to appoint one-half or more of the members of the Board of Directors of the Parent and (B) either (I) the closing of the transactions contemplated by the Acquisition Agreement has occurred or (II) the Acquisition Agreement has been terminated in accordance with its terms, except if the Guarantor has or had (as mutually agreed by the parties hereto in writing or as finally determined by a court) the right to terminate the Acquisition Agreement in accordance with Section 7.2(b) or 7.2(d) of thereof: the Company shall default in the observance or performance of any agreement contained in Section 5.01(a) or Article 6 of this Agreement or the Parent shall 26 default in the observance or performance of any agreement contained in Section 11 or Section 12 of the Guaranty; (6) the Company or the Parent fails to comply with any of its agreements in the Credit Documents (other than those referred to in (1) through (5) above) and such failure continues for 30 days after the notice specified below, provided that in the case of Sections 11 and 12 of the Parent Guarantee, (A) either (I) the Lender shall beneficially own (as such term is defined in the Securities Exchange Act of 1934, as amended) less than 264 of the equity securities (including, without limitation, all Capital Stock and any securities convertible into Capital Stock) of the Parent on a fully diluted basis or (11) the Lender, directly or indirectly (e.g., through any Person that "controls" (as defined in the Securities Exchange Act of 1934, as amended) or is "controlled by" the Lender), shall have the right to appoint one-half or more of the members of the Board of Directors of the Parent and (B) either (I) the closing of the transactions contemplated by the Acquisition Agreement has occurred or (11) the Acquisition Agreement has been terminated in accordance with its terms, except if the Guarantor has or had (as mutually agreed by the parties hereto in writing or as finally determined by a court) the right to terminate the Acquisition Agreement in accordance with Section 7.2(b) or 7.2(d) of thereof; (7) [Reserved]; (8) the Company pursuant to or within the meaning of any 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 Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 27 (A) is for relief against the company in an involuntary case; (B) M appoints a Custodian of the Company or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (10) at any time during which (A) either (I) the Lender shall beneficially own (as such term is defined in the Securities Exchange Act of 1934, as amended) less than 261 of the equity securities (including, without limitation, all Capital stock and any securities convertible into Capital Stock) of the Parent on a fully diluted basis or (II) the Lender, directly or indirectly (e.g., through any Person that "controls" (as defined in the Securities Exchange Act of 1934, as amended) or is "controlled by" the Lender), shall have the right to appoint one-half or more of the members of the Board of Directors of the Parent and (B) either (I) the closing of the transactions contemplated by the Acquisition Agreement has occurred or (II) the Acquisition Agreement has been terminated in accordance with its terms, except if the Guarantor has or had (as mutually agreed by the parties hereto in writing or as finally determined by a court) the right to terminate the Acquisition Agreement in accordance with Section 7.2(b) or 7.2(d) of thereof: any judgment or decree for the payment of money in excess of $3,000,000 or its foreign currency equivalent at the time is entered against the Company, the Parent or any Subsidiary of the Parent and is not discharged and either (A) an enforcement proceeding has been commenced by any creditor upon such judgment or decree or (B) there is a period of 60 days following the entry of such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; (11) any Credit Document shall cease, for any reason, to be in full force and affect or the Company or the Parent shall so assert in writing; (12) the Bankruptcy Court shall enter an order (i) dismissing the case, (ii) converting the Case to a case under Chapter 7 of the Bankruptcy Code, (iii) appointing a trustee or examiner in the case or (iv) the Guarantor shall make an application to the Bankruptcy Court in respect of clauses (i), (ii) or (iii); or an application 28 shall be made for the approval of, or there shall arise, any claim in the Case having a priority superior to that of the Lender; The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is affected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clauses (3) and (6) is not an Event of Default until the Lender notifies the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". SECTION 8.02. Acceleration. If an Event of Default (other than an Event of Default specified in section 8.01(a) or (9) with respect to the Company) occurs and is continuing, the Lender by notice to the Company may declare the principal of and accrued interest on the Loan (including, without limitation, all amounts of Reimbursement Obligations, whether or not the beneficiaries of the chase Guarantee shall have demanded payment thereunder) to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately, if an Event of Default specified in section 8.01(s) or (9) with respect to the Company (but not any Subsidiary) occurs, the principal of and interest an the Loan (including, without limitation, all amounts of Reimbursement obligations, whether or not the beneficiaries of the Chase Guarantee shall have demanded payment thereunder) shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Lender. The Lender by notice to the Company may rescind an acceleration and its consequences. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 8.03. Other Remedies. If an Event of Default occurs and is continuing, the Lender may pursue any available remedy to collect the payment of principal of or interest on the Note (including, without limitation, all amounts of Reimbursement Obligations, whether or not the beneficiaries of the Chase Guarantee shall have demanded payment 29 thereunder) or to enforce the performance of any provision of the Note or this Agreement. The Lender may maintain a proceeding even if it does not Possess the Note or does not produce it in the proceeding. A delay or omission by the Lender in exercising any right or remedy accruing upon an Event of Default shall not-impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 8.04. Waiver Of Past Defaults. The Lender by notice to the Company may waive an existing Default and its consequences. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTTON 8.05. Priorities. If the Lender collects any money or property pursuant to this Article a, it shall pay out the money or property in the following order: FIRST: to itself in accordance with the priority set forth in Section 2.08; and SECOND: to the extent of any excess, to the Company. SECTION 8.06. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Agreement a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. SECTION 8.07. Waiver of Stay of Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Agreement; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Lender, but shall suffer and permit the execution of every such power as though no such law had been enacted. 30 ARTICLE 9 E. Miscellaneous SECTION 9.01. Amendments and Waivers. Except as otherwise expressly set forth in this Agreement, no credit Document nor any terms thereof may be amended, supplemented, waived or modified except in a writing signed by the Company and the Lender. SECTION 9.02. Notices. All noticed, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy or telex, if one is listed)t and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when sent, confirmation of receipt received, or, in the case of telex notice, when sent, answerback received, addressed as follows, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Note: The Company: O'Brien (Schuykill) Cogeneration, Inc. 225 South 8th Street Philadelphia, PA 19106 Attention: President or Chief Executive Officer Telephone: (215) 627-5500 Telecopier: (215) 922-5227 if to Lender NRG Energy, Inc. 1221 Nicollet Mail, Suite 700 Minneapolis, MN 55403 Attention: Vice President, Business Development Telephone: (612) 373-5300 Telecopier: (612) 373-5430 With copies to: NRG Energy Inc. Legal Department 1221 Nicollet Mail, Suite 700 Minneapolis, MN 55403 Attention: Vice President and General Counsel Telephone: (612) 373-5300 Telecopier: (612) 373-5392 31 provided that any notice, request or demand to or upon the Lender pursuant to Section 2.05 shall not be effective until received. SECTION 9.03. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, rarely, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 9.04. Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Note. SECTION 9.05. Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Lender for all its costs and expenses incurred in connection with, and to pay, indemnify, and hold the Lender harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever arising out of or in connection with, the enforcement or preservation of any rights under any Credit Document and any such other documents, including reasonable fees and disbursements of counsel to the Lender incurred in connection with the foregoing, (b) to pay, indemnify, and to hold the Lender harmless from any and all recording and filin4 fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes (other than withholding taxes), if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, any credit Document and any such other documents, and (c) to pay, indemnify, and hold the Lender and its respective Affiliates, officers and directors harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable fees and disbursements of counsel) which may be incurred by or asserted against the Lender or such Affiliates, officers or directors arising out of or in connection with any investigation, litigation or proceeding related to this Agreement, the other Credit Documents, the proceeds of the Loan and the transactions contemplated by or 32 in respect of such use of proceeds, or any of the other transactions contemplated hereby, whether or not the Lender or such Affiliates, officers or directors is a party thereto, including any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company or any of the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (all the foregoing, collectively, the "indemnified liabilities"); provided that the company shall have no obligation hereunder with respect to indemnified liabilities of the Lender or any of its respective Affiliates, officers and directors arising from (i) the gross negligence or willful misconduct of the Lender or its respective directors or officers; (ii) legal proceedings commenced against the Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such; (iii) legal proceedings commenced against the Lender by any Transferee; or (iv) actions taken by the Company either at the direction of the Board of Directors of the Company or pursuant to the Management Agreement at such time as persons designated by the Lender or which the Lender shall have the right to appoint shall constitute at least one-half of the Board. The agreements in this Section 9.05 shall survive repayment of the Note and all other amounts payable hereunder. SECTION 9.06. Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lender all future holders of the Note and the Loan, and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender. (b) The Company hereby agrees that the Lender may, in accordance with applicable law, at any time and from time to time assign all or any part of its rights and obligations under this Agreement and the Note to any Person (a "Transferee"). (c) The Company authorizes the Lender to disclose to any prospective Transferee any and all financial information in the Lender's possession concerning the Company and its Subsidiaries and Affiliates which has been delivered to the Lender by or on behalf of the Company, subject to receipt of a confidentiality agreement from such Prospective Transferee in form and substance reasonably satisfactory to the Company. 33 SECTION 9.07. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. SECTION 9.08. Governing Law, This Agreement and the Note and the rights and obligations of the parties under this Agreement and the Note shall be governed by, and construed and interpreted in accordance with, the law of the State of New York and applicable laws of the United States of America. SECTION 9.09. Submission to Jurisdiction; Waivers. (a) Each party to this Agreement hereby irrevocably and unconditionally: (i) submits of or itself and its property in any legal action or proceeding relating to this Agreement or any of the other Credit Documents, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the, same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in Section 9.02; and (iv) agrees that nothing herein shall affect the right to affect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (b) Each party hereto unconditionally waives trial by jury in any legal action or proceeding referred to in paragraph (a) above and any counterclaim therein. SECTION 9.10. Interest. Each provision in this Agreement and each other Credit Document is expressly limited so that in no event whatsoever shall the amount paid, or 34 otherwise agreed to be paid, by the Company for the use, forbearance or detention of the money to be loaned under this Agreement or any other Credit Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other credit Document which in for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the highest lawful rate permitted by applicable law (the "Highest Lawful Rate"), and all amounts owed under this Agreement and each other Credit Document shall be held to be subje6t to reduction to the affect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Agreement or such Credit Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Notwithstanding any provision in this Agreement or any other credit Document to the contrary, if the maturity of the Loan or the obligations in respect of the other Credit Documents are accelerated for any reason, or in the event of any prepayment of all or any portion of the Loan or the obligations in respect of the other Credit Documents by the Company or in any other event, earned interest on the Loan and such other obligations of the Company may never exceed the Highest Lawful Rate, and any unearned interest otherwise payable on the Loan or the obligations in respect of the other Credit Documents that is in excess of the Highest Lawful Rate shall be cancelled automatically as of the date of such acceleration or prepayment or other such event and (if theretofore paid) shall, at the option of the holder of the Loan or such other obligations, be either refunded to the Company or credited on the principal of the Loan. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Highest Lawful Rate, the Company and the Lender shall, to the maximum extent permitted by applicable law, amortize, prorate, allocate and spread, in equal parts during the period of the actual. term of this Agreement, all interest at any time contracted for, charged, received or reserved in connection with this Agreement. SECTION 9.11. Termination. This Agreement shall terminate on the first date on Which the chase Guarantee shall be returned to the Lender or otherwise terminated and all principal of and interest on the Loan, the Note, the Reimbursement Obligations, and all other obligations and liabilities of the Borrower to the Lender, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise, shall have been indefeasibly paid in full. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, 35 New York by their proper and duly authorized officers as of the day and year first above written. O'BRIEN (Schuylkill) COGENERATION, INC. By /s/ Sanders D. Newman Name: Sanders D. Newman Title: V. P. & Secretary NRG ENERGY, INC. by /s/ Craig A. Mataczynski Name: Craig A. Mataczynski Title: Vice President 36 EX-10.9.2 6 EXHIBIT 10.9.2 OPTION AGREEMENT DATED MAY 1, 1996 BETWEEN O'BRIEN (SCHUYLKILL) COGENERATION INC. AND NRG ENERGY. Exhibit 10.9.2 EXHIBIT D OPTION AGREEMENT OPTION AGREEMENT, dated as of March 8, 1996 (this "Agreement"), made by O'BRIEN ENVIRONMENTAL ENERGY, INC.. a Delaware corporation, as a Debtor and a Debtor-in-Possession under Chapter 11 of the Bankruptcy Code (the "Parent"), in favor of NRG ENERGY, INC., a Delaware corporation (the "Lender"). WITNESSETH WHEREAS, Pursuant to the Loan Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), between O'BRIEN (SCHUYLKILL) COGENERATION, INC. (the "Borrower") and the Lender, the Lender has agreed to make a Loan to the Borrower upon the terms and subject to the conditions set forth therein, to be evidenced by the Note issued by the Borrower under the Credit Agreement, WHEREAS, pursuant to the Guarantee, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the ("Guarantee") made by the Parent in favor of the Lender, the Parent has guaranteed the obligations of the Borrower to the Lender, WHEREAS, it is a condition precedent to the obligation of the Lender to make the Loan to the Borrower under the Credit Agreement that the Parent shall have executed and delivered this Agreement to the Lender; and WHEREAS, the Parent is the parent of the Borrower, and it is to the advantage of Parent that the Lender make the Loan to the Borrower. NOW, THEREFORE, in consideration of the premises and to induce the Lender to enter into the Credit Agreement and to induce the Lender to make the loan to the Borrower under the Credit Agreement, the Parent hereby agrees with the Lender as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. 2. Option to Convert Portion of Loan to Common Stock. The Parent hereby grants to the Lender, at any time after both (a) the NRG Plan Effective Date and (b) the date on which the Lender shall have made the Loan, the right, upon not less then fifteen Business Days' prior written notice to the Parent, to exchange the Note for (1) a new promissory Note in a principal amount which is $3 million less than the previously outstanding principal amount of the Note for which it is exchanged and (2) that number of shares of common stock of the Parent which would equal, on a fully diluted basis, 5,767% of the shares of common stock of the Company (the "Conversion Shares") as of the NRG Plan Effective Date. On the day specified in the notice delivered pursuant to the preceding sentence, the Lender shall deliver the Note to the Company in exchange for (1) the delivery by the Company to the Lender of a new Note in a principal amount which is $3 million less than the previously outstanding principal amount of the old Note (and the Parent agrees to cause the Company to deliver such new Note) and (2) the delivery by the Parent to the Lender of the Conversion Shares. 3. Notices. All notices, requests and demands to or upon the Lender or the Parent to be effective shall be in writing (or by telex, fax or similar electronic transfer confirmed in writing) and shall be deemed to have been duly given or made (1) when delivered by hand or (2) if given by mail, when deposited in the mails by certified m4 return receipt requested, or (3) if by telex, fox or similar electronic transfer, when sent and receipt his been confirmed, addressed as se forth in the Agreement. 4. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 5. Amendments in Writing; No Waiver: Cumulative Remedies. None of the terms or provisions of Ws Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Parent and the Lender. 6. Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof 7. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of the Parent and shall inure to the benefit of the Lender and its successors and assigns. 8. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed and delivered by its duly authorized officer as of the day and year first above written. O'BRIEN ENVIRONMENTAL ENERGY, INC. By /s/ John B. Kelly Name: John B. Kelly Title: Chief Administrative Officer 2 April 30, 1996 Craig A. Mataczynski Vice President NRG Energy, Inc. 1221 Nicollet Mail, Suite 700 Minneapolis, NN 55403-2445 Dear Craig: I am writing to confirm our calculations for the number of shares of NRG Generating (U.S.) Inc. ("Generating") that will be issuable to NRG Energy, Inc. ("NRG") upon exercise of its $3 million dollar option granted in connection with the Grey's Ferry project. As you know, on the closing of the Plan of Reorganization, a total of 6,474,814 shares of Generating Common Stock will be issued, 2,710,357 of which shares will be issued to NRG or its designated affiliate. Based upon these numbers, and the terms of the option (a copy of which is attached), the number of Generating shares that NRG Energy is entitled to receive upon exercise of its option in full is 396,301 shares of Generating Common Stock, and the exercise price per share is $7.57. Attached is a chart showing how we calculated these numbers. Please confirm your concurrence with our calculations by countersigning this letter in the space provided below. The Official Committee of Equity Security Holders of O'Brien Environmental Energy By: /s/ Lawrence Littman Lawrence Littman Committee Chair AGREED TO: NRG ENERGY, INC. By: /s/ Craig A. Mataczynski EX-10.10.6 7 EXHIBIT 10.10.6 LOAN AGREEMENT BETWEEN THE COMPANY AND PECO. Exhibit 10.10.6 O'BRIEN ENVIRONMENTAL ENERGY [Letterhead] July 21, 1994 Mr. William L. Bardeen Senior Vice President and Group Executive Consumer Energy Services Group PECO Energy Company 2301 Market Street P.O. Box 8699 Philadelphia, PA 19101-8699 Re: Letter Agreement Regarding Amendment of the Energy Service Agreements between the Philadelphia Municipal Authority and O'BRIEN Philadelphia Cogeneration Inc. in Conjunction with the Execution of Economic Efficiency Rider Contracts Between the City of Philadelphia Water Department and PECO Energy Company. Dear Bill: This letter sets forth the terms and conditions agreed to by PECO Energy Company ("PECO") and O'BRIEN Environmental Energy, Inc. ("O'BRIEN") under which, (i) O'BRIEN will agree to seek amendments to the Energy Service Agreements ("ESAs") between the Philadelphia Municipal Authority ("PMA") and O'BRIEN Philadelphia Cogeneration Inc. ("OPCI") under which OPCI currently provides standby electric generating services for the City of Philadelphia Water Department ("PWD") at its Northeast and Southwest waste water treatment facilities, and, (ii) PECO will offer and agree to enter into new Economic Efficiency Rider contracts with the PWD that would provide the PWD with the same level of economic benefits the PWD would have otherwise received from OPCI under the ESAs. The agreed upon terms and conditions are as follows: 1. PECO will loan O'BRIEN $5.5 million (the "Loan") on August 5, 1995, the last date of O'BRIEN's final option period to repurchase the common stock of OPCI (the "Stock Repurchase") from OPC Acquisition, Inc. (OPCAI). O'BRIEN will use $5 million of the Loan proceeds or such lesser amount as may be mutually agreed to by O'BRIEN and OPCAI to purchase the OPCI common stock (the "Stock Repurchase Price") and will assign the OPCI common stock to PECO as collateral for the Loan, as described below. PECO will facilitate the Stock Repurchase by wining the Stock Repurchase Price directly to OPCAI on behalf of O'BRIEN. Until the Loan is repaid, O'BRIEN will make monthly payments of $116,000 (the Monthly PECO Loan Payment) to PECO as provided in Schedule 1 attached hereto. O'BRIEN may prepay the outstanding balance of the Loan at any O'BRIEN ENVIRONMENTAL ENERGY [Letterhead] Mr. William L. Bardeen July 21, 1994 Page 2 time without penalty. As further collateral for the Loan, O'BRIEN promises to establish a lock-box arrangement with a bank, acceptable to PECO and paid for by O'BRIEN, as described in the addendum to Schedule 2 attached hereto, under which all service fees received by OPCI from PMA will be directly deposited and all OPCI obligations, including full payment to PECO, as provided in Schedule 1, are paid in accordance with the Order of Monthly Service Fee Distributions attached hereto as Schedule 2. Interest shall accumulate on any unpaid balance (the Unpaid Balance) until paid in full. If there are insufficient funds available in any month to make the total Monthly PECO Loan Payment, or if there are excess funds available in any month after all the obligations of Schedule 2 have been satisfied, the remaining principal amount shall be adjusted and the term of the Schedule 1 Loan Amortization Table shall be extended or shortened, as the case may be, to amortize the adjusted principal amount using a monthly payment of $116,000 and 12% annual interest rate. Further O'BRIEN will not sell, move, pledge, or otherwise further encumber the 22 megawatts of diesel fuel standby electric generating equipment sets (the "Gen Sets") currently leased by O'Brien Rental Services ("RENTAL") to OPCI and located on PWD property without either obtaining PECO's prior written approval or by repaying the Loan in full. Further,upon the effective date of this Letter Agreement, O'BRIEN will immediately use its best efforts to grant PECO a second lien or mortgage on the Gen Sets in an amount equal to any Unpaid Balance due on the Loan. O'BRIEN will use its best efforts to obtain the consent of the lenders who have a primary lien on the Gen Sets (the "Primary Lenders") if such consent is necessary to permit O'BRIEN to grant the second lien to PECO. O'BRIEN represents that, (i) as of the date of this Letter Agreement, the projected schedule of payments would result in a remaining balance of less than $600,000 that will be owed to the Primary Lenders on all of the Gen Sets as of August, 1998, and (ii) the original financing costs of the Gen Sets and related equipment were greater than $8 million. O'BRIEN will provide PECO with detailed schedules and other documents memorializing RENTAL's obligations to the Primary Lenders with respect to the Gen Sets upon request. 2. O'BRIEN will not sell or pledge the common stock of OPCI to any party other than PECO until the Loan is repaid in full, except that O'BRIEN may sell the common stock to OPCAI as provided in paragraph 5 below. 3. Subject to a right of first refusal on the sale of the OPC I common stock which OPCAI has pursuant to Section 5 of Annex 11 to the Stock Purchase Agreement by and among OPCAI and affiliates and O'BRIEN dated November 12, 1993 (the "OPCAI Agreement"), after O'BRIEN has acquired the OPCI common stock, O'BRIEN shall grant PECO an exclusive option to acquire the OPCI common stock for the sum of $3 million, which option PECO must exercise when, and only if, all of the following conditions are satisfied: (1) O'BRIEN and the PMA execute amended ESAs that include at least the terms O'BRIEN ENVIRONMENTAL ENERGY [Letterhead] Mr. William L. Bardeen July 21, 1994 Page 3 described below in paragraph 10, and the ESAs are acceptable to PECO; (2) PECO and the PWD execute Economic Efficiency Rider Contracts (the "EER contracts"), as described below in paragraphs 7 and 8; (3) O'BRIEN and PECO execute a transfer agreement (the "Transfer Agreement"), as described below in paragraph 1 0; and (4) PECO pays the difference between $9.5 million and the then current balance on the Loan to O'BRIEN and deems the Loan satisfied in full. 4. After O'BRIEN has acquired the common stock of OPCI, PECO shall have the right to tender an offer to purchase the OPCI common stock for $3 million (the "Offer"), which offer shall be subject to the conditions described above in paragraph 3. 5. If OPCAI, (i) exercises its rights to match the Offer, (ii) pays O'BRIEN $3 million for the OPCI common stock in accordance with the OPCAI Agreement, and (iii) makes the Lease Buyout Payment of $6.5 million, O'BRIEN shall immediately repay the Loan in full from the proceeds of the payments received from OPCAI for the OPCI common stock and the Lease Buyout and shall do so by requesting that OPCAI wire directly to PECO an amount equal to the principal and interest due on the Loan. 6. If OPCAI does not exercise its right to match, as soon as practicable and at least thirty days after the date the Loan is executed, O'BRIEN and PECO shall contact PWD and other relevant City of Philadelphia representatives to seek PWD's agreement to an amendment of the ESAs as described in paragraph 3 (1) above, the Transfer Agreement described in paragraph 10 below, and the EER contracts as described in paragraph 7 below. O'BRIEN and its affiliates shall fully defend, indemnify, and hold PECO harmless from and against any losses or damages that PECO might suffer as the result of any legal action of any kind, if any, brought by OPCAI, or by any other person or entity making a claim based on the OPCAI Agreement, in connection with alleged violations of rights, or alleged breaches of obligations, established by the OPCAI Agreement, 7. PECO will offer EER contracts to the PWID for its Northeast and Southwest waste water treatment facilities that would provide the same level of economic benefits that the PWID would otherwise receive under the ESAs. The EER contracts will provide a discount on PECO's full Rate HT service to the PWD in a manner that is consistent with the requirements of PECO's EER Tariff and the Pennsylvania Public Utility Code. The combination of this discount and the timing of such discount will provide the same level of economic benefits that the PWD would have otherwise received at the PWID facilities from OPCI under the ESAs. O'BRIEN ENVIRONMENTAL ENERGY [Letterhead] Mr. William L. Bardeen July 21, 1994 Page 4 8. The EER contracts may include provisions similar to those provisions relating to early termination contained in the "Term of Contract" section of the EER contract executed on June 30, 1994 between SmithKline Beecham Corporation and PECO if the PWD wishes to have such provisions included. 9. O'BRIEN and PECO shall cooperate to obtain PWD's agreement to the changes to the ESAs, to accept the transfer of obligations previously owed to the PWD by OPCI to O'BRIEN, and to induce the PWD to enter into the EER contracts on the terms and conditions described herein, and shall endeavor to share any additional burdens, economic or otherwise, which O'BRIEN and PECO deem reasonable and appropriate, to bring about PWD's agreement and participation. O'BRIEN shall have sole discretion to decide whether to accept any such burdens with respect to the amended ESAs, and PECO shall have sole discretion to decide whether to accept any such burdens with respect to the EER contracts. 10. The amendment to the ESAs shall include provisions that, (i) permit the PMA or PWD to enter into the EER contracts, and (ii) release O'BRIEN or an affiliate of O'BRIEN from its obligation to maintain and operate all diesel fuel standby electric generating equipment currently located on PWD property. The amendment to the ESAs and the Transfer Agreement between PECO and O'BRIEN will contain terms ensuring that, upon closing of those agreements and the EER contracts, (i) OPCI shall have no remaining obligations whatsoever to the PIVIA, the PWD, or to O'BRIEN and any of its affiliates, or to any other person or entity, and, (H) that O'BRIEN will assume any obligations that OPCI had to the PIVIA, the PWD or to O'BRIEN and any of its affiliates, or to any other person or entity, it being PECO's intent to take whatever actions that may be necessary to cause OPCI to cease to exist immediately following the execution of the amended ESAs, Transfer Agreement, and the EER contracts. 11. If the PMA fails to execute the amended ESAs and the EER contracts within 120 days after the date the Loan is made, PECO may issue a second offer to purchase the common stock according to the same terms and conditions as its first offer, as described above in paragraphs 3, 4 and 5. 12. On, or as soon as practicable after, the date on which there is no longer any possibility that the amended ESAs and EER contracts contemplated herein will be successfully negotiated and executed, O'BRIEN and RENTAL shall enter into a written security agreement (the "Security Agreement") with PECO that will obligate O'BRIEN and RENTAL to, within six (6) months of the date the ESAs are terminated (the "Final Repayment Date"), (i) pay to PECO the Unpaid Balance on the Loan plus accumulated interest or, (ii) cause RENTAL to sell such number of the Gen Sets as are required to pay the Unpaid Balance to PECO and any remaining obligations to the Primary Lenders, and, (iii) grant a security interest to PECO in the GEN SETS such that if O'BRIEN fails to pay the full amount of the Unpaid Balance by the Final Repayment Date, subject to any regulatory O'BRIEN ENVIRONMENTAL ENERGY [Letterhead] Mr. William L. Bardeen July 21, 1994 Page 5 approvals that PECO deems necessary, O'BRIEN shall be obligated to cause RENTAL to assign RENTAL's full interest in all of the Gen Sets to PECO. The Security Agreement shall also provide, and O'BRIEN hereby promises, that PECO shall be entitled to recover any costs reasonably incurred by PECO or PECO's agent to sell the Gen Sets to satisfy the Loan from the net proceeds of any such sale and any balance remaining shall be returned to O'BRIEN. At the time O'BRIEN, RENTAL, and PECO enter into the Security Agreement, O'BRIEN and RENTAL shall execute whatever financing statements and other documents that PECO, in its sole judgment, deems necessary to enable PECO to perfect the security interest that the Security Agreement grants to PECO. 13. Should PECO, in its sole judgment, deem it necessary to obtain approval, from the Federal Trade Commission, the Federal Energy Regulatory Commission, Pennsylvania Public Utility Commission, or any other agency or governmental entity, to undertake any of the actions required by this Letter Agreement, O'BRIEN will undertake all actions that, in PECO's sole judgment, are necessary, including making all complementary or concurrent filings that may be required. PECO shall not be required to undertake or fulfill any obligation imposed by this Letter Agreement should an agency or other governmental entity disapprove of or forbid PECo from fulfilling the obligation. 14. O'BRIEN will manage and lead negotiations with the PWD, PIVIA, and, as appropriate, other City of Philadelphia officials, on the restructuring and amendment of the ESAs and shall consult PECO on strategy. PECO shall cooperate with O'BRIEN and shall attend meetings with O'BRIEN and City officials in support of O'BRIEN's negotiations consistent with the strategy. PECO shall not separately negotiate or maintain contact with the City or any other party involved with the ESAs, including OPCAI, Woodforde Energy, Inc., Mrs. Marsha Perelman or any of her affiliates or representatives, regarding any amendment of the ESAs or the provision of service under the EER contracts, except with the prior written approval of O'BRIEN. Except for initial telephone contacts to establish meeting dates and times, O'BRIEN shall not separately discuss with the PWID, the PIVIA, or other City officials, the EER contract provisions PECO has agreed to herein or the details of the EER contracts as the negotiations proceed. 15. Upon the execution of the amended ESAs, the Transfer Agreement, and the EER contracts contemplated herein, PECO will pay O'BRIEN the difference between $9.5 million and the then remaining principal amount and any accrued interest of the Loan owed to PECO by O'BRIEN and shall provide O'BRIEN with written certification that the Loan has been satisfied in full. 16. O'BRIEN represents to PECO that as of the date of this Letter Agreement, it knows of no outstanding claims against OPCI, and promises that, with respect to any claims that may be made or that accrue against OPCI between the date of this Letter Agreement and the date of the execution of the amended ESAs, the Transfer Agreement, and the EER contracts, O'BRIEN and its affiliates shall fully indemnify and hold PECO harmless from O'BRIEN ENVIRONMENTAL ENERGY [Letterhead] Mr. William L. Bardeen July 21, 1994 Page 6 and against any losses or damages, including attorney's fees and expenses incurred to defend against any such claims, that PECO might suffer as the result of any such claims should PECO ever obtain title to the OPCI stock as contemplated herein. As with our original restructuring proposal and in accordance with our Non- Disclosure Agreement, this Letter Agreement is hereby designated as "Confidential" by O'BRIEN and may not be disclosed to any other party for any purpose without O'BRIEN's or PECO's prior written permission. By signing below, both parties intend to be legally bound by the foregoing. Thank you for your consideration. Sincerely, ACCEPTED AND AGREED TO BY: /s/ Robert A. Shinn /S/ W. L. Bardeen Robert A. Shinn W. L. Bardeen Vice President for PECO Energy Company O'BRIEN Environmental Energy, Inc. DATE: 7/21/94 cc: cc: P. T. Eastman F. L. O'BRIEN, III L. Zalkin J. Cooperman Schedule 1 Loan Amortization Amount $5,500,000 Interest Rate/year 0.12 Monthly Payment 116,000 a. Unpaid b. Month Balance Payment Interest Principal 1 5,500,000 116,000 55,000 61,000 2 5,439,000 116,000 54,390 61,610 3 5,377,390 116,000 53,774 62,226 4 5,315,164 116,000 53,152 62,848 5 5,252,316 116,000 52,523 63,477 6 5,188,839 116,000 51,888 64,112 7 5,124,727 116,000 51,247 64,753 8 5,059,974 116,000 50,600 65,400 9 4,994,574 116,000 49,946 66,054 10 4,928,520 116,000 49,285 66,715 11 4,861,805 116,000 48,618 67,382 12 4,794,423 116,000 47,944 68,056 13 4,726,367 116,000 47,264 68,736 14 4,657,631 116,000 46,576 69,424 15 4,588,207 116,000 45,882 70,118 16 4,518,089 116,000 45,181 70,819 17 4,447,270 116,000 44,473 71,527 18 4,375,743 116,000 43,757 72,243 19 4,303,500 116,000 43,03S 72,965 20 4,230,535 116,000 42,305 73,695 21 4,156,841 116,000 41,568 74,432 22 4,082,409 116,000 40,824 75,176 23 4,007,233 116,000 40,072 75,928 24 3,931,306 116,000 39,313 76,687 25 3,854,619 116,000 38,546 77,454 26 3,777,165 116,000 37,772 78,228 27 3,698,936 116,000 36,989 79,011 28 3,619,926 116,000 36,199 79,801 29 3,540,125 116,000 35,401 80,599 30 3,459,526 116,000 34,595 81,405 31 3,378,122 116,000 33,781 82,219 32 3,295,903 116,000 32,959 83,041 33 3,212,862 116,000 32,129 83,871 34 3,128,990 116,000 31,290 84,710 35 3,044,280 116,000 30,443 85,557 36 2,958,723 116,000 29,587 86,413 Schedule 1, Loan Amortization Page 2 37 2,872,310 116,000 28,723 87,277 38 2,785,034 116,000 27,850 88,150 39 2,696,884 116,000 26,969 89,031 40 2,607,853 116,000 26,079 89,921 41 2,517,931 116,000 25,179 90,821 42 2,427,111 116,000 24,271 91,729 43 2,335,382 116,000 23,354 92,646 44 2,242,735 116,000 22,427 93,573 45 2,149,163 116,000 21,492 94,508 46 2,054,654 116,000 20,547 95,453 47 1,959,201 116,000 19,592 96,408 48 1,862,793 116,000 18,628 97,372 49 1,765,421 116,000 17,654 98,346 50 1,667,075 116,000 16,671 99,329 51 1,567,746 116,000 15,677 100,323 52 1,467,423 116,000 14,674 101,326 53 1,366,098 116,000 13,661 102,339 54 1,263,759 116,000 12,638 103,362 55 1,160,396 116,000 11,604 104,396 56 1,056,000 116,000 10,560 105,440 57 950,560 116,000 9,506 106,494 58 844,066 116,000 8,441 107,559 59 736,506 116,000 7,365 108,635 60 627,871 116,000 6,279 109,721 61 518,150 116,000 5,182 110,818 62 407,332 116,000 4,073 111,927 63 295,405 116,000 2,954 113,046 64 182,359 116,000 1,824 114,176 65 68,183 116,000 682 68,183 Unadjusted Term: 5.42 Years NOTE: Commencing September 20, 1994, and on the 20th day of each succeeding month during the term of the Loan, O'Brien will revise this Schedule 1 Loan Amortization Table in accordance with section 1 of the Letter Agreement and the provisions of Schedule 2 and forward the revised amortization table (the "Revised Schedule 1") to PECO for approval, such approval not to be unreasonably withheld. The Monthly PECO Loan Payment of $116,000 will remain a constant in the Revised Schedule 1, while the remaining Term, Unpaid Balance, Interest, and Principal payments in the revised Schedule 1 will be subject to adjustment. The following examples illustrate how the original and revised versions of Schedule 1 would be subject to change: A. If, based on Schedule 2, only $100,000 of the first month's payment is paid on time, then the Unpaid Balance for the second month will be increased by $16,000 to $5,455,000 and the Interest due for the second month will be $54,550. B. If no payment is made in the first month, then the balance due for the second month will be $5,555,000 and the interest due for the second month will be $55,550. C. If, based on Schedule 2, $130,000 is available and paid to PECO as payment in the first month, then the Unpaid Balance for the second month will be adjusted to $5,425,000 and the interest due for the second month will be $54,250. (a) Schedule 2 (b) Order of Monthly Distribution Payments 1. Primary Gen Set Lenders' Lease Payments. 2. An amount equal to O'BRIEN's Lease Margin as defined below plus the Operation & Maintenance Reimbursement of $25,000, such amount to be escalated each year by four (4) percent, to PECO Energy. 3. If applicable, the estimated Preferred Stockholder Dividend to the OPCI dividend reserve account. 4. The monthly PECO Loan Payment amount less the amount in line 2 above. 5. Operation & Maintenance Reimbursement of $25,000, such amount to be escalated each year by four (4) percent, to O'BRIEN. 6. Any remaining amount to PECO to further reduce the remaining principal amount of the loan. For purposes of this Schedule 2, O'BRIEN's Lease Margin, means $195,761 per month less the Primary Gen Set Lenders' Lease Payments. SCHEDULE 2 ADDENDUM LOCKBOX ARRANGEMENTS OPCI SERVICE FEES AND DISTRIBUTIONS As provided in section one of the Letter Agreement, upon the making of the Loan O'BRIEN will establish a Lockbox Account (the "Lockbox") with a bank (the "Bank"), acceptable to PECO and paid for by O'BRIEN, to receive and distribute OPCI service fees. The Bank will have standing instructions to follow the following procedures each month with respect to the flow of funds; 1. Monthly service fee checks will be remitted by the Philadelphia Municipal Authority ("PMA') directly to the Bank in the name of OPCI. These checks are typically received between the 10th and 12th day of each month. 2. As with PECO's own billing and payment schedule, there is a time lag (approximately 45 days) between the end of the applicable PECO billing period and the date the OPCI service fees are paid. While O'BRIEN, as the new holder of OPCI common stock, will be entitled to accrue dividends commencing August 6, 1994 (the day after the Stock Repurchase), the actual disbursement of the common stock dividend for the period August 6 through August 22, 1994 will not be available until October 12, 1994, and the common stock dividend accrued for the period August 22 through September 22, 1994 will not be available until November 12, 1994. 2. PECO, RENTAL and O'BRIEN will maintain a demand deposit account at the Bank during the term of the Loan. 3. On the 12th of each month, the Bank will automatically debit the account of OPCI and distribute payments in the amounts and in the order of the distribution categories shown in Schedule 2. Since the Preferred Stockholder Dividend (category number 4 on Schedule 2) is payable quarterly, if applicable and if funds are available, the Bank will debit the account of OPCI monthly in an amount estimated by O'BRIEN to be the then current month's share of the then current quarter's projected preferred stock dividend and deposit such amount into a separate dividend reserve account to be established at the Bank and controlled by OPCI. If applicable, the preferred stock dividend will be calculated in accordance with the formula described in a letter from O'BRIEN to OPCAI dated November 12, 1993 attached hereto as Schedule 3. 4. OPCI will be entitled to maintain a minimum monthly working capital, balance of $5,000 at all times during the term of the Loan. EX-10.14 8 EXHIBIT 10.14 TRANSMISSION SERVICE AND INTERCONNECTION AGREEMENT DATED NOVEMBER 17, 1987 BETWEEN O'BRIEN ENERGY SYSTEMS, INC. AND PUBLIC SERVICE ELECTRIC GAS COMPANY. Exhibit 10.14 TRANSMISSION SERVICE AND INTERCONNECTION AGREEMENT BETWEEN PUBLIC SERVICE ELECTRIC AND GAS COMPANY AND O'BRIEN ENERGY SYSTEMS, INC. Dated as of the 17th day Of November, 1987 TABLE OF CONTENTS PAGE RECITALS 1 ARTICLE I DEFINITIONS 5 ARTICLE II BASIC SERVICE 13 ARTICLE III EXCESS SERVICE 14 ARTICLE IV PHASE-IN PERIOD 16 ARTICLE V INTERRUPTION, CURTAILMENT OR REDUCTION OF SERVICE 17 Section A Public Service System Conditions 17 Section B Project Conditions 20 Section C Service Conditions 23 ARTICLE VI OPERATIONS COORDINATION 25 ARTICLE VII NET ELECTRICAL POWER OUTPUT SPECIFICATIONS 28 ARTICLE VIII TERM 28 ARTICLE IX EFFECTIVENESS AND ENFORCEABILITY 29 ARTICLE X TRANSMISSION SERVICE CHARGES 31 Section A 31 Section B 34 ARTICLE XI BILLING AND PAYMENT 35 ARTICLE XII METERING/RECORDS 38 ARTICLE XIII INTERCONNECTION 46 Section A Design, Construction and In- stallation of Interconnection 46 Section B Interconnection Costs 49 i TABLE OF CONTENTS PAGE Section C Letter of Credit for Interconnection Costs 54 Section D Cancellation Costs 56 ARTICLE XIV MAINTENANCE OF PLANT 58 ARTICLE XV USE OF THE PUBLIC SERVICE SYSTEM 58 ARTICLE XVI EASEMENTS 59 ARTICLE XVII PERMITS/APPROVALS 60 ARTICLE XVIII DEDICATION OF FACILITIES 63 ARTICLE XIX REARRANGEMENT 63 ARTICLE XX COGENERATION FACILITY/SUBSTATION FACILITY 64 ARTICLE XXI LIABILITY 71 ARTICLE XXII FORCE MAJEURE 72 ARTICLE XXIII PROTECTIVE DEVICES 74 ARTICLE XXIV INDEMNIFICATION 74 ARTICLE XXV INSURANCE 77 ARTICLE XXVI WARRANTIES 78 ARTICLE XXVII EVENTS OF TERMINATION 78 ARTICLE XXVIII BREACH OF CONTRACT 81 ARTICLE XXIX ARBITRATION 83 ARTICLE XXX SPECIFIC PERFORMANCE 86 ARTICLE XXXI MODIFICATIONS 87 ARTICLE XXXII ASSIGNMENT/TRANSFER 88 ARTICLE XXXIII CURE BY FINANCIER 90 ii TABLE OF CONTENTS PAGE ARTICLE XXXIV FINANCIER SECURITY AGREEMENT 94 ARTICLE XXXV DETERMINATION OF PSE&G COSTS 95 ARTICLE XXXVI STANDARD FOR PERFORMANCE 95 ARTICLE XXXVII STANDBY ELECTRIC SERVICE 96 ARTICLE XXXVIII ENTIRE AGREEMENT 97 ARTICLE XXXIX SUCCESSORS AND ASSIGNS 97 ARTICLE XL CHOICE OF LAW 98 ARTICLE XLI CAPTIONS 98 ARTICLE XLII COUNTERPARTS 99 ARTICLE XLIV SURVIVAL OF OBLIGATIONS 99 ARTICLE XLV MISCELLANEOUS 100 ARTICLE XLVI NOTICE OF AMENDMENTS TO PJM OR MID-ATLANTIC AGREEMENTS 100 ARTICLE XLVII RESERVATIONS 101 ARTICLE XLVIII NOTICES 101 iii TRANSMISSION SERVICE INTERCONNECTION AGREEMENT This AGREEMENT made and entered into as of this 17th day of November, 1987 by and between PUBLIC SERVICE ELECTRIC AND GAS COMPANY, a New Jersey corporation (PSE&G) and O'BRIEN ENERGY SYSTEMS, INC., a Delaware corporation (O'BRIEN). RECITALS WHEREAS, O'BRIEN has been formed as a Delaware corporation to, among other things, design, construct, own and operate a cogeneration facility at the PROJECT SITE. WHEREAS, O'BRIEN has made application to the Federal Energy Regulatory Commission (FERC) for and has obtained from the FERC a certification that the PROJECT is a qualifying facility pursuant to 18 C.F.R. Section 292.204. WHEREAS, O'BRIEN, intends to maintain the COGENERATION FACILITY during the term of this AGREEMENT in compliance with the requirements for a qualifying facility established as of the effective date of this AGREEMENT in accordance with Title 18, 2 Code of Federal Regulations, Part 292, Subpart B, Section 292.203 through 292.207, inclusive. WHEREAS, O'BRIEN has advised PSE&G that the NET ELECTRICAL POWER OUTPUT OF THE COGENERATION FACILITY will be approximately 56,000 kilowatts; WHEREAS, O'BRIEN estimates that it will commence pre-operation testing of PROJECT equipment and facilities during the fourth quarter of 1989; WHEREAS, O'BRIEN estimates that the DATE OF INITIAL OPERATION for the PROJECT will be during the first quarter of 1990; WHEREAS, O'BRIEN estimates that the DATE OF COMMERCIAL OPERATION for the PROJECT will be in or about third quarter of 1990; WHEREAS, O'BRIEN has an agreement with Jersey Central Power and Light Company (JCP&L) entitled JCP&L Standard Contract - Long-Term Purchase for Cogeneration and Small Power Production Located Outside JCP&L Service Territory dated March 10, 1986 pursuant to which O'BRIEN has agreed to sell to JCP&L and JCP&L has agreed to purchase from O'BRIEN the NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY; 3 WHEREAS, PSE&G is a public utility as defined in N.J.S.A. 48:2-13 and, as such, is required by applicable statutes and regulations to furnish safe, adequate and proper service to its retail and sale-for-resale customers and further, to have and maintain its property, plant and equipment in such condition as to enable it to do so; WHEREAS, PSE&G owns and operates electric power transmission facilities and, while O'BRIEN's planned PROJECT is not connected thereto, the PROJECT will be located in an area which is in proximity to PSE&G's electric power transmission facilities. WHEREAS, O'BRIEN has requested PSE&G to: (i) design, construct, install, operate and maintain the INTERCONNECTION so as to interconnect the PROJECT with the electric power transmission facilities of PSE&G at PSE&G's Essex Switching station; and (ii) receive NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY and supplied to the RECEIPT POINT for DELIVERY TO JCP&L; WHEREAS, JCP&L owns and operates electric power transmission facilities which are interconnected with the electric power transmission facilities of PSE&G; WHEREAS, PSE&G and JCP&L are members of the Pennsylvania-New Jersey- Maryland Interconnection (PJM); 4 WHEREAS, PJM is a fully coordinated power pool which, pursuant to an agreement executed by and among its members, affords to the member utilities for the benefit of their customers reliable electric service at the lowest possible cost; WHEREAS, PSE&G has conducted engineering studies to ascertain the feasibility of complying with O'BRIEN's requests to design, construct, install, operate and maintain the INTERCONNECTION and to receive NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY and supplied to the RECEIPT POINT for DELIVERY TO JCP&L; WHEREAS, PSE&G, as a result of the aforesaid engineering studies, has determined that it is feasible to design, construct, install, operate and maintain the INTERCONNECTION and to receive NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY and supplied to the RECEIPT POINT for DELIVERY TO JCP&L, over the term of this AGREEMENT; WHEREAS, PSE&G and JCP&L have or will enter into an operating agreement whereby the DELIVERY TO JCP&L of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY received by PSE&G from the COGENERATION FACILITY at the RECEIPT POINT pursuant to this AGREEMENT will be effected through an adjustment by and between JCP&L and PSE&G of their hourly 5 measured interconnection energy interchange in an amount equal to the NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY received by PSE&G at the RECEIPT POINT; NOW, THEREFORE, in consideration of the recitals and mutual covenants contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS The following terms when used herein with capitalization shall have the following meanings, unless a different meaning shall be expressly stated: AGREEMENT means this Transmission Service and Interconnection Agreement between O'BRIEN and PSE&G. ALTERNATE PROJECT SITE means the site located on portions of parcels in the City of Newark, County of Essex and State of New Jersey as follows: (i) Lot 32 Block 2407 on the Tax Map of the City of Newark and being commonly known as 335-347 Raymond Boulevard, Newark, New Jersey; and (ii) Lot 5 Block 2406 on the Tax Map of the City of Newark and being commonly known as 55-56 Lockwood Street, Newark, New Jersey; and (iii) that Lot known as the Morris Canal Bed Property. 6 BASIC SERVICE means the receipt by PSE&G at the RECEIPT POINT of a level of kilowatts of NET ELECTRICAL POWER OUTPUT for DELIVERY TO JCP&L in accordance with the level specified in Article II of this AGREEMENT. BILLING STATEMENT means the monthly statement of charges PSE&G submits to O'BRIEN for payment, as determined in accordance with Article X of this AGREEMENT. CANCELLATION COSTS means the actual costs and/or liabilities, PSE&G incurs in connection with: (i) the cancellation of supplier and/or contractor orders/agreements entered into to install and construct the INTERCONNECTION; (ii) removal of interconnection facilities which have been installed and are not required to maintain the integrity of the PSE&G subtransmission network. COGENERATION FACILITY means the gas turbine with heat recovery steam generator, one (1) steam turbine, synchronous generators and all appurtenant structures and equipment which O'BRIEN plans to construct, install, own, operate and maintain at the PROJECT SITE, which generators have in aggregate a nameplate rating of 51,400 kilowatts. 7 COMMERCIAL OPERATION means the production of electric power and energy at the COGENERATION FACILITY and the supply of such electric power and energy to PSE&G at the RECEIPT POINT for DELIVERY TO JCP&L, commencing on the DATE OF COMMERCIAL OPERATION. CREDIT means Irrevocable Letter of Credit. DATE OF COMMERCIAL OPERATION means the date O'BRIEN designates as the date on which the electric generation units at the COGENERATION FACILITY and the SUBSTATION FACILITY have been completed, tested and inspected and are available for and capable of: (i) production of electrical power and energy; and (ii) the supply thereof to PSE&G at the RECEIPT POINT for DELIVERY TO JCP&L. DATE OF INITIAL OPERATION means the date on which O'BRIEN synchronizes, for the first time, any electric generation unit at the COGENERATION FACILITY with the PUBLIC SERVICE SYSTEM. DATE OF START-UP means the date PSE&G designates as the date on which the SUBSTATION FACILITY will be energized and PSE&G commences the supply of electric power and energy to the PROJECT. 8 DELIVERY TO JCP&L means: (i) the hourly communication by PSE&G to JCP&L of the amount of NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY which was received at the RECEIPT POINT by PSE&G for the account of JCP&L during the previous hour; (ii) the simultaneous adjustment by PSE&G of its hourly measured interconnection energy interchange in an amount equal to the NET ELECTRICAL ENERGY so received; and (iii)the simultaneous adjustment by JCP&L of its hourly measured interconnection energy interchange in an amount equal to the NET ELECTRICAL ENERGY so reported to JCP&L by PSE&G. EXCESS SERVICE means the receipt by PSE&G at the RECEIPT POINT of a level of kilowatts of NET ELECTRICAL POWER OUTPUT for DELIVERY TO JCP&L in excess of the level of kilowatts of BASIC SERVICE then applicable pursuant to and in accordance with the provisions of Article II of this AGREEMENT. FINANCIER means any individual(s) or entity(ies): (i) lending money to O'BRIEN for (a) the construction and operation of the PROJECT and/or (b) the refinance or take-out of any such loan(s); and/or (ii) participating as an equity investor in the PROJECT; and/or (iii) any lessor under a lease finance arrangement. FINANCIER also includes any Trustee, acting on behalf of any of the foregoing individual(s) or entity(ies). 9 INITIAL OPERATION means the production of electric power and energy, commencing on the DATE OF INITIAL OPERATION and prior to the DATE OF COMMERCIAL OPERATION, by the PROJECT's electric generation unit(s) and the supply of such electric power and energy to PSE&G at the RECEIPT POINT for DELIVERY TO JCP&L. INTERCONNECTION means the 26,000-volt line extension, circuit reinforcements and associated terminal facility reinforcements to the PUBLIC SERVICE SYSTEM to be designed, constructed and installed by PSE&G to interconnect the PROJECT with and to the PUBLIC SERVICE SYSTEM for the purpose of enabling PSE&G to receive up to 56,000 kilowatts of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY from the COGENERATION FACILITY pursuant to the terms and conditions of this AGREEMENT. The Proposed Plan for the INTERCONNECTION is set forth on Exhibit 1. ISSUER means a commercial bank or other entity issuing the CREDIT. LOAN AGREEMENT mean any agreement between O'BRIEN and one or more FINANCIERS pursuant to which O'BRIEN arranges for and obtains debt financing to construct and/or operate the PROJECT. 10 MONTH means calendar month commencing at 12:00.01 a.m. Eastern Time on the first day of the calendar month and concluding at midnight Eastern time on the final day of the same calendar month. NET ELECTRICAL ENERGY means the gross amount of electrical energy in kilowatt hours produced by electric generation unit(s) at the COGENERATION FACILITY less: (i) the electrical energy consumed for use by the COGENERATION FACILITY; and (ii) the electrical energy consumed in the transformation and transmission of the electrical energy produced, if any, prior to the receipt of such electrical energy production by PSE&G at the RECEIPT POINT. NET ELECTRICAL POWER OUTPUT means the gross amount of electrical power in kilowatts produced by any electric generation unit(s) at the COGENERATION FACILITY less: (i) the electrical power consumed for use by the COGENERATION FACILITY; and (ii) the electrical power consumed in the transformation and transmission of the electrical power produced, if any, prior to the receipt of such electrical power production by PSE&G at the RECEIPT POINT. OPERATIONAL EMERGENCY means the existence of a physical or operational condition and/or the occurrence of an event on the 11 PUBLIC SERVICE SYSTEM which is imminently likely to endanger life or property and/or affects or impairs and/or imminently will affect or impair: (i) PSE&G's ability to discharge its statutory obligation(s) to provide safe, adequate and proper service to retail and sale-for resale customers; and/or (ii) the safety and/or reliability of the PUBLIC SERVICE SYSTEM. ORIGINAL PROJECT SITE means the site located on Lots 58 and 75 of Block 2412 in the City of Newark, County of Essex and State of New Jersey. PROJECT means the COGENERATION FACILITY, SUBSTATION FACILITY and associated facilities and equipment to be constructed, owned, operated and maintained by O'BRIEN at the PROJECT SITE for the purpose of generating, among other things, electric power and energy. PROJECT SITE means ALTERNATE PROJECT SITE or ORIGINAL PROJECT SITE, as applicable. PUBLIC SERVICE SYSTEM means the electric power generation, transmission, subtransmission and distribution facilities owned, operated and maintained by PSE&G, which will include the circuit reinforcements and associated terminal facility reinforcements required to complete the INTERCONNECTION. 12 RECEIPT POINT, also referred to as POINT OF INTERCONNECTION, is the point of physical connection of the PROJECT to the PSE&G 26 KV subtransmission system located at the point at which the PSE&G 26 KV subtransmission system meets with and connects to the SUBSTATION FACILITY. The RECEIPT POINT is identified on the Proposed Plan for the INTERCONNECTION. RELEASE NOTICE means the written notice O'BRIEN gives to PSE&G authorizing PSE&G to commence the tasks associated with the design, construction and installation of the INTERCONNECTION. REQUIRED PERMIT means any permit, license or approval from any regulatory or governmental body which is required to be obtained by PSE&G to install, construct, own, operate and/or maintain the INTERCONNECTION. SERVICE means the rendition by PSE&G to O'BRIEN of BASIC SERVICE only or BASIC SERVICE and EXCESS SERVICE pursuant to and in accordance with this AGREEMENT. SUBSTATION FACILITY means the facilities to be constructed, installed, owned, operated and maintained by O'BRIEN at the PROJECT SITE to connect the COGENERATION FACILITY to the PUBLIC SERVICE SYSTEM for the purpose of enabling O'BRIEN to supply to 13 the RECEIPT POINT, in a safe and reliable manner, NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY for receipt by PSE&G. ARTICLE II BASIC SERVICE PSE&G shall be obligated, as hereinafter defined, effective with the DATE OF COMMERCIAL OPERATION, to provide to O'BRIEN a level of BASIC SERVICE up to but not in excess of 52,000 kilowatts. BASIC SERVICE shall be subject to interruption, curtailment or reduction only as specified in Article V. Upon notice to PSE&G consistent with the provisions of this paragraph, O'BRIEN shall have the right to renominate (Renomination) a level of BASIC SERVICE up to but not in excess of a level of 56,000 kilowatts. In the event O'BRIEN elects to make a Renomination, O'BRIEN shall notify PSE&G in writing of the renominated level of BASIC SERVICE ninety (90) days prior to the effective date for such renominated level of BASIC SERVICE. Nothing herein shall limit the ability of O'BRIEN to make a Renomination of BASIC SERVICE to any level below the level of BASIC SERVICE in effect at the time of the Renomination, provided however that, in the event O'BRIEN makes a Renomination in the form of a reduction to its level of BASIC SERVICE (Reduced Level), O'BRIEN shall be obligated to provide twenty-four (24) MONTHS notice to PSE&G prior to PSE&G being obligated to provide BASIC SERVICE to O'BRIEN at a level greater than the Reduced Level then in effect. 14 Other than as provided for in Article XIII of this AGREEMENT, O'BRIEN shall have no obligation to pay for the costs of any facilities and equipment which PSE&G may be required to purchase, construct and install solely as a consequence of providing a level of BASIC SERVICE to O'BRIEN pursuant to any Renomination affected in accordance with this Article II. ARTICLE III EXCESS SERVICE Effective with the DATE OF COMMERCIAL OPERATION, O'BRIEN may request EXCESS SERVICE from PSE&G, and, if EXCESS SERVICE is requested, PSE&G shall use best efforts, as hereinafter defined, to accommodate O'BRIEN's request. However, PSE&G shall not be obligated in any way, at any time, to receive at the RECEIPT POINT NET ELECTRICAL POWER OUTPUT in excess of 56,000 kilowatts. EXCESS SERVICE shall be subject to interruption, curtailment or reduction only as specified in Article V. PSE&G's commitment, if any, to provide EXCESS SERVICE, pursuant to O'BRIEN's request therefor, shall be limited to a commitment to provide such EXCESS SERVICE for a period of one (1) MONTH in duration. For any MONTH in which O'BRIEN requires EXCESS SERVICE, O'BRIEN shall make a request for same to PSE&G at least forty-five (45) calendar days prior to the first day of the MONTH for which EXCESS SERVICE is requested (Applicable Month). PSE&G shall notify O'BRIEN within twenty-one (21) calendar days of O'BRIEN's request for EXCESS SERVICE of the 15 amount, if any, of EXCESS SERVICE PSE&G is able to provide to O'BRIEN for and during the Applicable Month. In the event PSE&G is able to provide EXCESS SERVICE, PSE&G's commitment to provide EXCESS SERVICE shall be limited to an obligation to provide EXCESS SERVICE, as agreed to by PSE&G, solely for the Applicable Month. At the conclusion of the Applicable Month, PSE&G's commitment and associated obligation for the Applicable Month shall expire. In the event O'BRIEN desires to have PSE&G renew or resume EXCESS SERVICE for any additional or other monthly period, O'BRIEN shall make a request therefor as provided in this Article III. PSE&G's ability to renew or resume EXCESS SERVICE for any additional or other monthly period, the making of any commitment by PSE&G and the nature and extent of any such commitment, will be determined by PSE&G at that time, in accordance with the provisions of this Article. Any request by O'BRIEN for EXCESS SERVICE and any decision by PSE&G relative to such request shall be confirmed in writing by the other party within ten (10) days of any request and decision, respectively. PSE&G's best efforts to provide EXCESS SERVICE shall be contingent upon PSE&G's ability to provide EXCESS SERVICE and such best efforts shall be subordinate and subject to and must abide a determination by PSE&G that: (i) the PUBLIC SERVICE SYSTEM is capable of receiving from the COGENERATION FACILITY NET ELECTRICAL POWER OUTPUT in excess of the level of BASIC SERVICE then applicable; and (ii) the rendition of EXCESS SERVICE is compatible to and does not interfere with or impair 16 PSE&G's ability to operate the PUBLIC SERVICE SYSTEM in a manner so as to render safe, reliable, adequate, proper and economic service to its retail and sale-for-resale customers. Except as otherwise provided in this AGREEMENT, PSE&G shall not be obligated to: (i) construct, reinforce, replace or enlarge any electric power generation, transmission, subtransmission or distribution facilities; and/or (ii) adopt or engage in any extraordinary operating practice(s), such as off-economic operation of generating units, in order to meet or satisfy its best efforts commitment to accommodate O'BRIEN's requests for EXCESS SERVICE. ARTICLE IV PHASE-IN PERIOD Subject to the provisions of Article XX, PSE&G will energize the SUBSTATION FACILITY and supply electric power and energy to the PROJECT as of the DATE OF START-UP to permit O'BRIEN to conduct and complete testing of PROJECT equipment and facilities. Upon completion of pre-operation testing of PROJECT equipment facilities, O'BRIEN plans to commence conducting test operations of its electric generation units. O'BRIEN anticipates that the test operations of the electric generation units will take approximately six (6) months (hereinafter referred to as the Phase-In Period). The Phase-In Period will commence on the DATE OF INITIAL OPERATION and shall terminate on 17 the DATE OF COMMERCIAL OPERATION, except as may otherwise be agreed to in writing by PSE&G. O'BRIEN anticipates that during the Phase-In Period electric power and energy will be produced at the COGENERATION FACILITY and supplied to PSE&G at the RECEIPT POINT for DELIVERY TO JCP&L. PSE&G shall be obligated during the Phase-In Period to receive at the RECEIPT POINT the electric power and energy produced at the COGENERATION FACILITY for DELIVERY TO JCP&L; provided however, PSE&G shall not be obligated to receive at the RECEIPT POINT for and during any MONTH prior to the DATE OF COMMERCIAL OPERATION a level of kilowatts in excess of the level of kilowatts of BASIC SERVICE then available pursuant to and in accordance with the provisions of Article II; provided however, PSE&G shall use best efforts, as defined in Article III, to provide during the Phase-In Period a level of SERVICE up to but not in excess of 56,000 kilowatts, when and as requested by O'BRIEN. ARTICLE V INTERRUPTION, CURTAILMENT OR REDUCTION OF SERVICE Section A Public Service System Conditions PSE&G intends to provide SERVICE to O'BRIEN without interruption, curtailment or reduction. PSE&G shall use best efforts to provide same without interruption, curtailment or reduction. However, PSE&G cannot and does not guarantee that 18 SERVICE will be free from interruption, curtailment or reduction. SERVICE shall be subject to interruption, curtailment or reduction as a consequence of any of the following actions, operational conditions and/or events: (i) actions PSE&G must institute to enable PSE&G to operate the PUBLIC SERVICE SYSTEM so as to discharge its statutory obligations to provide safe, adequate and proper service to its retail and sale-for-resale customers; (ii) actions PSE&G must institute to enable PSE&G to discharge its obligations under the PJM Agreement; (iii) actions PSE&G must institute to enable PSE&G to discharge its obligations under its Agreement with the Mid- Atlantic Area Coordination Group; (iv) actions instituted on the PUBLIC SERVICE SYSTEM by automatic control or actions PSE&G must institute by manual control for the purpose of maintaining the overall safety and reliability of or otherwise protecting the PUBLIC SERVICE SYSTEM; (v) action(s) PSE&G must institute for the purpose of maintenance, repair, improvement, reinforcement, relocation, rearrangement, replacement and/or installation of any equipment or facilities on the PUBLIC SERVICE SYSTEM or action(s) PSE&G must institute for the purpose of the investigation and/or inspection of any such equipment or facilities on the PUBLIC SERVICE SYSTEM; or (vi) PSE&G experiencing an event of Force Majeure, as defined in Article XVIII, provided however, PSE&G may interrupt, curtail or reduce SERVICE to O'BRIEN only where, and for as long as such event(s), operational condition(s) or action(s) requires or necessitates 19 an interruption, curtailment or reduction of SERVICE to O'BRIEN. Nothing contained in this Section A shall permit PSE&G to interrupt, curtail or reduce SERVICE to O'BRIEN solely for reasons of economic dispatch. In exercising its operation discretion under the AGREEMENT, PSE&G will not arbitrarily discriminate against O'BRIEN in allocating any required curtailment, reduction or interruption of SERVICE as may be required by the provisions of this Article V. Where practicable, PSE&G shall give O'BRIEN advance notice of any interruption, curtailment or reduction of SERVICE affected pursuant to this Section A, the circumstances requiring or necessitating the interruption, curtailment or reduction of SERVICE and, if able, the reasons therefor, and the extent and duration thereof. In the event PSE&G is unable, for any reason, to give O'BRIEN advance notice of such an interruption, curtailment or reduction of SERVICE, PSE&G shall, as soon thereafter as practicable, contact O'BRIEN to confirm such interruption, curtailment or reduction, explaining the circumstances requiring or necessitating the interruption, curtailment or reduction, and, if able, furnish the reasons therefor and the extent and duration thereof. In the event SERVICE is interrupted, curtailed or reduced by PSE&G for any reason specified in this Section A, PSE&G shall use best efforts to resume SERVICE to O'BRIEN. 20 Section B Project Conditions PSE&G may interrupt, curtail or reduce SERVICE to O'BRIEN in the event O'BRIEN fails to meet, satisfy or discharge its obligations under articles VI, VII, or XI, as such obligations are defined therein; provided however, any such interruption, curtailment or reduction of SERVICE for or on account of O'BRIEN's failure to meet, satisfy or discharge such obligations may only be effected by PSE&G pursuant to and in accordance with the provisions of this Section B. In the event O'BRIEN fails to meet, satisfy or discharge its obligations under the Articles specified in the preceding paragraph and, as a consequence, a condition arises, a practice exists or an event occurs at the PROJECT which creates an OPERATIONAL EMERGENCY, PSE&G shall have the right to interrupt, curtail or reduce SERVICE to O'BRIEN without being obligated to provide to O'BRIEN notice thereof or without being obligated to afford to O'BRIEN, prior to any such interruption, curtailment or reduction of SERVICE, a right to cure the precipitating cause of or the event, condition or practice which exists or occurs (Cause); provided however, where practicable, PSE&G shall provide O'BRIEN with advance notice of the interruption, curtailment or reduction, the circumstances requiring or necessitating the interruption, curtailment or reduction and, if known, the reasons therefor. In the event PSE&G is unable, for any reason, to give O'BRIEN advance notice of such an 21 interruption, curtailment or reduction of SERVICE, PSE&G shall, as soon thereafter as practicable, contact O'BRIEN to confirm such interruption, curtailment or reduction, and, inform O'BRIEN of the circumstances requiring or necessitating the interruption, curtailment or reduction of SERVICE and, if able, furnish the reasons therefor and the extent and duration thereof. In the event of such an interruption, curtailment or reduction, PSE&G shall be obligated to resume SERVICE to O'BRIEN if, but only if, O'BRIEN has corrected or remedied the Cause which necessitated the interruption, curtailment or reduction. In the event O'BRIEN fails to meet, satisfy or discharge its obligations under the Articles specified in the first paragraph of this Section B and, as a consequence, a condition arises, a practice exists or an event occurs at the PROJECT which, although it does not create an OPERATIONAL EMERGENCY, if permitted to continue or reoccur, may, in the reasonable judgment of PSE&G, result in the creation of an OPERATIONAL EMERGENCY, PSE&G shall notify O'BRIEN of the occurrence or existence thereof and afford to O'BRIEN a right to correct or remedy the Cause prior to effecting any interruption, curtailment or reduction of SERVICE. O'BRIEN shall have thirty (30) days from receipt of PSE&G's notice: (i) to correct or remedy the Cause; or (ii) in the event such Cause cannot be identified and/or remedied and/or corrected within such thirty (30) days, to submit to PSE&G, for its approval, a plan, and timetable for implementation thereof, setting forth specific 22 actions O'BRIEN will take to correct or remedy the Cause. In the event: (I) the Cause cannot be identified and/or remedied and/or corrected within such thirty (30) day period and O'BRIEN fails to submit a plan within such period to correct or remedy the Cause; or (ii) a plan is submitted within such period, and O'BRIEN fails to exercise best efforts thereafter to implement such plan, PSE&G shall have the right thereafter, on reasonable notice to O'BRIEN, to interrupt, curtail or reduce SERVICE to O'BRIEN. However, if, during the pendency of any cure period afforded to O'BRIEN pursuant to this Section B, the Cause creates an OPERATIONAL EMERGENCY, PSE&G may thereafter interrupt, curtail or reduce SERVICE to O'BRIEN. Any notice PSE&G is obligated to provide to O'BRIEN pursuant to the provisions of the preceding paragraph of this Section B shall be in writing. Likewise, any plan O'BRIEN is obligated to submit to PSE&G pursuant to the provisions of the preceding paragraph of this Section B shall also be in writing. Regardless of the existence or potential for creation of an OPERATIONAL EMERGENCY on the PUBLIC SERVICE SYSTEM, PSE&G may interrupt, curtail or reduce SERVICE to O'BRIEN for and/or on account of O'BRIEN's failure to met or discharge its obligations under Article XI to pay any BILLING STATEMENT when due. In the event such a right to interrupt, curtail or reduce SERVICE to O'BRIEN arises, PSE&G shall provide written notice to O'BRIEN of its intention to interrupt, curtail or reduce SERVICE, stating the reasons therefor, prior to affecting any 23 interruption, curtailment or reduction. O'BRIEN shall have thirty (30) days from the date of the notice to cure the precipitating cause. In the event O'BRIEN fails to cure the precipitating cause within such thirty (30) day period, PSE&G may thereafter interrupt SERVICE to O'BRIEN. Except as otherwise provided in this Section B, in the event PSE&G interrupts SERVICE to O'BRIEN for any reason specified in paragraphs three and give of this Section B, PSE&G shall be obligated to resume SERVICE to O'BRIEN if, but only if O'BRIEN has, as applicable, either corrected or remedied the precipitating cause of or the event, practice or condition which necessitated the interruption, curtailment or reduction of SERVICE or demonstrates to PSE&G that O'BRIEN has identified the precipitating cause of the event, practice or condition which necessitated the interruption, curtailment or reduction and immediately thereafter commences a bona fide effort, pursuant to a plan, to remedy or correct same; provided however, if the interruption was triggered as a consequence of O'BRIEN's failure to meet or discharge its obligation under Article XI, PSE&G shall have no obligation to resume SERVICE to O'BRIEN unless and until such failure is corrected or remedied. Section C Service Conditions PSE&G shall not be obligated at any time to receive at the RECEIPT POINT a level of NET ELECTRICAL POWER OUTPUT in excess 24 of the level of SERVICE PSE&G is obligated to provide to O'BRIEN pursuant to and in accordance with the terms and conditions of this AGREEMENT. In the event O'BRIEN supplies to the RECEIPT POINT, at any time, a level of NET ELECTRICAL POWER OUTPUT in excess of the level of SERVICE PSE&G is obligated to provide under this AGREEMENT, PSE&G shall have the right to request O'BRIEN, and if so requested, O'BRIEN shall have the obligation to reduce as soon as practicable after any such request the supply of NET ELECTRICAL POWER OUTPUT to PSE&G at the RECEIPT POINT to a level consistent with the level of SERVICE PSE&G is obligated to provide to O'BRIEN under this AGREEMENT. In the event O'BRIEN is supplying to PSE&G at the RECEIPT POINT a level of NET ELECTRICAL POWER OUTPUT in excess of the level of SERVICE PSE&G is obligated to provide to O'BRIEN pursuant to this AGREEMENT and O'BRIEN fails to reduce the supply of NET ELECTRICAL POWER OUTPUT to the level of SERVICE PSE&G is obligated to provide. PSE&G shall have the right to interrupt, curtail or reduce SERVICE to O'BRIEN. In the event PSE&G interrupts, curtails or reduces SERVICE to O'BRIEN pursuant to the provisions of this Section C, PSE&G shall be obligated to resume SERVICE to O'BRIEN if, but only if, O'BRIEN commits to use best efforts thereafter to control its supply to the RECEIPT POINT consistent with the level of SERVICE PSE&G is then obligated or then willing to provide to O'BRIEN. 25 ARTICLE VI OPERATIONS COORDINATION Effective with the DATE OF INITIAL OPERATION and during any term of this AGREEMENT, O'BRIEN shall use best efforts to coordinate the operation of the PROJECT with the operation of the PUBLIC SERVICE SYSTEM. To discharge its best efforts obligation to coordinate operation of the PROJECT with the PUBLIC SERVICE SYSTEM, O'BRIEN shall: (i) use SERVICE with due regard for the safety, security and reliability of the PUBLIC SERVICE SYSTEM; (ii) maintain a power factor at or as near unity as practicable at the point of connection of the PROJECT with and to the PUBLIC SERVICE SYSTEM, unless requested otherwise by PSE&G; (iii) control its voltage and speed to values acceptable to PSE&G consistent with sound utility practice; (iv) coordinate its relaying and fusing so as to conform with PSE&G's system protection practices, in effect from time to time; (v) maintain the PROJECT in a safe and reliable operating condition; (vi) submit to PSE&G the monthly schedules and estimates required by this Article; and (vii) perform such other actions as may be reasonably requested by PSE&G, to enable PSE&G to (a) operate the PUBLIC SERVICE SYSTEM in a safe and reliable manner and (b) operate the PUBLIC SERVICE SYSTEM so as to discharge PSE&G's statutory obligations to provide safe, adequate and proper service to its retail and sale-for-resale customers. As of the DATE OF COMMERCIAL OPERATION, O'BRIEN shall provide to PSE&G by the first (1st) day of each MONTH the 26 following: (i) an hourly schedule of the estimated NET ELECTRICAL POWER OUTPUT O'BRIEN plans to supply to the RECEIPT POINT for receipt by PSE&G in the succeeding MONTH; (ii) an estimate of the generation of NET ELECTRICAL ENERGY which O'BRIEN plans to supply to the RECEIPT POINT for receipt by PSE&G in the succeeding MONTH; (iii) an estimate of the generation of NET ELECTRICAL ENERGY which O'BRIEN plans to supply to the RECEIPT POINT for receipt by PSE&G for the succeeding twelve (12) MONTHs; (iv) the name and telephone number of responsible management level employees for contact by PSE&G personnel at any time during the succeeding MONTH relative to any matter arising out of, relating to, or resulting from PSE&G's obligation to provide SERVICE to O'BRIEN under this AGREEMENT. In addition, O'BRIEN shall furnish to PSE&G, on an annual basis, a schedule of planned maintenance and/or repair activities for the succeeding twelve (12) months. O'BRIEN shall use best efforts to conduct its operations in accordance with the data and information submitted to PSE&G as required in the preceding paragraph, provided however any deviation(s) in the COGENERATION FACILITY's operations necessitated by and as a consequence of unanticipated occurrences, conditions or events will not constitute a breach of this AGREEMENT; provided further however, O'BRIEN will provide to PSE&G, where and when able, advance notice, in a timely manner, of any such deviation(s) of a material nature in 27 the COGENERATION FACILITY's operations, and if requested, the reasons therefor. Pursuant to and consistent with O'BRIEN's obligation to coordinate operation of the PROJECT with the operation of the PUBLIC SERVICE SYSTEM, O'BRIEN shall install and maintain, at its expense during any term of this AGREEMENT a telephone line reserved for communication by and between PSE&G operating personnel and O'BRIEN operating personnel. PSE&G may request, and, when requested, O'BRIEN shall use best efforts, consistent with O'BRIEN's obligation to meet Newark Boxboard Inc.'s steam requirements, to provide reactive power, leading or lagging, from the COGENERATION FACILITY up to the operating limits of the COGENERATION FACILITY up to the operating limits of the COGENERATION FACILITY to the extent that it does not require a reduction in NET ELECTRICAL POWER OUTPUT and further, in the event of an OPERATIONAL EMERGENCY, PSE&G may request and, if PSE&G makes such a request, O'BRIEN shall use best efforts, consistent with O'BRIEN's obligation to meet Newark Boxboard Inc.'s steam requirements, to provide same up to the operating limits of the COGENERATION FACILITY, whether or not same requires a reduction in NET ELECTRICAL POWER OUTPUT. PSE&G shall use best efforts to coordinate with and provide to O'BRIEN advance notice of any maintenance, repair, rearrangement, relocation, removal or reinforcement activities which might interfere with or impair the operation of the COGENERATION FACILITY so as to minimize any interruption, curtailment or reduction of SERVICE to O'BRIEN; provided 28 however, that the scheduling, implementation and conduct of such activities shall remain within the sole discretion of PSE&G. ARTICLE VII NET ELECTRICAL POWER OUTPUT SPECIFICATIONS The NET ELECTRICAL POWER OUTPUT supplied by O'BRIEN to the RECEIPT POINT for receipt by PSE&G during the term of this AGREEMENT shall be at a nominal voltage of 26,400-volts, 60 Hertz, balanced three-phase alternating current produced by a synchronous generator(s) equipped with automatic voltage regulation and automatic speed control. The NET ELECTRICAL POWER OUTPUT shall be free from harmonics which would interfere with PSE&G's metering accuracy, the PUBLIC SERVICE SYSTEM, or the quality of PSE&G's service to its retail and sale-for-resale customer loads. In no event shall the operation of the COGENERATION FACILITY result in total harmonic distortion, as defined by the IEEE Standard 519 - 1981 as revised, greater than five percent (5%) of the fundamental component measured at the POINT OF INTERCONNECTION. ARTICLE VIII TERM PSE&G shall provide SERVICE to O'BRIEN for a term of twenty-five (25) years (hereinafter referred to as the Primary Term). The Primary Term shall commence on the DATE OF COMMERCIAL OPERATION. 29 O'BRIEN shall have the right to renew this AGREEMENT pursuant to the charges and under the terms and conditions of this AGREEMENT, as may be modified in accordance with Article XXXI, for a six (6) year term immediately succeeding the Primary Term (herein referred to as the Subsequent Term). This AGREEMENT and each party's obligation(s) hereunder shall automatically terminate twenty-five (25) years from the DATE OF COMMERCIAL OPERATION unless this AGREEMENT is renewed pursuant to and in accordance with the provisions of the preceding paragraph. In the event of such a renewal, this AGREEMENT and each party's obligations hereunder shall automatically terminate thirty-one (31) years from the DATE OF COMMERCIAL OPERATION. ARTICLE IX EFFECTIVENESS AND ENFORCEABILITY This AGREEMENT represents a negotiated agreement between the parties, and the charges and terms and conditions contained herein are acceptable to each. It is understood by the parties that this AGREEMENT must be filed at and accepted for filing by the FERC. Notwithstanding the requirement for FERC review and acceptance for filing, this AGREEMENT shall become effective and enforceable, as between the parties, upon execution and pending 30 a filing at and review by the FERC, provided however, that the provisions relative to transmission service shall become effective and enforceable only after FERC acceptance for filing without condition or modification thereof deemed to be material by either party hereto. In the event the FERC accepts this AGREEMENT for filing subject to refund, such FERC acceptance shall not be deemed as a condition or modification for the purposes of effectiveness of this AGREEMENT under this Article. In connection with any FERC review of this AGREEMENT as initially filed, in the event the FERC modifies any material term or condition, alters any charge(s) contained in this AGREEMENT or in any way conditions its approval of this AGREEMENT or in any way conditions its approval of this AGREEMENT, and any party determines that it is adversely affected in a material way by such FERC action and/or decision the parties hereby agree to promptly resume negotiations, in good faith, in an effort to reach agreement on a charge for SERVICE, or on terms and conditions mutually agreeable to the parties relative to the subject matter of this AGREEMENT. If no agreement is reached within thirty (30) days of such FERC action and/or decision the party so affected shall have the right to terminate or cancel this AGREEMENT by filing written notice of cancellation or termination (hereinafter referred to as Notice of Cancellation) with the FERC and serving a copy thereof on the other party. Any such Notice of Cancellation may be filed after such thirty (30) day period but no later than forty-five (45) days after such FERC decision is final and not subject to any 31 further administrative or judicial review; provided however, neither party shall be obligated to seek rehearing and/or judicial review of any FERC decision. In the event any party files a Notice of Cancellation, the parties hereto agree that the cancellation or termination shall become effective and the parties' obligations under this AGREEMENT shall terminate sixty (60) days after the filing of the Notice of Cancellation or, at such earlier date, as otherwise ordered by the FERC. PSE&G shall use best efforts to file this AGREEMENT with the FERC within thirty (30) days of final execution of this AGREEMENT and after filing same the parties hereto agree to take such action, as may be appropriate, to expedite FERC approval thereof. ARTICLE X TRANSMISSION SERVICE CHARGES Section A Except as otherwise specifically provided in this AGREEMENT, effective with the DATE OF COMMERCIAL OPERATION, O'BRIEN shall be obligated to pay to PSE&G the sum of the charges contained in Subparagraphs A, B, and C below, in accordance with the billing and payment procedures set forth in Article XI: A. a monthly demand charge equal to seventy-five cents ($0.75) per kilowatt times the level of kilowatts of BASIC 32 SERVICE PSE&G was obligated to provide to O'BRIEN during the MONTH for which the billing is being made; and B. a monthly demand charge of seventy-five cents ($.075) per kilowatt times the greater of the following number of kilowatts: (i) the number of kilowatts of EXCESS SERVICE, if any, which PSE&G committed to provide to O'BRIEN during the MONTH for which the billing is being made pursuant to and consistent with Article III; or (ii) the greatest average number of kilowatts of NET ELECTRICAL POWER OUTPUT, if any, in excess of the level of kilowatts of BASIC SERVICE PSE&G was obligated to provide to O'BRIEN during the MONTH for which the billing is being made, received by PSE&G at the RECEIPT POINT during any fifteen (15) minute interval in such preceding MONTH; and 33 C. point twenty-nine mills ($.00029) per kilowatt hour times the number of kilowatt hours of NET ELECTRICAL ENERGY received by PSE&G at the RECEIPT POINT during the MONTH for which the billing is being made. If, as a result of an event of Force Majeure as defined in Article XXII, any electric generation unit at the PROJECT is out of operation for at least thirty (30) consecutive days (hereinafter referred to as Qualifying Outage), O'BRIEN's demand charge payment for any MONTH which includes any portion of such Qualifying Outage shall be adjusted, if necessary, and the amount of such payment shall be the sum of the amounts determined as follows: (i) during the period of any MONTH when no Qualifying Outage exists, the demand charge payment for such period shall be determined by multiplying the sum of the charges contained in subparagraphs A and B of this Article X, as applicable, by a fraction, the numerator of which is the number of hours during which there was no Qualifying Outage and the denominator of which is the number of hours in the MONTH; and (ii) during the period of any MONTH when a Qualifying Outage exists, the demand charge payment for such period shall be determined by multiplying the demand charge specified in this Article X by the greatest average number of kilowatts of NET ELECTRICAL POWER OUTPUT during any fifteen (15) minute interval registered on PSE&G's electricity recording meter during such 34 Qualifying Outage, and multiplying that result by a fraction, the numerator of which is the number of hours during which the Qualifying Outage exists and the denominator is the number of hours in the MONTH. PSE&G shall make any demand charge adjustment due O'BRIEN for a Qualifying Outage required by application of the provisions of this paragraph in the BILLING STATEMENT for the MONTH(s) following the MONTH in which the entitlement to such adjustment matures. In the event SERVICE is interrupted, curtailed or reduced by PSE&G during any MONTH for any reason, other than for any of the reasons specified in Sections B and C of Article V, the demand charge O'BRIEN was obligated to pay for such MONTH pursuant to this Section A will be abated by multiplying the demand charge by the quantity one (1) minus a fraction, the numerator of which is the number of kilowatts by which the level of SERVICE was reduced, times the number of hours during which SERVICE was reduced and the denominator of which is the level of SERVICE committed to by PSE&G, times the number of hours in the MONTH. The charges specified in subparagraphs A, B and C of this Section A shall be subject to change as specified in Article XXXI. Section B Effective with the DATE OF INITIAL OPERATION, and solely during the Phase-In Period, O'BRIEN shall pay to PSE&G for any 35 MONTH one point three-two mills ($.00132) times the number of kilowatt hours of NET ELECTRICAL ENERGY received by PSE&G at the RECEIPT POINT. However, if as a result of an event of Force Majeure, as defined in Article XXII, the DATE OF COMMERCIAL OPERATION does not occur on or by six (6) months of the DATE OF INITIAL OPERATION, the Phase-In period and the charge methodology described in this subsection B shall remain in effect for a period not to exceed the period of incapacity caused by the event of Force Majeure provided that during such period of incapacity so caused that O'BRIEN uses best efforts to remedy the incapacity so caused. Unless the Phase-In Period is extended as a result of an event of Force Majeure as specified in the first paragraph of this Section B, six (6) months after the DATE OF INITIAL OPERATION, O'BRIEN shall be obligated to pay to PSE&G each MONTH an amount for SERVICE calculated pursuant to and in accordance with the methodology specified in Subsection A of this Article X. ARTICLE XI BILLING AND PAYMENT After the DATE OF INITIAL OPERATION, PSE&G shall read its electricity recording meter(s) at the SUBSTATION FACILITY monthly in connection with making a determination of the charges to be billed to O'BRIEN for any MONTH in accordance with the provision of Article X and shall thereafter prepare and present 36 to O'BRIEN, on or before the tenth (10th) day of the MONTH, a BILLING STATEMENT for payment. O'BRIEN shall pay each BILLING STATEMENT within thirty (30) days from the date of receipt but not later than the tenth (10th) day of the succeeding MONTH. If presentation of a BILLING STATEMENT is delayed by PSE&G and/or is received by O'BRIEN after the tenth (10th) day of the MONTH, then the time for payment shall be extended for a period of time equivalent to the delay, provided however, O'BRIEN shall be obligated to establish any delay in the receipt of any BILLING STATEMENT by appropriate documentation. The BILLING STATEMENT shall contain a breakdown of the applicable charge components billed to O'BRIEN in accordance with the provisions of Article X. O'BRIEN shall remit payment to PSE&G for any BILLING STATEMENT to the PSE&G department designated on the BILLING STATEMENT. In the event O'BRIEN fails to pay the entire amount of any BILLING STATEMENT when such is due, interest shall accrue on the unpaid portion of such BILLING STATEMENT, from the due date to the date of payment, which interest shall accrue at a rate per annum equal to three percent (3%) above the prime rate of the Chase Manhattan Bank, N.A. or its successor in effect as of the payment due date. O'BRIEN shall pay the interest charge on any such unpaid BILLING STATEMENT or unpaid portion thereof when and as billed by PSE&G. PSE&G shall provide to O'BRIEN, upon a timely request therefor, documentation and/or data available to PSE&G to enable 37 O'BRIEN to verify the accuracy of any BILLING STATEMENT. However, any such request by O'BRIEN shall not extend the due date of or extend, postpone or otherwise affect O'BRIEN's obligation to pay the associated BILLING STATEMENT. In the event O'BRIEN disputes any BILLING STATEMENT, O'BRIEN shall pay to PSE&G the entire amount thereof, when due, and shall together with the payment thereof identify and present the dispute in writing and submit documentation substantiating any claim made relative to the dispute identified. Upon receipt of notice of the dispute and the supporting documentation, PSE&G shall have thirty (30) days (Period) from receipt of such notice to resolve such dispute with O'BRIEN. In the event the dispute is not resolved within the Period, either party may submit the matter to arbitration for resolution in accordance with Article XXIX. The amount of any BILLING STATEMENT disputed by O'BRIEN, in accordance with the provisions of this paragraph, which is ultimately determined to be due and owing by PSE&G to O'BRIEN: (i) which is not refunded to O'BRIEN on or prior to the expiration of the Period shall, until payment, thereafter accrue interest, as of the last day of such Period, at a rate per annum equal to three percent (3%) above the prime rate of the Chase Manhattan Bank, N.A., or its successor in effect as of that date; and (ii) shall be refunded to O'BRIEN, together with all interest accrued and owing thereon, within ten (10) days of the date of such determination. 38 ARTICLE XII METERING/RECORDS PSE&G shall install, own, operate and maintain an electricity recording meter at the SUBSTATION FACILITY which, in the judgment of PSE&G, is required or necessary to enable PSE&G to make an accurate measurement of the quantity of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY received at the RECEIPT POINT from the COGENERATION FACILITY. The electricity recording meter shall be of a type suitable for interconnection billing purposes. The electricity recording meter, as installed, shall have full load and light load "as left" accuracies that do not deviate more than + 0.3% from 100%. The lag load "as left" accuracy shall be within 0.5% of the full load accuracy. PSE&G shall operate and maintain such electricity recording meter so as to assure, to the maximum extent practicable, that such meter provides an accurate record of the quantities supplied to and received by PSE&G at the RECEIPT POINT from the COGENERATION FACILITY. PSE&G shall designate, select and specify all associated electricity recording equipment (associated equipment) required by PSE&G to make measurement of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY supplied by O'BRIEN to the RECEIPT POINT, including but not limited to current transformers, potential transformers, conduits, cables and accessories. PSE&G shall purchase and arrange for the delivery of such associated equipment to O'BRIEN at the PROJECT for 39 installation by O'BRIEN at O'BRIEN's expense. PSE&G shall own, operate and maintain such associated equipment The costs of the metering and associated equipment described in the preceding two paragraphs shall be paid by O'BRIEN as a cost associated with the design, construction and installation of the INTERCONNECTION as provided in and in accordance with Article XIII. PSE&G shall have the right to secure and safeguard the electricity recording meter and associated equipment installed and maintained at the SUBSTATION FACILITY. Neither O'BRIEN nor any person other than PSE&G shall be permitted to operate, maintain, repair, alter, remove, replace, rearrange, reconstruct, relocate, tamper or interfere with any said meter or associated equipment. Unless otherwise agreed to by PSE&G and/or except as otherwise provided in this AGREEMENT, PSE&G's electricity recording meter shall be utilized for the determination of the monthly charges reflected in any BILLING STATEMENT submitted to O'BRIEN for payment under this AGREEMENT. O'BRIEN and/or JCP&L may install, own, operate and maintain, at their own expense, electricity recording meter(s) and associated equipment at the SUBSTATION FACILITY for measurement and recording of the quantity of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY received by PSE&G at the RECEIPT POINT from the COGENERATION FACILITY; provided that the installation, operation and/or maintenance of such equipment 40 does not utilize or connect to PSE&G's electricity recording meter or associated equipment and does not interfere, in any way, with the operation of such equipment. Unless otherwise agreed to by PSE&G and/or except as otherwise provided in this AGREEMENT, the electricity recording meter installed and maintained by O'BRIEN and/or JCP&L at the SUBSTATION FACILITY shall not be utilized for any determination of the charges to be included in any BILLING STATEMENT submitted to O'BRIEN for payment by PSE&G under this AGREEMENT. The accuracy of PSE&G's electricity recording meter shall be verified by PSE&G by testing once each year. Such accuracy test shall be conducted in accordance with the standards set forth in the American national Standard Code for Electricity Metering. Notice of such accuracy test(s) shall be given by PSE&G to O'BRIEN. O'BRIEN and/or JCP&L representatives may attend any such accuracy test. In the event O'BRIEN's and/or JCP&L representatives elect to be present at any accuracy test, the test and any necessary adjustment to the electricity recording equipment shall be made in the presence of and observed by O'BRIEN and/or JCP&L representatives. O'BRIEN and/or JCP&L may, for good cause, request PSE&G to conduct an accuracy test of PSE&G's electricity recording equipment. In the event good cause is shown, PSE&G shall conduct an accuracy test at O'BRIEN's and/or JCP&L's request. Any cost or expense associated with any accuracy test performed by PSE&G on PSE&G's electricity recording meter shall be billed to and paid by 41 O'BRIEN; provided however, in the event an accuracy test is conducted in connection with a billing dispute and PSE&G's electricity recording meter is determined as a result of such test to be registering inaccurately in excess of one percent (1%), PSE&G shall pay the costs of such accuracy test. The accuracy of any electricity recording meter maintained by O'BRIEN at the SUBSTATION FACILITY shall be verified by test at least once each year. Such accuracy test shall be conducted in accordance with the standards set forth in the American National Standard Code for Electricity Metering. O'BRIEN shall establish, at the time of installation, and maintain the accuracy of such equipment in accordance with the standard of accuracy set forth in the American national Standard Code for Electricity Metering. Notice of such accuracy test(s) shall be given by O'BRIEN to PSE&G. PSE&G may attend any such accuracy test(s). PSE&G may, for good cause, request O'BRIEN to conduct or have conducted an accuracy test(s) of O'BRIEN electricity recording meter. In the event good cause is shown, O'BRIEN shall conduct or have conducted an accuracy test of O'BRIEN's electricity recording meter. Any cost or expense associated with any accuracy test(s) shall be paid by O'BRIEN, except where such test(s) was conducted at PSE&G's request. In the event PSE&G's electricity recording meter is out of service or is registering inaccurately, the amount of inaccuracy shall be determined and such meter shall be repaired, replaced and/or adjusted to register accurately. Any meter reading(s) 42 and BILLING STATEMENT(S) for the period of the inaccuracy shall be adjusted so as to reflect any correction of such inaccuracy as far as such inaccuracy can be reasonably ascertained; provided however, no adjustment shall be made in any meter reading(s) nor shall any BILLING STATEMENT be adjusted for or on account of a registration inaccuracy of one percent (1%) or less. In the event a registration inaccuracy of greater than one percent (1%) is found on PSE&G's electricity recording meter, a billing adjustments shall be made. The billing adjustment shall be made for the period of inaccuracy, if ascertainable or in the event the period of the inaccuracy cannot be reasonably ascertained, the period of inaccuracy shall be deemed to have encompassed one-half (1/2) of the time period since the last accuracy test of the meter (hereinafter referred to as the Surrogate Period). The quantities delivered for the period of inaccuracy, if ascertainable, or, if not ascertainable, the Surrogate period, shall be determined and adjustments made for billing purposes by determining or estimating the quantity received by PSE&G during the period of inaccuracy from the best available source/data, which source/data may include but not be limited to: (I) registration data obtained from the electricity recording meter maintained by O'BRIEN at the SUBSTATION FACILITY; and/or (ii) receipts by PSE&G during an equivalent or similar period when such equipment was registering accurately; and/or (iii) correction of the error, if the percentage of error 43 is ascertainable, by calibration, test or mathematical calculation; provided however, in the event O'BRIEN/JCP&L's metering equipment meets applicable PSE&G standards and PSE&G determines that such equipment has been installed, operated and maintained in accordance with applicable PSE&G standards/ practices/procedures, the period of inaccuracy and the quantities delivered for such period shall be determined and the adjustment(s) made for billing purposes solely by reference to O'BRIEN/JCP&L's electricity recording equipment. PSE&G and O'BRIEN shall retain the records each prepares and maintains in the ordinary course of business relative to the amount of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY produced by the COGENERATION FACILITY and supplied to and received by PSE&G at the RECEIPT POINT and any records each prepares and maintains relative to any maintenance, repair or testing of any electricity recording meter maintained at the SUBSTATION FACILITY. The records possessed by one party shall be made available for inspection by the other party upon reasonable notice or request therefor. All such records shall be maintained for a period of six (6) years. O'BRIEN shall install equipment at the SUBSTATION FACILITY to enable a measurement of the following electrical quantities: (I) gross active electrical power output of each COGENERATION FACILITY generator; (ii) gross reactive electrical power output of each COGENERATION FACILITY generator; (iii) terminal voltage of each COGENERATION FACILITY generator; (iv) voltage at the 44 POINT OF INTERCONNECTION; (v) active power flow on the INTERCONNECTION at the POINT OF INTERCONNECTION; (vi) reactive power flow on the INTERCONNECTION at the POINT OF INTERCONNECTION; and (vii) kilowatt-hours of NET ELECTRICAL ENERGY received by PSE&G at the POINT OF INTERCONNECTION. PSE&G shall designate, select and specify the equipment to be installed at the SUBSTATION FACILITY to enable a measurement of the aforementioned electrical quantities. PSE&G shall purchase and arrange for the delivery of such equipment to O'BRIEN at the PROJECT for installation by O'BRIEN at O'BRIEN's expense. The costs of such equipment shall be paid by O'BRIEN as a cost associated with the design, construction and installation of the INTERCONNECTION as provided in and in accordance with Article XIII of this AGREEMENT. PSE&G shall own, operate and maintain the equipment installed to measure the electrical quantities specified in this paragraph. O'BRIEN shall pay PSE&G for any costs associated with the operation and maintenance and/or repair of such equipment. O'BRIEN shall pay any billing for operation and maintenance of such equipment within thirty (30) days of the date of the billing. PSE&G shall energize the SUBSTATION FACILITY if but only if the equipment PSE&G has directed O'BRIEN to install, pursuant to the preceding paragraph, has been installed, has been inspected by PSE&G, and pursuant to such inspection, such installation is determined by PSE&G to meet applicable standards for operation. PSE&G shall conduct and complete the inspection of such 45 installation within fifteen (15) working days of receipt of notice from O'BRIEN that the installation of the equipment has been completed and is available for inspection. In the event PSE&G determines, as a result of its inspection of the installation, that such installation does not met applicable standards for operation, PSE&G shall, as soon thereafter as is practicable, furnish written notice to O'BRIEN of such fact setting forth the basis for the determination and any corrective actions O'BRIEN will be required to take to make the installation acceptable to PSE&G. Additionally, O'BRIEN shall: (I) lease, at its expense, a telephone circuit or otherwise establish a telecommunications link(s) to permit telemetering by means of both digital data links and analog signals, of the measurements of the electric quantities specified on pages 43 and 44 of this AGREEMENT at PSE&G's Electric System Operations Center in Newark, New Jersey; (ii) pay the costs associated with the installation by PSE&G of equipment required (a) to provide an indication at PSE&G's Electric System Operations Center of the status of circuit breakers at the COGENERATION FACILITY and SUBSTATION FACILITY and (b) to provide an alarm indication of hard lockout relays; and (iii) pay the costs associated with integrating any telemetered information into PSE&G's Electric System Operations Center, including the cost of equipment necessary to receive, display, record and process such telemetered information. 46 The costs described in Subparagraphs (ii) and (iii) in the preceding paragraph shall be paid by O'BRIEN as a cost associated with the design, construction and installation of the INTERCONNECTION as provided in and in accordance with Article XIII of this AGREEMENT. Such equipment shall be owned, operated and maintained by PSE&G. ARTICLE XIII INTERCONNECTION Section A Design, Construction and Installation of Interconnection PSE&G shall design, construct and install the INTERCONNECTION to interconnect the PROJECT with the PUBLIC SERVICE SYSTEM in order to provide SERVICE to O'BRIEN pursuant to and in accordance with the terms and conditions of this AGREEMENT. However, PSE&G shall not initiate any activity in connection with the design, construction or installation of the INTERCONNECTION until receipt of the RELEASE NOTICE. Within thirty (30) days of receipt of the RELEASE NOTICE, PSE&G shall notify O'BRIEN as to when: (I) the Payment Schedule set forth in Section B of this Article XIII shall commence; and (ii) the CREDIT required by Section C of this Article XIII must be established. As soon as practicable after the receipt of the RELEASE NOTICE, PSE&G will establish an estimated completion date (Estimated Completion Date) and furnish to O'BRIEN a construction schedule to complete the INTERCONNECTION on or by the Estimated Completion Date. PSE&G estimates that the 47 INTERCONNECTION can be completed within twenty-four (24) MONTHS of commencement of construction thereof. On or about the first day of the first MONTH of the Construction Schedule, PSE&G shall: (i) initiate the tasks required to obtain any REQUIRED PERMIT or easement(s), license(s), rental(s) or right(s)-of-way for the construction and installation of the INTERCONNECTION; and (ii) commence the design, construction and installation of the INTERCONNECTION. PSE&G shall use best efforts to complete the INTERCONNECTION on or by the Estimated Completion Date, provided however, it is expressly understood and agreed that PSE&G's best efforts to complete the INTERCONNECTION on or by the Estimated Completion Date shall be subordinate and subject to and construed in light of and consistent with PSE&G's primary obligation to provide and maintain safe, adequate and proper service to its retail and sale-for-resale customers and to operate and maintain its plant, property and equipment in such condition as to enable it to do so. PSE&G shall advise O'BRIEN when the INTERCONNECTION is completed. Thereafter, and subject to and in accordance with the provisions of Article XX, PSE&G shall energize the SUBSTATION FACILITY and permit O'BRIEN to synchronize its electric generation units with the PUBLIC SERVICE SYSTEM. PSE&G shall not be liable to O'BRIEN for any direct or indirect cost(s), expense(s), loss(es), liability(ies) or damage(s) which O'BRIEN may incur or sustain, which cost, 48 expense, loss, liability or damage arises out of, relates to or results from any delay in the completion of the INTERCONNECTION, except where the delay in the completion of the INTERCONNECTION results from PSE&G's failure to use best efforts, as defined herein. O'BRIEN shall indemnify and hold harmless PSE&G and each and every of its officers, agents, servants and employees, its successors and assigns, from and against, any and all claims, demands, suits, actions and/or liabilities, damages, and/or judgments, as well as against any fees, costs, charges or expenses which PSE&G, its officers, agents, servants and employees, its successors and assigns incur in the defense of any such claims, suits, actions or similar such demands, made or filed by any third party with whom O'BRIEN is in privity of contract, to the extent such claims, suits, actions or similar such demands arise out of, relate to, or result from PSE&G's failure to complete the INTERCONNECTION in a timely manner as herein provided, except where such failure results from PSE&G's failure to use best efforts, as defined in this Section A, to complete the INTERCONNECTION. In effecting and implementing any right of or obligation to indemnify pursuant to and in accordance with the provisions of this paragraph, the procedural provisions set forth in Article XXIV of this AGREEMENT shall be applicable. 49 The INTERCONNECTION shall be constructed and installed reasonably in accordance with the Proposed Plan (Exhibit 1). It is understood that change(s) in the Proposed Plan may be necessary from time to time prior to and/or during construction, provided however, any such change shall not alter the character of SERVICE PSE&G has agreed to provide pursuant to this AGREEMENT. PSE&G shall have the right and the authority to make any change(s) in the Proposed Plan or in the route of the INTERCONNECTION where PSE&G, in its reasonable judgment, determines such change(s) is necessary or appropriate; provided however, in the event any change in the Proposed Plan which PSE&G determines is necessary or appropriate will result in a substantial increase in the estimated cost for same, PSE&G shall not be permitted to make such change(s) without O'BRIEN's consent unless such change(s) is necessary to enable the PROJECT to operate with the PUBLIC SERVICE SYSTEM in a safe and reliable manner. O'BRIEN shall not unreasonably delay or withhold any consent for any such change(s) which may be required by the provisions of this paragraph. Changes in the Proposed Plan shall not require any amendment to this AGREEMENT. Section B Interconnection Costs Subject to the provisions of this Section B, O'BRIEN shall be liable to PSE&G for and shall pay to PSE&G the costs PSE&G 50 incurs in the design, construction and installation of the INTERCONNECTION as well as all other costs which PSE&G incurs in affecting the interconnection of the PROJECT with the PUBLIC SERVICE SYSTEM (herein collectively referred to as costs associated with or costs incurred in connection with the design, construction and installation of the INTERCONNECTION). PSE&G's estimates that the total cost associated with the design, construction and installation of the INTERCONNECTION will be one million six hundred ninety-two thousand four hundred eighty dollars ($1,692,480). This estimate shall not diminish, change or affect in any way O'BRIEN's responsibility for and obligation to pay PSE&G its allocable share, as determined in this Section B, of the costs which PSE&G actually incurs in connection with the design, construction and installation of the INTERCONNECTION. For purpose of allocating to O'BRIEN its share of the costs associated with the design, construction and installation of the INTERCONNECTION, the cost estimate specified in the preceding paragraph is broken into the following classifications: Switching Station Costs $375,900 Cable Costs $363,760 Manhole and Conduit Costs $952,820 O'BRIEN shall be obligated to pay PSE&G one hundred percent (100%) of all costs classified as cable and switching station costs. 51 The cost estimate assigned to the manhole and conduit classification constitutes an estimate for a nine (9) duct installation. PSE&G plans to install a nine (9) duct installation. However, interconnecting the PROJECT with the PUBLIC SERVICE SYSTEM will only require a six (6) duct installation, the cost for which is estimated at eight hundred fourteen thousand four hundred and ninety dollars ($814,490). As such, the cost estimate for the INTERCONNECTION has been adjusted to reflect the cost differential and O'BRIEN's Payment Schedule, as specified in this Section B of this Article XIII, has been structured to reflect that adjustment. O'BRIEN's allocable share of the actual costs classified as manhole and conduit costs shall be determined by application of the following formula: Estimated costs associated with six (6) duct installation x Actual Manhole Estimated cost associated with and Conduit Costs nine (9) duct installation O'BRIEN responsibility for and obligation to pay to PSE&G its allocable share of the estimated costs associated with the design, construction and installation of the INTERCONNECTION shall be discharged as follows: commencing on or prior to the last day of the MONTH specified in the notice to be furnished to O'BRIEN pursuant to and in accordance with Section A of this Article XIII (MONTH 1) and thereafter on or prior to the last day of each of the successive 23 MONTHS (MONTH 2 through and 52 including MONTH 24), O'BRIEN shall remit to PSE&G the payment specified in the following Payment Schedule: PAYMENT SCHEDULE Amount of Payment Due Date Payment Obligation Last day of MONTH 1 $ 4,200 Last day of MONTH 2 4,000 Last day of MONTH 3 3,400 Last day of MONTH 5 4,000 Last day of MONTH 6 4,000 Last day of MONTH 7 4,000 Last day of MONTH 8 4,000 Last day of MONTH 9 164,000 Last day of MONTH 10 164,000 Last day of MONTH 11 164,000 Last day of MONTH 12 164,000 Last day of MONTH 13 20,090 Last day of MONTH 14 156,000 Last day of MONTH 15 161,000 Last day of MONTH 16 19,000 Last day of MONTH 17 19,000 Last day of MONTH 18 19,000 Last day of MONTH 19 19,000 Last day of MONTH 20 28,400 Last day of MONTH 21 108,000 Last day of MONTH 22 50,560 Last day of MONTH 23 55,000 Last day of MONTH 24 51,500 TOTAL OF PAYMENTS FOR ESTIMATED COSTS $ 1,554,150 In the event O'BRIEN fails to remit any payment specified in the Payment Schedule above, on or by the Payment Due Date, PSE&G may, in addition to any other remedy or right PSE&G may have under this AGREEMENT, immediately suspend performance of its obligations under Section A of this Article XIII. PSE&G shall provide O'BRIEN with written notice of any such suspension (hereinafter referred to as Notice of Suspension). 53 In such event, and in addition to any other right or remedy it may have under this AGREEMENT, PSE&G shall have the right to make demand for and receive payment from ISSUER under the CREDIT for: (i) any costs associated with the design, construction and installation of the INTERCONNECTION which PSE&G has incurred, as of the date of suspension, and for which O'BRIEN has failed to make payment on or by such date; and/or (ii) any costs associated with the design, construction and installation of the INTERCONNECTION which PSE&G incurs thereafter as a consequence of a commitment made or liability incurred by PSE&G prior to the date of suspension in connection with performance of its obligations under Section A of this Article XIII. Within ninety (90) days of completion of the INTERCONNECTION PSE&G shall furnish to O'BRIEN a Final Reconciliation. The Final Reconciliation shall contain a statement setting forth the nature and amount of costs actually incurred by PSE&G in connection with the design, construction and installation of the INTERCONNECTION, as well as a reconciliation between the total payments made by O'BRIEN, in accordance with the provisions of this Article XIII, and the amount of costs actually incurred in connection with the design, construction and installation of the INTERCONNECTION. In the event that the total costs actually incurred in connection with the design, construction and installation of the INTERCONNECTION exceed the total payments made by O'BRIEN, in 54 accordance with the provisions of this Article XIII, O'BRIEN shall be responsible for and shall make payment to PSE&G of any differential resulting from such reconciliation. O'BRIEN shall make payment for any such differential within thirty (30) days of the date of the delivery to O'BRIEN of the Final Reconciliation. In such event, the Final Reconciliation shall constitute PSE&G's bill to O'BRIEN for payment of any such differential. In the event the total of the payments made by O'BRIEN to PSE&G, in accordance with the provisions of this Article XIII, exceeds the costs actually incurred in connection with the design, construction and installation of the INTERCONNECTION, PSE&G shall remit to O'BRIEN with the Final Reconciliation a payment to reimburse O'BRIEN for any such overpayment. In connection with affecting the Final Reconciliation, O'BRIEN shall he the right to review, after a timely request therefor, any documentation or data available to PSE&G to enable O'BRIEN to verify the accuracy of the Final Reconciliation. However, such review shall not extend the due date of, or extend or postpone O'BRIEN's obligation to pay in a timely manner any payment due, as specified in the Final Reconciliation. Section C Letter of Credit for Interconnection Costs In connection with, and for the purposes of, securing performance by O'BRIEN of its obligation to pay PSE&G for the 55 costs which PSE&G incurs in connection with the design, construction and installation of the INTERCONNECTION, O'BRIEN shall establish for, and have issued to PSE&G, as beneficiary, an irrevocable Letter of Credit (CREDIT). The CREDIT shall be established at and made payable by a commercial bank (ISSUER) acceptable to PSE&G on terms and conditions acceptable to PSE&G; provided however, PSE&G shall not unreasonably withhold approval of any CREDIT. The CREDIT shall be established for and structured so as to permit PSE&G to make a demand(s) for and receive payment from ISSUER and shall require the ISSUER to honor on sight any written demand(s) for payment as specified in and in accordance with the provisions of Sections B and D of this Article XIII. The CREDIT shall be established to be effective not later than the date specified by PSE&G in the notice issued to O'BRIEN pursuant to and in accordance with the provisions of Section A of this Article XIII and shall have an Expiry Date coincident with the date of the payment for MONTH 24 specified in the Payment Schedule to be provided by PSE&G to O'BRIEN (which period is hereinafter referred to as the Effective Period). The amount of the CREDIT shall be established and maintained during the Effective Period in the amount of Three Hundred Thousand Dollars ($300,000). In the event O'BRIEN fails to have established for and have issued to PSE&G, as beneficiary, the CREDIT in accordance with the provisions of this Article XIII, PSE&G may, in addition to 56 any other remedy it may have under this AGREEMENT, suspend performance of its obligations under Section A of this Article XIII. Section D Cancellation Costs In order to complete the design, construction and installation of the INTERCONNECTION, PSE&G shall be required to enter into contractual arrangements with, inter alia, equipment/material suppliers and third-party contractors. Upon occurrence of any Event of Termination, as specified in Article XXVII, during the construction period, PSE&G shall have the right to cancel or terminate any supplier and/or contractor agreement(s) entered into in connection with discharging its obligations to design, construct and install the INTERCONNECTION. In the event PSE&G exercises any right pursuant to and in accordance with this Section D to cancel or terminate any supplier and/or contractor agreements/orders. PSE&G may incur CANCELLATION COSTS. In such event, O'BRIEN shall be liable for and make payment to PSE&G for all CANCELLATION COSTS which PSE&G incurs. Additionally, upon occurrence of an Event of Termination, as defined in Article XXVII, during the construction period, PSE&G may be required to remove and/or complete the construction work in progress in order to maintain the integrity, safety and 57 reliability of the PUBLIC SERVICE SYSTEM. In such event, PSE&G may also incur CANCELLATION COSTS. In such event, O'BRIEN shall be liable for and make payment to PSE&G for all such CANCELLATION COSTS which PSE&G incurs. In the event PSE&G incurs an CANCELLATION COSTS, PSE&G shall have the right to demand payment for and receive payment from ISSUER under the CREDIT for all such costs, provided however, in the event the CREDIT is insufficient, PSE&G retains the right to demand payment from O'BRIEN for any such deficiency, and in such event, O'BRIEN shall be obligated to make payment to PSE&G for such CANCELLATION COSTS not paid under the CREDIT. In connection with determining the amount of any liability of O'BRIEN for CANCELLATION COSTS incurred, PSE&G shall give O'BRIEN a dollar credit for the value to PSE&G of any facilities or equipment received by and which are thereafter useful to PSE&G. In the event PSE&G terminates or cancels any supplier and/or contractor agreements/ orders as permitted in this Section D, PSE&G shall have complete discretion relative to the manner of resolving any claim and/or demand by any contractor and/or supplier in connection therewith and further, PSE&G shall be the sole judge of the acceptability of any compromise in settlement or resolution of any such claim or demand. Additionally, PSE&G shall be the sole judge as to what is necessary to maintain the safety, integrity or reliability of the PUBLIC SERVICE SYSTEM 58 relative to any removal or completion of the construction work in progress. PSE&G shall exercise reasonable care in resolving contractor/supplier claim(s)/demand(s) and in affecting any required removal or completion of the construction work in progress so as to mitigate the dollar amount paid in affecting the resolution of such claim(s)/demand(s) or in the dollar amount expanded in completing such removal or completion tasks; provided however, that PSE&G shall have no liability to O'BRIEN for or on Account of the dollar amount(s) paid in affecting the resolution of any such claim(s)/demand(s) or in affecting such removal/completion tasks, except where the resolution of any such claim(s)/demand(s) or the completion of such tasks were affected by PSE&G in a manner which was in willful disregard of its obligation to mitigate, as defined in this paragraph. ARTICLE XIV MAINTENANCE OF PLANT PSE&G shall have and maintain its entire plant at its own expense in such condition as will enable it to furnish safe, proper and adequate SERVICE to O'BRIEN pursuant to and in accordance with the terms and conditions of this AGREEMENT. ARTICLE XV USE OF THE PUBLIC SERVICE SYSTEM The nature and extent of and the terms and conditions relating to O'BRIEN's use of the PUBLIC SERVICE SYSTEM are set 59 forth in their entirety in this AGREEMENT. Except as otherwise provided in and pursuant to the terms and conditions of any applicable PSE&G Tariff on file with the NJBPU or the FERC, O'BRIEN shall not be permitted to use the PUBLIC SERVICE SYSTEM nor shall PSE&G be obligated to provide any service to O'BRIEN, other than as provided in this AGREEMENT. Any rights to or interest in the PUBLIC SERVICE SYSTEM which O'BRIEN has or may claim as a result of this AGREEMENT shall cease or expire upon termination of this AGREEMENT. ARTICLE XVI EASEMENTS Except as otherwise specifically provided in this Article XVI, PSE&G shall acquire any permit(s), easement(s), license(s), rental(s) or right(s)- of-way necessary to interconnect the PROJECT with the PUBLIC SERVICE SYSTEM. Any costs associated with the acquisition of any such easement(s), license(s), rental(s) or right(s)-of-way of a non-recurring nature shall be billed to and paid by O'BRIEN as a cost associated with the design, construction and installation of the INTERCONNECTION in accordance with Article XIII of this AGREEMENT. Any costs associated with the acquisition of any easement(s), license(s), rental(s) or right(s)-of-way of a recurring nature shall be billed to O'BRIEN and paid by O'BRIEN within thirty (30) days of receipt. 60 In order to interconnect the PROJECT with the PUBLIC SERVICE SYSTEM, PSE&G may be required to maintain certain facilities and equipment at the PROJECT SITE. In such event and to enable PSE&G to operate, maintain, repair, reinforce, replace, relocate or remove the facilities and equipment necessary to offset, operate and maintain an interconnection between the PROJECT and the PUBLIC SERVICE SYSTEM, O'BRIEN shall obtain for conveyance to PSE&G an easement to the property at the PROJECT SITE for a term, i.e., a duration and in a form and on terms and conditions acceptable to and approval by PSE&G. The easement, inter alia, shall permit PSE&G, its agents, servants and employees, at any time upon reasonable notice, to have access to the property conveyed so as to permit PSE&G, its agents, servants and/or employees to perform any tasks associated with and incident to the operation, maintenance, repair, reinforcement removal and/or relocation of the facilities and equipment necessary to offset, operate and maintain the interconnection of the PROJECT with the PUBLIC SERVICE SYSTEM. ARTICLE XVII PERMITS/APPROVALS PSE&G shall obtain from appropriate governmental bodies any REQUIRED PERMIT. PSE&G shall proceed with and use best efforts to obtain any REQUIRED PERMIT. In the event a third party files 61 any pleading with any regulatory or other governmental body or institutes a suit at law or in equity challenging the right of PSE&G to receive or, in the event any such body issues any REQUIRED PERMIT to PSE&G, challenges the propriety of the issuance to PSE&G of any REQUIRED PERMIT, PSE&G shall not be obligated to commence or, in the event construction has commenced, to complete construction of the INTERCONNECTION until PSE&G obtains a final and non-appealable order/judgment relative to the issuance of such REQUIRED PERMIT or, in the event of a challenge to the issuance thereof, a final and non-appealable order/judgment upholding the issuance of any REQUIRED PERMIT. O'BRIEN agrees to cooperate fully with PSE&G to the extent PSE&G deems such cooperation necessary to secure any REQUIRED PERMIT and/or, in the event same is occurred, to defend the issuance of any REQUIRED PERMIT. However, in the event the issuance to PSE&G of any REQUIRED PERMIT is challenged by a third party and a final and non-appealable order/judgment has not been issued in connection with such challenge, PSE&G shall be obligated to commence or complete construction of the INTERCONNECTION, despite the absence of a final and non-appealable order/judgment relative to such challenge, if, but only if: (i) O'BRIEN submits a request in writing to PSE&G requesting PSE&G to commence or complete construction of the INTERCONNECTION; and 62 (ii) O'BRIEN agrees in such writing to indemnify and hold harmless PSE&G and each and every of its officers, agents, servants and employees, its successors and assigns, from and against any and all claims, demands, suits, actions and the liabilities, losses, damages, and/or judgements, which may arise from the particular action being challenged, as well as against any fees, costs, charges or expenses which PSE&G, its officers, agents, servants and employees, its successors and assigns incur in the defense of any such claims, suits, actions or similar such demands made or filed by any third-party which in any manner arise out of, relate to, or result from PSE&G's actions which are being challenged. PSE&G shall not be obligated to commence or complete construction of the INTERCONNECTION in the event issuance of any REQUIRED PERMIT is denied to PSE&G. Further, PSE&G shall not be obligated to commence or complete construction in the event that any decision of any governmental body to issue any REQUIRED PERMIT is overturned by any court or regulatory body or any court or regulatory body has issued a stay, pending a final 63 adjudication of a challenge, prohibiting construction activity under any REQUIRED PERMIT issued to PSE&G. Any cost(s) and/or expense(s) associated with obtaining such REQUIRED PERMIT and/or any cost(s) and/or expense(s) associated with defending the issuance of any such REQUIRED PERMIT shall be paid by O'BRIEN as a cost/expense associated with the design, construction and installation of the INTERCONNECTION as provided in and in accordance with Article XIII of this AGREEMENT. ARTICLE XVIII DEDICATION OF FACILITIES No undertaking by PSE&G under any provision of this AGREEMENT shall constitute the dedication to O'BRIEN or to the public of the PUBLIC SERVICE SYSTEM. ARTICLE XIX REARRANGEMENT PSE&G represents to O'BRIEN that it has no present plans or intention to convert the PUBLIC SERVICE SYSTEM in the area of the PROJECT to a higher voltage, based upon a projected ten (10) year electric load forecast. However, in the event PSE&G should decide, for cause, at any time or from time to time to convert the PUBLIC SERVICE SYSTEM at the point of connection of the PROJECT to the PUBLIC SERVICE SYSTEM, or in the vicinity thereof, to a different voltage PSE&G shall advise O'BRIEN in 64 writing as soon as PSE&G shall make such decision, but at least three (3) years in advance of making any such conversion. In such event, O'BRIEN shall be responsible to install and pay for only the facilities at the PROJECT which will be required to continue the interconnected operation of the PUBLIC SERVICE SYSTEM and the COGENERATION FACILITY, provided however, any PSE&G facilities at the SUBSTATION which will be required to be modified as designated and specified by PSE&G to effect such conversion shall be paid for and installed by O'BRIEN. Unless other billing and payment arrangements are mutually agreed upon by PSE&G and O'BRIEN, O'BRIEN shall be billed and shall pay any billing(s) for such costs, as such costs are incurred by PSE&G, in accordance with the provisions of Article XI of this AGREEMENT. Cause, as specified in this Article, shall include but not be limited to obsolescence, changing patterns of demand and usage of electric power and energy by retail and sale for resale customers or physical destruction of plant, whether the result of deterioration or casualty. ARTICLE XX COGENERATION FACILITY/SUBSTATION FACILITY In view of PSE&G's statutory obligations to its retail and sale-for- resale customers, PSE&G has adopted general requirements relative to the construction of generation and substation facilities by others. These requirements have been adopted by PSE&G to ensure that any facilities a party plans to 65 construct for connection to the PUBLIC SERVICE SYSTEM are designed, constructed and installed so as to be compatible with the PUBLIC SERVICE SYSTEM and to ensue that operation of these facilities does not adversely affect the integrity, reliability and/or safe operation of any interconnection facility and/or the PUBLIC SERVICE SYSTEM. In connection with the construction of such facilities, PSE&G requires that the plans and specifications for such generation and substation facilities be submitted to PSE&G for review prior to the design, construction and installation of these facilities solely to enable PSE&G to determine, and thus ensure, that the contemplated design, construction and installation of such facilities comport with the aforementioned requirements. O'BRIEN shall, at its own expense, design, construct, install, own/lease, operate and maintain the COGENERATION FACILITY and SUBSTATION FACILITY. O'BRIEN shall, upon execution of this AGREEMENT, use best efforts to: (i) initiate the task required to obtain any required permit, easement(s), license(s), rental(s) or right(s)-of-way for the construction and installation of the PROJECT; and (ii) complete the design, construction and installation of the PROJECT. Prior to or in connection with execution of this AGREEMENT, a copy of "Interconnection Protection and Safety Requirements and Standards for Customer-Owned Generating Facilities" (Exhibit 2) has been furnished to O'BRIEN. O'BRIEN shall design, construct and install the COGENERATION FACILITY consistent with 66 the requirements set forth in Exhibit 2. In exercising any right of acceptance with respect to the COGENERATION FACILITY, as specified by this Article XX, PSE&G's acceptance shall be limited to making a determination as to whether the design of the COGENERATION FACILITY is consistent with the requirements contained in Exhibit 2. Deviations from the requirements set forth in Exhibit 2, relative to the design, construction and installation of the COGENERATION FACILITY may be permitted with the consent of PSE&G, which consent shall not be unreasonably withheld. As soon as practicable after execution of this AGREEMENT, O'BRIEN shall furnish to PSE&G the following: A. Plans and specifications for the COGENERATION FACILITY and SUBSTATION FACILITY. B. Single line diagram and details of the proposed protection schemes. C. Instruction manuals for all protective components. D. Component specifications and internal wiring diagrams of protection components if not provided in instruction manuals. E. All protective equipment ratings if not provided in instruction manuals. F. Generator data required to analyze fault contributions and load flows, including, but not limited to, equivalent impedances and time constants. Subsequent to submission to and review by PSE&G of Items A through F enumerated above, PSE&G shall prepare and submit to O'BRIEN "General Requirements and Specifications for a 26,000-Volt Customer's Outdoor Substation" (hereinafter referred 67 to as Requirements). O'BRIEN shall design, construct and install the SUBSTATION FACILITY consistent with the requirements set forth in Requirements. After preparation of the plans and specifications for the SUBSTATION FACILITY, O'BRIEN shall submit same to PSE&G for its review and acceptance. The plans and specifications for same may deviate from the requirements set forth in Requirements provided however, any deviation therefrom must be submitted to and be acceptable to PSE&G. O'BRIEN shall construct and install the SUBSTATION FACILITY pursuant to and consistent with the plans and specifications relating to the design of the SUBSTATION FACILITY which have been submitted to and found acceptable by PSE&G. PSE&G shall use best efforts to complete any review of any submissions made to PSE&G by O'BRIEN pursuant to and in accordance with the provisions of this Article XX within thirty (30) days of receipt of any such submissions. Prior to the DATE OF START-UP, PSE&G will perform the functional tests required by PSE&G on the relays located in the SUBSTATION FACILITY. PSE&G will specify and effect the settings of such relays. During the term of this AGREEMENT, PSE&G shall have access to and the right to inspect and perform scheduled maintenance on such relays as well as the right to readjust the settings of such relays as required. PSE&G shall notify O'BRIEN upon completion of the INTERCONNECTION and shall thereafter, at O'BRIEN's request, be obligated to energize the SUBSTATION FACILITY, if but only if, 68 PSE&G, after inspection, has determined that the SUBSTATION FACILITY has been completed in accordance with the final plans and specifications for such facility. In the event such a determination is made, PSE&G shall energize the SUBSTATION FACILITY and commence the supply of electric energy to the PROJECT to permit O'BRIEN to conduct pre-operation testing of PROJECT equipment and facilities. Electric energy will be supplied to the PROJECT by PSE&G during the test period pursuant to PSE&G's Tariff for Cogenerator Standby Service. Thereafter, O'BRIEN shall notify PSE&G when O'BRIEN decides to place its electric generation unit into INITIAL OPERATION. At that time, O'BRIEN shall permit PSE&G to examine the electric generation unit to enable PSE&G to determine whether such electric generation unit satisfies the requirements contained in Exhibit 2. PSE&G shall be obligated to permit O'BRIEN to synchronize its electric generation unit with the PUBLIC SERVICE SYSTEM and receive electric power and energy from the COGENERATION FACILITY at the RECEIPT POINT if but only if: (I) PSE&G has examined and pursuant to such examination determined that the PROJECT's electric generation unit satisfies the requirements contained in Exhibit 2; and, (ii) O'BRIEN has the installation inspected and approved by an electrical inspection authority approved by the NJBPU and receives and furnishes satisfactory evidence to PSE&G of issuance of a Certificate of Approval relative to the inspection. Thereafter, PSE&G shall permit synchronization of the PROJECT's electric generation unit 69 with the PUBLIC SERVICE SYSTEM and shall be obligated, at O'BRIEN's request, to commence receipt of electric power and energy supplied to the RECEIPT POINT. O'BRIEN shall not synchronize its electric generation unit with the PUBLIC SERVICE SYSTEM at any time without notification to and without obtaining the consent of PSE&G, which consent shall not be withheld except pursuant to and in accordance with the provisions of Article V and this Article XX. Upon appropriate notification by O'BRIEN, PSE&G shall use best efforts to conduct and complete any examination of the COGENERATION FACILITY and/or SUBSTATION FACILITY required under the provisions of this Article within fifteen (15) working days. PSE&G shall not unreasonably delay any such examination nor unreasonably withhold any acceptance required to trigger the DATE OF START-UP. After the DATE OF START-UP, O'BRIEN shall not rearrange, reconfigure, modify, alter or change in a material way the SUBSTATION FACILITY and, after the DATE OF INITIAL OPERATION, O'BRIEN shall not rearrange, reconfigure, modify, alter or change in any material way any electric generation unit(s) without notice to and the acceptance by PSE&G of such rearrangement, reconfiguration, modification, alteration or change. PSE&G shall not unreasonably delay or unreasonably withhold any such acceptance. Any review made by PSE&G of the Plans and Specifications of the COGENERATION FACILITY or SUBSTATION FACILITY, any 70 examination made by PSE&G of the actual design, construction and/or installation of the COGENERATION FACILITY or SUBSTATION FACILITY and/or any determination made by PSE&G in connection with any such review or examination will be solely for the purpose of permitting PSE&G, consistent with its statutory obligations to its retail and sale-for-resale customers, to: (i) determine whether the design, construction and installation of such facilities are compatible with the PUBLIC SERVICE SYSTEM; and (ii) ensure that operation of the COGENERATION FACILITY and SUBSTATION FACILITY will not adversely affect the integrity, reliability or safe operation of the PUBLIC SERVICE SYSTEM. PSE&G's review or examination, and any determination made in connection therewith, is not intended to be, nor will same be made by PSE&G for the purpose of, nor should same be interpreted, construed and/or relied upon by O'BRIEN, or any other person or entity, as an endorsement, approval, confirmation and/or warranty of or by PSE&G relative to any aspect of the design, construction or installation of O'BRIEN's facilities, their safety, reliability, economic and/or technical feasibility, performance and/or operational capability and/or the suitability of same for their intended purpose(s). O'BRIEN shall not represent to any third party that PSE&G's review was undertaken for any reason other than the reasons expressly stated in this Article. 71 O'BRIEN shall permit PSE&G, its officers, agents, servants and employees, its successors and assigns, when and as requested, access to, egress and ingress, from and over the PROJECT SITE at any time and upon reasonable notice, as same may be necessary or required by PSE&G, to permit PSE&G, its officers, agents, servants and employees, its successors and assigns, to gain access to the SUBSTATION FACILITY to take any action necessary to discharge its obligations or to exercise its rights under this AGREEMENT, including but not limited to access to: (i) permit PSE&G to examine, inspect, test, operate, maintain, repair and replace its electricity recording equipment and associated electricity measuring equipment; (ii) permit PSE&G to perform switching operations on switch gear located in the SUBSTATION FACILITY; and (iii) permit PSE&G to examine, inspect, test and set protective relays as required by PSE&G. O'BRIEN shall not deny, refuse or delay PSE&G's access to the PROJECT, provided that while at the PROJECT such PSE&G representative shall observe such reasonable safety precautions as may be required by O'BRIEN and shall conduct themselves in a manner that will not unnecessarily impair O'BRIEN's operation of the COGENERATION FACILITY. ARTICLE XXI LIABILITY Neither party nor its officers, directors, partners, agents, servants, employees, affiliates, parent, subsidiaries or 72 respective successors or assigns shall be liable to the other party for claims for incidental, special, direct, indirect or consequential damages (Damages) whether such Damages claim is based on a cause of action based in warranty, negligence, strict liability, contract, operation of law or otherwise except where such claim for Damages arises out, relates to or results from the gross negligence of such party or the willful disregard by a party of its obligations under this AGREEMENT, provided however, each party shall have the right to recover from the other party direct damages upon the occurrence of a breach of this AGREEMENT as defined in and which has been established pursuant to and in accordance with Article XXVIII of this AGREEMENT. ARTICLE XXII FORCE MAJEUR An event of "Force Majeure" as used herein means an event beyond the reasonable control of and which occurs without the fault or negligence of the party claiming Force Majeure and is one which such party is (was) unable to prevent or overcome which events may include but are not limited to: acts of God; strikes, lockouts or other similar such industrial disturbances; acts of the public enemy, wars, civil disturbances, blockades, military action, insurrections or riots; landslides, floods, washouts, lightning, earthquakes, tornadoes, hurricanes, blizzards or other storms or storm warnings; explosions, fires, sabotage or vandalism; mandates, directives, orders or restraints of any 73 governmental, regulatory or judicial body or agency; breakage, defects, malfunctioning, or accident to machinery, equipment, materials or lines of pipe or wires; freezing of machinery, equipment, materials or lines of pipe or wires; inability or delay in the obtaining of materials or equipment; inability to obtain or utilize any permit, approval, easement, license or right-of-way. The settlement of strikes, lockouts or other similar such industrial disturbances shall be entirely within the discretion of the party directly affected. The requirement herein that any event of Force Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts or other similar such industrial disturbances by acceding to the demands of the opposing party when such course is, in the opinion of the party directly affected, inadvisable. In the event PSE&G is rendered unable, wholly or in part, by an event of Force Majeure, to perform any obligation it has under this AGREEMENT, it is agreed that, on PSE&G giving notice and full particulars of such event of Force Majeure to O'BRIEN, as soon thereafter as practicable, the obligations of PSE&G, so far as they are affected by such event of Force Majeure, shall be suspended during the continuance of any inability or incapacity so caused, but for no longer period. PSE&G shall use best efforts to remedy the cause of such inability or incapacity. 74 PSE&G shall not be liable to O'BRIEN for any claim(s), lease(s), damage(s), liability(ies) or expense(s) sustained or incurred by O'BRIEN, arising out of, relating to, or resulting from PSE&G's inability or incapacity to perform its obligations under this AGREEMENT due to any event of Force Majeure, as herein defined. ARTICLE XXIII PROTECTIVE DEVICES O'BRIEN has been advised and acknowledges that actions, conditions, and/or events on the PUBLIC SERVICE SYSTEM (PSE&G System Condition(s)) may adversely impair PROJECT operations and/or the condition of PROJECT facilities and equipment. As such, O'BRIEN agrees to: (i) install, operate and maintain protective devices at the PROJECT and institute and maintain procedures at the PROJECT so as to minimize any potential damage to PROJECT equipment and facilities; and (ii) minimize any interruption in the production and supply of steam to Newark Boxboard Inc., arising as a result of the occurrence of any such PSE&G System Condition(s). ARTICLE XXIV INDEMNIFICATION O'BRIEN shall indemnify and hold harmless PSE&G and each and every of its officers, agents, servants and employees, its successors and assigns of, from and against any and all claims, 75 demands, suits, actions and liabilities, losses, damages, and/or judgments, which may arise therefrom, as well as against any fees, costs, charges or expenses which PSE&G, its officers, agents, servants and employees, its successors and assigns, incur in the defense of any such claims, suits, actions or similar such demands made or filed by any third-party, which in any manner arise out of, relate to, or result from PSE&G's failure, for any reason, to provide SERVICE to O'BRIEN under this AGREEMENT, except where such failure results from the gross negligence of PSE&G or willful disregard by PSE&G of its obligations under this AGREEMENT. O'BRIEN shall indemnify and hold harmless PSE&G and each and every of its officers, agents, servants and employees, its successors and assigns, from and against any and all claims, demands, suits, actions and liabilities, losses, damages, and/or judgments, which may arise therefrom, as well as against any fees, costs, charges or expenses which PSE&G, its officers, agents, servants and employees, its successors and assigns incur in the defense of any such claims, suits, actions or similar such demands made or filed by any third party, to the extent such claim, suit, action or similar demand arises out of, relates to, or results from the design, construction, installation, operation, maintenance, repair, replacement, supervision, inspection, testing, protection, reinforcement, reconstruction, decommissioning, removal, use, control or ownership of the PROJECT, except to the extent such liability, 76 loss, damage and/or judgment results from the gross negligence of PSE&G or willful disregard by PSE&G of its obligations under this AGREEMENT. In case a claim is asserted or action brought against PSE&G as to which PSE&G believes it is entitled to indemnification under this Article, PSE&G shall promptly notify O'BRIEN in writing of such claim or action. Prompt notice of any action shall mean such notice as would be required to enable O'BRIEN to assert and prosecute appropriate defenses in any such action. If PSE&G fails to give O'BRIEN prompt notice under this paragraph, O'BRIEN shall have no obligation to indemnify PSE&G under this Article. Upon receipt of such notice, O'BRIEN shall promptly make a determination of whether it believes it is required to indemnify PSE&G and shall promptly notify PSE&G in writing of that determination. If O'BRIEN determines that it is required, pursuant to this Article XXIV to indemnify PSE&G, O'BRIEN shall assume the defense thereof, including the employment of counsel, and shall upon receipt thereof promptly assume the payment of all costs and expenses with respect thereto. PSE&G shall cooperate in all reasonable respects with O'BRIEN in the defense of such claim or action. PSE&G shall have the right, at its own expense, to employ separate counsel in any such action and to participate in the defense thereof. O'BRIEN shall not be liable for any settlement of any such claim or action affected without its consent. Before settling any claim or action, O'BRIEN shall demonstrate to PSE&G that O'BRIEN has sufficient financial means or has made adequate arrangements to make all payments under any such settlement as and when due. 77 ARTICLE XXV INSURANCE O'BRIEN shall obtain and maintain in force and effect for the PROJECT: 1. A policy of comprehensive general liability insurance in a minimum amount of three million dollars ($3,000,000) for each occurrence for bodily injury, including death, and property damage. 2. A workmen's compensation or employer's liability insurance policy in accordance with applicable New Jersey statutory requirements. The policy amount stated in subparagraph 1 above is a minimum level which O'BRIEN shall be obligated to maintain in force and effect. However, and regardless of such minimum level requirement, O'BRIEN shall be obligated to maintain in force and effect insurance coverage in such amount and against such risks as shall be consistent with prudent practice in its industry. Satisfactory evidence of the existence of insurance coverage consistent with the requirements of this Article shall be furnished by O'BRIEN to PSE&G on or prior to the DATE OF INITIAL OPERATION and thereafter on or before January 1 of each year until this AGREEMENT is terminated. Any policy of insurance obtained by O'BRIEN, as required by this Article, shall not be materially altered, cancelled or terminated, without furnishing PSE&G notice thereof thirty (30) days prior to the effective date of such alteration, cancellation, or termination. ARTICLE XXVI WARRANTIES O'BRIEN warrants that it will at the time NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY is supplied to the RECEIPT POINT have good title to or the good right to deliver all power and energy so made available. O'BRIEN agrees to indemnify and hold harmless PSE&G against any and all claims, demands, suits, actions, costs, and liabilities, damages, losses and/or judgments arising out of, relating to or resulting from any adverse claim to NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY received by PSE&G at the RECEIPT POINT, as well as against any fees, costs, charges or expenses which PSE&G might incur in the defense of any such claim, suit, action or similar such demand made or filed by such person, its successors or assigns, asserting such adverse claim. In effecting the right of or obligation to indemnify pursuant to and in accordance with the provisions of this paragraph the procedural provisions set forth in Article XXIV of this AGREEMENT shall govern. ARTICLE XXVII EVENTS OF TERMINATION Either party may terminate this AGREEMENT upon the occurrence of any of the following events (Events of 79 Termination): (i) O'BRIEN's failure to have the PROJECT placed into COMMERCIAL OPERATION on or before October 1, 1990; provided however, in the event the PROJECT has not been placed in COMMERCIAL OPERATION on or before October 1, 1990, but the PROJECT has been, is at the time and continues thereafter, to be under a bona fide program of continuous construction the October 1, 1990 data shall be extended until October 1, 1991; (ii) a final and non-appealable order/judgment that the PROJECT fails to meet the requirements of a qualifying facility established as of the effective date of this AGREEMENT in accordance with Title 18, Code of Federal Regulations, Part 292, Subpart B, Section 292.203 through 292.207, inclusive; provided however, that any such determination shall not constitute an Event of Termination pursuant to this Article XXVII if thereafter O'BRIEN uses reasonable efforts to resume thermal energy production and sales to regain qualifying facility status; (iii) termination, for any reason, of the Long Term Power Purchase of Cogeneration and Small Power Production Located Outside JCP&L Service Territory between O'BRIEN and JCP&L dated March 10, 1986; provided however, in the event said termination is contested, termination of this AGREEMENT is subject to entry of a final and non- appealable order/judgment terminating the Agreement of Purchase; (iv) termination of the site lease for the PROJECT SITE; (v) O'BRIEN's decision to abandon or cancel the PROJECT; or (vi) O'BRIEN's failure, after the DATE OF COMMERCIAL OPERATION, for a period of 365 consecutive days to supply to 80 PSE&G at the RECEIPT POINT NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY except where such failure results from an event of Force Majeure as defined in Article XXII, provided however, that O'BRIEN has used during such 365 day period and continues thereafter to use best efforts to resume the supply of NET ELECTRICAL POWER OUTPUT and associated NET ELECTRICAL ENERGY to PSE&G at the RECEIPT POINT. If any Event of Termination occurs and either party elects to exercise its right, as provided in the preceding paragraph, to terminate this AGREEMENT, such party shall provide the other party with written notice of termination of this AGREEMENT (hereinafter referred to as Notice of Termination). The Notice of Termination shall specify the basis for such termination. This AGREEMENT and the parties' obligations hereunder shall terminate effective thirty (30) days after receipt by the other party of such Notice of Termination. The occurrence of any Event of Termination shall not give rise to a right by PSE&G to terminate this AGREEMENT if within five (5) business days of the receipt of any Notice of Termination O'BRIEN requests PSE&G in writing to stay the termination for a specified period up to but not exceeding eighteen (18) months and thereafter makes payment to PSE&G of the monthly demand charge calculated in accordance with the provisions of Section A of Article X, which calculation shall be based on the level of SERVICE established as of the date of execution of this AGREEMENT. 81 Termination of this AGREEMENT for and on account of any Event of Termination specified in this Article XXVII shall not relieve O'BRIEN from any obligation under this AGREEMENT to pay PSE&G for any unpaid costs associated with the design, construction and installation of the INTERCONNECTION, CANCELLATION COSTS, or any other unpaid bill or BILLING STATEMENT. ARTICLE XXVIII BREACH OF CONTRACT A breach of this AGREEMENT may occur upon the happening of any of the following: A. failure of O'BRIEN to make payment of any billing submitted by PSE&G to O'BRIEN pursuant to this AGREEMENT, which failure continues for a period of thirty (30) days after the due date as determined pursuant to and in accordance with Article XI of this AGREEMENT; B. failure of a party to perform any obligation under this AGREEMENT, which failure continues for a period of fifteen (15) days after written notice of such nonperformance is received by such party. Any notice of nonperformance (hereinafter referred to as Notice of Nonperformance) 82 In the event a party claims that a breach of this AGREEMENT has occurred, such party shall provide the other party with written notice thereof (hereinafter referred to as Notice of Breach). The Notice of Breach shall state the basis for such claim and any remedy sought. The parties shall have thirty (30) day period after service of the Notice of Breach the parties are unable to resolve their differences by negotiation the party alleging the breach shall have the right to submit the dispute for resolution to arbitration or to any regulatory body having jurisdiction. The nature and extent of any damage incurred or sustained by the non- breaching party, as a result of any breach, shall be determined and calculated as of the date the breaching party's failure to perform commenced. Except as otherwise provided in Article V and Article XIII of this AGREEMENT, neither party shall refuse to make, suspend or delay any payment(s) required to be made under this AGREEMENT or otherwise carry out any of its obligations under this AGREEMENT for or on account of or as a result of an alleged breach of this AGREEMENT. 83 Any waiver by a party of any breach shall be deemed to extend only to the particular breach waived and shall not limit or otherwise affect any right(s) that such party may have with respect to any other or future breach, whether of a similar or different nature. ARTICLE XXIX ARBITRATION Any controversy, dispute or claim between the parties to this AGREEMENT, which the parties are unable to resolve by negotiation, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA), then in effect, and the provisions of this Article. No suit at law which seeks to resolve any controversy, dispute or claim between the parties shall be instituted by either party hereto, except where such suit is instituted to confirm an arbitration award received pursuant to this Article. However, nothing contained herein shall deprive either party of any right to: (i) obtain injunctive or other equitable relief in any court in the State of New Jersey, on an interim basis, pending disposition of the arbitration of any controversy, dispute or claim in accordance with article XXX or otherwise; and/or (ii) institute a suit for specific performance; and/or (iii) assert any crossclaim or third-party claim in any suit at law instituted by a third-party; and/or (iv) file and prosecute any complaint at and with the FERC or make and prosecute any 84 claim or position in any filing made at the FERC by either party or some third-party, provided however, that nothing herein shall prevent either party from seeking FERC review of any proposed change of the charges set forth in Article X of this AGREEMENT. Any controversy, dispute or claim submitted to arbitration shall be settled by arbitration in Newark, New Jersey in accordance with the laws of the State of New Jersey. Any award entered pursuant to such arbitration shall be binding on both parties and judgment upon the award rendered or received may be entered in the Superior Court of the State of New Jersey pursuant to N.J.S.A. 2A:24-1 et seq. Exclusive jurisdiction relative to the entry of judgment on any arbitration award relative to any controversy or claim between the parties shall be in any court of appropriate subject matter jurisdiction located in New Jersey, and the parties to this AGREEMENT, expressly subject themselves hereby to the personal jurisdiction for entry of any such judgment and for the resolution of any dispute, action, or suit arising in connection with the entry of such judgment. The controversy or claim to be arbitrated shall be referred to three (3) arbitrators, one to be selected by each party and the third to be selected by the AAA. The selections to be made by the parties shall be made from the list of the National Panel of Arbitrators maintained by the AAA. The arbitrator to be selected by the AAA shall be an attorney-at-law of the State of New Jersey. All decisions and awards shall be made by a 85 majority of the arbitrators, except for decisions relating to discovery as set forth herein. In the event any arbitrator dies, or refuses to act, or becomes incapable, incompetent or unfit to act before hearings have been completed and/or before in award has been rendered, a successor arbitrator may be selected by the party who originally made the selection. The selection of the successor arbitrator shall be made consistent with the selection procedure set forth in the preceding paragraph. The arbitrators selected pursuant to this AGREEMENT shall be governed by and apply the laws of the State of New Jersey and federal law, as applicable, in conducting any arbitration proceeding and/or in making any award. Notice of a demand for arbitration (hereinafter to as Demand for Arbitration) of any controversy or dispute between the parties shall be filed in writing with the AAA by the party seeking arbitration and a copy of same shall be served contemporaneously with such filing on the other party. The notice shall state, with specificity, the nature of the dispute and the remedy sought. After such notice has been filed, the parties may make discovery of any matter relevant to such dispute before the hearing, to the extent and in the manner provided by the Rules Governing Civil Practice in the Superior Court contained in the Rules Governing Civil Practice in the Superior Court contained in the Rules Governing the Courts of the State of New Jersey. Any question that may arise with respect to the obligations of the parties relative to discovery and/or relative 86 to the protection of the discovery material shall be referred solely to the arbitrator selected by the AAA. His determination shall be final and conclusive. Discovery shall be completed not later than ninety (90) days after filing of the notice of arbitration unless such period for discovery is extended by the arbitrator selected by the AAA, upon a showing of good cause by either party to the arbitration. The arbitrators may consider any material which is relevant to the subject matter of any such controversy even if such material might also be relevant to an issue or issues not subject to arbitration hereunder. A stenographic record shall be made of any arbitration hearing. Arbitration may not be utilized and the arbitrators selected in accordance with this Article shall not possess the authority or power to alter, amend or modify any of the terms or conditions or charges set forth in this AGREEMENT, and further, the arbitrators may not enter any award which alters, amends or modifies such terms, conditions or charges in any form or manner. ARTICLE XXX SPECIFIC PERFORMANCE Without regard to the requirements or provisions of Article XXIX and Article XXVIII, in addition to any of the rights and/or remedies referred to in this AGREEMENT, either party shall have the right to institute an action against the other party in a 87 court of equity in the State of New Jersey or at the FERC to obtain specific performance by such other party of any of such other party's obligations under this AGREEMENT. ARTICLE XXXI MODIFICATIONS The terms and conditions under which SERVICE shall be provided, and the charges applicable thereto, are as herein set forth. This AGREEMENT is subject to modification from time to time, by mutual agreement of the parties, reduced to writing and signed by both parties. Either party shall have the right, from time to time, without limitation or reservation, through filings with the FERC or any successor agency, to request authorization to change the charges provided for in Article X of this AGREEMENT; provided however, PSE&G's right to file for authorization for a change in the charges shall be limited to filings to modify the transmission service charge to reflect change sin the transmission related costs in PSE&G's most recent approved rates then in effect. Any party intending to file with FERC under this paragraph shall give the other party written notice of such intent as well as a copy of the proposed filing at least fifteen (15) days prior to such filing. If requested, the party intending to make such filing will meet with the other party to discuss the content of such filing. 88 However, in the event the obligations of PSE&G under this AGREEMENT are adversely affected in a material way at any time during any term of this AGREEMENT as a result of any governmental, legislative and/or regulatory action(s), which specifically deals with this type of transaction, the SERVICE under this AGREEMENT and/or the terms and conditions thereof, PSE&G shall have the right to make a filing with the FERC to request authority to alter, amend or change any charge or term or condition of this AGREEMENT, other than the Term as specified in Article VIII, which PSE&G asserts has been affected by such action(s). Any party shall have the right to oppose any filing made by the other party under this Article to the extent that such other party is legally permitted to do so. ARTICLE XXXII ASSIGNMENT/TRANSFER O'BRIEN may and is expressly permitted at any time and from time to time during the term of this AGREEMENT, to assign its rights in this AGREEMENT to FINANCIER. PSE&G shall, at O'BRIEN's request, execute a Consent to Assignment provided that the terms and conditions of same are acceptable to PSE&G and, in connection with any such request, O'BRIEN submits to PSE&G for review any relevant documents requested by PSE&G, which documents shall be treated by PSE&G as confidential, and not disclosed to any third-party without the written consent of 89 O'BRIEN. Upon written notice to PSE&G, O'BRIEN may transfer its rights and obligation sunder this AGREEMENT to any entity controlling, controlled by or under common control with O'BRIEN. Except as otherwise provided herein with respect to FINANCIER or any entity controlling, controlled by or under common control with O'BRIEN, O'BRIEN may not assign its rights and/or transfer its rights and obligations in this AGREEMENT without the prior written consent of PSE&G, which consent shall not be unreasonably withheld. Nothing contained herein shall prevent O'BRIEN from pledging or mortgaging all or any part of the property of the PROJECT in connection with financing the PROJECT. Except with respect to any entity controlling, controlled by or under common control with O'BRIEN, no assignee, transferee, pledgee or mortgagee and/or any person designated by such assignee, transferee, pledgee or mortgagee may operate the PROJECT, pursuant to any rights such party may have under any mortgage, assignment, transfer, or security agreement, unless such entity or person has been approved and authorized by PSE&G to operate the PROJECT, and in connection with seeking to obtain such approval and authorization, agrees to be bound by, subject to and to comply with the terms and conditions of this AGREEMENT while operating the PROJECT. PSE&G shall not unreasonably delay or withhold any such approval or authorization. PSE&G may, on notice to O'BRIEN, assign and transfer its rights and obligations under this AGREEMENT to any entity 90 controlling, controlled by or under common control with PSE&G. Additionally, PSE&G may, on notice to and with the approval of O'BRIEN, assign its rights and/or transfer its rights and obligations under this AGREEMENT. O'BRIEN shall not unreasonably delay or withhold any approval of an assignment or assignment/transfer by PSE&G provided that the assignee or assignee/transferee agrees to be bound by, subject to and to comply with the terms and conditions of this AGREEMENT. ARTICLE XXXIII CURE BY FINANCIER Within thirty (30) days of execution of this AGREEMENT, O'BRIEN shall furnish to PSE&G a list containing the names and addresses of the FINANCIERS O'BRIEN will or intends to utilize in connection with placing the COGENERATION FACILITY into COMMERCIAL OPERATION. During any term of this AGREEMENT, O'BRIEN shall update the list as changes are made thereto. For so long as O'BRIEN shall have outstanding and unpaid any financing liabilities, PSE&G agrees to promptly furnish to all FINANCIERS, then known to PSE&G, a copy of any Notice 3 of Cancellation, Notice of Nonperformance, Notice of Suspension, Notice of Breach, Demand for Arbitration or Notice of Termination given to O'BRIEN. Additionally, PSE&G shall not terminate this AGREEMENT unless any written notice of such termination or breach, as the case may be, and the reasons therefor have been given to and received by each FINANCIER then 91 known to PSE&G thirty (30) days prior to the effective date of the termination. PSE&G shall not terminate this AGREEMENT if, after notice thereof, and prior to any effective date of termination FINANCIER has: (i) cured the condition precipitating the notice of Breach under Article XXVIII or Notice of Termination under Article XXVII; or (ii) if the condition precipitating such Notice of Breach or such Notice of Termination is not capable of being cured prior to the date of termination, commenced in a diligent manner to cure the condition precipitating the Notice of Breach or Notice of Termination and for so long as the FINANCIER diligently continues such efforts; or (iii) if the condition precipitating the Notice of Breach or Notice of Termination is not capable of being cured prior to the date of termination, caused the initiation of and is diligently prosecuting efforts to gain possession of the PROJECT and for so long as the FINANCIER diligently continues such efforts. 92 As indicated herein, in the event the condition precipitating the Notice of Breach or Notice of Termination is not capable of being cured prior to the date of termination, PSE&G shall not terminate this AGREEMENT where FINANCIER is diligently prosecuting efforts to cure the condition precipitating the Notice of Termination or Notice of Breach or to gain possession of the PROJECT, provided however, in the event the FINANCIER does not so cure or gain possession of the PROJECT within ninety (90) days of the date of the notice PSE&G served on FINANCIER, and FINANCIER intends to continue its efforts, FINANCIER shall be obligated thereafter to commence payment of the applicable monthly demand charge specified in Article X. In the event FINANCIER gains possession of the PROJECT, FINANCIER shall promptly designate a person to operate the PROJECT. The name and credentials of the person designated shall be promptly submitted thereafter to and such person so designated must be approved and authorized by PSE&G to operate the PROJECT. Any approval of the person so designated shall not be unreasonably delayed or withheld by PSE&G. In the event PSE&G approves the person so designated, PSE&G shall not be obligated to give authorization to the person so designated to actually operate the PROJECT unless and until the person so designated agrees in writing to be bound by, subject to and to comply with the terms and conditions of this AGREEMENT for the period during which the person so designated intends to operate the PROJECT. Upon execution of the aforesaid instrument, the 93 person so designated shall thereafter, inter alia, be responsible for and commence the payment of the charges set forth in Article X. However, FINANCIER, and the person so designated, shall have no responsibility whatsoever for any obligation of O'BRIEN incurred prior to the date on which FINANCIER takes possession of the PROJECT. In the event of a foreclosure and a resultant sale or transfer of the PROJECT to a new entity, any obligation of PSE&G to perform its obligations under the AGREEMENT shall be conditioned upon: (i) the approval of PSE&G of any new operator of the PROJECT, which approval shall not be unreasonably withheld or delayed; (ii) agreement by the new entity to comply with the rules and regulations of the NJBPU, the FERC, and any other agency having jurisdiction over the PROJECT relative to the sale or transfer of same; (iii) receipt by such new entity of any license(s), permit(s) and approval(s) as may be required in connection with the sale or transfer of the PROJECT; and (iv) the execution and delivery of a written assumption agreement, in form satisfactory to PSE&G, pursuant to which the new entity and/or operator agree to assume all obligations under and agree therein to be bound by, subject to and to comply with the terms and conditions of this AGREEMENT. Notwithstanding any rights which FINANCIER may have, in the event PSE&G interrupts SERVICE to the PROJECT in connection with the occurrence of the condition or event which precipitated the Notice of Termination or Notice of Breach, PSE&G shall not be 94 obligated to resume SERVICE to the PROJECT unless the condition or event or cause thereof which precipitated the Notice of Termination or Notice of Breach is or has been remedied in accordance with the provisions of this AGREEMENT. Prior to PSE&G being obligated to resume SERVICE to the PROJECT, PSE&G shall have the right to require FINANCIER to provide adequate assurance to PSE&G that the condition or event precipitating the Notice of Termination or Notice of Breach will not reoccur. ARTICLE XXXIV FINANCIER SECURITY AGREEMENTS As indicated in Article XXXII, O'BRIEN may assign any rights in this AGREEMENT to FINANCIER and may pledge or mortgage any or all of the property of the PROJECT. In the event FINANCIER alleges that a breach or an event of default has occurred under any operative agreement between FINANCIER and O'BRIEN and FINANCIER thereafter elects to exercise any right(s) under any applicable security, mortgage, assignment or other agreement then in effect between FINANCIER and O'BRIEN, it is agreed that, upon receipt of such notice from FINANCIER, PSE&G shall provide notice to O'BRIEN and thereafter PSE&G shall accept the instructions of FINANCIER in accordance with the terms of any applicable security, mortgage or assignment agreement. In such event, O'BRIEN shall have no claim against PSE&G for, and hereby agrees to release PSE&G from, any liability for any cost, expense, loss, damage or liability 95 O'BRIEN may incur or sustain arising out of. Relating to or resulting from any action(s) which PSE&G determines it is obligated to take pursuant to any operative agreement between O'BRIEN and FINANCIER. ARTICLE XXXV DETERMINATION OF PSE&G COSTS The costs for any work done or service performed by PSE&G personnel, as required by this AGREEMENT, which costs are to be billed to and to be paid by O'BRIEN pursuant to this AGREEMENT shall be determined by PSE&G in accordance with PSE&G's "Procedures for Work Done at the Expense of Others," then in effect. ARTICLE XXXVI STANDARD FOR PERFORMANCE Unless otherwise expressly provided for in this AGREEMENT, PSE&G shall undertake and discharge any obligation it has in this AGREEMENT to, inter alia, design, construct, install, separate, maintain, repair, replace, reinforce, rearrange, purchase, select, examine, review, inspect or accept any facility or equipment, pursuant to and in accordance with any applicable PSE&G practice(s), standard(s) and/or procedure(s). PSE&G shall use the same care and diligence in controlling the costs of such activity(ies) O'BRIEN is required to make payment for under this AGREEMENT as if the work were being performed by 96 and for PSE&G's own account in accordance with PSE&G's practices, standards and/or procedures. ARTICLE XXXVII STANDBY ELECTRIC SERVICE In the event O'BRIEN requires standby electric service to the COGENERATION FACILITY same shall be furnished by PSE&G pursuant to an applicable tariff on file with the NJBPU. In such event, pursuant to and in accordance with the provisions of The Order of the NJBPU in "In the Matter of the Consideration and Determination of Cogeneration and Small Power production Standards Pursuant to the Public Utility Regulatory Policies Act of 1978, Docket No. 8010-687," PSE&G will establish a credit (Credit) for O'BRIEN in an amount determined in accordance with the following: Estimated Cost of Standby Facility X Actual Cost for = Credit Estimated Cost for INTERCONNECTION INTERCONNECTION PSE&G estimates the Estimated Cost of Standby Facility will be eight thousand three hundred and thirty dollars ($8,330). This Credit may be refunded to O'BRIEN without interest, in whole or in part, in annual payments over the ten (10) year period following the DATE OF COMMERCIAL OPERATION. The amount of refund for each annual period will be calculated as follows: Total of payments made for electric service supplied by PSE&G under the applicable prevailing rate X 10% = Amount of Refund schedule during the preceding annual period 97 The total refund during such ten (10) year period shall not exceed the amount of the Credit determined pursuant to and in accordance with the provisions of this paragraph. If after such ten (10) year period O'BRIEN has not received, based on its annual payment for electric service, a total refund of the Credit O'BRIEN shall forfeit any further entitlement to the balance of the Credit remaining at the end of such ten (10) year period. ARTICLE XXXVIII ENTIRE AGREEMENT This AGREEMENT constitutes the entire agreement and understanding of the parties relating to the subject matter of this AGREEMENT and each party confirms that it is not relying upon any representation, assumption, understanding or warranty, except as specifically set forth herein. ARTICLE XXXIX SUCCESSORS AND ASSIGNS This AGREEMENT shall be binding upon and shall inure to the benefit of, or may be performed by, the successors and assigns of the parties, except that no assignment, pledge or other transfer of this AGREEMENT by any party shall operate to release the assignor, pledgor or transferor from any of its obligations under this AGREEMENT, unless consent to the release is given in writing by the other party, which consent shall not be 98 unreasonably delayed or withheld, or unless such transfer is incident to a reorganization or merger or consolidation with or transfer of all or substantially all of the assets of the transferor to another person or business entity which person or entity shall, as part of such succession, assume all the obligations of the transferor under this AGREEMENT. ARTICLE XL CHOICE OF LAW This AGREEMENT shall be interpreted, construed, governed by, performed and enforced in accordance with the laws of the State of New Jersey and federal law, where applicable. All questions concerning the validity, construction and enforceability of the AGREEMENT as well as questions concerning the sufficiency of other aspects of performance under the AGREEMENT shall be determined under the laws of the State of New Jersey. ARTICLE XLI CAPTIONS The subject headings of the Articles of this AGREEMENT are inserted solely for the purpose of convenient reference and are not intended to, nor shall same affect the meaning of any provision of this AGREEMENT. 99 ARTICLE XLII COUNTERPARTS This AGREEMENT may be executed in counterparts. Each shall be deemed an original but together shall constitute one and the same instrument. ARTICLE XLIII SURVIVAL OF OBLIGATIONS Termination of this AGREEMENT for any reason shall not relieve PSE&G or O'BRIEN of any obligation accruing or arising prior to such termination. ARTICLE XLIV FURTHER ASSURANCES After execution of this AGREEMENT, O'BRIEN shall, upon execution of the Site Lease, immediately forward a copy of said Site Lease to PSE&G. Additionally, if either Party reasonably determines or is reasonably advised that any further instruments or any other things are necessary to carry out the terms of this AGREEMENT, the other Party shall execute and/or deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this AGREEMENT. 100 ARTICLE XLV MISCELLANEOUS In case of conflict between any provisions hereof and any applicable law, regulation or regulatory order, such applicable law, regulation or regulatory order shall govern. All terms defined in this AGREEMENT shall have the same defined meanings when used in any notice, correspondence, report or other document made or delivered pursuant to or in connection with this AGREEMENT, unless the context shall otherwise require. Each reference herein to O'BRIEN and PSE&G shall be deemed to include their respective successors and assigns. All of the covenants, warranties, undertakings and agreements of O'BRIEN and PSE&G shall bind the respective parties, their successors and assigns. ARTICLE XLVI NOTICE OF AMENDMENTS TO PJM OR MID-ATLANTIC AGREEMENTS In the event that application is made for approval of any amendment to the PJM Agreement, the Mid-Atlantic Area Coordination Group Agreement, or any other agreement to which PSE&G is a party, which amendment, if allowed to take affect, would impair the SERVICE being provided to O'BRIEN under this AGREEMENT, PSE&G shall provide timely notice to O'BRIEN of such application. 101 ARTICLE XLVII RESERVATIONS No party shall be prejudiced or bound, except as otherwise specifically provided herein, nor shall any party be deemed to have approved, accepted, agreed or consented to any concept, theory or principle underlying or supposed to underlie any of the matters contained herein, including but not limited to any concept, theory, principle or method used to calculate the rates provided for herein. All parties further understand and agree that the provisions of this AGREEMENT relate only to the specific matter referred to herein and no party or person waives any claim or right which it may otherwise have with respect to any matter not expressly provided for herein. ARTICLE XLVIII NOTICES Any notice, request, demand, or statement which either PSE&G or O'BRIEN may desire to give to the other shall be in writing and shall be considered as duly delivered when mailed by certified mail addressed to said party as follows: (a) If to PUBLIC SERVICE ELECTRIC AND GAS COMPANY: Public Service Electric and Gas Company 80 Park Plaza - Mail Code T14A P.O. Box 570 Newark, New Jersey 07101-0570 ATTENTION: GENERAL MANAGER SYSTEM PLANNING AND INTERCONNECTIONS 102 (b) If to O'BRIEN ENERGY SYSTEMS, INC.: O'Brien Energy Systems, Inc. 225 South Eighth Street Philadelphia, Pennsylvania 19106 ATTENTION: JEFFERY D. BARNES Routine communications, including monthly BILLING STATEMENTS and payments, shall be considered as duly delivered when mailed by either certified or ordinary mail: (a) If to PUBLIC SERVICE ELECTRIC AND GAS COMPANY: Public Service Electric and Gas Company 80 Park Plaza - Mail Code T14A P.O. Box 570 Newark, New Jersey 07101-0570 ATTENTION: GENERAL MANAGER SYSTEM PLANNING AND INTERCONNECTIONS (b) If to O'BRIEN ENERGY SYSTEMS, INC.: O'Brien Energy Systems, Inc. 225 South Eighth Street Philadelphia, Pennsylvania 19106 ATTENTION: JEFFERY D. BARNES IN WITNESS WHEREOF, this AGREEMENT has been executed and delivered as of the date and year first above written. O'BRIEN ENERGY SYSTEMS, INC. /s/ Jeffrey Barnes Jeffery U. Barnes Executive Vice President PUBLIC SERVICE ELECTRIC AND GAS COMPANY /s/ S. A. Mallard Stephen A. Mallard Senior Vice President 26-KV INTERCONNECTION O'BRIEN ENERGY SYSTEMS COGENERATION PROJECT EXHIBIT 1 ESSEX SWITCHING O'BRIEN ENERGY SYSTEMS STATION COGENERATION PROJECT (Drawing) EXHIBIT 2 (Pg. 1 of 4) INTERCONNECTION, PROTECTION AND SAFETY REQUIREMENTS AND STANDARDS FOR CUSTOMER-OWNED GENERATING FACILITIES The following requirements and standards for connection of customer-owned generating facilities to the utility system, shall be met to assure the integrity and safety operation of the utility system with no deterioration to the quality and reliability of service to other customers. 1. All small power producers or cogenerators shall make application to the utility for approval to interconnect their facilities with the utility system. 2. The utility may require the following as part of the application. A. Plans and specifications of the proposed installation. B. Single line diagram and details of the proposed protection schemes. C. Instruction manuals for all protective components. D. Component specifications and internal wiring diagrams of protective components if not provided in instruction manuals. E. All protective equipment's ratings if not provided in instruction manuals. F. Generator data required to analyze fault contributions and load current flows including, but not limited to, equivalent impedances and time constants. 3. The utility shall within thirty (30) days from the receipt of all required data from the applicant either approve or reject the application for connection to the utility system. Connection to the utility system will be permitted only upon obtaining the formal approval of the utility. The utility may require the execution of a formal application form and/or interconnection agreement by the customer. EXHIBIT 2 (Pg. 2 of 4) 4. The installation of the customer's facilities must be in compliance with the requirements of the National Electrical Code and all applicable local, state and federal codes or regulations. The installation shall be done in a workman-like manner, and shall meet or exceed industry acceptance standards of good practice. The provisions of the National Electrical Safety Code and the standards of the Institute of Electrical and Electronics Engineers, National Electrical Manufacturers Association and the American National Standards Institute shall be observed to the extent that they are applicable. Prior to connection, the utility must be provided with evidence of the satisfactory electrical inspection by an authorized inspection agency. 5. The customer's facility shall have the following characteristics: A. Output voltage shall be compatible and consistent with the utility system to which the customer's facility is to be connected. B. The customer's facility shall produce 60 Hertz sinusoidal output compatible with the utility system to which the facility is to be connected. C. The customer's facility must provide and maintain automatic synchronization with the utility system to which it is to be connected. D. The break point between customers' facilities producing single- phase or three-phase output shall be in accordance with existing utility motor specifications or as otherwise specified by the utility. E. At no time shall the operation of the customer's facility result in excessive harmonic distortion of the utility waveform. Total harmonic distortion greater than 5% shall be deemed excessive and shall result in disconnection of the facility from the utility system. F. The installation of power factor correction (PFC) capacitors on the customer's facility may be required under conditions to be determined by the utility when necessary to assure the quality and reliability of service to other customers. The cost of such capacitors shall be borne by the customer. EXHIBIT 2 (Pg. 3 of 4) G. The cost of supplying and installing any special facilities or devices occasioned by the customer's installation which the utility may deem necessary on its system shall be borne by the customer. 6. Automatic disconnecting devices with appropriate control devices which will isolate the customer's facility from the utility system within a time period specified by the utility for, but not necessarily limited to, the following conditions, shall be provided by the customer: A. A fault on the customer's equipment. B. A fault on the utility system. C. A deenergized utility line to which the customer is connected. D. An abnormal operating voltage or frequency. E. Failure of automatic synchronization with the utility system. F. Loss of a phase or improper phase sequence. G. Total harmonic content in excess of 5% H. Abnormal power factor. The devices shall be so designed and constructed to prevent reconnection of the customer's facility to the utility system until the cause of disconnection is corrected. 7. The utility shall reserve the right to specify settings of all isolation devices which are part of the customer's system. 8. The utility may require initial inspection and testing as well as subsequent inspection and testing of the customer's isolation and fault protection systems at the customer's expense. Maintenance of these systems must be performed and documented by the customer at specified intervals to the satisfaction of the utility. The utility shall reserve the right to disconnect the customer from the utility system for failure to comply with these inspections, testing and maintenance requirement. EXHIBIT 2 (Pg. 4 of 4) 9. The customer is solely responsible for providing adequate protection for the equipment located on the customer's side of the interconnection system. This protection shall include, but not be limited to, negative phase sequence voltage on three-phase systems. 10. The customer shall provide a utility controlled disconnecting device on the utility side of the interconnection system. The utility may require that this device accept a utility provided padlock. The utility may also require manual operation of the device when required. 11. The customer shall agree to grant access to the utility's authorized representative during any reasonable hours to install, inspect and maintain the utility's metering equipment. 12. The customer must satisfy, and shall be subject to, all terms and conditions of the utility's tariff for electric services. 13. No wind generator, tower structure or device shall be installed at a location where, in the event of failure, it can fall in such a manner as to contact, land upon, or interfere with any utility lines or equipment. 14. The customer shall maintain the generator and its associated structure, wiring and devices in a safe and proper operating condition so that the installation continues to meet all the requirements contained herein. 15. By installation and connection of a generator and/or appurtenant facilities, devices and equipment with the utility system, the customer agrees to indemnify and hold the utility harmless from any and all liability or claim therefore for damage to property, including property of the utility and injury or death to persons resulting from or caused by the presence, operation, maintenance of removal of such customer's installation. O'BRIEN (NEWARK) COGENERATION, INC. MONTHLY OPERATING CONDITIONS - 1993 (CONT'D) 2/21/94
JAN FEB MARCH APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC YEAR OPERATING INCOME 0.0 19.8 368.1 624.5 691.9 741.5 2445.8 % HOURS ON GAS 100.0% 100.0% 100.0% 100.0% 100.0% 84.0% 0.951 HOURS ON GAS 0.0 19.8 368.1 624.5 691.9 622.9 2327.2 MMBUT/HR 0.0 1279.0 568.6 552.3 526.5 539.7 550.0 MMBUT 0 25330 209310 344926 364265 336194 1280025 GAS PRICE($ PER MMBTU) 0 2.917 3.091 2.898 3.010 3.152 3.048 GAS COST 0 73887 653103 1005770 1102501 1065793 3901055 HOURS ON EXTENDED SERVICE 0.0 0.0 0.0 0.0 0.0 118.6 118.6 MMBTU/HR 0.0 0.0 0.0 0.0 0.0 539.7 539.7 MMBTU 0 0 0 0 0 64030 64030 PRICE (PER MMBTU) 0.000 0.000 0.000 0.000 0.000 7.400 7.400 EXTENDED GAS SERVICE COST 0 0 0 0 0 473821 473821 HOURS ON KEROSENE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 MMBTU/HR 0.0 0.0 0.0 0.0 0.0 0.0 MMBTU 0 0 0 0 0 0 0.0 PRICE ($ PER MMBTU) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 KEROSENE COST 0 0 0 0 0 0 0 GAS COST 0 73887 653103 1005770 1102501 1065793 3901055 HEDGING (GAIN)/LOSS 0 0 0 0 0 0 0 EXTENDED GAS SERVICE COST 0 0 0 0 0 473821 473821 KEROSENE 0 0 0 0 0 0 0 AUX BOILER FUEL 0 49423 32691 10128 0 0 TOTAL FUEL COST 0 123310 685794 1015899 1102501 1539614 4467118
PERM FURNISHINGS AND EQUIP Initial Mar-94 Apr-94 May-94 Jun-94 TOTAL Offices - Plant Manager/Asst. PM Note 1 6,000 6,000 Admin Asst. - Reception Area Note 1 3,000 3,000 Conference Room Note 1 3,000 3,000 Other Furnish Note 1 1,500 1,500 Technical Library 15,000 15,000 Typewriter Note 1 300 300 Facsimile Machine Note 1 1,500 1,500 Photocopier Note 1 2,600 2,600 (4) Computers/cabling/etc. (486 Note 1 9,500 9,500 systems) Telephone System (if not in EPC Note 1 0 scope) Audio/Visual Training Equip. 3,500 3,500 (4) Sets of Computer Software 2,200 2,200 Preventative Maintenance Software 9,000 9,000 (2) Printers 1,800 1,800 Drawing & Display Boards 600 600 TOTAL PERM FURN AND EQUIP 32,100 27,400 0 0 0 59,500 TOTAL MATERIALS AND SERVICES COSTS 36,200 107,400 50,075 24,900 8,550 229,125 HANDLING CHARGE 0% 0 0 0 0 0 0 OPERATOR'S FEE 0 0 0 0 0 0 TOTAL MOBILIZATION COST/MONTH $96,200 $144,100 $85,175 $42,900 $25,550 $393,925
Notes: 1) If Items do not exist or are not in a reasonably satisfactory condition as determined by the Parties 2) Items to be shared between Newark and Parlin included in Parlin Mobilization schedule) EX-10.15.1 9 EXHIBIT 10.15.1 STEAM PURCHASE AGREEMENT DATED OCTOBER 3, 1986 BETWEEN O'BRIEN COGENERATION IV, INC. AND NEWARK BOXBOARD CO. Exhibit 10.15.1 STEAM PURCHASE AGREEMENT BETWEEN O'BRIEN COGENERATION IV,. INC. AND NEWARK BOXBOARD CO. INDEX Page ARTICLE 1 DEFINITIONS 2 ARTICLE 2 REPRESENTATIONS AND WARRANTIES; COVENANTS 7 2.1. Representations and Warranties of Buyer. 7 2.2. Representations and Warranties of Seller; Covenants of Seller 8 ARTICLE 3 PURCHASE AND SALE 10 3.1 Purchase and Sale of Steam 10 3.2 Maximum Output of Cogeneration Facility 10 3.3 Purchase of Steam from Alternative Sources. 10 ARTICLE 4 RESPECTIVE RIGHTS AND OBLIGATIONS 12 4.1 Rights and Obligations of Seller. 12 4.2 Rights and Obligations of Buyer. 16 ARTICLE 5 TERM OF AGREEMENT 19 5.1 Effective Date and Term. 19 5.2 Buyer's Right to Purchase Cogeneration Facility and Site. 23 5.3 Completion of Cogeneration Facility. 25 5.4 Conditions Precedent. 25 ARTICLE 6 PAYMENT CALCULATIONS 26 6.1 Steam Price. 26 6.2 Reimbursement of Power. 27 ARTICLE 7 MEASUREMENT AND METERING 27 7.1 Measuring Equipment. 27 7.2 Testing 28 7.3 Corrections 29 7.4 Estimates 29 ARTICLE 8 BILLING AND PAYMENTS 30 8.1 Billing. 30 8.2 Payment. 31 8.3 Interest. 31 8.4 Disputes 31 ARTICLE 9 LEASE OF SITE AND LAND RIGHTS 31 9.1 Lease of Site 31 9.2 Alternate Site. 32 9.3 Land Rights. 33 ARTICLE 10 WATER SUPPLY; CONDENSATE RETURN 33 10.1 Water Supply. 33 10.2 Condensate Return. 34 ARTICLE 11 QUALIFYING FACILITY 34 11.1 Maintenance of Qualifying Facility Status. 34 11.2 Modifications in Plant's Steam Requirements.34 ARTICLE 12 TAXES 35 12.1 Obligations of Seller 35 12.2 Obligations of Buyer. 36 12.3 Joint Obligations. 36 ARTICLE 13 FORCE MAJEURE 36 ARTICLE 14 INSURANCE 38 ARTICLE 15 LIABILITY AND INDEMNIFICATION 38 15.1 Survival of Representations and Warranties 38 15.2 Indemnification. 39 ARTICLE 16 EVENTS OF DEFAULT AND REMEDIES 40 16.1 Events of Default by Buyer. 40 16.2 Events of Default by Seller. 42 16.3 Remedies Upon Default by Buyer. 43 16.4 Remedies Upon Default by Seller. 44 16.5 Remedies. 45 16.6 Fair Market Value. 46 ARTICLE 17 SELLER'S FINANCING 46 ARTICLE 18 ARBITRATION 47 ARTICLE 19 ASSIGNABILITY 47 ARTICLE 20 NOTICE 48 ARTICLE 21 WAIVER AND MODIFICATION 49 21.1 Waiver 49 21.2 Modification 49 ARTICLE 22 SEVERABILITY AND RENEGOTIATION 49 22.1 Severability 49 22.2 Renegotiation 49 ARTICLE 23 SEVERAL OBLIGATIONS 50 ARTICLE 24 GOVERNING LAW 50 ARTICLE 25 ENTIRE AGREEMENT; COUNTERPARTS 50 ARTICLE 26 CAPTIONS 51 ARTICLE 27 EMPLOYEE DISPLACEMENT 51 ARTICLE 28 GUARANTEE BY O'BRIEN ENERGY SYSTEMS 51 STEAM PURCHASE AGREEMENT This Agreement is entered into as of the 3rd day of October, 1986 between O'BRIEN COGENERATION IV. INC., a Delaware corporation ("Seller")1 and NEWARK BOXBOARD CO., a New Jersey corporation ("Buyer"). WITNESSETH: WHEREAS, Buyer owns and operates a paperboard plant (the "Plant") located at 17 Blanchard Street, Newark, New Jersey which Plant utilizes steam in substantial volumes during the course of its manufacture; and WHEREAS, Seller plans to construct, operate, manage and maintain a facility for the cogeneration of steam and electricity (the "Cogeneration Facility") that will be designed to meet Buyer's Steam requirements, based upon Buyer's current and anticipated future usage, all as set forth in Appendix A which is attached hereto and hereby made a part of this Agreement; and WHEREAS, Buyer desires to purchase, on the terms and conditions specified herein, certain steam requirements for the operation of its Plant from the Cogeneration Facility; and WHEREAS, the Parties desire to set forth in writing their respective rights and obligations for the sale of steam by Seller to Buyer after construction of the Cogeneration Facility; NOW, THEREFORE, in consideration of the promises and mutual agreements herein set forth, Seller and Buyer do hereby mutually agree as follows: ARTICLE 1 DEFINITIONS The following terms, when used herein, shall have the following meanings, unless a different meaning is expressly stated or is apparent from the context: "Agreement" means this contract, including all Appendices and amendments hereto. "BTU" means British Thermal Unit. "Buyer" means Newark Boxboard Co. "Cogeneration Facility" means the boiler, turbine, generator, back up system described in Section 4.1, (excluding boiler and associated equipment owned by Buyer) and all appurtenant structures. equipment, piping. wiring, switch controls, Steam Interconnection Facilities and all additions and replacements thereto, and real property interests owned or leased and operated by Seller for the purpose of cogenerating steam and electricity. "Condensate" means condensate meeting the specifications therefor Set forth then Appendix D hereto. "FERC" means the Federal Energy Regulatory Commission. "Force Majeure" means to the extent that it prevents the production, delivery, acceptance or use of steam pursuant hereto, flood; earthquake; storm; lightning; fire; explosion; war; riot; civil disturbances; strikes; sabotage; restraint by Governmental Authority (other than any delay or failure by a Governmental Authority to issue any necessary permit or license described in Section. 5.4 hereof); major equipment breakdown if, and only if, not due to the negligence of Seller nor the failure of Seller to perform periodic preventative maintenance and 2 routine scheduled maintenance on all of its equipment in accordance with reasonable business practice; inability to obtain necessary labor or unforeseen shortages in materials or manufacturing facilities; delays in delivery of materials or work from subcontractors beyond a Party's reasonable control; and any ether events beyond the reasonable control of a Party. Changes in the prices of any item or items shall not in and of themselves give rise to the occurrence of a Force Majeure. Seller agrees that it shall maintain an adequate stock of spare parts in accordance with the original equipment manufacturer's recommendations, as updated from time to time, for each piece of equipment to accomplish foreseeable repairs on the facilities in the Cogeneration Facility (including replacement components for turbines, generators, pumps and controls therefor). A Force Majeure with respect to the main generating facility in the Cogeneration Facility shall not excuse performance hereunder If Seller would have been able to perform had it maintained the spare parts required to be kept hereunder unless failure to maintain such stock of spare parts was itself excused by reason of Force Majeure. "Governmental Authority" means any federal, state, municipal, or local legislature, administrative body, court or other person or body authorized to make or enforce laws or regulations. "Initial Delivery Date" means the date on which Seller has accepted the Cogeneration Facility under the construction contract and Seller actually delivers or is capable and offers to 3 deliver steam Buyer. Seller shall notify Buyer in writing of the Initial Delivery Date at least one month prior thereto. Prior to the Initial Delivery Date, the back-up system (after installation of any necessary interconnections, pursuant to Article 4.1(A)) described in Section 4.1 shall be operated for at least three (3) consecutive 24-hour periods and shall be producing steam at full capacity. The Cogeneration. Facility shall be operated it full capacity for at least ten (10) consecutive 24- hour periods prior to the Initial Delivery Date and shall be producing steam at full capacity during said period. If Buyer elects to take steam from Seller during this testing time period, it shall pay for the steam on the same terms and conditions as set out in Article 6 herein. The back-up system shall be kept sufficiently "hot" and "pressurized" during the 10-day testing period of the Cogeneration Facility so that it may be put into service immediately if the main facilities experience problems during any testing period. "KWH" means kilowatt hours. "Laws" means all statutes, regulations, orders, decrees or rulings by an Governmental Authority having jurisdiction over the matter in question. "Party" or "Parties" means the signatories to this Agreement and their permitted successors and assigns. "Plant" is the paperboard plant in Newark, New Jersey, owned by Buyer including any improvements, expansions or modifications thereto and, for purposes of Section 5.1, the land owned by Buyer associated therewith. "Points of Return" means the points where Seller's pipe system connects to Buyer's steam or Condensate returning pipe- 4 lines as described in Appendix B attached hereto. "PURPA" means the Public Utilities Regulatory Policies Act of 1978, as amended from time to time. "Qualifying Facility" or "Facility" means a cogeneration facility which meets those criteria promulgated by FERC pursuant to PURPA and set forth at 18 CFR Sections 292 et seq.; as any of the foregoing, as well as, any applicable state regulations, as may be amended from time to time. "Regulations" mean the regulations promulgated by FERC pursuant to PURPA and set forth at 18 CFR Section 292 et seq., as well as applicable state regulations, as any of the foregoing may be amended from time to time. "Seller" means O'Brien Cogeneration IV, Inc., a subsidiary of O'Brien Energy Systems, Inc., a Delaware corporation, and its successors and permitted assigns. "Site" means the location where the Cogeneration Facility will be constructed. The Site may be sold or leased to Seller pursuant to the provisions hereof. "Specified Damages" means out-of-pocket expenses incurred by Buyer including any amounts which Buyer would be due under Section 6.2, less the amount that Buyer would have been required to pay to Seller pursuant to Article 6 had Seller performed its obligations, as a result of the failure of Seller to deliver (i) steam meeting the specifications therefor set forth in Appendix A or (ii) a sufficient amount of steam (up to the maximum amount specified in Appendix A) to Buyer, including expenses incurred by Buyer in putting its boilers back into operation if it elects to do so, repairing, operating or main- 5 taining the same and/or leasing or purchasing replacement or substitute boilers (including all labor, engineering, and installation costs associated with any of the foregoing), utility costs, fuel charges, costs of acquiring chemicals and other items necessary to generate steam, legal fees and expenses incurred in negotiating and preparing any documents relating to the lease or purchase of substitute or replacement boilers or enforcing its rights hereunder and such other out-of-pocket expenses as Buyer may prove to the reasonable satisfaction of Seller are related to any of the foregoing or reasonably incurred by Buyer as a result of Seller's failure to deliver steam in the amount or meeting the specifications therefor set forth in Appendix A. In the event it becomes necessary to do so, Buyer agrees to lease boilers on a month-to-month basis rather than purchase them or lease them for a longer time period unless either (i) Seller agrees otherwise or (ii) rental boilers are not available immediately, in which event Buyer may enter into reasonable alternative interim arrangements (including leases for more than a month) until rental boilers are available immediately or (iii) Seller fails to pay Specified Damages within 10 days of demand therefor. "Steam Interconnection Facilities" means those facilities to be installed in order for Seller to deliver steam to Steam Points of Delivery and receive Condensate at the Points of Return, including service stop valves, meter stops valves, primary and secondary service pressure reducing valves, meter supports, protection devices, meter(s), pipe system(s), pipeline(s) and other facilities necessary to connect the Cogeneration Facility 6 to Buyer's Plant. "Steam Points of Delivery" means the physical locations identified in Appendix B where the Steam Interconnection Facilities are connected to Buyer's receiving pipelines. ARTICLE 2 REPRESENTATIONS AND WARRANTIES; COVENANTS 2.1. Representations and Warranties of Buyer; Covenants of Buyer. Buyer hereby represents and warrants to Seller as follows: A. Buyer is a corporation duly organized and existing in good standing under the laws of the State of New Jersey. B. Buyer possesses all requisite power and authority to enter into and perform this Agreement and to carry out the transactions contemplated herein; C. Buyer's execution, delivery, and performance of this Agreement have been duly authorized; this Agreement has been duly executed and delivered; and constitute Buyer's legal, valid, and binding obligation, enforceable against it in accordance with its terms; and Buyer's execution, delivery and performance of this Agreement will not result in a breach or violation of, or constitute a default under, any material agreement, lease, or instrument to which it is a party or by which it or its properties may be bound or affected, with the exception of the Fidelity financing referred to Article 17. D. No suit, action or arbitration, or legal, administrative or other proceeding is pending, or has been threatened, against Buyer that would affect the validity or enforceability 7 of this Agreement or the ability of Buyer to fulfill its commitments hereunder, or that could result in any material adverse change in the business or financial condition of Buyer. Buyer covenants and agrees that it will obtain and maintain all necessary governmental authorizations, licenses, permits and franchises, corporate or otherwise, for the operation of its Plant, and will assist in obtaining all environmental construction and operation of the Cogeneration Facility. So long as it may operate the Plant profitably and subject to the provisions of Section 5.1 hereof, Buyer covenants and agrees that it will use its best efforts to continue the use and operation of its Plant at the present location for a period of at least twenty-five (25) years from the Initial Delivery Date, and such use and operation will include, during any calendar year, steam requirements no less than the minimum purchase requirements no less than the minimum purchase requirements, as set forth in Appendix A, for the Cogeneration Facility. Based on currently available information, Buyer believes that the useful life of the Plant equals or exceeds twenty-five (25) years. Should Buyer, despite its best efforts, conclude at any time during the term of this Agreement that it cannot continue use and operation of its Plant at a profit, it agrees to give Seller the options set out in Article 11. 2.2. Representations and Warranties of Seller; Covenants of Seller. Seller hereby represents and warrants to Buyer as follows: 8 A. Seller is a corporation duly organized and existing in good standing under the laws of the State of Delaware and is qualified to do business in the State of New Jersey. B. Seller possesses all requisite power and authority to enter into and perform this Agreement and to carry out the transactions contemplated herein. C. Seller's execution, delivery and performance of this Agreement have been duly authorized; this Agreement has been duly executed and delivered and constitutes Seller's legal, valid, and binding obligation, enforceable against it in accordance with its terms; and Seller's execution, delivery, and performance of this Agreement will not result in a breach or violation of, or constitute a default under, any agreement, lease, or instrument to which it is a part or by which it or its properties may be bound or affected; and D. No suit, action or arbitration, or legal, administrative or other proceeding is pending, or has been threatened, against Seller that would affect the validity or enforceability of this Agreement or the ability of Seller to fulfill its commitments hereunder, or that could result in any adverse change in the business or financial condition of Seller. Seller covenants and agrees that it will obtain in a timely fashion and maintain all necessary governmental authorization licenses, and permits for the construction and operation of the Cogeneration Facility. 9 ARTICLE 3 PURCHASE AND SALE 3.1 Purchase and Sale of Steam. Subject to the terms and conditions of this Agreement, Seller agrees to produce, deliver to the Steam Points of Delivery as and when required by Buyer, and sell all of the steam which Buyer requires for use at the Plant, subject to the maximum amount set forth in Appendix A, which steam shall meet the specifications described in Appendix A hereto. Except as provided in Section 3.3 hereof, Buyer agrees to purchase from Seller all of the steam it requires at the Plant and use on the output of the Cogeneration Facility to meet Buyer's steam requirement at Buyer's Plant. Seller's obligation to produce and deliver sufficient steam to satisfy all of Buyer's steam requirements at its Plant is limited to the amount specified in Appendix ; provided, however, that if Seller delivers steam to Buyer in an amount in excess of the amount so specified, the terms of this Agreement shall govern the purchase by Buyer of any such excess amount. 3.2 Maximum Output of Cogeneration Facility. The maximum required output of steam from the Cogeneration Facility is set forth in Appendix A attached hereto. Seller is not obligated to deliver amounts in excess of that amount. 3.3 Purchase of Steam from Alternative Sources. Unless an event of Force Majeure excuses it from doing so, Buyer will purchase the amount of steam which it requires at its Plant at the price set forth in Article 6. If, for any reason, the Seller cannot produce all of the steam required by 10 Buyer (up to the maximum amount set forth in Appendix A), Buyer may, without incurring any liability hereunder, use steam or alternate energy from other sources to make up that portion of its requirements which Seller fails to supply. If Buyer incurs any out-of-pocket expenses in connection with obtaining steam or an alternative energy from another source or sources (other than amounts of excess of the amount set forth in Appendix A), as a result of Seller's inability to comply with this Agreement due to the occurrence of an event of Force Majeure, then, Seller shall either, at Seller's option, (i) pay Buyer's Specified Damages or (ii) give Buyer reasonable advance notice of the date on which it will be able to resume providing steam and not require Buyer to resume its purchase of steam hereunder until a reasonable period of time (not to exceed 45 business days) after receipt by Buyer of notice of anticipated resumption of service (the reasonableness of the notice period being determined based on the expenses incurred by Buyer in arranging for alternative source of supply of steam or other (fuel). Buyer shall be entitled to rely on any notice received from Seller. The Parties further acknowledge that it may be necessary or prudent, in light of the limited number of alternative sources of supply of steam available, for Buyer to secure an alternative source of steam which has a greater capacity than that which Buyer requires. Seller agrees to make available to Buyer its employees who operate boilers to the extent it can do so without impairing its ability to operate the Facility. Nothing in this Agreement is intended or shall be 11 construed as requiring Buyer (or any subsequent owner of the Plant) to use steam rather than any other energy source (including, but not limited to, electricity) in the operation of the Plant, other than as set forth in the second to the last sentence Section 3.1. Nor is this Agreement intended to impose on Buyer any obligation to purchase any minimum amount of steam at any time other than that amount specified in Appendix A. ARTICLE 4 RESPECTIVE RIGHTS AND OBLIGATIONS 4.1 Rights and Obligations of Seller. Seller covenants and agrees that during the term of this Agreement it shall: A. Design, construct, start up, test and operate the Cogeneration Facility at its expense in accordance with safe and sound engineering practices and procedures in order that the Cogeneration Facility is able at all times to deliver steam meeting the specifications set out in Appendix A and in the quantities set forth in Appendix A. The Cogeneration Facility shall utilize Buyer's existing boilers as a back-up system. Seller shall have the right to use such boilers at not charge on the condition that: (1) it pays for any fuel consumed as well as any associated operation and maintenance costs; (2) it installs and pays for any necessary interconnections with Seller's Cogeneration Facility and (3) it keeps such boilers "hot", at Seller's expense, by circulating steam through them once the Cogeneration Facility is operational. Should Seller determine at any time during this Agreement that replacement of Buyer's boilers is necessary, it shall bear the cost of such replacement and the new boiler(s) shall become the property of Seller, and shall be added to the Cogeneration Facility. B. If Seller uses the original site (as opposed to Alternate Site), design construct and maintain a "park and lock" parking garage on the Site with sufficient spaces to replace those spaces eliminated by Seller on the Site as a result of the construction of the Cogeneration Facility. Seller shall 12 guarantee continued access to this parking garage for Buyer's employees and the right, at no cost, to use an equivalent number of spaces to those eliminated by Seller. At the conclusion of this Agreement or at any time when Buyer has the right to purchase the Cogeneration Facility Buyer shall have the right to purchase the Cogeneration Facility. The price for the garage shall be its fair market value, as determined by the American Appraisal Company, the appraisal to be based on the assumption that the garage sits on freehold property (rather than leased property), less the value of the freehold. In other words, the value of the real property on which the garage rests will be ignored in the appraisal. C. Obtain those permits set forth in Appendix C hereto and any other additional permits which may be required under then applicable and regulations to operate the Facility during the term of this Agreement. D. Provide to Buyer for its review all design drawings of the Cogeneration Facility, the Parking Garage and Steam Interconnection Facilities. Seller shall also give Buyer an opportunity to review its construction plan prior to the commencement of construction in order that Buyer can assure itself that construction of the Cogeneration Facility will not interfere with Buyer's on-going operations. Buyer shall have the right to approve such construction plan or any modifications thereto, such approval not to b unreasonably withheld. Buyer shall use its best efforts to review and approve such plans within 15 days 13 of receipt from Seller. To insure coordination between Buyer and Seller during construction, Buyer shall designate a single individual with whom Seller may consult during construction of the Cogeneration Facility. Seller shall also designate a single individual with whom Buyer may consult during construction or operation of the Cogeneration Facility. Buyer's review of the construction plan and design drawings shall not relieve Seller of any of its obligations pursuant to Section 4.1A hereof; E. Maintain the Cogeneration Facility in good operating condition, in compliance with all applicable governmental requirements and in accordance with reasonable business practice, and use its best efforts (i) to ensure that interruptions of deliveries of steam to the Plant are made at a time that is mutually agreeable to the Parties, (ii) to ensure that any interruptions will be planned to coincide with the scheduled maintenance outages of the Plant, notice of which shall be given to the Chief Plan Engineer designated by Buyer promptly and shall comply with Article 20 hereof, and (iii) to minimize the frequency and duration of any periods of interruption of delivery of steam meeting the specifications set forth in Appendix A hereof to Buyer's requirements therefor, up to the maximum required output of the Cogeneration Facility set forth in Appendix A. F. Have the right to generate and sale steam or electricity or both to any person other than Buyer on any terms and conditions, without interference by Buyer, provided that Seller 14 may do so without impairing its ability to fulfill its obligations under this Agreement. G. Furnish, operate and maintain, at its own expense, all Steam Interconnection Facilities necessary for the delivery of steam from its Cogeneration Facility to and including the Steam Point of Delivery, and the receipt of Condensate into its Cogeneration Facility from and including the Point of Return. H. Operate and maintain all necessary electrical transmissions facilities to deliver electricity from the Cogeneration Facility to its electricity customers, in a safe manner without creating an unreasonable risk of injury or damage to Buyer's personnel or property; I. Operate the Cogeneration Facility in substantial compliance with all applicable federal, state and local environmental standards, and all other applicable laws, rules and regulations and make all necessary filings with and send all required notices relating to the Facility to the appropriate Governmental Authorities; J. Designate a Cogeneration Facility Engineer to maintain communications with Buyer's Chief Plant Engineer for coordination between the Plant and the Cogeneration Facility during the term of this Agreement, which Cogeneration Facility Engineer shall be available to meet with buyer's Chief Plant Engineer; and K. Give to Buyer prompt notice, either written or oral, of Condensate which does not meet the standards of Condensate quality set forth in Appendix D specifying how such 15 standards are not met. 4.2 Rights and Obligations of Buyer. Buyer covenants and agrees that during the term of this Agreement it shall: A. Provide Seller with (1) all plans and drawings within 120 days from the date of execution of this Agreement) for relevant steam headers, electrical switchgear, water lines, condensate lines and steam lines, etc. required to permit Seller to interconnect the Cogeneration Facility to the Plant; (ii) Condensate as returned to Buyer's existing steam generation system; and (iii) a single location access for interconnection to the existing condensate return system; B. Use its best efforts to assist Seller in obtaining any other local approvals as may be necessary. Buyer covenants and agrees to assist Seller in obtaining all environmental permits licenses or authorizations associated with the operation of the Cogeneration Facility including9 if required by the New Jersey Department of Environmental Protection, the right to use any environmental permit offsets available to Buyer solely to the extent that they are transferable. Seller covenants and agrees to return to Buyer any and all environmental permits, licenses or authorization that have been transferred to Seller from Buyer at the end of the term of this Agreement. In the event that Seller to unable to provide Buyer with steam pursuant to this Agreement as a result of a Force Majeure, Buyer shall have the right to receive back from Seller any transferred permits and offsets and to use the same during the period of the Force Majeure. Seller shall prepare any and all necessary 16 applications for such permits, licenses and authorizations. Buyer shall review the same (i) solely to the extent that applicable law shall require that the application be made in the name of Buyer and (i) to the extent that the information required to be disclosed therein relates directly to Buyer and is available from the records of Buyer; C. Have the right to operate its Plant without interference from Seller; D. Operate and maintain its Plant at all times in such condition that Buyer's use of steam will be reasonably safe to persons and property, and shall use its best efforts (i) to ensure that any interruptions of purchases of steam from the Cogeneration Facility not caused by decreased demand for Buyer's products are made it a time that is mutually agreeable to the Parties, (ii) to ensure that any interruptions will be planned to coincide with the scheduled maintenance outages of the Cogeneration Facility, notice of which shall be given promptly to the Cogeneration Facility Engineer and (iii) to minimize the frequency and duration of any periods of interruption other than interruptions caused by decreased demand for Buyer's products; E. Maintain its Plant in good repair; F. (i) Deliver Condensate having the qualities specified in Appendix D from its Plant to Seller which Seller will take; (ii) allow Seller to monitor the quality of the Condensate by meters to be acquired, installed, and maintained by Seller, at its own expense, at a point outside the Plant as 17 described in Appendix B, and (iii) allow Seller to discharge within the Plant at one location specified by Buyer such Condensate which does not meet the standards of Condensate quality set forth in Appendix D; G. Make reasonable and timely efforts to inform Seller of Condensate impurities and other conditions known to Buyer relating to the steam supply that Buyer knows may be deleterious to the maintenance and operation of the Cogeneration Facility; H. Furnish, own, operate and maintain, at its expense, all steam facilities necessary for the receipt of steam from the Steam Point of Delivery to its Plant and the delivery of Condensate from its Plant to the Point(s) of Return; I. Take all reasonable and necessary steps to carry out the intent of this Agreement, including, but not limited to, (i) using its best efforts in assisting Seller to obtain any and all approvals required in connection with installation and operation and maintenance of the Cogeneration Facility, (ii) furnishing to Seller necessary easements for the term of this Agreement, and (iii) solely to the extent specified in Section 4.2 using its best efforts in assisting Seller to obtain other related approvals necessary to operate the Cogeneration Facility; provided, however, the foregoing shall not require Buyer to incur any obligation to a third party; J. Not operate, maintain, move, remove, alter, change, or interfere with the operation or maintenance of the Cogeneration Facility or any part thereof without the prior written approval of Seller. Notwithstanding the foregoing, Buyer may, but is not required to, take reasonable steps to protect the 18 Cogeneration Facility if, due to an emergency, it is not possible or reasonable to notify Seller before taking such actions. Buyer shall have no obligation to inspect any part of the Cogeneration Facility, not any responsibility for the installation, repair, maintenance, replacement, relocation, removal, or operation of any part of the Cogeneration Facility; K. Designate a Chief Plant Engineer to maintain communication with Seller's Cogeneration Facility Engineer for coordination between the Plant and the Cogeneration Facility during the term of this Agreement; L. Have the right to purchase or use steam from any source, other than the Cogeneration Facility, only at those times when the Cogeneration Facility is unable to produce and deliver, in a timely fashion, in accordance with Section 3.1 hereof steam meeting the standards specified in Appendix A hereof; and M. Make timely payments on invoices rendered by Seller for steam delivered. ARTICLE 5 TERM OF AGREEMENT 5.1 Effective Date and Term. A. Except as otherwise provided in Article 15 or 16, the term of this Agreement shall begin upon the execution of this Agreement, and shall terminate on December 31, 1997 unless the conditions precedent specified in Section 5.4 are then satisfied or compliance therewith waived. Steam supply and invoicing for steam delivered in accordance with this Agreement shall begin on the Initial Delivery Date. If the conditions precedent set forth 19 in Section 5.4 hereof are satisfied in a timely manner or compliance therewith waived, then, subject to the provisions of Section 5.3, (i) this Agreement shall continue in effect for an initial term ending twenty-five (25) years after the initial Delivery Date (the "Initial Termination Date") and (ii) unless either Party gives to the other notice of termination at least eighteen (18) months prior to the Initial Termination Date, this Agreement will continue for successive additional terms of five (5) years each (the "Extended Termination Date"); subject, however, to expiration at the end of the then current term. B. Notwithstanding the foregoing or any other provision in this Agreement, Buyer may sell the Plant to an unrelated third party, and be released from any and all liabilities and obligations hereunder (with the exception of continuing the Site lease) arising on or after the sale date if it complies with the following conditions: (1) In negotiating any sale of the Plant to a purchaser who intends to use the Plant as a manufacturing facility, Buyer agrees to include Buyer's rights and liabilities hereunder as part of the Buyer's assets being sold with the Plant and to require any purchaser of its Plant to assume all of Buyer's obligations under this Agreement, except as otherwise provided in the following sentence. The purchaser shall be obligated to pay the purchase price for steam determined in accordance with Article 6 hereof (the "Contract Price") unless it presents to Seller a bona-fide, written offer ("Offer") that it has received that is 20 then valid to supply either steam or an alternative fuel source to the purchaser in an amount not less than the amount specified in Appendix A hereof (or, in the case of an alternative fuel source, the equivalent amount of power). In the event that the purchaser submits written proof of an Offer to Seller, then Seller covenants and agrees to enter into an agreement with such purchaser amending the terms of this Agreement to meet the terms of the Offer. Failure of Seller to agree to such an amendment shall relieve Buyer of any and all obligations to include Buyer's rights and liabilities hereunder as part of Buyer's rights assets being sold with the Plant. However, in the event that Seller and the proposed purchaser of the Plant cannot reach agreement, Buyer shall give Seller the first right to purchase the Plant on the same terms and conditions as contained in the proposal submitted by Buyer's prospective purchaser. If such proposal calls for Buyer to take back any financing, Seller shall demonstrate that it has similar financial capabilities to those of Buyer's prospective purchaser or provide Buyer with additional security for the loan provided by Buyer. Furthermore, if the purchase offer includes other assets owned by Buyer at the same location, Seller shall also purchase these other assets on the same terms, if it chooses to exercise this option. Finally, if Seller does exercise this option, Buyer may also require it to purchase the Site at fair market value, if such site is not already owned by Seller. Seller shall have 10 days in which to meet such terms. If it fails to do so, Buyer may proceed with the sale of the Plant pursuant to the terms of this paragraph. 21 (2) In the event that Buyer proposes to sell the Plant to a purchaser who intends to either tear down the Plant or use it other than as a manufacturing facility, then Buyer shall give Seller ninety (90) days' prior written notice of the terms and conditions of the proposed sale. If within ninety (90) days of receipt of the notice of intended sale, Seller agrees in writing to purchase the plant on terms and conditions identical to those specified in Buyer's notice to it, then Seller shall purchase the Plant on said terms and this Agreement shall terminate on the date of sale. If Seller does purchase the Plant, Buyer shall also have the right to require Seller to purchase the Site at fair market value, if such Site is not already owned by Seller. Furthermore, if the purchase offer includes other assets owned by Buyer at the same location, Sellers shall also purchase these other assets on the same terms, if it chooses to exercise this option. If Seller elects not to purchase the Plant after having received a notice from Buyer of Buyer's intention to sell the Plant, then Seller shall have the right, exercisable only in writing within ninety (90) days of receipt of the notice of intended sale described in the preceding paragraph, to purchase the Site for its then fair market value, as determined by an appraisal of the American Appraisal Company (or similar appraisal organization), if Seller does not then own the Site. The arbitration provisions set forth in Article 18 shall be utilized to settle any dispute as regards "fair market value". If Seller does not elect on a timely basis to either purchase the Plant or the site in accordance with this Section, then Buyer may sell the Plant and the site (if then owned by Buyer) to the offerer whose offer was described in the notice of intention to sell, and this Agreement shall terminate on the date of sale unless the purchaser of the Plant assumes Buyer's obliga- 22 tions hereunder in accordance with Article 19. (3) Should Buyer decide at any point during the term of this Agreement to shut down its Plant, it will, in addition to the other options given Seller under Article 11, give Seller the right to purchase, at a purchase price mutually acceptable to both Parties, either the Plant or the steam consuming equipment prior to such shut-down. If within ninety (90) days of receipt of the notice of intended shut-down, Seller agrees in writing either to purchase the Plant or the steam consuming equipment, then Seller shall purchase said Plant for its then fair market value. If Seller does purchase the Plant, Buyer shall also have the right to require Seller to purchase the site at fair market value, if such Site is not already owned by Seller. If Seller elects not to purchase the Plant or Buyer's steam consuming equipment, it shall have the right, exercisable only in writing within ninety (90) days of receipt of notice of intended shutdown from Buyer, to purchase the Site for its then fair market value, as determined by an appraisal of the American appraisal Company (or similar appraisal organization), if Seller does not then own the site. The arbitration provisions set forth in Article 18 shall be utilized to settle any dispute as regards "fair market value". If Seller does not elect on a timely basis to either purchase the Plant, the steam consuming equipment or the Site in accordance with the provisions of this section, then (i) Seller shall have the right to remove all of its equipment prior to the date of Plant shutdown, (ii) Buyer shall have the right to require Seller to remove the Facility if Seller does not own the Site and (iii) this Agreement shall terminate on the date of such shutdown. C. At the end of the term of this Agreement, any easements, permits of other rights granted to Seller by Buyer shall terminate. 23 5.2 Buyer's Right to Purchase Cogeneration Facility and Site. Buyer shall have an option to purchase the Cogeneration Facility and the Site (if then owned by Seller) from Seller at each of the following times: (i) upon the expiration of this agreement or any subsequent renewal; and (ii) to the extent specified in Section 16.4, upon the occurrence of an Event of Default by Seller. Buyer will provide Seller six (6) months' prior notice of its intention to exercise such option other than if it elects to purchase the Facility, and the Site and upon the occurrence of an Event of Default by Seller. To the extent permitted by the pertinent contracts, Buyer shall assume all of Seller's obligations, rights and duties under all contracts for the sale of electricity and for the purchase of fuel for the Cogeneration Facility. Seller shall give Buyer all relevant information on such contracts as well as information on the operation of the Cogeneration Facility. If requested to do so by Buyer, Seller covenants and agrees to use its best efforts to obtain any consents which may be necessary in order for Buyer to assume any of Seller's contracts relating to the Cogeneration Facility. Buyer will also indemnify and save Seller harmless from all liability, loss, claims, actions or suits, including costs and attorneys' fees, arising out of those contracts solely to the extent that the liability arose subsequent to the purchase by Buyer of the Cogeneration Facility. Seller will indemnify and save buyer harmless form any and all liability, loss, claims, actions, suits or liabilities, including costs and attorneys' fees, arising out of either contracts acquired by Buyer or the operation of the Cogeneration Facility, in either case prior to the purchase by Buyer of the Cogeneration Facility. 24 The purchase price for the Cogeneration Facility and the Site (if applicable) will be their fair market value on the date of purchase as determined by appraisal pursuant to Section 16.6 hereof. All documentation for the purchase, assumption and indemnification will be subject to the reasonable review by and approval of Seller and Buyer. In determining the value of the Facility, the appraisers shall ignore the fact that the Site is lease, and shall value the Cogeneration Facility as if it sat on freehold property (i.e., with no time limit on its operation other than its remaining useful life). In other words, the value of the real estate shall be ignored. 5.3 Completion of Cogeneration Facility. Subject to Force Majeure, within twenty-four (24) months from the issuance of all required permits other than a certificate of occupancy for the Cogeneration Facility, Seller will have (i) completed evaluation of Buyer's thermal requirements for the Plant; (ii) procured equipment, designed and constructed the Cogeneration Facility and installed all equipment necessary for the Cogeneration Facility to operate; and (iii) given Buyer notice of the Initial Delivery Date, which date shall also be within thirty (30) months from the issuance of all required permits. 5.4 Conditions Precedent. The Parties' respective obligations under this Agreement are conditioned upon, and subject to the satisfaction of each of the following conditions precedent on or prior to December 31, 1987: (i) Seller's executing a contract, satisfactory to Seller, 25 for the sale by 1 of electricity from the Cogeneration Facility; (ii) Seller's obtaining a valid air quality permit from the New Jersey Department of Environmental Protection and all other necessary permits, authorizations and certifications (other than a certificate of occupancy); (iii) the Facility's obtaining the status of Qualifying Facility from FERC; (iv) Seller's obtaining financing that Seller, in its sole discretion, deems acceptable; (v) Seller's entering into a turnkey contract, to design, construct, start-up and test the Cogeneration Facility; and (vi) Seller obtaining a long-term fuel supply. Neither Party shall be liable to the other for any termination of this Agreement pursuant to this Section 5.4 unless the Party failed to discharge any obligation imposed on it pursuant to this Agreement with respect to its taking action intended to result in satisfaction of the foregoing conditions precedent. ARTICLE 6 PAYMENT CALCULATIONS 6.1 Steam Price. Calculations for steam delivered to Buyer will be made on a daily basis and totaled at the end of each month. The price for the steam delivered will be calculated as follows: Buyer's avoided Steam Price = fuel cost x (MMBTUs delivered - MMBTUs returned) x .5 Boiler efficiency where: Buyer's avoided fuel cost = The lesser of the price per million BTUs which Seller pays for natural gas under its Agreement with PSE&G or the price per million 26 BTUs which Buyer would have paid for #2 oil based on the average of 2 bids received by Buyer for delivery of such oil. Buyer shall not be required to solicit such bids unless (i) it intends to rely on the price of oil or (ii) Seller requests it do so. Boiler efficiency = .86, constant over the term of this Agreement MMBTUs delivered = integrated steam flow x enthalpy of steam (as Seller's meter) MMBTUs returned = integrated uncontaminated Condensate flow x enthalpy (at Seller's meter) The pressure, temperature and flow of the steam as well as temperature and flow of the Condensate shall be metered by Seller. The pressure and temperature of the steam shall comply with the specifications therefor set forth in Appendix A. Should Buyer and Seller mutually agree on the Alternate Site pursuant to the provisions of Section 9.2, Seller shall calculate the cost savings resulting from not having to construct the parking garage described in Section 4.1(B), which calculation shall be subject to the approval of Buyer, which approval shall not be unreasonably withheld. These savings shall be defined as the difference between (1) the cost of the parking garage and (2) the cost of acquiring the Alternate Site from Buyer plus the present value of any additional costs incurred by Seller as a result of its use of the Alternate Site including, but not limited to, the cost of running additional steam piping to Buyer's Plant, the cost of buying such pipe where necessary, and any additional steam losses resulting from longer pipe runs. Any savings realized by Seller shall be allocated 75% to Buyer and 25% to Seller. Buyer shall receive its portion of any savings pursuant to this section through an appropriate additional discount in the price of steam delivered to Buyer by Seller, such savings to be recovered by Buyer over a period of 7 years. This additional discount shall be fixed by mutual agreement between the parties once the savings have been determined by Seller. Any dispute involving the calculations under this section shall be settled by arbitration pursuant to Article 18. 6.2 Reimbursement of Power. Seller will reimburse Buyer for 190 Kilowatts at Buyer's Public Service Electric and Gas ("PSE&G") Rate, as the same may be in effect from time to time. This reimbursement will be credited on a daily basis, only while steam is being delivered to Buyer, and totaled at the end of each month. ARTICLE 7 MEASUREMENT AND METERING 7.1 Measuring Equipment. Seller will install, maintain, and operate, at its expense, instrumentation reasonably acceptable to Buyer for the measurement of steam flow, Condensate return and any other data necessary for the sale of steam to Buyer and the computation of an appropriate invoice. Buyer will have access to this instrumentation at reasonable hours upon request, but all instrument reading, calibrating and adjusting will be done only by Seller. 27 The determination of the total quantity of steam delivered to Buyer shall be made by Seller's instrumentation; however, Buyer may install its won instruments for maintaining information on the quantity of steam being delivered to it. At its own expense, Buyer shall have the right from time to time to have qualified employees of Buyer or qualified agents of Buyer (in the presence of Seller) inspect Seller's instrumentation and shall indemnify Seller from any loss of or damage to any instrumentation caused by Buyer's employees or agents inspecting the instrumentation. The charts and records from Seller's measuring equipment shall remain the property of Seller and shall be kept by Seller on file for a period of not less than four (4) years. At any time within such period Seller shall, upon request of Buyer, permit Buyer to inspect and verify records and charts from Seller's measuring equipment, together with calculations therefrom. 7.2 Testing Seller will maintain the accuracy of its instruments for measuring the quantity of steam to within plus or minus one percent (1%). Instruments will be tested periodically as necessary, but not less than every calendar quarter. If Buyer requests that any meter be tested between Seller's normal testing dates because Buyer believes that the meter may be inaccurate, Seller will arrange for the meter to be promptly tested. All instrument testing will be arranged by Seller and conducted by an independent testing service satisfactory to Seller and Buyer. 28 Seller shall arrange for the prompt repair, at its own expense, of any equipment which is shown by any test to be necessary or desirable. Seller will pay the expense of normal periodic tests; the expense of any test requested by Buyer will be paid by Buyer unless the test shows that the instruments are inaccurate by more than plus or minus one percent (1%), in which case Seller shall pay the expense of testing. Seller will give Buyer sufficient notice of any instrument test to enable Buyer or its representative to witness the test. 7.3 Corrections If any test reveals that Seller's instruments for measuring the quantity of steam are inaccurate by more than one percent (1%), and underpayment or overpayment occurs as a result thereof, the aggrieved Party is entitled to a retroactive billing adjustment as provided in Section 7.4 hereof for the actual period during which inaccurate measurements were made, if the period can be definitely determined or, if the period cannot be definitely determined, one-half of the period from the date of the last previous test of the meter but not to exceed sixty (60) days. Amounts reflecting underpayments and overpayments shall be invoiced separately and are payable immediately upon receipt of the payment invoice. 7.4 Estimates Buyer may, at its option and expense, install and operate check measuring equipment to check Seller's measuring equipment, but measurement of Seller's steam and Buyer's Condensate for the purpose of this Agreement shall be by Seller's measuring equipment only, except in cases hereinafter specifi- 29 cally provided to the contrary. Any check measuring equipment installed shall be of a standard type and shall be subject at all reasonable times to inspection or examination by Seller, but the reading, calibration and adjustment thereof and changing of charts shall be done only by the employees or agents of Buyer. If, for any reason, any portion of the measuring equipment is out of service or out for repair so that the quantity of Seller's steam or Buyer's Condensate delivered cannot be ascertained or computed from the readings thereof, Seller's steam or Buyer's Condensate delivered during the period such measuring equipment was out of service or out for repair shall be estimated and agreed upon by the parties hereto, using the first of the following methods which is feasible: (a) By using the registration of any check measuring equipment if installed and accurately registering; or (b) By estimating the quantity of delivery by averaging deliveries during the preceding periods under similar conditions, considering the power output of the Cogeneration Facility, when the measuring equipment was registering accurately. ARTICLE 8 BILLING AND PAYMENTS 8.1 Billing. On the tenth (10) day of each calendar month, Seller will deliver to Buyer an invoice for the sale of steam during the 30 preceding calendar month. Each invoice will include all necessary information for calculation of the payments pursuant to Article 6 of this Agreement. 8.2 Payment. All payments shown to be due on an invoice shall be due and payable not later than fifteen (15) days after receipt. 8.3 Interest. If Buyer fails to pay all or any portion of the disputed or undisputed amounts invoiced within the time stated in Section 8.2, Buyer shall owe interest on any unpaid portion of the invoice (other than an amount determined not to be owing), which interest shall accrue at the prime rate as set by Manufacturers Hanover Trust Company of New York from time to time, plus two percent (2%), but in no event greater than the maximum interest rate allowed by law, from the due date until paid. If interest is collected on any portion of an invoice later determined to be not properly owed, than interest shall be repaid to Seller promptly on demand therefor, together with interest on such amount at the rate specified above. 8.4 Disputes In the event that Buyer disputes an invoice, the undisputed portion of the invoice shall be due and payable within the time stated in Section 8.2 and payment of the disputed portion shall be resolved in accordance with the provisions of Article 18 regarding Arbitration of Disputes. ARTICLE 9 LEASE OF SITE AND LAND RIGHTS 9.1 Lease of Site. 31 Buyer agrees to lease to Seller, for a term expiring 120 days after termination of this Agreement, the Site, as described in Appendix E attached hereto, upon the timely satisfaction of all the conditions precedent specified in Section 5.4, at an annual lease rate of $1.00 per year. This lease shall be added to this Agreement as Appendix F once the conditions precedent in Section 5.4 have been satisfied. The Site shall consist of approximately 1.5 acres, as more fully described in Appendix E attached hereto. In addition, Buyer shall provide all necessary easements, with respect to property owned by Buyer for as long as Seller operates the Facility, to permit the installation of the Steam Interconnection Facilities; and to permit Seller to install and maintain such electrical and steam transmission facilities as shall be necessary to deliver steam or electricity or both from the Cogeneration Facility to any person other than the Buyer so long as the same do not interfere with the operation of the Plant. 9.2 Alternate Site. Buyer has requested that Seller evaluate an Alternative Site for the Cogeneration Facility. This location across Lockwood Street from the Plant, will be evaluated by Seller in good faith to determine if it is suitable for the Cogeneration Facility. Buyer recognized that Seller has a limited amount of time in which to construct the Facility, and therefore, cannot accept significant delays in obtaining approval for use of this Alternate Site. Buyer agrees that either the original Site described in Appendix E or the Alternate Site (if elected by Buyer) will be available to Seller in any case and that the final selection of 32 the Site will be made no later than February 1, 1987. Any regulatory, zoning or other approvals needed to allow Seller to use the Alternate Site will be Buyer's responsibility and must be in hand prior to February 1, 1987. If the Alternate Site is feasible in Seller's judgment, Seller agrees to purchase such Alternate Site (approximately 1.5 acres) from Buyer at the same price paid by Buyer. 9.3 Land Rights. During the term of this Agreement, each Party grants to the other Party a license for reasonable ingress and egress over the property owned or controlled by such Party to the extent the other Party reasonably deems such ingress or egress necessary in order to examine, test, calibrate or maintain the Steam Interconnection Facilities and to read meters except that (i) prior notice of such ingress or egress shall be given except in the case of an emergency, and (ii) this license shall not be deemed to establish in a Party any easement or servitude over the other Party's land, and shall expire with the expiration of this Agreement. ARTICLE 10 WATER SUPPLY; CONDENSATE RETURN 10.1 Water Supply. Buyer shall provide Seller necessary easements expiring upon the expiration of this Agreement to permit Seller to construct and operate (i) water supply facilities capable of meeting Seller's requirements for raw water (city water), and (ii) conduits, pipes and drain fixtures for the disposal of any waste water. Buyer agrees to assist Seller, at Seller's cost and 33 expense, in obtaining any other necessary permits relating to water. Seller will be responsible for the design, construction, operation and maintenance of these water supply and waste water disposal facilities and agrees to indemnify and save Buyer harmless from any loss, claims, actions or suits, including costs and attorneys' fees, arising out of the construction, operation or maintenance of said facilities. 10.2 Condensate Return. Buyer will return to the Cogeneration Facility at the point designated by Seller substantially all of the Plant's steam Condensate. Condensate shall be returned by the Buyer to the Facility, as per Appendix D. Buyer will be credited for Condensate return in accordance with Section 6.1 hereof. Buyer will construct at its own expense all pumps and pipes required to deliver Condensate to Seller from the Plant. ARTICLE 11 QUALIFYING FACILITY 11.1 Maintenance of Qualifying Facility Status. Subject to Force Majeure, Buyer agrees in each calendar year to take no less than that quantity of thermal energy from the Facility as is specified on Appendix A hereto. Should Buyer not take such quantity of thermal energy from the Facility so as to enable Seller to maintain its minimum Qualifying Facility status under PURPA, and if Seller is unable to obtain relief from regulatory authorities as regards its minimum Qualifying status, seller may, at its option, take the following steps: (i) acquire the Site at its then fair market value (if not previously 34 purchased) and (ii) obtain from Buyer any addition, easements and rights of ingress and egress over Buyer's property to conduct an affiliated thermal consuming business on property acquired by Seller. Such easements and rights of ingress and egress, however, shall be limited to those which will not unreasonably interfere with Buyer's ongoing operations. In each case, fair market value is to be determined without regard to the existence of the Facility on the Site. The price shall be calculated for raw land without improvements. Seller agrees that the foregoing options shall be its sole remedy in the event that Buyer's requirements for steam fall below the minimum annual take to ensure continued Qualifying Facility status. 11.2 Modifications in Plant's Steam Requirements. Buyer will also notify Seller ninety (90) days in advance of the installation or elimination of any major energy consuming or saving equipment in the Plant and of any material changes in its steam requirements as soon as possible (defined as more than a twenty percent (20%) change in consumption of steam from that previous week which change continues for more than fourteen (14) consecutive days). ARTICLE 12 TAXES 12.1 Obligations of Seller. Seller shall be solely responsible for any sales, use, property, income or other taxes relating to the Cogeneration Facility and its components or appurtenances or, except as otherwise provided by Section 12.3, the sale of energy produced 35 therein. 12.2 Obligations of Buyer. Buyer shall be solely responsible for any sales, use, property, income or other taxes relating to the Plant, its components or appurtenances or the sale of the products produced therein. 12.3 Joint Obligations. Buyer and Seller shall each pay one-half of any taxes imposed on the purchase or sale of steam delivered to the Plant from the Cogeneration Facility and the return of Condensate from the Plant to the Cogeneration Facility. ARTICLE 13 FORCE MAJEURE If either Party is rendered wholly or partly unable to perform its obligations under this Agreement because of Force Majeure, then, except as otherwise expressly provided herein, that Party shall be excused from whatever performance is affected by the Force Majeure solely to the extent so affected provided that: A. The nonperforming Party will give notice of such Force Majeure event as soon as possible after the occurrence, which notice may, if given by Seller, be given orally to the manager of the Plant or other person designated by Buyer in writing to receive such notice, if confirmed in writing within two business days. B. The suspension of performance shall be of no greater scope and of no longer duration than is reasonably required by the Force Majeure. In amplification and not in 36 limitation of the foregoing, a Force Majeure with respect to Seller's primary boilers and related equipment shall not excuse Seller's failure to perform unless the Force Majeure also affects Seller's back-up facilities for production of steam. C. No obligation of either Party which arose before the occurrence causing the suspension of performance shall be excused as a result of the occurrence; D. Buyer's obligation to pay Seller an amount determined pursuant to Article 6, which obligation arose prior to the occurrence of a Force Majeure, shall not be excused by Force Majeure claimed by Seller; E. If any of Buyer's equipment, or any part of its system which is necessary to allow Buyer to accept, transmit or distribute deliveries from Seller's Cogeneration Facility is damaged because of Force Majeure, the Force Majeure shall terminate at such time as Buyer is able to repair, replace, or reconstruct that portion of Buyer's system, including, without limitation, possession of all necessary materials, equipment, permits, authorizations, and licenses; F. If any of Seller's equipment, or any part of its system which is necessary to allow Seller to accept, transmit or distribute deliveries from Buyer's Plant or to enable Seller to transmit or deliver steam to Buyer, is damaged because of Force Majeure, the Force Majeure shall terminate at such time as Seller is able to repair, replace, or reconstruct that portion of Seller's system, including, without limitation, possession of all necessary materials, equipment, permits, authorizations, and 37 licenses; and G. Nothing herein shall be construed to require a Party to settle any strike or labor dispute in which it may be involved. However, in the event of a strike or labor dispute at either the Cogeneration Facility or Buyer's Plant, the affected party shall use its best efforts to maintain its operation by using management personnel when and where appropriate. Seller shall notify Buyer in writing promptly after it learns of any impending labor dispute or labor negotiations which might affect Seller's ability to perform its obligations hereunder. ARTICLE 14 INSURANCE At all times during the term of this Agreement, each of the Parties shall obtain and keep in force a comprehensive general liability insurance policy in the amount of $5,000,000. ARTICLE 15 LIABILITY AND INDEMNIFICATION 15.1 Survival of Representations and Warranties. The representations, warranties, covenants and agreements of Buyer and Seller contained in this Agreement and the respective obligations of the Parties with respect thereto shall survive the execution of this Agreement and any investigations made by or on behalf of the Parties and shall continue in full force and effect until any claims or liabilities with respect thereto shall be barred by the applicable statute of limitations or any extensions thereof. Each of the Parties agrees to give notice to the breaching Party of any breach of any such representation, warranty, covenant or agreement, describing such 38 breach in reasonable detail, as soon as practicable after the discovery thereof; provided, however, that the failure to give such notice shall not relieve the breaching Party from any liability in respect to such breach. 15.2 Indemnification. A. By Seller. Seller agrees to protect, indemnify and hold harmless Buyer and its directors, officers, employees, agents and representatives against and from any and all loss, claims, actions or suits, including costs and attorneys' fees, for or on account of injury, bodily or otherwise, to, or death of, persons, or for damage to, or destruction of property belonging to Buyer or others, resulting from, or arising out of or connected with the maintenance or operation of the Cogeneration Facility including but not limited to, the delivery of steam to Buyer and the failure of any steam delivered to Buyer to meet the specifications therefor set forth in Appendix A to this Agreement, excepting only such injury or harm as may be caused solely by the malfunction of the Plant or as may be caused solely by the fault or negligence of Buyer, its directors, officers, employees, agents or representatives. Seller shall, upon Buyer's request, defend, at its own expense, any suit asserting a claim covered by this indemnity. B. By Buyer. Buyer agrees to protect, indemnify and hold harmless Seller and its directors, officers, employees, agents and representatives against and from any and all loss, claims, actions or 39 suits, including costs and attorneys' fees, for or on account of injury, bodily or otherwise, to, or death of, persons, or for damage to, or destruction of property belonging to Seller, or others, resulting from or arising out of or connected with the ownership, maintenance or operation of the Plant, including, but not limited to, the delivery of Condensate to the Point of Return and receipt of steam from the Steam Points of Delivery, excepting only such injury or harm as may be caused solely by the fault or negligence of Seller, its directors, officers, employees, agents or representatives or as may be caused by the failure of the steam delivered to Buyer to meet the specifications therefor set forth in Appendix A to this Agreement, excepting only such injury or harm as may be caused solely by the malfunction of the Plant or as may be caused solely by the fault or negligence of Buyer, its directors, officers, employees, agents or representatives. Seller shall, upon Buyer's request, defend, at its own expense, any suit asserting a claim covered by this indemnity. C. Survival. The provisions of this Section 15.2 shall survive the expiration of the otherwise applicable term of this Agreement. ARTICLE 16 EVENTS OF DEFAULT AND REMEDIES 16.1 Events of Default by Buyer. Buyer shall be in default under this Agreement upon the happening or occurrence of any of the following events or conditions, each of which shall be deemed to be an "Event of Default" for purposes of this Agreement: (i) Buyer breaches or fails to observe or perform any of the obligations, and covenants under this Agreement other than a failure to pay any amount owed to Seller under Article 8, 40 which failure continues for thirty (30) days after written notice from Seller specifying the nature of such breach or failure and demanding that it be cured, unless such failure cannot be completely cured within thirty (30) days after said written notice, in which case an Event of Default shall exist only if Buyer does not commence and diligently pursue to sure said failure within thirty (30) days after receipt of said notice. (ii) There is an assignment for the benefit of Buyer's creditors, or Buyer is adjudged a bankrupt, or a petition is filed by or against Buyer under the provisions of federal bankruptcy laws, or the business or principal assets of Buyer are placed in the hands of a receiver, assignee or trustee, or Buyer is dissolved, or Buyer's existence is terminated or its business is discontinued in substantially all of the places in the hands of a receiver, assignee or trustee, or Buyer is dissolved, or Buyer's existence is terminated or its business is discontinued in substantially all of the places is operates; provided, however, that the events described in this paragraph (ii) shall not constitute an Event of Default or otherwise affect the validity of this Agreement so long as (a) compensation continues to be paid to Seller pursuant to Article 8 of this Agreement, (b) the terms, covenants and conditions of this Agreement on the part of the Buyer are performed, and (c) Buyer elects to have the Agreement remain in effect, in which event this Agreement shall continue to remain in full force in accordance with the terms herein contained. (iii) Buyer fails to pay, when due, the compensation due Seller as determined under Article 6 and in accordance with Article 8 of this Agreement, and such failure continues for a 41 period of thirty (30) days following receipt of Buyer of a notice from Seller of such failure. (iv) Any representation or warranty furnished by Buyer to Seller in connection with this Agreement is false or misleading in any material respect when made. 16.2 Events of Default by Seller. Seller shall be in default under this Agreement upon the happening or occurrence of any of the following events or conditions, each of which shall be deemed to be an "Event of Default" for purposes of this Agreement: (i) Seller fails to perform or observe any of its obligations under Article 3 or Section 6.2 which failure continues for a period of more than five (5) consecutive days or more than ten (10) days in any twenty (20) day period following written notice of such failure from Buyer. (ii) Seller fails to observe or perform any of its obligations under this Agreement other than those covered by clause (i) above which failure continues for thirty (30) days. (iii) There is an assignment for the benefit of a Seller's creditors, or Seller is adjudged a bankrupt, or a petition is filed by or against Seller under the provisions of any state insolvency law or under the provisions of federal bankruptcy laws, or the business or principal assets of Seller are placed in the hands of a receiver, assignee or trustee, or Seller is dissolved, or Seller's existence is terminated or its business is discontinued; provided, however, that the events described in this Paragraph (iii) shall not constitute an Event of Default or otherwise affect the validity of this Agreement, so 42 long as Seller continues to provide the services described herein, and so long as the other terms, covenants and conditions of this Agreement on the part of Seller are performed, and in such event, this Agreement shall continue to remain in full force in accordance with the terms herein contained. (iv) Any writ, lien, levy, attachment, execution, or other similar legal attachment or encumbrance attaches to the Cogeneration Facility and is not discharged within the lesser of (a) sixty (60) days or (b) the time, if any, permitted under law for discharge of such attachment or encumbrance. (v) Any representation or warranty furnished by Seller to Buyer in connection with this Agreement is false or misleading in any material respect when made. 16.3 Remedies Upon Default by Buyer. Upon the occurrence of an Event of Default by Buyer, Seller may: (i) Exercise all remedies available at law or at equity or through other appropriate proceedings including bringing an action or actions from time to time for recovery of amounts due and unpaid by Buyer, and/or for damages and expenses resulting from the Event of Default, which shall include all costs and expenses reasonably incurred in the exercise of its remedies (including reasonable attorneys' fees), and/or specific performance. (ii) Pursue, concurrently or separately, other remedies existing at law, in equity or in bankruptcy. (iii) In the event a court orders Buyer to take 43 one or more actions pursuant to this Agreement, and such action(s) is a final order which cannot be appealed, and Buyer fails to take such action(s) Seller, in addition to any other rights it may have, will have the right to purchase Buyer's Plant as its then fair market value. If Seller does exercise this option to purchase the Plant, Buyer shall have the right to require Seller to also purchase the Site for fair market value, if such Site is not then owned by Seller. Fair market value shall be established by appraisal by the American Appraisal Company (or similar organization). The provisions set forth in Article 18 shall be utilized to settle any dispute as regards fair market value. 16.4 Remedies Upon Default by Seller. Upon the occurrence of an Event of Default by Seller, Buyer may exercise one or the other of the following options: (i) Exercise all remedies available at law or at equity or through other appropriate private proceedings including, but not limited to, bringing an action or actions from time to time for recovery of amounts due and unpaid by Seller, and/or for damages and expenses resulting from the Event of Default, which shall include all costs and expenses reasonably incurred in the exercise of its remedies (including reasonable attorneys' fees), and/or specific performance, Seller acknowledges and agrees that a breach by Seller hereunder is likely to result in the curtailment by Buyer of its production at the Plant, which will result in the loss of income to Buyer if Buyer would have operated at full capacity had Seller delivered the steam which it is required to deliver pursuant hereto. Seller further acknowledges and agrees that the damages which Buyer shall be entitled to recover pursuant to 44 this paragraph include but are not limited to any income which it lost as a result of the occurrence of an Event of Default by Seller; or (ii) Collect Specified Damages from Seller upon submission of reasonable documentation with respect to their incurrence, without resorting to legal process. Specified Damages owed to Buyer pursuant to this Section shall be paid by Seller no later than ten (10) days after submission by Buyer to Seller of reasonable documentation with respect to their incurrence. Seller's failure to pay such damages to Buyer shall entitle Buyer to exercise any, all or some of the remedies specified in clause (i) above. In the event that either (a) Buyer elects option (i) above or (b) elects option (ii) above but fails to collect Specified Damages with ten (10) days demand therefor, buyer may purchase the Cogeneration Facility and the Site (if not then owned by Buyer) at their then fair market value in accordance with Section 5.2 hereof. In addition, in either such event, Buyer shall enjoy a right of first refusal with respect to the Cogeneration Facility, and the Site (if then owned by Seller) and Seller shall give Buyer ninety (90) days' written notice of any offer which notice shall specify the terms and conditions of the proposed sale. Buyer shall have the right, exercisable within thirty (30) days of receipt of said notice, but not the obligation, to purchase the Cogeneration Facility, and the Site (if applicable) on the terms and conditions specified in the notice. 16.5 Remedies. Except as specifically limited in this Agreement, each 45 and every right, power and remedy of a Party, whether specifically stated in this Agreement or otherwise existing, may be exercised from time to time and so often and in such order as may be deemed expedient by the exercising Party, and the exercise or the beginning of the exercise of any right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right, power or remedy. No delay or omission of a Party in the exercise of any right, power or remedy shall impair or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing. 16.6 Fair Market Value. If Buyer exercises its option under Section 5.2, the fair market value of the Cogeneration Facility and the Site (if applicable) shall be determined as of the time immediately before the Event of Default or option by appraisal of the American Appraisal Company (or similar appraisal organization). The arbitration provisions set forth in Article 18 shall be utilized to settle any dispute as regards "fair market value". ARTICLE 17 SELLER'S FINANCING Buyer recognizes that Seller will be obtaining financing to construct the Cogeneration Facility from one or more financial institutions and hereby agrees to provide Seller with any documents and records Seller may reasonably request in connection with Seller's efforts to obtain financing. Buyer agrees to provide financial statements to the extent that they are available but shall not be required to provide copies of its tax returns. 46 Seller recognizes that Buyer has granted mortgages on the Plant and land associated therewith. Buyer covenants and agrees to use its best efforts to obtain an amendment to such mortgage allowing it to lease the Site to Seller pursuant to the terms hereof. In the event that Buyer fails to _______ an amendment on the mortgage granted to First Fidelity Bank, N.A., New Jersey, it shall be relieved from any and all liability hereunder. Seller's rights to purchase the Plant pursuant to the terms of this Agreement shall be subject to and subordinate to any rights granted to mortgagees in such mortgages. ARTICLE 18 ARBITRATION Any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall be settled by arbitration in Philadelphia, Pennsylvania, by a panel of three arbitrators in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The expenses of the arbitration shall be borne by the unsuccessful Party unless the arbitration award shall otherwise provide. ARTICLE 19 ASSIGNABILITY Except as herein provided to the contrary, the rights and duties of Buyer and Seller under this Agreement are not assignable or delegable by either Party without the express written consent of the other, which consent will not be unreasonably withheld. Buyer and Seller may each mortgage, hypothecate, 47 pledge or encumber its interest in this Agreement, and, in the case of the Seller, in the Cogeneration Facility and Site if then owned by Seller, to any financial institution lending funds for construction or improvement of the Plant or the Cogeneration Facility. This Agreement is binding on all of Buyer's and Seller's respective successors and assignees. ARTICLE 20 NOTICE Unless otherwise specified, all notices required to be given under this Agreement, unless otherwise specified will be in writing and delivered or mailed by certified mail, return receipt requested, to the respective parties at the following addressees or at any address designated by the parties in writing: If to Buyer: Newark Boxboard Co. 57 Freeman Street Newark, New Jersey 07105 Attention: Edward K. Mullen with a copy to: Benedict M. Kohl, Esq. ` Lowenstein, Sandler, Brochin, Kohl, Fisher & Boylan, P.C. 65 Livingston Avenue Roseland, New Jersey 07058 If to Seller: O'Brien Cogeneration IV, Inc. Green and Washington Streets Downingtown, Pennsylvania 19335 Attention: Jeffrey D. Barnes, Executive Vice President with a copy to: Robert J. Rauch, Esq. 10075 Tyler Place, #17 Ijamsville, Maryland 21754 48 ARTICLE 21 WAIVER AND MODIFICATION 21.1 Waiver. No Party will be deemed to have waived any of its rights under this Agreement unless a waiver signed by an officer of the waiving Party is delivered to the other Party. Any waiver of a right under this Agreement will be narrowly construed and will be deemed to relate only to the specific right and the specific instance set forth in the waiver notice. 21.2 Modification. This Agreement may only be modified by a written instrument signed by both Buyer and Seller. ARTICLE 22 SEVERABILITY AND RENEGOTIATION 22.1 Severability. Should any part of this Agreement, for any reason, be declared invalid, such decision shall not affect the validity of the remaining portions, which remaining portions shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminate, and it is hereby declared the intention of the Parties hereto that they would have executed the remaining portion of the Agreement without including therein any such part, parts or portion which may for any reason be hereafter declared invalid. 22.2 Renegotiation. Notwithstanding the provisions of Paragraph 22.1, should any term or provision of this Agreement be found invalid by any court or regulatory body having jurisdiction thereover, 49 the Parties shall immediately renegotiate in good faith such term or provision of the Agreement to eliminate such invalidity. ARTICLE 23 SEVERAL OBLIGATIONS Except where specifically stated in this Agreement to be otherwise, the duties, obligations and liabilities of the Parties are intended to be several and not joint or collective. Nothing contained in this Agreement shall be construed to create an association, trust, partnership or joint venture or impose a trust or partnership duty, obligation or liability or agency relationship on or with regard to either Party. Each Party shall be individually and severally liable for its own obligations under this Agreement. ARTICLE 24 GOVERNING LAW This Agreement will be governed by and interpreted in accordance with the laws of the Commonwealth of Pennsylvania. ARTICLE 25 ENTIRE AGREEMENT; COUNTERPARTS This Agreement, together with the attached Appendices, supersedes any and all previous Agreements the Parties hereto may have had with respect to any matters relating to the subject matter of this Agreement. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument. 50 ARTICLE 26 CAPTIONS All indices, titles, subject headings and similar items, are provided for the purpose of reference and convenience only and are not intended to affect the meaning, content or scope of this Agreement. ARTICLE 27 EMPLOYEE DISPLACEMENT In an effort to assist Buyer in minimizing employee layoffs or discharges which may result from the Parties entering into this Agreement, Seller shall make a good faith effort to employ those employees of Buyer directly displaced due to Buyer's discontinuing its own steam production where such employees have the requisite skills and experience to be considered for available positions at the Cogeneration Facility. ARTICLE 28 GUARANTEE BY O'BRIEN ENERGY SYSTEMS O'Brien Energy Systems, Inc., will execute as Appendix F an appropriate guarantee of Seller's obligations under this Agreement. This guarantee will continue in full force and effect for the duration of this Agreement, unless Buyer and Seller mutually agree to terminate it. If Agreement is reached at some future time to release to guarantee, it will have no further force or effect. 51 IN WITNESS WHEREOF, the Parties have executed and delivered multiple originals of this Agreement as of the date set forth below. ATTEST: NEWARK BOXBOARD CO. By: /s/ By: /s/ William D. Harper Name: Name: William D. Harper Title: Assistant Controller Title: Vice President Date: Date: 10/7/86 ATTEST: O'BRIEN COGENERATION IV, INC. By: /s/ Sanders D. Newman By: /s/ Jeffrey Barnes Name: Sanders D. Newman Name: Jeffrey Barnes Title: Secretary Title: Exec. V.P. Date: 10/7/86 Date: 10/7/86 52 APPENDIX A STEAM REQUIREMENTS AND PRODUCTION PARAMETERS Required Maximum Output of Steam: 60,000 pounds per hour. Minimum Required Purchase of Steam Per Annum: 201,000,000 pounds. All steam shall have a nominal temperature of between 327.8 degrees Farenheit and 335 degrees Farenheit and shall be delivered at between 85 and 90 psig. All properties of Steam and Condensate shall be as defined by ASME Steam Tables (1967 edition) at the conditions measured by Seller's meters. 53 APPENDIX B INTERCONNECTION POINTS OF DELIVERY AND RETURN The location of Seller's steam and condensation meters will be outside Buyer's Plant. 54 APPENDIX C PERMITS TO BE OBTAINED BY SELLER Fuel Use Act Exemption Air Quality Permit to Construct Federal Energy Regulatory Commission Certification Local Zoning Permits (subject to Section 9.2) Local Siting Permits (subject to Section 9.2) Construction Permits 55 APPENDIX D CONDENSATE QUALIFY STANDARDS Within three (3) months of the signing of this Agreement, al minimum of four (4) samples of process Condensate will be taken and analyzed. The Condensate will be analyzed for the following properties and contents: (1) conductivity (2) hardness (3) silica (4) organics (5) sodium (6) iron (7) total dissolved solids and (8) total suspended solids The average value yet to be determined of all samples taken will be used as the basis for establishing contamination limits for Condensate return. The samples will be as representative as possible of the Condensate that will be returned to the Cogeneration Facility and will be mutually agreed upon by Buyer and Seller. Also, the procedures for taking and analyzing the samples as well as the laboratory used to test the samples will be mutually agreed upon by Buyer and Seller. All reasonable costs associated with these Condensate samples will be borne by Seller. 56 APPENDIX E DESCRIPTION OF SITE See attached diagram. A metes and bounds description of the Site will be prepared by the Parties upon completion of a survey of Buyer's property. 57 [INSERT DIAGRAM] 58 APPENDIX F GUARANTY In order to induce Newark Boxboard Co. ("Boxboard") to enter into a Steam Purchase Agreement, dated October 3, 1986, ("Agreement") with its wholly owned subsidiary O'Brien Cogeneration IV, Inc. ("Company"), the undersigned ("Guarantor") guarantees to Boxboard the due and punctual performance by the Company of all of its obligations pursuant to the Agreement ("Obligations"). Capitalized terms defined in the Agreement and not defined herein shall have the same meanings when used herein. In addition, the undersigned covenants and agrees to cause the Company's Tangible Net Worth (as herein defined), including any interest that the Company may have now or at any time during the future in the Cogeneration Facility and the Site net of its liabilities with respect thereto, to equal or exceed Three Million Dollars ($3,000,000) at all times during the term of the Agreement, including any extensions thereof (collectively, the "Term). For purposes of this Guaranty. "Tangible Net Worth" shall mean total "assets" less total "liabilities" of the Company, except that there shall be excluded therefrom all intangible assets including, without limitation, organizational expenses, patents, trademarks, copyrights, goodwill, covenants not to compete, research and development costs, training costs, treasury stock, all unamortized debt discounts and deferred charges. For purposes of this definition, "assets" and "liabilities" shall be determined in accordance with generally accepted accounting principles, consistently applied. 59 Guarantor covenants and agrees that it will 1.) at all times during the Term own 100% of the outstanding stock issued by the Company and 2.) furnish to Boxboard within 90 days after the close of each fiscal year of Company a financial statement of the Company for such fiscal year, prepared in accordance with generally accepted accounting principles and certified as to accuracy by the chief accounting officer of Guarantor. Guarantor agrees further that this Guaranty and its liability hereunder shall not be impaired or affected by any modification, supplement, extension or amendment of the Agreement to which the parties thereto may hereafter agree, nor by any modification release or other alteration of any of the Obligations hereby guarantees, nor by any other agreements or arrangements whatever with the Company or anyone else. The liability of Guarantor hereunder is direct and unconditional and may be enforced without requiring Boxboard first to resort to any other right, remedy or security. Guarantor shall not have any right of subrogation, reimbursement or indemnity whatsoever, unless and until all of said Obligations have been paid or performed in full. This guaranty is a continuing Guaranty which shall remain effective during the Term. Nothing shall discharge or satisfy the liability of Guarantor hereunder except the full performance of all of the Company's Obligations. Guarantor also agrees to indemnify Boxboard and hold Boxboard harmless against all obligations, demands and liabilities, 60 by whomever asserted, and against all losses in any way suffered, incurred or paid by Boxboard as a result of or in any way arising out of, or following, or consequential to a breach by the Company of any of its Obligations and to pay all costs and expenses, including reasonable attorneys' fees, of any proceeding to enforce this Guaranty. Guarantor waives: notice of acceptance hereof; the right to a jury trial in any actin hereunder; presentment and protest of any instrument, and notice thereof; notice of default; and all other notices to which such Guarantor might otherwise be entitled. Failure of Guarantor to pay any amount required to be paid by it to Boxboard within thirty days of demand therefor shall constitute an Event of Default hereunder. The occurrence of any of the following shall also constitute an Event of Default hereunder (a "Guaranty Event of Default"): There is an assignment for the benefit of creditors of Guarantor, or Guarantor is adjudged a bankrupt or a petition is filed by or against Guarantor under the provisions of any state insolvency law or under the provisions of federal bankruptcy laws, or the business or principal assets of Guarantor are placed in the hands of a receiver, assignee or trustee; or Guarantor is dissolved. 61 This Guaranty, all acts and transactions hereunder, and the rights and obligations of the parties hereto shall be binding upon successors and assigns of Guarantor, may not be changed or modified orally, and shall inure to the benefit of Boxboard's successors and assigns. ATTEST: O'BRIEN ENERGY SYSTEMS, INC. /s/ Sanders D. Newman By: /s/ Jeffrey Barnes Secretary 10/7/86 Title: Exec. V.P. 10/7/86 Dated: as of October 3, 1986. 62 EX-10.16.1 10 EXHIBIT 10.16.1 OPERATING AND MAINTENANCE AGREEMENT DATED MAY 1, 1996 BETWEEN NRGG NEWARK AND STEWART & STEVENSON OPERATIONS, INC. Exhibit 10.16.1 NRG GENERATING (NEWARK) COGENERATION INC./ STEWART & STEVENSON OPERATIONS, INC. OPERATING AND MAINTENANCE AGREEMENT This System Operating and Maintenance Agreement ("Agreement") is made as of the 1st day of May 1996 between NRG Generating (Newark) Cogeneration Inc., a Delaware corporation ("Owner"), and Stewart & Stevenson Operations, Inc., a Delaware corporation ("Operator"), having its principal place of business at Houston, Texas, whose obligations hereunder shall be fully guaranteed by STEWART & STEVENSON SERVICES, INC. ("SSSI"), pursuant to a Guarantee in the form of Appendix I. Owner (formerly named "O'Brien (Newark) Cogeneration, Inc.") and Operator entered into an Operation & Maintenance Contract dated as of April 1, 1994 with respect to the System (as defined below), a copy of which is attached as Appendix II (the "Existing O&M Agreement"). In connection with the bankruptcy of Owner's parent, the existing Electricity Purchase Agreement between Owner and Jersey Central Power Light Company relating to the System has been amended with the Third Amendment to the Power Purchase Agreement (as defined below). Owner and Operator have renegotiated the terms and conditions of the Existing O&M Agreement and desire to replace it with this Agreement effective upon the Effective Date. In consideration of the foregoing and the mutual covenants and benefits contained herein, the parties hereby agree as follow: I. DEFINITIONS In this Agreement the following terms have the associated meaning: 1 . Affiliate - With reference to a specified person, any other person or entity, directly or indirectly through one or more intermediaries, which controls, is controlled by, or is under common control with, such person. A person or entity is controlled by another person or entity if the second person or entity holds a sufficient number of securities in the first person or entity to elect a majority of the directors of the first person or entity. 2. Agent - The agent for the lenders under the Financing Agreements. 3. Amended Power Purchase Agreement - The Amended Power Purchase Agreement for Purchase and Sale of Electric Power, dated April 30, 1996, between Owner and Jersey Central Power & Light, a copy of which Is attached as Appendix III hereto. 4. Annual Operating Plan and Budget - As set forth In Article VI, Section 6. 5. Bonus - As set forth in Exhibit A. 6. Change - Shall mean any of the following that are proposed by one party to the other by a written notice to the other party: (i) a change in the then current Annual Operating Plan and Budget: (ii) a change in connection with the services to be provided by Operator hereunder (iii) a change made necessary to avoid injury to persons or property or to mitigate losses as a result of the occurrence of an Emergency; and (iv) a change enabling Operator to accomplish or contract for a Major System Repair. 7. Change Order - Shall mean the written approval of a proposed Change and the related Change Order Budget Statement by Operator and Owner as further provided for In Article VI, Section 7(b). 8. Change Order Budget Statement - Shall mean the statement prepared by Operator pursuant to Article VI, Section 7(b) with respect to a proposed Change setting forth In reasonable detail: (i) the direct cost or savings to Owner of the proposed Change; (ii) the indirect costs or savings of the proposed Change, including without limitation, any loss of electricity revenues or steam host revenues and any increased insurance, operating. maintenance or other costs during or following the implementation of the proposed Change; (iii) changes in the operating efficiency of the System; and (iv) any other material effect on the operation, maintenance, efficiency or profitability of the System or the provision of the services hereunder. 9. Contract Year - As set forth in the Amended and Restated Power Purchase Agreement. 10. Effective Date - May 1, 1996. 11. Emergency - Any event or occurrence which in the judgment of Operator or Owner, as the case may be, requires immediate action and which constitutes a serious hazard to the safety of persons or property or may materially Interfere with the safe, economical, lawful or environmentally sound operation of the System. 12. Event of Default - As set forth in Article XII. 13. Existing O&M Agreement - As set forth in the Recitals. 14. Expenses - As set forth in Article VI, Section 2. 15. Financing Agreements - Any loan, lease financing, security, of related agreements entered into at any time by and among owner and the lending institutions providing financing for the System. 16. Force Majeure - Unforeseeable causes beyond the reasonable control of and without the fault or negligence of the party claiming Force Majeure, including but not limited to acts of God, strike, flood, earthquake, storm, fire. lightning. epidemic, war, riot, civil disturbance, sabotage, change in low or applicable regulation subsequent to the date thereof and action or inaction by any federal, state or local legislative, executive, administrative or judicial agency or body which, in any of the foregoing cases, by exercise of due foresight such party could not reasonably have been expected to avoid, and which by the exercise of due diligence, it is unable to overcome. 17. Legal and Contractual Requirements - All: a. Laws, permits, approvals, regulations or orders of governmental authorities applicable to the Amended and Restated Power Purchase Agreement, the System. Owner's obligations under this Agreement as owner of the System and Operator's scope of work hereunder; b. Provisions of the System Contracts; c. Agreements, warranties and specifications of Operator's or Owner's suppliers or vendors; and d. Operating and maintenance manuals and procedures furnished by Owner applicable to the System or the components thereof (such operating manuals to reflect Sound Independent Power Industry Practice). 2 l8. Liquidated Damages -As set forth in Exhibit A. 19. Major System Repair The inspection, overhaul, repair or replacement of any piece of equipment needed to operate the System where such inspection, overhaul, repair or replacement is the result of: (i) an unscheduled breakdown, repair, or failure of such equipment or (ii) a scheduled inspection, overhaul, repair or replacement of such equipment (union the inspection, overhaul, repair or replacement has been incorporated into the Annual Operating Plan and Budget) and further that such inspection, overhaul, repair or replacement shall have a cost in excess of $10,000, which includes labor and material costs, and shall be adjusted each year by the increase or decrease in the Producer Price Index. Equipment shall include the gas turbines, the generators, boilers, heat steam recovery generators, chillers, load gears, exhaust ducting, emissions equipment. water and waste water treatment, fuel treatment facilities and interconnection facilities; provided, however, that a Major System Repair shall not include the replacement of accessories, equipment and consumables required in the ordinary course of Routine Maintenance and preventative maintenance of the System reflecting Sound Independent Power Industry Practice. 20. Operating Fee - As set forth in Article VI Section 1. 21. Owner's Plan of Operation - Owner's instructions to Operator as to the desired electricity and/for thermal energy production schedule and other operating and maintenance objectives. 22. Owner's Representative - As set forth in Article V. Section 1 (a). 23. Producer Price Index - The U.S. Producer Price Index for All Item, as currently published in the United States Department of Labor Bureau of Labor Statistic's monthly publication, PPI Detailed Report or any successor publication of such information, or if such index is no longer published or the method of computation thereof is substantially modified, a mutually agreeable alternative index. 24. Proprietary Information - All financial, technical and operating information which the parties, directly or indirectly, acquire from each other, and any other information which a party expressly designates in writing to be confidential. However, Proprietary Information shall exclude information failing into any of the following categories a. Information that, at the time of disclosure thereof, is in the public domain; b. Information that, after disclosure thereof, enters the public domain other than by breach of this Agreement; c. Information that prior to disclosure thereof, was already in the recipient's possession, either without limitation on disclosure to others or subsequently becoming free of such limitation; d. Information obtained by the recipient from a third party having an independent right to disclose such information; e. Information that is available by independent research without use of or access to the Proprietary Information acquired from the other party; and 3 f. Information that a party is required by low or governmental action to disclose, provided the disclosing party notifies the party from whom the information originated in advance and gives it the opportunity to resist the order. 25. Routine Maintenance - Those activities including the replacement of accessories, equipment, and consumables required in the ordinary course of routine and preventative maintenance of the System and System site in accordance with Sound Independent Power Industry Practice. 26. Sound Independent Power Industry Practice - Those prudent practices and methods in effect at the time of performance that am customarily followed by operators of similarly situated plants and equipment. 27. System - Owner's properties, plant and equipment located in Newark, New Jersey, including a single gas turbine combined cycle generating station with a nominal capacity of 52 megawatts, more fully defined in Exhibit B. 28. System Contracts - Contracts and agreements to which Owner is a party (including, without limitation, insurance policies) relating to the operation and maintenance of the System, set forth an Exhibit C, which Exhibit shall be amended by Owner to provide a more comprehensive list on or before June 15, 1996. II. ENGAGEMENT OF OPERATOR 1. Effective on the Effective Date, Owner engages Operator to operate and maintain the System and perform certain duties, all as hereinafter set forth in this Agreement, and Operator accepts such engagement to operate and maintain the System and perform the duties specified in this Agreement in accordance with its terms and conditions. 2. All operating and management personnel involved in the operation and maintenance of the System shall be employees of Operator or its Affiliates and shall not for any purposes be deemed employees of Owner. III. TERM The term of this Agreement shall become effective upon the Effective Date and expire on the sixth (6th) anniversary of the Effective Date, unless terminated earlier in accordance with Article XII of this Agreement. IV. OPERATING AND MAINTENANCE DUTIES OF OPERATOR 1. Subject to the terms of this Agreement Operator shall operate and maintain the System and shall control the details and means of performing its obligations hereunder. 2. For the period prior to and including the Effective Date, Operator shall assist Owner in preparing the System for operation under the Amended Power Purchase Agreement. These services will include but not be limited to: a. Preparing a plan and schedule to staff the System; b. Recruiting and training the staff which will operate and maintain the System; c. Responding, in a timely manner, to Owners requests for information; 4 d. Procuring, as agent for Owner, replacement of stock of consumables, spare parts, tools, and supplies in accordance with the Annual Operating Plan and Budget; e. Appointing a plant manager (subject to Owner's approval) who shall supervise the performance of Operators employees at the System site; f. Reviewing plans, specifications and drawings of machinery and equipment layouts and commenting to Owner thereon with regard to matters affecting operation and maintenance; g. Observing and receiving training and instructions from Owner, such training and instructions to be in accordance with Sound Independent Power Industry Practice; h. Performing for Owner such other services as may from time to time be reasonably requested or are reasonably necessary or appropriate in connection with the operation and maintenance of the System; and i. Reporting to and consulting with Owner about the operation of the System on a scheduled basis, as reasonably requested by Owner. Such services shall be provided in a manner consistent with all Legal and Contractual Requirements, Sound Independent Power Industry Practice and the Annual Operating Plan and Budget. 3. All full time personnel whom Operator will provide for the operation and maintenance of the System shall be at the site and available full time for training and to perform services to support System operation and maintenance as required by the staffing plan to be developed by Operator and approved by Owner. 4. A written management program shall be developed by operator for approval by Owner to ensure optimal performance, responsiveness, and cost-effectiveness in the operation and maintenance of the System. The program shall include provisions regarding: a. Budget tracking, analysis and adjustments; b. Personnel policies, including policies regarding payroll, compensation, pensions and other benefits; c. Training; d. Purchasing and inventory control; e. A System safety and health program which will include procedures and a manual; f. An employee job-site handbook for Operator's employees operating and maintaining the System; g. A maintenance planning and scheduling system; and h. A system for maintaining an inventory of consumables, spare parts, tools and supplies. 5 5. Subsequent to the Effective Date, Operator shall provide all operations and maintenance services necessary to efficiently operate and maintain the System, including but not limited to performing the following operating and maintenance services: a. Operating and maintaining the System in compliance with all Legal and Contractual Requirements, Sound Independent Power Industry Practice and the Annual Operating Plan and Budget; b. Obtaining and maintaining in effect all licenses and permits required by law to be obtained and maintained in Operator's name and assisting Owner in obtaining and renewing all licenses and permits required by low to be obtained and maintained by Owner or in Owners name; c. Paying all employees of itself and its Affiliates, agents and subcontractors promptly and filing all reports and remitting all payments required under labor statutes to the appropriate governmental authorities, as the obligations arise: d. Conducting the operations and maintenance of the System including, but not limited to. entering into contracts with third parties as agent for Owner (subject to Owner's approval if not in the ordinary course of business); e. Employing, and ensuring adequate training of, Operator employees and employees of its Affiliates (duly licensed where required by statute or regulation) for the operation and maintenance of the System consistent with Sound Independent Power Industry Practice, and planning and administering all matters pertaining to employee relations, salaries, wages, working conditions, hours of work, termination of employment, employee benefits, employee staffing. safety and related matters pertaining to such employees, and maintaining records with respect to all such matters; f. Monitoring, preparing and maintaining records of the operations and maintenance aspects of the System (including records of financial, business, and sales tax aspects of the System) in such form and covering such matters as Owner may reasonably request, consistent with Sound Independent Power Industry Practice, generally accepted accounting principles, and applicable records retention requirements; and making such records available for inspection and/or audit by Owner and Owner's designees; g. Implementing an inventory control system to identify, catalog, and disburse spare parts for the maintenance of the System and procuring, as agent for Owner, replacement spare parts and refurbishing. where practical or economical, spare parts to allow their reuse; h. Operating and maintaining the System according to the operations and maintenance programs prepared by Operator for Owner and, if necessary, creating updates for such programs and creating new programs as required for operation and maintenance of the System; i. Operating and maintaining the System to maximize the continuous, reliable, safe and efficient generation of electrical and/or thermal energy by the System so as to conserve fuel and financial resources and to minimize unscheduled outages, and providing maintenance for the System in a cost-effective manner to prevent deterioration beyond normal wear and tear provided, however, that Owner acknowledges such efforts shall necessarily be limited by the operating life, capacity and maintenance requirements of the system and by Legal and Contractual Requirements; 6 j. Using all reasonable care necessary to keep the System and the System site clean, orderly, and free from debris, rubbish or waste to the extent consistent with the operation of the System; k. Taking necessary precautions and corrective actions in the event of an Emergency; l. Keeping the System and the System site free and clear of all liens and encumbrances arising out of the acts, omissions, or debts of Operator or its employees, agents or subcontractors claiming by, through or under Operator (this subsection shall not apply to mechanics liens and liens of any nature arising by operation of law, provided such liens are promptly removed by the payment of the debts they secure when due; in the event of a dispute between Operator or its subcontractors and a lienholder, Operator's obligation to Owner pursuant to this provision may be satisfied by the posting of an appropriate bond to the extent acceptable to the Agent); m. Within 30 days of its receipt of Owner's Plan of Operation submitted in accordance with Article V, Section 1 (c), preparing and submitting to Owner for Owner's approval a written proposed Annual Operating Plan and Budget which shall include all anticipated Expenses of the System to be paid by Owner for each succeeding calendar year, all as more fully described in Article VI, Section 6 or required by the Agent; n. Reporting to and consulting with Owner about the operation of the System on a scheduled basis, as reasonably requested by Owner; o. Using reasonable commercial efforts to secure from vendors, suppliers and subcontractors the best indemnities, warranties and guarantees as may be commercially available regarding supplies. equipment and services purchased for the System, all of which shall be assigned to Owner (Operator shall render reasonable assistance to Owner for the purpose of enforcing such indemnities, warranties or guarantees of which Owner is a beneficiary regarding the System); p. Performing for Owner such other services as may from time to time be reasonably requested or are necessary or appropriate in connection with the operation and maintenance of the System; q. Promptly notifying Owner of: i. Any condition, event or act which is likely to result in a material deficiency in budgeted revenues, or excess in budgeted costs, of Owner; ii. Any forced outages or significant malfunction of the System as soon as practicable; iii. Any material failure to comply with any Legal and Contractual Requirements or any event which is reasonably expected to cause such material failure; r. Promptly providing Owner with such information relative to the System as Owner may reasonably request; S. Establishing an effective maintenance planning and scheduling system to optimize the availability, reliability and heat rate of the System; 7 t. Assisting Owner in the compliance by Owner with the terms of the Financing Agreements, as they relate to the operation and maintenance of the System, including the preparation of reports concerning operations and making personnel available for discussions with the Agent or other lender representatives; u. Subject to Article XI, assisting Owner in selling or otherwise disposing of used and/or unneeded parts and supplies; and v. Providing and maintaining written procedures, in a form reasonably acceptable to Owner, required to enable Operator's employees to safety and efficiently startup, operate, and shut down the System equipment and to perform preventive maintenance on the System equipment. c. V. RESPONSIBILITIES OF OWNER 1. Subject to the terms of this Agreement, Owner shall, at its cost and expense, perform and provide the following at the times required to support the start-up, operation and maintenance of the System: a. Providing an Owner's Representative who shall represent and bind Owner in all matters regarding this Agreement and the performance of Owner hereunder; b. Providing the System and System site free and clear of all liens and encumbrances (except for any liens or encumbrances in favor of Agent or the lenders under the Financing Agreements); c. Preparing the Owner's Plan of Operation and delivering the same to Operator on or before September 1 of each year; d. With Operator's assistance, administering all System Contracts; e. Providing all required utility services, including water, sewer, gas, telephone, water/wastewater treatment, waste disposal, special waste disposal and electricity; f. With operators assistance, obtaining and reviewing all necessary licenses and permits except those required by law to be obtained and maintained in Operator's name; g. Providing manufacturer's operating and maintenance manuals for the System; h. With Operator's assistance, preparing and submitting any special accounting and reporting documents that may be required by governmental authorities; i. Providing at its own expense, an office at the site for use by Operator j. Within five days of its receipt thereof, providing Operator complete copies of all technical, operational and other System and System site related information, including the System Contracts, as are in the possession, or under the control of Owner; k. Being responsible for the billing and collection of electricity revenues under the Amended Power Purchase Agreement and thermal revenues under the Steam Purchase Contract with Newark Boxboard; 8 l. Being solely responsible for obtaining, maintaining and renewing all licenses and permits necessary for (i) Owner to do business in the jurisdictions in which the System is located and (ii) the ownership, operation and maintenance of the System and System site; m. Being responsible for arranging the disposal of hazardous wastes generated by or at the System or System site: provided, however, that Operator will coordinate removal of such waste from the System site using subcontractors chosen by Owner; n. Complying with, and diligently enforcing, all agreements (including the System Contracts) to which Owner is a party and which relate to or impact upon the System or Operator's ability to perform its obligations hereunder; and o. Timely paying all of Owner's vendors, suppliers and contractors. Such activities shall be provided in a manner consistent with all Legal and Contractual Requirements, Sound Independent Power Industry Practice and the Annual Operating Plan and Budget. VI. EXPENSES, REIMSURUMENTS, BUDGET, CONSIDERATION, COMPENSATION 1. As compensation to Operator for its performance of the Services, Owner shall Pay operator (a) the Expenses incurred by Operator and (b) an annual fee ("Operator's Fee"). The Operator's Fee for the first Contract Year shall be $150,000. The Operator's Fee shall be payable in equal monthly installments in arrears. The Operator's Fee shall be adjusted annually in accordance with the following sentence. For each Contract Year after the first Contract Year, the Operator's Fee shall be equal to the product of: (i) the ratio of the Producer Price Index for the lag month of the then expiring Contract Year over the Producer Price Index for the last month of the previous Contract Year and (ii) the Operator's Fee for the then expiring Contract Year, provided, however, that for any partial Contract Year, the Operator's Fee shall be multiplied by a fraction, the numerator of which shall be the total number of days in such Contract Year and the denominator of which shall be 365 or 366, as the case may be. If Operator falls to pay accrued, undisputed Liquidated Damages in any Contract Year in accordance with the provisions herein, Owner may elect to reduce the Operator's Fee in the subsequent Contract Year by the amount of undisputed Liquidated Damages owed to Owner. 2. Owner shall directly pay, or promptly reimburse to Operator as the case may be, the following expenses ("Expenses") relating to the System: a. Insurance and bond premiums for policies which are required by Article VIII hereof; b. Property, and other taxes (including, without limitation, sales taxes, gross receipts taxes, value added taxes. energy taxes and capital taxes) related to Owner or the System, but not including those based an Operator's income or capital; c. The base salaries, straight time hourly wages and overtime hourly wages of all of Operator's on-site personnel plus (i) thirty eight percent (38%) of (x) the base salaries and straight time hourly wages and (y) the straight time hourly portion of the actual overtime wages for all hourly employees, and (ii) five percent (5%) of the base salaries, straight time hourly wages, and overtime hourly wages. 9 d. Transportation, travel, lodging, and (for employees newly hired or newly assigned to the System site) relocation expenses of persons employed by Operator or its Affiliates performing the duties of Operator under this Agreement subject to advance approval by Owner in writing; e. Reasonably incurred legal and accounting fees relating to the System, subject to advance approval by Owner in writing; f. Fuel expenses including fuel purchase, transportation, handling and demurrage charges; g. The expenses of purchased electric power, telephone and other communication services, purchased potable water. waste disposal, special waste disposal, lubricants and chemicals necessary for the operation of the System; h. Costs reasonably incurred or paid by Operator due to an Emergency; i. Training, including outside training services; j. The costs of permits or licenses required for either Owner, Operator or the System; k. Costs associated with Routine Maintenance, Major System Repairs (including scheduled and unscheduled) inspections, and overhauls, outside contractor services and purchases of replacement equipment, parts and components; l. Spare parts, tools, supplies and consumables; m. Capital costs approved by Owner for improvements, alterations or additions to the System including those required by governmental laws, regulations or orders including without limitation, those arising from environmental concerns; and n. The cost of transportation of spare parts, tools, supplies, consumables and any item which is a reimbursable expense hereunder. For all Expenses (other then relating to labor, legal and accounting fees) incurred and paid by operator for which Operator is entitled to reimbursement hereunder, Owner additionally shall pay Operator a general and administrative expense fee of five percent (5%) of such Expenses. 3. a. For convenience and in order to save on expenses, Owner will directly pay certain Expenses reimbursable to Operator as set forth in the Annual Operating Plan and Budget described in Article VI, Section 2 as practicable. To the extent reasonably practical, the items covered by such Article VI, Section 2 shall be procured through Operator's issuance of an Owner purchase order and the cost of any such items shall be paid directly by Owner to the vendor thereof. Operator shall perform such duty as owner's agent. b. Without Owners prior approval, Operator shall be empowered to prepare and issue an Owner purchase order for any material or service the cost of which would constitute an Expense, so long as the total cost for such item is less than or equal to $10,000. For any item or items whose total cost is greater than $10,000, Operator shall submit a written requisition to Owner, and after receipt of written approval from Owner, Operator shall be authorized as agent for Owner to prepare and issue a purchase order on behalf of Owner on Owner's purchase order form for such item. Operator shall (i) verify the receipt at the System site 10 of all materials end services to be delivered to the System site covered by Owner's purchase orders issued by Operator, (ii) verify the accuracy of vendors' invoices in connection therewith. and (iii) forward such invoices to Owner for approval, processing and payment by Owner. Nothing in this Agreement shall prevent Operator from procuring any material or service the cost of which would constitute an Expense under Article VI(2). C. Operator shall periodically, but not more often than once a week, deliver to Owner invoices received by Operator from third parties for all direct Expenses, accompanied by a summary of all such invoices which itemizes all such invoices by operating cost account number. Such invoices shall also be accompanied by a statement from Operator confirming that all such invoices are accurate, due and payable, together with all relevant documentation reasonably necessary for Owner to verify the accuracy thereof. Each invoice submitted to Owner shall be paid by Owner directly to the payee of such invoice on or before the date such invoice is due. 4. From time-to-time, Operator will prepare and send to Owner an invoice, including expense statements, vouchers or such other supporting information as Owner may reasonably require, for the amounts then due for reimbursable Expenses and the monthly installment of the Operator's Fee. Owner shall pay the amount due to Operator no later than thirty (30) days after receipt of the invoice. All payments shall be made by wire transfer of immediately available funds to Texas Commerce Bank, Houston, Texas, Account No. 00101616119, ABAR 113000 609. Any payment not made within 30 days after receipt of the invoice will bear interest from the date on which payment was due at the rate of one and one-half percent (1.5%) per month or the maximum rate permitted by law, whichever is the lesser. 5. Operator shall maintain complete, true, and correct records in connection with all Expenses incurred by Operator. Operator shall retain all such records for five (5) years after Expense reimbursement by Owner has been fulfilled or for any longer period of time required by law. All documents and records relating to this Agreement shall be available for inspection by Owner anytime during normal business hours. Owner may audit all records of Operator relating to Expenses and services performed hereunder. In the event the audit shows that the payment by Owner to Operator exceeds the amount due Operator, Owner shall disclose such information to Operator and Operator shall refund the excess amount to Owner within five (5) business days of the disclosure to Operator. In the event the audit shows that the payment by Owner to Operator is greater than the amount due Operator under this Agreement and such error was caused by Operator, Owner shall be reimbursed its reasonable costs of performing the audit. In the event the audit shows that the payment by Owner to Operator is less than the amount due Operator, Owner shall disclose such information to Operator and pay the underpayment amount to Operator within five (5) business days of the disclosure to Operator. 6. On or before October 1 of each year, the Operator shall prepare and submit to Owner a written Annual Operating Plan and Budget which shall include all expenses of the System anticipated to be paid by Owner as either a direct or reimbursable Expense during the upcoming calendar year pursuant to Section 1 of this Article VI, together with a written operations and maintenance plan for the same period of time. Such Annual Operating Plan and Budget shall set forth the anticipated operations and maintenance plan including projected electrical production from the System on a monthly basis, and a complete schedule (to the extent technically feasible) of Operator responsible Routine Maintenance and all Owner-directed major maintenance tasks (including Major System Repairs) to be accomplished during said year. Owner and Operator shall agree upon the budget operations and maintenance plan, and persons to perform maintenance under 11 the plan prior to the start of the calendar year, and shall meet and exchange information as is necessary and convenient to such end. It the parties cannot reach agreement on the Annual Operating Plan and Budget by the start of any calendar year, then, until such time as agreement is reached or the dispute is resolved, the Annual Operating Plan and Budget for such calendar year shall be based on the Annual Operating Plan and Budget for the preceding calendar year, as adjusted to reflect the net change, if any, between the most recently published Producer Price Index available on the first day of the calendar year in question and the corresponding Producer Price index in effect at the start of the immediately preceding calendar year. Operator has submitted, and Owner has accepted, the Annual Operating Budget for the calendar year ending December 31, 1996. a copy of which is attached as Exhibit F. All Annual Operating Budgets shall be in substantially the form attached as Exhibit F. The amounts set forth on Exhibit F shall be reduced pro rata based on the number of days remaining in the calendar year from and after the Effective Date. Likewise, the amounts set forth in the Annual Operating Plan and Budget in effect during the calendar year in which this Agreement expires or is terminated shall be reduced on a pro rata basis based on actual number of days elapsed during such calendar year prior to the date of the expiration or termination of this Agreement 7. a. The parties recognize that Changes may be required during the term of this Agreement. Either Owner or Operator may by a written notice to the other party propose a Change. The written notice shall describe the proposed Change in reasonable detail and the reasons therefor. b. The written notice of a Change proposed by Operator shall be accompanied by a Change Order Budget Statement. Upon receipt by Operator of any proposed Change from Owner, Operator shall use its best efforts to prepare and submit to Owner a Change Order Budget Statement with respect to such proposed Change within fifteen (15) days of the receipt of Owner's proposed Change. No proposed Change the cost of which is in excess of $10,000 shall be implemented until a Change Order has been executed by both parties approving the Change and the related Change Order Budget Statement; provided, however, that Operator shall be entitled to implement a proposed Change without the prior approval of Owner if such Change is required due to an Emergency. If Operator implements a Change without the prior approval of Owner due to an Emergency, Operator shall promptly notify Owner of such Change and pursue Owner's approval thereof in accordance with subsection c below. Operator acknowledges that Owner's approval of any proposed Change and/or the related Change Order Budget Statement may require the approval of the Agent. c. Owner and Operator shall diligently and in good faith endeavor to reach agreement upon any proposed Change and the related Change Order Budget Statement within thirty (30) days after the date of the receipt of a proposed Change and related Change Order Budget Statement. If a Change is required as a result of an Emergency. then Operator shall provide to Owner, as soon as practicable, notice of such Change, together with a statement describing the Emergency and a Change Order Budget Statement. If a Change due to an Emergency causes the Annual Operating Plan and Budget to be exceeded and Owner believes that an Emergency did not exist, then Owner shall have the right to dispute the Change. If Owner and Operator do not agree as to the resolution of such dispute, then either party may submit the dispute to arbitration in accordance with the provisions of Article XVIII, Section 2 and 3. 12 8. Operator shall report to Owner in writing monthly on electrical and thermal output and expenditures incurred to date; projected electrical and thermal output and expenditures for the balance of the calendar year, performance to date under the operations and maintenance plan and such other matters as Owner may reasonably request as to the operation and maintenance of the System. In such report, Operator shall recommend such changes to the then current budget and operations and maintenance plan as Operator considers necessary or appropriate. 9. Operator shall use its best efforts to operate and maintain the System each year within the budget approved by Owner (as amended by Change Orders). For purposes of determining the approved budget for the initial calendar year, the budget provided as Exhibit F in the aggregate amount of $1,871,860, for operating and maintenance duties set forth in Article IV, shall be adjusted by the ratio of the remaining number of days from the Effective Date to year-end divided by 366. If for any calendar year the Expenses (other than those Expenses set forth In Article VI, Section 2 (b) and Expenses incurred in response to Emergencies) whether direct or reimbursable, paid by Owner exceed the approved Annual Operating Plan and Budget, as amended by Change Orders mutually agreed by Owner and Operator, then Operator shall be solely responsible for any such excess. 10. Operator's consideration for services performed and expenses paid pursuant to this Agreement shall be the reimbursement of expenses described In Article VI, Section 2, the Operator's Fee, and, if applicable, the Bonus. VII. INDEMNIFICATION 1. Operator will protect, indemnify and hold harmless Owner, Owner's Affiliates and Agent, and their respective directors, officers, employees, agents and representatives against and from any and all demands, losses, claims, actions or suits, including costs, judgments, penalties, fines and attorney's fees, for or on account of injury to or death of third persons, or for damage to or destruction of property belonging to third persons or for violation of law, in each case resulting from or arising out of Operator's negligent maintenance or operation of the System or Operator's willful act or omission, except to the extent caused by System design or construction defect, by Owner's act or omission, or the act or omission of third parties. 2. Owner will protect, indemnify and hold harmless Operator, Operator's Affiliates. and their respective directors, officers, employees, agents and representatives against and from any and all demands, losses, claims, actions or suits, including costs, judgments, penalties, fines and attorneys' fees, for or on account of injury to or death of third persons, or for damage to or destruction of property belonging to third persons, or for violation of law, in each case resulting from or arising out of a System design or construction defect, or the negligence or willful act or omission of Owner. 3. The duty to indemnify under this Article will continue in full force and effect, notwithstanding the expiration or termination of this Agreement, with respect to any claim or action based on facts or conditions which occurred prior to such termination. 4. If any indemnified party intends to seek indemnification under this Article from any indemnifying party with respect to any action or claim, the indemnified party shall give the indemnifying party notice of such claim or action within thirty (30) days of the commencement of, or actual knowledge by the indemnified party of, such claim or action. The indemnifying party shall have no liability under this Article for any claim or actions for which such notice is not conveyed; provided, however, that so long as the indemnifying party is not materially harmed by the indemnified party's failure to give timely notice of a claim or action, then the indemnifying party's indemnify obligation shall 13 be unaffected. The indemnifying party shall, at its sole cost and expense, defend any such claim or action; provided. however, that the indemnified party shall, at its own cost and expense, have the right to participate in the defense or settlement of any such claim or action. The indemnified party shall not compromise or settle any such claim or action without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. VIII.INSURANCE COVERAGE 1. Operator, on its behalf and on the behalf of all subcontractors of Operator performing any on-site services in connection with the operation and maintenance of the System or any of its appurtenant equipment, shall procure and maintain in effect during the term for which they perform services pursuant to this Agreement the following minimum insurance coverages, in the given amounts: a. Vehicle liability insurance covering all owned, non-owned and hired automobiles, trucks, trailers and other vehicles. Such insurance shall provide coverage not less than that of the standard comprehensive automobile liability policy in limits not less than $1,000,000 combined single limit each occurrence for bodily injury and property damage. The Owner and NRG Generating (U.S.) Inc. shall be named as additional insureds. b. Workers' Compensation insurance that satisfies statutory requirements and Employers' Liability Insurance with limits of $1,000,000. This insurance shall include All States Coverage and Longshoremen & Harbor Workers Compensation Act coverage (if exposure exists.) The Employer's Liability Coverage shall not contain an occupational disease exclusion. c. Liability insurance, on an "Occurrence" basis and in a form providing coverage not less than that of the standard Commercial General Liability policy, covering operations of the System including independent contractors, products and completed operations, broad form property damage, blanket contractual liability coverage (for any written or oral contracts related to the System) and personal injury liability coverage for claims arising out of the operations of the System for bodily injury, property damage and personal injury with policy limits not low than $1,000,000 combined single limit each occurrence and $2,000,000 aggregate limit. The aggregate policy limits shall apply solely to this project or site. Coverage shall include a standard severability of interests clause and cross liability coverage. The Owner and NRG Generating (U.S.) Inc. shall be named as additional insureds. d. Excess or umbrella liability insurance, on an "Occurrence" basis and with coverage at least as broad as the vehicle liability, employers' liability and general liability policies, to provide limits of insurance in excess of Owner's vehicle liability, employers liability and general liability policies for not less than $10,000,000 combined single limit each occurrence and in the aggregate for bodily injury. property damage and personal injury. The aggregate policy limits shall apply solely to this project or site. Coverage shall include a standard severability of interests clause and cross liability coverage. The Owner and NRG Generating (U.S.) Inc. shell be named as additional insureds. 2. Owner shall procure and maintain in effect during the term of this Agreement at its expense the following minimum insurance coverage: 14 a. Vehicle liability insurance covering all owned, non-owned and hired automobiles, trucks, trailers. and other vehicles. Such insurance shall provide coverage not less then that of the standard comprehensive automobile liability policy in limits not less than $1,000,000 combined single limit each occurrence for bodily injury and property damage. The Operator and NRG Generating (U.S.) Inc. shall be named as additional insureds. b. Workers' Compensation insurance (if required) that satisfies statutory requirements and Employees' Liability Insurance with limits of $1,000,000. This insurance shall include All States Coverage and Longshoreman & Harbor Workers Compensation Act coverage Of exposure exists.) The Employer's Liability Coverage shall not contain an occupational disease exclusion. c. Liability insurance, on an "Occurrence" basis and in a form providing coverage not less than that of the standard Commercial General Liability policy, covering operations of the System including independent contractors, products and completed operations, broad form property damage, blanket contractual liability coverage (for any written or oral contracts related to the System) and personal injury liability coverage for claims arising out of the operations of the System for bodily injury, property damage and personal injury with policy limits not less than $1,000,000 combined single limit each occurrence and $2,000,000 aggregate limit. The aggregate policy limits shall apply solely to this project or site. Coverage shall include a standard severability of interests clause and cross liability coverage. The Operator and NRG Generating (L.I.S.) Inc, shall be named as additional insureds. d. "All Risk" Property Insurance, including Boiler and Machinery Insurance and difference in conditions coverage (including flood perils), with an extension for Business Interruption Coverage, and naming Operator and NRG Generating (U.S.) Inc, as additional insureds for all such insurance coverage as their interests appear. 3. Within thirty (30) days after the date of execution of this Agreement, each party shall provide to the other party, pursuant to the notice provisions of Article XIV, properly executed certificates of insurance, signed by an authorized representative of the insurance carrier. These certificates shall provide the following information: a. Name of insurance company, policy number and expiration date; b. The coverage required hereunder and the limits on each covered item, including the amount of deductibles and self-insured retentions; c. A statement indicating that sixty (60) days notice of cancellation, non-renewal, or material change in coverage of any of the policies shall be given to each named insured and any additional insured; and d. Named and additional insured. 4. Each party shall have the right to inspect and photocopy the policies of insurance at the other party's place of business during regular business hours. on reasonable prior written notice. 5. All insurance policies, including Workers' Compensation insurance, provided by Owner and Operator shall waive all rights of subrogation against one another and NRG . 15 6. The provision of insurance shall not be construed to limit the liability of any party to the other party. 7. All commercial insurance carriers providing insurance hereunder must be rated A- or better, with a minimum size rating of VIII by Bests Insurance Guide and Key Ratings or an equivalent rating by another nationally recognized insurance rating agency of a standing similar to Best. 8. All deductibles or self insured retentions associated with policies required hereunder shall be the responsibility of the named insured. IX. ENGAGEMENT OF THIRD PARTIES Operator may engage or subcontract in the ordinary course of business and at Owner's expense such persons, corporations or other entities as Operator deems advisable for the purpose of performing or carrying out any of the obligations of Operator under this Agreement. Except in the case of an Emergency, before incurring an Expense under this Article IX In excess of $10,000, Operator shall obtain the prior written approval from Owner. X. OPERATOR REPORTING OBLIGATIONS Operator shall provide Owner with copies of all reports generated by Operator's or Operator's Affiliates' employees, agents, or subcontractors with respect to the operation of the System that are filed with any federal, state, or local agency or governmental entity. In addition, Operator shall provide Owner with monthly compliance reports, summarizing Operator's compliance with all System permits and licenses. The content of the monthly compliance reports shall be agreed to by Owner and Operator on or before June 15, 1996. All monthly compliance reports shall be delivered to owner within ten (10) days after the last day of the relevant month. XI. SPECIFIC LIMITATIONS In the conduct of its duties hereunder, Operator shall not, without first obtaining the written consent of Owner: 1. Limit on Expenditures. Under-take an expenditure outside Operator's scope of responsibilities except that, in case of an Emergency, Operator may make such immediate expenditures as may be necessary, but notice of any such Emergency and expenditures shall be given to Owner as promptly as possible, but in no case more than 12 hours after the event. 2. Settlement of Claims. For any claim for which Owner is or may be responsible, pay in excess of $10,000 in the settlement of any claim for injury to or death of persons, or loss of or damage to property, or in settlement of any contract or other dispute. 3. Disposition of Equipment. On Owner's behalf, sell or otherwise dispose of any item of equipment which is part of or used in the operating or maintaining the System if the current price of new equipment similar thereto is in excess of $5,000. 4. Contracts with Affiliates. On Owner's behalf, enter into any contract with an Affiliate of Operator with a value in excess of $5,000. XII. TERMINATION/DEFAULT 1. This Agreement may be terminated: 16 a. By the non-defaulting party at any time following the occurrence of any Event of Default, as described In this Article XII, if such Event of Default is not cured within the period, if any, provided therefor, b. By Operator, if, after Operator has taken all reasonable efforts to avoid regulation as a public utility, Operator's performance under this Agreement renders Operator subject to regulation as a public utility by any federal, state or local agency of any governmental entity, by delivery of thirty (30) days' prior written notice to Owner; c. By Operator, if Owner's action or inactions under this Agreement renders Operator subject to regulation as a public utility by any federal, state or local agency of any governmental entity, by delivery of thirty (30) days' prior written notice to Owner d. By Owner for its convenience, upon ninety (90) days' written notice to Operator provided that Owner pays Operator the applicable termination charge in accordance with the provisions of Exhibit D (no termination of this Agreement under this provision may be effective until the third anniversary of the Effective Date); e. By Owner, if, at, on, or in connection with the operation and maintenance of any part or all of either or both of (x) the System or (y) the properties, plant or equipment operated by Operator for NRG Generating (Newark) Cogeneration, Inc., Operator falls to achieve and maintain compliance with all applicable laws, permits, licenses, regulations, or orders of any Governmental Authority; provided. however, that no failure of Operator to perform its obligations under this Article XII, Section 1 (e) shall be grounds for termination if such failure is the result of the negligence of a third party other than subcontractors of or procured by Operator or Operator's affiliates or an act of Force Majeure, so long as Operator is diligently pursuing a cure as required by this Agreement. Owner may exercise its right of termination under this Article XII action 1 (e), if and when Owner believes that Operator has failed to achieve and maintain compliance with an applicable law, permit, license, regulation or order, whether or not (s) a court or administrative agency with competent jurisdiction has determined that there has been such a failure or (t) a dispute resolution process has determined that the failure was not the result of either negligence of a third party other than subcontractors or an act of Force Majeure which Operator is diligently attempting to cure; provided, however, that following any termination by Owner under this Article XII Section 1 (e), if (u) a court or administrative agency, with competent jurisdiction to assess a fine, penalty or other action for failures in circumstances of the sort which were the basis of Owner's termination, issues a final nonapealable order (or issues an order for which all appeals periods have expired) determining as a matter of both fact and law that the circumstances which were the basis of Owner's termination did not constitute a violation of any law, permit, license, regulation or order. or (v) a dispute resolution process under Article XVIII determines that the failure was the result of negligence of a third party other then subcontractors or an act of Force Majeure which Operator is diligently attempting to cure, then Owner shall pay Operator the amount determined in accordance with Exhibit E.; f. By the mutual agreement of the parties; and g. By Owner, if the Amended Power Purchase Agreement is terminated for any reason other then a default by Owner or an Owner Affiliate. 17 2. Owner shall be in default under this Agreement upon the happening or occurrence of any of the following events or conditions, each of which shall be deemed to be an Event of Default for purposes of this Agreement: a. Owner materially breaches any of Owner's obligations. covenants, conditions, services or other responsibilities under this Agreement unless within thirty (30) days after notice from Operator specifying the nature of such breach, Owner either cures such breach or, if such breach (other than the failure to make payment obligations) cannot be cured within thirty (30) days, Owner commences and diligently pursues such cure and thereafter continues to diligently pursue such cure. If the breach is not cured within 120 days of the date of Operator's written notice to Owner, then Operator may terminate this Agreement; b. There is an assignment for the benefit of Owner's creditors, or Owner or its Parent company, NRG Generating (U.S.) Inc.. is adjudged bankrupt, or a petition is flied by or against Owner or its parent company under the provisions of any insolvency or bankruptcy laws (and such petition is not dismissed within six months), or the business or principal assets of Owner or its parent company are placed in the hands of a receiver, assignee or trustee, or Owner is dissolved, or Owner's existence is terminated or its business is discontinued; or c. Any material representation or warranty furnished by Owner in connection with this Agreement was knowingly false or misleading in any material respect at the time it was made. 3. Operator shall be in default under this Agreement upon the happening or occurrence of any of the following events or conditions, each of which shall be deemed to be an Event of Default for purposes of this Agreement: a. Operator materially breaches or falls to observe or timely perform any of Operator's obligations, covenants, conditions, services or responsibilities under this Agreement, unless within thirty (30) days after notice from Owner specifying the nature of such breach or failure, Operator either cures such breach or failure or, if such breach cannot be cured within thirty (30) days, Operator commences and diligently pursues such cure and thereafter continues to diligently pursue such cure. If the breach is not cured within 120 days of the date of Owner's written notice to Operator, then Owner may terminate this Agreement; b. There is an assignment for the benefit of Operator's creditors, or Operator is adjudged bankrupt, or a petition is filed by or against Operator under the provisions of any insolvency or bankruptcy laws (and such petition is not dismissed within six months), or the business or principal assets of Operator are placed in the hands of a receiver, assignee or trustee, or Operator is dissolved, or Operators existence is terminated or its business is discontinued; or c. Any material representation or warranty furnished by Operator in connection with this Agreement was knowingly false or misleading in any material respect at the time when made. Notwithstanding subsection (a) above, Operator (i) shall not be afforded any cure period, (ii) will not be permitted to invoke or utilize the Article XVIII Dispute Resolution provisions, and (iii) will be subject to immediate termination if the termination of this Agreement is affected under the language of Article XII, Section 1(e). 4. Upon the occurrence of an Event of Default, the non-defaulting party may: 18 a. Without recourse to legal process, terminate this Agreement by delivery of a written notice of termination to the defaulting party or its assigns; and/or b. Pursue, concurrently or separately, other remedies existing in law, any provision of this Agreement, or otherwise. 5. Upon termination or expiration of this Agreement, Operator shall: a. Deliver to Owner all books, records, operator logs, accounts and manuals developed or maintained by Operator pursuant to this Agreement, provided however, that Operator may retain copies of such documents. Furthermore, Owner shall have the right to take possession of all of the equipment, spare parts and supplies purchased for the System and paid for by Owner, b. At Owner's request and expense, cooperate with Owner to effect an orderly transition of the operations and maintenance of the System, including, without limitation, perform the following: i. Continue to operate the System in accordance with this Agreement for a period not to exceed 180 days while Owner appoints and mobilizes a successor operator; ii. Assist Owner in preparing an inventory of all material, equipment, spare parts and supplies purchased for the System; and iii. Assign to Owner all Operator's contractual agreements with third parties relating to the operations or maintenance of the System, to the extent such agreements are so assignable. XIII.ACCESS TO SYSTEM Operator and Owner and their agents, representatives, and employees shall have full and free access at all times to the System. XIV. NOTICES 1. Any notice required or permitted under this Agreement shall be in writing and shall be valid and sufficient if delivered personally, mailed by registered or certified mail, or sent by a recognized private overnight express delivery service. In each case postage prepaid, return receipt requested, addressed to the other party as follows: If to Operator: STEWART & STEVENSON OPERATIONS, INC. 2707 North Loop West Houston, Texas 77008 Attn: Vice-President of North American Operations Telephone: 713-803-0300 If to Owner: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 600 Minneapolis, Minnesota 55403 Attn: Chief Executive Officer Telephone: 612-373-5300 19 2. Any party may change its address, or add additional addresses, by notice given to the other parties in the manner se forth above 20 XV. FURTHER ASSURANCES 1. Owner and Operator agree to execute, acknowledge and deliver any and all such further documents and instruments and to take such action as may reasonably be required in order to allow the financing of the System to proceed, to effectuate the purpose of this Agreement, and to obtain any government permits, licenses, or approvals necessary or convenient to accomplish the foregoing. 2. Title to all materials, equipment, supplies, consumables, spare parts and other items purchased or obtained by Operator for the System shall pass to and vest in Owner upon the passage of title from the vendor or supplier thereof and the payment or reimbursement of Operator's costs by Owner. XVI. REPRESENTATIONS AND WARRANTIES 1. Owner represents and warrants to Operator as follows: a. Owner is a corporation duly formed, validly existing, and in good standing under the laws of Delaware, and it is properly qualified to do business in New Jersey; b. The execution of this Agreement has been duly authorized and approved by Owner, and no other authorizations, approvals, or consents are required in order for this agreement to constitute a binding and enforceable legal obligation of Owner; c. The execution of this Agreement by Owner, and the performance of Owner's obligations under this Agreement will not conflict with, or result in a breach or default under, any agreement, contract, or covenant to which Owner is a party; provided, however. that this provision is modified to be consistent with Section 7 of the Agreement which is being executed contemporaneously herewith as an inducement to the execution of this agreement; and d. This Agreement, as executed, constitutes a binding legal obligation of Owner that is enforceable in accordance with its terms and conditions. 2. Operator represents and warrants to Owner as follows: a. Operator is a corporation duly incorporated, validly existing, and in good standing under the laws of Delaware, and it is properly qualified to do business in New Jersey; b. The execution of this Agreement by Operator has been duly authorized and approved by Operator and no other authorization, approvals, or consents are required in order for this Agreement to constitute a binding and enforceable legal obligation of Operator; c. The execution of this Agreement by Operator, and the performance of its obligations under this Agreement will not conflict with, or result in a breach or default under, any agreement, contract, or covenant to which Operator is a party; and d. This Agreement as executed, constitutes a binding legal obligation of Operator that is enforceable in accordance with its terms and conditions. XVII.FORCE MAJEURE 21 1. Except for the obligation of either party to make any required payments hereunder, the parties shall be excused from performing their respective obligations under this Agreement and shall not be liable in damages or otherwise if and to the extent that they are unable to so perform or are prevented from performing by a Force Majeure, provided that; a. The non-performing party, as promptly as practicable after the occurrence of the Force Majeure, but in no event later than 14 days thereafter, gives the other party written notice describing the particulars of the occurrence; b. The suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure; c. The non-performing party uses its best efforts to remedy its inability to perform; and d. As soon as the non-performing party is able to resume performance of its obligations excused as a result of the occurrence, it shall give prompt written notification thereof to the other party. 2. Neither party shall be required to settle any strike, walkout, lockout or other labor dispute on terms which, in the sole judgment of the party involved in the dispute, are contrary to its interest, it being understood and agreed that the settlement of strikes, walkouts, lockouts or other labor disputes shaft be entirely within the discretion of the party having such dispute. XVIII. DISPUTE RESOLUTION 1. Resolution by Parties. a. First Attempt. In the event that a dispute arises hereunder between the parties, the parties shall attempt in good faith to settle such dispute by mutual discussions within 30 days after the date that a party gives written notice of the dispute to the other party; provided, however, that if the dispute involves any amount claimed under an invoice and after 10 days of mutual discussion either party believes in good faith that further discussion will not resolve the dispute to its satisfaction, such party may immediately refer the matter to arbitration in accordance with Section 2 of this Article XVIII. b. Chief Executive Officers. In the event that the dispute is not resolved in accordance with subsection 1 (a) above, either party may refer the dispute to the chief executive officers or chief operating officers of the respective parties for further consideration. In the event that such individuals are unable to reach agreement within 15 days, or such longer period as they may agree, then either party may refer the matter to arbitration in accordance with Section 2 of this Article XVIII. 2. Arbitration. In the event a dispute arises between Owner and Operator which is not resolved pursuant to Section 1 of this Article XVIII, shall be resolved by arbitration pursuant to the terms hereof. As a condition to initiating arbitration proceedings, a party must first have attempted to resolve the dispute under Section 1 of this Article XVIII. All claims, disputes, and other matters in question arising out of or relating to this Agreement or the breach thereof shall be decided by arbitrators selected as hereinafter provided and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then obtaining, unless the parties mutually agree otherwise. The resolution of such disputes shall not delay Operator's or Owner's performance of their undisputed obligations under the terms of this Agreement. The 22 arbitration shall be held in Newark, New Jersey and any arbitration demand must be filed with the American Arbitration Association office located closest to Newark, New Jersey. If the claim or defense of either party is determined to be frivolous, the arbitrators may require that the party at fault pay or reimburse the other party for (i) fees and expenses, including. attorneys and expert fees and expenses, and (ii) reasonable out of pocket expenses incurred by the other party in connection with the arbitration proceedings. Notwithstanding the foregoing, a termination of the Agreement under the language of Article XII, Section 1 (e) shall not, under any circumstances (except for disputes relating to the settlement of payment obligations), be subject to arbitration under this Article VXIII. 3. Selection of Arbitrators. Each dispute shall be submitted to three arbitrators, one arbitrator being selected by Owner, one arbitrator being selected by Operator, and the third arbitrator being selected by the two so selected. The party initiating the arbitration shall include in its notification under Section 4 below the designation of its selected arbitrator and the party receiving such notification shall designate its arbitrator within fifteen (15) days thereafter by notify the initiating party and its arbitrator of the selection. If the arbitrators selected by Owner and Operator cannot agree on a third arbitrator within fifteen (15) days after the second arbitrator is selected, the third arbitrator shall be selected by the American Arbitration Association. In the event the party receiving notification of a demand for arbitration shall not have selected its arbitrator and given notice thereof to the other party and its arbitrator within fifteen (15) days after receiving such notification, such arbitrator shall be selected by the American Arbitration Association. 4. Notice. Notice of demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when the applicable statute of limitations would bar institution of a legal or equitable proceeding based on such claim, dispute, or other matter in question. 5. Award. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 6. Survival. This Article shall survive termination of this Agreement. XIX. GENERAL PROVISIONS 1. Governing Law. This Agreement shall be governed by and construed under the laws of New Jersey. 2. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3. Headings. Title and headings of the articles and sections of this Agreement are for convenience of reference only and do not form a part of and shall not in any way affect the interpretation of this Agreement. 4. Amendment. No modification or amendment of this Agreement shall be valid unless in writing and executed by both parties to this Agreement. 23 5. Assignment. This Agreement may not be assigned by Operator without the written consent of Owner and written agreement of assignee whereby it expressly assumes and agrees to perform each and every obligation of Operator hereunder. Any assignment by Operator in violation hereof shall be null and void. Owner may, without the consent of Operator, assign its rights (but not its obligations) under this Agreement to or by a lender (including finance lessor) providing funds to refinance the System. 6. Successors and Assigns. This Agreement shall be binding and inure to the benefit of the parties hereto and their respective successors and assigns, to the extent that assignment is permitted under this Agreement. 7. Entire Agreement. This Agreement constitutes the entire agreement between the parties, supersedes all prior representations, documents or statements transmitted between the parties. 8. Consequential Damages. In no event will Owner or Operator have the right, with or without legal process. to recover punitive or special damages, or indirect or consequential damages, such as loss of use, lost profits, costs incurred because of delays, cost of replacement energy, "idle plant" costs, interest on borrowed money, letters of credit, security deposits or bonds. In no event will Owner or Operator be liable for representations, oral or otherwise, as to the results intended to be achieved through its undertakings pursuant to this Agreement, except as specifically provided in this Agreement. 9. Other Provisions. Nothing in this Agreement shall be construed to prevent or prohibit Operator from providing operating services to any other person, organization, or entity. 10. Waiver. The waiver of any breach of any term or condition hereof shall not be deemed a waiver of any other or subsequent breach, whether of like or different nature. 11. Not for Benefit of Third Parties. This Agreement and each and every provision thereof is for the exclusive benefit of the parties to this Agreement and not for the benefit of any third party. 12. Survival of Representations, Warranties and Indemnities. All representations, warranties and indemnities of the parties set forth in this Agreement shall survive the termination or expiration of this Agreement. 13. Approval by Proposed Lender. If any provision of this Agreement must be approved by a lender, lessor or equity investor in connection with the financing of the System or any other action contemplated hereby, and such lender requires any modification of the provisions of this Agreement, neither owner nor Operator shall unreasonably withhold its approval and execution of any such modifications. 14. Survival of Obligations. Termination of this Agreement for any reason shall not relieve Owner or Operator of any obligation accruing or arising prior to such termination. 15. Confidentiality. The parties shall hold in confidence, and shall use only for the purposes of this Agreement, any and all Proprietary information disclosed to each other. 16. Severability. Should any section or subsection hereof be declared invalid or unenforceable for any reason, the remaining sections and subsections of this Agreement shall remain in full force an affect, and the parties hereto agree to immediately renegotiate in good faith such section or subsection as was declared invalid or unenforceable. 24 17. Duty to Mitigate. Each party must use its best efforts to mitigate the injury or damage caused by the other party's failure to perform. When a party seeking damages fails to make these efforts, the other party shall be entitled to have the damages accordingly reduced. 18. Consent. Except in the case of an Emergency, when either party's consent or approval is required, such consent or approval must be in writing and given prior to the act for which such consent or approval is sought. 19. Reasonableness. Except as expressly stated to be within the sole discretion of any party, all consents or approvals required of either party shall not be unreasonably withheld or delayed, nor shall any acts or requests of a party be unreasonable in light of the surrounding facts and circumstances. 20. Disclaimer, THE WARRANTIES EXPRESSLY PROVIDED BY OPERATOR HEREUNDER ARE THE SOLE, INTENDED WARRANTIES AND OPERATOR HEREBY DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, ORAL, WRITTEN, EXPRESS OR IMPLIED, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. 21. Limits on Liability. Notwithstanding any provision contained in this Agreement to the contrary, for any Contract Year, Operator shall not be liable to Owner (whether by contract, warranty, tort, statute or otherwise, including Liquidated Damages or penalties owed by Operator under this Agreement) for any amounts that in the aggregate exceed the amount of the Operating Fee and Bonuses paid for the Contract Year in which the claim is made. If a claim(s) is made after the end of the term, then the claim(s) shall be deemed to have been made in the last Contract Year of the term. The limits of liability set forth herein shall not apply to any damages incurred by a party as a result of its gross negligence or willful misconduct. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first set forth above. OWNER: NRG Generating (Newark) Cogeneration Inc. By: /s/ Leonard Bluhm Its: President OPERATOR: Stewart & Stevenson Operations, Inc. By: /s/ Harvey Braswell Its: VP North American OPS 25 EXHIBIT A BONUS/LIQUIDATED DAMAGES For the purpose of determining the liquidated damages ("Liquidated Damages") payable by Operator to Owner, or the bonus ("Bonus") payable by Owner to Operator, the effectiveness of Operator under this Agreement shall be measured in terms of both availability and heat rate. These measurements shall be applied at the completion of each Contract Year to determine the Liquidated Damages or Bonus for that Contract Year. Availability. Operator shall undertake to operate the System to maximize availability. Availability will be measured for the Base Capacity level, as defined as 52 MWe (net). In each case the following formula will be used: Contract Availability = [Total Hours - (Equivalent Contract Unavailable Hours)] Total Hours where: Total Hours = total hours in the Contract Year; and Equivalent Contract Unavailable Hours = total of all hours during the Contract Year during which there occurred a full or partial Planned, Forced, or Maintenance Outage, as those terms are defined by Edison Electric Institute as Equivalent Availability (including outages resulting from Force Majeure events, but excluding outages resulting from (x) JCP&L's failure to supply natural gas to the Facility during periods when PSE&G has not interrupted transportation that it supplies under the PSE&G Gas Supply Agreement and (y) JCP&L's failure to accept available Output from the Facility). Partial outages are measured on an equivalency basis, e.g., a 50% outage for one hour would be equivalent to a full outage for one-half hour, and so forth. Availability. For purposes of Bonus/Liquidated Damages availability calculation, the target Base availability will be 95%, for the term of this Contract. Each one tenth of one percent (0.1%) of availability will have a value of $20,000 as a Bonus or Liquidated Damages for availability measurement. Heat Rate. For purposes of Bonus/Liquidated Damages heat rate calculations, the heat rate incentive will be based on 9750 Btu per kwh HHV, as calculated in accordance with Article A.9 of the Amended Power Purchase Agreement, for the term of this Contract. 26 LIQUIDATED DAMAGES AND BONUS The Liquidated Damages payable by Operator to Owner and the Bonus payable by Owner to operator shall be based on the Availability and Heat Rate guarantees set forth in this Exhibit. For any Contract Year, the maximum Liquidated Damages (in the aggregate for each category as adjusted by the amounts of any Bonus payable to Operator) payable by Operator shall be no more than one hundred percent(100%) of the Operator's Fee for such Contract Year. For any Contract Year, once the aggregate Bonuses payable to Operator (adjusted for the Liquidated Damages, if any, owed by Operator equal $250,000, then any amounts in excess of $250,000 shall be payable to Operator at a rate of 4O% of such excess. The availability and heat rate Bonus/Liquidated Damages calculations will be determined monthly and will be payable after the end of the Contract Year as set forth in the Amended Power Purchase Agreement. 27 EXHIBIT B DESCRIPTION OF THE SYSTEM (i) NEWARK SYSTEM The facility is a combustion gas turbine-steam turbine combined-cycle, topping cycle cogeneration facility. The nominal rating is 52 MW electrical with average thermal output of 45,000 lbs/hr steam. The prime movers of the plant is one General Electric Frame 6 dual fuel combustion turbine, driving a 54,000 kVA synchronous generator with electrical output PH, 60 Hz and 13.8 kV. The exhaust from the Frame 6 turbine is directed into a three drum (tri- pressure) heat recovery steam generator ("HRSG"). The HRSG at full turbine load and 59F ambient temperature produces when fired with 94.0 million BtuHHV an hour of auxiliary filing, 227,000 lbs/hr of 600 psig, 700 F steam; 23,000 lbs/hr of 285 psig/500 F steam; and 12,300 lbs/hr of 30 psig D&S steam. The 600 psig steam is directed to the condensing extraction steam turbine which drives a 22,000 kVa synchronous generator with an electrical output of 3PH, 60 Hz and 13.8 kV. The 165 psig steam extracted from the steam turbine is directed into a header from which 45,000 lbs/hr is directed to process to dry paperboard. Thermal loads of the system vary seasonally +/- 5,000 lbs from an average of 45,000 lbs/hr over the course of an 8760 hour year. The plant will operate on natural gas under normal circumstances other then interruptions due to curtailment of supply on extremely cold days. Kerosene fuel is used as the alternate, approximately 480 hr/yr. Output of the combustion turbine is controlled by sensing and maintaining a constant optimum turbine exhaust temperature. NOX emission from the plant are controlled by a combination of steam injection into the combustion turbine and Selective Catalytic Reduction using anhydrous ammonia injection with a semi-precious metal catalyst in the HRSG. The plant is equipped with Continuous Emission Monitoring equipment. The interconnection points for the System are shown an identified an the following diagram associated with this Exhibit. 28 EXHIBIT C SYSTEM CONTRACTS NEWARK Power Purchase Agreement dated 04/30/96 Transmission Service and Interconnection Agreement dated 11/17/87 Gas Service Agreement dated 04/30/96 Steam Purchase Agreement dated 10/03/86 Amended 03/08 & 07/20/88 Permits Air Permit/Certification (Rental Boiler Stack) issued 03/11/93 Sewer Connection Permit issued 09/17/95 NJPDES General Permit issued N/A Air Permit/Certification (Keeler Boiler Stack) issued 03/28/94 Air Permit/Certification (Fuel Oil Storage Tank) issued 08/13/90 Air Permit/Certification (Stack #1) issued 12/10/87 Stormwater Discharge Permit issued 10/15/93 29 EXHIBIT D TERMINATION FOR CONVENIENCE Commencing on the third anniversary of the Effective Date, the Owner may terminate this agreement for convenience as set forth In Article XII Section 1 (d). The termination fee shall be $430,000 reduced pro-rata based on the number of calendar days remaining in the Agreement term as the numerator and 1096 calendar days as the denominator. The termination fee will be adjusted accordingly for any pro-rated undisputed Bonus/Liquidated Damage payments due on the Termination Date. This right of payment shall be Operator's sole and exclusive remedy for any termination of the Agreement by Owner under Article XII Section I (d) or the circumstances that were the basis thereof or were related thereto. 30 EXHIBIT E TERMINATION UNDER ARTICLE XII SECTION 1(e) Commencing on the Effective Date, the Owner has the right to terminate the Agreement immediately as set forth in Article XII Section 1 (e). If Owner exercises such termination right and Operator thereafter becomes entitled to receive a payment from Owner under the language of the second of the provisos of Article XII Section 1 (e), then the amount of the payment shall be determined as follows: (i) if the termination occurs on the Effective Date, then the amount of the payment shall be $860,000 for Newark or (ii) if the termination occurs after the Effective Date, then the amount of the payment shall be the product of the amount specified in clause (i) times a fraction, the numerator of which is the number of calendar days remaining in the term of the Agreement, measured from the date that Operator surrendered control of the Project to Owner, and the denominator of which is 2,191 calendar days. The amount of this payment shall be adjusted for any prorated undisputed Bonus/Liquidated Damage payments due under the terms of the Agreement on the date of termination. This right of payment shall be Operator's sole and exclusive remedy for any termination of the Agreement by Owner under Article XII Section 1 (a) or the circumstances that were the basis thereof or were related thereto. 31 EXHIBIT F 1996 Budget SEE ATTACHED 32 APPENDIX I NEWARK GUARANTEE OF OPERATOR'S OBLIGATIONS BY STEWART & STEVENSON SERVICES, INC. In consideration of, and as an inducement for NRG Generating (Newark) Cogeneration, Inc. ("Owner") to enter into certain agreements with Stewart & Stevenson Operations, Inc. ("Subsidiary"), Stewart & Stevenson Services, Inc. hereby, irrevocably guarantees to Owner the Prompt performance and payment when due, whether by acceleration or otherwise, of all obligations, indebtedness, liabilities or undertakings according to the terms of the NRG Generating (Newark) Cogeneration Inc./Stewart & Stevenson Operations, Inc. Operating and Maintenance Agreement dated , 1996 and the Agreement between Stewart & Stevenson Operations, Inc., NRG Generating (Newark) Cogeneration Inc., NRG Generating (Parlin) Cogeneration Inc., NRG Generating (U, S.) Inc., and Stewart & Stevenson Services, Inc. (the "Agreements"). Subject to the terms and provisions herein set forth, the Guaranty is continuing, absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Agreements, (b) any amendment to, waiver of or consent to, departure from, or failure to exercise any right or remedy under the Agreements, (c) any acceptance of partial payment or performance of any of the guaranteed obligations, (d) any release, application or amendment of or consent to departure from any security or guaranty therefor, (e) any assignment of this Guaranty, (f) the insolvency, bankruptcy, dissolution or liquidation of Subsidiary or any change in ownership of Subsidiary, or (g) any other circumstance of a similar or different nature which might otherwise constitute a defense available to Subsidiary or the undersigned except as to the legal rights and defenses of Subsidiary watch arc provided for under the Agreements. Notice of acceptance of the Guaranty is hereby waived, and this Guaranty shall remain in full force and effect up to and including the expiration of the Agreements. The Guarantor waives promptness, diligence, any and all demands for payment, any notice of credits extended and shipments of merchandise made hereunder, and all other notices whatsoever. The Guarantor consents to any extensions of time for the payment of said account, to any changes in the terms of any settlement or adjustment thereof and to any changes in the terms of the Agreements. No delays on the part of Owner in the exercise by Owner of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No actions of Subsidiary shall in any way impair or affect this Guaranty. If Subsidiary defaults in the payment of any amounts due or in the performance of any other obligation under the Agreements, the Guarantor shall (a) pay upon demand (i) any sum due and to become due, (ii) any damages, costs and expenses entitled to be recovered from Subsidiary by reason of such default, and (iii) reasonable attorneys' fees and all costs and other expenses incurred as a result of any such default or in enforcing this Guaranty and (b) upon demand, perform or cause such obligation to be performed. This 33 Guaranty is a guarantee of payment and not of collection and no action need be brought against Subsidiary as a precondition to the enforcement of this Guaranty. This Guaranty shall be binding upon the Guarantor and its successors and assigns and shall be for the benefit of the person named above, its successors and assigns. Should any one or more of the provisions of the Guaranty be determined by a court of competent jurisdiction to be illegal or unenforceable, all other provisions shall remain effective. This Guaranty shall be governed by and construed under the laws of the State of New Jersey. IN WITNESS WHEREOF, this Guaranty has been duly executed this _ day of , 1996. STEWART & STEVENSON SERVICES, INC. By: /s/ Title: 34 APPENDIX II [attach Existing O&M Agreement) 35 APPENDIX III [attach the Amended and Restated Agreement for Purchase and Sale of Electric Power] 36 EX-10.16.2 11 EXHIBIT 10.16.2 LETTER AGREEMENT DATED MAY 1, 1996 BETWEEN THE COMPANY AND STEWART & STEVENSON OPERATIONS, INC. Exhibit 10.16.2 AGREEMENT This Agreement dated as of May 1, 1996 (the "Agreement") is entered into by and among Stewart & Stevenson Operations, Inc. ("SSOI"), NRG Generating (Newark) Cogeneration Inc. ("NRGG (Newark)"), NRG Generating (Parlin) Cogeneration Inc. ("NRGG (Parlin)"), NRG Generating (U.S.) Inc. ("NRGG"), and Stewart & Stevenson Services, Inc. ("SSSI"). RECITALS WHEREAS, SSOI and O'Brien (Newark) Cogeneration, Inc. ("O'Brien (Newark)") entered into an Operation and Maintenance Contract dated January 12, 1994 ("O'Brien (Newark) O&M Contract"); WHEREAS, SSOI and O'Brien (Parlin) Cogeneration, Inc. ("OBrien (Parlin)") entered into an Operation and Maintenance Contract dated April 1, 1994 ("O'Brien (Parlin) O&M Contract" and, together with the O'Brien (Newark) O&M Contract, the "O'Brien O&M Contracts")'; WHEREAS, on or about September 28, 1994, the parent company of O'Brien (Newark) and O'Brien (Parlin), O'Brien Environmental Energy, Inc, ("O'Brien), filed for relief under Chapter 11 and Title 11 of the United States Bankruptcy Code in United States Bankruptcy Court in the District of New Jersey (the "Court") commencing in re O'Brien Environmental Energy, Inc., Case No. 94-26723 (RG) (the "Chapter 11 Case"); WHEREAS, NRG Energy. Inc. ("NRGE") was approved by the Court to acquire a substantial interest in O'Brien pursuant to the plan approved by the Court on or about February 22, 1996; WHEREAS, NRGE closed its acquisition of a substantial interest in O'Brien on April 30, 1996 and caused O'Brien to be renamed as NRGG; WHEREAS, O'Brien (Newark) and O'Brien (Parlin), respectively, are now known as NRGG (Newark) and NRGG (Parlin), respectively; WHEREAS, SSOI and NRGG (Newark) are currently negotiating an operating and Maintenance Agreement (the "NRGG (Newark) O&M Agreement") which will replace the O'Brien (Newark) O&M Contract; WHEREAS, SSOI and NRGG (Parlin) are currently negotiating an Operating and Maintenance Agreement (the "NRGG (Parlin) O&M Agreement" and, together with the NRGG (Newark) O&M Agreement, the "NRGG O&M Agreements") which will replace the O'Brien (Parlin) O&M Contract; WHEREAS, there are currently unresolved issues under the O'Brien O&M Contracts, which SSOI, NRGG (Newark) and NRGG (Parlin) desire to resolve prior to entering into the NRGG O&M Agreements; and WHEREAS, SSOI, NRGG (Newark), NRGG (Parlin), NRGG and SSSI desire to enter into this Agreement to memorialize their settlement as to the issues addressed below and as an inducement to and condition of their entering into the NRGG O&M Agreements, NOW, THEREFORE, in consideration of mutual covenants contained herein, the parties agree as follows: 1. Specialty Handtools. a. NRGG (Newark) agrees to pay SSOI the lesser of the audited value of the specialty handtools identified under SSOI Invoice Nos. 53001883, dated July 31, 1994, 53001997, dated September 30,1994, 53001614 dated June 9, 1994, 53001709 dated March 1, 1994, 53001719 dated June 30, 1994, 53001779 dated 7/31/94, 53002154 dated 10/31/94, or $100,000 (the least of such amounts being referred to as the "Audited Value"). b.: NRGG (Parlin) agrees to pay SSOI the lesser of the audited value of the specialty handtools identified under SSOI Invoice Nos. 53001991, dated August 31, 1994 53001608 dated June 3 1994, 53001714 dated June 30, 1994, and 53001795 dated 7/31/94, or S100,000 (the least of such amounts being referred to as the Audited value). c. The Audited Values owed respectively by NRGG (Newark) and NRGG (Parlin) under this Section 1 shall be due and payable only add completion of audits conducted respectively by or on behalf of NRGG (Newark) and NRGG (Parlin), establishing the type, quantity, and value of the Newark and Parlin specialty handtools. NRGG (Newark) and NRGG (Parlin) shall cause their respective audits to be completed by August 1. 1996. d. The amounts owed by NRGG (Newark) and NRGG (Parlin) under this Section 1 shall be paid as follows: (i) The annual Operating Fee (as defined in each NRGG O&M Agreement) will be increased for NRGG (Parlin) and NRGG (Newark), respectively, by an amount equal to one-sixth (16.67%) of each location's annual Operating Fee until each location's Audited Value amount is paid in full; 2 and (ii) If NRGG (Newark) and/or NRCYG (Parlin) elects to terminate its agreements other than for cause of either NRGG O&M Agreement, then on or before the effective date of such termination NRGG (Newark) and/or NRGG (Parlin), as the case may be, shall pay in full the unpaid balance of each location's Audited Value. e. NRGG (Newark) and NRGG (Parlin) shall have the right to pay the unpaid balance of the Audited Value in full in advance without penalty or premium. Except as provided in either NRGG O&M Agreements for interest on late payments, them shall be no interest payable on any portion of the payments owed to SSOI under this Section 1. f. Upon payment in full of their respective Audited Values, NRGG (Newark) or NRGG (Parlin) shall automatically obtain and thereafter have title to all of the specialty handtools identified on the invoices referenced above. Also, the Operating Fee for each shall be readjusted downward, to reflect such Payment. 2. Bonus. a. Notwithstanding the fact that NRGG (Newark) and SSOI may enter into the NRGG (Newark) O&M Agreement before the expiration of the Agreement Year (as defined in the O'Brien (Newark) O&M Contract), NRGG (Newark) agrees to pay SSOI a Bonus (as defined in the O'Brien (Newark) O&M Contract). The amount of the Bonus shall be calculated under the terms of the O'Brien (Newark) O&M Contract through April 30,1996, provided, however, that the amount of the Bonus shall under no circumstances exceed $338,000. b. SSOI will promptly invoice NRGG (Newark) for the Bonus after the effective due of the NRGG (Newark) O&M Agreement. c. There shall not be a bonus payable to SSOI from NRGG (Parlin). 3. Accounts Receivable. a. Each of NRGG (Newark) and NRGG (Parlin) acknowledges obligations to pay certain outstanding accounts receivable under the O'Brien (Newark) O&M Contract and O'Brien (Parlin) O&M Contract, respectively. As of April 30.1996, the outstanding 3 accounts receivable (the "Accounts Receivable") are: for Newark $333,682.20 and for Parlin $672,333.40. b. SSOI acknowledges that it has suffered budget cap overages for the Agreement Year (as defined in the O'Brien O&M Contracts) ending June 30, 1995. The amount of the budget cap overages are: for Newark, $138,112.80 and for Parlin $217,087.24. SSOI agrees to offset dollar for dollar, against the Accounts Receivable for the applicable plant, the budget cap overages for such plant. Therefore, the parties agree that the amounts to be paid by NRGG (Newark) and NRGG (Parlin) in full satisfaction of its respective Accounts Receivable are as follows: NRGG (Newark) $333,692.20 Outstanding accounts receivable as of 4/30/96 ($139,112.80) Credit for budget cap overage for 1995 $195,570.40 Total amount payable as of 4/30/96 NRGG (Parlin) $672,393.40 Outstanding accounts receivable as of 4/30/96 ($217,097.24) Credit for budget cap overage for 1995 $455,296.16 Total amount payable as of 4/30/96 c. The total amount of the Accounts Receivable owed by NRGG (Newark) and NRGG (Parlin) shall be payable in three (3) equal, consecutive monthly installments of: $65,190.13 for Newark and $151,765.39 for Parlin, beginning June 1, 1996. Should either NRGG (Newark) or NRGG (Parlin) fail to timely pay its Accounts Receivable, then SSOI may immediately and retroactively charge such party interest as provided in the applicable O'Brien O&M Contract, but otherwise no interest shall be owed. d. This Section 3 shall. not be construed as a compromise by SSOI or SSSI of rights, if any, that Calpine Corporation may enjoy by reason of any accounts payable of O'Brien (Newark) Or O'Brien (Parlin) that SSOI or SSSI may have sold to Calpine Corporation.. 4 4. Environmental Matters. Payment at any time of any fine or penalties payable to any state or the United States as a result of SSOI's failure prior to the date hereof to operate and maintain either or both of the Projects (as defined in the O'Brien O&M Contracts) in accordance with Requirements of Law (as defined in the O'Brien O&M Contracts) or Approvals and Permits (as defined in the O'Brien O&M Contracts) applicable to the operation and maintenance of either or both of the Projects shall be the sole responsibility of SSOI and such fines or penalties shall not result in any costs to be borne by NRGG (Newark), NRGG (Parlin) or NRGG. 5. Guarantee. a. By signing in the space provided below, NRGG hereby guarantees the prompt performance in payment when due, of the indebtedness, liabilities and undertakings of NRGG (Newark) and NRGG (Parlin) according to the terms of this Agreement. This guarantee is continuing, absolute and unconditional. This guarantee is a guarantee of payment and not collection and no action or demand need be made or brought against the entity whose obligations arc guaranteed as a precondition of enforcement. b. By signing in the space provided below, SSSI hereby acknowledges that the Guarantee which guarantees SSOI's obligations under each of the NRGG O&M Agreements, dated as of , by and among SSSI, NRGG (Newark) and NRGG (Parlin), shall also guarantee prompt performance of SSOI's obligations under this Agreement. 6. Settlement of Payment Obligations. Except as expressly set forth in this Agreement, none of NRGG (Newark), NRGG (Parlin), or SSOI shall have any obligation to make any payment of any funds to any of the others of than under either or both of the O'Brien O&M Contracts or any provision or provisions thereof, provided, however, that this provision shall. not be construed as a compromise by SSOI or SSSI of rights, if any, that either or both of them may enjoy by reason of any agreements heretofore made by O'Brien (Newark) or O'Brien (Parlin) with Calpine Corporation. 7. Financing Agreements. NRGG, NRGG (Newark) and NRGG (Parlin) represent that their execution of this Agreement will not violate any Financing Agreement (as 5 defined in the NRGG O&M Agreements) executed on or subsequent to the date hereof 8. No Conditions Precedent. The effectiveness of this Agreement is not conditioned upon the consent of the Agent (as defined under the NRGG O&M Agreements) or any lender. This Agreement will be executed simultaneously with the NRGG O&M Agreements. 9. Cooperation in Refinancing. Should NRGG (Newark) and/or NRGG (Parlin) decide to refinance, SSOI and SSSI agrees to execute the documents reasonably requested by their lender to effectuate such refinancing, including without limitation, consents to assignment of the NRGG O&M Agreements and any guarantees given by SSOI in connection with either or both of the NRGG O&M Agreements. This provision shall apply to the refinancing that NRGG (Newark) and NRGG (Parlin) are currently negotiating with Credit Suisse. 10. General. This Agreement shall be governed by and construed under the laws of New Jersey. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. No modification or amendment of this Agreement shall be valid unless in writing and executed by all parties to this Agreement. This Agreement shall be binding and inure to the benefit of the parties hereto and their respective successors and assigns. The waiver of any breach of any term or condition hereof shall not be deemed a waiver of any other or substantive breach, whether of like or different nature. [End of document text - next page contains signature blocks] 6 STEWART & STEVENSON OPERATIONS, INC. /s/ Harvey Braswell (b) Harvey Braswell Vice President - North American Operations NRG GENERATING (NEWARK) COGENERATION INC. By: /s/ Leonard Bluhm Name: Title: NRG GENERATING (PARLIN) COGENERATION INC. By: /s/ Leonard Bluhm Name: Title: NRG GENERATING (U.S.) INC. By: /s/ Leonard Bluhm Name: Title: STEWART & STEVENSON SERVICES, INC. By: /s/ Name: Title: EX-10.16.3 12 EXHIBIT 10.16.3 LETTER AGREEMENT DATED MAY 20, 1996 BETWEEN NRG GENERATING (NEWARK) COGENERATION AND STEWART & STEVENSON OPERATIONS, INC. Exhibit 10.16.3 [Letterhead] NRG Generating (U.S.) Inc. 1221 Nicollet Mall Suite 700 Minneapolis, MN 55403-2445 Telephone (612) 373-5305 Fax (612) 373-8833 May 20, 1996 Mr. Harvey A. Braswell Stewart & Stevenson Operations, Inc. 2707 North Lake West, 2nd Floor Houston, TX 77008 Re: Auxiliary Boilers - NRG Generating (Newark) Inc. Dear Harvey, Please refer to that certain NRG Generating (Newark) Inc./Stewart & Stevenson Operations, Inc. Operating and Maintenance Agreement, dated as of May 1, 1996 (the "Newark O&M Agreement") between NRG Generating (Newark) Inc. ("NRG Newark") and Stewart & Stevenson Operations, Inc. ("SSOI"). This letter is to confirm the mutual understanding and agreement of NRG Newark and SSOI that the term "System" as used in the Newark O&M Agreement includes any auxiliary boiler (and any replacement boiler) used to meet NRG Newark's obligations under the Amended Power Purchase Agreement or the Steam Purchasing Agreement dated October 3, 1986, as amended, between NRG Generating (Newark) and Newark Group Industries Inc. ("Newark Group"), so long as such boiler is located within the boundaries of the Newark Group facilities located on Blanchard Street regardless of whether such boiler is regarded as owned by NRG Newark or Newark Group. It is also our mutual understanding and agreement that SSOI will operate and maintain the Newark auxiliary boiler under the terms of the Newark O&M Agreement as modified by this letter. Nevertheless, we acknowledge that NRG Newark's current auxiliary boiler is currently mounted on a movable skidmounting system and that arrangements are being made by NRG Newark with Newark Group to create a permanent mounting for it. We recognize that SSOI's budgets underlying the NRG Newark Agreement did not include the operation and maintenance costs related to the auxiliary boiler. Consequently, until the auxiliary boiler is permanently installed as contemplated above, NRG Newark will pay the operation and maintenance costs outside of SSOI's budget cap under the NRG Newark Agreement to the extent that SSOI can separately identify and document operation and maintenance costs specifically related to operation and maintenance of the auxiliary boiler. Additionally, NRG Newark will pay the costs incurred in moving the auxiliary boiler to its permanent installation site. Subsequent to the permanent installation of the boiler to occur on or about October 4, 1996 and prior to the effective date of the 1997 budget (January 1, 1997) at which time agreement will have been reached on costs to be included in the 1997 budget, all parties agree to review Exhibit F of the Newark O&M Agreement, the Operating Budget, and initiate a Change Order Budget Statement as defined in the NRG Newark O&M Agreement to accommodate those variable, incremental O&M costs resulting from the inclusion of the auxiliary boiler as part of the System. The incremental costs for the partial 1996 period referenced here are those that are in excess of 1996 Exhibit F Budget estimates for variable costs over amounts that would have been incurred. It is understood that the permanent installation of the auxiliary boiler in the Newark Group facility will encompass interconnection (mechanical and electrical) to various Newark Group systems not under control of the Operator. Owner and Operator agree to review the final installation to define where Operator scope ends and Newark Group's scope begins with regard to the auxiliary boiler installation. SSOI will not be held accountable for damages, repairs, or emission excedences resulting from unavailability of, or the malfunction of, all equipment outside of those connections defined as "customer connection". NRG Newark agrees to indemnify, defend, and hold SSOI and Stewart & Stevenson ("SSSI") harmless for all damages arising out of the negligent acts or omissions of Newark Group, its affiliates, employees, representatives, and contractors. Furthermore is recognized that SSOI will require 24 hour unrestricted access to the auxiliary boiler and necessary connections on Newark Group's property, and NRG Newark agrees to immediately obtain all agreements from Newark Group to ensure SSOI has such access. SSOI will not be in default under the NRG Newark O&M Agreement resulting from a lack of access to the auxiliary boiler and necessary connections. If the auxiliary boiler package is owned by Newark Group then as an express condition to SSOI's performance of its obligation under this letter agreement, NRG Newark shall provide or obtain from Newark Group a certificate of insurance naming SSOI and SSSI as additional insured on Newark Group's general liability, excess liability and boiler and machinery insurance policies, each of which shall be in an amount no less than those required under the NRG Newark O&M Agreement for such coverages. Such insurance shall also include waivers of subrogation in favor of SSOI and SSSI and shall not be canceled or modified except upon 30 days' written notice. SSOI agrees to furnish NRG Newark a spare parts list for the auxiliary boiler to allow operation consistent with good industry practice. Such costs for procurement will be regarded as initial inventory and will be to the NRG Newark's account and will not affect SSOI's budget caps as defined in the NRG Newark O&M Agreement. NRG Newark agrees to provide or to cause Newark Group to provide all permits pertinent to the operation and maintenance of the auxiliary boiler for SSOI's review no less than 10 business days prior to commercial operation of the auxiliary boiler, regardless of eventual ownership of auxiliary boiler. NRG Newark recognizes that the auxiliary boiler will be in an unsecured environment not with SSOI's control. SSOI shall have no responsibility for security for the auxiliary boiler and NRG Newark releases SSOI from any liability for damage to the auxiliary boiler except to the extent such damage results from the negligent operation and maintenance thereof. NRG Newark acknowledges that the auxiliary boiler will be located in an area at the Newark Group facility which may contain unknown environmental concerns over which SSOI has not control and NRG Newark shall be solely responsible for ensuring such areas in full compliance with all applicable laws, permits, and regulations. SSOI shall not be responsible or liable for, and it shall not constitute an event of default under the NRG Newark O&M Agreement, the failure of such area on the auxiliary boiler to comply with such applicable laws, regulations and permits. This letter is intended as a clarifying amendment to the NRG Newark Agreement. Accordingly, the NRG Newark Agreement is hereby amended to reflect the terms hereof and, except as explicitly stated above, shall continue in full force and effect in accordance with its provisions. Additionally, the provisions of Article XIX of the NRG Newark Agreement are hereby incorporated into this letter as if they were separately stated herein. If this letter accurately sets forth the terms of our understanding, please so indicated by executing a copy of this letter in the space provided below. Yours very truly, NRG GENERATING (NEWARK) COGENERATION By: /s/ Leonard Bluhm Name: Leonard A. Bluhm Title: President ACKNOWLEDGED AND AGREED TO: STEWART & STEVENSON OPERATIONS, INC. By: /s/ Harvey A. Braswell Name: Harvey A. Braswell Title: Vice President EX-10.17.2 13 EXHIBIT 10.17.2 FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF ELECTRIC POWER DATED JUNE 11, 1991 BETWEEN THE COMPANY AND JCP&L. Exhibit 10.17.2 FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF ELECTRIC POWER This FIRST AMENDMENT, dated as of June 11, 1991 ("Amendment") to the Agreement of Purchase and Sale of Electric Power, dated October 28, 1986, ("Agreement") between O'BRIEN ENERGY SYSTEMS, INC. ("Seller") and JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L"). WHEREAS, the Agreement provides for the purchase by JCP&L of the capacity and energy from a project being developed by SELLER at the DuPont (Parlin) New Jersey plant site; and WHEREAS, the Agreement was assigned to O'Brien (Parlin) Cogeneration, In by SELLER on December 1, 1988 which assignment was consented to by JCP&L on December 1, 1988; and WHEREAS, the Parties now desire to ratify and amend the Agreement in certain respects and make certain modifications thereto; NOW THEREFORE, in consideration of the mutual covenants contained herein, the Parties hereby agree as follows: 1 1. Definition of "Company Availability Factor": A new Article 3.7.5 is added to read as follows: "Company Availability Factor" means the weighted average of the Equivalent Availability of all the Company's non- nuclear electric generating facilities. 2. Definition of "Contract Capacity": The definition of "Contract Capacity" in Article 3.8 of the Agreement is amended to read as follows: "When Operating Status Option I is selected, "Contract Capacity" means the maximum summer peak season (92 F ambient air temperature or 78 F incoming condensing water temperature) producing capability of the Generating Facility, as specified in Paragraph 5A of Preface A to this Agreement, that Seller shall demonstrate according to PJM guidelines in MWH/Hr. When Operating Status Option II is selected, "Contract Capacity" means the maximum summer peak season (92 F ambient air temperature or 78 F incoming condensing water temperature) producing capability of the Generating Facility consisting of three components: the "Base Contract Capacity" which shall equal 92 megawatts; the "Supplemental Schedule A Capacity" which shall represent capacity in excess of the Base Contract Capacity as determined by the Seller in accordance with Article 6.18, and the "Supplemental Schedule B Capacity" which shall represent capacity in excess of the sum of the Base Contract Capacity and Supplemental Schedule A Capacity. 2 Supplemental Schedule B Capacity will be established by the Seller on a daily basis. 3. Definition of "Date of Initial Commercial Operation": The definition of "Date of Initial Commercial Operation" in Article 3.9 is hereby amended to read as follows: "Date of Initial Commercial Operation" means the date specified by the Seller and agreed to by JCP&L after the Seller has completed start-up and testing including the acceptance test of the Generating Facility by the engineering/construction firm, which date shall not precede the Initial Delivery Date. The Seller shall notify JCP&L of the proposed Date of Initial Commercial Operation upon not less than 30 days prior written notice. JCP&L's approval of such date shall not unreasonably be withheld. 4. Definition of "Dispatchable Capacity": A new Article 3.9.5 is added to read as follows: "Dispatchable Capacity" means the total hourly output of the Supplemental Schedule A Capacity and Supplemental Schedule B Capacity. 5. Definition of "Equivalent Availability" and "Facility Availability Factor": New Articles 3.10.1 and 3.10.2 are added to read as follows: "Equivalent Availability" means the percentage of hours that a generating unit is available to operate taking into account any partial outage time as determined in accordance with 3 the methodology set forth in Appendix III. "Facility Availability Factor" means the Equivalent Availability of the Facility. 6. Definition of "Forced Outage": A new Article 3.10.5 is added to read as follows: "Forced Outage" means the unscheduled removal of the Generating Facility or a portion thereof from service or the inability of the Generating Facility to operate in accordance with the capacity- temperature tables included as Appendix II. 7. Definition of "GPU System": A new Article 3.11.5 is added to read as follows: "GPU System" means the integrated electric generating system of General Public Utilities Corporation, a Pennsylvania corporation, which is the parent of JCP&L. 8. "Maintenance Outage": A new Article 3.17.5 is added to read as follows: "Maintenance Outage" means the scheduled removal of the Generating Facility from service in order to perform necessary repairs on specific components of the Generating Facility where removal of the Generating Facility can be postponed to the weekend past the immediately succeeding weekend. A Maintenance Outage must be scheduled with PJM through JCP&L and be accepted by JCP&L and PJM. 4 9. Definition of "Maximum Hourly Production". The definition of "Maximum Hourly Production" in Article 3.19 is hereby amended to read as follows: When Operating Status Option I is selected, "Maximum Hourly Production" shall equal 92 megawatt hours per hour. When Operating Status Option II is selected. "Maximum Hourly Production" shall equal a base component of 92 megawatt hours per hour and a dispatchable component [in megawatt hours per hour] consisting of the total of Supplemental Schedule A Capacity and Supplemental; Schedule B Capacity. Maximum Hourly Production shall not exceed, in any event, 140 MWH per hour. 10. Definition of "Net Electric Energy". The definition of "Net Electric Energy" in Article 3.20 is hereby amended to read as follows: "Net Electric Energy" or "Electricity" means the gross amount of electricity in kilowatt hours (kWh) generated by Seller's Generating Facility less kWh consumed by the Host and Seller's Generating Facility and less transformation and transmission losses, if any, to the point of Interconnection. 11. Definitions for "On-Peak Hours" and "Off-Peak Hours": (a) A new Article 3.20.5 is added to read as follows: "Off-Peak Hours" means all hours other than On-Peak Hours. 5 (b) A new Article 3.21.5 is added to read as follows: "On-Peak Hours" means all hours from 8 a.m. to 8 p.m., prevailing time, Monday through Friday, 52 weeks per year other than New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas. 12. Definition of "On-Peak Period". The definition of "On-Peak Period" in Article 3.22 is hereby amended to read as follows: "On-Peak Period" means all hours from 8 a.m. to 8 p.m., prevailing time, Monday through Friday, during the months of December through February and June through September, other than New Years Day, Independence Day, Labor Day and Christmas. 13. Definition of "PJM" or "PJM System". A new Article 3.26.3 is added to read as follows: "PJM" or "PJM System" means the Pennsylvania/New Jersey/Maryland Interconnected Power Pool cooperatively operated under the Pennsylvania/New Jersey/Maryland Interconnection Agreement dated as of September 26, 1956 as amended or supplemented from time to time. 14. Definition of "Planned Outage" and Amendments to Articles 3.32 and 3.36. A New Article 3.26.5 is added to read as follows: "Planned Outage" means the scheduled removal of the Generating Facility from service for inspection or repair. A 6 Planned Outage must be scheduled by the Seller 2 months in advance and be approved by JCP&L and PJM. Articles 3.22 and 3.36 are deleted in their entirety. 15. Definition of "Scheduled Dispatch Period", "Shut Down Period" and "Start-Up Period". New Articles 3.31.5, 3.32.5, and 3.35.5 are hereby added to read as follows: "Scheduled Dispatch Period" means the time duration of a request for delivery of output in excess of the Base Contract Capacity (92 MW) beginning and ending at the time specified by JCP&L. Such periods are exclusive of Start-Up and Shut-Down Periods and shall require thirty minutes notice in advance of commencement of a Start-Up Period. "Shut-Down Period" means the period, as determined by test, necessary to return the Generating Facility to Base Contract Capacity in accordance with good engineering practice and manufacturer's recommendations immediately following a Scheduled Dispatch Period. "Start-Up Period" means the period, as determined by test, necessary to ramp up the dispatchable portion of the Generating Facility and reach steady state operation in a 7 manner consistent with good engineering practice and manufacturer's recommendations immediately preceding a Scheduled Dispatch Period. 16. Amendment to Article 4.1. Article 4.1(B) is hereby amended to read as follows: Notwithstanding the preceding paragraph and subject to the "force majeure" provisions stated in Article 12 hereof, JCP&L may terminate this Agreement by providing Seller 45 days written notice if the Date of Initial Commercial Operation has not occurred prior to February 28, 1992." 17. Amendment to Article 5.3 (Interconnection Facility and Protective Apparatus Design and Construction): The following language is added to Article 5.3 following the second full sentence thereof: "Seller shall also reimburse JCP&L for all reasonable costs associated with the routine maintenance of interconnection equipment on JCP&L's side of the Point of Interconnection. Upon thirty days notice by Seller, prior to the planned Date of Initial Commercial Operation and on each subsequent anniversary of such Date of Initial Commercial Operation, JCP&L shall provide an estimate (for planning purposes only) and a description of the work to be performed in the succeeding year to conduct routine maintenance of interconnection equipment on JCP&L's side of the Point of Interconnection." 8 18. Amendment to Article 5.6 (Interconnection Facility and Protective Apparatus Design and Construction): Article 5.6 is hereby added and reads as follows: "5.6: Seller shall indemnify, hold harmless and agrees to defend JCP&L from and against any and all liability, loss, cost and expense, associated with any and all Federal, State and/or local income tax liability, arising out of or connected with the transfer from the Seller to JCP&L of the Seller's Interconnection Facilities, Protective Apparatus, Special Facilities and/or any and all associated and/or related structures, equipment, facilities and devices in performance of, pursuant to and/or in connection with this Agreement. JCP&L and Seller intend that such transfer shall be a Qualifying Facility transfer pursuant to IRS Advance Notice 88- 129. Accordingly, Seller shall obtain, at its own expense, the report of an independent engineer regarding electricity sales by JCP&L to the Seller as provided by that Advance Notice." 19. Amendment to Article 6.1. The last sentence of Article 6.1 is hereby deleted. 20. Amendment to Article 6.2 (Conditions Requiring 9 Curtailment or Interruption of Deliveries of Electricity). The last three lines of Article 6.2(a) are hereby amended to read as follows: ". . . . provided further that any such PJM requirement to reduce or interrupt such purchases does not exceed 600 hours in any calendar year, with the further provision that no more than 400 of the 600 hours shall occur during On-Peak Periods." 21. Amendment to Article 6.4 (Maintenance Outages). Article 6.4 is hereby amended to read as follows: "Seller shall furnish JCP&L with an annual forecast not later than December 15 of each year setting forth the expected dates and anticipated duration of each Planned Outage for the succeeding 36 months. Seller shall update, on a monthly basis, the outage request schedule by the 15th day of each month. Such updates shall be transmitted to JCP&L by telephone and promptly confirmed in writing. JCP&L shall forward its response to an outage request not later than 10 days following JCP&L's receipt of such outage request. Seller shall notify JCP&L's dispatcher approximately 15 minutes prior to the approved outage period of its intent to remove the Generating Facility from service. Seller shall also notify JCP&L concerning the cause and duration of any Forced Outage." 22. Amendments to Article 6.5 and 6.6. 10 (a) Article 6.5 is deleted in its entirety. (b) Article 6.6 is hereby amended to read as follows: "Seller shall not schedule or conduct Planned Outages during On-Peak Periods." 23. Amendments to Article 6.7. Article 6.7 is hereby amended to read as follows: (a) "Seller shall keep and maintain accurate and complete records for the Generating Facility containing such information regarding operation and maintenance of the Generating Facility and all associated equipment as is appropriate and consistent with industry practice and as may be necessary for JCP&L to comply with its applicable requirements. JCP&L will advise the Seller of such requirements as in effect from time to time. Seller shall make such records available to JCP&L for inspection and copying from time to time as JCP&L may reasonably request." (b) "Seller shall maintain and classify outage statistics for the Generating Facility in accordance with the GPU System outage classification procedures as the same may be in effect from time to time. Seller shall supply such statistics to 11 JCP&L upon request. In addition, Seller shall maintain or cause to be maintained such other records relating to the Generating Facility as may be reasonably required by the GPU System of cogeneration projects, and, upon written notice from JCP&L, will maintain or cause to be maintained such other records as the BPU, Federal Energy Regulatory Commission (FERC) or other regulatory body having jurisdiction, may from time to time require." 24. Amendment to Article 6.9. Article 6.9 is hereby amended to read as follows: "Seller shall furnish to JCP&L on each January 1 following the Date of Initial Commercial Operation satisfactory evidence that during the previous calendar year, Seller has performed or caused to be performed all manufacturer-recommended maintenance and testing of the Generating Facility and the Protective Apparatus and interconnection equipment, including circuit breakers, relays and auxiliary equipment. Seller shall provide JCP&L with at least 30 days prior written notice of its intent to test such equipment and JCP&L personnel or their representatives may, if JCP&L desires, observe such testing." 25. Amendment to Article 6.12 (Contract Capacity and Reduction of Capacity Component of Price). Article 6.12 is hereby amended to read as follows: 12 (a) "When Operating Status Option I is selected, Seller shall, at JCP&L's request, demonstrates the ability of the Generating Facility to provide JCP&L Contract Capacity within 30 days after the Date of Initial Commercial Operation. Thereafter, twice annually Seller shall, once during On-Peak Period summer months and once during On-Peak Period summer months and once during On-Peak Period winter months demonstrate the ability of the Generating Facility to provide Contract capacity for such period of time as is required by PJM from time to time for all PJM suppliers. Seller's demonstration of Contract Capacity shall be at Seller's expense and conducted at a time and pursuant to procedures as may be required by applicable GPU System rules, regulations and guidelines. If Seller fails to demonstrate the ability of the Generating Facility to provide at least 90% of the Base Contract Capacity, the Capacity Component of the price to be paid for Electricity pursuant to Article 9.1(b)(v) thereof shall be reduced to the following amount until Seller is able to demonstrate the ability to provide at least 90% of the Base Contract Capacity. Demonstrated Capacity X 5.97 cents/kWh Contract Capacity If Seller does not demonstrate the ability of the Generating Facility to provide at least 90% of the Base 13 Contract Capacity during the applicable On-Peak Period, then a retroactive reduction of the Capacity Component of the price to be paid for Electricity pursuant to Article 9.1(b)(v) based upon the above formula will be applied to the entire applicable On-Peak Period. However, should Seller's failure to demonstrate the ability of the Generating Facility to provide Contract Capacity be caused by a "force majeure" event as defined in Article 12 hereof, the provisions of this Article 6.12 shall not apply until the "force majeure" has ceased to exist. Should Seller fail to demonstrate the ability of the Generating Facility to provide at least 90% of Contract Capacity for any reason other than "force majeure", Seller shall have the right to schedule subsequent demonstrations at Seller's expense as soon as possible during The Adjustment Period at a time mutually agreed upon by the Parties, but not later than 1 months following the last such demonstration. The Capacity Component of the price to be paid for Electricity pursuant to Article 9.1(b)(v) shall be immediately readjusted to its original formulation (i.e. 5.97 cents/kWh) following the expiration of The Adjustment Period provided Seller has successfully demonstrated the ability of the Generating 14 Facility to provide at least 90% of Contract Capacity during The Adjustment Period. (b) When Operating Status Option II is selected, Seller shall demonstrate the ability of the Generating Facility to provide JCP&L Base Contract Capacity within 30 days after the Date of Initial Commercial Operation. Thereafter, twice annually at JCP&L's request, Seller shall, once during On-Peak Period summer months and once during On-Peak Period winter months demonstrate the ability of the Generating Facility to provide Base Contract Capacity for such period of time as is required by PJM from time to time for all PJM suppliers. Seller's demonstration of Base Contract Capacity shall be at Seller's expense and conducted at a time and pursuant to procedures as may be required by applicable GPU System rules, regulations and guidelines. JCP&L and Seller agree to use their reasonable best efforts to cause the capacity demonstration to be scheduled as early as practicable in each peak period. If Seller fails to demonstrate the ability of the Generating Facility to provide at least 90% of the Base Contract Capacity, the Capacity Component of the price to be paid for Electricity pursuant to Article 9.1(b)(v) thereof shall be reduced to the following amount until Seller is able to demonstrate the ability to provide at least 90% of the Base 15 Contract Capacity: Demonstrated Capacity x 5.97 cents/kWh Base Contract Capacity If Seller does not demonstrate the ability of the Generating Facility to provide at least 90% of the Base Contract Capacity during the applicable On-Peak Period, then a retroactive reduction of the Capacity Component of the price to be paid for Electricity pursuant to Article 9.1(b)(v) based upon the above formula will be applied to the entire applicable On-peak Period. However, should Seller's failure to demonstrate the ability of the Generating Facility to provide Contract Capacity be caused by a "force majeure" event as defined in Article 12 hereof, the provision, of this Article 6.12 for Base Contract Capacity shall not apply until the "force majeure" has ceased to exist. As part of the foregoing capacity test, Seller shall demonstrate the ability of the Generating Facility to provide JCP&L the Supplemental Schedule A Capacity. This test shall be conducted pursuant to procedures as may be required by applicable GPU System rules, regulations and guidelines. If Seller fails to demonstrate the ability of the Generating Facility to provide 100% of the sum 16 of the Base Contract Capacity and the Supplemental Schedule A Capacity, the Capacity Component of the price set out in Appendix I hereto for the Supplemental Schedule A Capacity shall be reduced by an amount calculated using the following formula until Seller is able to demonstrate the ability of the Generating Facility to provide 100% of the sum of Supplemental Schedule A Capacity plus the Base Contract Capacity. (Supplemental Schedule A Capacity will be based on the capacity which can be demonstrated according to GPU System rules above 92 MWH/Hr.) The lesser of: 1.5 x (1- Demonstrated Supplemental Schedule A Capacity) x Applicable Supplemental Supplemental Schedule A Capacity Schedule A Capacity payment pursuant to Appendix I. or 100% x Applicable Supplemental Supplemental Schedule A Capacity payment pursuant to Appendix I. If Seller does not demonstrate the ability of the Generating Facility to provide at least 100% of the Supplemental Schedule A 17 Capacity during the applicable On-Peak Period, then a retroactive reduction to the Supplemental Schedule A Capacity Component of the price to be paid for Electricity pursuant to Appendix I based upon the above formula will be applied to the entire applicable On-Peak Period. If at any time during each consecutive three (3) year period commencing with the latter of the Date of Initial Commercial Operation or the Effective Date of this First Amendment (hereafter referred to as a "Supplemental Schedule A Nomination Period") Seller fails to demonstrate the ability of the Facility to provide at least 1/3 of the Supplemental Schedule A capacity during any scheduled peak period capacity demonstration, and such failure results in a 100% reduction of Supplemental Schedule A capacity payments for the applicable on-peak period, then Seller shall pay to JCP&L a penalty equal to 1.25% of the full Supplemental Schedule A capacity payments to be made to Seller over the entire Supplemental Schedule A Nomination Period, which penalty Seller shall pay to JCP&L in six (6) equal monthly payments commencing in the month following the month such failure occurs. Should Seller's failure to demonstrate 100% of Supplemental Schedule A Capacity be for any reason other than "force majeure", Seller shall have the right to schedule subsequent demonstrations at Seller's expense as soon as possible at a time mutually agreed upon by JCP&L and Seller, following a failed demonstration of 18 Supplemental Schedule A Capacity. However, should Seller's failure to demonstrate the ability to provide Supplemental Schedule A Capacity be caused by JCP&L's inability to accept delivery of such capacity, the provision of this Section shall not apply. Demonstrated Capacity will be based on the earliest demonstration thereafter which JCP&L can accept. Should Seller's failure to demonstrate the ability to provide Supplemental Schedule A Capacity be caused by a "force majeure" event, as defined in Article 12 hereof, there will be no penalty incurred for such documented "force majeure" period and no Schedule A Capacity payment will be made during such period. Seller shall demonstrate 100% of the applicable Supplemental Schedule B Capacity when requested by JCP&L during scheduled Dispatch Periods. If the Seller fails to demonstrate 100% of the Supplemental Schedule B Capacity, the Supplemental Schedule B Capacity payment set out in Appendix I hereto shall be reduced by an amount calculated using the following formula until Seller is able to successfully demonstrate such capacity, or the next succeeding Scheduled Dispatch Period, whichever occurs first. In the absence of a Supplemental Schedule B Dispatch Period, Supplemental Schedule B Capacity Payments will be based upon the 19 last demonstrated Supplemental Schedule B Capacity until the next Dispatch Period. Seller may also demonstrate the ability of the Generating Facility to produce Supplemental Schedule B Capacity by self test in the absence of a Dispatch Period. Such self test will be for a one hour period. The payment for the energy delivered to JCP&L during this self test will be the applicable On-Peak or off-Peak PJM billing rate to GPU minus ten (10%) percent. 1.5 x (1- Demonstrated Supplemental Schedule B Capacity) x Applicable Supplemental Supplemental Schedule A Capacity Schedule B Capacity payment pursuant to Appendix I. For purposes of this test, demonstrated Supplemental Schedule B Capacity shall be the average output delivered during the Scheduled Dispatch Period and shall not include sales to the Generating Facility's steam host, Base Contract Capacity at 100% output and Supplemental Schedule A Capacity at 100% output. 26. Amendment to Article 6.13 (Electric Sales and Reduction of Energy Component of Price): Article 6.13 is hereby amended to read as follows: When Operating Status I is selected: "(a) Seller shall sell Electricity to JCP&L continuously 20 throughout the term of this Agreement and any extensions or renewals hereof at an annual level which is equal to or greater than 90% of the Theoretical Output using the Contract Capacity. For the purposes of this Agreement, the Theoretical Output which could be sold in any calendar year using the Contract Capacity shall be determined by the following formula: A = 92,000 x (8760-B-C) where, A = Theoretical Output expressed in kilowatt hours; B = Non-generating hours as required by JCP&L due to curtailment or interruption caused by JCP&L and for which the Seller is not at fault, or a :force majeure"; C = Planned Outage Hours for a major facility overhaul as furnished to JCP&L pursuant to Article 6.4. Annual or yearly periods for determining sales of Electricity to JCP&L shall be based on a calendar year. Failure to maintain Electricity sales equal to or greater than 90% of the Theoretical Output for any calendar year, which shall be the twelve calendar months beginning on January 1 of each year, shall result in a reduction in the energy component 21 of the price pursuant to Article 9.1(b) to be paid for Electricity in the following year. (b) To determine whether there is to be an energy component price reduction in any year, beginning with January 1 of the second calendar year of Commercial Operation, the actual annual amount of Electricity sold by Seller to JCP&L in the most recent year, less sales of Electricity during the same period in excess of Maximum Hourly Production, the resulting difference being referred to hereafter as the "Annual Electricity Sold" shall be compared to the Theoretical Output. If the Annual Electricity Sold to JCP&L in the most recent year is less than 90% of the Theoretical Output, then the energy component of the price (Article 9.1(b)) to be paid for Electricity in the following year shall be calculated in accordance with the following formula: E = (Y/A) x P where E = Energy Component of Price Y = Annual Electricity Sold, expressed in kilowatt hours A = Theoretical Output expressed in kilowatt hours 22 P = Fixed plus Variable Energy Component Price as specified in Article 9.1(b) and applicable to the contract year. (c) In all cases, pricing will be determined and effective in accordance with this Article 6.13 for each 3 month adjustment of the energy component of the price set forth in Article 9.1(b) beginning with January 1 of the year the reduction will take effect and remain in effect until the following January 1. When the Seller has in the most recently completed calendar year achieved in Annual Electricity Sold result of at least 90% of the Theoretical Output, the Fixed plus Variable Energy Component of the price in the following year will be returned to 100% of that specified in Article 9.1[b]. (d) If JCP&L determined there should be an energy component price reduction, it shall submit a statement to Seller within 30 days after the end of a calendar year, which shall contain the calculation as performed pursuant to Article 6.13(b) (referred to hereafter as the "Pricing Statement"). Seller shall promptly (but in any event, within fifteen (15) days following receipt) advise JCP&L of any objections to the Pricing Statement. All such objections shall be settled by the 23 Parties as expeditiously as possible. (e) If JCP&L does not receive written notice from Seller concerning Seller's objection to a Pricing Statement within fifteen (15) days from the date of its receipt by Seller, said Pricing Statement shall be binding, absent manifest error, upon Seller and upon JCP&L. When Operating Status Option II is selected: (a) Seller shall provide Base Contract Capacity and dispatchable energy to JCP&L at a level which results in a Facility Available Factor based on Base Contract Capacity and Supplemental Schedule A Capacity for each calendar year (a "Performance Year") at least equal to the Company Availability Factor for the immediately preceding calendar year. (b) Subject to paragraphs (h) and (I) below, if for any Performance Year the Facility Availability Factor is less than the Company Availability Factor for the immediately preceding calendar year, the Seller shall be assessed a performance penalty for such Performance Year, equal to the weighted average of the PJM capacity deficiency payment rate for that year multiplied by the difference between the Company 24 Availability Factor and the Facility Availability Factor multiplied by the sum of the Base Contract and the Supplemental Schedule A Capacity. (c) For purposes of calculating the Facility Availability Factor, the Facility will not be penalized during the relevant Performance Year due to a "force majeure" event or negligent actions or inactions by JCP&L which prevent JCP&L from accepting deliveries from the Facility. (d) Notwithstanding anything contained in this Article VI or this Agreement to the contrary, Seller shall not be liable for and no performance penalty payment shall be payable if the Facility Availability Factor for a Performance Year is at least 85%. (e) JCP&L shall submit to Seller a performance penalty payment statement setting forth the amount of any performance penalty payment to be made by the Seller to JCP&L pursuant to this Article VI within 90 days after the close of each Performance year. (f) If JCP&L does not receive written notice from Seller of any objection to the performance penalty payment statement 25 within 15 days from the date of receipt thereof, said performance penalty payment statement shall be deemed conclusive and binding on the parties absent manifest error. (g) Seller shall make any performance penalty payment due to JCP&L in 6 equal monthly payments by applying said monthly payments against amounts due from the Company for output delivered during the first six months following the receipt by Seller of the performance penalty payment statement. If Seller does not deliver sufficient electric energy to JCP&L in any month to allow the full set-off of the monthly payment as provided herein, Seller shall pay to JCP&L no later than 10 days following the date of Seller's receipt of JCP&L's invoice therefor any amount which cannot be set-off. Any and all amounts due and owing to JCP&L under this Article VI shall be immediately due and payable by Seller in the event of a termination of the Agreement. 27. Amendment to Article 6.14 (Electricity in Excess of Maximum Hourly Production): Article 6.14 is hereby amended to read as follows: "Subject to the provisions of Article 6.2 hereof, when Operating Status Option I is selected, JCP&L shall accept additional megawatt hours per hour of Electricity in excess of the Contract Capacity of 92 megawatt hours per hour, pursuant to the 26 pricing formula in Article 9.1 adjusted as follows: Electricity -% in excess Price as a Percentage of 92 MW per hour of Article 9.1[b] Price up to 1 90% 1 to 2 80% 2 to 3 70% 3 to 4 60% above 4 50% 28. Amendment to Articles 6.15 and 6.16: Articles 6.15 and 6.16 are deleted in their entirety. 29. Amendment to Article 6.18 (Operating Options): Articles 6.18 is hereby amended to read as follows: "Seller must, 6 months prior to every third year anniversary of the Date of Initial Commercial Operation, elect to operate its Generating Facility in parallel with JCP&L's electric system for the next 3 years pursuant to one of the following options. (a) Operating Status Option I: Seller shall sell to JCP&L the Base Contract Capacity of 92 MWH/Hr. and associated energy. Seller may sell any output in excess of the Base Contract Capacity at the rates set forth in Article 6.14. (b) Operating Status Option II: Seller shall sell to JCP&L Base Contract Capacity of 92 MWH/Hr. and associated energy and offer annually for the following three years 27 Supplemental Schedule A Capacity and on a daily basis. Supplemental Schedule B Capacity. The Seller shall also make any energy above the Base Contract Capacity fully dispatchable by JCP&L. (c) The Seller must specify, in writing, the Operating Status Option it will initially follow at least 4 months prior to the Date of Initial Commercial Operation, and must specify the amount of Supplemental Schedule A Capacity, if any, which Seller has selected for the initial Supplemental Schedule A Nomination Period no later than the Date Initial Commercial Operation. Thereafter, at least 6 months prior to every third-year anniversary of the Date of Initial Commercial Operation, Seller must notify JCP&L in writing concerning the Operating Status Option and the amount of Supplemental Schedule A Capacity, if any, which Seller has selected for the succeeding Supplemental Schedule A Nomination Period. 30. Amendment to Article 7.0 (Delivery and Metering): The following sentence shall be added to the end of Article 7.0: "Seller shall reimburse JCP&L for the reasonable costs of all meters and equipment used for the measurement of Electricity, and shall also reimburse JCP&L for costs involved with the inspection and periodic testing of such meters." 28 31. Amendment to Article 7.2: Article 7.2 is hereby amended to read as follows: "For purposes of monitoring the generator operation, JCP&L shall have the right to require, at Seller's expense, the installation of generation telemetering and control of selected breakers and switching equipment. Seller will also be responsible for the operating and maintenance costs associated with the metering and telemetering equipment." 32. Amendments to Articles 8.1, 8.2., 8.3., 8.4(c), 8.5 and 8.6: (a) Article 8.1 is hereby amended to read as follows: "Seller agrees to deliver and JCP&L agrees to purchase Net Electric Energy and Contract Capacity generated by the Generating Facility pursuant to the terms and conditions of this Agreement. Not later than August 30 of each year, Seller will provide a schedule of expected monthly generated for the next 3 years. Seller will provide each week by Thursday at 9:30 a.m. or by Wednesday at 9:30 a.m. if Thursday at 9:30 a.m. or by Wednesday at 9:30 a.m. if Thursday or Friday is a scheduled holiday for JCP&L,. a schedule of expected hourly output for the coming week. The schedule for each day will be confirmed on the preceding workday. Seller will promptly inform JCP&L of any occurrences which will cause a change to 29 the expected hourly output schedule". (b) Article 8.2 and 8.3 are hereby deleted in their entirety. (c) Article 8.4(c) is hereby amended to read as follows: "Conditions on the PJM System are such that generators of all PJM member utility are required to reduce generation to minimum levels during periods of low load in accordance with Section 9.00 of the Alert and Emergency Procedures contained in the PJM Interconnection Operating Instruction OI-B.11 and pursuant thereto JCP&L has received a request from the PJM interconnection dispatcher to reduce or interrupt purchases from generation external to PJM, provided that any such PJM requirement to reduce or interrupt such purchases shall not exceed 600 hours in any calendar year, and provided further that no more than 400 of the 600 hours shall be during On-Peak Periods." (d) Article 8.5 is hereby added and reads as follows: 8.5 (a) When Operating Status Option II is selected, JCP&L shall have full dispatching control of the output generated by the Generating Facility above the Base Contract Capacity subject to paragraphs (b) through (d) below. 30 (b) The Seller will supply to JCP&L by the tenth calendar day of each month a cents/kWh energy price for the succeeding month, not to exceed 2 times the Base Contract Capacity Energy Component Price, for output above the Base Contract Capacity level and also an estimate of the daily dispatchable capacity (Supplemental Schedule A and Supplemental Schedule B Capacity) available. JCP&L shall use reasonable efforts to provide Seller with a monthly operating forecast for the succeeding month by the 20th day of each month. The monthly operating forecast will contain the hours JCP&L expects to require dispatch of the Generating Facility and the level of output at which it expects the Generating Facility to operate for each day during the next month. Such operating forecast is intended solely for use by Seller in planning fuel purchases and shall not create an obligation on JCP&L to dispatch the Generating Facility. (c) JCP&L will supply a more detailed monthly operating plan on or about the 30th day of each month. Thereafter, JCP&L will provide a weekly operating plan to Seller by 3:00 p.m. Friday of each week for implementation the following Monday. The weekly operating plan as amended shall be used by Seller to plan maintenance and work schedules. Seller will provide 31 each day by 9:30 a.m. the level of dispatch capacity (both Supplemental Schedule A and Supplemental Schedule B Capacity) available for the next day. Unless otherwise agreed, Seller will be prepared to commence a dispatchable level operation within thirty (30) minutes of receiving a Scheduled Dispatch Period request from JCP&L. Shut-Down Periods will commence immediately upon notification by JCP&L. (d) The normal dispatchable level of output is expected to be the sum of the Supplemental Schedule A and Supplemental Schedule B Capacity. (e) Article 8.6 is hereby added and reads as follows: "8.6 In recognition of the understanding of the parties hereto that any payments made pursuant to this Agreement are intended by the parties to be treated as received in the year in which such payments are due, Seller acknowledges that the parties intend that JCP&L shall have a deductible expense, and the Seller shall have taxable income or expense, as the case may be, with respect to any payments made to the Seller under this Agreement. Seller shall not take a contrary or inconsistent position with respect to the foregoing on 32 any federal, state or local tax return, before any taxing authority or in any related tax proceeding." 33. Amendments to Article 9 (Price): Article 9 is hereby amended to read as follows: 9.1 (a) The price for all energy 1) delivered prior to the Date of Initial Commercial Operation and 2) delivered in excess of 92 MWH/Hr. during Start-Up and Shut-Down Periods when Operating Status Option II has been selected, thereafter, will be the applicable On or Off-Peak PJM billing rate to GPU minus ten (10) percent. (b) The price for Contract Capacity, if Operating Status Option I is selected, or Base Contract Capacity, if Operating Status Option II is selected, delivered to JCP&L shall consist of an energy component and a capacity component. The energy component shall be as follows: (i) a fixed energy component equal to 1.362 cents per kWh shall be paid for the first twelve years of the term hereof following the Date of Initial Commercial Operation; plus (ii) a Variable energy component equal to 2.347 cents per 33 kWh which represents 85% of the 1988 hourly average PJM billing rate to GPU plus 10%. The energy component of the price for Contract Capacity shall be varied according to the time of delivery as follows: (iii) during On-Peak Hours, the sum of the Fixed and Variable energy component of price shall be multiplied by 127%. (iv) during Off-Peaks Hours, the sum of the Fixed and Variable energy component of price shall be multiplied by 85%. The Fixed energy component of price shall not be paid during years thirteen through twenty from the Date of Initial Commercial Operation. The capacity component for Contract Capacity shall be as follows: (v) 1.21 cents per kWh averaged over all hours. The capacity component will, however, be paid only for kWh delivered during the On-Peak Period at the rate of 5.97 cents per kWh. (vi) There will be no capacity component payment during 34 the Off-Peak Period. Amendment to Article 9.2 (Index): Article 9.1 is hereby amended to read as follows: "With respect to the Contract Capacity or Base Contract Capacity delivered to JCP&L, depending upon the Operating Status Option which is in effect, the variable portion of the energy component of price will be adjusted every three months during the term hereof commencing on January 1, 1990 by a percentage equal to the lower of the percentage change in the gas or oil average price for the four quarters ending with the quarter prior to the quarter immediately preceding the current quarter compared to the value for the calendar year 1988 as published for JCP&L plants in the DOE/EIA Publication "Cost and Quality of Fuels for Electric Plants". Example: (Not based on actual index results) 1988 Variable Price = 2.347 Oil Cost Gas Cost Calendar Year 1988 = 2.0 Calendar Year 1988 = 2.1 Four Quarters ending 9/1989 = 2.4 Four Quarters ending 9/1989 = 2.3 Percentage Change 20% 10% The index change which would be used in this example for the January 1, 1990 adjustment is .10 corresponding to the lower percentage change of the two indices. The variable energy component of the price for the succeeding three 35 months will be equal to the 1988 variable energy component of the price (2.347 cents/kwh) multiplied by the sum of one plus the lower percentage change of the indices. Variable energy component for succeeding three months = 2.347 * [1 + .1] = 2.582 A new Article 9.3 is added to read as follows: 9.3 If Operating Status Option I is selected, any energy delivered in excess of the Base Contract Capacity will be purchased at the rates set forth in Article 6.14. If Operating Status Option II is selected, a payment for Supplemental Schedule A Capacity and Supplemental Schedule B Capacity will be made in accordance with Appendix I. The price for dispatchable energy will be the price supplied by Seller in Article 8.5(b). No payment will be made for energy in excess of 92 Mwh/hr during Non Scheduled Dispatch Periods. 34. Amendment Article 10.3. A New Article 10.3 is hereby added and reads as follows: 10.3 Commencing with the month in which the Date of Initial Commercial Operation occurs, Seller shall pay to the Company a monthly administration fee in the amount of $1,440. Such fee shall be offset against JCP&L's payment to Seller pursuant to 36 Section 10.1. This fee is be adjusted annually based upon the change in Gross National Product Deflator Index. 35. Amendment to Article 10.4: A new Article 10.4 is hereby added and reads as follows: 10.4 The Company shall have the right to set off at any time against any and all amounts which may be due and owing from the Company to the Seller under this Agreement the full cost of any and all materials, equipment, services and supplies for which payment is past due. 36. Amendment to Article 12 (Force Majeure): Article 12 is hereby amended to read as follows: 12.1 (a) The term "force majeure" as used herein means unforeseeable causes beyond the reasonable control of and without the fault or negligence of the party claiming "force majeure", including but not limited to acts of God, strike, flood, earthquake, storm, fire, lightening, epidemic, war, riot, civil disturbance, sabotage, change in law or applicable regulation subsequent to the date hereof and action or inaction by any federal, state or local legislative, executive, administrative or judicial agency or body which, in any of the foregoing cases, by exercise of due foresight such party could 37 not reasonably have been expected to avoid, and which, by the exercise of due diligence, it is unable to overcome. (b) Anything to the contrary contained in Section 12.1(a) or otherwise in this Agreement notwithstanding, except as may expressly be provided in Section 12.1(a), the term "force majeure" shall not include any of the following: (i) Any reduction, curtailment or interruption of generation or operation of the Generating Facility, whether in whole or in part, or the ability of JCP&L to accept or transmit electricity generated by the Generating Facility which reduction, curtailment or interruption is caused by or arises from the action or inaction of any third party, including without limitation, any vendor or supplier to the Generating Facility or JCP&L of materials, equipment, supplies or services, unless, and then only to the extent that, any such action or inaction would itself be excused hereunder as a "force majeure"; (ii) Any outage, whether or not due to the fault or negligence of JC&L or the Seller, of the Generating Facility or JCP&L's system attributable to a defect or 38 inadequacy in the manufacture, design or installation of the Generating Facility or JCP&L's facilities of equipment or to a breakdown of their mechanical or electrical equipment that prevents, curtails, interruption or reduces the ability of the Generating Facility to generate electricity or the ability of JCP&L to period its obligations hereunder; or (iii) Changes in market conditions that affect to cost or availability of the Generating Facility's prime or alternate fuel supply or demand for the Seller products or affect JCP&L's fuel supplies or alternate supplies of electric energy or customer demand therefor. 12.2 Except for the obligations of either party to make required payments under this Agreement, the parties shall excuse from performing their respective obligations under Agreement and shall not be liable in damages or otherwise and to the extent that they are unable to so perform or prevented from performing by a "force majeure", provided: (a) the non-performing party, as promptly as practical after the occurrence of the "force majeure", but in no later than 14 days thereafter, gives the other party was notice describing the particulars of the occurrence; 39 (b) the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the "force majeure"; (c) the non-performing party uses its best efforts to remedy its inability to perform; and (d) as soon as the non-performing party is able to resume performance of its obligations excused as a result of the occurrence, its shall give prompt written notification thereof to the other party. 12.3 Neither party shall be required to settle any strike, walkout, lockout or other labor dispute on terms which, in the sole judgment of the party involved in the dispute, are contrary to its interest, it being understood and agreed that the settlement of strikes, walkouts, lockouts or other labor disputes shall be entirely within the discretion of the party having such dispute. 12.4 (a) Either party may terminate this Agreement upon 10 days written notice if, following the Date of Initial Commercial Operation (1) the generating Facility is either 40 destroyed or substantially damaged and the Seller advises JCP&L that it does not intend promptly to reconstruct or repair the Generating Facility, or (2) an event of "force majeure" hereunder prevents either party from substantial performance of its respective obligations hereunder for a period of 24 consecutive months; provided, however, that this Agreement may not be so terminated if the party prevented from performing due to such "force majeure" event (i) is to the reasonable satisfaction of the other party, unable despite use of its best efforts, to overcome the effects of such "force majeure" during such 24 months and (ii) demonstrates to the reasonable satisfaction of the other party that the effects of such "force majeure" can nevertheless be overcome and that it is diligently applying its best efforts to do so. The party prevented from performing shall at its expense provide the other party not later than 60 days following a request therefor with an opinion of an independent engineering firm, reasonably acceptable to such other party, supporting the matters set forth in (ii) above. Failure to provide such an opinion shall be adequate ground for termination of this Agreement. (b) Upon termination of this Agreement as provided in subparagraph (a) above, the parties shall have no further liability or obligation to each other except for (i) any 41 obligation arising prior to the date of such termination; and (ii) payment in full by the Seller of any performance penalty payments which may be owed to the Company pursuant to Article VI hereof. 37. Amendment to Article 13 (Insurance Liability and Indemnification): Article 13.1 is hereby amended to read as follows: (a) Seller agrees to keep, or cause its contractors to keep, the Generating Facility continuously insured with reputable insurance companies against loss or damage in the amounts and for the risks that property of similar character is usually so insured by entities owning and operating like properties. (b) Seller shall maintain, or cause its contractors to maintain, in effect insurance coverage for the Generating Facility with initial minimum limits as follows: Insurance Limits 1. a. Worker's Compensation Insurance As required by statute b. Employer's Liability Insurance $1,000,000 2. Comprehensive General Liability (Public Liability) Insurance Including: a. Bodily Injury $1,000,000 per occurrence 42 and and Property Damage $1,000,000 per occurrence or b. Bodily Injury and $1,000,000 Property Damage combined single occurrence c. Personal Injury $1,000,000 per occurrence 3. Automobile Liability Insurance (owned, hired & non-owned): a. Bodily Injury $1,000,000 per Accident b. Property Damage $1,000,000 per Accident (c) At the time Seller accepts the Generating Facility from its turnkey contractor, Seller shall also procure or cause to be procured and maintain in effect business interruption insurance (or in lieu thereof, an operating and maintenance agreement for the Generating Facility with a reputable equipment manufacturer containing availability guarantees for the Generating Facility which agreement shall be satisfactory to JCP&L). (d) JCP&L may, upon 90 days prior written notice, require Seller and Seller shall, from time to time, increase the foregoing initial limits to amounts which shall be reasonable, based upon (a) commercial availability of such increased limits on commercially reasonable terms, and (b) the location, size and type of the Generating Facility, to meet changed 43 circumstances and then current industry practice. (e) Seller's liability insurance (other than its worker's compensation insurance) shall include provisions or endorsements (a) naming JCP&L as an additional insured, (b) stating that such insurance is primary insurance with respect to the interest of JCP&L and that any insurance maintained by JCP&L is excess and not contributory insurance with the insurance required hereunder, and (c) providing that such policies shall not be canceled or their limits of liability reduced except upon 30 days prior written notice to JCP&L. (f) A copy of each such insurance policy, certified as a true copy by an authorized representative of the issuing insurance company or in lieu thereof, a certificate in form satisfactory to JCP&L certifying that such insurance is in effect, shall be furnished to the JCP&L not less than 30 days prior to the commencement of construction of the Interconnection Facilities and 15 days prior to the expiration date of each such policy. 38. Effectiveness; Further Agreements: This First Amendment, together with the Agreement, constitutes the complete agreement between the Parties, and may only be further modified by written 44 agreement signed by both parties. It is expressly understood by the Parties that this First Amendment shall only become effective upon its approval by the New Jersey Board of Public Utilities ("BPU"). The Parties agree to submit the amendment to the BPU for approval promptly, and to take all reasonable steps to secure its prompt approval by the BPU. In the event that the BPU refuses to approve this First Amendment, or requests modifications thereto, the Parties agree to negotiate in good faith appropriate revisions hereto. If after such good faith efforts, the Parties cannot agree on a revised First Amendment, the Parties shall retain all legal rights, and this First Amendment shall not serve to waive any rights which either Party may have at law or in equity. 39. Counterparts. This First Amendment may be signed in two or more counterparts, all which taken together shall constitute one and the same agreement. 45 IN WITNESS WHEREOF the undersigned have duly executed this First Amendment as of the date first above written. JERSEY CENTRAL POWER & O'BRIEN (PARLIN) LIGHT COMPANY COGENERATION, INC. /s/ Sanders D. Newman Date: 6/11/91 Date: 3/19/91 46 Appendix I Capacity Schedules Schedule "A" Schedule "B" Year S/MW-Month S/MW-Day 1991 5534 92.15 1992 8492 96.36 1993 8132 101.36 1994 7733 107.51 1995 7356 113.95 1996 7000 120.46 1997 6661 128.06 1998 6322 135.72 1999 5987 143.87 2000 5652 152.07 2001 5312 161.63 2002 4978 165.73 2003 4643 154.59 2004 4303 142.88 2005 3968 132.10 2006 3659 121.81 2007 3405 113.32 2008 3180 105.57 2009 2955 98.40 2010 2730 90.90 2011 2438 81.14 Appendix II Gas Turbine Capacity vs. Temperature Table Temperature Capacity Factor 90 1.0 80 1.04 70 1.09 60 1.13 50 1.18 40 1.22 30 1.26 Appendix II Capacity vs. Temperature Table To be provided by O'Brien (Parlin) Cogeneration, Inc. Appendix III EQUIVALENT AVAILABILITY FACTOR The equation used to calculate Equivalent Availability Factor is: EAF (%) = AH - (EFPOH - EMPOH - EPPOH) X 100% PH WHERE: EAF = Equivalent Availability Factor AH = Available Hours which are the time a unit is capable of producing energy, regardless of its capacity level. PH = Period Hours which are the total calendar time for the period (year). EFPOH EMPOH EPPOH = Equivalent Forced, Maintenance, and Planned Partial Outage Hours. These are the number of hours a unit was involved in a less than 100 percent outage expressed as equivalent hours of full outage at the unit'' net summer installed capacity. Equivalent hours are calculated using the following formula. E = (D1 x T1) ------------- C WHERE: E = Equivalent Outage Hours D1 = Capacity duration for outage I, MW. T1 = Time accumulated during outage I, hrs. C = Base Contract Capacity and Supplemental Schedule A Capacity. Appendix IV Capacity Payment Methodology Capacity Test - Base and Supplemental Schedule A Capacity 1. Test results will be based on the delivery to JC through the billing meter. Test may be scheduled any time except during minimum load problems on JC or PJM system. 2. During the first season, payment will be based on the initial demonstration of Contract Capacity until the final test has been completed. 3. During subsequent seasons, payments will be based on the previous season's test results until the new test is completed. Capacity Test - Schedule B Capacity 1. Capacity shall be the average output delivered during the scheduled dispatch period. Because of metering limitations, this will be limited to whole clock hours. 2. When the facility is not dispatched, payment will be made for nominated capacity. 3. If nominated capacity exceeds that demonstrated during the last scheduled dispatch period, supplier must demonstrate this capacity for one clock hour. The energy above 92 MW will be priced at the applicable PJM billing rate minus 10%. Capacity Payments - Base Payment are made for on peak, on season energy up to 92 Mwh/hr Rate is $0.0597/kWh adjusted for penalty, if any. Final rate will be applied to the entire peak period. Any overpayment will be adjusted in the last month of the peak period. Capacity Payments - Schedule A The monthly values in Appendix I will be multiplied by 12/7 and paid only in peak months. IV-1 The rate will be adjusted by the penalty, if any. Any overpayment will be adjusted in the last month of the peak period. Capacity Payment - Schedule B The daily capacity rate will be adjusted for the penalty, if any. The penalty, if any, will be calculated using only full dispatch hours. The nominated capacity will be limited to that demonstrated during the most recent dispatch period unless the supplier demonstrates the higher value for one clock hour at his expense. IV-2 Example 1a Assumptions Base Capacity = 92 "A" Capacity = 20 1-91 Verification Test = 112 @ 92 F 8-91 Verification Test = 106 @ 92 F There will be no penalty on base capacity since it was demonstrated. All on peak kWh delivered in June, July, August and September will be paid for at 5.97 cents/kWh. "A" capacity payments will be made in full during June, July and August since "A" capacity was demonstrated in January. Penalty will be calculated and applied in September bill. The applied rate = $5,534/MW-mo. X 12/7 = $9,487/MW-mo. June 20 MW x $9,487/MW-mo. = $189,740 July 20 MW x $9,487/MW-mo. = $189,740 August 20 MW x $9,487/MW-mo. = $189,740 Capacity Price Reduction Factor (CPRF) = 1.5 (1-(14/20)) = 45% Final capacity rate = $9,487 (1-.45) = $5,218/MW-mo. Summer Period Payment = 20 MW x 4 months x $5,218/MW-mo = $417,440 June-August Payment = $189,740 x 3 = $569,220 September Payment = - $151,780 This amount will be deducted from the September base capacity payment. IV-3 Example 1b Assumptions Base capacity = 92 "A" capacity = 20 8-91 Verification Test = 106 @ 92 F 8-91 CPRF = 45% 2-92 Verification Test = 98 @ 92 F 1991 initial capacity rate = 5,534 x 12/7 x .55 = $5,218/MW-mo 1992 initial capacity rate = 8,492 x 12/7 x .55 = $8,007/MW-mo December = 20 MW x $5,218/MW/mo. = $104,360 January = 20 MW x $8,007/MW/mo. = $160,140 December Actual = 20 MW ($0/MW-mo) = $ Jan-Feb Actual = 20 MW ($0/MW-mo) x 2 mo. = $ December reversal $104,360 January reversal $160,140 Net adjustment to February base capacity $264,500 Since the demonstrated availability of 30% (=6/20) falls below the (1/3) availability threshold specified in Section 25(b) of the First Amendment, an amount equal to 1.25% of the Full Supplemental A Capacity payment for the entire Nomination Period is assessed as follows: 0.125 x [20 MW x $5534 x 12 mo. + 20 MW x $8492 x 12 mo. + 20 MW x 8132 x 12 mo.] = $66,474. Six (6) equal monthly payments of $11,079 would be paid by Seller starting in February. IV-4 Example 1c Assumptions Base capacity = 92 "A" capacity = 20 2-92 Verification Test = 98 @ 92 F 2-92 CPRF = 105%, capped at 100% 7-92 Verification Test = 112 Initial capacity rate = $8,492 x 12/7 x (1-1) = $0/MW-mo June = 20 MW ($0/MW-mo) = $0 7-92 CPRF = 1.5 (1-20/20) = 0 Final capacity rate = $8,492 x 12/7 = $14,558/MW-mo June, July Actual = 20 MW x $14,558/MW-mo x 2 mo =$582,320 Reversal of June Payment $ 0 July Payment $582,320 August Payment = 20 x $14,558 = $291,160 September Payment = 20 x $14,558 = $291,160 IV-5 Example 2 Assumptions Base capacity = 92 "A" capacity = 20 Year = 1991 Determination of "B" capacity delivery Average delivery to JC 117 Base capacity -92 "A" capacity -20 "B" capacity delivery 5 Day Mon Tues Wed Thu Fri Sat "B" Capacity Nominated 5 5 4* 5*** 5 5 "B" Capacity Dispatched 0 5 0 0 0 0 "B" Capacity Delivered 0 4 5** 0 0 0 CPRF 0 0.3 0 0 0 0 Schedule B Rate 92.15 92.15 92.15 92.15 92.15 92.15 Actual Rate 92.15 64.51 92.15 92.15 92.15 92.15 Actual Payment 460.75 322.55 368.60 460.75 460.75 460.75 * Nomination limited to amount previously demonstrated Actual capacity delivered and associated penalties, if any, will be based on the billing meter. Allowable capacity nominated will, by necessity, be based on values telemetered to JCP&L. Nominated capacity will not be retroactively adjusted when the billing meter is read. ** Seller demonstrated 5 MW at his expense. *** Seller may now nominate 5MW until it is dispatched and not made. IV-6 Appendix V Energy Payment Methodology Parsing of hourly energy values: If the dispatch request is not for full hours, partial dispatch hours will be considered full dispatch hours. If the dispatch request is for full hours, the hour before dispatch and the hour after dispatch will be considered ramp hours. If the dispatch period starts on a partial hour, subtract the contract ramp time from the start time. If still in the same hour, no ramp time will be billed. If part of ramp time is in previous hour, entire previous hour will be considered ramp hour. Assumptions for example: Base capacity - 92 mw "A" capacity - 110 mw "B" capacity - 118 mw Ramp up time - 20 min Ramp down time - 10 min Peak season weekday Base energy cost - Fixed 1.362 cent/KWH Variable 2.775 cent/KWH Total 4.137 cent/KWH On Peak = 5.254 cent/KWH Off Peak = 3.516 cent/KWH Dispatch energy cost 4.5 cent/KWH PJM billing rate - On Peak 3.5 cent/KWH x .9 = 3.15 cent/KWH Off Peak 2.5 cent/KWH x .9 = 2.25 cent/KWH "B" capacity dispatched from 1030 to 1400 Notes: The example does not show the effect of regulation. The example is for a day. The PJM billing rates are for the month. V-1 MWH RECEIVED HOUR TOT BASE OFPK BASE ONPK DISP PJMOFPK PJMONPK FREE 1 90 90 2 91 91 3 89 89 4 91 91 5 88 88 6 70 70 7 94 92 2 8 92 92 9 91 91 10 90 90 11 108 92 16 12 118 92 26 13 117 92 25 14 116 92 24 15 95 92 3 16 91 91 17 90 90 18 89 89 19 88 88 20 89 89 21 90 90 22 90 90 23 91 91 24 89 89 Total 2247 1063 1088 91 0 3 2 V-2 INVOICE Energy Type Output Rate Bill $ Base OFPK 1,063,000 3.516 37,375.08 Base ONPK 1,088,000 5,254 57,163.52 Disp 91,000 4.500 4,095.00 PJM OFPK 0 2.250 0 PJM ONPK 3,000 3.150 94.50 FREE 2,000 0.000 0 Total 2,247,000 98,728.10 V-3 EX-10.22.1 14 EXHIBIT 10.22.1 OPERATING AND MAINTENANCE AGREEMENT DATED MAY 1, 1996 BETWEEN NRG GENERATING (PARLIN) COGENERATION, INC. AND STEWART & STEVENSON OPERATIONS, INC. Exhibit 10.22.1 NRG GENERATING (PARLIN) COGENERATION INC./ STEWART & STEVENSON OPERATIONS, INC. OPERATING AND MAINTENANCE AGREEMENT This System Operating and Maintenance Agreement ("Agreement") is made as of the 1st day of May 1996 between NRG Generating (Parlin) Cogeneration Inc., a Delaware corporation ("Owner"), and Stewart & Stevenson Operations, Inc., a Delaware corporation ("Operator"), having its principal place of business at Houston, Texas, whose obligations hereunder shall be fully guaranteed by STEWART & STEVENSON SERVICES, INC. ("SSSI"), pursuant to a Guarantee in the form of Appendix I. Owner (formerly named "O'Brien (Parlin) Cogeneration, Inc.") and Operator entered into an Operation & Maintenance Contract dated as of April 1, 1994 with respect to the System (as defined below), a copy of which is attached as Appendix II (the "Existing O&M Agreement"). In connection with the bankruptcy of Owner's parent, the existing Electricity Purchase Agreement between Owner and Jersey Central Power Light Company relating to the System has been amended with the Third Amendment to the Power Purchase Agreement (as defined below). Owner and Operator have renegotiated the terms and conditions of the Existing O&M Agreement and desire to replace it with this Agreement effective upon the Effective Date. In consideration of the foregoing and the mutual covenants and benefits contained herein, the parties hereby agree as follow: I. DEFINITIONS In this Agreement the following terms have the associated meaning: 1 . Affiliate - With reference to a specified person, any other person or entity, directly or indirectly through one or more intermediaries, which controls, is controlled by, or is under common control with, such person. A person or entity is controlled by another person or entity if the second person or entity holds a sufficient number of securities in the first person or entity to elect a majority of the directors of the first person or entity. 2. Agent - The agent for the lenders under the Financing Agreements. 3. Amended Power Purchase Agreement - The Amended Power Purchase Agreement for Purchase and Sale of Electric Power, dated April 30, 1996, between Owner and Jersey Central Power & Light, a copy of which Is attached as Appendix III hereto. 4. Annual Operating Plan and Budget - As set forth In Article VI, Section 6. 5. Bonus - As set forth in Exhibit A. 6. Change - Shall mean any of the following that are proposed by one party to the other by a written notice to the other party: (i) a change in the then current Annual Operating Plan and Budget: (ii) a change in connection with the services to be provided by Operator hereunder (iii) a change made necessary to avoid injury to persons or property or to mitigate losses as a result of the occurrence of an Emergency; and (iv) a change enabling Operator to accomplish or contract for a Major System Repair. 7. Change Order - Shall mean the written approval of a proposed Change and the related Change Order Budget Statement by Operator and Owner as further provided for In Article VI, Section 7(b). 8. Change Order Budget Statement - Shall mean the statement prepared by Operator pursuant to Article VI, Section 7(b) with respect to a proposed Change setting forth In reasonable detail: (i) the direct cost or savings to Owner of the proposed Change; (ii) the indirect costs or savings of the proposed Change, including without limitation, any loss of electricity revenues or steam host revenues and any increased insurance, operating. maintenance or other costs during or following the implementation of the proposed Change; (iii) changes in the operating efficiency of the System; and (iv) any other material effect on the operation, maintenance, efficiency or profitability of the System or the provision of the services hereunder. 9. Contract Year - As set forth in the Amended and Restated Power Purchase Agreement. 10. Effective Date - May 1, 1996. 11. Emergency - Any event or occurrence which in the judgment of Operator or Owner, as the case may be, requires immediate action and which constitutes a serious hazard to the safety of persons or property or may materially Interfere with the safe, economical, lawful or environmentally sound operation of the System. 12. Event of Default - As set forth in Article XII. 13. Existing O&M Agreement - As set forth in the Recitals. 14. Expenses - As set forth in Article VI, Section 2. 15. Financing Agreements - Any loan, lease financing, security, of related agreements entered into at any time by and among owner and the lending institutions providing financing for the System. 16. Force Majeure - Unforeseeable causes beyond the reasonable control of and without the fault or negligence of the party claiming Force Majeure, including but not limited to acts of God, strike, flood, earthquake, storm, fire. lightning. epidemic, war, riot, civil disturbance, sabotage, change in low or applicable regulation subsequent to the date thereof and action or inaction by any federal, state or local legislative, executive, administrative or judicial agency or body which, in any of the foregoing cases, by exercise of due foresight such party could not reasonably have been expected to avoid, and which by the exercise of due diligence, it is unable to overcome. 17. Legal and Contractual Requirements - All: a. Laws, permits, approvals, regulations or orders of governmental authorities applicable to the Amended and Restated Power Purchase Agreement, the System. Owner's obligations under this Agreement as owner of the System and Operator's scope of work hereunder; b. Provisions of the System Contracts; c. Agreements, warranties and specifications of Operator's or Owner's suppliers or vendors; and 2 d. Operating and maintenance manuals and procedures furnished by Owner applicable to the System or the components thereof (such operating manuals to reflect Sound Independent Power Industry Practice). l8. Liquidated Damages -As set forth in Exhibit A. 19. Major System Repair The inspection, overhaul, repair or replacement of any piece of equipment needed to operate the System where such inspection, overhaul, repair or replacement is the result of: (i) an unscheduled breakdown, repair, or failure of such equipment or (ii) a scheduled inspection, overhaul, repair or replacement of such equipment (union the inspection, overhaul, repair or replacement has been incorporated into the Annual Operating Plan and Budget) and further that such inspection, overhaul, repair or replacement shall have a cost in excess of $10,000, which includes labor and material costs, and shall be adjusted each year by the increase or decrease in the Producer Price Index. Equipment shall include the gas turbines, the generators, boilers, heat steam recovery generators, chillers, load gears, exhaust ducting, emissions equipment. water and waste water treatment, fuel treatment facilities and interconnection facilities; provided, however, that a Major System Repair shall not include the replacement of accessories, equipment and consumables required in the ordinary course of Routine Maintenance and preventative maintenance of the System reflecting Sound Independent Power Industry Practice. 20. Operating Fee - As set forth in Article VI Section 1. 21. Owner's Plan of Operation - Owner's instructions to Operator as to the desired electricity and/for thermal energy production schedule and other operating and maintenance objectives. 22. Owner's Representative - As set forth in Article V. Section 1 (a). 23. Producer Price Index - The U.S. Producer Price Index for All Item, as currently published in the United States Department of Labor Bureau of Labor Statistic's monthly publication, PPI Detailed Report or any successor publication of such information, or if such index is no longer published or the method of computation thereof is substantially modified, a mutually agreeable alternative index. 24. Proprietary Information - All financial, technical and operating information which the parties, directly or indirectly, acquire from each other, and any other information which a party expressly designates in writing to be confidential. However, Proprietary Information shall exclude information failing into any of the following categories a. Information that, at the time of disclosure thereof, is in the public domain; b. Information that, after disclosure thereof, enters the public domain other than by breach of this Agreement; c. Information that prior to disclosure thereof, was already in the recipient's possession, either without limitation on disclosure to others or subsequently becoming free of such limitation; d. Information obtained by the recipient from a third party having an independent right to disclose such information; 3 e. Information that is available by independent research without use of or access to the Proprietary Information acquired from the other party; and f. Information that a party is required by low or governmental action to disclose, provided the disclosing party notifies the party from whom the information originated in advance and gives it the opportunity to resist the order. 25. Routine Maintenance - Those activities including the replacement of accessories, equipment, and consumables required in the ordinary course of routine and preventative maintenance of the System and System site in accordance with Sound Independent Power Industry Practice. 26. Sound Independent Power Industry Practice - Those prudent practices and methods in effect at the time of performance that am customarily followed by operators of similarly situated plants and equipment. 27. System - Owner's properties, plant and equipment located in Sayreville, New Jersey, including a single gas turbine combined cycle generating station with a nominal capacity of 52 megawatts, more fully defined in Exhibit B. 28. System Contracts - Contracts and agreements to which Owner is a party (including, without limitation, insurance policies) relating to the operation and maintenance of the System, set forth an Exhibit C, which Exhibit shall be amended by Owner to provide a more comprehensive list on or before June 15, 1996. II. ENGAGEMENT OF OPERATOR 1. Effective on the Effective Date, Owner engages Operator to operate and maintain the System and perform certain duties, all as hereinafter set forth in this Agreement, and Operator accepts such engagement to operate and maintain the System and perform the duties specified in this Agreement in accordance with its terms and conditions. 2. All operating and management personnel involved in the operation and maintenance of the System shall be employees of Operator or its Affiliates and shall not for any purposes be deemed employees of Owner. III. TERM The term of this Agreement shall become effective upon the Effective Date and expire on the sixth (6th) anniversary of the Effective Date, unless terminated earlier in accordance with Article XII of this Agreement. IV. OPERATING AND MAINTENANCE DUTIES OF OPERATOR 1. Subject to the terms of this Agreement Operator shall operate and maintain the System and shall control the details and means of performing its obligations hereunder. 2. For the period prior to and including the Effective Date, Operator shall assist Owner in preparing the System for operation under the Amended Power Purchase Agreement. These services will include but not be limited to: a. Preparing a plan and schedule to staff the System; b. Recruiting and training the staff which will operate and maintain the System; 4 c. Responding, in a timely manner, to Owners requests for information; d. Procuring, as agent for Owner, replacement of stock of consumables, spare parts, tools, and supplies in accordance with the Annual Operating Plan and Budget; e. Appointing a plant manager (subject to Owner's approval) who shall supervise the performance of Operators employees at the System site; f. Reviewing plans, specifications and drawings of machinery and equipment layouts and commenting to Owner thereon with regard to matters affecting operation and maintenance; g. Observing and receiving training and instructions from Owner, such training and instructions to be in accordance with Sound Independent Power Industry Practice; h. Performing for Owner such other services as may from time to time be reasonably requested or are reasonably necessary or appropriate in connection with the operation and maintenance of the System; and i. Reporting to and consulting with Owner about the operation of the System on a scheduled basis, as reasonably requested by Owner. Such services shall be provided in a manner consistent with all Legal and Contractual Requirements, Sound Independent Power Industry Practice and the Annual Operating Plan and Budget. 3. All full time personnel whom Operator will provide for the operation and maintenance of the System shall be at the site and available full time for training and to perform services to support System operation and maintenance as required by the staffing plan to be developed by Operator and approved by Owner. 4. A written management program shall be developed by operator for approval by Owner to ensure optimal performance, responsiveness, and cost-effectiveness in the operation and maintenance of the System. The program shall include provisions regarding: a. Budget tracking, analysis and adjustments; b. Personnel policies, including policies regarding payroll, compensation, pensions and other benefits; c. Training; d. Purchasing and inventory control; e. A System safety and health program which will include procedures and a manual; f. An employee job-site handbook for Operator's employees operating and maintaining the System; g. A maintenance planning and scheduling system; and 5 h. A system for maintaining an inventory of consumables, spare parts, tools and supplies. 5. Subsequent to the Effective Date, Operator shall provide all operations and maintenance services necessary to efficiently operate and maintain the System, including but not limited to performing the following operating and maintenance services: a. Operating and maintaining the System in compliance with all Legal and Contractual Requirements, Sound Independent Power Industry Practice and the Annual Operating Plan and Budget; b. Obtaining and maintaining in effect all licenses and permits required by law to be obtained and maintained in Operator's name and assisting Owner in obtaining and renewing all licenses and permits required by low to be obtained and maintained by Owner or in Owners name; c. Paying all employees of itself and its Affiliates, agents and subcontractors promptly and filing all reports and remitting all payments required under labor statutes to the appropriate governmental authorities, as the obligations arise: d. Conducting the operations and maintenance of the System including, but not limited to. entering into contracts with third parties as agent for Owner (subject to Owner's approval if not in the ordinary course of business); e. Employing, and ensuring adequate training of, Operator employees and employees of its Affiliates (duly licensed where required by statute or regulation) for the operation and maintenance of the System consistent with Sound Independent Power Industry Practice, and planning and administering all matters pertaining to employee relations, salaries, wages, working conditions, hours of work, termination of employment, employee benefits, employee staffing. safety and related matters pertaining to such employees, and maintaining records with respect to all such matters; f. Monitoring, preparing and maintaining records of the operations and maintenance aspects of the System (including records of financial, business, and sales tax aspects of the System) in such form and covering such matters as Owner may reasonably request, consistent with Sound Independent Power Industry Practice, generally accepted accounting principles, and applicable records retention requirements; and making such records available for inspection and/or audit by Owner and Owner's designees; g. Implementing an inventory control system to identify, catalog, and disburse spare parts for the maintenance of the System and procuring, as agent for Owner, replacement spare parts and refurbishing. where practical or economical, spare parts to allow their reuse; h. Operating and maintaining the System according to the operations and maintenance programs prepared by Operator for Owner and, if necessary, creating updates for such programs and creating new programs as required for operation and maintenance of the System; i. Operating and maintaining the System to maximize the continuous, reliable, safe and efficient generation of electrical and/or thermal energy by the System so as to conserve fuel and financial resources and to minimize unscheduled outages, and providing maintenance for the System in a cost-effective manner to prevent deterioration beyond normal wear and tear provided, however, that 6 Owner acknowledges such efforts shall necessarily be limited by the operating life, capacity and maintenance requirements of the system and by Legal and Contractual Requirements; j. Using all reasonable care necessary to keep the System and the System site clean, orderly, and free from debris, rubbish or waste to the extent consistent with the operation of the System; k. Taking necessary precautions and corrective actions in the event of an Emergency; l. Keeping the System and the System site free and clear of all liens and encumbrances arising out of the acts, omissions, or debts of Operator or its employees, agents or subcontractors claiming by, through or under Operator (this subsection shall not apply to mechanics liens and liens of any nature arising by operation of law, provided such liens are promptly removed by the payment of the debts they secure when due; in the event of a dispute between Operator or its subcontractors and a lienholder, Operator's obligation to Owner pursuant to this provision may be satisfied by the posting of an appropriate bond to the extent acceptable to the Agent); m. Within 30 days of its receipt of Owner's Plan of Operation submitted in accordance with Article V, Section 1 (c), preparing and submitting to Owner for Owner's approval a written proposed Annual Operating Plan and Budget which shall include all anticipated Expenses of the System to be paid by Owner for each succeeding calendar year, all as more fully described in Article VI, Section 6 or required by the Agent; n. Reporting to and consulting with Owner about the operation of the System on a scheduled basis, as reasonably requested by Owner; o. Using reasonable commercial efforts to secure from vendors, suppliers and subcontractors the best indemnities, warranties and guarantees as may be commercially available regarding supplies. equipment and services purchased for the System, all of which shall be assigned to Owner (Operator shall render reasonable assistance to Owner for the purpose of enforcing such indemnities, warranties or guarantees of which Owner is a beneficiary regarding the System); p. Performing for Owner such other services as may from time to time be reasonably requested or are necessary or appropriate in connection with the operation and maintenance of the System; q. Promptly notifying Owner of: i. Any condition, event or act which is likely to result in a material deficiency in budgeted revenues, or excess in budgeted costs, of Owner; ii. Any forced outages or significant malfunction of the System as soon as practicable; iii. Any material failure to comply with any Legal and Contractual Requirements or any event which is reasonably expected to cause such material failure; r. Promptly providing Owner with such information relative to the System as Owner may reasonably request; 7 S. Establishing an effective maintenance planning and scheduling system to optimize the availability, reliability and heat rate of the System; t. Assisting Owner in the compliance by Owner with the terms of the Financing Agreements, as they relate to the operation and maintenance of the System, including the preparation of reports concerning operations and making personnel available for discussions with the Agent or other lender representatives; u. Subject to Article XI, assisting Owner in selling or otherwise disposing of used and/or unneeded parts and supplies; and v. Providing and maintaining written procedures, in a form reasonably acceptable to Owner, required to enable Operator's employees to safety and efficiently startup, operate, and shut down the System equipment and to perform preventive maintenance on the System equipment. V. RESPONSIBILITIES OF OWNER 1. Subject to the terms of this Agreement, Owner shall, at its cost and expense, perform and provide the following at the times required to support the start-up, operation and maintenance of the System: a. Providing an Owner's Representative who shall represent and bind Owner in all matters regarding this Agreement and the performance of Owner hereunder; b. Providing the System and System site free and clear of all liens and encumbrances (except for any liens or encumbrances in favor of Agent or the lenders under the Financing Agreements); c. Preparing the Owner's Plan of Operation and delivering the same to Operator on or before September 1 of each year; d. With Operator's assistance, administering all System Contracts; e. Providing all required utility services, including water, sewer, gas, telephone, water/wastewater treatment, waste disposal, special waste disposal and electricity; f. With operators assistance, obtaining and reviewing all necessary licenses and permits except those required by law to be obtained and maintained in Operator's name; g. Providing manufacturer's operating and maintenance manuals for the System; h. With Operator's assistance, preparing and submitting any special accounting and reporting documents that may be required by governmental authorities; i. Providing at its own expense, an office at the site for use by Operator j. Within five days of its receipt thereof, providing Operator complete copies of all technical, operational and other System and System site related information, including the System Contracts, as are in the possession, or under the control of Owner; 8 k. Being responsible for the billing and collection of electricity revenues under the Amended and Restated Power Purchase Agreement and under the Electricity Purchase Contract with E. I. Dupont de Nemours and Company ("Dupont") and thermal revenues under the Steam Purchase Contract with Dupont; l. Being solely responsible for obtaining, maintaining and renewing all licenses and permits necessary for (i) Owner to do business in the jurisdictions in which the System is located and (ii) the ownership, operation and maintenance of the System and System site; m. Being responsible for arranging the disposal of hazardous wastes generated by or at the System or System site: provided, however, that Operator will coordinate removal of such waste from the System site using subcontractors chosen by Owner; n. Complying with, and diligently enforcing, all agreements (including the System Contracts) to which Owner is a party and which relate to or impact upon the System or Operator's ability to perform its obligations hereunder; and o. Timely paying all of Owner's vendors, suppliers and contractors. Such activities shall be provided in a manner consistent with all Legal and Contractual Requirements, Sound Independent Power Industry Practice and the Annual Operating Plan and Budget. VI. EXPENSES, RRIMSURUMENTS, BUDGET, CONSIDERATION, COMPENSATION 1. As compensation to Operator for its performance of the Services, Owner shall Pay operator (a) the Expenses incurred by Operator and (b) an annual fee ("Operator's Fee"). The Operator's Fee for the first Contract Year shall be $200,000. The Operator's Fee shall be payable in equal monthly installments in arrears. The Operator's Fee shall be adjusted annually in accordance with the following sentence. For each Contract Year after the first Contract Year, the Operator's Fee shall be equal to the product of: (i) the ratio of the Producer Price Index for the lag month of the then expiring Contract Year over the Producer Price Index for the last month of the previous Contract Year and (ii) the Operator's Fee for the then expiring Contract Year, provided, however, that for any partial Contract Year, the Operator's Fee shall be multiplied by a fraction, the numerator of which shall be the total number of days in such Contract Year and the denominator of which shall be 365 or 366, as the case may be. If Operator falls to pay accrued, undisputed Liquidated Damages in any Contract Year in accordance with the provisions herein, Owner may elect to reduce the Operator's Fee in the subsequent Contract Year by the amount of undisputed Liquidated Damages owed to Owner. 2. Owner shall directly pay, or promptly reimburse to Operator as the case may be, the following expenses ("Expenses") relating to the System: a. Insurance and bond premiums for policies which are required by Article VIII hereof; b. Property, and other taxes (including, without limitation, sales taxes, gross receipts taxes, value added taxes. energy taxes and capital taxes) related to Owner or the System, but not including those based an Operator's income or capital; c. The base salaries, straight time hourly wages and overtime hourly wages of all of Operator's on-site personnel plus (i) thirty eight percent (38%) of (x) the base 9 salaries and straight time hourly wages and (y) the straight time hourly portion of the actual overtime wages for all hourly employees, and (ii) five percent (5%) of the base salaries, straight time hourly wages, and overtime hourly wages. d. Transportation, travel, lodging, and (for employees newly hired or newly assigned to the System site) relocation expenses of persons employed by Operator or its Affiliates performing the duties of Operator under this Agreement subject to advance approval by Owner in writing; e. Reasonably incurred legal and accounting fees relating to the System, subject to advance approval by Owner in writing; f. Fuel expenses including fuel purchase, transportation, handling and demurrage charges; g. The expenses of purchased electric power, telephone and other communication services, purchased potable water. waste disposal, special waste disposal, lubricants and chemicals necessary for the operation of the System; h. Costs reasonably incurred or paid by Operator due to an Emergency; i. Training, including outside training services; j. The costs of permits or licenses required for either Owner, Operator or the System; k. Costs associated with Routine Maintenance, Major System Repairs (including scheduled and unscheduled) inspections, and overhauls, outside contractor services and purchases of replacement equipment, parts and components; l. Spare parts, tools, supplies and consumables; m. Capital costs approved by Owner for improvements, alterations or additions to the System including those required by governmental laws, regulations or orders including without limitation, those arising from environmental concerns; and n. The cost of transportation of spare parts, tools, supplies, consumables and any item which is a reimbursable expense hereunder. For all Expenses (other then relating to labor, legal and accounting fees) incurred and paid by operator for which Operator is entitled to reimbursement hereunder, Owner additionally shall pay Operator a general and administrative expense fee of five percent (5%) of such Expenses. 3. a. For convenience and in order to save on expenses, Owner will directly pay certain Expenses reimbursable to Operator as set forth in the Annual Operating Plan and Budget described in Article VI, Section 2 as practicable. To the extent reasonably practical, the items covered by such Article VI, Section 2 shall be procured through Operator's issuance of an Owner purchase order and the cost of any such items shall be paid directly by Owner to the vendor thereof. Operator shall perform such duty as owner's agent. b. Without Owners prior approval, Operator shall be empowered to prepare and issue an Owner purchase order for any material or service the cost of which would constitute an Expense, so long as the total cost for such item is less than or equal to $10,000. For any item or items whose total cost is greater than 10 $10,000, Operator shall submit a written requisition to Owner, and after receipt of written approval from Owner, Operator shall be authorized as agent for Owner to prepare and issue a purchase order on behalf of Owner on Owner's purchase order form for such item. Operator shall (i) verify the receipt at the System site of all materials end services to be delivered to the System site covered by Owner's purchase orders issued by Operator, (ii) verify the accuracy of vendors' invoices in connection therewith. and (iii) forward such invoices to Owner for approval, processing and payment by Owner. Nothing in this Agreement shall prevent Operator from procuring any material or service the cost of which would constitute an Expense under Article VI(2). C. Operator shall periodically, but not more often than once a week, deliver to Owner invoices received by Operator from third parties for all direct Expenses, accompanied by a summary of all such invoices which itemizes all such invoices by operating cost account number. Such invoices shall also be accompanied by a statement from Operator confirming that all such invoices are accurate, due and payable, together with all relevant documentation reasonably necessary for Owner to verify the accuracy thereof. Each invoice submitted to Owner shall be paid by Owner directly to the payee of such invoice on or before the date such invoice is due. 4. From time-to-time, Operator will prepare and send to Owner an invoice, including expense statements, vouchers or such other supporting information as Owner may reasonably require, for the amounts then due for reimbursable Expenses and the monthly installment of the Operator's Fee. Owner shall pay the amount due to Operator no later than thirty (30) days after receipt of the invoice. All payments shall be made by wire transfer of immediately available funds to Texas Commerce Bank, Houston, Texas, Account No. 00101616119, ABAR 113000 609. Any payment not made within 30 days after receipt of the invoice will bear interest from the date on which payment was due at the rate of one and one-half percent (1.5%) per month or the maximum rate permitted by law, whichever is the lesser. 5. Operator shall maintain complete, true, and correct records in connection with all Expenses incurred by Operator. Operator shall retain all such records for five (5) years after Expense reimbursement by Owner has been fulfilled or for any longer period of time required by law. All documents and records relating to this Agreement shall be available for inspection by Owner anytime during normal business hours. Owner may audit all records of Operator relating to Expenses and services performed hereunder. In the event the audit shows that the payment by Owner to Operator exceeds the amount due Operator, Owner shall disclose such information to Operator and Operator shall refund the excess amount to Owner within five (5) business days of the disclosure to Operator. In the event the audit shows that the payment by Owner to Operator is greater than the amount due Operator under this Agreement and such error was caused by Operator, Owner shall be reimbursed its reasonable costs of performing the audit. In the event the audit shows that the payment by Owner to Operator is less than the amount due Operator, Owner shall disclose such information to Operator and pay the underpayment amount to Operator within five (5) business days of the disclosure to Operator. 6. On or before October 1 of each year, the Operator shall prepare and submit to Owner a written Annual Operating Plan and Budget which shall include all expenses of the System anticipated to be paid by Owner as either a direct or reimbursable Expense during the upcoming calendar year pursuant to Section 1 of this Article VI, together with a written operations and maintenance plan for the same period of time. Such Annual Operating Plan and Budget shall set forth the anticipated operations and maintenance plan including projected electrical production from the System on a monthly basis, and a 11 complete schedule (to the extent technically feasible) of Operator responsible Routine Maintenance and all Owner-directed major maintenance tasks (including Major System Repairs) to be accomplished during said year. Owner and Operator shall agree upon the budget operations and maintenance plan, and persons to perform maintenance under the plan prior to the start of the calendar year, and shall meet and exchange information as is necessary and convenient to such end. It the parties cannot reach agreement on the Annual Operating Plan and Budget by the start of any calendar year, then, until such time as agreement is reached or the dispute is resolved, the Annual Operating Plan and Budget for such calendar year shall be based on the Annual Operating Plan and Budget for the preceding calendar year, as adjusted to reflect the net change, if any, between the most recently published Producer Price Index available on the first day of the calendar year in question and the corresponding Producer Price index in effect at the start of the immediately preceding calendar year. Operator has submitted, and Owner has accepted, the Annual Operating Budget for the calendar year ending December 31, 1996. a copy of which is attached as Exhibit F. All Annual Operating Budgets shall be in substantially the form attached as Exhibit F. The amounts set forth on Exhibit F shall be reduced pro rata based on the number of days remaining in the calendar year from and after the Effective Date. Likewise, the amounts set forth in the Annual Operating Plan and Budget in effect during the calendar year in which this Agreement expires or is terminated shall be reduced on a pro rata basis based on actual number of days elapsed during such calendar year prior to the date of the expiration or termination of this Agreement 7. a. The parties recognize that Changes may be required during the term of this Agreement. Either Owner or Operator may by a written notice to the other party propose a Change. The written notice shall describe the proposed Change in reasonable detail and the reasons therefor. b. The written notice of a Change proposed by Operator shall be accompanied by a Change Order Budget Statement. Upon receipt by Operator of any proposed Change from Owner, Operator shall use its best efforts to prepare and submit to Owner a Change Order Budget Statement with respect to such proposed Change within fifteen (15) days of the receipt of Owner's proposed Change. No proposed Change the cost of which is in excess of $10,000 shall be implemented until a Change Order has been executed by both parties approving the Change and the related Change Order Budget Statement; provided, however, that Operator shall be entitled to implement a proposed Change without the prior approval of Owner if such Change is required due to an Emergency. If Operator implements a Change without the prior approval of Owner due to an Emergency, Operator shall promptly notify Owner of such Change and pursue Owner's approval thereof in accordance with subsection c below. Operator acknowledges that Owner's approval of any proposed Change and/or the related Change Order Budget Statement may require the approval of the Agent. c. Owner and Operator shall diligently and in good faith endeavor to reach agreement upon any proposed Change and the related Change Order Budget Statement within thirty (30) days after the date of the receipt of a proposed Change and related Change Order Budget Statement. If a Change is required as a result of an Emergency. then Operator shall provide to Owner, as soon as practicable, notice of such Change, together with a statement describing the Emergency and a Change Order Budget Statement. If a Change due to an Emergency causes the Annual Operating Plan and Budget to be exceeded and Owner believes that an Emergency did not exist, then Owner shall have the right 12 to dispute the Change. If Owner and Operator do not agree as to the resolution of such dispute, then either party may submit the dispute to arbitration in accordance with the provisions of Article XVIII, Section 2 and 3. 8. Operator shall report to Owner in writing monthly on electrical and thermal output and expenditures incurred to date; projected electrical and thermal output and expenditures for the balance of the calendar year, performance to date under the operations and maintenance plan and such other matters as Owner may reasonably request as to the operation and maintenance of the System. In such report, Operator shall recommend such changes to the then current budget and operations and maintenance plan as Operator considers necessary or appropriate. 9. Operator shall use its best efforts to operate and maintain the System each year within the budget approved by Owner (as amended by Change Orders). For purposes of determining the approved budget for the initial calendar year, the budget provided as Exhibit F in the aggregate amount of $1,871,860, for operating and maintenance duties set forth in Article IV, shall be adjusted by the ratio of the remaining number of days from the Effective Date to year-end divided by 366. If for any calendar year the Expenses (other than those Expenses set forth In Article VI, Section 2 (b) and Expenses incurred in response to Emergencies) whether direct or reimbursable, paid by Owner exceed the approved Annual Operating Plan and Budget, as amended by Change Orders mutually agreed by Owner and Operator, then Operator shall be solely responsible for any such excess. 10. Operator's consideration for services performed and expenses paid pursuant to this Agreement shall be the reimbursement of expenses described In Article VI, Section 2, the Operator's Fee, and, if applicable, the Bonus. VII. INDEMNIFICATION 1. Operator will protect, indemnify and hold harmless Owner, Owner's Affiliates and Agent, and their respective directors, officers, employees, agents and representatives against and from any and all demands, losses, claims, actions or suits, including costs, judgments, penalties, fines and attorney's fees, for or on account of injury to or death of third persons, or for damage to or destruction of property belonging to third persons or for violation of law, in each case resulting from or arising out of Operator's negligent maintenance or operation of the System or Operator's willful act or omission, except to the extent caused by System design or construction defect, by Owner's act or omission, or the act or omission of third parties. 2. Owner will protect, indemnify and hold harmless Operator, Operator's Affiliates. and their respective directors, officers, employees, agents and representatives against and from any and all demands, losses, claims, actions or suits, including costs, judgments, penalties, fines and attorneys' fees, for or on account of injury to or death of third persons, or for damage to or destruction of property belonging to third persons, or for violation of law, in each case resulting from or arising out of a System design or construction defect, or the negligence or willful act or omission of Owner. 3. The duty to indemnify under this Article will continue in full force and effect, notwithstanding the expiration or termination of this Agreement, with respect to any claim or action based on facts or conditions which occurred prior to such termination. 4. If any indemnified party intends to seek indemnification under this Article from any indemnifying party with respect to any action or claim, the indemnified party shall give the indemnifying party notice of such claim or action within thirty (30) days of the commencement of, or actual knowledge by the indemnified party of, such claim or 13 action. The indemnifying party shall have no liability under this Article for any claim or actions for which such notice is not conveyed; provided, however, that so long as the indemnifying party is not materially harmed by the indemnified party's failure to give timely notice of a claim or action, then the indemnifying party's indemnify obligation shall be unaffected. The indemnifying party shall, at its sole cost and expense, defend any such claim or action; provided. however, that the indemnified party shall, at its own cost and expense, have the right to participate in the defense or settlement of any such claim or action. The indemnified party shall not compromise or settle any such claim or action without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. VIII.INSURANCE COVERAGE 1. Operator, on its behalf and on the behalf of all subcontractors of Operator performing any on-site services in connection with the operation and maintenance of the System or any of its appurtenant equipment, shall procure and maintain in effect during the term for which they perform services pursuant to this Agreement the following minimum insurance coverages, in the given amounts: a. Vehicle liability insurance covering all owned, non-owned and hired automobiles, trucks, trailers and other vehicles. Such insurance shall provide coverage not less than that of the standard comprehensive automobile liability policy in limits not less than $1,000,000 combined single limit each occurrence for bodily injury and property damage. The Owner and NRG Generating (U.S.) Inc. shall be named as additional insureds. b. Workers' Compensation insurance that satisfies statutory requirements and Employers' Liability Insurance with limits of $1,000,000. This insurance shall include All States Coverage and Longshoremen & Harbor Workers Compensation Act coverage (if exposure exists.) The Employer's Liability Coverage shall not contain an occupational disease exclusion. c. Liability insurance, on an "Occurrence" basis and in a form providing coverage not less than that of the standard Commercial General Liability policy, covering operations of the System including independent contractors, products and completed operations, broad form property damage, blanket contractual liability coverage (for any written or oral contracts related to the System) and personal injury liability coverage for claims arising out of the operations of the System for bodily injury, property damage and personal injury with policy limits not low than $1,000,000 combined single limit each occurrence and $2,000,000 aggregate limit. The aggregate policy limits shall apply solely to this project or site. Coverage shall include a standard severability of interests clause and cross liability coverage. The Owner and NRG Generating (U.S.) Inc. shall be named as additional insureds. d. Excess or umbrella liability insurance, on an "Occurrence" basis and with coverage at least as broad as the vehicle liability, employers' liability and general liability policies, to provide limits of insurance in excess of Owner's vehicle liability, employers liability and general liability policies for not less than $10,000,000 combined single limit each occurrence and in the aggregate for bodily injury. property damage and personal injury. The aggregate policy limits shall apply solely to this project or site. Coverage shall include a standard severability of interests clause and cross liability coverage. The Owner and NRG Generating (U.S.) Inc. shell be named as additional insureds. 14 2. Owner shall procure and maintain in effect during the term of this Agreement at its expense the following minimum insurance coverage: a. Vehicle liability insurance covering all owned, non-owned and hired automobiles, trucks, trailers. and other vehicles. Such insurance shall provide coverage not less then that of the standard comprehensive automobile liability policy in limits not less than $1,000,000 combined single limit each occurrence for bodily injury and property damage. The Operator and NRG Generating (U.S.) Inc. shall be named as additional insureds. b. Workers' Compensation insurance (if required) that satisfies statutory requirements and Employees' Liability Insurance with limits of $1,000,000. This insurance shall include All States Coverage and Longshoreman & Harbor Workers Compensation Act coverage Of exposure exists.) The Employer's Liability Coverage shall not contain an occupational disease exclusion. c. Liability insurance, on an "Occurrence" basis and in a form providing coverage not less than that of the standard Commercial General Liability policy, covering operations of the System including independent contractors, products and completed operations, broad form property damage, blanket contractual liability coverage (for any written or oral contracts related to the System) and personal injury liability coverage for claims arising out of the operations of the System for bodily injury, property damage and personal injury with policy limits not less than $1,000,000 combined single limit each occurrence and $2,000,000 aggregate limit. The aggregate policy limits shall apply solely to this project or site. Coverage shall include a standard severability of interests clause and cross liability coverage. The Operator and NRG Generating (L.I.S.) Inc, shall be named as additional insureds. d. "All Risk" Property Insurance, including Boiler and Machinery Insurance and difference in conditions coverage (including flood perils), with an extension for Business Interruption Coverage, and naming Operator and NRG Generating (U.S.) Inc, as additional insureds for all such insurance coverage as their interests appear. 3. Within thirty (30) days after the date of execution of this Agreement, each party shall provide to the other party, pursuant to the notice provisions of Article XIV, properly executed certificates of insurance, signed by an authorized representative of the insurance carrier. These certificates shall provide the following information: a. Name of insurance company, policy number and expiration date; b. The coverage required hereunder and the limits on each covered item, including the amount of deductibles and self-insured retentions; c. A statement indicating that sixty (60) days notice of cancellation, non-renewal, or material change in coverage of any of the policies shall be given to each named insured and any additional insured; and d. Named and additional insured. 4. Each party shall have the right to inspect and photocopy the policies of insurance at the other party's place of business during regular business hours. on reasonable prior written notice. 15 5. All insurance policies, including Workers' Compensation insurance, provided by Owner and Operator shall waive all rights of subrogation against one another and NRG . 6. The provision of insurance shall not be construed to limit the liability of any party to the other party. 7. All commercial insurance carriers providing insurance hereunder must be rated A- or better, with a minimum size rating of VIII by Bests Insurance Guide and Key Ratings or an equivalent rating by another nationally recognized insurance rating agency of a standing similar to Best. 8. All deductibles or self insured retentions associated with policies required hereunder shall be the responsibility of the named insured. IX. ENGAGEMENT OF THIRD PARTIES Operator may engage or subcontract in the ordinary course of business and at Owner's expense such persons, corporations or other entities as Operator deems advisable for the purpose of performing or carrying out any of the obligations of Operator under this Agreement. Except in the case of an Emergency, before incurring an Expense under this Article IX In excess of $10,000, Operator shall obtain the prior written approval from Owner. X. OPERATOR REPORTING OBLIGATIONS Operator shall provide Owner with copies of all reports generated by Operator's or Operator's Affiliates' employees, agents, or subcontractors with respect to the operation of the System that are filed with any federal, state, or local agency or governmental entity. In addition, Operator shall provide Owner with monthly compliance reports, summarizing Operator's compliance with all System permits and licenses. The content of the monthly compliance reports shall be agreed to by Owner and Operator on or before June 15, 1996. All monthly compliance reports shall be delivered to owner within ten (10) days after the last day of the relevant month. XI. SPECIFIC LIMITATIONS In the conduct of its duties hereunder, Operator shall not, without first obtaining the written consent of Owner: 1. Limit on Expenditures. Under-take an expenditure outside Operator's scope of responsibilities except that, in case of an Emergency, Operator may make such immediate expenditures as may be necessary, but notice of any such Emergency and expenditures shall be given to Owner as promptly as possible, but in no case more than 12 hours after the event. 2. Settlement of Claims. For any claim for which Owner is or may be responsible, pay in excess of $10,000 in the settlement of any claim for injury to or death of persons, or loss of or damage to property, or in settlement of any contract or other dispute. 3. Disposition of Equipment. On Owner's behalf, sell or otherwise dispose of any item of equipment which is part of or used in the operating or maintaining the System if the current price of new equipment similar thereto is in excess of $5,000. 4. Contracts with Affiliates. On Owner's behalf, enter into any contract with an Affiliate of Operator with a value in excess of $5,000. 16 XII. TERMINATION/DEFAULT 1. This Agreement may be terminated: a. By the non-defaulting party at any time following the occurrence of any Event of Default, as described In this Article XII, if such Event of Default is not cured within the period, if any, provided therefor, b. By Operator, if, after Operator has taken all reasonable efforts to avoid regulation as a public utility, Operator's performance under this Agreement renders Operator subject to regulation as a public utility by any federal, state or local agency of any governmental entity, by delivery of thirty (30) days' prior written notice to Owner; c. By Operator, if Owner's action or inactions under this Agreement renders Operator subject to regulation as a public utility by any federal, state or local agency of any governmental entity, by delivery of thirty (30) days' prior written notice to Owner d. By Owner for its convenience, upon ninety (90) days' written notice to Operator provided that Owner pays Operator the applicable termination charge in accordance with the provisions of Exhibit D (no termination of this Agreement under this provision may be effective until the third anniversary of the Effective Date); e. By Owner, if, at, on, or in connection with the operation and maintenance of any part or all of either or both of (x) the System or (y) the properties, plant or equipment operated by Operator for NRG Generating (Parlin) Cogeneration, Inc., Operator falls to achieve and maintain compliance with all applicable laws, permits, licenses, regulations, or orders of any Governmental Authority; provided. however, that no failure of Operator to perform its obligations under this Article XII, Section 1 (e) shall be grounds for termination if such failure is the result of the negligence of a third party other than subcontractors of or procured by Operator or Operator's affiliates or an act of Force Majeure, so long as Operator is diligently pursuing a cure as required by this Agreement. Owner may exercise its right of termination under this Article XII action 1 (e), if and when Owner believes that Operator has failed to achieve and maintain compliance with an applicable law, permit, license, regulation or order, whether or not (s) a court or administrative agency with competent jurisdiction has determined that there has been such a failure or (t) a dispute resolution process has determined that the failure was not the result of either negligence of a third party other than subcontractors or an act of Force Majeure which Operator is diligently attempting to cure; provided, however, that following any termination by Owner under this Article XII Section 1 (e), if (u) a court or administrative agency, with competent jurisdiction to assess a fine, penalty or other action for failures in circumstances of the sort which were the basis of Owner's termination, issues a final nonapealable order (or issues an order for which all appeals periods have expired) determining as a matter of both fact and law that the circumstances which were the basis of Owner's termination did not constitute a violation of any law, permit, license, regulation or order. or (v) a dispute resolution process under Article XVIII determines that the failure was the result of negligence of a third party other then subcontractors or an act of Force Majeure which Operator is diligently attempting to cure, then Owner shall pay Operator the amount determined in accordance with Exhibit E.; 17 f. By the mutual agreement of the parties; and g. By Owner, if the Amended Power Purchase Agreement is terminated for any reason other then a default by Owner or an Owner Affiliate. 2. Owner shall be in default under this Agreement upon the happening or occurrence of any of the following events or conditions, each of which shall be deemed to be an Event of Default for purposes of this Agreement: a. Owner materially breaches any of Owner's obligations. covenants, conditions, services or other responsibilities under this Agreement unless within thirty (30) days after notice from Operator specifying the nature of such breach, Owner either cures such breach or, if such breach (other than the failure to make payment obligations) cannot be cured within thirty (30) days, Owner commences and diligently pursues such cure and thereafter continues to diligently pursue such cure. If the breach is not cured within 120 days of the date of Operator's written notice to Owner, then Operator may terminate this Agreement; c. There is an assignment for the benefit of Owner's creditors, or Owner or its Parent company, NRG Generating (U.S.) Inc.. is adjudged bank- rupt, or a petition is flied by or against Owner or its parent company under the provisions of any insolvency or bankruptcy laws (and such petition is not dismissed within six months), or the busi- ness or principal assets of Owner or its parent company are placed in the hands of a receiver, assignee or trustee, or Owner is dissolved, or Owner's existence is terminated or its business is discontinued; or c. Any material representation or warranty furnished by Owner in connection with this Agreement was knowingly false or misleading in any material respect at the time it was made. 3. Operator shall be in default under this Agreement upon the happening or occurrence of any of the following events or conditions, each of which shall be deemed to be an Event of Default for purposes of this Agreement: a. Operator materially breaches or falls to observe or timely perform any of Operator's obligations, covenants, conditions, services or responsibilities under this Agreement, unless within thirty (30) days after notice from Owner specifying the nature of such breach or failure, Operator either cures such breach or failure or, if such breach cannot be cured within thirty (30) days, Operator commences and diligently pursues such cure and thereafter continues to diligently pursue such cure. If the breach is not cured within 120 days of the date of Owner's written notice to Operator, then Owner may terminate this Agreement; b. There is an assignment for the benefit of Operator's creditors, or Operator is adjudged bankrupt, or a petition is filed by or against Operator under the provisions of any insolvency or bankruptcy laws (and such petition is not dismissed within six months), or the business or principal assets of Operator are placed in the hands of a receiver, assignee or trustee, or Operator is dissolved, or Operators existence is terminated or its business is discontinued; or c. Any material representation or warranty furnished by Operator in connection with this Agreement was knowingly false or misleading in any material respect at the time when made. Notwithstanding subsection (a) above, Operator (i) shall not be afforded any cure period, (ii) will not be permitted to invoke or utilize the Article XVIII Dispute Resolution 18 provisions, and (iii) will be subject to immediate termination if the termination of this Agreement is affected under the language of Article XII, Section 1(e). 4. Upon the occurrence of an Event of Default, the non-defaulting party may: a. Without recourse to legal process, terminate this Agreement by delivery of a written notice of termination to the defaulting party or its assigns; and/or b. Pursue, concurrently or separately, other remedies existing in law, any provision of this Agreement, or otherwise. 5. Upon termination or expiration of this Agreement, Operator shall: a. Deliver to Owner all books, records, operator logs, accounts and manuals developed or maintained by Operator pursuant to this Agreement, provided however, that Operator may retain copies of such documents. Furthermore, Owner shall have the right to take possession of all of the equipment, spare parts and supplies purchased for the System and paid for by Owner, b. At Owner's request and expense, cooperate with Owner to effect an orderly transition of the operations and maintenance of the System, including, without limitation, perform the following: i. Continue to operate the System in accordance with this Agreement for a period not to exceed 180 days while Owner appoints and mobilizes a successor operator; ii. Assist Owner in preparing an inventory of all material, equipment, spare parts and supplies purchased for the System; and iii. Assign to Owner all Operator's contractual agreements with third parties relating to the operations or maintenance of the System, to the extent such agreements are so assignable. XIII.ACCESS TO SYSTEM Operator and Owner and their agents, representatives, and employees shall have full and free access at all times to the System. XIV. NOTICES 1. Any notice required or permitted under this Agreement shall be in writing and shall be valid and sufficient if delivered personally, mailed by registered or certified mail, or sent by a recognized private overnight express delivery service. In each case postage prepaid, return receipt requested, addressed to the other party as follows: If to Operator: STEWART & STEVENSON OPERATIONS, INC. 2707 North Loop West Houston, Texas 77008 Attn: Vice-President of North American Operations Telephone: 713-803-0300 If to Owner: 19 NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 600 Minneapolis, Minnesota 55403 Attn: Chief Executive Officer Telephone: 612-373-5300 2. Any party may change its address, or add additional addresses, by notice given to the other parties in the manner se forth above XV. FURTHER ASSURANCES 1. Owner and Operator agree to execute, acknowledge and deliver any and all such further documents and instruments and to take such action as may reasonably be required in order to allow the financing of the System to proceed, to effectuate the purpose of this Agreement, and to obtain any government permits, licenses, or approvals necessary or convenient to accomplish the foregoing. 2. Title to all materials, equipment, supplies, consumables, spare parts and other items purchased or obtained by Operator for the System shall pass to and vest in Owner upon the passage of title from the vendor or supplier thereof and the payment or reimbursement of Operator's costs by Owner. XVI. REPRESENTATIONS AND WARRANTIES 1. Owner represents and warrants to Operator as follows: a. Owner is a corporation duly formed, validly existing, and in good standing under the laws of Delaware, and it is properly qualified to do business in New Jersey; b. The execution of this Agreement has been duly authorized and approved by Owner, and no other authorizations, approvals, or consents are required in order for this agreement to constitute a binding and enforceable legal obligation of Owner; c. The execution of this Agreement by Owner, and the performance of Owner's obligations under this Agreement will not conflict with, or result in a breach or default under, any agreement, contract, or covenant to which Owner is a party; and d. This Agreement, as executed, constitutes a binding legal obligation of Owner that is enforceable in accordance with its terms and conditions. 2. Operator represents and warrants to Owner as follows: a. Operator is a corporation duly incorporated, validly existing, and in good standing under the laws of Delaware, and it is properly qualified to do business in New Jersey; b. The execution of this Agreement by Operator has been duly authorized and approved by Operator and no other authorization, approvals, or consents are required in order for this Agreement to constitute a binding and enforceable legal obligation of Operator; c. The execution of this Agreement by Operator, and the performance of its obligations under this Agreement will not conflict with, or result in a breach or 20 default under, any agreement, contract, or covenant to which Operator is a party; provided, however. that this provision is modified to be consistent with Section 7 of the Agreement which is being executed contemporaneously herewith as an inducement to the execution of this agreement; and d. This Agreement as executed, constitutes a binding legal obligation of Operator that is enforceable in accordance with its terms and conditions. XVII.FORCE MAJEURE 1. Except for the obligation of either party to make any required payments hereunder, the parties shall be excused from performing their respective obligations under this Agreement and shall not be liable in damages or otherwise if and to the extent that they are unable to so perform or are prevented from performing by a Force Majeure, provided that; a. The non-performing party, as promptly as practicable after the occurrence of the Force Majeure, but in no event later than 14 days thereafter, gives the other party written notice describing the particulars of the occurrence; b. The suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure; c. The non-performing party uses its best efforts to remedy its inability to perform; and d. As soon as the non-performing party is able to resume performance of its obligations excused as a result of the occurrence, it shall give prompt written notification thereof to the other party. 2. Neither party shall be required to settle any strike, walkout, lockout or other labor dispute on terms which, in the sole judgment of the party involved in the dispute, are contrary to its interest, it being understood and agreed that the settlement of strikes, walkouts, lockouts or other labor disputes shaft be entirely within the discretion of the party having such dispute. XVIII. DISPUTE RESOLUTION 1. Resolution by Parties. a. First Attempt. In the event that a dispute arises hereunder between the parties, the parties shall attempt in good faith to settle such dispute by mutual discussions within 30 days after the date that a party gives written notice of the dispute to the other party; provided, however, that if the dispute involves any amount claimed under an invoice and after 10 days of mutual discussion either party believes in good faith that further discussion will not resolve the dispute to its satisfaction, such party may immediately refer the matter to arbitration in accordance with Section 2 of this Article XVIII. b. Chief Executive Officers. In the event that the dispute is not resolved in accordance with subsection 1 (a) above, either party may refer the dispute to the chief executive officers or chief operating officers of the respective parties for further consideration. In the event that such individuals are unable to reach agreement within 15 days, or such longer period as they may agree, then either party may refer the matter to arbitration in accordance with Section 2 of this Article XVIII. 21 2. Arbitration. In the event a dispute arises between Owner and Operator which is not resolved pursuant to Section 1 of this Article XVIII, shall be resolved by arbitration pursuant to the terms hereof. As a condition to initiating arbitration proceedings, a party must first have attempted to resolve the dispute under Section 1 of this Article XVIII. All claims, disputes, and other matters in question arising out of or relating to this Agreement or the breach thereof shall be decided by arbitrators selected as hereinafter provided and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then obtaining, unless the parties mutually agree otherwise. The resolution of such disputes shall not delay Operator's or Owner's performance of their undisputed obligations under the terms of this Agreement. The arbitration shall be held in Newark, New Jersey and any arbitration demand must be filed with the American Arbitration Association office located closest to Newark, New Jersey. If the claim or defense of either party is determined to be frivolous, the arbitrators may require that the party at fault pay or reimburse the other party for (i) fees and expenses, including. attorneys and expert fees and expenses, and (ii) reasonable out of pocket expenses incurred by the other party in connection with the arbitration proceedings. Notwithstanding the foregoing, a termination of the Agreement under the language of Article XII, Section 1 (e) shall not, under any circumstances (except for disputes relating to the settlement of payment obligations), be subject to arbitration under this Article VXIII. 3. Selection of Arbitrators. Each dispute shall be submitted to three arbitrators, one arbitrator being selected by Owner, one arbitrator being selected by Operator, and the third arbitrator being selected by the two so selected. The party initiating the arbitration shall include in its notification under Section 4 below the designation of its selected arbitrator and the party receiving such notification shall designate its arbitrator within fifteen (15) days thereafter by notify the initiating party and its arbitrator of the selection. If the arbitrators selected by Owner and Operator cannot agree on a third arbitrator within fifteen (15) days after the second arbitrator is selected, the third arbitrator shall be selected by the American Arbitration Association. In the event the party receiving notification of a demand for arbitration shall not have selected its arbitrator and given notice thereof to the other party and its arbitrator within fifteen (15) days after receiving such notification, such arbitrator shall be selected by the American Arbitration Association. 4. Notice. Notice of demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. The demand shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when the applicable statute of limitations would bar institution of a legal or equitable proceeding based on such claim, dispute, or other matter in question. 5. Award. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 6. Survival. This Article shall survive termination of this Agreement. XIX. GENERAL PROVISIONS 1. Governing Law. This Agreement shall be governed by and construed under the laws of New Jersey. 22 2. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3. Headings. Title and headings of the articles and sections of this Agreement are for convenience of reference only and do not form a part of and shall not in any way affect the interpretation of this Agreement. 4. Amendment. No modification or amendment of this Agreement shall be valid unless in writing and executed by both parties to this Agreement. 5. Assignment. This Agreement may not be assigned by Operator without the written consent of Owner and written agreement of assignee whereby it expressly assumes and agrees to perform each and every obligation of Operator hereunder. Any assignment by Operator in violation hereof shall be null and void. Owner may, without the consent of Operator, assign its rights (but not its obligations) under this Agreement to or by a lender (including finance lessor) providing funds to refinance the System. 6. Successors and Assigns. This Agreement shall be binding and inure to the benefit of the parties hereto and their respective successors and assigns, to the extent that assignment is permitted under this Agreement. 7. Entire Agreement. This Agreement constitutes the entire agreement between the parties, supersedes all prior representations, documents or statements transmitted between the parties. 8. Consequential Damages. In no event will Owner or Operator have the right, with or without legal process. to recover punitive or special damages, or indirect or consequential damages, such as loss of use, lost profits, costs incurred because of delays, cost of replacement energy, "idle plant" costs, interest on borrowed money, letters of credit, security deposits or bonds. In no event will Owner or Operator be liable for representations, oral or otherwise, as to the results intended to be achieved through its undertakings pursuant to this Agreement, except as specifically provided in this Agreement. 9. Other Provisions. Nothing in this Agreement shall be construed to prevent or prohibit Operator from providing operating services to any other person, organization, or entity. 10. Waiver. The waiver of any breach of any term or condition hereof shall not be deemed a waiver of any other or subsequent breach, whether of like or different nature. 11. Not for Benefit of Third Parties. This Agreement and each and every provision thereof is for the exclusive benefit of the parties to this Agreement and not for the benefit of any third party. 12. Survival of Representations, Warranties and Indemnities. All representations, warranties and indemnities of the parties set forth in this Agreement shall survive the termination or expiration of this Agreement. 13. Approval by Proposed Lender. If any provision of this Agreement must be approved by a lender, lessor or equity investor in connection with the financing of the System or any other action contemplated hereby, and such lender requires any modification of the provisions of this Agreement, neither owner nor Operator shall unreasonably withhold its approval and execution of any such modifications. 23 14. Survival of Obligations. Termination of this Agreement for any reason shall not relieve Owner or Operator of any obligation accruing or arising prior to such termination. 15. Confidentiality. The parties shall hold in confidence, and shall use only for the purposes of this Agreement, any and all Proprietary information disclosed to each other. 16. Severability. Should any section or subsection hereof be declared invalid or unenforceable for any reason, the remaining sections and subsections of this Agreement shall remain in full force an affect, and the parties hereto agree to immediately renegotiate in good faith such section or subsection as was declared invalid or unenforceable. 17. Duty to Mitigate. Each party must use its best efforts to mitigate the injury or damage caused by the other party's failure to perform. When a party seeking damages fails to make these efforts, the other party shall be entitled to have the damages accordingly reduced. 18. Consent. Except in the case of an Emergency, when either party's consent or approval is required, such consent or approval must be in writing and given prior to the act for which such consent or approval is sought. 19. Reasonableness. Except as expressly stated to be within the sole discretion of any party, all consents or approvals required of either party shall not be unreasonably withheld or delayed, nor shall any acts or requests of a party be unreasonable in light of the surrounding facts and circumstances. 20. Disclaimer, THE WARRANTIES EXPRESSLY PROVIDED BY OPERATOR HEREUNDER ARE THE SOLE, INTENDED WARRANTIES AND OPERATOR HEREBY DISCLAIMS ALL OTHER WARRANTIES OF ANY KIND, WHETHER STATUTORY, ORAL, WRITTEN, EXPRESS OR IMPLIED, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. 21. Limits on Liability. Notwithstanding any provision contained in this Agreement to the contrary, for any Contract Year, Operator shall not be liable to Owner (whether by contract, warranty, tort, statute or otherwise, including Liquidated Damages or penalties owed by Operator under this Agreement) for any amounts that in the aggregate exceed the amount of the Operating Fee and Bonuses paid for the Contract Year in which the claim is made. If a claim(s) is made after the end of the term, then the claim(s) shall be deemed to have been made in the last Contract Year of the term. The limits of liability set forth herein shall not apply to any damages incurred by a party as a result of its gross negligence or willful misconduct. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first set forth above. OWNER: NRG Generating (Parlin) Cogeneration Inc. By: /s/ Leonard Bluhm Its: President OPERATOR: Stewart & Stevenson Operations, Inc. By: /s/ Harvey Braswell Its: VP North American OPS 24 EXHIBIT A BONUS/LIQUIDATED DAMAGES For the purpose of determining the liquidated damages ("Liquidated Damages") payable by Operator to Owner, or the bonus ("Bonus") payable by Owner to Operator, the effectiveness of Operator under this Agreement shall be measured in terms of both availability and heat rate. These measurements shall be applied at the completion of each Contract Year to determine the Liquidated Damages or Bonus for that Contract Year. Availability. Operator shall undertake to operate the System to maximize availability. Availability will be measured for both the Base Capacity and Dispatchable Capacity levels, as defined in the Amended and Restated Power Purchase Agreement. In each case the following formula will be used: Contract Availability = [Total Hours - (Equivalent Contract Unavailable Hours)] Total Hours where: Total Hours = total hours in the Contract Year; and Equivalent Contract Unavailable Hours = total of all hours during the Contract Year during which there occurred a full or partial Planned, Forced, or Maintenance Outage, as those terms are defined in Article 3 of the Amended and Restated Power Purchase Agreement (including outages resulting from Force Majeure events, but excluding outages resulting from (x) JCP&L's failure to supply natural gas to the Facility during periods when PSE&G has not interrupted transportation that it supplies under the PSE&G Gas Supply Agreement and (y) JCP&L's failure to accept available Output from the Facility). Partial outages are measured on an equivalency basis, e.g., a 50% outage for one hour would be equivalent to a full outage for one-half hour, and so forth. Availability. For purposes of Bonus/Liquidated Damages availability calculation, the target Base availability will be 97%, and the Dispatchable availability will be 94%, for the term of this Contract. Each one tenth of one percent (0.1%) of availability will have a value of $10,000 as a Bonus or Liquidated Damages for availability measurement. Heat Rate. For purposes of Bonus/Liquidated Damages heat rate calculations, the heat rate incentive will be based on 9500 Btu per kwh HHV, as calculated in accordance with Article 8.3, Section h of the Amended and Restated Power Purchase Agreement, as adjusted by Article 9, for the term of this Contract. 25 LIQUIDATED DAMAGES AND BONUS The Liquidated Damages payable by Operator to Owner and the Bonus payable by Owner to operator shall be based on the Availability and Heat Rate guarantees set forth in this Exhibit. For any Contract Year, the maximum Liquidated Damages (in the aggregate for each category as adjusted by the amounts of any Bonus payable to Operator) payable by Operator shall be no more than one hundred percent(100%) of the Operator's Fee for such Contract Year. For any Contract Year, once the aggregate Bonuses payable to Operator (adjusted for the Liquidated Damages, if any, owed by Operator equal $200,000, then any amounts in excess of $200,000 shall be payable to Operator at a rate of 4O% of such excess. The availability and heat rate Bonus/Liquidated Damages calculations will be determined monthly and will be payable after the end of the Contract Year as set forth in the Amended and Restated Power Purchase Agreement. 26 EXHIBIT B DESCRIPTION OF THE SYSTEM PARLIN SYSTEM The cogeneration plant consists of a dual combustion gas turbine-steam turbine combined cycle (topping cycle) plant. The nominal rating is 120 MW electrical, with average thermal output of 30,000 lbs/hr steam. The prime movers of the plant are two General Electric Frame 6 dual fuel combustion turbines, each direct connected to a 54,000 kVA synchronous generator with electrical output at 3 PH, 60 Hz and 13.8 kV. The exhaust from each of the G.E. Frame 6 turbines is directed into a three drum (tri-pressure) heat recovery steam generator (HRSG). Each HRSG, at full turbine load and 59 F ambient temperature produces when fired with 94.0 million BtuHHV an hour of auxiliary filing, 227,000 lbs/hr of 700 psig, 900 F steam; 23,000 lbs/hr of 285 psig/521 F steam; and 12,300 lbs/hr of 30 psig dry and saturated steam. The combined 700 psig steam is directed to two condensing extraction steam turbines, each of which is direct connected through a step-up gearbox to a 24,000 kVa synchronous generator with an electrical output of 3PH, 60 Hz and 13.8 kV. The 165 psig steam extracted from the steam turbine is directed into a header from which 35,000 lbs/hr is directed to process to the site steam host. Thermal loads of the system vary seasonally from an average of 30,000 lbs/hr over the course of an 8760 hour year. The plant will operate on natural gas under normal circumstances other then interruptions due to curtailment of supply on extremely cold days. Kerosene fuel is used as the alternate, approximately 480 hr/yr. Output of the combustion turbine is controlled by sensing and maintaining a constant optimum turbine exhaust temperature. NOX emission from the plant are controlled by a combination of steam injection into the combustion turbine and Selective Catalytic Reduction using anhydrous ammonia injection with a semi-precious metal catalyst in the HRSG. The plant is equipped with Continuous Emission Monitoring equipment. The interconnection points for the System are shown an identified an the following diagram associated with this Exhibit. 27 EXHIBIT C SYSTEM CONTRACTS NEWARK Power Purchase Agreement dated 04/30/96 Gas Service Agreement dated 04/30/96 Electricity Agreement with Dupont dated 01/18/88 Steam Purchase Agreement dated 12/08/86 Permits Air Permit/Certification (Storage Tank #1) issued 10/10/90 Air Permit/Certification (Auxiliary Boiler) issued 05/21/89 Wastewater Discharge Permit issued 04/01/93 Air Permit/Certification (Auxiliary Boiler) issued 06/15/95 Air Permit/Certification (Stack #2) issued 10/21/90 Air Permit/Certification (Stack #1) issued 12/22/93 Air Permit/Certification (Storage Tank #2) issued 10/10/90 28 EXHIBIT D TERMINATION FOR CONVENIENCE Commencing on the third anniversary of the Effective Date, the Owner may terminate this agreement for convenience as set forth In Article XII Section 1 (d). The termination fee shall be $570,000 reduced pro-rata based on the number of calendar days remaining in the Agreement term as the numerator and 1096 calendar days as the denominator. The termination fee will be adjusted accordingly for any pro-rated undisputed Bonus/Liquidated Damage payments due on the Termination Date. This right of payment shall be Operator's sole and exclusive remedy for any termination of the Agreement by Owner under Article XII Section I (d) or the circumstances that were the basis thereof or were related thereto. 29 EXHIBIT E TERMINATION UNDER ARTICLE XII SECTION 1(e) Commencing on the Effective Date, the Owner has the right to terminate the Agreement immediately as set forth in Article XII Section 1 (e). If Owner exercises such termination right and Operator thereafter becomes entitled to receive a payment from Owner under the language of the second of the provisos of Article XII Section 1 (e), then the amount of the payment shall be determined as follows: (i) if the termination occurs on the Effective Date, then the amount of the payment shall be $1.4mm for Parlin or (ii) if the termination occurs after the Effective Date, then the amount of the payment shall be the product of the amount specified in clause (i) times a fraction, the numerator of which is the number of calendar days remaining in the term of the Agreement, measured from the date that Operator surrendered control of the Project to Owner, and the denominator of which is 2,191 calendar days. The amount of this payment shall be adjusted for any prorated undisputed Bonus/Liquidated Damage payments due under the terms of the Agreement on the date of termination. This right of payment shall be Operator's sole and exclusive remedy for any termination of the Agreement by Owner under Article XII Section 1 (a) or the circumstances that were the basis thereof or were related thereto. 30 EXHIBIT F 1996 Budget SEE ATTACHED 31 APPENDIX I GUARANTEE OF OPERATOR'S OBLIGATIONS BY STEWART & STEVENSON SERVICES, INC. In consideration of, and as an inducement for NRG Generating (Parlin) Cogeneration, Inc. ("Owner") to enter into certain agreements with Stewart & Stevenson Operations, Inc. ("Subsidiary"), Stewart & Stevenson Services, Inc. hereby, irrevocably guarantees to Owner the Prompt performance and payment when due, whether by acceleration or otherwise, of all obligations, indebtedness, liabilities or undertakings according to the terms of the NRG Generating (Parlin) Cogeneration Inc./Stewart & Stevenson Operations, Inc. Operating and Maintenance Agreement dated , 1996 and the Agreement between Stewart & Stevenson Operations, Inc., NRG Generating (Newark) Cogeneration Inc., NRG Generating (Parlin) Cogeneration Inc., NRG Generating (U, S.) Inc., and Stewart & Stevenson Services, Inc. (the "Agreements"). Subject to the terms and provisions herein set forth, the Guaranty is continuing, absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Agreements, (b) any amendment to, waiver of or consent to, departure from, or failure to exercise any right or remedy under the Agreements, (c) any acceptance of partial payment or performance of any of the guaranteed obligations, (d) any release, application or amendment of or consent to departure from any security or guaranty therefor, (e) any assignment of this Guaranty, (f) the insolvency, bankruptcy, dissolution or liquidation of Subsidiary or any change in ownership of Subsidiary, or (g) any other circumstance of a similar or different nature which might otherwise constitute a defense available to Subsidiary or the undersigned except as to the legal rights and defenses of Subsidiary watch arc provided for under the Agreements. Notice of acceptance of the Guaranty is hereby waived, and this Guaranty shall remain in full force and effect up to and including the expiration of the Agreements. The Guarantor waives promptness, diligence, any and all demands for payment, any notice of credits extended and shipments of merchandise made hereunder, and all other notices whatsoever. The Guarantor consents to any extensions of time for the payment of said account, to any changes in the terms of any settlement or adjustment thereof and to any changes in the terms of the Agreements. No delays on the part of Owner in the exercise by Owner of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No actions of Subsidiary shall in any way impair or affect this Guaranty. If Subsidiary defaults in the payment of any amounts due or in the performance of any other obligation under the Agreements, the Guarantor shall (a) pay upon demand (i) any sum due and to become due, (ii) any damages, costs and expenses entitled to be recovered from Subsidiary by reason of such default, and (iii) reasonable attorneys' fees and all costs and other expenses incurred as a result of any such default or in enforcing this Guaranty and (b) upon demand, perform or cause such obligation to be performed. This 32 Guaranty is a guarantee of payment and not of collection and no action need be brought against Subsidiary as a precondition to the enforcement of this Guaranty. This Guaranty shall be binding upon the Guarantor and its successors and assigns and shall be for the benefit of the person named above, its successors and assigns. Should any one or more of the provisions of the Guaranty be determined by a court of competent jurisdiction to be illegal or unenforceable, all other provisions shall remain effective. This Guaranty shall be governed by and construed under the laws of the State of New Jersey. IN WITNESS WHEREOF, this Guaranty has been duly executed this day of , 1996. STEWART & STEVENSON SERVICES, INC. By: /S/ Title: 33 EX-10.22.2 15 EXHIBIT 10.22.2 AGREEMENT DATED MAY 1, 1996 BETWEEN THE COMPANY, NRGG NEWARK, NRGG PARLIN AND STEWART & STEVENSON OPERATIONS, INC. Exhibit 10.22.2 CONSENT TO ASSIGNMENT OF SYSTEM OPERATING AND MAINTENANCE AGREEMENT This Consent to Assignment (this "Consent") is entered into as May 1, 1996 by Stewart & Stevenson Operations, Inc., a Delaware Corporation (the "Company"), NRG Generating (Parlin) Cogeneration Inc. (formerly known as O'Brien (Parlin) Cogeneration, Inc.), a Delaware Corporation ("NRG Parlin"), and Credit Suisse, a bank organized and existing under the laws of Switzerland, acting through its New York branch ("CS") as agent (hereinafter in such capacity, together with any successors thereto in such capacity referred to as "Agent") pursuant to the credit Agreement dated as May 1, 1996 by and among (i) NRG Parlin and NRG Generating (Newark) Cogeneration Inc. (formerly known as O'Brien (Newark) Cogeneration, Inc.), a Delaware Corporation ("NRG Newark") (collectively, the "Borrowers"), (ii) Credit Suisse, as Lender and each additional Lender from time to time party to the Credit Agreement and_(iii), the Agent, (as to same may be amended, modified or supplemented from time to time, the "Credit Agreement"). RECITALS WHEREAS, the Company and NRG Parlin have entered into the System Operating and Maintenance Agreement, dated as of May 1, 1996 (as the same may be amended, modified or supplemented from time to time, the "Assigned Agreement"); and WHEREAS, NRG Parlin has assigned or will assign to Agent for the benefit of the Secured Parties (as defined in the Credit Agreement and referred to herein as "Assignee") all of its rights, title and interest in, to and under the Assigned Agreement as security for NRG Parlin's obligations under the Credit Agreement; and WHEREAS, the Company is willing to consent to such assignment and the grant of a security interest by NRG Parlin in favor of Assignee as described above. NOW, THEREFORE, in consideration of the premises and of other valuable consideration, the parties hereto agree as follows: 1. Assignment and Security Interest As security for the due and punctual performance and payment of all of NRG Parlin's obligations under the Credit Agreement, NRG Parlin has assigned or will assign to Assignee as collateral security, all of NRG Parlin's rights to and under the Assigned Agreement upon the terms set forth in the Security Agreement (as defined in the Credit Agreement). 2. Consent The Company hereby (i) irrevocably consents to the assignment specified in paragraph 1 of this Consent and to any subsequent assignments by Agent or Assignee upon and after the Agent's or Assignee's exercise of its rights and remedies under the security Agreement and (ii) agrees that, following the assumption of the Assigned Agreement by Agent, Assignee or their nominee, designee or assignee, all representations, warranties, indemnities and agreements (other than those representations and warranties expressly made only as of an earlier date) made by the Company under or pursuant to the Assigned Agreement shall inure to the benefit of such party and shall be enforceable by such party to the same extent as if such party were originally, named in the, Assigned Agreement. 3. Default and Cure (a) If NRG Parlin defaults under the Assigned Agreement the Company shall, before terminating the Assign Agreement or exercising any other remedy, give written notice to Agent specifying the default and the steps necessary to cure the same and Agent or Assignee shall have sixty (60) days (30 days in the case of a default in payment by NRG Parlin) after receipt of such notice (or such longer period of time as may be reasonably necessary under the circumstances, provided that Agent or Assignee is diligently pursuing such cure) to cure such default or to cause it to be cured. If Agent and Assignee fail to cure or cause to be cured any such default within the appropriate period set forth above, the Company shall have all of its rights and remedies with respect to such default as set forth in the Assigned Agreement and at law or in equity. (b) In the event that the Assigned Agreement is terminated by rejection, or otherwise, during a case in which NRG Parlin is the debtor under Title 11, United States Code, or other similar federal state statute, then the Company shall, at the option of Agent and Assignee and so long as all existing payment defaults by NRG Parlin under the Assigned Agreement are cured by Agent, Assignee or their nominee or designee, enter into a new Assigned Agreement with Agent, Assignee or (at the direction of Agent or Assignee) their nominee or designee having terms substantially identical to the Assigned Agreement, pursuant to which Agent, Assignee or their nominee or designee shall have all of the rights and obligations of NRG Parlin under the Assigned Agreement. (c) If Agent notifies the Company in writing that NRG Parlin has defaulted under the Credit Agreement and requests that the Company continue performance under the Assigned Agreement, the Company shall thereafter perform under the Assigned Agreement in accordance with its terms, so long as all existing defaults by NRG Parlin under the Assigned Agreement are cured by Agent, Assignee or 2 their nominee or designee and the obligations of NRG Parlin thereunder shall continue to be paid and performed by NRG Parlin, Agent, Assignee or their nominee or designee. 4. Payments The Company agrees that until receipt of written notice from Agent that all obligations of NRG Parlin under the Credit Agreement have been fully satisfied, the Company hereby agrees to make all payments due to NRG Parlin under the Assigned Agreement directly to such account as Agent may from time to time hereafter specify in writing and the Company will not be entitled to recover any amount so paid from Agent. 5. Delivery of Notices The Company agrees that it will promptly notify Agent of any breach by NRG Parlin of any of the terms of the Assigned Agreement and will deliver to Agent simultaneously with the delivery thereof to NRG Parlin (i) any notices delivered pursuant to the Assigned Agreement or otherwise and (ii) all invoices, budgets, plans and reports delivered pursuant to Article VI of the Assigned Agreement. 6. Liability of Assignee The Company acknowledges and agrees that Agent and Assignee have not assumed and do not have any obligation or liability under or pursuant to the Assigned Agreement, and that the exercise by Agent or Assignee of its rights and remedies under the Security Agreement shall not constitute an assumption of NRG Parlin's obligations under the Assigned Agreement (except to the extent such obligations shall be expressly assumed by an instrument in writing executed by the Agent or Assignee). 7. Amendment or Termination of Assigned Agreement The Company covenants and agrees with Agent that without the prior written consent of Agent (i) the Company will not materially amend, modify, terminate (prior to the expiration of the applicable cure periods in Section 3 hereof) or assign, transfer or encumber any of its interest in the Assigned Agreement and (ii) no waiver by NRG Parlin of any of the obligations of the Company under the Assigned Agreement, and no consent, approval or election made by .NRG Parlin in connection with the Assigned Agreement shall be effective as against Agent and Assignee. 8. Representations and Warranties The Company hereby represents and warrants to Agent and Assignee as follows: (a) The company is a corporation duly organized, validly 3 existing and in good standing under the laws of the State of Delaware. The Company has full power, authority and legal right to incur the obligations provided for in this Consent and the Assigned Agreement. (b) The execution, delivery and performance by the Company of this Consent and the Assigned Agreement have been duly authorized by all necessary corporate action. (c) The Assigned Agreement is in full force and effect and has not been amended, and no default has occurred or exists under the Assigned Agreement and no event or condition has occurred, or exists and is continuing which with the lapse of time, the giving of notice, or both would constitute such a default under the Assigned Agreement. (d) Each of this Consent and the Assigned Agreement constitutes the legal, valid and binding obligation of the Company enforceable against, the Company in accordance with its terms, except as enforceability maybe limited by general principles of equity and by applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors rights generally. (e) All representations and warranties made by the Company in the Assigned Agreement were true and correct in all material respects on and as of the date when made and, except for those that by their terms speak as of a specific date, are true and correct in all material respects on and as of this Consent. (f) No consent, approval, order or authorization of or registration, declaration of a filing with, or giving of notice to, obtaining of any license or permit from, or taking any other action with respect to, any federal, state or local government or public body, authority or agency is required in connection with the valid authorization, execution, delivery and performance of this Consent or the Assigned Agreement. (g) There is no litigation, action, suit, investigation or proceeding pending or, to the best knowledge of the Company, threatened against the Company nor any basis therefor, before or by any court, administrative agency, environmental council, arbitrator or governmental authority, body or agency, which could adversely affect the performance by the Company of its obligations hereunder or under the Assigned Agreement or which questions the validity, binding effect or enforceability hereof or thereof or any of the transactions contemplated hereby or thereby. (h) The company is not in violation of its articles of incorporation or bylaws, and the execution, delivery and performance by the Company of this Consent and the Assigned Agreement, and the consummation of the transactions contemplated hereby and thereby, will not result in any violation of any term of 4 its articles of . incorporation or bylaws, of any material contract or agreement applicable to it, or of any license, permit, franchise, judgment, decree, writ, injunction, order, charter, law, ordinance, rule or regulation applicable to it or any of its properties or to any obligations incurred by it or by which it or any of its properties may be bound or affected, or of any determination or award of any arbitrator applicable to it, and will not conflict with, or cause a breach of, or default under, any such .term or result in the creation of any lien upon any of its properties or assets. (i) The Company has not received notice of, or consented to the assignment of any of NRG Parlin's right, title, or interest in the Assigned Agreement to any person or entity other than Agent and Assignee. 9. Notices All notices or other communications which are required or permitted hereunder to be given to any party shall be in writing (including facsimile communication) and shall be deemed given if delivered personally or sent by telecopy or by registered or certified mail, return receipt requested to the address of such party specified below or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein: If to Agent: Credit Suisse Tower 49 12 East 49th Street New York, NY 10071 Attention: Project Finance Telecopy: (212) 238-5390 If to NRG Parlin: NRG Generating (Parlin) Cogeneration Inc. c/o NRG Energy, Inc. 1221 Nicollet Mall Suite 700 Minneapolis, MN 55403 Attention: Telecopy: 5 If to the Company: Stewart & Stevenson Operations, Inc- 2707 North Loop West Houston, TX 77008 Attention: Vice President - North American Operations Telecopy: (713) 863-8047 with a copy to: Stewart & Stevenson Services, Inc. 2707 North Loop West. Houston TX 77008 Attention: Group Vice President - EPS Telecopy: (713) 869-4068 All such notices and communications shall, when mailed, be effective seven (7) days after being after being deposited in the mail in the manner aforesaid, or when sent by telecopier, upon receipt thereof. 10. Governing Law THIS CONSENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 11. Successors and Assigns This Consent shall be binding upon the parties and their successors and assigns and inure to the benefit of the parties and their respective successors and assigns (which assigns, in the case of Agent and Assignee, shall include, without limitation, any nominee or designee of Agent and Assignee and any purchaser of all or any portion of rights under the Assigned Agreement in connection with an Event of Default under the Credit Agreement or a foreclosure by Agent and Assignee.) 12. Waiver No amendment or waiver of any Provisions of this Consent shall be effective unless the same shall be in writing and signed by Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Counterparts This Consent may be executed in any number of counterparts, all Of which counterparts shall together constitute one and the same instrument. 6 14. Further Assurances The Company will at any time and from time to time, upon the written request of Agent, execute and deliver such further documents and do such other acts and things as Agent may reasonably request in order to effectuate more fully the purposes of this Consent. 15. Conflicts In the event of a conflict between any provision of this Consent and the provisions of the Assigned Agreement, the provisions of this Consent shall prevail. IN WITNESS WHEREOF, each of the undersigned has duly executed this Consent as of the date first above written. STEWART & STEVENSON OPERATIONS, INC. By: /s/ Harvey Braswell Name: Title: NRG GENERATING (PARLIN) COGENERATION, INC. By: /s/ Leonard Bluhm Name: Title: Accepted: CREDIT SUISSE, as Agent By: /s/ Louis Iaconetti Name: Louis D. Iaconetti Title: Associate By: /s/ Steven Dowe Name: Steven Dowe Title: Associate 7 EX-10.22.3 16 EXHIBIT 10.22.3 LETTER AGREEMENT DATED MAY 20, 1996 BETWEEN NRG GENERATING (PARLIN) COGENERATION AND STEWART & STEVENSON OPERATIONS, INC. Exhibit 10.22.3 [Letterhead] NRG Generating (U.S.) Inc. 1221 Nicollet Mall Suite 700 Minneapolis, MN 55403-2445 Telephone (612) 373-5305 Fax (612) 373-8833 May 20, 1996 Mr. Harvey A. Braswell Stewart & Stevenson Operations, Inc. 2707 North Lake West, 2nd Floor Houston, TX 77008 Re: Auxiliary Boilers - NRG Generating (Parlin) Inc. Please refer to that certain NRG Generating (Parlin) Inc./Stewart & Stevenson Operations, Inc. Operating and Maintenance Agreement, dated May 1, 1996 (the "Parlin O&M Agreement") between NRG Generating (Parlin) Inc. ("NRG Parlin") and Stewart & Stevenson Operations Inc. ("SSOI"). This letter is to confirm the mutual understanding and agreement of NRG Parlin and SSOI that the term "System" as used in the Parlin O&M Agreement includes any auxiliary boiler (and any replacement boiler) used to meet NRG Parlin's obligations under the Amended and Restated Power Purchase Agreement, under the Steam Purchase Contract dated December 8, 1986, as amended, between NRG Parlin and E.I. duPont de Nemours and Company ("DuPont") and under the Electricity Purchase Contract dated January 18, 1988 between NRG Parlin and DuPont, regardless of whether such boiler is regarded as owned by NRG Parlin. It is also our mutual understanding and agreement that SSOI will operate and maintain the Parlin auxiliary boiler under the terms of the Parlin O&M Agreement. This letter is intended as a clarifying amendment to the NRG Parlin Agreement. Accordingly, the NRG Parlin Agreement is hereby amended to reflect the terms hereof and, except as explicitly stated above, shall continue in full force and affect in accordance with its provisions. Additionally, the provisions of Article XIX of the NRG Parlin Agreement are hereby incorporated into this letter as if they were separately stated herein. If this letter accurately sets forth the terms of our understanding, please so indicate by executing a coy of this letter in the space provided below. Yours very truly, NRG GENERATING (PARLIN) COGENERATION By: /s/ Leonard Bluhm Name: Leonard A. Bluhm Title: President ACKNOWLEDGED AND AGREED TO: STEWART & STEVENSON OPERATIONS, INC. By: /s/ Harvey A. Braswell Name: Harvey A. Braswell Title: Vice President - North American Operations EX-10.25.3 17 EXHIBIT 10.25.3 AMENDMENT AGREEMENT DATED JANUARY 1, 1994 BETWEEN PECO AND GRAYS FERRY. Exhibit 10.25.3 AMENDMENT AGREEMENT This Amendment Agreement is made this 31st day of January, 1994, by and between Grays Ferry Cogeneration Partnership, a partnership with offices of its managing partner, O'Brien (Schuylkill) Cogeneration, Inc., located at 225 South Eighth Street, Philadelphia, Pennsylvania 19106 ("SELLER"), and PECO Energy Company, formerly known as Philadelphia Electric Company, a Pennsylvania corporation with offices located at 2301 Market Street, Philadelphia, Pennsylvania 19101 ("PECO ENERGY"). BACKGROUND SELLER and PECO ENERGY are parties to an Agreement for Purchase of Electric Output dated as of July 18, 1992 ("Original Agreement"), pursuant to which SELLER agreed to sell, and PECO ENERGY agreed to purchase, the net electric output to be generated by SELLER from a cogeneration facility ("Facility") to be constructed by SELLER on certain property subleased by SELLER from Philadelphia Thermal Energy Corporation ("PTEC") under a Site Lease dated November 11, 1991, as amended. The Original Agreement was approved by the Pennsylvania Public Utility Commission ("PUC") by Order entered on March 15, 1993. PECO ENERGY, the owner of the property on which the Facility is to be constructed, consented to the sublease of the property from PTEC to SELLER (but not the assignment of SELLER's rights under the Original Agreement to any party other than PECO ENERGY) pursuant to a letter dated September 16y, 1991 ("Original Consent"). SELLER now has advised PECO ENERGY that the Facility will be constructed in two phases, the first of which will generate approximately 31 megawatts ("Phase I") and the second of which will generate approximately 119 megawatts ("Phase II"). Because it is possible that the construction of Phase II may be delayed or, under certain circumstances, be undertaken by Philadelphia United Power Corporation, its corporate successors or under certain conditions its assigns, SELLER and PECO ENERGY have determined that it would be prudent to restructure the Original Agreement into two separate agreements, one for each Phase, subject to PUC approval, and to revise, subject to PUC approval of the Revised Agreements (as hereinafter defined), the Original Consent. All capitalized terms not defined herein shall have the meanings ascribed to them in the Revised Agreements (hereinafter defined). NOW, THEREFORE, intending to be legally bound hereby, the PARTIES agree as follows: 1. Attached hereto as Exhibit A is an Agreement for Purchase of Electric Output (Phase I), covering Phase I of the Facility, and attached hereto as Exhibit B is an Agreement for Purchase of Electric Output (Phase II), covering Phase II of the Facility (collectively, "Revised Agreements"). 2. Attached hereto as Exhibit C is a revised consent to sublease from PECO ENERGY to PTEC ("Revised Consent"). 3. (a) The Revised Agreements shall become effective upon (i) their execution by authorized representatives of the PARTIES, (ii) the acceptance by the PARTIES, in the manner specified below, of the terms of a valid, binding and unappealed final order of a court or the PUC ruling upon PECO ENERGY's COST, and (iii) approval of the Revised Agreements by the PUC without modification as a contract with an affiliated interest under 66 Pa.C.S. 2102. (b) Within thirty (30) days after the execution of this Amendment Agreement, PECO ENERGY shall prepare and file a COST RECOVERY PETITION for the Revised Agreements. At the same time, in view of the fact that Adwin Equipment Company, a wholly owned subsidiary of PECO ENERGY, is one of the general partners of SELLER, PECO ENERGY shall prepare and file a petition with the PUC seeking approval of the Revised Agreements without modification under the affiliated interest provisions of 66 Pa.C.S. 2102. Within sixty (60) days after (a) the date of entry of an unappealed valid, binding and final order of the PUC ruling on the COST RECOVERY PETITION, (b) the filing date of an unappealed valid, binding and final order of a court on appeal from such a PUC ruling or (c) the date of entry of an unappealed valid, binding and final order of the PUC ruling on the cost recovery petition on remand, each PARTY shall provide the other PARTY with written notice of its acceptance or nonacceptance of the terms and conditions of the final order ruling upon the COST RECOVERY PETITION. Neither PARTY, however, shall have the right to reject the terms and conditions of such a final order if the relief sought in the COST RECOVERY PETITION is granted without modification. The failure to provide written notice of acceptance or nonacceptance under this Section 2 within the required time period shall be deemed to be acceptance of the terms and conditions of the final order. If the relief sought in the COST RECOVERY PETITION is granted without modification, the condition precedent set forth above shall be deemed to be satisfied as of the filing date or date of entry of the final order ruling upon the COST RECOVERY PETITION. If the relief sought in the COST RECOVERY PETITION is granted with modification, and the PARTIES accept the terms and conditions of the final order, the PARTIES shall promptly execute an appropriate modification to the Revised Agreements, and the condition precedent set forth above shall be deemed to be satisfied as of the effective date of such modification. Notwithstanding the final ruling on the COST RECOVERY PETITION, if the PUC does not approve the Revised Agreements without modification under the affiliated interest provisions of 66 Pa.C.S. 2102, the Revised Agreements shall not become effective. 4. Upon approval of the Petition regarding the Revised Agreements as set forth above in Section 3, the Original Agreement shall terminate and the Revised Agreements shall be in full force and effect. If the Petition regarding the Revised Agreements is not approved as set forth in Section 3, the Revised Agreements shall terminate, become null and void, and shall cease to have any force or effect, and the Original Agreement shall be and remain in full force effect as if the Revised Agreements did not exist. 5. Upon the Revised Agreements becoming effective as set forth above in Section 4, the Original Consent shall terminate as set forth above in Section 4 and the Revised Consent shall be in full force and effect. If the Revised Agreements shall terminate, the Revised Consent shall terminate, become null and void, and shall cease to have any force or effect, and the Original Consent shall be and remain in full force and effect as if the Revised Consent did not exist. IN WITNESS WHEREOF, the PARTIES have caused this Amendment Agreement to be executed as of the day and year first above written. PECO ENERGY COMPANY, formerly known as PHILADELPHIA ELECTRIC COMPANY Attest:/s/ By:/s/ William H. Smith III William H. Smith, III GRAYS FERRY COGENERATION PARTNERSHIP Attest:/s/ By: /s/ Robert A. Shinn Robert A. Shinn Vice President O'Brien (Schuylkill) Cogeneration, Inc. EX-10.25.4 18 EXHIBIT 10.25.4 AGREEMENT FOR PURCHASE OF ELECRIC OUTPUT (PHASE I) DATED JULY 28, 1992 BETWEEN PECO ENERGY COMPANY ("PECO") AND GRAYS FERRY. Exhibit 10.25.4 Grays Ferry PECO Contract Phase 1 (only) EXHIBIT A AGREEMENT FOR PURCHASE OF ELECTRIC OUTPUT (PHASE I) AGREEMENT FOR PURCHASE OF ELECTRIC OUTPUT (PHASE I) between PECO ENERGY COMPANY and GRAYS FERRY COGENERATION PARTNERSHIP Dated; As of July 28, 1992 TABLE OF CONTENTS Page BACKGROUND 1 ARTICLES I. DEFINITIONS 2 1.1 Definitions 2 II. EFFECTIVE DATE AND TERM 10 2.1 Effective Date 10 2.2 Cost Recovery 10 2.3 Term 11 III. CERTAIN OBLIGATIONS OF SELLER 12 3.1 Qualifying Facility Status 12 3.2 Completion of Construction 12 IV. PURCHASES 13 4.1 Amount Purchased 13 4.2 Definitions 13 4.3 Output Purchase Payment 14 V. SUSPENSE ACCOUNT 15 5.1 Suspense Account Balance 16 5.2 Projection Payment 16 5.3 Termination Payment 16 5.4 Suspense Account Guarantee 16 VI. CURTAILMENT. REDUCTION OR INTERRUPTION OF PURCHASES 18 6.1 Purchase Disruptions 18 6.2 Selection 19 6.3 Notice 19 6.4 Extent of Disruptions 20 6.5 SELLER's Obligations on Disruption 20 (i) ARTICLE VII. PROJECT OPERATION 21 7.1 Obligation of SELLER 21 7.2 Manner of Delivery 21 7.3 Safe Construction and Operation 21 7.4 Power Factor 23 7.5 Provision of Information 23 7.6 Modifications 24 VIII. SELLER INTERCONNECTION EOUIPMENT 25 8.1 SELLER Interconnection Equipment 25 8.2 Condition Precedent 25 8.3 Design 25 8.4 Construction 27 8.5 Inspection and Access 27 IX. PECO ENERGY INTERCONNECTION EOUIPMENT 29 9.1 PECO ENERGY Interconnection Equipment 29 9.2 Interconnection Design 29 9.3 Consultation with SELLER 29 9.4 Rights and Easements 30 9.5 Acquisition of Permits. Licenses and Approvals 30 9.6 Costs of Acquisition 31 9.7 Notice to Proceed 31 9.8 Reasonable Efforts to Complete Construction 31 9.9 Liability 31 9.10 Design Changes 32 9.11 Notice of Completion 33 9.12 Interconnection Cost Responsibility 33 9.13 Estimated Costs 33 9.14 Payment Schedule 33 9.15 Reconciliation 34 9.16 Suspension 35 9.17 Cancellation Costs 36 X. INITIAL PROJECT OPERATION AND TESTING 37 10.1 Initial Operation 37 10.2 Commercial Operation 38 XI. METERING 38 11.1 Metering Equipment 38 11.2 Meter Charges 39 (ii) ARTICLE 11.3 Meter Testing 39 11.4 Meter Error 39 11.5 Payment Adjustment 40 11.6 Meter Failure 40 11.7 Suspense Account Adjustments 41 XII. TELEMETERING 41 12.1 Telemetering Equipment 41 12.2 Cost Responsibility 42 12.3 Telemetering Charges 42 XIII. MODIFICATIONS 43 13.1 PECO ENERGY System Modifications 43 13.2 Payment 44 13.3 Maintenance Costs 44 XIV. PAYMENT AND BILLING 45 14.1 Output Purchase Payment 45 14.2 Metering. Telemetering and Administration Charges45 14.3 Payments 46 14.4 Interest 46 14.5 Billing Disputes 47 XV. ASSIGNMENT 48 15.1 Assignment 48 XVI. BANKRUPTCY AND INSOLVENCY 49 16.1 Remedies 49 XVII. WARRANTIES 50 17.1 SELLER's Warranties 50 XVIII. INDEMNIFICATION 51 18.1 Responsibility 51 18.2 Worker's Compensation Responsibility 52 18.3 Procedure 52 (iii) ARTICLE XIX. TERMINATION 53 19.1 Termination by PECO ENERGY 53 19.2 Termination by SELLER 54 19.3 Effect of Termination 54 XX. BREACH AND DEFAULT 54 20.1 Breach 55 20.2 Cure and Default 55 20.3 Damages 55 20.4 Mitigation 56 20.5 Indemnification 56 XXI. FORCE MAJEURE 56 21.1 Force Majeure 56 21.2 Excuse from Performance 58 XXII. INSURANCE 59 22.1 Insurance 59 XXIII. GOVERNMENT REGULATIONS 59 23.1 State and Federal 59 XXIV. GOVERNING LAW 60 24.1 Interpretation 60 XXV. MISCELLANEOUS 60 25.1 Notices 60 25.2 Indulgences 61 25.3 Captions and Headings 61 25.4 Validity 61 25.5 Agreement Definition 62 25.6 Modifications 62 25.7 Execution in Counterparts 62 25.8 Gender and Number 62 25.9 Number of Days 63 APPENDICES A. Estimated Metering, Telemetering and Administration Charges B. Pricing Values (iv) AGREEMENT FOR PURCHASE OF ELECTRIC OUTPUT (PHASE I) This AGREEMENT is made as of the 28th day of July, 1992, by and between Grays Ferry Cogeneration Partnership, a partnership with offices of its managing partner, O'Brien (Schuylkill) Cogeneration, Inc., located at 225 South Eighty Street, Philadelphia, Pennsylvania 19106 ("SELLER"), and PECO ENERGY COMPANY, formerly known as Philadelphia Electric Company, a Pennsylvania corporation with offices located at 2301 Market Street, Philadelphia, Pennsylvania 19101 ("PECO ENERGY"). BACKGROUND PECO ENERGY is a regulated public utility engaged in, among other things, the generation, purchase, transmission., distribution and sale of electric power within the Commonwealth of Pennsylvania. Under Section 210 of PURPA, 16 U.S.C. S 824A-3, FERC regulations at 18 C.F.R. S S 292.201-292.602, and PUC regulations at 52 Pa. Code SS 57.31- 57.39, PECO ENERGY is required under certain circumstances to purchase electric power from QUALIFYING FACILITIES. SELLER intends to design, construct, own and operate an electric generation facility (the FACILITY as defined in Article I hereof) and certain associated equipment located at 2600 Christian Street, Philadelphia, Pennsylvania 19146. SELLER intends to receive certification from the FERC that the FACILITY is a QUALIFYING FACILITY, and SELLER intends to and shall maintain the FACILITY during the term of this AGREEMENT in compliance with the requirements for a QUALIFYING FACILITY established by PURPA and FERC's regulations. SELLER has requested PECO ENERGY, and PECO ENERGY is willing, to (a) design, construct, install, operate and maintain certain equipment to enable the FACILITY to interconnect with the PECO ENERGY SYSTEM (the PECO ENERGY INTERCONNECTION EQUIPMENT) and (b) purchase the NET ELECTRIC OUTPUT produced by the FACILITY during the term of the AGREEMENT. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the PARTIES, intending to be legally bound hereby, agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. The following terms, when used herein with capitalization, shall have the following meanings: AGREEMENT means this agreement for Purchase of Electric Output between PECO ENERGY AND seller, including any extension or amendment thereto. AUXILIARY SERVICE RIDER means the rider set forth in PECO ENERGY'S Electric Service Tariff under which PECO ENERGY provides electric service to customers whose electrical requirements are not wholly provided by PECO ENERGY-owned facilities, as the rider may be amended from time to time, BILLING MONTH means the time period, constituting not less than twenty- eight (28) days and not more than thirty-four (34) days, between two successive meter readings made for billing purposes. 2 CANCELLATION COSTS means the costs and liabilities incurred by PECO ENERGY upon the termination of the AGREEMENT under Sections 19.1 oar 19.2 hereof or upon the expiration of the term of the AGREEMENT specified in Section 2.3 hereof to 9a) cancel supplier and contractor orders and agreements entered into to design, construct, install, operate maintain and own PECO ENERGY INTERCONNECTION EQUIPMENT, (b) remove such PECO ENERGY INTERCONNECTION EQUIPMENT and restore the PECO ENERGY SYSTEM to its condition prior to the execution of this AGREEMENT. COMMERCIAL OPERATION DATE means the date designated by SELLER under Section 10.2 hereof as the date the FACILITY and the SELLER INTERCONNECTION EQUIPMENT are ready to deliver NET ELECTRIC OUTPUT to the INTERCONNECTION POINT on a continuous basis for reasons other than testing. COST RECOVERY PETITION means a petition by PECO ENERGY to the PUC seeking authority to collect and recover from PECO ENERGY's customers, on a full and current basis through the ENERGY COST ADJUSTMENT or such other mechanism as may replace the ENERGY COST ADJUSTMENT, all payments made to SELLER under the AGREEMENT for purchases of NET ELECTRIC OUTPUT. CREDIT means (a) an irrevocable letter or letters of credit (b) a surety or performance bond or (c) an insurance policy, DATE OF INITIAL OPERATION means the date, acceptable to 3 PECO ENERGY, that SELLER synchronizes, for the first time, the FACILITY with the PECO ENERGY SYSTEM. DESIGN RELEASE means a written notice from SELLER to PECO ENERGY authorizing PECO ENERGY to (a) design the PECO ENERGY INTERCONNECTION EQUIPMENT, (b) estimate the completion date for constructing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, (c) prepare an estimate of the cost of constructing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, AND (d) review the design of the SELLER INTERCONNECTION EQUIPMENT for acceptance. ENERGY COST ADJUSTMENT means the component of PECO ENERGY's PUC- approved electric rates, as set forth in PECO ENERGY's Electric Service Tariff, which enables PECO ENERGY to recover its energy costs not reflected in its base rates. FACILITY means all equipment and appurtenant structures, which have an aggregate nameplate rating of up to 31 megawatts, to be constructed, installed, operated, maintained and owned by SELLER at the PROJECT SITE for the purpose of generating electricity, representing Phase I of a two-phase project which SELLER intends to construct at the PROJECT SITE with a total aggregate nameplate rating of up to 150 megawatts. FERC means the Federal Energy Regulatory Commission. FINAL PROJECTION DATE means the date as defined in Appendix B. INTERCONNECTION POINT means the point of physical 4 connection between the SELLER INTERCONNECTION EQUIPMENT and the PECO ENERGY INTERCONNECTION EQUIPMENT to be determined by PECO ENERGY, after consultation with SELLER. ISSUER means, with respect to the CREDIT (a) the commercial bank or other entity issuing an irrevocable letter or letters of credit, (b) the company qualified and authorized to issue the surety or performance bond in the Commonwealth of Pennsylvania, (c) the insurance company authorized to issue the insurance policy. LIGHT LOAN CONDITION means a circumstance where (a) the PJM INTERCONNECTION operators have declared a MINIMUM GENERATION EMERGENCY or (b) a condition occurs on the PJM INTERCONNECTION or the PECO ENERGY SYSTEM which, without PECO ENERGY taking action to correct such condition, might imminently lead to such a declaration. Such actions include, but are not limited to, (i) a reduction in output from a nuclear unit or (ii) the removal of an electric generating unit from service which could not be returned to service during the next anticipated period of peak demand for power. METER ERROR CORRECTION PERIOD means the actual time period of a meter's registration error, if such time period is definitely known, or, if unknown, a period equal to the lesser of one-half (1/2) the time elapsed since the last previous test of the meter, or three months, plus, if the meter has not been tested in accordance with the requirements of 52 Pa. Code S 57.20, as that provision may be amended from time to time, the 5 period the meter has been in service beyond the required test period. METER ERROR PERCENTAGE means the difference, expressed as a percentage, between actual meter registrations during testing, and the registrations the meter would have made if it were neither fast nor slow, at an average purchase level that the PARTIES mutually agree is representative of the level of NET ELECTRIC OUTPUT purchases made by PECO ENERGY from the PROJECT during the METER ERROR CORRECTION PERIOD. MINIMUM GENERATION EMERGENCY means an operational condition declared by the PJM INTERCONNECTION resulting from a period of low demand for electricity. NET ELECTRIC OUTPUT means the total electric output of the FACILITY in excess of (a) the output SELLER uses to operate the FACILITY, (b) the output Philadelphia Thermal Energy Corporation uses to operate the steam generating equipment and related facilities located on land at Schuylkill Station that it leases from PECO ENERGY under a lease dated January 30, 1987; provided that PECO ENERGY shall not provide facilities or service to transport or deliver power from the FACILITY to that steam generating equipment and related facilities, and (c) the output SELLER uses in the transformation and transmission of electric output to the INTERCONNECTION POINT. NOTICE TO PROCEED means written notice provided by SELLER to PECO ENERGY authorizing PECO ENERGY to construct, purchase and install the PECO ENERGY INTERCONNECTION EQUIPMENT and agreeing to pay all the costs and charges incurred and made by 6 PECO ENERGY under this AGREEMENT in constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. OPERATIONAL EMERGENCY means a condition or situation which presents, or is imminently likely to present, a real, substantial and immediate threat to persons or property, or which impairs or imminently will impair either (a) PECO ENERGY's ability to furnish and maintain adequate, efficient, safe, and reliable service to its customers, or (b) the safety, reliability and stability of the PECO ENERGY SYSTEM. PARTIES means PECO ENERGY and SELLER. PARTY means PECO ENERGY or SELLER. PECO ENERGY means PECO ENERGY COMPANY and its regulated operating subsidiaries. PECO ENERGY INTERCONNECTION EQUIPMENT means the equipment, other than metering equipment, to be designed, constructed, purchased, installed, owned, and operated by PECO ENERGY under the terms of the AGREEMENT, including modifications to the PECO ENERGY T&D SYSTEM, too enable PECO ENERGY to interconnect the PECO ENERGY SYSTEM with, and to receive NET ELECTRIC OUTPUT from, the PROJECT under the terms and conditions of the AGREEMENT. PECO ENERGY SYSTEM means the electric power generation, transmission and distribution and distribution facilities owned, operated and/or maintained by PECO ENERGY, which will include, after construction and installation, the PECO ENERGY INTERCONNECTION EQUIPMENT. 7 PECO ENERGY T&D SYSTEM means the electric power transmission and distribution facilities owned, operated and maintained by PECO ENERGY, which will include, after construction and installation, the PECO ENERGY INTERCONNECTION EQUIPMENT. PJM INTERCONNECTION means the Pennsylvania - New Jersey - Maryland Interconnection, a fully coordinated power pool formed pursuant to the PJM INTERCONNECTION AGREEMENT. POWER FACTOR shall have that meaning set forth in the IEEE Standard Dictionary of Electrical and Electronic Terms (ANSI/IEE) Standard 100-1988, Fourth Edition). PROJECT means the Phase I FACILITY, SELLER INTERCONNECTION EQUIPMENT and associated facilities and equipment to be constructed, installed, owned, operated and maintained by SELLER at the PROJECT SITE for the purpose, among other things, of generating electricity. PROJECT SITE means the property leased by SELLER from Philadelphia Thermal Energy Corporation under a lease dated November 11, 1991, as amended as of September 17, 1993, upon which a two-phase project, including the Phase I FACILITY and associated interconnection equipment will be situated. PRUDENT ELECTRICAL PRACTICES means the spectrum of possible practices, methods and acts which, in the exercise of reasonable judgment and in light of the facts known at the time 8 a decision was made, would have been used in prudent electrical engineering and operations to accomplish the desired result at a reasonable cost consistent with reliability, safety and expedition, and is not limited to the optimum practices, methods or acts to the exclusion of all others. PUC means the Pennsylvania Public Utility Commission. PURPA means the Public Utility Regulatory Policies Act of 1978. QUALIFYING FACILITY means a "small power production facility" or "cogeneration facility" as defined in Section 210 of PURPA, 16 U.S.C. S 824a-3(j), and meeting the criteria for qualification set forth at 18 C.F.R. S 292.203-292.206. SELLER means Grays Ferry Cogeneration Partnership. SELLER INTERCONNECTION EQUIPMENT means the facilities up to and including the INTERCONNECTION POINT, other than the metering equipment described in Article XI hereof, to be designed, constructed, installed, operated and maintained by SELLER to (a) permit the PROJECT to interconnect and operate in parallel with the PECO ENERGY SYSTEM and (b) permit PECO ENERGY to receive NET ELECTRIC OUTPUT at the INTERCONNECTION POINT. SUSPENSE ACCOUNT means an account maintained in PECO's records used solely to record PECO ENERGY'S PURCHASES OF NET ELECTRIC OUTPUT under the AGREEMENT and the associated account balances specified in Section 5.1 hereof. 9 ARTICLE II EFFECTIVE DATE AND TERM 2.1 Effective Date. The AGREEMENT shall become effective upon (a) its execution by authorized representatives of the PARTIES, (b) the acceptance by the PARTIES, in the manner specified in Section 2.2 hereof, of the terms of a valid, binding and unappealed final order of a court or the PUC ruling upon PECO ENERGY's COST RECOVERY PETITION and (c) approval of the AGREEMENT by the PUC without modification as a contract with an affiliated interest under 66 Pa. C.S. S 2102. 2.2 Cost Recovery. Within sixty (60) days after the execution of the AGREEMENT, PECO ENERGY shall prepare and file a COST RECOVERY PETITION. At the same time, in view of the fact that Adwin Equipment Company, a wholly owned subsidiary of PECO ENERGY, is one of the general partners of SELLER, PECO ENERGY shall prepare and file a petition with the PUC seeking approval of the AGREEMENT without modification under the affiliated interest provisions of 66 Pa.C.S. S 2102. Within sixty (60) days after (a) the date of entry of an unappealed valid, binding and final order of the PUC ruling on the COST RECOVERY PETITION, (b) the filing date of an unappealed valid, binding and final order of a court on appeal from such a PUC ruling or (c) the date of entry of an unappealed valid, binding and final order of the PUC ruling on the COST RECOVERY PETITION on remand, each PARTY shall provide the other PARTY with written notice of its acceptance or nonacceptance of the terms and conditions of the final order ruling upon the COST RECOVERY PETITION. Neither 10 PARTY, however, shall have the right to reject the terms and conditions of such a final order if the relief sought in the COST RECOVERY PETITION is granted without modification. The failure to provide written notice of acceptance or nonacceptance under this Section 2.2 within the required time period shall be deemed to be acceptance of the terms and conditions of the final order. If the relief sought in the COST RECOVERY PETITION is granted without modification, the condition precedent set forth in Section 2.1 hereof shall be deemed to be satisfied as of the filing date or date of entry of the final order ruling upon the COST RECOVERY PETITION. If the relief south in the COST RECOVERY PETITION is granted with modification, and the PARTIES accept the terms and conditions of the final order, the PARTIES shall promptly execute, in the manner set forth in Section 25.6 hereof, an appropriate modification to the AGREEMENT, and the condition precedent set forth in Section 2.1 hereof shall be deemed to be satisfied as of the effective date of such modification. Notwithstanding the final ruling on the COST RECOVERY PETITION, if the PUC does not approve the AGREEMENT without modification under the affiliated interest provisions of 66 Pa..C.S.S 2102, the AGREEMENT shall not become effective. 2.3 Term. The AGREEMENT, unless sooner terminated in accordance with any applicable provision of the AGREEMENT, shall remain in full force and effect for twenty (20) years after the COMMERCIAL OPERATION DATE. The applicable provisions of the AGREEMENT, however, shall continue in effect after the term of the AGREEMENT, including any extensions thereof, to the extent 11 necessary to provide for final billings and adjustments, and to preserve and permit the enforcement or institution of action upon any right or obligation which accrued during the AGREEMENT and was not exercised or fulfilled upon termination. ARTICLE III CERTAIN OBLIGATIONS OF SELLER 3.1 Qualifying Facility Status. Prior to the DATE OF INITIAL OPERATION, SELLER shall receive and provide PECO ENERGY with certification from FERC that the PROJECT is a QUALIFYING FACILITY for the full amount of NET ELECTRIC OUTPUT to be purchased by PECO ENERGY under the AGREEMENT. SELLER shall maintain the PROJECT in compliance with the requirements for a QUALIFYING FACILITY established under PURPA and applicable FERC regulations for the full amount of NET ELECTRIC OUTPUT to be purchased by PECO ENERGY under the AGREEMENT, and any failure by SELLER to so maintain the PROJECT shall be a breach of the AGREEMENT under Section 20.1 hereof. 3.2 Completion of Construction. SELLER shall complete construction of the FACILITY and the SELLER INTERCONNECTION EQUIPMENT, and take all other steps necessary to enable the PROJECT to deliver NET ELECTRIC OUTPUT to the INTERCONNECTION POINT for sale to PECO ENERGY, on or before the fifth (5th) anniversary of the effective date of the AGREEMENT. Failure by SELLER to meet this standard shall constitute a default of the AGREEMENT under Section 20.2 hereof. 12 ARTICLE IV PURCHASES 4.1 Amount Purchased. Commencing on the DATE OF INITIAL OPERATION, and thereafter during the term of the AGREEMENT, SELLER shall sell and deliver to PECO ENERGY exclusively, and PECO ENERGY shall purchase and accept delivery of, the PROJECT's NET ELECTRIC OUTPUT; provided, however, that PECO ENERGY shall not be required to purchase or accept delivery of NET ELECTRIC OUTPUT from the PROJECT in excess of the lesser of (a) 31 megawatts or (b) the amount of electric output for which the FERC has certified the FACILITY as a QUALIFYING FACILITY. 4.2 Definitions. The following terms, when used herein with capitalization, shall have the following meanings: (a) FINAL PROJECTION DATE means the date as defined in Appendix B. (b) LEVELIZED PAYMENT means the product of (i) the number of kilowatt- hours of NET ELECTRIC OUTPUT that PECO ENERGY purchases under the AGREEMENT during a BILLING MONTH and (ii) the LEVELIZED RATE. (c) LEVELIZED PAYMENT shall be the rate specified in Appendix B as determined by when the COMMERCIAL OPERATION DATE for the PROJECT occurs. (d) PJM VALUE means the sum of the hourly PJM values during a BILLING MONTH, with each hourly PJM value being the 13 product of (i) the number of kilowatt-hours of NET ELECTRIC OUTPUT that PECO ENERGY purchases under the AGREEMENT during that hour and (ii) the PJM RATE during that hour. (e) PJM RATE means PECO ENERGY's hourly billing rate per kilowatt- hour, determined under the PJM INTERCONNECTION AGREEMENT, for interchange energy; provided, however, that during any hour when said ;billing rate deviates significantly from the average billing rate for all PJM INTERCONNECTION interchange energy, that average PJM billing rate shall be substituted for the PECO ENERGY billing rate. If PECO ENERGY discontinues its participation in the PJM INTERCONNECTION, or if the method of calculating the PECO ENERGY billing rate changes, the PARTIES will in good faith negotiate a substitute for the PJM RATE which reflects PECO ENERGY's avoided cost for energy as defined by PURPA and federal and state regulations adopted pursuant to PURPA. (f) PROJECTED RATE means the rate specified in Appendix B under the column heading PROJECTED RATE for the applicable BILLING MONTH. (g) PROJECTED VALUE means the product of (i) the number of kilowatt- hours of NET ELECTRIC OUTPUT that PECO ENERGY purchases under the AGREEMENT during a BILLING MONTH and (ii) the applicable PROJECTED RATE. 4.3 Output Purchase Payment. After the end of each BILLING MONTH, PECO ENERGY shall pay SELLER, in accordance with Section 14.1 hereof, an Output Purchase Payment computed as follows: 14 (a) Prior to the COMMERCIAL OPERATION DATE the Output Purchase Payment shall be the PJM VALUE. (b) Commencing on the COMMERCIAL OPERATION DATE and through the FINAL PROJECTION DATE the Output Purchase Payment shall be either (i) the LEVELIZED PAYMENT or (ii) the PROJECTED VALUE. SELLER shall, within two (2) years after the effective date of this AGREEMENT, notify PECO ENERGY in writing of SELLER's one-time, irrevocable election to receive either (i) the LEVELIZED PAYMENT or (ii) the PROJECTED VALUE for the entire period from the COMMERCIAL OPERATION DATE through the FINAL PROJECTION DATE. If SELLER elects to receive the PROJECTED VALUE, then the provisions of Article V of this AGREEMENT shall not apply. If SELLER fails to notify PECO ENERGY of its election within tow (2) years of the effective date of this AGREEMENT, then PECO ENERGY shall have the right to make the election. (c) After the FINAL PROJECTION DATE and through the remaining term of the AGREEMENT the Output Purchase Payment shall be ninety percent (90%) of the PJM VALUE. ARTICLE V SUSPENSE - ACCOUNT 5.1 Suspense Account Balance. For any BILLING MONTH in which the LEVELIZED PAYMENT exceeds the PROJECTED VALUE, the SUSPENSE ACCOUNT will record a debit equal to the difference between the two. Any debit balance in the SUSPENSE ACCOUNT shall accrue interest on a monthly basis at the rate specified in Section 14.4 hereof. For any BILLING MONTH in which the 15 PROJECTED VALUE exceeds the LEVELIZED PAYMENT, the difference between the two shall be credited to the SUSPENSE ACCOUNT, but only to the extent necessary to offset accrued debits and interest from prior BILLING MONTHS. 5.2 Projection Payment. Within thirty (30) days after the FINAL PROJECTION DATE, SELLER shall pay PECO ENERGY an amount equal to the debit balance including accrued interest in the SUSPENSE ACCOUNT as of the FINAL PROJECTION DATE. The SUSPENSE ACCOUNT shall terminate upon SELLER's payment under this Section 5.2. 5.3 Termination Payment. If the AGREEMENT is terminated prior to the FINAL PROJECTION DATE, SELLER shall pay PECO ENERGY, within thirty (30) days after the date of termination, an amount equal to the debit balance and accrued interest in the SUSPENSE ACCOUNT as of the date of termination; provided, however, that SELLER shall not be obligated to make such payment in the event that SELLER terminates the AGREEMENT because of a default by PECO ENERGY (as defined in Section 20.2 hereof). If any of the events described in Section 16.1 hereof occur, SELLER shall pay PECO ENERGY an amount equal to the debit balance and accrued interest in the SUSPENSE ACCOUNT as of the date of the event. 5.4 Suspense Account Guarantee. The PARTIES shall review the SUSPENSE ACCOUNT balance at the end of every calendar year during the term of the AGREEMENT, and SELLER shall provide a CREDIT to PECO ENERGY to ensure payment of any debit balance in the SUSPENSE ACCOUNT at that time. The CREDIT provided under 16 this Section 5.4 shall be payable in the City of Philadelphia by an ISSUER acceptable to PECO ENERGY on terms and conditions acceptable to PECO ENERGY; provided, however, that PECO ENERGY shall not unreasonably withhold approval of any ISSUER or CREDIT. The CREDIT shall be established for and structured so as to permit PECO ENERGY to make multiple demands for payment from ISSUER, and shall require the ISSUER, upon PECO ENERGY'S submission of documents certifying that the SUSPENSE ACCOUNT debit balance is due and payable, to honor on sight, in immediately available funds, any written demand by PECO ENERGY for payment. The CREDIT provided under this Section 5.4 shall be established to be effective not later than the COMMERCIAL OPERATION DATE, and the CREDIT provided for the period from the COMMERCIAL OPERATION DATE and thereafter within ninety (90) days after the end of any calendar year during the term of the AGREEMENT, PECO ENERGY shall have the right to withhold payments to SELLER for the NET ELECTRIC OUTPUT SELLER delivers to PECO ENERGY and apply those amounts to decrease the debit balance until the debit balance has been reduced to the amount for which SELLER has furnished an acceptable CREDIT. 17 ARTICLE VI CURTAILMENT, REDUCTION OR INTERRUPTION OF PURCHASES 6.1 Purchase Disruptions. PECO ENERGY may curtail, reduce or interrupt its receipt and purchases of NET ELECTRIC OUTPUT from the PROJECT when: (a) Such curtailment, reduction or interruption is necessary to enable PECO ENERGY to maintain system operating reliability and/or to provide service to its customers without a deterioration in quality. (b) Such curtailment, reduction or interruption is necessary to enable PECO ENERGY to discharge its obligations under the PJM INTERCONNECTION AGREEMENT. (c) Such curtailment, reduction or interruption is necessary to enable PECO ENERGY to meet its obligations under the Mid-Atlantic Area Coordination Agreement, which is the May 25, 1979 agreement between PECO ENERGY and the other signatories thereto, and any amendments or extensions thereof, designed to coordinate the efforts of the signatories to maximize the reliability of electric service in the territory covered by the agreement, which is the same, electrically and physically, as the territory covered by the PJM INTERCONNECTION AGREEMENT. (d) Such curtailment, reduction or interruption is necessary because of a LIGHT LOAN CONDITION. (e) The receipt of NET ELECTRIC OUTPUT by PECO ENERGY is causing, or continued receipt of NET ELECTRIC OUTPUT by PECO ENERGY would create, an OPERATIONAL EMERGENCY. 18 (f) Such curtailment, reduction or interruption is necessary for PECO ENERGY to construct, install, maintain, repair, replace, remove, modify, investigate or inspect any equipment in the PECO ENERGY SYSTEM which may affect or be affected by operation of the PROJECT. (g) Such curtailment, reduction or interruption is necessary because PECO ENERGY is experiencing an event of Force Majeure (as defined in Section 21.01 hereof). (h) Such curtailment, reduction or interruption is necessary to protect the integrity of the PECO ENERGY SYSTEM or any system with which the PECO ENERGY SYSTEM is directly or indirectly interconnected, or to aid in the restoration of service on the PECO ENERGY SYSTEM or any system with which the PECO ENERGY SYSTEM is directly or indirectly interconnected. (i) Such curtailment, reduction or interruption is necessary because SELLER has failed to fulfill its obligations under Sections 6.5, 7.3 or 7.6 hereof. 6.2 Selection. PECO ENERGY shall, in its sole discretion reasonably applied, determine which of the sources of electrical power interconnected with the PECO ENERGY SYSTEM, including the PROJECT, to curtail, reduce or interrupt to eliminate a condition requiring a curtailment, reduction or interruption for one or more of the reasons set forth in Section 6.1 hereof. 6.3 Notice. PECO ENERGY will attempt to notify SELLER of the circumstances which necessitate the curtailment, reduction or interruption of purchases of NET ELECTRIC OUTPUT, 19 and the projected duration thereof, as far in advance of such event as practicable. The PARTIES recognize that such advance notice may not be possible in the event of an OPERATIONAL EMERGENCY, in which event PECO ENERGY shall provide notice to SELLER of the circumstances and projected duration of the curtailment, reduction or interruption as soon as is practicable after the curtailment, reduction or interruption. PECO ENERGY shall not, however, be liable to SELLER for the cost of purchases of NET ELECTRIC OUTPUT which would have been made but for the curtailment, reduction or interruption in the event PECO ENERGY fails to provide notice to SELLER under this Section 6.3. 6.4 Extent of Disruptions. PECO ENERGY shall use reasonable efforts to minimize the time during which its purchases of NET ELECTRIC OUTPUT are curtailed, reduced or interrupted. PECO ENERGY shall use reasonable efforts to resume purchases of NET ELECTRIC OUTPUT under the AGREEMENT promptly after the conditions described in Section 6.1 hereof have ended, and any necessary modifications, repairs or replacements have been made, including any modifications, repairs or replacements made to decrease the likelihood of a recurrence of the condition causing the curtailment, reduction or interruption. 6.5 SELLER's Obligation on Disruption. If a curtailment, reduction or interruption under Section 6.1 hereof is due to a condition of or defect in the FACILITY, SELLER INTERCONNECTION EQUIPMENT or other PROJECT equipment, SELLER shall subject to PECO ENERGY a written proposed plan to rectify the condition or defect. When PECO ENERGY has accepted such 20 plan, or a revised version thereof, SELLER shall, at its own expense, repair the condition or defect. When SELLER has made such repairs it shall notify PECO ENERGY, and PECO ENERGY shall inspect the repaired, modified or replaced equipment. Following such inspection PECO ENERGY shall notify SELLER whether the condition or defect has been remedied to PECO ENERGY's satisfaction. If PECO ENERGY is satisfied that the condition or defect has been properly remedied, it shall promptly terminate the curtailment, reduction or interruption. If PECO ENERGY is not satisfied that the condition or defect has been properly remedied, it shall provide SELLER with a written explanation of why the remedy is not satisfactory. ARTICLE VII PROJECT OPERATION 7.1 Obligation of SELLER. SELLER shall take all necessary actions to coordinate the operation of the PROJECT with the operation of the PECO ENERGY SYSTEM, including, but not limited to, those actions specified in Sections 7.2-7.4 hereof. 7.2 Manner of Delivery. SELLER shall deliver NET ELECTRIC OUTPUT to the INTERCONNECTION POINT in the form of three (3) phase, sixty (60) hertz, alternating current at a nominal voltage to be specified by PECO ENERGY. 7.3 Safe Construction and Operation. At its own cost, SELLER shall design, construct, install, operate and maintain the PROJECT: 21 (a) Using equipment and facilities of sufficient quality to operate the PROJECT in parallel with the PECO ENERGY SYSTEM without causing: (1) any damage to the PECO ENERGY SYSTEM, (2) any impairment of or deterioration in the quality of the service PECO ENERGY renders to its customers, (3) any damage to the integrity of the PECO ENERGY SYSTEM, or (4) unreasonable risk of damage to property, of injury or death to persons, or of an OPERATIONAL EMERGENCY. (b) In a manner that is safe and that will not cause any of the events or conditions listed in (a) above, and (c) In accordance and conformance with the following as they may be amended from time to time: (1) those Standards for System Safety and Reliability filed by PECO ENERGY with the PUC and entitled "Requirements for Parallel Operation of Non-Utility Generators," (2) PECO ENERGY's published "Electric Service Requirements," (3) the AUXILIARY SERVICE RIDER, (4) the National Electrical Code, (5) the National Electrical Safety Code, (6) applicable local, state and federal laws and regulations, and regulations, and (7) PRUDENT ELECTRICAL PRACTICES. SELLER shall install, own and maintain, as part of the SELLER INTERCONNECTION EQUIPMENT, relays and associated protective and 22 control equipment and equipment to control voltage and frequency regulation, all of which it shall operate in a manner acceptable to PECO ENERGY. 7.4 Power Factor. SELLER shall install and have available automatic generator field excitation regulators or an alternative regulator system suitable to PECO ENERGY. SELLER shall operate this equipment to regulate the FACILITY's reactive (MVAR) output so that at the INTERCONNECTION POINT the FACILITY's POWER FACTOR is within the range of ninety-five percent (95%) lagging and one hundred percent (100%) when measured as a generator. This requirement is applicable over a normal operating voltage range to be defined by PECO ENERGY based on the voltage specified by PECO ENERGY under Section 7.2 hereof. Below this range the POWER FACTOR shall be allowed to go below ninety-five percent (95%) into lagging. Above this range the POWER FACTOR shall be allowed to go past one hundred percent (100%) into leading. 7.5 Provision of Information. As of the COMMERCIAL OPERATION DATE and annually thereafter SELLER shall provide PECO ENERGY with (a) a schedule of planned PROJECT maintenance and repair activities for the following thirty-six (36) months and (b) an estimate of the amount of NET ELECTRIC OUTPUT it intends to deliver to the INTERCONNECTION POINT during each of the following twelve (12) months. Upon written request from PECO ENERGY, SELLER shall also maintain and classify outage statistics in accordance with the then-current PJM 23 INTERCONNECTION outage classification procedures, and SELLER shall supply such statistics to PECO ENERGY. 7.6 Modifications. In the event SELLER fails to meet, satisfy or discharge its obligations under this AGREEMENT, and, as a consequence thereof, a condition arises, a practice exists or an event occurs at the PROJECT which, although it has not yet created any of the conditions or caused any of the events specified under Section 6.1 hereof, if permitted to continue or recur may, in PECO ENERGY's judgment reasonably exercised, result in the creation of such a condition or cause such an event, PECO ENERGY shall notify SELLER of the occurrence or existence thereof and afford SELLER an opportunity to correct or remedy the problem. SELLER shall have thirty (30) days from receipt of PECO ENERGY's notice to correct or remedy the problem. In the event SELLER cannot identify, remedy or correct the problem within such thirty (30) days, SELLER shall submit to PECO ENERGY, for PECO ENERGY's acceptance, a plan setting forth the specific actions SELLER intends to take to correct or remedy the problem and a time schedule for the implementation thereof. In the event SELLER cannot identify, remedy or correct the problem within such thirty (30) days, and (a) SELLER fails to submit a plan within such period to correct or remedy the problem, (b) SELLER submits a plan within such period but fails to exercise reasonable and good faith efforts thereafter to implement such plan or (c) PECO ENERGY does not accept SELLER's proposed plan and SELLER fails to submit a revised plan within fifteen (15) days, then PECO ENERGY shall have the right 24 thereafter, upon reasonable notice to SELLER, to curtail, reduce or interrupt purchases of NET ELECTRIC OUTPUT; provided, however, that if during the pendency of any such cure afforded to SELLER pursuant to this Section 7.6 the problem creates any of the conditions or causes any of the events specified under Section 6.1, PECO ENERGY may curtail, reduce or interrupt its purchases of NET ELECTRIC OUTPUT pursuant to and in accordance with the provisions of Article VI hereof. ARTICLE VIII SELLER INTERCONNECTION EQUIPMENT 8.1 SELLER Interconnection Equipment. At its own cost, SELLER shall design, construct, install, operate and maintain the SELLER INTERCONNECTION EQUIPMENT on its side of and at the INTERCONNECTION POINT to (a) permit the PROJECT to interconnect and operate in parallel with the PECO ENERGY SYSTEM and (b) permit PECO ENERGY to receive NET ELECTRIC OUTPUT at the INTERCONNECTION POINT. 8.2 Condition Precedent. SELLER shall not commence construction of the SELLER INTERCONNECTION EQUIPMENT until PECO ENERGY accepts SELLER's proposed design of such equipment under the procedure specified in Section 8.3 hereof. 8.3 Design. PECO ENERGY shall perform an interconnection study, from which PECO ENERGY will determine the INTERCONNECTION POINT, and SELLER will reimburse PECO ENERGY for the costs PECO ENERGY incurs in performing that study. PECO ENERGY will complete the interconnection study within sixty (60) days after receiving from SELLER a $5,000 advance payment for 25 the costs of the study. After PECO ENERGY completes the interconnection study and determines the INTERCONNECTION POINT, SELLER shall submit to PECO ENERGY, along with (a) the DESIGN RELEASE and (b) the initial payment specified in "Section 9.2, plans and specifications for the design of the SELLER INTERCONNECTION EQUIPMENT. Within sixty (60) days after the submission of such plans and specifications, PECO ENERGY shall notify SELLER (a) that the proposed design of the SELLER INTERCONNECTION EQUIPMENT is acceptable, (b) that the proposed design of the SELLER INTERCONNECTION EQUIPMENT is unacceptable or (c) that additional information is needed. PECO ENERGY shall not unreasonably withhold acceptance of a proposed design. PECO ENERGY's failure to provide such notification to SELLER within sixty (60) days of the submission of such plans and specifications shall be deemed an acceptance by PECO ENERGY. If PECO ENERGY notifies SELLER that additional information is needed or that the proposed design of the SELLER INTERCONNECTION EQUIPMENT is unacceptable, SELLER may submit to PECO ENERGY revised plans and specifications. Within thirty (30) days of the submission of such revised plans and specifications, PECO ENERGY shall notify SELLER whether additional information is needed, or whether the proposed design is accepted or rejected. If additional information is requested, or the revised design is rejected, SELLER may submit further revised plans and specifications which PECO ENERGY shall review within a reasonable time period. Thereafter, SELLER may submit revised plans and specifications to PECO ENERGY as many times as is 26 necessary to obtain PECO ENERGY's acceptance of a proposed design. PECO ENERGY's acceptance of SELLER's proposed design of the SELLER INTERCONNECTION EQUIPMENT shall not be construed as a warranty or representation to SELLER, or any other person or entity, of the adequacy, suitability, safety or reliability of the design, construction, installation or operation of the SELLER INTERCONNECTION EQUIPMENT. PECO ENERGY shall periodically render a statement of charges to SELLER for the costs PECO ENERGY incurs pursuant to this Section 8.3, and SELLER shall reimburse PECO ENERGY for all the costs that PECO ENERGY incurs pursuant to this Section 8.3. 8.4 Construction. Upon PECO ENERGY's acceptance of SELLER's proposed design, SELLER shall construct the SELLER INTERCONNECTION EQUIPMENT in accordance with the design accepted by PECO ENERGY. If, subsequent to PECO ENERGY's acceptance, any design modification affecting the electrical arrangement of the SELLER INTERCONNECTION EQUIPMENT becomes necessary, SELLER shall notify PECO ENERGY and obtain PECO ENERGY's prior acceptance of the design modification. PECO ENERGY, in its sole discretion, shall decide and inform SELLER whether any such modification in the proposed design of the SELLER INTERCONNECTION EQUIPMENT requires an amendment of the AGREEMENT. SELLER shall bear all costs, including additional construction and installation costs, associated with any such design modification. 8.5 Inspection and Access. Upon the completion of the construction and installation of the SELLER INTERCONNECTION EQUIPMENT and related portions of the FACILITY, SELLER shall 27 have the SELLER INTERCONNECTION EQUIPMENT and related portions of the FACILITY inspected by an authorized electrical inspection agency and shall provide PECO ENERGY with a copy of such agency's inspection certificate. PECO ENERGY shall, within five (5) working days after receipt of such certificate, inspect the FACILITY and SELLER INTERCONNECTION EQUIPMENT and advise SELLER, within five (5) working days after the completion of its inspection, whether the FACILITY and SELLER INTERCONNECTION EQUIPMENT may interconnect and operate in parallel with the PECO ENERGY SYSTEM as contemplated in Section 10.2 hereof. SELLER shall reimburse PECO ENERGY for all the costs PECO ENERGY incurs pursuant to this Section 8.5. PECO ENERGY employees, agents and contractors shall have the right to enter the PROJECT SITE at any time upon reasonable notice to SELLER, or without notice in the event of an OPERATIONAL EMERGENCY, for the purposes of (a) inspecting the PECO ENERGY INTERCONNECTION EQUIPMENT or SELLER INTERCONNECTION EQUIPMENT, (b) reading meters or (c) making tests to insure the safe operation of the PECO ENERGY INTERCONNECTION EQUIPMENT and SELLER INTERCONNECTION EQUIPMENT. Any such inspection, however, shall not relieve SELLER from its sole obligation to operate and maintain the SELLER INTERCONNECTION EQUIPMENT in accordance with Section 7.3 hereof at all times. 28 ARTICLE IX PECO ENERGY INTERCONNECTION EQUIPMENT 9.1 PECO Interconnection Equipment. PECO ENERGY shall design, construct, purchase, install, operate, maintain and own the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.2 Interconnection Design. Upon receiving from the SELLER the DESIGN RELEASE and an initial advance payment specified by PECO ENERGY in accordance with Section 9.14 hereof, PECO ENERGY shall (a) design the PECO ENERGY INTERCONNECTION EQUIPMENT, (b) prepare and provide to SELLER an estimated completion date for constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, and (c) prepare an estimate of the cost of constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, and (d) review for acceptance the design of the SELLER INTERCONNECTION EQUIPMENT. 9.3 Consultation with SELLER. After the submission by PECO ENERGY to SELLER of the plans and specifications for the design of the PECO ENERGY INTERCONNECTION EQUIPMENT, PECO ENERGY shall periodically meet with and inform SELLER of the design, costs, scheduling and other factors which could affect the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT. Such discussions shall be promptly completed, and shall not be deemed to preclude changes or create any warranty for the benefit of or representation to SELLER, or any other person, as to the plans, specifications, cost estimates, time schedules or other factors relating to the proposed construction, purchase, installation, 29 operation or maintenance of the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.4 Rights and Easements. SELLER shall cause to be granted to PECO ENERGY and its successors and assigns in perpetuity, or for a shorter period as the PARTIES may agree, but not less than the term of this AGREEMENT, at no cost to PECO ENERGY, all necessary rights and easements to construct, purchase, install, operate, maintain, repair, renew, replace, remove and relocate (a) PECO ENERGY INTERCONNECTION EQUIPMENT, (b) the metering and telemetering equipment described in Articles XI and XII hereof and (c) any PECO ENERGY facilities affected by the PROJECT. SELLER shall execute and deliver to PECO ENERGY, in recordable form, such instruments as PECO ENERGY may request with respect to the foregoing. SELLER also shall obtain all necessary rights and easements to construct, install, own, operate, and maintain the PROJECT. 9.5 Acquisition of Permits, Licenses and Approvals. PECO ENERGY shall make applications to obtain from appropriate governmental bodies any permit, license or approval required to construct, purchase, install, own, operate and maintain PECO ENERGY INTERCONNECTION EQUIPMENT. SELLER shall provide any assistance reasonably requested by PECO ENERGY to enable PECO ENERGY to obtain any such permit, license or approval. SELLER shall also obtain from appropriate governmental bodies any permit, license or approval required to construct, install, own operate and maintain the PROJECT. 30 9.6 Costs of Acquisition. SELLER shall pay, as a cost or expense associated with the design, construction, purchase and installation of PECO ENERGY INTERCONNECTION EQUIPMENT under Sections 9.13-9.917 hereof, any reasonable cost of expense associated with PECO ENERGY's obtaining any permit, license or approval pursuant to Section 9.5 hereof, or any reasonable cost or expense associated with defending the issuance of any such required permit, license or approval. 9.7 Notice to Proceed. PECO ENERGY shall commence construction, purchase and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT following receipt from SELLER of the NOTICE TO PROCEED and the payment specified by PECO ENERGY in accordance with Section 9.14 hereof. 9.8 Reasonable Efforts to Complete Construction. PECO ENERGY shall use reasonable efforts to complete the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT on or before the estimated completion date; provided, however, that the PARTIES understand and agree that PECO ENERGY's reasonable efforts to complete the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT on or before the estimated completion date shall be subordinate and subject to PECO ENERGY's primary obligations to furnish and maintain adequate, efficient, safe, and reliable service and facilities to its customers and to operate and maintain its plant, property and equipment in such condition as to enable it to do so. 9.9 Liability. PECO ENERGY shall not be liable to SELLER for any direct or incurred costs, expenses, losses, 31 liabilities or damages which SELLER may incur or sustain and which arise out of, relate to or result from any delay in the completion of construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, except where the delay in the completion of the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT results from PECO ENERGY's failure to use reasonable efforts, as qualified in Section 9.8 hereof. SELLER shall indemnify and hold harmless PECO ENERGY and each and every of its officers, agents, servants, employees, successors and assigns from and against any and all claims, demands, suits, actions, liabilities, damages, or judgments, as well as against any fees, costs, charges or expenses which PECO ENERGY, its officers, agents, servants, employees, successors and assigns incur in the defense of any such claims, demands, suits, actions or judgments, made or filed by any third party to the extent such claims, demands, suits, actions or judgments arise out of, or relate to, any delay in the completion of the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, except where such delay results from PECO ENERGY'S FAILURE TO UTILIZE REASONABLE EFFORTS AS QUALIFIED IN Section 9.8 hereof. 9.10 Design Changes. PECO ENERGY shall construct the PECO ENERGY INTERCONNECTION EQUIPMENT reasonably in accordance with its proposed design. PECO ENERGY shall have the right, however, to make changes in such proposed design when it determines, in its judgment reasonably exercised and after consultation with SELLER, that such changes are necessary to enable the PROJECT to interconnect and operate in parallel with 32 the PECO ENERGY SYSTEM in a safe and reliable manner. PECO ENERGY shall provide SELLER with notice of any design change which would require a change in the SELLER INTERCONNECTION EQUIPMENT; provided, however, that the failure of PECO ENERGY to provide such notice shall not relieve SELLER of its sole obligation to pay the cost of constructing the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.11 Notice of Completion. PECO ENERGY shall notify SELLER when it has completed the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.12 Interconnection Cost Responsibility. SELLER shall be responsible for, and shall pay to PECO energy, all reasonable costs and charges PECO ENERGY incurs and makes in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.13 Estimated Costs. PECO ENERGY shall, in accordance with Section 9.2 hereof, estimate the total costs it expects to incur in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. The provision by PECO ENERGY to SELLER of this or any other such cost estimate shall not diminish, change or affect SELLER's responsibility and obligation to pay to PECO ENERGY all costs PECO ENERGY actually incurs in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.14 Payment Schedule. PECO ENERGY and SELLER agree that SELLER shall prepay PECO ENERGY for all costs PECO ENERGY incurs in designing, constructing purchasing and installing the 33 PECO ENERGY INTERCONNECTION EQUIPMENT in accordance with this Section 9.14. With the submission of the DESIGN RELEASE under Section 9.2 hereof, SELLER shall make a payment specified by PECO ENERGY to cover the costs PECO ENERGY expects to incur pursuant to Section 9.2. Upon completion of the cost estimate to be developed pursuant to Section 9.2(c), PECO ENERGY and SELLER shall develop a payment schedule, acceptable to PECO ENERGY, for SELLER to advance funds sufficient to cover the costs PECO ENERGY expects to incur for the specified work. The first payment on that schedule shall be made with the NOTICE TO PROCEED issued by SELLER in accordance with Section 9.7. SELLER shall thereafter make payments in accordance with the agreed schedule, PECO ENERGY shall not commence the construction, purchase or installation of any PECO ENERGY INTERCONNECTION EQUIPMENT until a payment schedule acceptable to PECO ENERGY is developed. 9.15 Reconciliation. Following completion of the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, PECO ENERGY shall provide the SELLER final reconciliation setting forth the nature and amount of the costs and charges PECO ENERGY actually incurred or made in (a) designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT and (b) performing its obligations under Section 8.3, 8.5 and 9.2 hereof. In the event that the total of such costs and charges PECO ENERGY actually incurred or made exceeds the total payments made by SELLER to PECO ENERGY under Sections 9.2, 9.7 and 9.14 hereof, SELLER shall be responsible for and shall 34 pay to PECO ENERGY any such differential within thirty (30) days of the date of delivery to SELLER of the final reconciliation. In the event that the total payments made by SELLER to PECO ENERGY pursuant to Sections 9.2, 9.7 and 9.14 hereof exceed such costs PECO ENERGY actually incurred or made, PECO ENERGY shall refund to SELLER, within thirty (30) days of the final reconciliation, any such overpayment. 9.16 Suspension. In the event SELLER fails to remit any payment specified in Section 9.14 or 9.15 hereof on or before the day such payment is due, PECO ENERGY may, in addition to any other remedy or right PECO ENERGY may have under the AGREEMENT, immediately suspend performance of its obligations under this AGREEMENT. PECO ENERGY shall provide SELLER with notice of any such suspension of performance. In the event PECO ENERGY suspends performance of its obligations under this AGREEMENT pursuant to this Section 9.16, SELLER may, after curing the precipitating cause thereof, request PECO ENERGY to resume the tasks associated with the design, construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT. Upon receipt of any such request PECO ENERGY shall, as soon thereafter as practicable, review its work commitments and shall establish and submit to SELLER, as applicable: (a) a revised estimated construction completion date and (b) a revised payment schedule. If SELLER accepts the revised estimated construction completion date and the revised payment schedule, PECO ENERGY shall resume the construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT. 35 9.17 Cancellation Costs. If PECO ENERGY is not in default (as defined in Section 20.2 hereof), SELLER shall be liable to pay to PECO ENERGY all CANCELLATION COSTS which PECO ENERGY incurs. In the event PECO ENERGY incurs CANCELLATION COSTS for which SELLER is responsible under this AGREEMENT, PECO ENERGY shall provide SELLER with a written demand for payment. SELLER shall be obligated to make payment to PECO ENERGY for any CANCELLATION COSTS immediately upon PE's presentation of the written demand. If the AGREEMENT is terminated under Sections 19.1 or 19.2 hereof before PECO ENERGY has completed the construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT, PECO ENERGY shall have the right to cancel or terminate any supplier and contractor agreements and orders entered into in connection with discharging its obligations to design, construct and install the PECO ENERGY INTERCONNECTION EQUIPMENT. In the event PECO ENERGY terminates or cancels any supplier or contractor agreements or orders as permitted in this Section 9.17, PECO ENERGY shall consult with SELLER but retain final discretion relative to the manner of resolving any such claim or demand by any contractor or supplier, and PECO ENERGY shall be the sole judge of the acceptability of any compromise in settlement or resolution of an such claim or demand. Additionally, PECO ENERGY shall be the sole judge as to what is necessary to maintain the safety, integrity or reliability of the PECO ENERGY SYSTEM relative to any removal or completion of PECO ENERGY INTERCONNECTION EQUIPMENT. PECO ENERGY shall exercise reasonable care in 36 resolving contractor and supplier claims and demands and in effecting any required removal or completion of PECO ENERGY INTERCONNECTION EQUIPMENT so as to mitigate the dollar amount paid in effecting the resolution of such claims and demands or the dollar amount expended in completing such removal or completion tasks; provided, however, that PECO ENERGY shall have no liability to SELLER for or on account of the dollar amounts paid in effecting such removal or completion tasks except where PECO ENERGY effects the resolution of any such claims and demands or the completion of such tasks in a manner which is in willful disregard of its obligation to mitigate. ARTICLE X INITIAL PROJECT OPERATION AND TESTING 10.1 Initial Operation. Upon (a) PECO ENERGY 's inspection and acceptance of the SELLER INTERCONNECTION EQUIPMENT under Section 8.5 hereof and (b) PECO ENERGY 's notification of SELLER under Section 9.11 hereof of the completion of the installation and construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, SELLER shall select and notify PECO ENERGY of a DATE OF INITIAL OPERATION, which must be acceptable to PECO ENERGY . PECO ENERGY will promptly notify SELLER whether the DATE OF INITIAL OPERATION it has selected is acceptable. As of the DATE OF INITIAL OPERATION, PECO ENERGY shall permit any electric generation unit at the PROJECT to interconnect and synchronize with the PECO ENERGY SYSTEM for 37 testing purposes. SELLER shall, at PECO ENERGY 's request, inform PECO ENERGY of the results of any such testing. 10.2 Commercial Operation. Following the DATE OF INITIAL OPERATION and the PROJECT testing specified in Section 10.1, SELLER shall select and notify PECO ENERGY of a COMMERCIAL OPERATION DATE. ARTICLE XI METERING 11.1 Metering Equipment. PECO ENERGY shall determine the design of the metering installation for the purpose of registering and recording the quantity of NET ELECTRIC OUTPUT purchased by PECO ENERGY from SELLER. Such metering equipment shall be capable, among other things, of providing the data required to determine the kilowatt-hours purchased during each hour of the BILLING MONTH, as well as total NET ELECTRIC OUTPUT purchased during each BILLING MONTH, under the terms of the AGREEMENT and shall permit continuous reading by SELLER and PECO ENERGY . PECO ENERGY and SELLER shall have the respective responsibilities for metering set forth below: (a) PECO ENERGY shall own and maintain all metering equipment. (b) PECO ENERGY shall provide SELLER with all required voltage and current transformers, which SELLER shall install. (c) SELLER shall provide and install metering enclosures, mounting equipment and overcurrent protection as required. 38 (d) PECO ENERGY shall make secondary connections to metering transformers. (e) SELLER shall make primary connections to metering transformers. 11.2 Meter Charges. SELLER shall pay to PECO ENERGY , in the manner specified in Section 14.2 hereof, monthly metering equipment carrying and maintenance charges, which are estimated in Appendix A hereto. 11.3 Meter Testing. PECO ENERGY shall verify the accuracy of PECO ENERGY 's recording meter by performing the meter tests and conforming to the other standards set forth in the PUC's regulations at 52 Pa. Code 57.20-57.25 and any amendments or modifications thereto. The metering equipment shall be sealed, and SELLER shall be informed in advance and may have a representative present when such seals are broken or when a recording meter is inspected, tested or adjusted. SELLER may, at any time, request a test of the accuracy of a recording meter installed pursuant hereto and shall bear the cost thereof, except that PECO ENERGY shall bear the cost of any such test when the test establishes a METER ERROR PERCENTAGE in excess of two percent (2%). In the event SELLER elects to have a representative present at a test of the accuracy of a recording meter, the accuracy test and any associated adjustments to the recording meter shall be made in the presence of and observed by SELLER's representative. 11.4 Meter Error. If, as a result of an accuracy test, a recording meter is found to have a METER ERROR PERCENTAGE of 39 more than two percent (2%), PECO ENERGY shall, at its own expense, restore the recording meter to a condition of accuracy or replace it. 11.5 Payment Adjustment. If, as a result of an accuracy test, the recording meter is found to have a METER ERROR PERCENTAGE of more than two percent (2%) fast, PECO ENERGY shall render a bill or take a credit for any associated overpayment equal to the product of (a) the total NET ELECTRIC OUTPUT purchased during the METER ERROR CORRECTION PERIOD, (b) the LEVELIZED RATE, the PROJECTED VALUE or ninety percent (90%) of the PJM RATE as applicable under Section 4.3 hereof for the BILLING MONTHS during the METER ERROR CORRECTION PERIOD and (c) the METER ERROR PERCENTAGE. If, as a result of an accuracy test, the recording meter is found to have a METER ERROR PERCENTAGE of more than two percent (2.0%) slow, PECO ENERGY shall pay SELLER for any associated underpayment; which payment shall equal the product of (a) the total NET ELECTRIC OUTPUT purchased during the METER ERROR CORRECTION PERIOD, (b) the LEVELIZED RATE, the PROJECTED VALUE or ninety percent (90%) of the PJM RATE as applicable under Section 4.3 hereof for the BILLING MONTHS during the METER ERROR CORRECTION PERIOD and (c) the METER ERROR PERCENTAGE. 11.6 Meter Failure. Should the recording meter installed pursuant to Section 11.1 hereof fail to register during any period of time, the NET ELECTRIC OUTPUT purchased by PECO ENERGY during such period shall be estimated by PECO ENERGY . SELLER shall cooperate in making such estimates by 40 providing to PECO ENERGY , upon PECO ENERGY 's request, registration data from any recording meter maintained by SELLER at the PROJECT SITE or other relevant data. 11.7 Suspense Account Adjustments. If a refund is issued, bill rendered or payment reduced under Sections 11.5 or 11.6 hereof because of meter inaccuracy or failure, an appropriate adjustment, if any, shall be made to the SUSPENSE ACCOUNT to reflect the credits or debits that would have been made to the SUSPENSE ACCOUNT to reflect the credits or debits that would have been made to the SUSPENSE ACCOUNT during the METER ERROR CORRECTION PERIOD if the meter had been neither fast nor slow. ARTICLE XII TELEMETERING 12.1 Telemetering Equipment. SELLER shall provide telemetering equipment to enable PECO ENERGY to monitor the PROJECT's NET ELECTRIC OUTPUT and reactive power on a continuous basis. PECO ENERGY shall specify the telemetering equipment design to record SELLER's breaker position, the output of the FACILITY, THE NET ELECTRIC OUTPUT of the PROJECT, and any other requirements needed to maintain the reliability and stability of the PECO ENERGY SYSTEM. PECO ENERGY and the SELLER shall have the respective responsibilities for telemetering set forth below: (a) PECO ENERGY shall specify all telemetering equipment and installation standards. (b) SELLER hall furnish, own and install all telemetering equipment on the PROJECT SITE in accordance with the standards specified by PECO ENERGY. 41 (c) PECO ENERGY shall maintain all telemetering equipment except the voltage and current transformers. (d) SELLER shall maintain voltage and current transformers. (e) PECO ENERGY shall install wiring inside the remote terminal and termination cabinet. (f) PECO ENERGY shall specify and order telephone pairs as required. (g) SELLER shall lease a telephone circuit or otherwise establish a telecommunications link to PECO ENERGY's operations center at 2301 Market Street, Philadelphia, Pennsylvania 19101, capable of permitting PECO ENERGY to receive the telemetering data specified in this Section 12.1 by means of both digital data links and analog signals. 12.2 Cost Responsibility. Any costs incurred by PECO ENERGY in designing, designating, selecting, specifying, or installing telemetering equipment shall be paid to PECO ENERGY by SELLER pursuant to the provisions of Article IX hereof as a cost associated with the design, construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT. SELLER shall bear all the costs it incurs under Section 12.1. 12.3 Telemetering Charges. SELLER shall pay to PECO ENERGY, in a manner set forth in Section 14.2 hereof, all costs PECO ENERGY incurs in maintaining and operating telemetering equipment pursuant to the AGREEMENT, which costs are estimated in Appendix A hereto. 42 ARTICLE XIII MODIFICATIONS 13.1 PECO ENERGY System Modifications. The PARTIES hereto recognize that PECO ENERGY may determine during the term of the AGREEMENT that certain modifications, including, without limitation, repairs, additions, replacements or other changes, on or to the PECO ENERGY SYSTEM are necessary to: (a) to accommodate or meet changing patterns of demand and usage of electric power and energy or other changes in the PECO ENERGY SYSTEM, (b) to meet revised safety and operating standards and procedures, (c) to maintain the quality of the initial interconnection installations required by this AGREEMENT, OR, (d) to satisfy any applicable law, regulation or order. If such modifications, improvements, repairs, additions, replacements or other changes on or to the PECO ENERGY SYSTEM require, in PECO ENERGY's sole judgment reasonably exercised, associated changes to the PECO ENERGY INTERCONNECTION EQUIPMENT, the SELLER INTERCONNECTION EQUIPMENT or the metering and telemetering equipment described in Articles XI and XII hereof, PECO ENERGY shall provide SELLER with a description of the required changes and an estimate of the cost of such required changes. Thereafter, SELLER shall make the required modifications to the SELLER INTERCONNECTION EQUIPMENT, and PECO ENERGY shall make the designated modifications to the PECO 43 ENERGY INTERCONNECTION EQUIPMENT and the metering and telemetering equipment described in Articles XI and XII hereof. 13.2 Payment. SELLER shall be responsible for and shall pay to PECO ENERGY any costs and expenses PECO ENERGY incurs associated with the required changes described in Section 13.1 hereof. Unless other billing and payment arrangements are mutually agreed upon by the PARTIES, SELLER shall pay to PECO ENERGY the estimated cost set forth in the estimate provided by PECO ENERGY to SELLER pursuant to Section 13.1 hereof within thirty (30) days of its receipt of such cost estimate. Within ninety (90) days of completion of the modifications to the PECO ENERGY INTERCONNECTION EQUIPMENT and/or metering and telemetering equipment described in Articles XI and XII hereof, PECO ENERGY shall provide SELLER with a final reconciliation setting forth the nature and amount of the costs PECO ENERGY actually incurred in performing the modifications. In the event that the total costs actually incurred by PECO ENERGY exceed the payment made by SELLER to PECO ENERGY pursuant to this Section 13.2 exceeds the costs PECO ENERGY actually incurred in ;making the modifications, PECO ENERGY shall refund to SELLER, with the final reconciliation, any such overpayment. 13.3 Maintenance Costs. PECO ENERGY shall maintain the PECO ENERGY INTERCONNECTION EQUIPMENT during the term of the 44 AGREEMENT according to PECO ENERGY's sole judgment reasonably applied and based on common practices for the PECO ENERGY T&D SYSTEM. SELLER shall be responsible for and pay to PECO ENERGY all reasonable costs PECO ENERGY incurs associated with such maintenance. PECO ENERGY shall periodically render a reasonably detailed maintenance bill to SELLER, covering maintenance expenses incurred over the time period since the last maintenance bill. SELLER shall pay to PECO ENERGY the amount of each such bill within thirty (30)) days after its receipt. A maintenance bill not paid within thirty (30) days shall accrue interest as provided in Section 14.4 hereof. ARTICLE XIV PAYMENT AND BILLING 14.1 Output Purchase Payment. Within thirty days after the DATE OF INITIAL OPERATION, and at the conclusion of each BILLING MONTH thereafter, PECO ENERGY shall read the recording meter at the PROJECT SITE for billing purposes. Within thirty (30) days after such meter reading PECO ENERGY shall remit to SELLER an amount equal to the Output Purchase Payment (calculated in accordance with Section 4.3 hereof) less any offsets and reductions authorized under the AGREEMENT. 14.2 Metering, Telemetering and Administration Charges. The Output Purchase Payment made by PECO ENERGY to SELLER for each BILLING MONTH shall be reduced by monthly metering, telemetering, and associated administration charges. Estimates of such charges are set forth in Appendix A hereto. The administration charges shall be updated and increased 45 periodically by a percentage equal to PECO ENERGY's annual percentage change in its wages for regular and probationary employees as of the date each such change becomes effective. In the event the metering, telemetering and associated administration charges are greater than the Output Purchase Payment for a BILLING MONTH, SELLER shall be responsible for and shall pay to PECO ENERGY the difference within thirty (30) days of the ; issuance of a bill or invoice by PECO ENERGY. 14.3 Payments. Except as otherwise specifically provided in the AGREEMENT, all payments or reimbursements required to be made under the AGREEMENT shall be due and payable by the appropriate PARTY to the other PARTY within thirty (30) days of the sending of a bill or invoice. With respect to payments to be made by SELLER to PECO ENERGY, if at the end of such a thirty (30) day period PECO ENERGY has not received payment from SELLER, PECO ENERGY may, without limitation, reduce any future Output Purchase Payment by an amount equal to the amount owed by SELLER to PECO ENERGY plus interest as provide din Section 14.4 hereof. 14.4 Interest. In the event a PARTY fails to pay all or part of any amount it owes the other PARTY under the terms of the AGREEMENT when such payment is due, interest shall accrue on the unpaid portion from the due date at a rate equal to the lesser of (a) three (3) points above the per annum interest rate publicly announced from time to time by the First Pennsylvania 46 Bank, N.A., or by its successor or survivor in the event of a bank merger, as the prime interest rate currently being charged to its most credit- worthy borrowers for ninety (90) unsecured commercial loans, or, if the prime rate should be discontinued or no longer quoted, a comparable rate designated by PECO ENERGY in the reasonable exercise of its sold discretion, or (b) the current rate of PECO ENERGY's most recent issue of long-term debt, provided it issued such debt within the preceding twenty-four (24) months. 14.5 Billing Disputes. PECO ENERGY's shall provide to SELLER, upon a timely request therefor, documentation and data available to PECO ENERGY to enable SELLER to verify the accuracy of any Output Purchase Payment made by PECO ENERGY to SELLER, or any amount billed by PECO ENERGY to SELLER pursuant to the AGREEMENT; provided, however, that any such request by SELLER shall not extend, postpone or otherwise affect SELLER'S obligation to pay any amounts billed by PECO ENERGY to SELLER under the AGREEMENT by the due date. In the event SELLER disputes any amount billed by PECO ENERGY to SELLER under the AGREEMENT, SELLER shall pay to PECO ENERGY the entire amount thereof, when due, and shall together with the payment thereof (a) identify and present the dispute in writing to PECO ENERGY, and (b) submit to PECO ENERGY documentation substantiating any claim made relative to the dispute. Upon receipt of notice of the dispute and the supporting documentation, PECO ENERGY shall have thirty (30) days to attempt to resolve the dispute with 47 SELLER. In the event the dispute is not resolved within such thirty (30) day period, either PARTY may pursue any legal or other remedy. ARTICLE XI ASSIGNMENT 15.1 Assignment. (a) Neither PARTY shall assign or assign the AGREEMENT or any claims or interests therein without the prior written consent of the other PARTY, which consent shall not unreasonably be withheld. Either PARTY, however, shall have the right to assign the AGREEMENT to an affiliated entity without the consent of the other PARTY, provided such assignment does not impair performance of the PARTIES' respective obligations under the AGREEMENT. All covenants, stipulations, terms, conditions and provisions of the AGREEMENT shall be binding upon the PARTIES and shall extend to and be binding upon the successors and assigns of the PARTIES permitted under this Section 15.1. (b) Notwithstanding the first sentence of this Section 165.1, PECO ENERGY hereby consents to the assignment by SELLER of all of SELLER's right, title and interest in and to this AGREEMENT, and any addendums and amendments thereto, too Philadelphia United Power Corporation, a Pennsylvania corporation ("PUPCO"). The foregoing consent is expressly intended to permit SELLER to fulfill its obligations under certain agreements among SELLER, PUPCO and its affiliate, Philadelphia Thermal Energy Corporation. This consent is conditioned on SELLER and PUPCO providing PECO ENERGY at least 48 thirty (30) days written notice pursuant to Section 25.1 prior to PUPCO accepting any formal assignment of this AGREEMENT. As provided in subsection (as) of this Section 15.1, upon the assignment of this AGREEMENT to PUPCO, all covenants, stipulations, terms, conditions and provisions of this AGREEMENT shall be binding upon PUPCO as SELLER'S assigned, and PUPCO shall be entitled to all of the rights of SELLER hereunder, provided that PUPCO shall have no right, title or interest in this Agreement prior to the effectiveness of the assignment to PUPCO. PECO ENERGY will not be obligated to permit the assignment of SELLER's rights under this AGREEMENT to any party other than PUPCO or its corporate successors (but not assigns), provided that, so long as PUPCO remains fully liable to PECO ENERGY for performance of this AGREEMENT, and provided that such assignment does not impair the performance of the PARTIES' respective obligations under this AGREEMENT, PUPCO may, upon the prior written consent of PECO ENERGY which shall not be unreasonably withheld, subcontract for FACILITY electric production under this AGREEMENT. ARTICLE XVI BANKRUPTCY AND UNSOLVENCY 16.1 Remedies. In the event of (a) the filing of a petition seeking the involuntary reorganization or liquidation of SELLER under any applicable federal or state bankruptcy, insolvency, reorganization or similar law, and such petition or action is not actively contested within sixty (60) days after the filing thereof, or 49 the granting of such petition, whether contested or appealed or not; (b) the commencement of an action seeking the appointment of a receiver, trustee or other similar official for SELLER, of for any substantial part of SELLER's property, and such petition or action is not actively contested within sixty 960) days after the filing thereof, or the appointment of such a receiver, trustee or other similar official, whether contested or appealed or not; (c) the filing of a petition by SELLER seeking the voluntary reorganization or liquidation of SELLER under any applicable federal or state bankruptcy, insolvency or similar law; or (d) the placement of SELLER's affairs in the hands of any court or governmental agency for administration, including under any financially distressed municipalities law if SELLER is a political subdivision or municipal corporation or similar entity under applicable law; PECO ENERGY may, in addition to any other remedies it may have under the AGREEMENT, including, in particular, under Sections 5.3 and 5.4, immediately suspend its performance hereunder unless and until SELLER provides PECO ENERGY with assurance, which PECO ENERGY in its sole discretion determines is adequate, that SELLER's obligations under the AGREEMENT will be met. ARTICLE XVII WARRANTIES 17.1 SELLER's Warranties. SELLER warrants it will have 50 good title to, and the right to deliver, all NET ELECTRIC OUTPUT it delivers to the INTERCONNECTION POINT for purchase by PECO ENERGY under the AGREEMENT. SELLER agrees to indemnify and hold PECO ENERGY harmless against any and all claims, demands, suits, actions, costs, liabilities, damages, losses or judgments arising out of, relating to or resulting from any adverse claim to the NET ELECTRIC OUTPUT purchased by PECO ENERGY pursuant to the AGREEMENT, as well as against all fees, costs, charges, and expenses which PECO ENERGY might incur in a defense of any such claim, suit, action or similar such demand made or filed by any person. In effecting the right of or obligation to indemnify under this Section 17.1 the procedural provisions of Article XVIII of the AGREEMENT shall govern. In addition, SELLER represents and warrants that the partners of SELLER have authorized Robert A. Shinn, Vice President of O'Brien (Schuylkill) Cogeneration, Inc., the managing partner of SELLER, to execute this AGREEMENT in the name of SELLER. ARTICLE XVIII INDEMNIFICATION 18.1 Responsibility. Each PARTY shall indemnify the other PARTY, its officers, agents, and employees against all loss, damages, expense, and liability for injury to or death of persons or injury to property proximately caused by the indemnifying PARTY's construction, ownership, operation, or maintenance of, or by failure of, any of such PARTY's works or facilities used directly in connection with this AGREEMENT. The indemnifying PARTY shall, at the other PARTY's request, defend 51 any suit asserting a claim covered by this indemnity. The indemnifying PARTY shall pay all costs that may be incurred by the other PARTY in enforcing this indemnity. 18.2 Worker's Compensation Responsibility. Each PARTY shall indemnify and hold harmless the other PARTY, and each and every of its officers, agents, servants, employees, successors and assigns, from any and all claims of the other PARTY's employees arising from any worker's compensation laws. 18.3 Procedure. If a claim is asserted or action brought against an indemnitee (PECO ENERGY or SELLER as applicable), and the indemnitee believes that he is entitled to indemnification under this ARTICLE XVIII, the indemnitee shall promptly notify the indemnitor (the other PARTY), in writing, of such claim or action. Such notice shall be provided in sufficient time to enable the indemnitor to assert and prosecute appropriate defenses to the claim or action. If the indemnitee fails to give the indemnitor sufficiently prompt notice, the indemnitor shall have no further obligation to indemnify the indemnitee pursuant to this ARTICLE XVIII. Upon receipt of such notice, the indemnitor shall make a prompt determination of whether it believes it is required to indemnify the indemnitee, and shall promptly notify the indemnitee, in writing, of its determination. If the indemnitor determines that it is required to indemnify, it shall assume the defense of the indemnitee, including the employment of counsel, and shall thereafter pay all costs and expenses relative to the defense of the claim or action. The indemnitee shall cooperate with the indemnitor in 52 all reasonable respects in this defense. The indemnitee shall also have the right, at its own expense to employ separate counsel in any such action and to participate in the defense thereof. The indemnitor shall not be liable for any settlement of any claim or action made without its consent. Conversely, before settling any claim or action, the indemnitor shall demonstrate to the indemnitee that the indemnitor has sufficient financial ,means, or has made adequate arrangements, to make all settlement payments as and when due. ARTICLE XIX TERMINATION 19.1 Termination by PECO ENERGY. PECO ENERGY may terminate the AGREEMENT: (a) if SELLER is in default of the AGREEMENT, (b) if the PUC, or any other governmental agency, issues a binding order during the term of the AGREEMENT denying, over the objections of PECO ENERGY and SELLER, PECO ENERGY authority to collect on a full and current basis from its customers through the ENERGY COST ADJUSTMENT the costs PECO ENERGY incurs in purchasing NET ELECTRIC OUTPUT pursuant to the AGREEMENT; provided, however, that PECO ENERGY shall not have the right to terminate the AGREEMENT if SELLER agrees within twenty (20) days of the date of issuance of such a binding order to modify the AGREEMENT to accept payments for NET ELECTRIC OUTPUT at any lower rate which PECO ENERGY is authorized to recover on a full and current basis from its customers through the ENERGY COST ADJUSTMENT, or 53 19.2 Termination by SELLER. SELLER may terminate the AGREEMENT: (a) if PECO ENERGY is in default of the AGREEMENT, OR (b) if, prior to the COMMERCIAL OPERATION DATE, SELLER permanently terminates FACILITY operations and permanently abandons the FACILITY. SELLER shall, upon any termination by it, pay to PECO ENERGY any amounts due and owing under the AGREEMENT, including, if applicable, any debit balances and accrued interest in the SUSPENSE ACCOUNT pursuant to Section 5.3 and including an amount determined by PECO ENERGY, in its sole discretion, to be sufficient to cover PECO ENERGY's CANCELLATION COSTS. 19.3 Effect of Termination. A termination of the AGREEMENT under Sections 19.1 or 19.2 hereof shall not be deemed to be a breach or default under Article XX hereof. ARTICLE XX BREACH AND DEFAULT 20.1 Breach. A breach of the AGREEMENT shall occur upon the occurrence of any of the following conditions or events: (a) The failure of a PARTY to pay any amount due to the other PARTY under the AGREEMENT, which failure continues for a period of thirty (30) days after the due date for such payment as determined under the AGREEMENT. (b) The failure by a PARTY to perform or observe any material term or condition of the AGREEMENT. 54 20.2 Cure and Default. In the event that any PARTY breaches the AGREEMENT, the other PARTY shall provide the breaching PARTY with a written notice of the breach. Thereafter, if the breach is not rectified or cured within forty-five (45) days after receipt of such notice the breaching PARTY shall be deemed to be in default of the AGREEMENT; provided, however, that, except where there has been a failure to make a payment within thirty (30) days after the due date for such payment as determined under the AGREEMENT, if such breach cannot be reasonably cured within such forty- five (45) day period, then the breaching PARTY shall have an additional reasonable period, not to exceed one (1) year, to effect such cure, and shall not be deemed to be in default of the AGREEMENT provided that the breaching PARTY commences to effect such cure within forty-five (45) days of its receipt of notice of the breach, and at all times thereafter proceeds diligently in effecting such cure. 20.3 Damages. In the event a PARTY is in breach or default of the AGREEMENT, then the other PARTY, in addition to any other remedy it may have under the AGREEMENT, shall be entitled to all direct damages caused by such breach or default, but in no event shall either PARTY be liable to the other PARTY for any indirect, special or consequential damages resulting from such breach or default, and in no event shall PECO ENERGY be liable for damages in excess of twenty-five million dollars ($25,000,000). In addition, upon termination of the AGREEMENT SELLER shall pay PECO ENERGY, pursuant to Section 5.3, an amount 55 equal to the debit balance and accrued interest in the SUSPENSE ACCOUNT as of the date of termination. 20.4 Mitigation. Each PARTY shall mitigate damages in the event of a breach or default by the other PARTY to the AGREEMENT. 20.5 Indemnification. Nothing in this Article XX shall in any way affect the obligations of the PARTIES to indemnify each other as provided in Articles XVII and XVIII hereof. ARTICLE XXI FORCE MAJEURE 21.1 Force Majeure. Subject to the provisions of Section 21.2 hereof, either PARTY hereto shall be excused from performance hereunder, other than the obligation to make payments of amounts already due and the payment of the Projection Payment or Termination Payment under Sections 5.2 and 5.3 hereof, and shall not be liable in damages or otherwise if, and to the extent that, it shall be unable to perform fully or is prevented from performing fully by any act, event, cause or condition that is beyond its reasonable control, that is not caused by its fault or negligence, and that by the exercise of reasonable diligence it is unable to overcome or prevent, including but not limited to the following: (a) An act of God, flood, earthquake, storm, fire, explosion, lightning, landslide, epidemic or damages by the elements. (b) The failure of any subcontractor or supplier to perform for reasons other than nonpayment of undisputed claims. 56 (c) The ;entry of a valid and enforceable injunctive or restraining order or judgment, order or decree of any federal or state court or administrative agency or governmental officer or body having or purporting to have jurisdiction thereof, or any change in or adoption of any constitute, charter, act, statute, law, ordinance, code, rule, regulation or order, or other legislative or administrative action of the ;United States or the Commonwealth of Pennsylvania, or any agency, department, authority, political subdivision or other instrumentality of either thereof; provided, however, that the contesting in good faith of any order, judgment or action shall not constitute or be construed as the lack of reasonable diligence or efforts, or failure to act, of the non-performing PARTY; and provided further that Force Majeure shall not include any actions or orders of any governmental body insofar as such actions or orders (i) result in any loss of QUALIFYING FACILITY status, (ii) require specific changes or modifications to the AGREEMENT, or (iii) pertain to the extent of PECO ENERGY's recovery from its customers of payments to SELLER hereunder. (e) The discovery at the PROJECT SITE of an archaeological find of significance. 57 (f) Strikes, walkouts, slowdowns, lockouts or other labor disputes or industrial disturbances. (g) Acts of the public enemy, wars, blockages, boycotts, insurrections or riots. (h) Loss, diminution or impairment of PECO ENERGY's electrical supply. (i) A break or fault in the PECO ENERGY T&D SYSTEM. (j) Any other cause beyond the reasonable control of and without the fault or negligence of the PARTY that is unable to perform and which, by the exercise of reasonable diligence, that PARTY is unable to overcome or prevent. 21.2 Excuse from Performance. The PARTY claiming Force Majeure shall be excused from performance only if: (a) It promptly gives the other PARTY oral notification of the existence of any Force Majeure (b) The suspension of performance on account of the Force Majeure is of no greater scope and of no longer duration than is required by the Force Majeure. (c) It uses reasonable efforts under the circumstances to remedy the inability to perform, but neither PARTY shall be required to settle any strike, walkout, lockout or other labor dispute on terms which, in its sole judgment, is contrary to its best interests, and (d) It gives the other PARTY prompt oral notification of the cessation of the Force Majeure, and thereafter provides 58 confirmation in writing within five (5) days of said oral notification. ARTICLE XXII INSURANCE 22.1 Insurance. SELLER shall, at a minimum, carry general liability insurance with a combined single limit for bodily injury and property damage (including broad form contractual liability) of at least ten million dollars ($10,000,000). SELLER shall forward a certificate evidencing such insurance to PECO ENERGY, at the address listed in Section 25.1, prior to PECO ENERGY's inspection of the FACILITY and the SELLER INTERCONNECTION EQUIPMENT pursuant to Section 8.5 hereof. SELLER shall provide annually thereafter a certificate evidencing such ongoing insurance coverage. ARTICLE XXIII GOVERNMENT REGULATIONS 23.1 State and Federal. The AGREEMENT and all rights and obligations of the PARTIES hereunder are subject to all applicable state and federal laws and all duly promulgated orders and regulations and duly authorized action taken by the executive, legislative, or judicial branches of government or any of their respective agencies, departments, authorities or other instrumentalities. In the event that any such statute, ordinance, order, rule, regulation or other action shall increase PECO ENERGY's cost of performance under the AGREEMENT, SELLER shall pay or reimburse PECO ENERGY for such costs. 59 ARTICLE XXIV GOVERNING LAW 24.1 Interpretation. The interpretation and performance of the AGREEMENT shall be in accordance with and controlled by the laws and regulations of the Commonwealth of Pennsylvania and the United States of America. ARTICLE XXV MISCELLANEOUS 25.1 Notices. Except as otherwise specifically provided herein, any notice, request, demand, statement and/or payment provided herein shall be in writing and shall be sent to the PARTIES at the following addresses: PECO ENERGY: PECO Energy Company Attn: Interconnection Arrangements 2301 Market Street Philadelphia, PA 19101 Telecopy: (215) 841-4234 SELLER: O'Brien (Schuylkill) Cogeneration, Inc. 225 South Eighth Street Philadelphia, PA 19106 Telecopy: (215) 922-5227 PUPCO (after an assignment pursuant to Article XV): Philadelphia United Power Corporation 2600 Christian Street Philadelphia, PA 19146 Telecopy: (215) ;875-6910 Such notices shall be deemed to have been given and received when (a) personally delivers, (b) ninety-six (96) hours after 60 deposit in the U.S. Mail, postage prepaid, properly addressed to the appropriate PARTY, or (c) twenty-four 24) hours after a telecopy is properly sent and received. Oral notification under Section 21.2 shall be made by telephone to the following numbers: PECO ENERGY: (215) 841-4236 SELLER: (215) 627-5500 PUPCO: (215) 875-6900 Either PARTY may change the address, telecopy number, or telephone number to which notice is to be given by written notice to the other PARTY. Nothing in this Section 25.1 shall be deemed to require PECO ENERGY to provide prior notice of any kind in the event of an OPERATIONAL EMERGENCY. 25.2 Indulgences. Neither the failure nor the delay on the part of either PARTY to exercise any right, remedy, power or privilege under the AGREEMENT shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same, nor shall any waiver of any right, remedy, power or privilege with respect to any other occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 25.3 Captions and Headings. Captions and ;headings in the AGREEMENT are for convenience only, do not constitute a part of the AGREEMENT, and shall not affect its interpretation. 25.4 Validity. Except as otherwise specifically provided in the AGREEMENT, if any portion of the AGREEMENT is 61 invalid or illegal, it shall not affect the validity or enforceability of any other portion of the AGREEMENT. 25.5 Agreement Definition. The AGREEMENT with Appendices A and B hereto constitutes the entire AGREEMENT between the PARTIES relating to the subject matter hereof, and all previous and contemporaneous agreements, understandings, discussions, inducements, conditions, communications and correspondence, whether oral or written, express or implied, with respect to the subject matter hereof are superseded by the execution of the AGREEMENT. 25.6 Modifications. The AGREEMENT may not be modified or amended except in writing signed by or on behalf of both PARTIES by their duly authorized officers with the same formality that as followed in the execution of the AGREEMENT. 25.7 Execution in Counterparts. The AGREEMENT may be executed in any number of counterparts, each of which shall be deemed to be an original as against the PARTY whose signature appears thereon, and all of which shall together constitute one and the same instrument. The AGREEMENT shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of the PARTIES reflected hereon as the signatories. 25.8 Gender and Number. Words ;used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. 62 25.9 Number of Days. In computing the number of days for purposes of the AGREEMENT, all days shall be counted, including, Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday. IN WITNESS WHEREOF, the PARTIES have caused the AGREEMENT to be executed as of the day and year first above written. PECO ENERGY COMPANY, formerly known as PHILADELPHIA ELECTRIC COMPANY Attest:/s/ By:/s/ William H. Smith III SECRETARY William H. Smith, III Vice President GRAYS FERRY COGENERATION PARTNERSHIP Attest:/s/ By:/s/ Robert A. Shinn Robert A. Shinn Vice President (Schuylkill) Cogeneration, Inc. JOINDER The undersigned hereby acknowledges and agrees to be bound by the terms of this Agreement in accordance with the terms of Section 15.1(b) hereof. PHILADELPHIA UNITED POWER By:/s/ S. G. Smith Attest:/s/ Robert A. Shinn 63 APPENDIX A ESTIMATED METERING, TELEMETERING AND ADMINISTRATION CHARGES Estimated Monthly Metering Charge* $150 Estimated Monthly Telemetering Charge** $500 Monthly Administration Charge*** $750 * Includes carrying and maintenance charges. ** Includes only maintenance and operating charges. *** To be updated periodically in accordance with Section 114.2 of this AGREEMENT. APPENDIX B PRICING VALUES The One LEVELIZED RATE (Cents) If the COMMERCIAL OPERATION per Kilowatt-hour) is, until DATE occurs the FINAL PROJECTION DATE Dec. 26, 1991 - Dec. 25, 1992 3.49 Dec. 26, 1992 - Dec. 25, 1993 3.65 Dec. 26, 1993 - Dec. 25, 1994 3.82 Dec. 26, 1994 - Dec. 25, 1995 4.02 Dec. 26, 1995 - Dec. 25, 1996 4.23 Dec. 26, 1996 - Dec. 25, 1997 4.43 Dec. 26, 1997 - Dec. 25, 1998 4.64 Dec. 26, 1998 - Dec. 25, 1999 4.81 Dec. 26, 1999 - Dec. 25, 2000 4.95 PROJECTED RATE Calendar Year (Cents per Kilowatt-hour) 1992 2.58 1993 2.77 1994 2.92 1995 3.18 1996 3.57 1997 3.91 1998 4.33 1999 4.68 2000 4.95 FINAL PROJECT DATE - December 31, 2000 EX-10.25.5 19 EXHIBIT 10.25.5 AMENDMENT FOR PURCHASE OF ELECRIC OUTPUT (PHASE II) DATED JULY 28, 1992 BETWEEN PECO AND GRAYS FERRY. Exhibit 10.25.5 EXHIBIT B AGREEMENT FOR PURCHASE OF ELECTRIC OUTPUT (PHASE II) AGREEMENT FOR PURCHASE OF ELECTRIC OUTPUT (PHASE II) between PECO ENERGY COMPANY and GRAYS FERRY COGENERATION PARTNERSHIP Dated: As of July 28, 1992 TABLE OF CONTENTS Page BACKGROUND 1 ARTICLES I. DEFINITIONS 2 1.1 Definitions 2 II. EFFECTIVE DATE AND TERM 10 2.1 Effective Date 10 2.2 Cost Recovery 10 2.3 Term 10 III. CERTAIN OBLIGATIONS OF SELLER 12 3.1 Qualifying Facility Status 12 3.2 Completion of Construction 13 IV. PURCHASES 13 4.1 Amount Purchased 13 4.2 Definitions 14 4.3 Output Purchase Payment 15 V. SUSPENSE ACCOUNT 16 5.1 Suspense Account Balance 16 5.2 Projection Payment 16 5.3 Termination Payment 17 5.4 Suspense Account Guarantee 17 VI. CURTAILMENT. REDUCTION OR INTERRUPTION OF PURCHASES 18 6.1 Purchase Disruptions 18 6.2 Selection 20 6.3 Notice 20 6.4 Extent of Disruptions 21 6.5 SELLER's Obligations on Disruption 21 (i) ARTICLE VII. PROJECT OPERATION 22 7.1 Obligation of SELLER 22 7.2 Manner of Delivery 22 7.3 Safe Construction and Operation 22 7.4 Power Factor 24 7.5 Provision of Information 24 7.6 Modifications 25 VIII. SELLER INTERCONNECTION EOUIPMENT 26 8.1 SELLER Interconnection Equipment 26 8.2 Condition Precedent 27 8.3 Design 27 8.4 Construction 28 8.5 Inspection and Access 29 IX. PECO ENERGY INTERCONNECTION EOUIPMENT 30 9.1 PECO ENERGY Interconnection Equipment 30 9.2 Interconnection Design 30 9.3 Consultation with SELLER 31 9.4 Rights and Easements 31 9.5 Acquisition of Permits. Licenses and Approvals 32 9.6 Costs of Acquisition 32 9.7 Notice to Proceed 32 9.8 Reasonable Efforts to Complete Construction 33 9.9 Liability 33 9.10 Design Changes 34 9.11 Notice of Completion 35 9.12 Interconnection Cost Responsibility 35 9.13 Estimated Costs 35 9.14 Payment Schedule 35 9.15 Reconciliation 36 9.16 Suspension 37 9.17 Cancellation Costs 38 X. INITIAL PROJECT OPERATION AND TESTING 39 10.1 Initial Operation 39 10.2 Commercial Operation 40 XI. METERING 40 11.1 Metering Equipment 40 11.2 Meter Charges 41 (ii) ARTICLE 11.3 Meter Testing 41 11.4 Meter Error 42 11.5 Payment Adjustment 42 11.6 Meter Failure 43 11.7 Suspense Account Adjustments 43 XII. TELEMETERING 43 12.1 Telemetering Equipment 43 12.2 Cost Responsibility 45 12.3 Telemetering Charges 45 XIII. MODIFICATIONS 45 13.1 PECO ENERGY System Modifications 45 13.2 Payment 46 13.3 Maintenance Costs 47 XIV. PAYMENT AND BILLING 48 14.1 Output Purchase Payment 48 14.2 Metering. Telemetering and Administration Charges48 14.3 Payments 49 14.4 Interest 49 14.5 Billing Disputes 50 XV. ASSIGNMENT 51 15.1 Assignment 51 XVI. BANKRUPTCY AND INSOLVENCY 52 16.1 Remedies 52 XVII. WARRANTIES 54 17.1 SELLER's Warranties 54 XVIII. INDEMNIFICATION 54 18.1 Responsibility 54 18.2 Worker's Compensation Responsibility 55 18.3 Procedure 55 (iii) ARTICLE XIX. TERMINATION 56 19.1 Termination by PECO ENERGY 56 19.2 Termination by SELLER 57 19.3 Effect of Termination 57 XX. BREACH AND DEFAULT 58 20.1 Breach 58 20.2 Cure and Default 58 20.3 Damages 59 20.4 Mitigation 59 20.5 Indemnification 59 XXI. FORCE MAJEURE 60 21.1 Force Majeure 60 21.2 Excuse from Performance 62 XXII. INSURANCE 63 22.1 Insurance 63 XXIII. GOVERNMENT REGULATIONS 63 23.1 State and Federal 63 XXIV. GOVERNING LAW 64 24.1 Interpretation 64 XXV. MISCELLANEOUS 64 25.1 Notices 64 25.2 Indulgences 65 25.3 Captions and Headings 66 25.4 Validity 66 25.5 Agreement Definition 66 25.6 Modifications 66 25.7 Execution in Counterparts 66 25.8 Gender and Number 67 25.9 Number of Days 67 APPENDICES A. Estimated Metering, Telemetering and Administration Charges B. Pricing Values (iv) AGREEMENT FOR PURCHASE OF ELECTRIC OUTPUT (PHASE II) This AGREEMENT is made as of the 28th day of July, 1992, by and between Grays Ferry Cogeneration Partnership, a partnership with offices of its managing partner, O'Brien (Schuylkill) Cogeneration, Inc., located at 225 South Eighth Street, Philadelphia, Pennsylvania 19106 ("SELLER"), and PECO Energy Company, formerly known as Philadelphia Electric Company, a Pennsylvania corporation with offices located at 2301 Market Street, Philadelphia, Pennsylvania 19101 ("PECO ENERGY"). BACKGROUND PECO is a regulated public utility engaged in, among other things, the generation, purchase, transmission, distribution and sale of electric power within the Commonwealth of Pennsylvania. Under Section 210 of PURPA, 16 U.S.C. 824a-3, FERC regulations at 18 C.F.R. 292.201-292.602, and PUC regulations at 52 Pa. Code 57.31- 57.39, PECO ENERGY is required under certain circumstances to purchase electric power from QUALIFYING FACILITIES. SELLER intends to design, construct, own and operate an electric generation facility (the FACILITY in Article I hereof) and certain associated equipment located at 2600 Christian Street, Philadelphia, Pennsylvania 19146. SELLER intends to receive certification from the FERC that the FACILITY is a QUALIFYING FACILITY, and SELLER intends to and shall maintain the FACILITY during the term of this AGREEMENT in compliance with the requirements for a QUALIFYING FACILITY established by PURPA and FERC's regulations. SELLER has requested PECO ENERGY, and PECO ENERGY is willing, to (a) design, construct, install, operate and maintain certain equipment to enable the FACILITY to interconnect with the PECO ENERGY SYSTEM (the PECO ENERGY INTERCONNECTION EQUIPMENT) and (b) purchase the NET ELECTRIC OUTPUT produced by the FACILITY during the term of the AGREEMENT. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the PARTIES, intending to be legally bound hereby, agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. The following terms, when used herein with capitalization, shall have the following meanings: AGREEMENT means this agreement for Purchase of Electric Output between PECO ENERGY and SELLER, including any extension or amendment thereto. AUXILIARY SERVICE RIDER means the rider set forth in PECO ENERGY's Electric Service Tariff under which PECO ENERGY provides electric service to customers whose electrical requirements are not wholly provided by PECO ENERGY-owned facilities, as the rider may be amended from time to time. BILLING MONTH means the time period, constituting not less than twenty- eight (28) days and not more than thirty-four (34) days, between two successive meter readings made for billing purposes. 2 CANCELLATION COSTS means the costs and liabilities incurred by PECO ENERGY upon the termination of the AGREEMENT under Sections 19.1 or 19.2 hereof or upon the expiration of the term of the AGREEMENT specified in Section 2.3 hereof to (a) cancel supplier and contractor orders and agreements entered into to design, construct, install, operate, maintain and own PECO ENERGY INTERCONNECTION EQUIPMENT, (b) remove such PECO ENERGY INTERCONNECTION EQUIPMENT and (c) restore the PECO ENERGY SYSTEM to its condition prior to the execution of this AGREEMENT. COMMERCIAL OPERATION DATE means the date designated by SELLER under Section 10.2 hereof as the date the FACILITY and the SELLER INTERCONNECTION EQUIPMENT are ready to deliver NET ELECTRIC OUTPUT to the INTERCONNECTION POINT on a continuous basis for reasons other than testing. COST RECOVERY PETITION means a petition by PECO ENERGY to the PUC seeking authority to collect and recover from PECO ENERGY's customers, on a full and current basis through the ENERGY COST ADJUSTMENT or such other mechanism as may replace the ENERGY COST ADJUSTMENT, all payments made to SELLER under the Agreement for purchases of NET ELECTRIC OUTPUT. CREDIT means (a) an irrevocable letter or letters of credit (b) a surety or performance bond or (c) an insurance policy, any of which to be issued by ISSUER on behalf of SELLER 3 to PECO ENERGY as beneficiary in a form and on terms and conditions acceptable to PECO ENERGY. DATE OF INITIAL OPERATION means the date, acceptable to PECO ENERGY, that SELLER synchronizes, for the first time, the FACILITY with the PECO ENERGY SYSTEM. DESIGN RELEASE means a written notice from SELLER to PECO ENERGY authorizing PECO ENERGY to (a) design the PECO ENERGY INTERCONNECTION EQUIPMENT, (b) estimate the completion date for constructing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, (c) prepare an estimate of the cost of constructing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, and (d) review the design of the SELLER INTERCONNECTION EQUIPMENT for acceptance. ENERGY COST ADJUSTMENT mean the component of PECO ENERGY's PUC- approved electric rates, as set forth in PECO ENERGY's Electric Service Tariff, which enables PECO ENERGY to recover its energy costs not reflected in its base rates. FACILITY means all equipment and appurtenant structures, which have an aggregate nameplate rating of up to 119 megawatts, to be constructed, installed, operated, maintained and owned by SELLER at the PROJECT SITE for the purpose of generating electricity, representing Phase II of a two-phase project which SELLER intends to construct at the PROJECT SITE with a total aggregate nameplate rating of up to 150 megawatts. FERC means the Federal Energy Regulatory Commission. 4 FINAL PROJECTION DATE means the date as defined in Appendix B. INTERCONNECTION POINT means the point of physical connection between the SELLER INTERCONNECTION EQUIPMENT and the PECO ENERGY INTERCONNECTION EQUIPMENT to be determined by PECO ENERGY, after consultation with SELLER. ISSUER means, with respect to the CREDIT (a) the commercial bank or other entity issuing an irrevocable letter or letters of credit, (b) the company qualified and authorized to issue the surety or performance bond in the Commonwealth of Pennsylvania, (c) the insurance company authorized to issue the insurance policy. LIGHT LOAD CONDITION means a circumstance where (a) the PJM INTERCONNECTION operators have declared a MINIMUM GENERATION EMERGENCY or (b) a condition occurs on the PJM INTERCONNECTION or the PECO ENERGY SYSTEM which, without PECO ENERGY taking action to correct such condition, might imminently lead to such a declaration. Such actions include, but are not limited to, (i) a reduction in output from a nuclear unit or (ii) the removal of an electric generating unit from service which could not be returned to service during the next anticipated period of peak demand for power. METER ERROR CORRECTION PERIOD means the actual time period of a meter's registration error, if such time period is definitely known, or, if unknown, a period equal to the lesser 5 of one-half (1/2) of the meter, or three months, plus, if the meter has not been tested in accordance with the requirements of 52 Pa. Code 57.20, as that provision may be amended from time to time, the period the meter has been in service beyond the required test period. METER ERROR PERCENTAGE means the difference, expressed as a percentage, between actual meter registrations during testing, and the registrations the meter would have made if it were neither fast nor slow, at an average purchase level that the PARTIES mutually agree is representative of the level of NET ELECTRIC OUTPUT purchases made by PECO ENERGY from the PROJECT during the METER ERROR CORRECTION PERIOD. MINIMUM GENERATION EMERGENCY means an operational condition declared by the PJM INTERCONNECTION resulting from a period of low demand for electricity. NET ELECTRIC OUTPUT means the total electric output of the FACILITY in excess of (a) the output SELLER uses to operate the FACILITY, (b) the output Philadelphia Thermal Energy Corporation uses to operate the steam generating equipment and related facilities located on land at Schuylkill Station that it leases from PECO ENERGY under a lease dated January 30, 1987; provided that PECO ENERGY shall not provide facilities or service to transport or deliver power from the FACILITY to that steam generating equipment and related facilities, and (c) the 6 output SELLER uses in the transformation and transmission of electric output to the INTERCONNECTION POINT. NOTICE TO PROCEED means written notice provided by SELLER to PECO ENERGY authorizing PECO ENERGY to construct, purchase and install the PECO ENERGY INTERCONNECTION EQUIPMENT and agreeing to pay all the costs and charges incurred and made by PECO ENERGY under this AGREEMENT in constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. OPERATIONAL EMERGENCY means a condition or situation which presents, or is imminently likely to present. a real, substantial and immediate threat to persons or property. or which impairs or imminently will impair either (a) PECO ENERGY's ability to furnish and maintain adequate, efficient. safe, and reliable service to its customers, or (b) the safety, reliability and stability of the PECO ENERGY SYSTEM. PARTIES means PECO ENERGY and SELLER. PARTY means PECO ENERGY or SELLER. PECO ENERGY means PECO Energy Company and its regulated operating subsidiaries. PECO ENERGY INTERCONNECTION EQUIPMENT means the equipment, other than metering equipment, to be designed, constructed, purchased, installed, owned, and operated by PECO ENERGY under the terms of the AGREEMENT, including modifications to the PECO ENERGY T&D SYSTEM, to enable PECO ENERGY to interconnect the PECO ENERGY SYSTEM with, and to receive NET 7 ELECTRIC OUTPUT from, the PROJECT under the terms and conditions of the AGREEMENT. PECO ENERGY SYSTEM means the electric power generation, transmission and distribution facilities owned, operated and/or maintained by PECO ENERGY, which will include, after construction and installation, the PECO ENERGY INTERCONNECTION EQUIPMENT. PECO ENERGY T&D SYSTEM means the electric power transmission and distribution facilities owned, operated and maintained by PECO ENERGY, which will include, after construction and installation, the PECO ENERGY INTERCONNECTION EQUIPMENT. PJM INTERCONNECTION means the Pennsylvania - New Jersey - Maryland Interconnection, a fully coordinated power pool formed pursuant to the PJM INTERCONNECTION AGREEMENT. PJM INTERCONNECTION AGREEMENT means the agreement executed by and among the members of the PJM INTERCONNECTION, and any amendments thereto, on file with the FERC. POWER FACTOR shall have that meaning set forth in the IEEE Standard Dictionary of Electrical and Electronic Terms (ANSI/IEEE Standard 100-1988, Fourth Edition). PROJECT means the Phase II FACILITY, SELLER INTERCONNECTION EQUIPMENT and associated facilities and equipment to be constructed, installed, owned, operated and 8 maintained by SELLER at the PROJECT SITE for the purpose, among other things, of generating electricity. PROJECT SITE means the property leased by SELLER from Philadelphia Thermal Energy Corporation under a lease dated November 11, 1991, as amended as of September 17, 1993, upon which a two-phase project, including the Phase II FACILITY and associated interconnection equipment. will be situated. PRUDENT ELECTRICAL PRACTICES means the spectrum of possible practices, methods and acts which, in the exercise of reasonable judgment and in light of the facts known at the time a decision was made, would have been used in prudent electrical engineering and operations to accomplish the desired result at a reasonable cost consistent with reliability, safety and expedition, and is not limited to the optimum practices, methods or acts to the exclusion of all others. PUC means the Pennsylvania Public Utility Commission. PURPA means the Public Utility Regulatory Policies Act of 1978. QUALIFYING FACILITY means a "small power production facility" or "cogeneration facility" as defined in Section 210 of PURPA, 16 U.S.C. SS 824a-3(j), and meeting the criteria for qualification set forth at 18 C.F.R. SS SS 292.203-292.206. SELLER means Grays Ferry Cogeneration Partnership. SELLER INTERCONNECTION EQUIPMENT means the facilities up to and including the INTERCONNECTION POINT, other than the 9 metering equipment described in Article XI hereof, to be designed, constructed, installed, operated and maintained by SELLER to (a) permit the PROJECT to interconnect and operate in parallel with the PECO ENERGY SYSTEM and (b) permit PECO ENERGY to receive NET ELECTRIC OUTPUT at the INTERCONNECTION POINT. SUSPENSE ACCOUNT means an account maintained in PECO ENERGY's records used solely to record PECO ENERGY'S purchases of NET ELECTRIC OUTPUT under the AGREEMENT and the associated account balances specified in Section 5.1 hereof. ARTICLE II EFFECTIVE DATE AND TERM 2.1 Effective Date. The AGREEMENT shall become effective upon (a) its execution by authorized representatives of the PARTIES, (b) the acceptance by the PARTIES, in the manner specified in Section 2.2 hereof, of the terms of a valid, binding and unappealed final order of a court or the PUC ruling upon PECO ENERGY's COST RECOVERY PETITION and (c) approval of the AGREEMENT by the PUC without modification as a contract with an affiliated interest under 66 Pa.C.S. SS 2102. 2.2 Cost Recovery. Within sixty (60) days after the execution of the AGREEMENT, PECO ENERGY shall prepare and file a COST RECOVERY PETITION. At the same time, in view of the fact that Adwin Equipment Company, a wholly owned subsidiary of PECO ENERGY, is one of the general partners of SELLER, PECO ENERGY 10 shall prepare and file a petition with the PUC seeking approval of the AGREEMENT without modification under the affiliated interest provisions of 66 Pa.C.8. S 2102. Within sixty (60) days after (a) the date of entry of an unappealed valid, binding and final order of the PUC ruling on the COST RECOVERY PETITION, (b) the filing date of an unappealed valid, binding and final order of a court on appeal from such a PUC ruling or (c) the date of entry of an unappealed valid, binding and final order of the PUC ruling on the COST RECOVERY PETITION on remand, each PARTY shall provide the other PARTY with written notice of its acceptance or nonacceptance of the terms and conditions of the final order ruling upon the COST RECOVERY PETITION. Neither PARTY, however, shall have the right to reject the terms and conditions of such a final order if the relief sought in the COST RECOVERY PETITION is granted without modification. The failure to provide written notice of acceptance or nonacceptance under this Section 2.2 within the required time period shall be deemed to be acceptance of the terms and conditions of the final order. If the relief sought in the COST RECOVERY PETITION is granted without modification, the condition precedent set forth in Section 2.1 hereof shall be deemed to be satisfied as of the filing date or date of entry of the final order ruling upon the COST RECOVERY PETITION. If the relief sought in the COST RECOVERY PETITION is granted with modification, and the PARTIES accept the terms and conditions of the final order, the PARTIES 11 shall promptly execute, in the manner set forth in Section 25.6 hereof, an appropriate modification to the AGREEMENT. and the condition precedent set forth in Section 2.1 hereof shall be deemed to be satisfied as of the effective date of such modification. Notwithstanding the final ruling on the COST RECOVERY PETITION, if the PUC does not approve the AGREEMENT without modification under the affiliated interest provisions of 66 Pa.C.S. SS 2102, the AGREEMENT shall not become effective. 2.3 Term. The AGREEMENT, unless sooner terminated in accordance with any applicable provision of the AGREEMENT, shall remain in full force and effect for twenty (20) years after the COMMERCIAL OPERATION DATE. The application provisions of the AGREEMENT, however, shall continue in effect after the term of the AGREEMENT, including any extensions thereof, to the extent necessary to provide for final billings and adjustments, and to preserve and permit the enforcement or institution of action upon any right or obligation which accrued during the AGREEMENT and was not exercised or fulfilled upon termination. ARTICLE III CERTAIN OBLIGATIONS OF SELLER 3.1 Qualifying Facility Status. Prior to the DATE OF INITIAL OPERATION, SELLER shall receive and provide PECO ENERGY with certification from FERC that the PROJECT is a QUALIFYING FACILITY for the full amount of NET ELECTRIC OUTPUT to be purchased by PECO ENERGY under the AGREEMENT. SELLER shall maintain the PROJECT in compliance with the requirements for a QUALIFYING FACILITY established under PURPA and applicable FERC regulations for the full amount of NET ELECTRIC OUTPUT to be 12 purchased by PECO ENERGY under the AGREEMENT, and any failure by SELLER to so maintain the PROJECT shall be a breach of the AGREEMENT under Section 20.1 hereof. 3.2 Completion of Construction. SELLER shall complete construction of the FACILITY and the SELLER' INTERCONNECTION EQUIPMENT, and take all other steps necessary to enable the PROJECT to deliver NET ELECTRIC OUTPUT to the INTERCONNECTION POINT for sale to PECO ENERGY1 on or before the fifth (5th) anniversary of the effective date of the AGREEMENT. Failure by SELLER to meet this standard shall constitute a default of the AGREEMENT under Section 20.2 hereof. ARTICLE IV PURCHASES 4.1 Amount Purchased. Commencing on the DATE OF INITIAL OPERATION, and thereafter during the term of the AGREEMENT, SELLER shall sell and deliver to PECO ENERGY exclusively, and PECO ENERGY shall purchase and accept delivery of, the PROJECT' S NET ELECTRIC OUTPUT; provided, however, that PECO ENERGY shall not be required to purchase or accept delivery of NET ELECTRIC OUTPUT from the PROJECT in excess of the lesser of (a) 119 megawatts or (b) the amount of electric output for 13 which the FERC has certified the FACILITY as a QUALIFYING FACILITY. 4.2 Definitions. The following terms1 when used herein with capitalization, shall have the following meanings: (a) FINAL PROJECTION DATE means the date as defined in Appendix B. (b) LEVELIZED PAYMENT means the product of (i) the number of kilowatt- hours of NET ELECTRIC OUTPUT that PECO ENERGY purchases under the AGREEMENT during a BILLING MONTH and (ii) the LEVELIZED RATE. (c) LEVELIZED RATE shall be the rate specified in Appendix B as determined by when the COMMERCIAL OPERATION DATE for the PROJECT occurs. (d) PJM VALUE means the sum of the hourly PJM values during a BILLING MONTH with each hourly PJM value being the product of (i) the number of kilowatt-hours of NET ELECTRIC OUTPUT that PECO ENERGY purchases under the AGREEMENT during that hour and (ii) the PJM RATE during that hour. (e) PJM RATE means PECO ENERGY's hourly billing rate per kilowatt- hour, determined under the PJM INTERCONNECTION AGREEMENT, for interchange energy; provided, however, that during any hour when said billing rate deviates significantly from the average billing rate for all PJM INTERCONNECTION interchange energy, that average PJM billing rate shall be substituted for the PECO ENERGY billing rate. If PECO ENERGY 14 discontinues its participation in the PJM INTERCONNECTION, or if the method of calculating the PECO ENERGY billing rate changes, the PARTIES will in good faith negotiate a substitute for the PJM RATE which reflects PECO ENERGY's avoided cost for energy as defined by PURPA and federal and state regulations adopted pursuant to PURPA. (f) PROJECTED RATE means the rate specified in Appendix B under the column heading PROJECTED RATE for the applicable BILLING MONTH. (g) PROJECTED VALUE means the product of (i) the number of kilowatt- hours of NET ELECTRIC OUTPUT that PECO ENERGY purchases under the AGREEMENT during a BILLING MONTH and (ii) the applicable PROJECTED RATE. 4.3 Output Purchase Payment. After the end of each BILLING MONTHD PECO ENERGY shall pay SELLER, in accordance with Section 14.1 hereof; an Output Purchase Payment computed as follows: (a) Prior to the COMMERCIAL OPERATION DATE the Output Purchase Payment shall be the PJM VALUE. (b) Commencing on the COMMERCIAL OPERATION DATE and through the FINAL PROJECTION DATE the Output Purchase Payment shall be either (i) the LEVELIZED PAYMENT or (ii) the PROJECTED VALUE. SELLER shall1 within two (2) years after the effective date of this AGREEMENT, notify PECO ENERGY in writing of SELLER's one-time, irrevocable election to receive either (i) 15 the LEVELIZED PAYMENT or (ii) the PROJECTED VALUE for the entire period from the COMMERCIAL OPERATION DATE through the FINAL PROJECTION DATE. If SELLER elects to receive the PROJECTED VALUE, then the provisions of Article V of this AGREEMENT shall not apply. If SELLER fails to notify PECO DIERGY of its election within two (2) years of the effective date of this AGREEMENT1 then PECO ENERGY shall have the right to make the election. (c) After the FINAL PROJECTION DATE and through the remaining term of the AGREEMENT the Output Purchase Payment shall be ninety percent (90%) of the PJM VALUE. ARTICLE V SUSPENSE ACCOUNT 5.1 Suspense Account Balance. For any BILLING MONTH in which the LEVELIZED PAYMENT exceeds the PROJECTED VALUE, the SUSPENSE ACCOUNT will record a debit equal to the difference between the two. Any debit balance in the SUSPENSE ACCOUNT shall accrue interest on a monthly basis at the rate specified in Section 14.4 hereof. For any BILLING MONTH in which the PROJECTED VALUE exceeds the LEVELIZED PAYMENT, the difference between the two shall be credited to the SUSPENSE ACCOUNT, but only to the extent necessary to offset accrued debits and interest from prior BILLING MONTHS. 5.2 Projection Payment. Within thirty (30) days after 16 the FINAL PROJECTION DATE, SELLER shall pay PECO ENERGY an amount equal to the debit balance including accrued interest in the SUSPENSE ACCOUNT as of the FINAL PROJECTION DATE. The SUSPENSE ACCOUNT shall terminate upon SELLER'S payment under this Section 5.2. 5.3 Termination Payment. If the AGREEMENT is terminated prior to the FINAL PROJECTION DATE, SELLER shall pay PECO ENERGY, within thirty (30) days after the date of termination, an amount equal to the debit balance and accrued interest in the SUSPENSE ACCOUNT as of the date of termination; provided, however, that SELLER shall not be obligated to make such payment in the event that SELLER terminates the AGREEMENT because of a default by PECO ENERGY (as defined in Section 20.2 hereof). If any of the events described in Section 16.1 hereof occur, SELLER shall pay PECO ENERGY an amount equal to the debit balance and accrued interest in. the SUSPENSE ACCOUNT as of the date of the event. 5.4 Suspense Account Guarantee. The PARTIES shall review the SUSPENSE ACCOUNT balance at the end of every calendar year during the term of the AGREEMENT, and SELLER shall provide a CREDIT to PECO ENERGY to ensure payment of any debit balance in the SUSPENSE ACCOUNT at that time. The CREDIT provided under this Section 5.4 shall be payable in the City of Philadelphia by an ISSUER acceptable to PECO ENERGY on terms and conditions acceptable to PECO ENERGY; provided, however, that PECO ENERGY 17 shall not unreasonably withhold approval of any ISSUER or CREDIT. The CREDIT shall be established for and structured so as to permit PECO ENERGY to make multiple demands for payment from ISSUER, and shall require the ISSUER, upon PECO ENERGY's submission of documents certifying that the SUSPENSE ACCOUNT debit balance is due and payable, to honor on sight, in immediately available funds, any written demand by PECO ENERGY for payment. The CREDIT provided under this Section 5.4 shall be established to be effective not later than the COMMERCIAL OPERATION DATE, and the CREDIT provided for the period from the COMMERCIAL OPERATION DATE until the adjustment at the en".. of the first calendar year shall be two million dollars ($2,000,000). Upon the failure of SELLER to provide such CREDIT upon the COMMERCIAL OPERATION DATE and thereafter within ninety (90) days after the end of any calendar year during the term of the AGREEMENT PECO ENERGY shall have the right to withhold payments to SELLER for the NET ELECTRIC OUTPUT SELLER delivers to PECO ENERGY and apply those amounts to decrease the debit balance until the debit balance has been reduced to the amount for '6hich SELLER has furnished an acceptable CREDIT. ARTICLE VI CURTAILMENT. REDUCTION OR INTERRUPTION OF PURCHASES 6.1 Purchase Disruptions. PECO ENERGY may curtail, reduce or interrupt its receipt and purchases of NET ELECTRIC OUTPUT from the PROJECT when: 18 (a) Such curtailment, reduction or interruption is necessary to enable PECO ENERGY to maintain system operating reliability and/or to provide service to its customers without a deterioration in quality. (b) Such curtailment, reduction or interruption is necessary to enable PECO ENERGY to discharge its obligations under the PJM INTERCONNECTION AGREEMENT. (c) Such curtailment, reduction or interruption is necessary to enable PECO ENERGY to meet its obligations under the Mid-Atlantic Area Coordination Agreement. which is the May 25, l979 agreement between PECO ENERGY and the other signatories thereto, and any amendments or extensions thereof, designed to coordinate the efforts of the signatories to maximize the reliability of electric service in the territory covered by the agreement, which is the same, electrically and physically1 as the territory covered by the PJM INTERCONNECTION AGREEMENT. (d) Such curtailment, reduction or interruption is necessary because of a LIGHT LOAD CONDITION. (e) The receipt of NET ELECTRIC OUTPUT by PECO ENERGY is causing, or continued receipt of NET ELECTRIC OUTPUT by PECO ENERGY would create, an OPERATIONAL EMERGENCY. (f) Such curtailment, reduction or interruption is necessary for PECO ENERGY to construct, install, maintain, repair, replace, remove, modify, investigate or inspect any 19 equipment in the PECO ENERGY SYSTEM which may affect or be affected by operation of the PROJECT. (g) Such curtailment, reduction or interruption is necessary because PECO ENERGY is experiencing an event of Force Majeure Case defined in Section 21.1 hereof). (h) Such curtailment, reduction or interruption is necessary to protect the integrity of the PECO ENERGY SYSTEM or any system with which the PECO ENERGY SYSTEM is directly or indirectly interconnected, or to aid in the restoration of service on the PECO ENERGY SYSTEM or any system with which the. PECO ENERGY SYSTEM is directly or indirectly interconnected. (i) Such curtailment, reduction or interruption is necessary because SELLER has failed to fulfill its obligations under Sections 6.5, 7.3 or 7.5 hereof. 6.2 Selection. PECO ENERGY shall, in its sole discretion reasonably applied, determine which of the sources of electrical power interconnected with the PECO ENERGY SYSTEM, including the PROJECT, to curtail, reduce or interrupt to eliminate a condition requiring a curtailment, reduction or interruption for one or more of the reasons set forth in Section 6.l hereof. 6.3 Notice. PECO ENERGY will attempt to notify SELLER of the circumstances which necessitate the curtailment, reduction or interruption of purchases of NET ELECTRIC OUTPUT, and the projected duration thereof, as far in advance of such 20 event as practicable. The PARTIES recognize that such advance notice may not be possible in the event of an OPERATIONAL EMERGENCY1 in which event PECO ENERGY shall provide notice to SELLER of the circumstances and projected duration of the curtailment, reduction or interruption as soon as is practicable after the curtailment, reduction or interruption. PECO ENERGY shall not, however, be liable to SELLER for the cost of purchases of NET ELECTRIC OUTPUT which would have been made but for the curtailment, reduction or interruption in the event PECO ENERGY fails to provide notice to SELLER under this Section 6.3. 6.4 Extent of Disruptions. PECO ENERGY shall use reasonable efforts to minimize the time during which its purchases of NET ELECTRIC OUTPUT are curtailed, reduced or interrupted. 'PECO ENERGY shall use reasonable efforts to resume purchases of NET ELECTRIC OUTPUT under the AGREEMENT promptly after the conditions described in Section 6.1 hereof have ended, and any necessary modifications, repairs or replacements have been made, including any modifications, repairs or replacements made to decrease the likelihood of a recurrence of the condition causing the curtailment, reduction or interruption. 6.5 SELLER's Obligations on Disruption. If a curtailment, reduction or interruption under Section 6.1 hereof is due to a condition of or defect in the FACILITY, SELLER INTERCONNECTION EQUIPMENT or other PROJECT equipment, SELLER shall submit to PECO ENERGY a written proposed plan to rectify 21 the condition or defect. when PECO ENERGY has accepted such plan1 or a revised version thereof , SELLER shall, at its own expense, repair the condition or defect. when SELLER has made such repairs it shall notify PECO ENERGY, and PECO ENERGY shall inspect the repaired, modified or replaced equipment. Following such inspection PECO ENERGY shall notify SELLER whether the condition or defect has been remedied to PECO ENERGY's satisfaction. If PECO ENERGY is satisfied that the condition or defect has been properly remedied, it shall promptly terminate the curtailment, reduction or interruption. If PECO ENERGY is not satisfied that the condition or defect has been properly remedied1 it shall provide SELLER with a written explanation of why the remedy is not satisfactory. ARTICLE VII PROJECT OPERATION 7.1 Obligation of SELLER. SELLER shall take all necessary actions to coordinate the operation of the PROJECT with the operation of the PECO ENERGY SYSTEM1 including, but not limited to, those actions specified in Sections 7.2-7.4 hereof. 7.2 Manner of Delivery. SELLER shall deliver NET ELECTRIC OUTPUT to the INTERCONNECTION POINT in the form of three (3) phase, sixty (60) hertz, alternating current at a nominal voltage to be specified by PECO ENERGY. 7.3 Safe Construction and Operation. At its own cost, 22 SELLER shall design, construct, install, operate and maintain the PROJECT: (a) Using equipment and facilities of sufficient quality to operate the PROJECT in parallel with the PECO ENERGY SYSTEM without causing: (1) any damage to the PECO ENERGY SYSTEM, (2) any impairment of or deterioration in the quality of the service PECO ENERGY renders to its customers, (3) any damage to the integrity of the PECO ENERGY SYSTEM, or (4) unreasonable risk of damage to property, of injury or death to persons, or of an OPERATIONAL EMERGENCY. (b) In a manner that is safe and that will not cause any of the events or conditions listed in (a) above, and (c) In accordance and conformance with the following as they may be amended from time to time: (1) those Standards for System Safety and Reliability filed by PECO ENERGY with the PUC and entitled "Requirements for Parallel Operation of Non-Utility Generators," (2) PECO ENERGY's published "Electric Service Requirements," (3) the AUXILIARY SERVICE RIDER, (4) the National Electrical Code, (5) the National Electrical Safety Code, (6) applicable local, state and federal laws and 23 regulations, and (7) PRUDENT ELECTRICAL PRACTICES. SELLER shall install, own and maintain, as part of the SELLER INTERCONNECTION EQUIPMENT, relays and associated protective and control equipment and equipment to control voltage and frequency regulation, all of which it shall operate in a manner acceptable to PECO ENERGY. 7.4 Power Factor. SELLER shall install and have available automatic generator field excitation regulators or an alternative regulator system suitable to PECO ENERGY. SELLER shall operate this equipment to regulate the FACILITY's reactive (MVAR) output so that at the INTERCONNECTION POINT the FACILITY's POWER FACTOR is within the range of ninety-five percent (95%) lagging and one hundred percent (100%) when measured as a generator. This requirement is applicable over a normal operating voltage range to be defined by PECO ENERGY based on the voltage specified by PECO ENERGY under Section 7.2 hereof. Below this range the POWER FACTOR shall be allowed to go below ninety-five percent (95%) into lagging. Above this range the POWER FACTOR shall be allowed to go past one hundred percent (100%) into leading. 7.5 Provision of Information. As of the COMMERCIAL OPERATION DATE and annually thereafter SELLER shall provide PECO ENERGY with (a) a schedule of planned PROJECT maintenance and repair activities for the following thirty- six (36) months and 24 (b) an estimate of the amount of NET ELECTRIC OUTPUT it intends to deliver to the INTERCONNECTION POINT during each of the following twelve (12) months. Upon written request from PECO ENERGY, SELLER shall also maintain and classify outage statistics in accordance with the then-current PJM INTERCONNECTION outage classification procedures, and SELLER shall supply such statistics to PECO ENERGY. 7.6 Modifications. In the event SELLER fails to meet, satisfy or discharge its obligations under this AGREEMENT, and, as a consequence thereof, a condition arises, a practice exists or an event occurs at the PROJECT which, although it has not yet created any of the conditions or caused any of the events specified under Section 6.1 hereof, if permitted to continue or recur may, in PECO ENERGY's judgment reasonably exercised, result in the creation of such a condition or cause such an event, PECO ENERGY shall notify SELLER of the occurrence or existence thereof and afford SELLER an opportunity to correct or remedy the problem. SELLER shall have thirty C30) 4ays from receipt of PECO ENERGY's notice to correct or remedy the problem. In the event SELLER cannot identify, remedy or correct the problem within such thirty C30) days, SELLER shall submit to PECO ENERGY, for PECO ENERGY's acceptance, a plan setting forth the specific actions SELLER intends to take to correct or remedy the problem and a time schedule for the implementation thereof. In the event SELLER cannot identify, remedy or correct the 25 problem within such thirty (30) days, and (a) SELLER fail. to submit a plan within such period to correct or remedy the problem, (b) SELLER submits a plan within such period but fails to exercise reasonable and good faith efforts thereafter to implement such plan or (c) PECO ENERGY does not accept SELLER's proposed plan and SELLER fails to submit a revised plan within fifteen (15) days, then PECO ENERGY shall have the right thereafter, upon reasonable notice to SELLER, to curtail, reduce or interrupt purchases of NET ELECTRIC OUTPUT; provided, however, that if during the pendency of any such cure afforded to SELLER pursuant to this Section 7.6 the problem creates any of the conditions or causes any of the events specified under Section 6.1, PECO ENERGY may curtail, reduce or interrupt its purchases of NET ELECTRIC OUTPUT pursuant to and in accordance with the provisions of Article VI hereof. ARTICLE VIII SELLER INTERCONNECTION EOUIPMENT 8.1 SELLER Interconnection Equipment. At its own cost, SELLER shall design, construct, install, operate and maintain the SELLER INTERCONNECTION EQUIPMENT on its side of and at the INTERCONNECTION POINT to (a) permit the PROJECT to interconnect and operate in parallel with the PECO ENERGY SYSTEM and (b) permit PECO ENERGY to receive NET ELECTRIC OUTPUT at the INTERCONNECTION POINT. 26 8.2 Condition Precedent. SELLER shall not commence construction of the SELLER INTERCONNECTION EQUIPMENT until PECO ENERGY accepts SELLER's proposed design of such equipment under the procedure specified in Section 8.3 hereof. 8.3 Design. PECO ENERGY shall perform an interconnection study, from which PECO ENERGY will determine the INTERCONNECTION POINT, and SELLER will reimburse PECO ENERGY for the costs PECO ENERGY incurs in performing that study. PECO ENERGY will complete the interconnection study within sixty (60) days after receiving from SELLER a $5,000 advance payment for the costs of the study. After PECO ENERGY completes the interconnection study and determines the INTERCONNECTION POINT, SELLER shall submit to PECO ENERGY, along with (a) the DESIGN RELEASE and (b) the initial payment specified in Section 9.2, plans and specifications for the design of the SELLER INTERCONNECTION EQUIPMENT. Within sixty (60) days after the submission of such plans and specifications, PECO ENERGY shall notify SELLER (a) that the proposed design of the SELLER INTERCONNECTION EQUIPMENT is acceptable, (b) that the proposed design of the SELLER INTERCONNECTION EQUIPMENT is unacceptable or (c) that additional information is needed. PECO ENERGY shall not unreasonably withhold acceptance of a proposed design. PECO' ENERGY's failure to provide such notification to SELLER within sixty (60) days of the submission of such plans and specifications shall be deemed an acceptance by PECO ENERGY. If 27 PECO ENERGY notifies SELLER that additional information is needed or that the proposed design of the SELLER INTERCONNECTION EQUIPMENT is unacceptable, SELLER may submit to PECO ENERGY revised plans and specifications. Within thirty (30) days of the submission of such revised plans and specifications, PECO ENERGY shall notify SELLER whether additional information is needed, or whether the proposed design is accepted or rejected. If additional information is requested, or the revised design is rejected, SELLER may submit further revised plans and specifications which PECO ENERGY shall review within a reasonable time period. Thereafter, SELLER may submit revised plans and specifications to PECO ENERGY as many times as is necessary to obtain PECO ENERGY's acceptance of a proposed design. PECO ENERGY's acceptance of SELLER's proposed design of the SELLER INTERCONNECTION EQUIPMENT shall not be construed as a warranty or representation to SELLER, or any other person or entity, of the adequacy, suitability, safety or reliability of the design, construction, installation or operation of the SELLER INTERCONNECTION EQUIPMENT. PECO ENERGY shall periodically render a statement of charges to SELLER for the costs PECO ENERGY incurs pursuant to this Section 8.3, and ELLER shall reimburse PECO ENERGY for all the costs that PECO ENERGY incurs pursuant to this Section 8.3. 8.4 Construction. Upon PECO ENERGY's acceptance of SELLER's proposed design, SELLER shall construct the SELLER 28 INTERCONNECTION EQUIPMENT in accordance with the design accepted by PECO ENERGY. If, subsequent to PECO ENERGY's acceptance, any design modification affecting the electrical arrangement of the SELLER INTERCONNECTION EQUIPMENT becomes necessary, SELLER shall notify PECO ENERGY and obtain PECO ENERGY's prior acceptance of the design modification. PECO ENERGY, in its sole discretion, shall decide and inform SELLER whether any such modification in the proposed design of the SELLER INTERCONNECTION EQUIPMENT requires an amendment of the AGREEMENT. SELLER shall bear all costs, including additional construction and installation costs, associated with any such design modification. 8.5 Inspection and Access. Upon the completion of the construction and installation of the SELLER INTERCONNECTION EQUIPMENT and related portions of the FACILITY, SELLER shall have the SELLER INTERCONNECTION EQUIPMENT and related portions of the FACILITY inspected by an authorized electrical inspection agency and shall provide PECO ENERGY with a copy of such agency's inspection certificate. PECO ENERGY shall, within five (5) working days after receipt of such certificate, inspect the FACILITY and SELLER INTERCONNECTION EQUIPMENT and advise SELLER, within five (5) working days after the completion of its inspection, whether the FACILITY and SELLER INTERCONNECTION EQUIPMENT may interconnect and operate in parallel with the PECO ENERGY SYSTEM as contemplated in Section 10.2 hereof. SELLER shall reimburse PECO ENERGY for all the costs PECO ENERGY incurs 29 pursuant to this Section 8.5. PECO ENERGY employees. agents and contractors shall have the right to enter the PROJECT SITE at any time upon reasonable notice to SELLER, or without notice in the event of an OPERATIONAL EMERGENCY, for the purposes of (a) inspecting the PECO ENERGY INTERCONNECTION EQUIPMENT or SELLER INTERCONNECTION EQUIPMENT, (b) reading meters or (c) making tests to insure the safe operation of the PECO ENERGY INTERCONNECTION EQUIPMENT and SELLER INTERCONNECTION EQUIPMENT. Any such inspection, however, shall not relieve SELLER from its sole obligation to operate and maintain the SELLER INTERCONNECTION EQUIPMENT in accordance with Section 7.3 hereof at all times. ARTICLE IX PECO ENERGY INTERCONNECTION EOUIPMENT 9.1 PECO ENERGY Interconnection Equipment. PECO ENERGY shall design, construct, purchase, install, operate, maintain and own the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.2 Interconnection Design. Upon receiving from the SELLER the DESIGN RELEASE and an initial advance payment specified by PECO ENERGY in accordance with Section .9.14 hereof 1 PECO ENERGY shall (a) design the PECO ENERGY INTERCONNECTION EQUIPMENT, (b) prepare and provide to SELLER an estimated completion date for constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT, and (c) prepare an estimate of the cost of constructing, purchasing and installing 30 the PECO ENERGY INTERCONNECTION EQUIPMENT, and (d) review for acceptance the design of the SELLER INTERCONNECTION EQUIPMENT. 9.3 Consultation with SELLER. After the submission by PECO ENERGY to SELLER of the plans and specifications for the design of the PECO ENERGY INTERCONNECTION EQUIPMENT, PECO ENERGY shall periodically meet with and inform SELLER of the design, costs, scheduling and other factors which could affect the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT. Such discussions shall be promptly completed, and shall not be deemed to preclude changes or create any warranty for the benefit of or representation to SELLER, or any other person, as to the plans, specifications, cost estimates, time schedules or other factors relating to the proposed construction, purchase, installation, operation or maintenance of the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.4 Rights and Easements. SELLER shall cause to be granted to PECO ENERGY and its successors and assigns in perpetuity, or for a shorter period as the PARTIES may agree, but not less than the term of this AGREEMENT, at no cost to PECO ENERGY, all necessary rights and easements to construct, purchase, install, operate, maintain, repair, renew, replace, remove and relocate (a) PECO ENERGY INTERCONNECTION EQUIPMENT, (b) the metering and telemetering equipment described in Articles XI and XII hereof and (c) any PECO ENERGY facilities affected by the PROJECT. SELLER shall execute and deliver to 31 PECO ENERGY, in recordable form, such instruments as PECO ENERGY may request with respect to the foregoing. SELLER also shall obtain all necessary rights and easements to construct, install, own, operate, and maintain the PROJECT. 9.5 Acquisition of Permits. Licenses and Approvals. PECO ENERGY shall make applications to obtain from appropriate governmental bodies any permit, license or approval required to construct, purchase, install, own, operate and maintain PECO ENERGY INTERCONNECTION EQUIPMENT. SELLER shall provide any assistance reasonably requested by PECO ENERGY to enable PECO ENERGY to obtain any such permit, license or approval. SELLER shall also obtain from appropriate governmental bodies any permit, license or approval required to construct, install, own, operate and maintain the PROJECT. 9.6 Costs of Acquisition. SELLER shall pay, as a cost or expense associated with the design, construction, purchase and installation of PECO ENERGY INTERCONNECTION EQUIPMENT under Sections 9.13-9.17 hereof, any reasonable cost or expense associated with PECO ENERGY's obtaining any permit, license or approval pursuant to Section 9.5 hereof, or any reasonable cost or expense associated with defending the issuance of any such required permit, license or approval. 9.7 Notice to Proceed. PECO ENERGY shall commence construction, purchase and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT following receipt from SELLER of the 32 NOTICE TO PROCEED and the payment specified by PECO ENERGY in accordance with Section 9.14 hereof. 9.8 Reasonable Efforts to Complete Construction. PECO ENERGY shall use reasonable efforts to complete the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT on or before the estimated completion date; provided, however, that the PARTIES understand and agree that PECO ENERGY's reasonable efforts to complete the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT on or before the estimated completion date shall be subordinate and subject to PECO ENERGY'S primary obligations to furnish and maintain adequate, efficient, safe, and reliable service and facilities to its customers and to operate and maintain its plant, property and equipment in such condition as to enable it to do so. 9.9 Liability. PECO ENERGY shall not be liable to SELLER for any direct or indirect costs, expenses, losses, liabilities or damages which SELLER may incur or sustain and which arise out of, relate to or result from any delay in the completion of construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, except where the delay in the completion of the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT results from PECO ENERGY's failure to use reasonable efforts, as qualified in Section 9.8 hereof. SELLER shall indemnify and hold harmless PECO ENERGY and each and every of its officers, 33 agents, servants, employees, successors and assigns from and against any and all claims, demands, suits, actions, liabilities, damages, or judgments, as well as against any fees, costs, charges or expenses which PECO ENERGY, its officers, agents, servants, employees, successors and assigns incur in the defense of any such claims, demands, suits, actions or judgments, made or filed by any third party to the extent such claims, demands, suits, actions or judgments arise out of, or relate to, any delay in the completion of the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, except where such delay results from PECO ENERGY's failure to utilize reasonable efforts as qualified in Section 9.8 hereof. 9.10 Design Changes. PECO ENERGY shall construct the PECO ENERGY INTERCONNECTION EQUIPMENT reasonably in accordance with its proposed design. PECO ENERGY shall have the right, however, to make changes in such proposed design when it determines, in its judgment reasonably exercised and. after consultation with SELLER, that such changes are necessary to enable the PROJECT to interconnect and operate in parallel with the PECO ENERGY SYSTEM in a safe and reliable manner. PECO ENERGY shall provide SELLER with notice of any design change which would require a change 'in the SELLER INTERCONNECTION EQUIPMENT; provided, however, that the failure of PECO ENERGY to provide such notice shall not relieve SELLER of its sole obligation to pay the cost of constructing the PECO ENERGY 34 INTERCONNECTION EQUIPMENT. 9.11 Notice of Completion. PECO ENERGY shall notify SELLER when it has completed the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.12 Interconnection Cost Responsibility. SELLER shall be responsible for, and shall pay to PECO ENERGY1 all reasonable costs and charges PECO ENERGY incurs and makes in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.13 Estimated Costs. PECO ENERGY shall, in accordance with Section 9.2 hereof, estimate the total costs it expects to incur in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. The provision by PECO ENERGY to SELLER of this or any other such cost estimate shall not diminish, change or affect SELLER's responsibility and obligation to pay to PECO ENERGY all costs PECO ENERGY actually incurs in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT. 9.14 Payment Schedule. PECO ENERGY and SELLER agree that SELLER shall prepay PECO ENERGY for all costs PECO ENERGY incurs in designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT in accordance with this Section 9.14. With the submission of the DESIGN RELEASE under Section 9.2 hereof, SELLER shall make a payment specified by PECO ENERGY to cover the costs PECO ENERGY expects to incur 35 pursuant to Section 9.2. Upon completion of the cost estimate to be developed pursuant to Section 9.2(c), PECO ENERGY and SELLER shall develop a payment schedule, acceptable to PECO ENERGY, for SELLER to advance funds sufficient to cover the costs PECO ENERGY expects to incur for the specified work. The first payment on that schedule shall be made with the NOTICE TO PROCEED issued by SELLER in accordance with Section 9.7. SELLER shall thereafter make payments in accordance with the agreed schedule. PECO ENERGY shall not commence the construction, purchase or installation of any PECO ENERGY INTERCONNECTION EQUIPMENT until a payment schedule acceptable to PECO ENERGY is developed. 9.15 Reconciliation. Following completion of the construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, PECO ENERGY shall provide to SELLER a final reconciliation setting forth the nature and amount of the costs and charges PECO ENERGY actually incurred or made in (a) designing, constructing, purchasing and installing the PECO ENERGY INTERCONNECTION EQUIPMENT and (b) performing its obligations under Sections 8.3, 8.5 and 9.2 hereof. In the event that the total of such costs and charges PECO ENERGY actually incurred or made exceeds the total payments made by SELLER to PECO ENERGY under Sections 9.2, 9.7 and 9.14 hereof, SELLER shall be responsible for and shall pay to PECO ENERGY any such differential within thirty (30) days of the date of delivery to SELLER of the final reconciliation. 36 In the event that the total payments made by SELLER to PECO ENERGY pursuant to Sections 9.2, 9.7 and 9.14 hereof exceed such costs PECO ENERGY actually incurred or made, PECO ENERGY shall refund to SELLER, Within thirty (30) days of the final reconciliation, any such overpayment. 9.16 Suspension. In the event SELLER fails to remit any payment specified in Sections 9.14 or 9.15 hereof on or before the day such payment is due, PECO ENERGY may, in addition to any other remedy or right PECO ENERGY may have under the AGREEMENT, immediately suspend performance of its obligations under this AGREEMENT. PECO ENERGY shall provide SELLER with notice of any such suspension of performance. In the event PECO ENERGY suspends performance of its obligations under this AGRED(ENT pursuant to this Section 9.16, SELLER may, after curing the precipitating cause thereof, request PECO ENERGY to resume the tasks associated with the design, construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT. Upon receipt of any such request PECO ENERGY shall, as soon thereafter as practicable, review its work commitments and shall establish and submit to SELLER, as applicable: (a) a revised estimated construction completion date and (b) a revised payment schedule. If SELLER accepts the revised estimated construction completion date and the revised payment schedule, PECO ENERGY shall resume the construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT. 37 9.17 Cancellation Costs. If PECO ENERGY is not in default (as defined in Section 20.2 hereof), SELLER shall be liable to pay to PECO ENERGY all CANCELLATION COSTS which PECO ENERGY incurs. In the event PECO ENERGY incurs CANCELLATION COSTS for which SELLER is responsible under this AGREEMENT, PECO ENERGY shall provide SELLER with a written demand for payment. SELLER shall be obligated to make payment to PECO ENERGY for any CANCELLATION COSTS immediately upon PECO ENERGY's presentation of the written demand. If the AGREEMENT is terminated under Sections 19.1 or 19.2 hereof before PECO ENERGY has completed the construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT, PECO ENERGY shall have the right to cancel or terminate any supplier and contractor agreements and orders entered into in connection with discharging its obligations to design, construct and install the PECO ENERGY INTERCONNECTION EQUIPMENT. In the event PECO ENERGY terminates or cancels any supplier or contractor agreements or orders as permitted in this Section 9.17, PECO ENERGY shall consult with SELLER but retain final discretion relative to the manner of resolving any such claim or demand ~y any contractor or supplier, and PECO ENERGY shall be the sole judge of the acceptability of any compromise in settlement or resolution of any such claim or demand. Additionally, PECO ENERGY shall be the sole judge as to what is necessary to maintain the safety, integrity or reliability of the PECO ENERGY SYSTEM relative to 38 any removal or completion of PECO ENERGY INTERCONNECTION EQUIPMENT. PECO ENERGY shall exercise reasonable care in resolving contractor and supplier claims and demands and in effecting any required removal or completion of PECO ENERGY INTERCONNECTION EQUIPMENT so as to mitigate the dollar amount paid in effecting the resolution of such claims and demands or the dollar amount expended in completing such removal or completion tasks; provided, however, that PECO ENERGY shall have no liability to SELLER for or on account of the dollar amounts paid in effecting the resolution of any such claims and demands or in effecting such removal or completion tasks except where PECO ENERGY effects the resolution of any such claims and demands or the completion of such tasks in a manner which is in willful disregard of its obligation to mitigate. ARTICLE X INITIAL PROJECT OPERATION AND TESTING 10.1 Initial Operation. Upon (a) PECO ENERGY's inspection and acceptance of the SELLER INTERCONNECTION EQUIPMENT under Section 8.5 hereof and (b) PECO ENERGY's notification of SELLER under Section 9.11 hereof of the completion of the installation and construction of the PECO ENERGY INTERCONNECTION EQUIPMENT, SELLER shall select and notify PECO ENERGY of a DATE OF INITIAL OPERATION, which must be acceptable to PECO ENERGY. PECO ENERGY will promptly notify SELLER whether the DATE OF INITIAL OPERATION it has selected is 39 acceptable. As of the DATE OF INITIAL OPERATION, PECO ENERGY shall permit any electric generation unit at the PROJECT to interconnect and synchronize with the PECO ENERGY SYSTEM for testing purposes. SELLER shall, at PECO ENERGY's request, inform PECO ENERGY of the results of any such testing. 10.2 Commercial Operation. Following the DATE OF INITIAL OPERATION and the PROJECT testing specified in Section 10.1, SELLER shall select and notify PECO ENERGY of a COMMERCIAL OPERATION DATE. ARTICLE XI METERING 11.1 Metering Equipment. PECO ENERGY shall determine the design of the metering installation for the purpose of registering and recording the quantity of NET ELECTRIC OUTPUT purchased by PECO ENERGY from SELLER. Such metering equipment shall be capable, among other things, of providing the data required to determine the kilowatt-hours purchased during each hour of the BILLING MONTH, as well as total NET ELECTRIC OUTPUT purchased during each BILLING MONTH, under the terms of the AGREEMENT and shall permit continuous reading by SELLER and PECO ENERGY. PECO ENERGY and SELLER shall have the respective responsibilities for metering set forth below: (a) PECO ENERGY shall own and maintain all metering equipment. 40 (b) PECO ENERGY shall provide SELLER with all required current transformers, which SELLER shall install. (c) SELLER shall provide and install metering enclosures, mounting equipment and overcurrent protection as required. (d) PECO ENERGY shall make secondary connections to metering transformers. (e) SELLER shall make primary connections to metering transformers. 11.2 Meter Charges. SELLER shall pay to PECO ENERGY, in the manner specified in Section 14.2 hereof, monthly metering equipment carrying and maintenance charges, which are estimated in Appendix A hereto. 11.3 Meter Testing. PECO ENERGY shall verify the accuracy of PECO ENERGY's recording meter by performing the meter tests and conforming to the other standards set forth in the PUC's regulations at 52 Pa. Code 55 57.20-57.25 and any amendments or modifications thereto. The metering equipment shall be sealed, and SELLER shall be informed in advance and may have a representative present when such seals are broken or when a recording meter is inspected, tested or adjusted. SELLER may, at any time, request a test of the accuracy of a recording meter installed pursuant hereto and shall bear the cost thereof, except that PECO ENERGY shall bear the cost of any such test when the test establishes a METER ERROR PERCENTAGE in excess of 41 two percent (21). In the event SELLER elects to have a representative present at a test of the accuracy of a recording meter, the accuracy test and any associated adjustments to the recording meter shall be made in the presence of and observed by SELLER's representative. 11.4 Meter Error. If, as a result of an accuracy test, a recording meter is found to have a METER ERROR PERCENTAGE of more than two percent (2%), PECO ENERGY shall, at its own expense, restore the recording meter to condition of accuracy or replace it. 11.5 Payment Adjustment. If , as a result of an accuracy test, the recording meter is found to nave a METER ERROR PERCENTAGE of more than two percent (2.0%) fast, PECO ENERGY shall render a bill or take a credit for any associated overpayment equal to the product of (a) the total NET ELECTRIC OUTPUT purchased during the METER ERROR CORRECTION PERIOD, (b) the LEVELIZED RATE, the PROJECTED VALUE or ninety percent (90%) of the PJM RATE as applicable under Section 4.3 hereof for the BILLING MONTHS during the METER ERROR CORRECTION PERIOD and (c) the METER ERROR PERCENTAGE. If, as a result of an accuracy test, the recording meter is found to have a METER ERROR PERCENTAGE of more than two percent (2.0%) slow, PECO ENERGY shall pay SELLER for any associated underpayment, which payment shall equal the product of (a) the total NET ELECTRIC OUTPUT purchased during the METER ERROR CORRECTION PERIOD, (b) the 42 LEVELIZED RATE, the PROJECTED VALUE or ninety percent (90%) of the PJN RATE as applicable under Section 4.3 hereof for the BZLLING MONTHS during the METER ERROR CORRECTION PERIOD and (c) the METER ERROR PERCENTAGE. 11.6 Meter Failure. Should the recording meter installed pursuant to Section 11.1 hereof fail to register during any period of time. the NET ELECTRIC OUTPUT purchased by PECO ENERGY during such period shall be estimated by PECO ENERGY. SELLER shall cooperate in making such estimates by providing to PECO ENERGY, upon PECO ENERGY's request, registration data from any recording meter maintained by SELLER at the PROJECT SITE or other relevant data. 11.7 Suspense Account Adjustments. If a refund is issued, bill rendered or payment reduced under Sections 11.5 or 11.6 hereof because of meter inaccuracy or failure, an appropriate adjustment, if any, shall be made to the SUSPENSE ACCOUNT to reflect the credits or debits that would have been made to the SUSPENSE ACCOUNT during the METER ERROR CORRECTION PERIOD if the meter had been neither fast nor slow. ARTICLE XII TELEMETERING 12.1 Telemetering Equipment. SELLER shall provide telemetering equipment to enable PECO ENERGY to monitor the PROJECT's NET ELECTRIC OUTPUT and reactive power on a continuous basis. PECO ENERGY shall specify the telemetering equipment 43 design to record SELLER's breaker position, the output of the FACILITY1 the NET ELECTRIC OUTPUT of the PROJECT, and any other requirements needed to maintain the reliability and stability of the PECO ENERGY SYSTEM. PECO ENERGY and the SELLER shall have the respective responsibilities for telemetering set forth below: (a) PECO ENERGY shall specify all telemetering equipment and installation standards. (b) SELLER shall furnish, own and install all telemetering equipment on the PROJECT SITE in accordance with the standards specified by PECO ENERGY. (c) PECO ENERGY shall maintain all telemetering equipment except the voltage and current transformers. (d) SELLER shall maintain voltage and current transformers. (e) PECO ENERGY shall install wiring inside the remote terminal and termination cabinet. (f) PECO ENERGY shall specify and order telephone pairs as required. (g) SELLER shall lease a telephone circuit or otherwise establish a telecommunications link to PECO ENERGY's operations center at 2301 Market Street, Philadelphia, Pennsylvania 19101, capable of permitting PECO ENERGY to receive the telemetering data specified in this Section 12.1 by means of both digital data links and analog signals. 44 12.2 Cost Responsibility. Any costs incurred by PECO ENERGY in designing1 designating, selecting, specifying, or installing telemetering equipment shall be paid to PECO ENERGY by SELLER pursuant to the provisions of Article IX hereof as a cost associated with the design1 construction and installation of the PECO ENERGY INTERCONNECTION EQUIPMENT. SELLER shall bear all the costs it incurs under Section 12.1. 12.3 Telemetering Charges. SELLER shall pay to PECO ENERGY, in a manner set forth in Section 14.2 hereof, all costs PECO ENERGY incurs in maintaining and operating telemetering equipment pursuant to the AGREEMENT, which costs are estimated in Appendix A hereto. ARTICLE XIII MODIFICATIONS 13.1 PECO ENERGY System Modifications. The PARTIES hereto recognize that PECO ENERGY may determine during the term of the. AGREEMENT that certain modifications, including, without limitation1 repairs, additions, replacements or other changes, on or to the PECO ENERGY SYSTEM are necessary to: (a) to accommodate or meet changing patterns of demand and usage of electric power and energy or other changes in the PECO ENERGY SYSTEM, (b) to meet revised safety and operating standards and procedures, (c) to maintain the quality of the initial 45 interconnection installations required by this AGREEMENT, or, (d) to satisfy any applicable law, regulation or order. If such modifications, improvements, repairs, additions, replacements or other changes on or to the PECO ENERGY SYSTEM require, in PECO ENERGY's sole judgment reasonably exercised, associated changes to the PECO ENERGY INTERCONNECTION 'EQUIPMENT, the SELLER INTERCONNECTION EQUIPMENT or the metering and telemetering equipment described. in Articles XI and XII hereof, PECO ENERGY shall provide SELLER with a description of the required changes and an estimate of the cost of such required changes. Thereafter, SELLER shall make the required modifications to the SELLER INTERCONNECTION EQUIPMENT, and PECO ENERGY shall make the designated modifications to the PECO ENERGY INTERCONNECTION EQUIPMENT and the metering and telemetering equipment described in Articles XX and XII hereof. 13.2 Payment. SELLER shall be responsible for and shall pay to PECO ENERGY any costs and expenses PECO ENERGY incurs associated with the required changes described in Section 13 1 hereof. Unless other billing and payment arrangements are mutually agreed upon by the PARTIES, SELLER shall pay to PECO ENERGY the estimated cost set forth in the estimate provided by PECO ENERGY to SELLER pursuant to Section 13.1 hereof within thirty (30) days of its receipt of such cost estimate. within ninety (90) days of completion of the modifications to the-PECO ENERGY INTERCONNECTION EQUIPMENT and/or metering and 46 telemetering equipment described in Articles XI and XII hereof, PECO ENERGY shall provide SELLER with a final reconciliation setting forth the nature and amount of the costs PECO ENERGY actually incurred in performing the modifications. In the event that the total costs actually incurred by PECO ENERGY exceed the payment made by SELLER to PECO ENERGY pursuant to this Section 13.2, SELLER shall be responsible for and shall pay to PECO ENERGY any such differential within thirty (30) days of the date of delivery to SELLER of the final reconciliation. In the event that the payment made by SELLER to PECO ENERGY pursuant to this Section 13.2 exceeds the costs PECO ENERGY actually incurred in making the modifications, PECO ENERGY :hall refund to SELLER, with the final reconciliation, any such overpayment. 13.3 Maintenance Costs. PECO ENERGY shall maintain the PECO ENERGY INTERCONNECTION EQUIPMENT during the term of the AGREEMENT according to PECO ENERGY's sole judgment reasonably applied and based on common practices for the PECO ENERGY T&D SYSTEM. SELLER shall be responsible for and pay to PECO ENERGY all reasonable costs PECO ENERGY incurs associated with such maintenance. PECO ENERGY shall periodically render a reasonably detailed maintenance bill to SELLER, covering maintenance expenses incurred over the time period since the last maintenance bill. SELLER shall pay to PECO ENERGY the amount of each such bill within thirty (30) days after its receipt. A 47 maintenance bill not paid within thirty (30) days shall accrue interest as provided in Section 14.4 hereof. ARTICLE XIV PAYMENT AND BILLING 14.1 Output Purchase Payment. Within thirty (30) days after the DATE OF INITIAL OPERATION, and at the conclusion of each BILLING MONTH thereafter, PECO ENERGY shall read the recording meter at the PROJECT SITE for billing purposes. Within thirty (30) days after such meter reading PECO ENERGY shall remit to SELLER an amount equal to the Output Purchase Payment (calculated in accordance with Section 4.3 hereof) less any offsets and reductions authorized under the AGREEMENT. 14.2 Metering. Telemetering and Administration Charges. The Output Purchase Payment made by PECO ENERGY to SELLER for each BZLLING MONTH shall be reduced by monthly metering. telemetering, and associated administration charges. Estimates of such charges are set forth in Appendix A hereto. The administration charges shall be updated and increased periodically by a percentage equal to PECO ENERGY's annual percentage change in its wages for regular and probationary employees as of the date each such change becomes effective. In the event the metering, telemetering and associated administration charges are greater than the Output Purchase Payment for a BILLING MONTH, SELLER shall be responsible for and 48 shall pay to PECO ENERGY the difference within thirty (30) days of the issuance of a bill or invoice by PECO ENERGY. 14.3 Payments. Except as otherwise specifically provided in the AGREEMENT, all payments or reimbursements required to be made under the AGREEMENT shall be due and payable by the appropriate PARTY to the other PARTY within thirty (30) days of the sending of a bill or invoice. With respect t~ payments to be made by SELLER to PECO ENERGY1 if at the end of such a thirty (30) day period PECO ENERGY has not received payment from SELLER, PECO ENERGY may, without limitation, reduce any future Output Purchase Payment by an amount equal to the account owed by SELLER to PECO ENERGY plus interest as provided in Section 14.4 hereof. 14.4 Interest. In the event a PARTY fails to pay all or part of any amount it owes the other PARTY under the terms of the AGREEMENT when such payment is due, interest shall accrue on the unpaid portion from the due date at a rate equal to the lesser of (a) three (3) points above the per annum interest rate publicly announced from time to time by the First Pennsylvania Bank, N.A., or by its successor or survivor in the event of a bank merger, as the prime interest rate currently being charged to its most credit-worthy borrowers for ninety (90) day unsecured commercial loans, or, if the prime rate should be discontinued or no longer quoted, a comparable rate designated by 49 PECO ENERGY in the reasonable exercise of its sole discretion, or (b) the current rate of PECO ENERGY '5 most recent issue of long-term debt, provided it issued such debt within the preceding twenty-four (24) months. 14.5 Billing Disputes. PECO ENERGY shall provide to SELLER, upon a timely request therefor, documentation and data available to PECO ENERGY to enable SELLER to verify the accuracy of any Output Purchase Payment made by PECO ENERGY to SELLER, or any amount billed by PECO ENERGY to SELLER pursuant to the AGREEMENT; provided, however, that any such request by SELLER shall not extend. postpone or otherwise affect SELLER's obligation to pay any amounts billed by PECO ENERGY to SELLER under the AGREEMENT by the due date. In the event SELLER disputes any amount billed by PECO ENERGY to SELLER under the AGREEMENT, SELLER shall pay to PECO ENERGY the entire amount thereof, when due1 and shall together with the payment thereof (a) identify and present the dispute in writing to PECO ENERGY, and (b) submit to PECO ENERGY documentation substantiating any claim made relative to the dispute. Upon receipt of notice of the dispute and the supporting documentation1 PECO ENERGY shall have thirty (30) days to attempt to resolve the dispute with SELLER. In the event the dispute is not resolved within such thirty (30) day period, either PARTY may pursue any legal or other remedy. 50 ARTICLE XV ASSIGNMENT 15.1 Assignment. (a) Neither PARTY shall assign or transfer the AGREEMENT or any claim or interests therein without the prior written consent of the other PARTY, which consent shall not unreasonably be withheld. Either PARTY, however, shall have the right to assign the AGREEMENT to an affiliated entity without the consent of the other PARTY, provided such assignment does not impair performance of the PARTIES' respective obligations under the AGREEMENT. All covenants, stipulations, terms, conditions and provisions of the AGREEMENT shall be binding upon the PARTIES and shall extend to and be binding upon the successors and assigns of the PARTIES permitted under this Section 15.1. (b) Notwithstanding the first sentence of this Section l5.l~ PECO ENERGY hereby consents to the assignment by SELLER of all of SELLER's right, title and interest in and to this AGREEMENT, and any addendums and amendments thereto, to Philadelphia United Power Corporation, a Pennsylvania corporation ("PUPCO"). The foregoing consent is expressly intended to permit SELLER to fulfill its obligations under certain agreements among SELLER, PUPCO and its affiliate, Philadelphia Thermal Energy corporation. This consent is conditioned on Seller and PUPCO providing PECO ENERGY at least thirty (30) days written notice pursuant to Section 25.1 prior 51 to PUPCO accepting any formal assignment of this AGREEMENT. As provided in subsection (a) of this Section 15.1. upon the assignment of this AGREEMENT to PUPCO, all covenants, stipulations, terms, conditions and provisions of this AGREEMENT shall be binding upon PUPCO as SELLER's assignee, and PUPCO shall be entitled to all of the rights of SELLER hereunder, provided that PUPCO shall have no right, title or interest in this Agreement prior to the effectiveness of the assignment to PUPCO. PECO ENERGY will not be obligated to permit the assignment of SELLER's rights under this AGREEMENT to any party other than PUPCO or its corporate successors (but not assigns), provided that, so long as PUPCO remains fully liable to PECO ENERGY for performance of this AGREEMENT, and provided that such assignment does not impair the performance of the PARTIES' respective obligations under this Agreement, PUPCO may, upon the prior written consent of PECO ENERGY which shall not be unreasonably withheld, subcontract for FACILITY electric production under this Agreement. ARTICLE XVI BANKRUPTCY AND INSOLVENCY 16.1 Remedies. In the event of (a) the filing of a. petition seeking the involuntary reorganization or liquidation of SELLER under any applicable federal or state bankruptcy, insolvency, reorganization or similar law, and such petition or action is not actively 52 contested within sixty (60) days after the filing thereof, or the granting of such petition, whether contested or appealed or not; (b) the commencement of an action seeking the appointment of a receiver, trustee or other similar official for SELLER, of for any substantial part of SELLER's property, and such petition or action is not actively contested within sixty (60) days after the filing thereof, or the appointment of such a receiver, trustee or other similar official, whether contested or appealed or not; (c) the filing of a petition by SELLER seeking the voluntary reorganization or liquidation of SELER under any applicable federal or state bankruptcy, insolvency or similar law; or (d) the placement of SELLER's affairs in the hands of any court or governmental agency for administration, including under any financially distressed municipalities law if SELLER is a political subdivision or municipal corporation or similar entity under applicable law; PECO ENERGY may, in addition to any other remedies it may have under the AGREEMENT, including, in particular, under Sections 5.3 and 5.4, immediately suspend its performance hereunder unless and until SELLER provides PECO ENERGY with assurance, which PECO ENERGY in its sole discretion determines is adequate, that SELLER's obligations under the AGREEMENT will be met. 53 ARTICLE XVII WARRANTIES 17.1 SELLER's Warranties. SELLER warrants it will have good title to1 and the right to deliver, all MET ELECTRIC OUTPUT it delivers to the INTERCONNECTION POINT for purchase by PECO ENERGY under the AGREEMENT. SELLER agrees to indemnify and hold PECO ENERGY harmless against any and all claims, demands, suits, actions, costs, liabilities, damages, losses or judgments arising out of, relating to or resulting from any adverse claim to the NET ELECTRIC OUTPUT purchased by PECO ENERGY pursuant to the AGREEMENT, as well as against all fees, costs, charges, and expenses which PECO ENERGY might incur in a defense of any such claim, suit, action or similar such demand made or filed by any person. In effecting the right of or obligation to indemnify under this Section 17.1 the procedural provisions of Article XVIZI of the AGREEMENT shall govern. In addition, SELLER represents and warrants that the partners of SELLER have authorized Robert A. Shinn, Vice President of O'Brien (Schuylkill) Cogeneration, Inc., the managing partner of SELLER, to execute this AGREEMENT in the name of SELLER. ARTICLE XVIII INDEMNIFICATION 18.1 Responsibility. Each PARTY shall indemnify the other PARTY, its officers, agents, and employees against all loss, damages, expense, and liability for injury to or death of 54 persons or injury to property proximately caused by the indemnifying. PARTY's construction, ownership, operation, or maintenance of, or by failure of, any of such PARTY's works or facilities used directly in connection with this AGREEMENT. The indemnifying PARTY shall, at the other PARTY's request, defend any suit asserting a claim covered by this indemnity. The indemnifying PARTY shall pay all costs that may be incurred by the other PARTY in enforcing this indemnity. 18.2 Worker's Compensation Responsibility. Each PARTY shall indemnify and hold harmless the other PARTY, and each and every of its officers, agents, servants, employees, successors and assigns, from any and all claims of the other PARTY's employees arising from any worker's compensation laws. 18.3 Procedure. If a claim is asserted or action brought against an indemnitee (PECO ENERGY or SELLER as applicable), and the indemnitee believes that it is entitled to indemnification under this ARTICLE XVIII, the indemnitee shall promptly notify the indemnitor. (the other PARTY), in writing, of such claim or action. Such notice shall be provided in sufficient time to enable the indemnitor to assert and prosecute appropriate defenses to the claim or action. If the indemnitee fails to give the indemnitor sufficiently prompt notice, the indemnitor shall have no further obligation to indemnify the indemnitee pursuant to this ARTICLE XVIII. Upon receipt of such notice, the indemnitor shall make a prompt determination of 55 whether it believes it is required to indemnify the indemnitee, and shall promptly notify the indemnitee1 in writing, of its determination. If the indemnitor determines that it is required to indemnify, it shall assume the defense of the indemnitee, including the employment of counsel, and shall thereafter pay all costs and expenses relative to the defense of the claim or action. The indemnitee shall cooperate with the indemnitor in all reasonable respects in this defense. The indemnitee shall also have the right, at its own expense, to employ separate counsel in any such action and to participate in the defense thereof. The indemnitor shall not be liable for any settlement of any claim or action made without its consent. Conversely, before settling any claim or action, the indemnitor shall demonstrate to the indemnitee that the indemnitor has sufficient financial means, or has made adequate arrangements, to make all settlement payments as and when due. ARTICLE XIX TERMINATION 19.1 Termination by PECO ENERGY. PECO ENERGY may terminate the AGREEMENT: (a) if SELLER is in default of the AGREEMENT, (b) if the PUC, or any other governmental agency, issues a binding order during the term of the AGREEMENT denying, over the objections of PECO ENERGY and SELLER, PECO ENERGY authority to collect on a full and current basis from its 56 customers through the ENERGY COST ADJUSTMENT the costs PECO ENERGY incurs in purchasing NET ELECTRIC OUTPUT pursuant to the AGREEMENT; provided1 however, that PECO ENERGY shall not have the right to terminate the AGREEMENT if SELLER agrees within twenty (20) days of the date of issuance of such a binding order to modify the AGREEMENT to accept payments for NET ELECTRIC OUTPUT at any lower rate which PECO ENERGY is authorized to recover on a full and current basis from its customers through the ENERGY COST ADJUSTMENT, or (c) if SELLER fails to provide PECO ENERGY with adequate assurance of performance under Article XVI hereof. 19.2 Termination by SELLER. SELLER may terminate the AGREEMENT: (a) if PECO ENERGY is in default of the AGREEMENT, or (b) if, prior to the COMMERCIAL OPERATION DATE, SELLER permanently terminates FACILITY operations and permanently abandons the FACILITY. SELLER shall, upon any termination by it, pay to PECO ENERGY any amounts due and owing under the AGREEMENT, including, if applicable, any debit balances and accrued interest in the SUSPENSE ACCOUNT pursuant to Section 5.3 and including an amount determined by PECO ENERGY, in its sole discretion, to be sufficient to cover PECO ENERGY's CANCELLATION COSTS. 19.3 Effect of Termination. A termination of the 57 AGREEMENT under Sections 19.1 or 19.2 hereof shall not be deemed to be a breach or default under Article XX hereof. ARTICLE XX BREACH AND DEFAULT 20.1 Breach. A breach of the AGREEMENT shall occur upon the occurrence of any of the following conditions or events: (a) The failure of a PARTY to pay any amount due to the other PARTY under the AGREEMENT, which failure continues for a period of thirty (30) days after the due date for such payment as determined under the AGREEMENT. (b) The failure by a PARTY to perform or observe any material term or condition of the AGREEMENT. 20.2 Cure and Default. In the event that any PARTY breaches the AGREEMENT. the other PARTY shall provide the breaching PARTY with a written notice of the breach. Thereafter, if the breach is not rectified or cured within forty-five (45) days after receipt of such notice the breaching PARTY shall be deemed to be in default of the AGREEMENT; provided, however, that, except where there has been a failure to make a payment within thirty (30) days after the due date for such payment as determined under the AGREEMENT, if such breach cannot be reasonably cured within such forty-five (45) day period, then the breaching PARTY shall have an additional reasonable period, not to exceed one (1) year, to effect such cure, and shall not be deemed to be in default of the AGREEMENT 58 provided that the breaching PARTY commences to effect such cure within forty-five (45) days of its receipt of notice of the breach, and at all times thereafter proceeds diligently in effecting such cure. 20.3 Damages. In the event a PARTY is in breach or default of the AGREEMENT, then the other PARTY, in addition to any other remedy it may have under the AGREEMENT, shall be entitled to all direct damages caused by such breach or default, but in no event shall either PARTY be liable to the other PARTY for any indirect, special or consequential damages resulting from such breach or default, and in no event shall PECO ENERGY be liable for damages in excess of twenty-five million dollars ($25,000,000). In addition, upon termination of the AGREEMENT SELLER shall pay PECO ENERGY, pursuant to Section 5.3, an amount equal to the debit balance and accrued interest in the SUSPENSE ACCOUNT as of the date of termination. 20.4 Mitigation. Each PARTY shall mitigate damages in the event of a breach or default by the other PARTY to the AGREEMENT. 20.5 Indemnification. Nothing in this Article XX shall in any way affect the obligations of the PARTIES to indemnify each other as provided in Articles XVII and XVIII hereof. 59 ARTICLE XXI FORCE MAJEURE 21.1 Force Majeure. Subject td the provisions of Section 21.2 hereof, either PARTY hereto shall be excused from performance hereunder, other than the obligation to make payments of amounts already due and the payment of the Projection Payment or Termination Payment under Sections 5.2 and .3 hereof 1 and shall not be liable in damages or otherwise if 1 and to the extent that. it shall be unable to perform fully or is prevented from performing fully by any act, event, cause or condition that is beyond its reasonable control, that is not caused by its fault or negligence. and that by the exercise of reasonable diligence it is unable to overcome or prevent, including but not limited to the following: (a) An act of God, flood, earthquake, storm, fire, explosion, lightning, landslide, epidemic or damage by the elements. (b) The failure of any subcontractor or supplier to perform for reasons other than nonpayment of undisputed claims. (c) The entry of a valid and enforceable injunctive or restraining order or judgment, order or decree of any federal or state court or administrative agency or governmental officer or body having or purporting to have jurisdiction thereof, or any change in or adoption of any constitution, charter, act, statute, law, ordinance, code, rule, regulation or order, or 60 other legislative or administrative action of the United States or the Commonwealth of Pennsylvania. or any agency, department, authority, political subdivision or other instrumentality of either thereof; provided1 however, that the contesting in good faith of any order, judgment or action shall not constitute or be construed as the lack of reasonable diligence or efforts, or failure to act, of the non-performing PARTY; and provided further that Force Majeure shall not include any actions or orders of any governmental body insofar as such actions or orders (i) result in any loss of QUALIFYING FACILITY status, (ii) require specific changes or modifications to the AGREEMENT, or (iii) pertain to the extent of PECO ENERGY'S recovery from its customers of payments to SELLER hereunder. (d) The inability to obtain and maintain rights of way, permits, licenses, and other required authorizations from any local, state or federal agency, instrumentality or person for the PROJECT or activities necessary to provide services hereunder. (e) The discovery at the PROJECT SITE of an archaeological find of significance. (f) Strikes, walkouts1 slowdowns, lockouts or other labor disputes or industrial disturbances. (g) Acts of the public enemy, wars, blockages, boycotts, insurrections or riots. 61 (h) Loss, diminution or impairment of PECO ENERGY's electrical supply. (i) A break or fault in the PECO ENERGY T&D SYSTEM. (j) Any other cause beyond the reasonable control of and without the fault or negligence of the PARTY that is unable to perform and which. by the exercise of reasonable diligence, that PARTY is unable to overcome or prevent. 21.2 Excuse from Performance. The PARTY claiming Force Majeure shall be excused from performance only if: (a) It promptly gives the other PARTY oral notification of the existence of any Force Majeure upon becoming aware thereof, and it provides in writing particulars of such Force Majeure within five (5) days of such oral notification, (b) The suspension of performance on account of the Force Majeure is of no greater scope and of no longer duration than is required by the Force Majeure, (c) It uses reasonable efforts under the circumstances to remedy the inability to perform, but neither PARTY shall be required to settle any strike, walkout, lockout or other labor dispute on terms which, in its sole judgment, is contrary to its best interests, and (d) It gives the other PARTY prompt oral notification of the cessation of the Force Majeure, and thereafter provides confirmation in writing within. five (5) days of said oral notification. 62 ARTICLE XXII INSURANCE 22.1 Insurance. SELLER shall, at a minimum, carry general liability insurance with a combined single limit for bodily injury and property damage (including broad form contractual liability) of at least ten million dollars ($10,000,000). SELLER shall forward a certificate evidencing such insurance to PECO ENERGY, at the address listed in Section 25.1, prior to PECO ENERGY's inspection of the FACILITY and the SELLER INTERCONNECTION EQUIPMENT pursuant to Section 8.5 hereof. SELLER shall provide annually thereafter a certificate evidencing such ongoing insurance coverage. ARTICLE XXIII GOVERNMENT REGULATIONS 23.1 State and Federal. The AGREEMENT and all rights and obligations of the PARTIES hereunder are subject to all applicable state and federal laws and all duly promulgated orders and regulations and duly authorized actions taken by the executive, legislative, or judicial branches of government or any of their respective agencies, departments, authorities or other instrumentalities. In the event that any such statute, ordinance, order, rule, regulation or other action shall increase PECO ENERGY's cost of performance under the AGREEMENT, SELLER shall pay or reimburse PECO ENERGY for such costs. 63 ARTICLE XXIV GOVERNING LAW 24.1 Interpretation. The interpretation and performance of the AGREEMENT shall be in accordance with and controlled by the laws and regulations of the Commonwealth of Pennsylvania and the United States of America. ARTICLE XXV MISCELLANEOUS 25.1 Notices. Except as otherwise specifically provided herein, any notice, request, demand, statement and/or payment provided herein shall be in writing and s~1 be sent to the PARTIES at the following addresses: PECO ENERGY: PECO Energy Company Attn: Interconnection Arrangements 2301 Market Street Philadelphia, PA 19101 Telecopy: (215) 841-4234 SELLER: O'Brien (Schuylkill) Cogeneration, Inc. 225 South Eighth Street Philadelphia, PA 19106 Telecopy: (215) 922-5227 PUPCO (after an assignment pursuant to Article XV): Philadelphia United Power Corporation 2600 Christian Street Philadelphia, Pa 19146 Telecopy: (215) 875-6910 64 Such notices shall be deemed to have been given and received when (a) personally delivered, (b) ninety-six (96) hours after deposit in the U.S. Mail, postage prepaid, properly addressed to the appropriate PARTY, or (c) twenty-four (24) hours after a telecopy is properly sent and received. Oral notification under Section 21.2 shall be made by telephone to the following numbers: PECO ENERGY: (215) 841-4236 SELLER: (215) 627-5500 PUPCO: (215) 875-6900 Either PARTY may change the address, telecopy number, or telephone number to which notice is to be given by written notice to the other PARTY. Nothing in this Section 25.1 shall be deemed to require PECO ENERGY to provide prior notice of any kind in the event of an OPERATIONAL EMERGENCY. 25.2 Indulgences. Neither the failure nor the delay on the part of either PARTY to exercise any right, remedy, power or privilege under the AGREEMENT shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same, nor shall any waiver of any right, remedy1 power or privilege with respect to any other occurrence be construed as a waiver of such right9 remedy, power or privilege with respect to any other occurrence. 65 25.3 Captions and Headings. Captions and headings in the AGREEMENT are for convenience only, do not constitute a part of the AGREEMENT, and shall not affect its interpretation. 25.4 Validity. Except as otherwise specifically provided in the AGREEMENT, if any portion of the AGREEMENT is invalid or illegal, it shall not affect the validity or enforceability of any other portion of the AGREEMENT. 25.5 Agreement Definition. The AGREEMENT with Appendices A and B hereto constitutes the entire AGREEMENT between the PARTIES relating to the subject matter hereof, and all previous and contemporaneous agreements, understandings, discussions, inducements, conditions, communications and correspondence, whether oral or written, express or implied, with respect to the subject matter hereof are superseded by the execution of the AGREEMENT. 25.6 Modifications. The AGREEMENT may not be modified or amended except in writing signed by or on behalf of both PARTIES by their duly authorized officers with the same formality that as followed in the execution of the AGREEMENT. 25.7 Execution in Counterparts. The AGREEMENT may be executed in any number of counterparts, each of which shall be deemed to be an original as against the PARTY whose signature appears thereon, and all of which shall together constitute one and the same instrument. The AGREEMENT shall become binding when one or more counterparts hereof, individually or taken 66 together, shall bear the signatures of the PARTIU reflected hereon as the signatories. 25.8 Gender and Number. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. 25.9 Number of Days. In computing the number of days for purposes of the AGREEMENT, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday. 67 IN WITNESS WKEREOFD the PARTIES have caused the AGREEMENT to be executed as of the day and year first above written. PECO ENERGY COMPANY, formerly known as PHILADELPHIA ELECTRIC COMPANY Attest:/s/ By:/s/ William H. Smith III Secretary William H. Smith, III Vice President GRAYS FERRY COGENERATION PARTNERSHIP Attest:/s/ By:/s/Robert A. Shinn Robert A. Shinn Vice President O'Brien (Schuylkill) Cogeneration, Inc. JOINDER The undersigned hereby acknowledges and agrees to be bound by the terms of this Agreement in accordance with the terms of Section 15.1 (b) hereof. CORPORATION PHILADELPHIA UNITED POWER By:/s/ S. G. Smith Attest:/s/ Robert A. Shinn 68 APPENDIX A ESTIMATED METERING TELEKETERING AND ADMINISTRATION CHARGES Estimated Monthly Metering Charge* $150 Estimated Monthly Telemetering Charge** $500 Monthly Administration Charge*** $750 * Includes carrying and maintenance charges. ** Includes only maintenance and operating charges. *** To be updated periodically in accordance with Section 14.2 of this AGREEMENT. APPENDIX B PRICING VALUES If the COMMERCIAL OPERATION The One LEVELIZED RATE (Cents DATE occurs per Kilowatt-hour) is, until the FINAL PROJECTION DATE Dec. 26, 1991 - Dec. 25, 1992 3.49 Dec. 26, 1991 - Dec. 25, 1993 3.65 Dec. 26, 1991 - Dec. 25, 1994 3.82 Dec. 26, 1991 - Dec. 25, 1995 4.02 Dec. 26, 1991 - Dec. 25, 1996 4.23 Dec. 26, 1991 - Dec. 25, 1997 4.43 Dec. 26, 1991 - Dec. 25, 1998 4.64 Dec. 26, 1991 - Dec. 25, 1999 4.81 Dec. 26, 1991 - Dec. 25, 2000 4.95 PROJECTED RATE Calendar Year (Cents per Kilowatt-hour) 1992 2.58 1993 2.77 1994 2.92 1995 3.18 1996 3.57 1997 3.91 1998 4.33 1999 4.68 2000 4.95 FINAL PROJECTION DATE - December 31, 2000 EX-10.27.1 20 EXHIBIT 10.27.1 AMENDED AND RESTATED PROJECT SERVICES AND DEVELOPMENT AGREEMENT DATED SEPTEMBER 17, 1993 BY AND BETWEEN PUPCO AND GRAYS FERRY. Exhibit 10.27.1 AMENDED AND RESTATED PROJECT SERVICES AND DEVELOPMENT AGREEMENT by and between GRAYS FERRY COGENERATION PARTNERSHIP as OWNER, and PHILADELPHIA UNITED POWER CORPORATION as OPERATOR dated as of September 17, 1993 SCHUYLKILL STATION PROJECT AMENDED AND RESTATED PROJECT SERVICES AND DEVELOPMENT AGREEMENT Index ARTICLE 1 3 DEFINITIONS 3 ARTICLE 2 9 SCOPE OF OPERATOR'S SERVICES 9 2.1 Phase I Mobilization 9 2.2 Phase II Mobilization 9 2.3 Continuous Operation 10 2.4 Proper Maintenance 10 2.5 Compliance 11 2.6 Site Maintenance 11 2.7 Maximum Efficiency 11 2.8 Safety Procedures 11 2.9 Scope of Services 12 2.10 Revise Manuals 12 2.11 Provisions 12 2.12 Mobilization Period Fees 13 2.13 Project Manager 13 ARTICLE 3 13 OWNER'S RESPONSIBILITIES 13 3.1 Acceptance of Project 13 3.2 Spare Parts Inventory 14 3.3 Provision of Project Facilities 14 3.4 Site Services 14 3.5 Approvals and permits 14 3.6 Access to Project Documents 14 3.7 SCR System 15 3.8 CO Catalyst System 15 ARTICLE 4 15 OPERATION OF THE PROJECT 15 4.1 Party Representatives 15 4.2 Visits and Reviews by Owner 15 4.3 Annual Operating Plan 16 4.4 Management Coordination and Planning 17 4.5 Unscheduled Maintenance 17 4.6 Maintenance During Warranty 17 ARTICLE 5 18 TERM: TERMINATION AND DEFAULT 18 5.1 Initial Term and Renewal 18 5.2 Default by Owner 18 5.3 Default by Operator 18 5.4 Remedy Upon Default by Owner 19 5.5 Remedies for Failure to Achieve Performance Standards 20 5.6 Termination for Uncontrollable Circumstances 21 5.7 Rights and Remedies 21 5.8 Determination of Performance Standards and Liquidated Damages 21 i ARTICLE 6 22 OPERATOR'S ANNUAL FEES 22 6.1 Annual Fee 22 6.2 Adjustment of Annual Fee for Steam Purchased 24 6.3 Time for Payment 26 6.4 Electric Capacity Fee 27 ARTICLE 7 27 INTENTIONALLY OMITTED 27 ARTICLE 8 27 REIMBURSEMENT 27 8.1 Reimbursement Costs 27 8.2 Time for Payment 28 ARTICLE 9 28 EQUITY DISTRIBUTION LIMITATIONS 28 9.1 Equity Distribution Limitations 28 ARTICLE 10 29 BILLING AND PAYMENTS 29 10.1 Invoices 29 10.2 Owner's Dispute 29 10.3 Operator's Dispute 29 10.4 Dispute Resolution 29 ARTICLE 11 30 FORCE MAJEURE; STRIKES 30 11.1 Effect of Force Majeure 30 11.2 Strikes 30 ARTICLE 12 30 INSURANCE 30 12.1 Insurance Coverage 30 12.2 Waiver of Subrogation 31 ARTICLE 13 31 DISPUTE RESOLUTION 31 13.1 Procedure 31 13.2 Binding Arbitration 32 ARTICLE 14 33 PAYMENT OF FINES AND PENALTIES 33 ARTICLE 15 33 DEFECTIVE WORK 33 15.1 Work to be Fit 33 15.2 Consequence of Breach 33 15.3 Vendor Warranties 34 ARTICLE 16 34 OPERATOR'S REPRESENTATIONS 34 16.1 Corporate Standing; Authorization 34 16.2 Enforceability 34 16.3 No Violation of Law 34 16.4 Litigation 34 16.5 Qualifications 34 16.6 Waiver of Liens 35 16.7 Approvals and Permits 35 16.8 General 35 ARTICLE 17 35 OWNER'S REPRESENTATIONS 35 17.1 Good Standing; Authorization 35 ii 17.2 Enforceability 35 17.3 No Violation of Law 36 17.4 Litigation 36 17.5 Approvals and Permits 36 17.6 Contracts 36 17.7 General 36 ARTICLE 18 36 INDEMNIFICATION 36 18.1 Operator Indemnity 36 18.2 Owner Indemnity 37 18.3 Cooperation Regarding Claims 37 ARTICLE 19 38 OPTION TO PURCHASE 38 19.1 Option to Acquire Interest 38 19.2 Effect on Annual Fee 39 19.3 Option to Acquire Entire Project 39 19.4 Right of First Purchase 40 19.5 Ownership Limitations 40 19.6 Status 41 19.7 Dividend Restriction 41 ARTICLE 20 41 MISCELLANEOUS PROVISIONS 41 20.1 Entire Agreement 41 20.2 Further Assurances 41 20.3 Amendments 42 20.4 Joint Effort 42 20.5 Terminology 42 20.6 Notice 42 20.7 Severability 43 20.8 Assignment 43 20.9 No Waiver 43 20.10. Applicable Law 43 20.11 Successors and Assigns 43 20.12. Appendices 44 20.13 Relationship of Parties 44 20.14 Survival of Agreements 44 20.15 Dollar Amounts 44 20.16 Business Days 44 20.17 Counterparts 44 20.18 Overdue Obligations to Bear Interest 45 20.19 Proprietary Information 45 20.20 No Consequential Damages 45 20.21 Environmental Liability 46 20.22 Owner's Approval 47 APPENDICES Appendix 1 Scope of Services Appendix 2 Availability Standards (to be attached) Appendix 3 Intentionally Deleted Appendix 4 Penn Event: Adjustment in Minimum Take Appendix 5 Fair Market Value iii AMENDED AND RESTATED PROJECT SERVICES AND DEVELOPMENT AGREEMENT THIS AMENDED AND RESTATED PROJECT SERVICES AND DEVELOPMENT AGREEMENT is dated as of September 17, 1993, by and between GRAYS FERRY COGERNERATION PARTNERSHIP, a Pennsylvania general partnership having its principal place of business at 225 South 8th Street, Philadelphia, Pennsylvania, hereinafter called "Owner," and PHILADELPHIA UNITED POWER CORPORATION, a formerly known as UNITED THERMAL DEVELOPMENT CORPORATION, a Delaware corporation having its principal place of business at 535 Madison Avenue, 18th Floor, New York, New York, hereinafter called "Operator" or "PUPCO". BACKGROUND TO RESTATEMENT Philadelphia Thermal Energy Corporation ("PTEC"), PUPCO, Adwin Equipment Company ("Adwin"), O'Brien Environmental Energy Systems, Inc. ("O'Brien") and Owner are parties to some or all of a series of agreements, each dated November 11, 1991, as follows (collectively, "Original Agreements"): (1) Steam Venture Agreement by and among O'Brien, Adwin, PUPCO and PTEC ("Original Venture Agreement"); (2) Site Lease by and between PTEC and Owner ("Original Lease"); (3) Steam Purchase Agreement by and among PTEC, Adwin, O'Brien and Owner ("Original Purchase Agreement"); (4) Project Services and Development Agreement by and between Owner and PUPCO ("Original Development Agreement"); (5) Penn Selection Agreement by and among PTEC, PUPCO, Adwin, O'Brien and Owner ("Original Penn Agreement"); and (6) Dock Facilities by and among PTEC, Owner and Philadelphia Thermal Development Corporation ("Original Dock Agreement"). The Original Agreements set forth the terms and conditions under which Adwin and O"Brien formed Owner for the purposes of constructing and owning a Cogeneration Facility (as defined hereafter), which will be located on a portion of PTEC's Schuylkill Station site. The Cogeneration Facility will produce steam and electrical power, and will be operated and maintained by PUPCO. Steam from the Cogeneration Facility will be purchased by PTEC for use in PTEC's steam distribution system. The parties have subsequently agreed to terminate the Original Penn Agreement. The Original Agreements contemplated that the Cogeneration Facility would consist of a Frame 7 Gas Turbine, a Heat Recovery Steam Generator, a steam turbine and a high pressure auxiliary boiler with a minimum 5000,000 lbs/hour of capacity (No. 6 oil rating) which would be capable of burning both No. 6 oil and natural gas. The Original Agreements further contemplated that the auxiliary boiler would, under certain circumstances, be constructed on an accelerated basis prior to the remainder of the equipment described above. Adwin and O'Brien have now requested, and PTEC and PUPCO have agreed, that the installation of the Cogeneration Facility ("Project") be restructured in certain ways, including the development of the Project in two discrete phases, consisting of (i) installation in Phase I of a high pressure auxiliary boiler with a 40 megawatt steam turbine ("Phase I Project"), and (ii) installation in Phase II of the Frame 7 Gas Turbine and related equipment ("Phase II Project"). The parties intend that the Phase I Project be completed on an expedited basis. The parties have further agreed to amend certain of the Original Agreements and to restate those Original Agreements, as so amended, in their entirety, to reflect the changes to the Project described above. Now, therefore, intending to be legally bound hereby, the parties hereby amend the Original Development Agreement and restate the Original Development Agreement in its entirety, as follows: RECITALS Owner is a general partnership created by a subsidiary of O'Brien Energy Systems, Inc., a Delaware corporation, and Adwin, and Pennsylvania corporation, for purposes of designing, constructing and owning a cogeneration facility to produce steam and electricity ("Project"). The steam will be sold to PTEC, an affiliate of Operator, pursuant to an amended and Restated Steam Purchase Agreement of even date herewith ("Amended Steam Purchase Agreement"), and Owner is leasing space for the cogeneration facility in PTEC's Schuylkill Station plant at 2600 Christian Street, Philadelphia, Pennsylvania pursuant to an Amended and Restated Site Lease between Owner and PTEC of even date herewith. Owner now wishes to retain Operator to operate and maintain the cogeneration facility. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises and agreement of the Parties herein expressed, and intending to be legally bound, the Parties hereby agree as follows: 2 ARTICLE 1 DEFINITIONS In construing this Agreement and the Appendices hereto, the following terms shall have the meanings herein assigned to them: "Acceptance Schedule" means the schedule indicating defects in the Project and setting out the achieved levels of performance under the applicable tests contained in the Turnkey Construction Agreement, as further described in Section 3.1. "Agreement" shall mean this Amended and Restated Project Services and Development Agreement (including all Appendices hereto), as it may be amended, restated or supplemented from time to time in accordance herewith. "Agreement Date" means the date appearing on the first page of this Agreement, as of which date this Agreement was executed. "Agreement Year" means (i) in the case of the first Agreement Year, the period commencing on the Phase I Project Acceptance Date and ending on the first anniversary of the Phase I Project Acceptance Date, and (ii) in the case of each succeeding Agreement Year, the twelve-month period beginning on an anniversary date of the Phase I Project Acceptance Date and ending on the next succeeding anniversary date of the Phase I Project Acceptance Date. "Annual Operating Plan" means the annual plan for the operation and maintenance of the Project as described in Section 4.3 hereof. "Applicable Agreement Year" has the meaning set forth in Section 6.1(e). "Approvals and Permits" means all approvals, permits, licenses, certificates, inspections and authorizations required by any Governmental Authority arising out of, incident to or related to the operation and maintenance of the Project. "Auxiliary Boiler" means the high-pressure boiler to be constructed by Owner as Phase I of the Project pursuant to the Steam Venture Agreement. "Change in Law" means (a) the adoption, promulgation or modification after the Agreement Date of (i) any federal statute, regulation, ruling or executive order not adopted, promulgated or modified or officially published in The Congressional Record or The Federal Register on or before the Agreement Date, or (ii) any State, local or administrative statute, ordinance, regulation or executive order that was not so adopted, promulgated or modified on or before the Agreement Date, or (b) the imposition by a Governmental Authority of any material conditions in connection 3 with the issuance, renewal, or modification of any official permit, license or approval after the Agreement Date, which in the case of either (a) or (b) establishes requirements affecting the operation or maintenance of the Project materially more burdensome than the most stringent requirements (x) in effect as of the Agreement Date, (y) agreed to in any applications of Owner for official permits, licenses or approvals pending as of the Agreement Date or (z) contained in any official permits, licenses or approvals with respect to the Project obtained as of the Agreement Date; provided, however, that a change in any income tax law shall not constitute a Change in Law hereunder. "Claims" has the meaning set forth in Section 20.21(d) hereof. "Consumer Price Index Percentage" means the percentage increase in index points in the Consumer Price Index, All Urban Consumers (CPI-U), Philadelphia, All Items (1982-84-100) for the period beginning on the last month of one Agreement Year and ending on the last month of the next succeeding Agreement Year. "Construction Contractor" means the contractor retained by owner to install the cogeneration facility. "Credit Agreement" is the agreement between Owner and Lender setting forth the terms of the construction and permanent financing for the Project. "Debt Service" means for any period, the amount of principal, interest and other fees and expenses payable with respect to the indebtedness of Owner under the Credit Agreement or with respect of any other indebtedness incurred by Owner to refinance the loan evidenced by the Credit Agreement. "Dispute" means any claim, dispute, disagreement or other matter in question between Operator and Owner that arises with respect to the terms and conditions of this Agreement or with respect to the performance, nonperformance or breach by Operator or Owner of their respective obligations under this Agreement. "Electricity Purchase Agreement" means the agreement between the Electricity Purchaser and Owner for the sale of the electric output of the Project, as such agreement may be amended, restated or supplemented from time to time. "Electricity Purchaser" means the Philadelphia Electric Company or another electric utility. "Energy Revenues" means, for any Agreement Year or other referenced period, the sum of (a) gross revenues received during such Agreement Year or other referenced period from all sales of electricity and steam generated by the Project, and (b) any amount recovered pursuant to any judgment against, or settlement with, the Electricity Purchaser or the Steam Purchaser in such 4 Agreement Year or other referenced period in respect of any dispute regarding the amounts due to Owner pursuant to the Electricity Purchase Agreement or the Steam Purchase Agreement, net of all reasonable costs of collecting such amounts. "Equity Purchase Option" has the meaning set forth in Section 19.1. "Final Acceptance" shall mean the acceptance of each Phase of the Project by Owner upon the completion of all Work (except for the furnishing and installation of Punchlist Items) and receipt from the Construction Contractor of a true and correct Final Acceptance Certificate, and the release and waiver by Owner of all claims against the Construction Contractor relating to the performance of the Work except those claims arising from or consisting of (a) unsettled claims, (b) claims for breach of any warranty or guarantee set forth in the Turnkey Construction Contract, (c) liens or other title exceptions respecting the facility or any components of the Project or (d) any material breach by the Construction Contractor of any of the terms of the Turnkey Construction Contract. "Final Performance Tests" means the final series of acceptance tests required by the Turnkey Construction Contract to be completed prior to Final Acceptance. "Force Majeure" means the following acts, events or occurrences to the extent such acts, events or occurrences are beyond the reasonable control of the affected party and prevent, reduce or materially interfere with the operation or maintenance of the Project: act of God; war, declared or undeclared; reasonably unforeseeable Change in Law; fire; labor strike, walkout or similar labor dispute (official or unofficial) (but excluding a strike by the employees of Operator limited to the Site); sabotage; the act of, or failure to act in accordance with the terms hereof by, the other Party to this Agreement; breakings of or accidents to machinery or equipment caused directly by an act of God or by the act or omission of a third party (other than Operator's subcontractor(s)) over whom the affected party has no control, or any other cause reasonably unforeseeable; provided that any such act, event or occurrence resulting from the negligence (by commission or omission) of the affected Party or any of its subcontractors shall not constitute Force Majeure. "Fuel" means the oil or natural gas necessary for the formal operation and maintenance of the Project. "Fuel Operation Date" means the Phase II Project Acceptance Date unless construction of the Phase II Project has not been initiated (as described in Section 9 of the Steam Venture Agreement) within one (1) year after the Phase I Acceptance Date, in which event the Full Operation Date will be the Phase I Project Acceptance Date. 5 "Gas Turbine" means the Frame 7 combustion turbine portion of the Project. "Governmental Authority" means any Federal, state, local, regulatory, administrative or other governmental authority including any department, subdivision, commission, board, bureau, agency or instrumentality thereof. "Heating Degree Days" means the heating degree days for Philadelphia International Airport as reported by the National Weather Service. "Interconnection Facilities" means the portions of the interconnection equipment and other facilities required to connect the Project to the Electricity Purchaser's electrical supply system which are maintained and operated by the Electricity Purchaser and any electrical transformers and associated equipment even if not maintained by Electricity Purchaser. "Lender" means the institutional lender holding the most senior debt of the Project from time to time. "Manuals" means the manuals to be provided by Owner, as the same may be updated from time to time by Operator pursuant to Section 2.9 hereof, and such other manual and similar materials as may be required to be prepared and maintained by Operator with respect to the Project in order to comply with Requirements of Law. "Mobilization Period" means the period of initial staffing for equipment start up and testing preceding the date reasonably estimated by Owner to be the Project Acceptance Date. "Operator" means Philadelphia United Power Corporation. "Owner" means Grays Ferry Cogeneration Partnership. "Partners" has the meaning set forth in Section 9.2, provided that if Owner is at any time hereafter a corporation, the term "Partners" as used throughout this Agreement shall be deemed to refer to Owner's shareholders. "Party" or "Parties" means Owner and/or Operator. "Penn Event" means the termination of steam service to the service location for the University of Pennsylvania at 3401 Spruce Street (Account No. 06-1705-3). "Person" means an individual, corporation, partnership, business trust, joint venture, company, firm, unincorporated association, governmental body or any other entity. 6 "Phase I" or "Phase I Project" refers to that portion of the Project which consists of the installation and operation of the Auxiliary Boiler. "Phase II" or "Phase II Project" refers to that portion of the Project which consists of the installation and operation of the Gas Turbine and HSRG, with related equipment. "Phase I Availability" means the percentage of time the Phase I Project is available to operate at the capacity established by the Phase I Final Performance Test, as adjusted for temperature, as determined in accordance with the formula set forth in Appendix 2A. "Phase II Availability" means the percentage of time the Gas Turbine and HRSG components of the Phase II Project are available to operate together at the capacity established by the Final Performance Test, as adjusted for temperature, as determined in accordance with the formula set forth in Appendix 2B. "Phase I Minimum Take Requirement" means 3.0 million Mlbs., as defined in, and adjusted pursuant to, the Steam Purchase Agreement. "Phase II Minimum Take Requirement" means 3.3 million Mlbs., as defined in, and adjusted pursuant to, the Steam Purchase Agreement. "Phase I Project Acceptance Date" shall have the meaning assigned to such term in Section 3.1. "Phase II Project Acceptance Date" shall have the meaning assigned to such term in Section 3.1. "Prime Rate" refers to the rate publicly announced from time to time by Lender as its prime rate or as that rate offered to its most favored commercial customers. "Project" has the meaning given it in the Recitals and includes the buildings and other structures, fixtures, machinery, equipment, materials and things of all kinds used in connection with the cogeneration facility at the Site, and all substitutes, additions, replacements and modifications thereto. As used herein, the term "Project" refers initially to the Phase I Project, and, if the Phase II Project is completed, thereafter to the Phase I Project and the Phase II Project respectively. "Project Agreements" means the Amended and Restated Steam Purchase Agreement, the Amended and Restated Steam Venture Agreement, this Agreement and the Amended and Restated Site Lease. "PTEC" means Philadelphia Thermal Energy Corporation, the Steam Purchaser. 7 "Punchlist Items" shall mean those finishing items which must be completed by the Construction Contractor after the Final Acceptance Date, without which the Project is nonetheless commercially operable. "Reimbursable Costs" means the costs to be reimbursed by Owner to Operator pursuant to Section 8.1 hereof. "Requirements of Law" shall mean any statute, rule, regulation, code, standard, ordinance or other law of any Governmental Authority and any order, including an injunction, judgment, writ, award, determination or decree of any arbitrator, court or other Governmental Authority, in each case applicable to or binding upon the Project (including the use, maintenance and operation thereof) or any Party or to which the Project (including the use, maintenance and operation thereof) or any Party is subject, including those relating to building, environmental (including those relating emissions, discharges, disposals and hazardous wastes or materials), health and safety matters, the giving of notices and access to the Project. "Site" means the real property in Philadelphia, Pennsylvania on which the Project is to be constructed, operated and maintained, as more fully described in the Site Lease. "Site Lease" means the Amended and Restated Site Lease, dated the same date as this Agreement, between Owner and PTEC, as such agreement may be amended, restated or supplemented from time to time. "Steam Purchase Agreement" means the Amended and Restated Steam Purchase Agreement dated the same date as this Agreement between the Steam Purchaser and Owner for the sale of the steam output of the Project, as such agreement may be amended, restated or supplemented from time to time. "Steam Purchaser" means Philadelphia Thermal Energy Corporation. "Steam Venture Agreement" means the Amended and Restated Steam Venture Agreement dated the same date as this Agreement among Owner, Operator, and PTEC, as such agreement may be amended, restated or supplemented from time to time. "Substantially Completed" means the stage in the progress of the construction of the Project when such construction is sufficiently complete in accordance with the Turnkey Construction Contract to permit normal commercial operation of the Project for the generation of steam and electricity. "Subordinated Annual Fee" has the meaning set forth in Section 6.2. 8 "Term" means the term of this Agreement as provided in Section 5.1 hereof and any extensions or renewals thereof. "Turnkey Construction Contract" means the construction contract pursuant to which Owner has retained Construction Contractor to install the Project at the Site. "Work" shall mean all obligations, duties and responsibilities assigned to or undertaken by the Construction Contractor pursuant to the Turnkey Construction Contract. ARTICLE 2 SCOPE OF OPERATOR'S SERVICES 2.1 Phase I Mobilization. The Phase I Mobilization Period shall begin on a date specified by Owner to Operator at least six (6) months prior to the projected Phase I Project Acceptance date, and shall continue until the Phase I Project Acceptance Date. During the Phase I Mobilization Period, Operator shall, subject to Owner's review and in conjunction with the Construction Contractor consistent with the terms of the Phase I Turnkey Construction Contract, take all actions reasonably necessary or desirable to prepare the Phase I Project for commercial operation on the Phase I Project Acceptance Date, including, without limitation: 2.1.1 Hiring the temporary staff and recruiting, hiring and training the permanent staff and specialists required for the normal operation and maintenance of the Phase I Project in accordance with this agreement; 2.1.2 Establishing a system for maintaining the inventory of spare parts and a system for the provision of all consumables (other than those to be provided by Owner pursuant to Section 3.4 hereof), equipment and supplies; 2.1.3 Performing start-up of the Phase I Project during the start-up phase under the direction of the start-up supervisor and start- up technicians provided by Construction Contractor under the Phase I Turnkey Construction Agreement or by Owner, as the case may be; and 2.1.4 Preparing monthly progress reports of such preparation in a format mutually acceptable Operator and Owner. 2.2 Phase II Mobilization. The Phase II Mobilization period shall begin on a date specified by Owner to Operator at least six (6) months prior to the projected Phase II Project Acceptance Date, and shall continue until the Phase II Project Acceptance Date. During the Phase II Mobilization Period, Operator shall, subject to Owner's review and in conjunction with 9 the Construction Contractor consistent with the terms of the Phase II Turnkey Construction Contract, take all actions reasonably necessary or desirable to prepare the Phase II Project for commercial operation on the Phase II Project Acceptance Date, including, without limitation: 2.2.1 Hiring the temporary staff and recruiting, hiring and training the permanent staff and specialists required for the normal operation and maintenance of the Phase I Project in accordance with this agreement; 2.2.2 Establishing a system for maintaining the inventory of spare parts and a system for the provision of all consumables (other than those to be provided by Owner pursuant to Section 3.4 hereof), equipment and supplies; 2.2.3 Performing start-up of the Phase II Project during the start-up phase under the direction of the start-up supervisor and start- up technicians provided by Construction Contractor under the Phase I Turnkey Construction Agreement or by Owner, as the case may be; and 2.2.4 Preparing monthly progress reports of such preparation in a format mutually acceptable to Operator and Owner. 2.3 Continuous Operation. Beginning on each Project Acceptance Date and throughout the Term of this Agreement, Operator shall operate and maintain the Project, according to the terms of this Agreement and each Annual Operating Plan, in such a manner as to maximize operating hours and net Energy Revenues giving due consideration to (a) avoiding excessive fuel consumption and other excessive variable costs of electricity and steam production, (b) generally accepted and sound operating practices, (c) the design parameters of the Project and (d) the Manuals. Operator shall arrange schedule maintenance during such periods as will both reasonably minimize the loss of Energy Revenues and comply with the equipment manufacturer's recommendations and service bulletins together with the requirements of the Project Agreements. 2.4 Proper Maintenance. Operator shall maintain the entire Project at all times properly and in good, clean, orderly condition, and shall perform all necessary maintenance and clean-up implement necessary repairs and replacements and purchase and install necessary replacement equipment or parts of the Project, subject to reimbursement pursuant to Article 8. Operator shall maintain inventories of replacements, spare parts and consumables as specified in the Annual Operating Plan. Operator shall perform normal and customary overhauls of the Project including (after the Phase II Project Acceptance Date) major overhauls of the Gas Turbine as prescribed by the equipment manufacturer or as otherwise may be required. Operator shall contract out the major overhauls of the Gas Turbine through a competitive bid process to 10 a contractor acceptable to owner, Operator and Lender's independent engineer (if any). Operator shall not make any additions, alterations or other changes to the Project which would cause a material deviation from the Annual Operating Plan, or increase operating costs above those set forth in the Annual Operating Plan, without the written approval of Owner. Operator covenants that it shall not through its acts or omissions, knowingly operate or maintain the Project in any manner that impairs Owner'' ability to obtain recourse against Construction Contractor pursuant to either Turnkey Construction Agreement, provided that the foregoing covenant shall not be deemed to expand any rights of recourse which Owner may have against Construction Contractor pursuant to either Turnkey Construction Agreement. 2.5 Compliance. 2.5.1 Operator shall operate and maintain the Project in compliance with all applicable Requirements of Law and all Approvals and Permits upon each Project Acceptance. Operator furthermore covenants to perform its obligations hereunder so that Owner is able to comply with its obligations under the Site Lease and the other Project Agreements. 2.5.2 Owner shall be responsible for ensuring that each Phase of the Project is capable of complying with all environmental emission Requirements of Law and all Approvals and Permits prior to Project Acceptance for each Phase (as hereinafter defined). If the Owner elects to accept or occupy either Phase of the Project from Construction Contractor in less than Substantially Completed condition, Owner shall bear the responsibility, and all costs associated therewith, for bringing that Phase of the Project into compliance with such Requirements of Law and Approvals and Permits. 2.6 Site Maintenance. Operator shall maintain the Site in a good, safe, clean and orderly condition in accordance with the requirements and restrictions of the Site Lease, to the extent within Operator's control under the terms of the Site Lease. 2.7 Maximum Efficiency. Consistent with the Manuals, sound operating and engineering practice and Owner's objective of maximizing the economic efficiency of Project operations, Operator shall operate and maintain the project so as to maximize the useful life of the equipment and minimize downtime for repairs. 2.8 Safety Procedures. Operator shall comply with all safety procedures whether contained in the Manuals, required by insurance companies or required by applicable Requirements of Law or the terms of any Approvals and Permits, reasonably necessary or appropriate to minimize the likelihood of accidents or injuries to Persons or damage to property on or about the Site. 11 2.9 Scope of Services. Operator shall provide, subject to reimbursement pursuant to Article 8, full-time office services, including bookkeeping and secretarial services, together with office equipment, facilities and supplies as well as other services, according to the requirements described in Appendix 1 hereto which shall be prepared within sixty (60) days after execution of the Electricity Purchase Agreement. 2.10 Revise Manuals. Operator shall, as often as necessary in Operator's reasonable judgment but not less often than annually, revise and update the Manuals. 2.11 Provisions. In order to satisfy Operator's obligations, Operator shall provide, or cause to be provided by subcontractors: 2.11.1 All permanent staff, temporary staff and specialists for the operation and maintenance of the Project. Operator shall be solely responsible for the screening, hiring, assignment and supervision of all such personnel. 2.11.2 All spare parts (other than spare parts supplied by Owner under Section 3.2) required for the operation and maintenance of the Project, subject to reimbursement pursuant to Article 8. Spare parts shall be held in inventory for immediate replacement of parts required to maintain the operation of the Project. The inventory of spare parts shall be specified in the Annual Operating Plan which is approved by Owner. Owner may inspect inventory upon 24 hours prior notice to evaluate the quality of goods and stock levels. 2.11.3 All consumables (other than consumables supplied by Owner under Section 3.4) required for the operation and maintenance of the Project, subject to reimbursement pursuant to Article 8. The inventory of consumables shall be specified in the Annual Operating Plan which is approved by Owner. 2.11.4 Policies of insurance in accordance with Article 12 hereof, subject to reimbursement pursuant to Article 8. 2.11.5 The repair and/or replacement of any broken or damaged parts or components of the Project, including the installation and replacement of spare parts. 2.11.6 The preparation, generation, maintenance and storage at the Site of all operating and maintenance logs, performance data, records, cost data and scheduled reports on behalf of owner, such information to be prepared, generated and maintained in accordance with the applicable requirements of the Project Agreements. 2.11.7 Performance of the obligations of the Project Operator as described in Section 2(c) of the Dock Facility 12 Service Agreement of even date herewith among Owner, PTEC and Philadelphia Thermal Development Corporation. 2.12 Mobilization Period Fees. 2.12.1 During the each of the Phase I Mobilization Period and the Phase II Mobilization Period, Owner shall be responsible for reimbursing Operator for all costs of staffing and start-up in accordance with a phased staffing plan to be agreed between the Parties and for a fee equal to Twenty-five Thousand Dollars ($25,000) per month to a maximum aggregate total fee for each Mobilization Period of One Hundred Fifty Thousand $(150,000) Dollars. 2.12.2 Notwithstanding the foregoing, Operator shall only be entitled to both Mobilization Fees set forth above if the Phase II Mobilization Period does not begin within six (6) months after the conclusion of the Phase I Mobilization Period. 2.13 Project Manager. Operator shall have the right to hire a project manager for the Project (the "Project Manager") beginning on a date up to nine (9) months prior to the projected Phase I Project Acceptance Date. Owner shall be responsible for all costs associated with the hiring and employing, including, but not limited to, recruitment costs, salary, benefits and any applicable relocation expenses or bonuses, of the Project Manager by Operator that are incurred by the Operator prior to the Phase I Project Acceptance Date. Owner shall have the right to approve the Project Manager, such approval not to be unreasonably withheld or withheld for reasons other than the qualifications of the individual. ARTICLE 3 OWNER'S RESPONSIBILITIES 3.1 Acceptance of Project. The responsibility for the continuous operation of the Project, as provided in Section 2.2, shall belong to Operator, and Operator shall accept and shall be deemed to have accepted such responsibility for each Phase of the Project, (i) on the date ("Phase I Project Acceptance Date") which is the date of Phase I final Acceptance Date") which is the date of Phase I Final Acceptance, or in the event Phase I Final Acceptance under the Phase I Turnkey Construction Agreement does not occur, the date Owner takes over the operation of the Phase I Project and commences to utilize the Phase I Project for its intended use after the termination of the Phase I Turnkey Construction Agreement by Owner ("Phase I Project Acceptance"), and (ii) on the date ("Phase II Project Acceptance Date") which is the date of Phase II Final Acceptance, or in the event Phase II Final Acceptance under the Phase II Turnkey Construction Agreement does not occur, the date Owner takes over the operation of the Phase II Project and commences to utilize the Phase II Project for its intended use after the termination of the Phase II Turnkey Construction Agreement by Owner ("Phase II 13 Project Acceptance"). Any defects in either Phase of the Project and the performance levels achieved in each set of Final Performance Tests of the Project shall be noted on a schedule (the "Acceptance Schedule") to be executed by Owner and Operator as of the date of Final Acceptance of each Phase. If Owner elects to accept or occupy either Phase of the Project from Construction Contractor in a less than Substantially Completed condition, appropriate adjustments may be made in the Annual Operating Plans to reflect increased costs reasonably expected to be incurred by Operator in operating the Project in a less than Substantially Completed condition and such adjustments shall be included on the Acceptance Schedule. Execution of the Acceptance Schedule shall not constitute a waiver or release of any claim, right or remedy which Owner may have against Construction Contractor pursuant to either Turnkey Construction Agreement nor shall it otherwise affect the obligations of the Parties pursuant hereto. 3.2 Spare Parts Inventory. Owner will establish and provide an inventory of spare parts containing such items and quantities thereof as are reasonably recommended by the equipment vendor consistent with the objectives of the Annual Operating Plan and are reasonably acceptable to Operator. 3.3 Provision of Project Facilities. Owner shall provide Operator with the facilities described in the Site Lease and with customary office and related facilities. The facilities shall be furnished and equipped by Owner to recognized standards to enable Operator to fulfill its obligations under this Agreement. 3.4 Site Services. Owner shall provide the following site services as necessary for the operation and maintenance of the Project in accordance with Section 2.6, at no cost to Operator: ingress and egress to the Site; fuel; demineralized water; waste water disposal; standby power; electricity; and other Site services and materials of a similar nature reasonably required for the operation and maintenance of the Project and not required to be provided by Operator under Article 2 hereof. Operator shall provide one, some or all of the Site services described in this Section as requested in writing by Owner, provided that Owner shall reimburse Operator for the actual cost incurred by Operator in providing such Site services. 3.5 Approvals and permits. Owner shall be responsible for obtaining and maintaining all Approvals and permits necessary for the Project to be legally authorized to operate. Operator shall provide full and reasonable continuing cooperation in obtaining and maintaining all Approvals and Permits necessary to permit it to operate the Project. Operator shall review Owner's applications for accuracy if requested. 3.6 Access to Project Documents. Owner will grant Operator access to all Project related documents required for the perfor- 14 mance of Operator's responsibilities hereunder. These shall be maintained in confidence by Operator. 3.7 SCR System. If an SCR System is required for the Project for Nox control, Owner shall pay for all spare parts and replacement components of the SCR System and all off-site refurbishment repairs to the SCR System pursuant to separate agreement with the vendor of the SCR System, such agreement to be reasonably acceptable to Operator. At Owner's option, Operator shall accept an assignment of the agreement(s) with the vendor of the SCR System and shall perform the obligations of Owner thereunder from and after the effective date of such assignment, provided that (i) Owner shall reimburse Operator for the actual costs incurred by Operator in performing such obligations and (ii) Owner shall be entitled to require Operator to reassign the SCR System Agreement(s) to Owner at any time upon reasonable notice to Operator. 3.8 CO Catalyst System. If a CO Catalyst System is required for the Project for CO control, Owner shall pay for all spare parts and replacement components of the CO Catalyst System and all off-site refurbishment repairs to the CO Catalyst System pursuant to separate agreement with the vendor of the CO Catalyst system, such agreement to be reasonably acceptable to Operator. At Owner'' option, Operator shall accept an assignment of the agreement(s) with the vendor of the CO Catalyst System and shall perform the obligations of owner thereunder from and after the effective date of such assignment, provided that (i) Owner shall reimburse Operator for the actual costs incurred by Operator in performing such obligations and (ii) Owner shall be entitled to require Operator to reassign the CO Catalyst System Agreement(s) to Owner at any time upon reasonable notice to Operator. ARTICLE 4 OPERATION OF THE PROJECT 4.1 Party Representatives. Within five (5) days after the beginning of each Mobilization Period, each Party shall notify the other in writing of its designation of an individual to act as its representative with respect to matters which may arise with respect to the operation of the Project. At any time after the initial designation by any Party of its representative, such Party may designate a successor representative by similar written notice to the other Party. 4.2 Visits and Reviews by Owner. With reasonable prior notice, Owner shall have the right to regularly inspect the Site and the right to inspect the Gas Turbine during periods of extended maintenance. Owner shall also have the right, at least once annually, or, more frequently with reasonable prior notice during hours which any designated representative of Operator is on the Site, to inspect the Site and any part or component of the 15 Project, and all other things pertaining to the operation of the Project, and to receive a complete tour and briefing on the Project and Project operations by Operator. Owner and its representative shall also have the right to take visitors, after reasonable notice to Operator, on the Site and into the Project to observe the various services which Operator performs, provided that such visits shall be pre-approved by the Operator and conducted in a manner so as to minimize interference with Operator's obligations hereunder. Operator will provide daily production reports which will include steam and electrical production and fuel and water consumption. 4.3 Annual Operating Plan. Not later than forty-five (45) days prior to the first day of each Agreement year, Operator shall submit to Owner for approval a proposed Annual Operating Plan for the upcoming Agreement Year. For the purpose of developing the first Annual Operating Plan, within thirty (30) days of receipt of the Electricity Purchase Agreement and equipment warranties from Owner, Operator shall use its best efforts to develop and submit to Owner the first Annual Operating Plan for Owner's approval. Owner shall provide Operator necessary additional information on a timely basis. Operator and Owner shall use their best efforts to reach agreement on the first Annual Operating Plan within ninety (90) days after Operator's submittal of the first Annual Operating Plan to Owner. If no agreement can be reached within such ninety (90) day period, then the first Annual Operating Plan shall be subject to arbitration in accordance with Section 13.2. The Annual Operating Plan shall describe in detail projected maintenance and overhaul schedules, capital expenditure requirements, equipment acquisitions and spare parts and consumables inventories (including a breakdown of capital items and expense items), hours of operation, purchase electricity, projected Fuel usage and other variable costs, projected electricity and steam generated for sale, projected Energy Revenues, staffing plans, data regarding expected environmental performance and such other matters as Owner may reasonably require. The proposed Annual Operating Plan shall also include a budget for operation and maintenance of the Project, including the estimated prices based on time and materials for all anticipated operating and maintenance costs for the upcoming Agreement year. Owner shall indicate in writing its approval or disapproval of the Annual Operating Plan within fifteen (15) days of such submission, and in the event of disapproval, the parties shall meet and resolve in good faith any areas of disagreement. If a new Agreement Year begins without an Annual Operating Plan having been accepted by both Owner and Operator, the Annual Operating Plan for the prior Agreement year shall continue in effect, with all costs set forth therein increased monthly by the Consumer Price Index Percentage for the most recent month for which the Consumer Price Index is available. Any actions proposed under the Annual Operating Plan shall be consistent with the Manuals and Operator's obligations as described in Section 2.2. Operator shall notify Owner as soon as reasonably possible of any significant deviations or 16 discrepancies from the projections contained in the Annual Operating Plan. Any material adjustment to total labor costs proposed by Operator shall be subject to Owner's prior written approval. 4.4 management Coordination and Planning. Operator shall meet with Owner at least quarterly for the first two (2) years following the Project Acceptance Date, and thereafter at least semiannually to review and discuss Project performance, maintenance and costs. Prior to each scheduled meeting, Operator shall provide owner, in a form reasonably acceptable to Owner, a summary of all operating and maintenance activities performed by Operator during the previous quarter, together with all costs (by category) which make up the Reimbursable Costs associated therewith, and a comparison of the current total of such costs for the Agreement year with the budget prepared pursuant to the Annual Operating Plan. 4.5 Unscheduled Maintenance. Operator shall perform all maintenance, repair and replacement requirements of the Project (excluding only the Interconnection Facilities) notwithstanding that the same were not anticipated or included in the approved Annual Operating Plan. Owner shall reimburse Operator for such work, subject to the provisions of Article 8. Operator will not commence any work under this section without the approval of Owner except (i) in the event that such work shall be required in an emergency, Operator shall undertake such work and notify Owner as soon as such notice is reasonably practicable, and (ii) Operator shall be authorized to perform all maintenance, repair and replacement necessary to back-up or redundant systems in order to maintain maximum Phase I Availability and Phase II Availability. The selection of subcontractors to perform unscheduled maintenance beyond the capability of Operator shall be at the reasonable discretion of Operator, subject to Owner's approval. 4.6 Maintenance During Warranty. Operator shall maintain the Project in accordance with the requirements of all manufacturer's warranties, and shall be assigned to Operator at Operator's request for purposes of enforcement (provided that the warranties shall be reassigned to Owner if Operator does not enforce the warranties promptly). Owner shall require each major component manufacturer (including, without limitation, the manufacturer of the Gas Turbine, the HRSG, the Auxiliary Boiler and all rotating equipment such as pumps) as part of its contract, to perform a warranty inspection with Owner, Operator and Contractor at no additional cost prior to the expiration of the component's warranty. Operator shall be responsible for the cost of any repairs that would have been covered by such warranties but for which the manufacturer disclaims coverage due to Operator's failure to comply with reasonable warranty requirements. 17 ARTICLE 5 TERM: TERMINATION AND DEFAULT 5.1 Initial Term and Renewal. The Term of this Agreement shall commence on the Full Operation Date, and shall conclude on the last day of the twenty fifty (25th) anniversary of the Full Operation Date, provided, Owner shall have the option to extend the Term of this Agreement under the terms and conditions set forth in Section 5 of the Amended Steam Venture Agreement, subject to extension of all of the Amended Project Agreements pursuant to Section 5 thereof. Notwithstanding the foregoing, the provisions of Article 2 regarding the Mobilization Periods shall be effective as of the dates set forth therein. 5.2 Default by Owner. Each of the following shall constitute a Default by Owner: (a) The failure or refusal by Owner to fulfill its obligations under this Agreement, unless excused by Force Majeure; provided, however, that such failure or refusal shall not constitute a Default unless and until: (i) Operator has given written notice to Owner specifying Owner's default or defaults; and (ii) Owner either has not corrected such default, or has not initiated reasonable steps to correct the same, within thirty (30) days of its receipt of such notice, and thereafter does not continue to take all reasonable steps necessary to expeditiously correct such default. (b) The failure or refusal by Owner to make any payment due Operator under the terms of this Agreement as and when the same becomes due. 5.3 Default by Operator. Each of the following shall independently constitute a Default by Operator: (a) The failure or refusal by Operator, unless excused, in any case, by Force Majeure (i) to operate, repair and maintain the Project in accordance with this Agreement; (ii) to achieve at least the Performance Standards pursuant to Section 5.8 for any Agreement Year, except that during the first Agreement Year and during any Agreement Year in which a major overhaul occurs, the Performance Standards will be adjusted pursuant to Section 5.8; (iii) to comply with applicable 18 Requirements of Law or Approvals and permits; or 9iv) to fulfill any of its other obligations, whether designated as agreements, covenants or otherwise, under this Agreement; provided, however, that a failure or refusal under (i), (iii) or (iv) shall not constitute a Default unless and until: (A) Owner has given notice to Operator specifying Operator's default or defaults; and (B) Operator either had not corrected such default, or has not initiated reasonable steps to correct the same within 30 days of its receipt of such notice and thereafter does not continue to take all reasonable steps necessary to expeditiously correct such default. (b) The commencement by Operator of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by Operator to the entry of an order for relief in an involuntary case under any such law, or the consent by Operator to the appointment of, or taking possession by, a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of Operator or of any substantial part of its properties, or the making by Operator of any general assignment for the benefit of creditors, or the failure by Operator generally to pay its debts as they become due or any corporate action in furtherance of any of the foregoing. (c) The issuance by a court having jurisdiction over Operator of a decree or order for relief in respect of Operator of a decree or order for relief in respect of Operator in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the appointment by any such court of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Operator or any substantial part of its property, or the ordering by any such court of the winding up or liquidation of the affairs of Operator if such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days. 5.4 Remedy Upon Default by Owner. Upon the occurrence of a Default by Owner, if such Default by owner continues for thirty (30) days' after notice to Owner and Lender, Operator shall have the right to terminate this Agreement, and (a) if the Default by Owner arises from Owner's failure to pay the portion of the Annual Fee due under Section 6.1(e) or (h), as the case may be, plus interest, within one year after the due date thereof (an "Owner Major Default"), Operator shall have the right to acquire the Project for $1.00 (which right shall be freely assignable by Operator subject to any consent required by Lender), subject only to then-existing debt, within thirty (30) days following expiration of such 30-day grace period, or (b) if the Default by 19 Owner involves a failure to pay any other sum due and owing hereunder, Operator shall have the right to initiate legal action to collect such sum with interest thereon at the Prime Rate plus two percent (2%). 5.5 Remedies for Failure to Achieve Performance Standards. (a) The operation and maintenance provisions of this Agreement and the portions of the Annual Fee described in Section 6.1 (c) and (d), or (f) and (g) as the case may be, may be terminated by the Owner if the project fails to achieve the minimum acceptable average annual Availability (eighty-five percent) established pursuant to Section 5.8 and specified in Appendix 2A and 2B (for Phase I and Phase II, respectively) (the average annual Availability for Phase I and for Phase II are hereinafter collectively referred to as "performance Standards"). Termination, however, shall not affect any payments under this Agreement that have become due and payable (such as the portion of the Annual Fee described in Section 6.1 (c) and (D), or (f) and (g) as the case may be, for services rendered during the year immediately preceding the termination of the operation and maintenance provisions of this Agreement), and in no case shall such termination affect the portions of Annual Fee described in Section 6.1(e) and (h), as the case may be. If the Owner does terminate the operation and maintenance provisions of this Agreement pursuant to this Section 5.5(a), PUPCO shall have the right to approve Owner's selection of any new operator for the Project with such approval not to be unreasonably withheld. (b) In the event that Operator shall fail to achieve the Performance Standards in any Agreement year, then Operator shall pay to Owner liquidated damages ("Liquidated Damages") as provided in Section 5.8. the maximum amount of Liquidated Damages which could potentially be assessed against Operator based upon Operator's inability to meet the Performance Standards shall be equal to the portion of the Annual Fee described in Section 6.1(d) or (g), as the case may be. The actual amount of Liquidated Damages owed ("Liquidated Damages Owed") shall be a function of the actual performance of the Project as measured against the Performance Standards as set forth in Appendix 2. Liquidated Damages and Debt Service coverage shall, except for Owner's right to terminate this Agreement pursuant to Section 5.5(a), be the sole remedy of Owner and the sole liability of Operator for Operator's failure to meet the Performance Standards. (c) Not later than twenty (20) days after the end of each Agreement year, Operator shall render a statement to Owner, with all necessary and appropriate supporting documentation, calculating the amount of Liquidated Damages due to Owner, in accordance with Section 5.5(b), for the period from the beginning of the Agreement Year through the end of such Agreement Year. Any amounts due to Owner on account of Liquidated Damages shall be paid by Operator simultaneously with the delivery of a 20 statement therefor, but Owner's acceptance of such amounts shall not preclude it from disputing under Section 10.2 the accuracy of the amount of Liquidated Damages owed as set forth on this statement. 5.6 Termination for Uncontrollable Circumstances. In the event of material damage to or destruction of the Project not caused by the negligence of Owner, which materially impairs the operation of the Project for at least one hundred eighty (180) consecutive days, or if any part of the Project or the Site is taken by eminent domain and such taking materially impairs the operation of the Project, or in the event a Change of Law which renders operation of the Project as intended illegal, uneconomical or otherwise undesirable, Owner and Operator shall each have the option in any of such circumstances to terminate this Agreement, and the obligations of the Parties shall cease except for obligations that have accrued prior to the effective date of such termination. 5.7 Rights and Remedies. Except as otherwise provided herein, all rights and remedies of the Parties under any provision of this Agreement shall be cumulative, and may, to the extent permitted by law, be exercised concurrently or separately, and the exercise of any one right or remedy shall not operate to preclude or waive the exercise of any other right or remedy. With respect to equitable remedies, the Parties acknowledge that any condition which incapacitates the operation of the Project or any part thereof, constitutes immediate, imminent, substantial and irreparable harm to owner and the Parties hereto consent to the entry of temporary immediate injunctive relief to restrain such harm, where appropriate. 5.8 Determination of Performance Standards and Liquidated Damages. The Performance Standards and Liquidated Damages for each Phase (the "Standards") shall be jointly established by Owner and Operator based on (i) the specific components selected by Owner, (ii) the manufacturers' performance warranties for each component, (iii) the Electricity Purchase Agreement between Owner and Electricity Purchaser, (iv) the Lender's requirements, and (v) industry standards for the specific equipment selected. Such Standards shall be reviewed and approved by Lender's independent engineer. The Standards shall be prepared jointly by the parties within sixty (60) days after execution of the Electricity Purchase Agreement and receipt of the performance warranties, but in any event no later than thirty (30) days after receipt of the commitment letter for Project financing; if the Standards are not agreed by that time, the provisions of Section 13.2 shall apply. The Standards shall include adjustments for Force Majeure and for an Agreement Year in which a major overhaul occurs. The Standards shall be affixed to this Agreement as Appendix 2. 21 ARTICLE 6 OPERATOR'S ANNUAL FEES 6.1 Annual Fee. (a) Subject to the terms and conditions hereof (and in particular the provisions of Article 19), Owner shall pay to Operator an annual fee for the Agreement Year beginning on the Phase I Project Acceptance Date, and each Agreement Year thereafter during the Term hereof, as follows ("Phase I Annual Fee"): Agreement Year Annual Fee 1-3 $ 900,000 4-15 $1,500,000 16-25 $1,900,000 (b) Subject to the terms and conditions hereof, in lieu of the Phase I Annual Fee, Owner shall pay to Operator an annual fee for the Agreement Year in which the Phase II Project Acceptance Date occurs, and for each Agreement Year thereafter during the Term hereof as follows ("Phase II Annual Fee"): Agreement Year Annual Fee 1-3 $2,100,000 4-15 $3,600,000 16-25 $4,600,000 In illustration and not limitation of the foregoing, if the Phase II Project Acceptance Date occurs during the third Agreement Year, the Phase II Annual Fee for that Agreement Year will be $2,100,000, and the Phase II Annual Fee for the next succeeding Agreement Year will be $3,600,000. (c) The first One Hundred Thousand Dollars ($1,000,000) of each Phase I Annual Fee shall be payable prior to payment of any Debt Service for that Agreement Year. (d) The next Two Hundred Thousand Dollars ($2,000,000) of each Phase I Annual Fee shall be increased annually by a percentage equal to the Consumer Price Index Percentage and shall be payable prior to payment of any Debt Service for that Agreement Year. (e) Payment of the remainder of each Phase I Annual Fee shall be subordinate to payment of Debt Service (with any amounts unpaid to be cumulative without interest), and the amount thereof shall be adjusted as set forth below: (i) During Agreement Years 1 through 3, the remaining Six Hundred Thousand Dollars ($600,000) of the Annual 22 Fee shall be increased by five percent (5%) for each Agreement Year; and (ii) During Agreement Years 4 through 25, Four Hundred Thousand Dollars ($400,000) of the Annual Fee shall be increased annually by the Consumer Price Index Percentage. In no event shall the portion of the Phase I Annual Fee described in subsections (i) and (ii) above payable in any Applicable Agreement Year (as defined below) be less than thirty percent (30%) of the equity distribution made by Owner to its Partners for such Applicable Agreement Year. If any equity distribution would exceed such portion of the Annual Fee, Owner shall pay an amount equal to the excess to Operator at the time the distribution is made to the Partners. For purposes of this Agreement, the term "Applicable Agreement Year" shall mean any Agreement Year during the period beginning on the Phase I Project Acceptance Date and ending on the Full Operation Date. (f) The first Two Hundred Thousand Dollars ($200,000) of each Phase II Annual Fee shall be payable prior to payment of any Debt Service for that Agreement Year. (g) The next Four Hundred Thousand Dollars ($400,000) of each Phase II Annual Fee shall be increased annually by a percentage equal to the Consumer Price Index Percentage and shall be payable prior to payment of any Debt Service for that Agreement Year. (h) Payment of the remainder of each Phase II Annual Fee shall be subordinate to payment of Debt Service (with any amounts unpaid to be cumulative without interest), and the amount thereof shall be adjusted as set forth below: (i) During Agreement Years 1 through 3, the remaining One Million Five Hundred Thousand Dollars ($1,500,000) of the Annual Fee shall be increased by five percent (5%) for each Agreement Year; and (ii) During Agreement Years 4 through end of Term, One Million Dollars ($1,000,000) of the Annual Fee shall be increased annually by the Consumer Price Index Percentage. All portions of the Phase II Annual Fee that escalate over time shall use as their base year for calculating such escalations the Phase I Project Acceptance Date. 23 6.2 Adjustment of Annual Fee for Steam Purchased. (a) The portions of the Phase I Annual Fee payable pursuant to Section 6.1(h) hereof (collectively, "Subordinated Annual Fee") shall be adjusted according to the following schedule which reflects the amount of steam purchased by PTEC pursuant to the Amended Steam Purchase Agreement: Percentage of Subordinated Annual Amount of Steam Purchased by PTEC Fee Payable (in million Mlbs.) 4.6 or greater 100.00 4.5 - 4.599 96.15 4.4 - 4.499 92.30 4.3 - 4.399 88.45 4.2 - 4.299 84.60 4.1 - 4.199 80.75 4.0 - 4.099 76.90 3.9 - 3.999 73.05 3.8 - 3.899 69.20 3.7 - 3.799 65.35 3.6 - 3.699 61.50 3.5 - 3.599 57.65 3.4 - 3.499 53.80 3.3 - 3.399 50.00 (b) If any reduction of the Phase II Annual Fee is required pursuant to Section 6.2(a), the reduction shall be applied first to those portions of the Annual Fee described in Section 6.1(h)(i) or (ii). Any adjustment in the Phase I Minimum Take Requirement or the Phase II Minimum Take Requirement pursuant to a Penn Event shall also adjust the foregoing table in accordance with sixty (60) days after execution of the Electricity Purchase Agreement. Such adjustment ("Penn Event Adjustment") shall include the effect, if any, of the loss to Operator of either or both the 34th and Civic Center Boulevard Account (Account No. 17-0255-0) that may occur in conjunction with a Penn Event. (c) (i) In the event that, in any Agreement Year, the actual Heating Degree Days are less than the target Heating Degree Days of 4,866, the amount of steam which PTEC must purchase pursuant to Section 6.2(a) for PUPCO to obtain 100% of the Subordinate Annual Fee shall be adjusted in accordance with the following formula: 24 Adjusted Target Mlbs = (Actual HDDs x 50% of Target Mlbs) + 50% Target Mlbs Target HDDs Where: Target Mlbs = 4.6 million Mlbs Target HDDs = 4,866 Heating Degree Days ("HDDs") (the 20 year average HDDs for the Philadelphia International Airport, 1969-1988 as reported by the U.S. Weather Service) Actual HDDs = Actual total year HDDs as reported by the U.S. Weather Service for Philadelphia International Airport 50% = Approximately one-half of PTEC's Target Mlb is base load and not weather related (ii) The adjusted target Mlbs will be substituted in the table above for 4.6 million Mlb 100% minimum payable range. The reduced payment minimums will decrease from the adjusted target by the same 100 thousand Mlbs increments identified above. (iii) The target 4.6 million Mlbs or the adjusted target Mlbs shall also be adjusted downward each Agreement Year to account for reductions in steam output from the Project as a result of Force Majeure, including system failures at the Site not attributable to PTEC's or Operator's negligence. (iv) The minimum take levels shall also be adjusted each Agreement Year to account for reductions in steam output from the Project as a result of Force Majeure, including system failures at the site not attributable to PTEC's or Operator's negligence. (v) If PTEC purchases or pays for less than 3.3 million Mlbs in any Agreement Year, Operator will not receive an Annual Fee for that year 25 subject to a Penn Event Adjustment or an adjustment for Force Majeure or other failures not attributable to PTEC's or Operator's negligence. (d) If during any Agreement Year prior to the Phase II Acceptance Date the total steam purchased by PTEC exceeds 3,200,000 Mlbs., Operator shall also receive an amount realized by Owner for the sale of such excess steam, as determined by Owner's accountants, based on line items of Project expenditures and Debt Service as identified in the pro forma utilized for Project financing. Such amount shall be payable within ninety (90) days following the end of each Agreement Year. (e) If during any Agreement Year prior to the Phase II Acceptance Date the total steam purchased by PTEC exceeds 4,800,000 Mlbs., Operator shall also receive an amount equal to one-third (1/3) of the incremental pre-tax profit realized by Owner for the sale of such excess steam, as determined by Owner's accountants, based on line items of Project expenditures and Debt Service as identified in the pro forma utilized for Project financing. Such amount shall be payable within ninety (90) days following the end of each Agreement Year. 6.3 Time for Payment. (a) The portion of the Annual Fee due under Section 6.1(e) or (h), as the case may be, shall be due and payable quarterly beginning at the end of the first quarter (i.e., the first 3-month calendar period) following the Project Acceptance Date and each quarter (i.e., each three- month period) thereafter for the Term of this Agreement. The portion of the Annual Fee due under Section 6.1(c) and (d), or (f) and (g) as the case may be, shall be due and payable in equal monthly installments on or before the tenth day of each month. (b) Annual Fees or portions thereof which remain unpaid will bear interest from the due date at the Prime Rate plus two percent (2%). (c) Failure to make payments described in Sections 6.1(c), (d), (f) or (g), plus interest, within sixty (60) days of due date, after thirty (30) days' written notice from Operator and opportunity to cure by Owner and Lender, shall be a Default by owner pursuant to Sections 5.2 and 5.4. (d) Failure to make payments described in Section 6.1(e) or (h), as the case may be, plus interest, within one year of due date, after thirty days' written notice from Operator and opportunity to cure by Owner and Lender, shall entitle Operator to exercise Operator's right to purchase the Project pursuant to Section 5.4(a). 26 (e) Thirty (30) days prior to the end of each Agreement Year, Owner shall forecast Project cash flow for the succeeding Agreement Year using all assumptions as established and relied upon by Lender at the time of Project financial closure but as adjusted to reflect actual Fuel, fixed, variable, and debt costs for each of the previous twelve months. If the pre-tax cash flows after all Debt Service for the Agreement Year are projected to be less than two (2) times the portions of the Annual Fee described in Section 6.1(e) or (h), as the case may be, due at the end of the Agreement Year, the Owner shall pay one twelfth (1/12) of the portion of the Annual Fee described in Section 6.1(d) to Operator at the end of each month in the Agreement Year. 6.4 Electric Capacity Fee. In addition to the Phase I Annual Fees set forth above, if Owner sells to PECO or another utility the additional electric capacity to be created by the Phase I Project, Owner shall pay PUPCO thirty percent (30%) of all payments received by Owner for such capacity, payable within five (5) days after Owner receives each such payment. ARTICLE 7 INTENTIONALLY OMITTED ARTICLE 8 REIMBURSEMENT 8.1 Reimbursement Costs. In addition to the Phase I and Phase II Annual Fee, Owner shall pay the following Reimbursable Costs: 8.1.1 The actual cost of recruitment and employment of permanent and temporary staff and specialists from and after the beginning of the Phase I Mobilization Period, such costs to include employment- related benefits applicable to such staff and specialists, provided that such employment and employment-related benefits costs shall not exceed those in effect for PTEC during the term of this Agreement, except that in special cases where particular expertise is required, employment and employment-related benefits costs in excess of those then in effect at PTEC shall be included as Reimbursable Costs so long as such costs are in conformity with then current market conditions for employment of people with such expertise; 8.1.2 The actual cost of consumables, spare parts and repairs and/or replacement components supplied by Operator in accordance with the provisions of Sections 2.10.2, 2.10.3 and 4.5 hereof; 8.1.3 Any other direct costs incurred by Operator, such as any Federal, state or other sales, use, value-added, 27 gross receipts or similar tax with respect to the operation and maintenance of the Project (such as a sales tax on direct cost of replacement parts used by Operator), any insurance premium paid by Operator, subject to the terms of Article 12, interest carrying costs (at a per annum rate not to exceed the Prime Rate plus 2%) on any overdue payments due Operator by Owner and the cost of water or chemicals shall be reimbursed to Operator upon demand, if Operator is required to pay same, or paid directly by Owner; provided, Operator shall pay the income and franchise taxes arising out of any payments made hereunder to Operator. 8.1.4 Owner's obligation to pay Reimbursable Costs shall be conditional only upon the total Reimbursable Costs for an Agreement Year not exceeding the aggregate Reimbursable Costs shown on the Annual Operating Plan for that Agreement Year. Any excess Reimbursable Costs in any category over those shown on the annual Operating Plan may be offset by Operator against savings in other categories. 8.2 Time for Payment. Reimbursable Costs shall be payable in accordance with Article 10. ARTICLE 9 EQUITY DISTRIBUTION LIMITATIONS 9.1 Equity Distribution Limitations. (a) In the event that Owner intends to make distributions to its general partners ("Partners"), Owner must do so on a quarterly basis and must pay one-quarter of the portion of the Annual Fee described in Section 6.1(e) or (h), as the case may be, to Operator for that Agreement Year at the time of such distributions. Estimated quarterly payments of the Annual Fee will be based on the prior year steam purchases by PTEC. Overpayments and underpayments will be reconciled within sixty days following the end of the Agreement Year. (b) Owner agrees to limit distributions to Partners during the first Agreement Year after the Full Operation Date to two-thirds (66.66%) of Owner's profits (after payment of any taxes payable directly by Owner). If Owner makes distributions to Partners in excess of two-thirds of such profits, Owner will first post a letter of credit, naming the Project as beneficiary, in the face amount of one-third (33.34%) of Owner's profits. That letter of credit will become payable upon the exercise of the Equity Purchase Option. The term of the letter of credit shall expire upon the expiration of the Equity Purchase Option. (c) All first Agreement Year equity earnings may be distributed to the Partners and the Operator in proportion to their respective ownership interests once Operator exercises its Equity Purchase Option pursuant to Section 19.1. 28 (d) Notwithstanding anything to the contrary set forth herein, if Operator acquires the Acquired Interest in the Phase I Project, and (i) the amount payable to Operator as an Annual Fee for the Phase I Project in any Applicable Agreement Year, plus the capacity fee payable under Section 6.4 (if applicable) (collectively, "Phase I Payment"), exceeds (ii) the equity distribution received by Operator following such acquisition, Operator shall be entitled to receive the excess of the full amount of the Phase I Payment over the equity distribution. ARTICLE 10 BILLING AND PAYMENTS 10.1 Invoices. Operator shall render invoices to Owner monthly for Reimbursable Costs. All invoices shall be accompanied by all relevant documentation including payroll data and benefits computations for the relevant staff and specialists and all relevant invoices for consumables, spare parts and replacement components. Each invoice shall be paid by Owner, subject to Section 10.2, within thirty days following receipt of each invoice, and unpaid invoices shall bear interest pursuant to Section 20.18 if unpaid after such 30 day period. Each invoice shall be paid by Operator, subject to Section 10.3, not later than thirty (30) days after receipt thereof by Operator. Fuel invoices shall be paid directly by Owner. 10.2 Owner's Dispute. Owner may, within fifteen (15) days after receiving any invoice or statement rendered pursuant to Sections 5.5(c), 10.1 or 8.1, by written notice to Operator, dispute any amount set forth in such invoice or statement; provided that Owner shall pay undisputed amounts notwithstanding the existence of any dispute with respect to the balance of such payment. 10.3 Operator's Dispute. Operator may, within fifteen (15) days after receiving an invoice from Owner, by written notice to Owner, dispute any amount set forth in such invoice; provided that Operator shall pay undisputed amounts notwithstanding the existence of any dispute with respect to the balance of such payment. 10.4 Dispute Resolution. Operator and Owner shall, as soon as practicable after either Party's receipt of any notice of a dispute pursuant to Section 10.2 or 10.3 above, attempt in good faith to resolve all disputed items described therein. If all such disputed items are not so resolved within thirty (30) days after receipt by either Party of such notice, either Party may, after sixty (60) days but within ninety (90) days thereafter, commence dispute resolution procedures pursuant to Article 13, in accordance therewith. In the event that such dispute resolution procedures result in an award in favor of either Party, the other 29 Party shall pay any balance owed with interest as provided in Section 20.18. ARTICLE 11 FORCE MAJEURE; STRIKES 11.1 Effect of Force Majeure. In the event that either Operator or Owner shall be prevented by Force Majeure from performing or fully performing its obligations under this Agreement (other than obligations to make payments required herein, which may not be excused by Force Majeure), the Party unable to perform or fully perform shall promptly notify the other Party and shall keep the other Party informed of the situation for the duration of such event. Upon the giving of such notice, the obligations of the Party giving the notice shall be reduced during, but no longer than, the continuance of the Force Majeure, provided such obligations shall be reduced only to the extent the affected party's performance is adversely affected solely by the Force Majeure, and only to the extent such adverse effects cannot be mitigated by the Affected Party's best efforts. The affected Party shall use its best efforts to resume performance as quickly as possible and shall suspend or operate at less than full performance only for such period of time as is necessary as a result of the Force Majeure. 11.2 Strikes. In the event of a whole or partial non-operation of the Project due to a strike or other form of labor action by Operator's personnel, Owner shall have the right to continue operating the Project and to retain such other personnel or agents as Owner in its sole discretion deems necessary or advisable for such purposes. If any strike or labor stoppage continues for a period beyond thirty (30) days, Owner shall be entitled to terminate this Agreement. ARTICLE 12 INSURANCE 12.1 Insurance Coverage. (a) During the Term of this Agreement, Operator shall provide and maintain such policies of insurance as may be requested by Owner in compliance with the Credit Agreement. The terms of all such policies shall comply with the provisions of the Credit Agreement. The cost of all such insurance shall be Reimbursable Costs as described in Article 8. (b) Certificates of Insurance evidencing the coverages provided by Operator and copies of such policies shall be delivered to Owner prior to the beginning of the Phase I Mobilization Period. Owner, the Lender, Steam Purchaser, and any 30 Person who owns an interest (as mortgagee, secured party, or otherwise) in the Site or who has the right (present or contingent) to own the Project, and any of their respective successors and assigns, shall be named as additional insureds under specified policies. These certificates as well as all insurance policies required by this Article shall contain a provision that the policy will not be canceled or allowed to expire or amended in any material manner (including as to scope, type or limits of coverage), until at least ten (10) days prior written notice or such additional advance notice as may be required under the Credit Agreement has been given to Owner and all others Persons named as additional insiders. Should Operator fail to provide or maintain insurance coverage pursuant to this Section, Owner shall have the right but not the obligation to provide or maintain such coverage. (c) All insurance provided by Operator shall be with reputable and solvent insurance carriers which are reasonably satisfactory to Owner and Lender and licensed to do business in the Commonwealth of Pennsylvania. 12.2 Waiver of Subrogation. Operator and Owner hereby waive any and every claim for recovery from the other for any and all loss or damage resulting from the performance of this Agreement, to the extent such loss or damage is recovered under the insurance policies described herein. ARTICLE 13 DISPUTE RESOLUTION 13.1 Procedure. Except as expressly set forth in Section 13.2 below, in the event a dispute arises between Owner and Operator regarding the application or interruption of any provision of this Agreement, the aggrieved Party shall promptly notify the other Party to this Agreement of the dispute within ten (10) business days after such dispute arises. If the parties shall have failed to resolve the dispute within ten (10) business days after delivery of such notice, each Party shall, within five (5) business days thereafter, nominate a senior officer of its management to meet at the Site, or at any other mutually agreed location, to resolve the dispute. Should the Parties be unable to resolve the dispute to their mutual satisfaction within ten (10) business days after such nomination, each Party shall have the right to pursue any and all remedies available at law or in equity. Without limiting the validity of the foregoing covenants, the failure or inability of either Party to give the required notice or make the required nomination shall never be construed to stop or deny such Party's right to pursue any and all remedies otherwise available to such Party at law or in equity. 31 13.2 Binding Arbitration (a) In the event that any claim, controversy or dispute arises between the Owner and the Operator concerning Subsections 2.1.2, 3.2, 4.3, 4.5, 5.5, 5.8, 6.1(d), 6.1(g), 6.2(a), 8.1.1 or 8.1.2 (collectively, "Arbitration Subsections") or any approvals, agreements or concurrence required under any of the Arbitration Subsections shall not have been timely given then the Owner and the Operator shall undertake in good faith to resolve the dispute amicably as described in Section 13.1. (b) Irrespective of any other provision of this Agreement, if the Owner and the Operator cannot agree within a two (2) week period of time after written notice respecting the formulation or performance of any obligation relating to the proposed Annual Operating Plan, the Performance Standards, or the Reimbursable Costs pursuant to any of the Arbitration Subsections, such failure to agree shall be deemed a dispute and, exclusive of any other remedy (subject however to State law), the Owner or the Operator may, following the two (2) week period, by written notice to the other party hereto, bring the dispute to an arbitration panel selected pursuant to Subsection (c) below. The arbitration panel shall assume exclusive jurisdiction over the dispute and shall be required to make a final determination, including specific findings of fact required to reach such determination, within twenty (2) days from the selection of the panel as to each specific dispute contemplated above, and, if appropriate, findings of what remedies are due to the Owner and the Operator, if any, pursuant to the terms of this Agreement. The Owner and the Operator shall prepare in writing a statement of their positions with supporting facts and data for the arbitration panel within ten (10) days after receipt of written notice of the dispute being brought to arbitration, and shall submit statement to the arbitration panel when it is selected. (c) The arbitration panel shall consist of representatives of three independent engineering firms, one of which shall be selected by the Owner, one of which shall be selected by the Operator, each within ten (10) days of the notice of arbitration, the third shall be selected by the first two within ten (10) days of their selection. In the event that any arbitrator shall resign or otherwise fail to perform his duties, his successor shall immediately be selected by the party who selected such arbitrator in the first instance. (d) The decision of the arbitration panel shall be binding and enforceable on both parties. The decision of the panel shall be based solely of findings of fact and shall be based on the following standards: (1) Consistently with competitive Operation and Maintenance Contracts in the marketplace; 32 (2) Consistency with standard practice as may reasonably be required to obtain Project financing; and (3) Where available, consistency with the specific components selected by the Owner, the Manufacturer's Performance Warranties, and the Project Acceptance Tests. (e) The costs of arbitration shall be borne equally by the parties for the first three (3) arbitrations in any calendar year, and thereafter by the party initiating the arbitration. (f) Persons other than the Owner and the Operator may be joined in such proceedings to the extent that they consent to the jurisdiction of the arbitration panel. (g) The Owner and the Operator shall continue to perform their respective obligations under this Agreement during any arbitration or court proceeding. (h) Any proceedings held by the arbitration panel shall be held in Philadelphia, Pennsylvania. ARTICLE 14 PAYMENT OF FINES AND PENALTIES 14.1 Payment of Fines and Penalties. Payment at any time of any fine or penalties payable to any state or the United States as a result of the Operator's gross negligence in failing to operate and maintain the Project in accordance with Requirements of Law or Approvals and Permits applicable to the operation and maintenance of the Project shall be the sole responsibility of Operator and such fines or penalties shall not result in any increase of the costs to be borne by Owner. ARTICLE 15 DEFECTIVE WORK 15.1 Work to be Fit. Operator warrants that the operation and maintenance services described in Article 2 will be performed properly, in a competent, cost-conscious manner and by qualified personnel, in accordance with sound and generally accepted operating and engineering practices, and that such services will be generally fit for their prescribed purpose. 15.2 Consequence of Breach. In the event Operator fails to perform its work as required by this Agreement, Operator shall re-perform any defective service, replace any unfit or unquali- 33 fied personnel and repair or replace any components of the Project damaged as a consequence of such failure (but only the components damaged by Operator, excluding consequential damage for lost revenues). 15.3 Vendor Warranties. Operator shall obtain, when available on commercially reasonable terms, one-year vendor warranties for all spare parts and replacement parts, other than parts having a useful life of less than one year and parts supplied by Owner pursuant to Section 3.2 or 3.4. Any warranties received from outside vendors or subcontractors shall be passed through to Owner, but Operator shall maintain, administer and assist Owner in the enforcement of such warranties. ARTICLE 16 OPERATOR'S REPRESENTATIONS Operator represents and warrants that: 16.1 Corporate Standing; Authorization. Operator is a corporation duly organized, validly existing and in good standing under the laws of Pennsylvania. The execution, delivery and performance of this Agreement are within Operator's corporate powers. The execution, delivery and performance of this Agreement (i) has been duly authorized by all requisite corporate action; and (ii) does not violate any existing Requirement of Law or any agreement, certificate, undertaking, commitment, instrument or other document to which it is a party or by which it or any of its assets may be bound or affected. 16.2 Enforceability. This Agreement constitute Operator's legal, valid and binding obligation enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, moratorium, insolvency and similar debtor rights laws, and has been executed and delivered by its duly authorized officers. 16.3 No Violation of Law. Operator is not in violation of any Requirement of Law which could materially affect Operator's performance of any obligations under this Agreement. 16.4 Litigation. Operator is not a party to any legal, administrative, arbitration, investigatorial or other proceeding or controversy pending, or, to the best of its knowledge, threatened, which could materially adversely affect its ability to perform its obligations under this Agreement. 16.5 Qualifications. Operator (i) has examined each of the Project Agreements thoroughly and is very familiar with their terms; (ii) is fully qualified to operate and maintain the Project in accordance with the terms hereof; and (iii) has thoroughly familiarized itself with the conditions under which 34 the obligations entered into hereunder are to be performed and correlated its observations with the requirements hereof. 16.6 Waiver of Liens. Operator will cause such subcontractor retained by Operator to waive and release, to the extent it may do so, any and all liens and/or encumbrances which it or they have or may have against Owner or the Project on account of work to be performed by Operator pursuant to this Agreement. Before any subcontractor retained by Operator performs any work pursuant to this Agreement, Operator shall (i) obtain the consent of each such subcontractor to such a waiver of liens and encumbrances; and (ii) file a copy of such a waiver of liens and encumbrances with Governmental Authorities required by Owner. 16.7 Approvals and Permits. Operator is, or will be prior to the Phase I Project Acceptance Date, the holder of all material Approvals and Permits generally required to conduct its business in the Commonwealth of Pennsylvania. Except for Approvals and Permits required to be maintained by owner pursuant to Section 3.5, or to be provided by the Construction Contractor pursuant to either Turnkey Construction Agreement, no consent (except consents, if any, obtained prior to the date hereof) of any Person, an no Approval and Permit of, exemption by, notice or report to, or registration, filing or declaration with, any Person, is or will be required, in connection with its execution, delivery and performance of this Agreement. 16.8 General. No representation or warranty by Operator contained herein contains any untrue statement of any material fact or any omission of any material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. ARTICLE 17 OWNER'S REPRESENTATIONS Owner represents and warrants as follows: 17.1 Good Standing; Authorization. Owner is a general partnership duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. The execution, delivery and performance of this Agreement are within Owner's partnership powers. The execution, delivery and performance of this Agreement (i) has been duly authorized by all requisite corporate action; and (ii) does not and will not violate any Requirement of Law or any agreement, certificate, undertaking, commitment, instrument or other document to which it is a party or by which it or any of its assets may be bound or affected. 17.2 Enforceability. This Agreement constitutes Owner's legal, valid and binding obligation, enforceable against it in 35 accordance with its terms, except as such enforcement may be limited by bankruptcy, moratorium, insolvency and similar debtor rights laws, and has been executed and delivered by its duly authorized officers. 17.3 No Violation of Law. Owner is not in violation of any Requirement of Law which could materially affect Owner's performance of any obligations under this Agreement. 17.4 Litigation. Owner is not a party to any legal, administrative, arbitration, investigatorial or other proceeding or controversy pending, or, to the best of its knowledge, threatened, which could materially adversely affect its ability to perform its obligations under this Agreement. 17.5 Approvals and Permits. Owner is, or will be prior to the Phase I Project Acceptance Date, the holder of all material Approvals and Permits generally required to conduct its business will acquire all Approvals and Permits necessary to operate the Project. Except for the Approvals and Permits to be maintained by Owner pursuant to Section 3.5 hereof or to be provided by the Construction Contractor pursuant to either Turnkey Construction Agreement, no consent (except consents, if any, obtained prior to the date hereof) of any person, and no Approval and Permit of, exemption by, notice or report to, or registration, filing or declaration with, any Person, is or will be required, in connection with its execution, delivery and performance of this Agreement. 17.6 Contracts. Owner has obtained, or will obtain prior to the Phase I Project Acceptance Date, all necessary contracts for Fuel and electricity to operate the Project. 17.7 General. No representation or warranty by Owner contained herein contains any untrue statement of any material fact or any omission of any material fact or any omission of any material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. ARTICLE 18 INDEMNIFICATION 18.1 Operator Indemnity. Operator shall indemnify, defend and harmless Owner and its officials, officers, employees and agents (all of the aforementioned being hereinafter referred to as the "Owner Indemnified Parties") from and against any Claims arising out of, incident to or related to the Operator's operation of the Project, made by any Person (other than the Owner Indemnified Parties), whether based on contract (including any breach of any agreement respecting any subcontractor but specifically excluding any breach of the Project Agreements), strict liability or otherwise (except to the extent any such 36 Claims arise out of, are incident to or related to the negligence of or the breach of this Agreement by any of the Owner Indemnified Parties, in which event the Claims shall be borne by the Parties in proportion to the respective fault of each Party) including (i) any claims by or otherwise involving any employee of Operator, any subcontractor, any person directly or indirectly employed by any of them and any other person for whose acts they may be liable or otherwise responsible, and (ii) any claims respecting or made by any Governmental Authority, infringement of proprietary rights, non-payments of amounts due subcontractors, bodily injury, sickness, death, injury, and injury or destruction of tangible property of any Person. The indemnification obligations under this Article 18.1 shall not be limited by an limitation on the amount or type of damages, compensation or other employee benefit acts or insurance policies. The indemnity provisions contained in this Article 18.1 shall in no manner amend or otherwise modify or limit any other of Operator's obligations expressed elsewhere in this Agreement except as expressly provided. 18.2 Owner Indemnity. Owner shall indemnify, defend and hold harmless Operator and its officials, officers, employees and agents (the "Operator Indemnified Parties") from and against any Claims arising out of, incident to or related to Owner's ownership of the Project, made by any Person (other than Operator and the Operator Indemnified Parties) whether based on contract, tort (including negligence, by commission or omission), strict liability or otherwise (except to the extent any such Claims arise out of, are incident to or related to the negligence of or the breach of this Agreement by any of the Operator Indemnified Parties, in which event the Claims shall be borne by the Parties in proportion to the respective fault of each Party) including (i) any claims by or otherwise involving any employee of Owner, any subcontractor, any person directly or indirectly employed by any of them and any other person for whose acts they may be liable or otherwise responsible, and (ii) any claims respecting or made by any Governmental Authority, infringement or proprietary rights, non- payments of amounts due subcontractors, bodily injury, sickness, death, injury, and injury or destruction of tangible property of any Person. The indemnification obligation under this Article 18.2 shall in no manner amend or otherwise modify or limit any other of Owner's obligations expressed elsewhere in this Agreement. 18.3 Cooperation Regarding Claims. If any Party hereto (each an "Indemnified Party") shall receive notice or have knowledge of any Claim that may result in a claim under this Article 18, such Indemnified Party shall, as promptly as possible, give the indemnifying Party notice of such Claim, 37 including a reasonably detailed description of the facts and circumstances relating to such Claim, and a complete copy of all notices, pleadings and other papers related thereto, and the basis for its potential claim for indemnification with respect thereto, and the basis for its potential claim for indemnification with respect thereto in reasonable detail; provided that failure promptly to give such notice or to provide such information and documents shall not relieve the indemnifying Party or any obligation of indemnification it may have under this Article 18 unless such failure materially diminishes the ability of such indemnifying Party to respond to or to defend the Indemnified Party failing to give such notice against such Claim. The Indemnified Parties shall consult with each other regarding, and cooperate in respect of, the response to and the defense of any such Claim, and the Party against whom indemnification is claimed shall, upon its acknowledgment in writing of its obligation to indemnify the Indemnified Party seeking indemnification, be entitled to assume the defense or to represent the interests of the Indemnified Party seeking indemnification in respect of such Claim, which shall include the right to select and direct legal counsel and other consultants, appear in proceedings on behalf of such Indemnified Party, and to propose, accept or reject offers of settlement, all at its sole cost. ARTICLE 19 OPTION TO PURCHASE 19.1 Option to Acquire Interest. (a) Operator shall have the option ("Equity Purchase Option"), in Operator's sole discretion, to acquire a one-third (1/3) interest ("Acquired Interests") in either the Phase I Project alone, if the Phase II Project is terminated, or in the entire Project, Phase I and Phase II ("Entire Project"), if the Phase II Project is completed. (b) Operator may elect to acquire the Acquired Interest in the Phase I Project by giving notice to Owner ("Phase I Option Notice") at any time during the sixty (60) day period ("Phase I Option Period") beginning on the later to occur of (i) the first anniversary of the Phase I Acceptance Date (provided that construction of Phase II has not then been commenced), or (ii) termination of Phase II, as described in Section 9 of the Amended Steam Venture Agreement. If Operator gives the Phase I Option Notice during the Phase I Option Period, the purchase price for the Acquired Interest shall be Five Hundred Thousand Dollars ($500,000.00), payable by certified check or wire transfer no later than one hundred eighty (180) days after delivery of the Phase I Option Notice. At least sixty (60) days prior to the beginning of Phase I Option Period, Owner shall provide Operator with financial projections and pro forma calculations for the Phase I Project, subject to Operator's prior execution of a reasonable confidentiality agreement. Failure by 38 Owner to provide such information by the time specified herein shall automatically extend the commencement of the Phase I Option Period until sixty (60) days after such information is provided. (c) Operator may further elect to acquire the Acquired Interest in the Entire Project by giving notice to Owner ("Entire Project Option Notice") at any time during the sixty (60) day period ("Entire Project Option Period") beginning on the first (1st) anniversary of the Phase II Acceptance Date. If Operator gives the Entire Project Option Notice during the Entire Project Option Period, the purchase price for the Acquired Interest in the Entire Project shall be Two Million Dollars (2,000,000.00), payable by certified check or wire transfer no later than one hundred eighty (180) days after delivery of the Entire Project Option Notice. At least sixty (60) days prior to the beginning of the Entire Project Option Period, Owner shall provide Operator with financial Project, subject to Operator's prior execution of a reasonable confidentiality agreement. Failure by Owner to provide such information by the time specified herein shall automatically extend the commencement of the Entire Project Option Period until sixty (60) days after such information is provided. (d) If first Agreement Year pre-tax cash flow after the Phase II Project Acceptance Date is less than $4.5 million after Debt Service has been paid, then in the event that Operator exercises its Phase II Equity Purchase Option under Section 19.1(b), (i) the portion of the first Agreement Year Annual Fee described in Section 6.1(h)(i) shall be adjusted to equal one third of the first Agreement Year pre-tax cash flow and (ii) the cost to Operator to exercise its Phase II Equity Purchase Option pursuant to Section 19.1(b) shall be $500,000 plus the amount of the first Agreement Year Annual Fee under Section 6.1(h)(i) as adjusted. 19.2 Effect on Annual Fee. Upon Operator's acquisition of the Acquired Interest pursuant to Section 19.1, the portion of the Annual Fee described in Section 6.1(e) or (h) (as the case may be) shall no longer be due or payable. Notwithstanding anything to the contrary contained herein, Operator shall have no claim to any portion of the purchase price paid for the Acquired Interest. 19.3 Option to Acquire Entire Project. Operator shall have the option, in Operator's sole discretion, to acquire the Entire Project Project (or any portion thereof not then owned by Operator) by giving notice to Owner at any time during the thirty (30) day period beginning on the twenty-fifth (25th) anniversary of the Full Operation Date. The purchase price for the Project shall equal ninety percent (90%) of the Fair market Value of the outstanding equity in the Project still held by Owner at that time, as determined pursuant to Appendix 5 of this Agreement. 39 19.4 Right of First Purchase. (a) In the event that Owner or its Partners elect to offer any interest in the Project or Owner for sale to any party, Owner and/or its Partners shall first offer such interest to Operator for a period of thirty (30) days, and shall offer such interest to a third party only if Operator fails during such thirty (30) day period to notify Owner of Operator's intent to purchase the interest. (b) If Owner or its Partners thereafter reach an agreement to sell an interest in the Project or the Owner to a third party, Owner and/or its Partners shall offer Operator the option to purchase the interest on the same terms and conditions by notice to Owner within five (5) business days following receipt of such agreement. (c) In the event Owner or its Partners receive a written offer to acquire all or any portion of the Project, or any interest therein or its Owner, Owner or its Partners shall immediately provide Operator with a copy of such offer. Operator shall have thirty days following receipt of such offer to give Owner or the Partners, as the case may be, notice of Operator's intention to acquire the interest under the same terms and conditions as contained in the offer. Failure by Operator to give such notice to Owner or the Partners within such thirty (30) day period shall constitute a waiver of this right. If Operator does not elect to acquire the interest under the terms of the offer, Owner or the Partners, as the case may be, may complete the sale of the interest to the purchaser in strict accordance with the terms and conditions of the offer. In the event that any change is made in the offer, or that the purchaser under the offer fails to complete closing in accordance with the terms of the offer, this right of first refusal shall once again become fully operative. 19.5 Ownership Limitations. (a) Operator's right to acquire an interest in the Project or the Owner pursuant to this Article 19 shall be limited to those levels of investment which will not cause the Project to become subject to regulation under the Federal Public Utilities Holding Company Act ("PUHCA"), or to lose its qualifying facilities ("QF") status under the Federal Power Act ("FPA"), as each such Act may be amended from time to time. If, in order for Operator to exercise the Equity Purchase Option set forth in Sections 19.1 and 19.2, a reduction in equity ownership is required to avoid Federal regulation under PUHCA or loss of QF status under the FPA, Operator and Owner shall share proportionately the obligation to reduce their respective equity positions in the Project to 25% each. Subsequent to the expiration of the Phase I Option Period or the Entire Project Option Period (as defined in Section 19.1), if any party takes action that subjects the Project to Federal regulation under PUHCA or to losing QF 40 status under the FPA, such party shall immediately reduce its interest in the Project as required to avoid such consequences. (b) In the event any reduction of equity ownership is required pursuant to the foregoing paragraph, the Party not causing such failure shall have the first right to negotiate the purchase of such equity on a pro rata basis within thirty (30) days of the tender of such offer. If an agreement cannot be reached within the thirty (30) day period, the Party who is required to reduce its ownership shall be free to negotiate the sale of the equity to a non-affiliated third party. In the event that any equity owner of the Project at any time sells all or any portion of its interest in the Project to an electric utility, so that PUHCA or QF status is violated, that owner shall immediately, and on an ongoing annual basis, compensate the other owners for the losses incurred as a result of regulation under PUHCA or loss of QF status. 19.6 Status. Owner agrees to identify Operator as a co-developer of the Project in all publications, news releases, and other communications with the public, until the Phase I Option Period or the Entire Project Option Period has expired without Operator exercising its Equity Purchase Option under Section 19.1. The identification of Operator as co-developer of the Project will not give Operator any rights not otherwise provided herein or in the Project Agreements. 19.7 Dividend Restriction. Owner shall make no dividend distributions to any of its Partners, incur any debts to any of its Partners or make any payments of any kind to any of its Partners unless such distributions, debts or payments are either (i) expressly authorized by the Credit Agreement, (ii) budgeted in the final financial pro forma, or (iii) agreed to in writing in advance by Operator. Pursuant to Section 9.1, one-third (33.34%) of all profits of the Project shall be held in escrow by owner until the expiration of the Equity Purchase Option (if Operator does not exercise the Equity Purchase Option) or the day after Operator acquires the Acquired Interest (if Operator exercises the Equity Purchase Option). ARTICLE 20 MISCELLANEOUS PROVISIONS 20.1 Entire Agreement. This Agreement and the other Project Agreements together contain the entire understanding of the Parties with respect to the subject matter hereof and supersede any and all prior agreements and commitments with respect thereto. 20.2 Further Assurances. Each Party agrees that upon request of any other Party, it shall, from time to time, do any and all other acts and things as may reasonably be required to 41 carry out its obligations hereunder and to consummate the transactions contemplated hereby, including the execution and delivery of documents. 20.3 Amendments. No change, amendment of modification of this Agreement shall be valid or binding upon the Parties unless made in a writing signed by all Parties. 20.4 Joint Effort. Preparation of this Agreement has been a joint effort of the Parties and this Agreement shall not be construed more severely against one of the Parties. 20.5 Terminology. All personal pronouns used in this Agreement, whether used in masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Titles of Articles and Sections are for convenience only, and neither limit nor amplify the provisions of this Agreement. This "Agreement" shall always be deemed to mean this Agreement and the Appendices hereto. All references herein to Articles, Sections or subsections shall refer to the corresponding Articles, Sections or subsections of this Agreement unless specific reference is made to Articles, Sections or subsections of another document. Use of the words "hereby", "herein", "hereof" and similar words shall be deemed to refer to this Agreement in its entirety and not merely to the Article, Sections or subsections thereof wherein any such word may appear. 20.6 Notice. Any notice, demand, offer, consent, report, approval or other written instrument required or permitted to be given pursuant to this Agreement shall be in writing signed by the Party giving such notice and shall be hand delivered or sent by overnight delivery service or by certified mail to the other Party at the following address: (a) if delivered to Owner: Grays Ferry Cogeneration Partnership 225 S. 8th Street Philadelphia, PA 1906 Attention: (b) if delivered to Operator: President Philadelphia United Power Corporation 2600 Christian Street Philadelphia, PA 19146 Each Party shall have the right to change the place to which notice shall be sent or delivered by similar notice sent or like manner to the other Parties. The effective date of notice issued 42 pursuant to this Agreement shall be as of the addressee's receipt of such notice. 20.7 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance(s) shall be invalid or unenforceable to any extent, (a) the remainder of this Agreement and the application of such provisions to other Person(s), entity(ies) or circumstance(s) shall not be affected thereby and (b) each such provisions shall enforced to the greatest extent permitted by law. 20.8 Assignment. Except for an assignment or subcontract to PTEC, which Operator may elect in its sole discretion, Operator shall neither assign nor otherwise transfer this Agreement (or written consent of Owner and Lender (if Lender requires that its consent to be obtained) and any such assignment, subletting or other transfer without such consent shall be void. Owner shall have the right to assign this Agreement (i) as security for or as required by any lender of funds to Owner or (ii) in connection with a sale or transfer of the Project and/or the Site Lease. 20.9 No Waiver. No consent, or waiver, express or implied, by a Party to or of any breach or default by the Party in the performance by it of any of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such Party of the same or any other obligation of such Party hereunder. Except as otherwise provided herein, failure on the part of a Party to complain of any act or failure to act of the other Party or to declare such other Party in default, irrespective of how long such failure continues, such not constitute a waiver by a Party of its rights hereunder. 20.10. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, exclusive of conflicts of laws provisions. For the purposes of any suit, action or proceeding arising out of the Project, this Agreement, or any of the Project Agreements, Owner and Operator hereby consent and submit to the exclusive jurisdiction and venue of any of the courts of the Commonwealth of Pennsylvania, and irrevocably agree that service of process by certified mail, return receipt requested addressed as provided in Section 20.6 shall be deemed in every respect effective and valid personal service of process. Owner and Operator irrevocably waive any objection which they may nor or hereafter have to the laying of venue in such courts and any claim that such suit, action or proceeding has been brought in an inconvenient forum. 20.11 Successors and Assigns. Subject to the restrictions on transfers set forth herein, this Agreement shall inure to the 43 benefit of, be binding upon and be enforceable by and against the Parties and their respective successors and assigns. 20.12. Appendices. All Appendices referred to in this Agreement shall be fully incorporated into this Agreement by such reference and shall be deemed to be an integral part of this Agreement. 20.13 Relationship of Parties. (a) Nothing contained in this Agreement shall be construed as constituting a joint venture or partnership between Operator and Owner. Operator shall be deemed to be an independent contractor. Operator's creditors shall not be third party beneficiaries under this Agreement. (b) Operator hereby declares that it is engaged in an independent business and agrees to perform the services as an independent contractor not as the agent, employee or servant of Owner. Operator has and hereby retains the right to exercise full control and supervision of its services and full control over the employment, direction, compensation and discharge of all persons assisting it in the performance of this Agreement. Operator agrees to be solely responsible for all matters relating to the payment of its employees, including compliance with social security, withholding and all other regulations governing such matters. Operator agrees to be responsible for its own actions and those of its subordinates, employees and subcontractors during the life of this Agreement. Without Owner'' approval, Operator shall have no authority to make any statements representations or commitment or take any actions which shall be binding upon Owner. 20.14 Survival of Agreements. All of the representations, warranties, covenants and agreements of each of the Parties shall survive the execution and delivery and performance of this Agreement and the consummation of the transaction contemplated hereby except as provided herein. 20.15 Dollar Amounts. All amounts of money in this Agreement are denominated in United States Dollars. 20.16 Business Days. In the event that an obligation to be performed under this Agreement falls due on a Saturday, Sunday or legal holiday in the Commonwealth of Pennsylvania, the obligation shall be deemed due on the next business day thereafter. 20.17 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one agreement. If shall not be necessary that any counterpart be signed by all Parties so long as each Party have executed two counterparts. 44 20.18 Overdue Obligations to Bear Interest. Except as set forth in Section 6.3(b), all amounts due hereunder, whether as damages, credits, revenue or reimbursements, that are not paid when due shall bear interest at 1% over the Prime Rate on the amount outstanding from time to time, on the basis of a 365-day year, counting the actual number of days elapsed, and all such interest accrued at any time shall, but only to the maximum extent permitted by applicable law, be deemed added to the amount due, as accrued. 20.19 Proprietary Information. (a) If either Party transmits to the other any information (including, without limitation, drawings, technology, reports and designs) which the disclosing Party designated in writing as "proprietary information", the receiving Party shall receive and hold such proprietary information in confidence, shall use it exclusively in connection with the Project (including necessary disclosures on a proprietary basis to others directly engaged in the operation or financing of the Project such as consultants, trustees and lenders engaged for that purpose provided that such third Party shall consent in writing to be bound by the provision of this Section 20.19, but in any event avoiding disclosure to other Project suppliers) and shall not publish or otherwise disclose it to others. (b) Notwithstanding the foregoing restrictions, either Party will have the right to disclose proprietary information furnished hereunder to a Governmental Authority to the extent required by such Governmental Authority; provided, however, that if such Party undertakes to so use such proprietary information, it agrees to give the other Party advance written notice of such undertaking, to make reasonable efforts to secure confidential treatment of such proprietary information by the Governmental Authority in question and to permit such other Party to participate in discussions with such Governmental Authority with regard to such confidential treatment are unsuccessful, the owner of the proprietary information shall have the right, if legally permissible, to revise such proprietary information to make it nonproprietary or to minimize the loss of its proprietary value. 20.20 No Consequential Damages. In no event shall either Party be liable (whether based on contract, indemnity, warranty, tort, strict liability or otherwise) for any special, incidental, exemplary, indirect or consequential damages, including but not limited to, loss of profits or revenues arising from the performance or non-performance of such Party's obligations under this Agreement. 45 20.21 Environmental Liability. (a) In no vent shall Owner be responsible for present or future "Claims" (hereinafter defined) directly or indirectly related to or arising out of the actual or alleged existence, generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of "Hazardous Material" (hereinafter defined) at the Site and/or adjacent areas, arising out of the period prior to the commencement of start-up of the Project pursuant to the Turnkey Construction Contract. If a Claim arises from an act or omission of Operator of PTEC subsequent to PTEC's acquisition of the Site, Operator shall defend, indemnify and hold Owner harmless against such Claim; if a Claim arises from an act or omission that occurred prior to PTEC's acquisition of the Site or any act or omission of PECO or any third party, neither Owner nor Operator shall have any liability to each other for such Claim and both parties shall fully cooperate in any action against PECO or the third party. (b) In no event shall Operator be responsible for present or future Claims directly or indirectly related to or arising out of the actual or alleged existence, generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Material at the Site and/or adjacent areas arising out of the negligent acts, omissions or other conduct of Owner or any of its officials, agents or employees, contractors or subcontractors of any tier and Owner shall defend, indemnify and hold Operator harmless against, and shall reimburse Operator for such Claims; provided, however, that nothing contained herein shall be construed as requiring Owner to take any corrective action with respect to any Hazardous Material in existence prior to the start-up of the Project unless directed to do so by a Governmental Authority, in which case the corrective actions so undertaken shall be deemed a Claim within the contemplation of paragraph (a) of this Section 20.21. (c) In no event shall Owner be responsible for present or future Claims directly or indirectly related to or arising out of the actual or alleged existence, generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Material at the Site and/or adjacent areas arising out of the negligence acts, omissions or other conduct of Operator or any of its officials, agents or employees, contractors or subcontractors of any tier and Operator shall defend, indemnify and hold Operator harmless against, and shall reimburse Operator for such Claims; provided, however, that nothing contained herein shall be construed as requiring Operator to take any corrective action with respect to any Hazardous Material in existence prior to the start-up of the Project unless directed to do so by a Governmental Authority, in which case the corrective actions so undertaken shall be deemed a Claim within the contemplation of paragraph (a) of this Section 20.21. 46 (d) As used in this Agreement, "Claims" shall mean any and all claims, demands, causes of action, suits, proceedings, administrative proceedings, lawsuits, judgments, decrees, debts, damages, liabilities, court costs and reasonable attorneys' fees including, but not limited to, the cost of civil fines or penalties or other expenses incurred, assessed or sustained by or against the affected Party whether asserted under a theory of strict liability or otherwise. (e) As used in this Section 20.21, "Hazardous Materials" shall mean materials defined as "hazardous substances," "hazardous wastes" or "solid wastes" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. SS 9601-9657, and any amendments thereto, or in the Resource Conservation and Recovery Act, 42 U.S.C. SS 6901-6987, and any amendments thereto; and any other substance, the existence of which on the Site imposes any liability or responsibility on any Person under any present or future applicable federal, state, local or common law relating to the protection of the environment or public health and safety, whether similar or dissimilar to the foregoing. 20.22 Owner's Approval. Wherever in this Agreement Owner's approval is set forth as a condition, such approval shall not be unreasonably withheld. IN WITNESS WHEREOF, the Parties have hereto set their hands and seals as of the date first above written. GRAYS FERRY COGENERATION PARTNERSHIP By: O'Brien Environmental Energy, Inc. By:/s/ Robert A. Shinn By: Adwin Equipment Company By:/s/ Daniel A. Neely PHILADELPHIA UNITED POWER CORPORATION By:/s/ S. G. Smith Title: President 47 APPENDIX 1 to PROJECT SERVICES AND DEVELOPMENT AGREEMENT [SCOPE OF SERVICES] TO BE ADDED AFTER EXECUTION APPENDIX 2 to PROJECT SERVICES AND DEVLEOPMENT AGREEMENT [AVAILABILITY STANDARDS AND LIQUDATED DAMAGES] TO BE ADDED AFTER EXECUTION APPENDIX 3 to PROJECT SERVICES AND DEVELOPMENT AGREEMENT INTENTIONALLY DELETED APPENDIX 4 to PROJECT SERVICES AND DEVELOPMENT AGREEMENT PENN EVENT: ADJUSTMENT IN MINIMUM TAKE REQUIREMENT APPENDIX 4 The occurrence of a Penn Event will reduce each maximum and minimum number of Mlbs of Steam appearing in the "Amount of Steam Purchased by PTEC" column of the table appearing in Section 6.2(a). The reduction will be calculated as follows: R = [ (UP - B) X HDD Target HDD Actual ] + B where: R = Mlbs deducted from all maximum and minimum number of Mlbs appearing in the table. (A maximum and minimum appears in each range listed.) UP = Mlbs consumed by the University of Penn during the twelve (12) months prior to the month in which the Penn Event occurs. B = Mlbs consumed by the University of Penn during the months of June through September prior to the month in which the Penn Event occurs. HDD 4,866 Heating Degree Days ("HDD's"), the 20 year average HDD's for the Philadelphia International Airport, 1969 - 1988 as reported by the U.S. Weather Service. HDD The total Heating Degree Days for the Philadelphia International Airport during the twelve (12) months prior to the month in which the Penn Event occurs. APPENDIX 5 to PROJECT SERVICES AND DEVELOPMENT AGREEMENT "Fair Market Value" means the value which would be obtained for the Project in an arm's length transaction between an informed and willing buyer, under no compulsion to buy, and an informed and willing seller, under no compulsion to sell, acting within a reasonable time, based upon the market value of the Project utilizing generally recognized professional criteria for the appraisal of industrial equipment and machinery. If the parties cannot agree on a Fair Market Value of the Project within fifteen (15) days after any event requiring determination of Fair Market Value, then the Fair Market value shall be mutually determined in an appraisal prepared and delivered by two disinterested, certified and licensed industrial equipment and machinery appraisers, each holding the highest then-recognized professional certification for such appraisers. One of the appraisers shall be appointed by Owner and the other shall be appointed by Operator, each of which appointments shall be made within twenty-five (25) days after the event requiring determination of Fair Market Value of the Project. If the appraisers thus appointed cannot mutually agree upon the Fair Market Value of the Project within sixty (60) days after the appointment of the second appraiser, the two appraisers shall appoint, within five (5) days thereafter, a third disinterested certified and licensed equipment and machinery appraiser who shall, within sixty (60) days after the appointment, determine the Fair Market Value of the Project in accordance with generally recognized criteria for the appraisal of industrial equipment and machinery. If a second appraiser shall not have been appointed within the time period set forth above, the first appraiser shall determine the Fair Market Value of the Project. If the two appraisers fail to agree upon the appointment of a third appraiser within the time period set forth above, the parties shall jointly appoint a third appraiser who shall individually determine the Fair Market Value in accordance with the provisions of this section. The appraiser of appraisers, as the case may be, shall give written notice to the parties stating the determination of Fair Market Value and shall furnish to each party a signed copy of such determination. In the event of the failure, refusal, or inability of any appraiser or appraisers to act, a new appraiser or appraisers shall be appointed, which appointment(s) shall be made in the same manner as provided for the appointment of the appraiser or appraisers who failed, refused or were unable to act. The expense of any appraisal conducted in accordance with the provisions of this section shall be born equally by the parties. EX-10.29 21 EXHIBIT 10.29 NEWARK LEASE Exhibit 10.29 LEASE BETWEEN NEWARK GROUP INDUSTRIES, INC. O'BRIEN (NEWARK) COGENERATION, INC. Dated: July 18, 1988 TABLE OF CONTENTS Section Page 1. Term of Lease 1 2. Use 2 3. Acceptance of Demised Premises; Tenant's Work 2 4. Base Rent 2 S. Additional Rent and Late Charges 3 6. Change In Scope or Amount of Taxation 5 7. Insurance 6 S. Utilities 9 9. Operation, Maintenance and Repair of Demised Premises 9 10. Requirements of Public Authorities 10 11. Landlord's Right to Cure 10 12. Net Rent 11 13. Destruction 11 14. Indemnification 12 15. No Liability of Landlord 12 16. Removal of Snow, etc. 13 17. Improvements and Alterations 13 18. Signs 14 19. Assignment and Subletting 14 20. Mortgaging 15 21. Air and Water Pollution 18 22. Security 18 23.Condemnation 18 24.Surrender by Tenant at End of Term 21 25.Default by Tenant 22 26.Quiet Enjoyment 25 27.Certificates by Tenant 25 28.Notices 25 29.Captions 26 30.Covenants and Conditions 26 31.waiver of Trial by Jury 26 32.Definition of Term "Landlord" 27 33. Brokerage Representation 27 34. Covenants of Further Assurances 27 35. Entire Agreement 28 36. Applicable Law 28 37. Bind and Inure Clause 28 38. Tenant's Recourse 28 39. Options to Purchase 28 40. Environmental Obligations 30 41. Guaranty 34 42. Relationship to the Agreement 35 43. Continuation of Lease 35 44. Recording 35 Schedule A Schedule B Schedule C Appendix A Appendix B THIS LEASE, made the 18th day of July, 1988, BETWEEN NEWARK GROUP INDUSTRIES, INC., (formerly known as Paperboard Manufacturers of Newark, Inc.) a New Jersey corporation having an office at 57 Freeman Street, Newark, New Jersey 07105 ("Landlord"); AND O'BRIEN (NEWARK) COGENERATION, INC. , a Delaware corporation, having an address of 225 South Eighth Street, Philadelphia, Pennsylvania 19106 ("Tenant"); W I T N E S S E T H Landlord, for and in consideration of the rents, covenants and agreements hereinafter mentioned, reserved and contained to be paid, kept and performed by Tenant, and in consideration of and pursuant to the covenants and agreements contained in the Steam Purchase Agreement between Landlord and Tenant dated October 3, 1986, as amended by Amendments dated March 8, 1988 and July 18, 1988 (as so amended and as it may be amended from time to time in accordance with the provisions thereof, the "Agreement"), which Agreement is incorporated herein in its entirety by reference, has demised and leased and does hereby demise and lease unto Tenant, and Tenant does hereby lease and hire from Landlord, subject to easements, encumbrances and restrictions of record (if any) and such state of facts as an accurate survey and a physical inspection would reveal, a portion of the lands owned by Landlord known as 60 Lockwood Street, Newark, New Jersey and as Lots 75 and 58 in Block 2412 on the Newark, New Jersey municipal tax map ("Entire Property"), which portion leased hereunder to Tenant is more particularly described on Schedule A annexed hereto and made a part hereof ("Demised Premises"), together with the parking easements, interconnection facility easements, temporary construction easements, access easements and other easements described on Schedule B annexed hereto and made a part hereof ("Easements"). Landlord and Tenant acknowledge that (a) Landlord's sole reason for agreeing to enter into this lease is because of the services to be provided by Tenant pursuant to the Agreement and that (b) this lease and the Agreement shall be interpreted in pari materia. 1. TERM OF LEASE Landlord leases unto Tenant and Tenant hires from Landlord the Demised Premises for a term ("Lease Term" or "Term") to commence on July 18, 988 ("Commencement Date") and to end, except as otherwise provided in Section 5.1(B) of the Agreement, 120 days after the termination of the Agreement or on such other date as may be provided in this lease or the Agreement, whether following an extension or renewal hereof or otherwise ("Termination Date"). 2. USE. Tenant may use and occupy the Demised Premises solely for the construction, testing, operation, management and maintenance of a facility for the generation of steam and/or electricity ("Facility"). The use of the Demised Premises by Tenant, however, is and shall continue to be expressly subject to all applicable terms and provisions of the Agreement and to all applicable laws, ordinances and rules and regulations of any governmental instrumentality, board or bureau having jurisdiction thereof. 3. ACCEPTANCE OF DEMISED PREMISES; TENANT'S WORK. 3.1 Tenant acknowledges that it is familiar with the Demised Promises and, except as set forth in section 40 of this lease, hereby agrees to accept the Demised Promises in their present condition, "as is". Tenant further acknowledges that neither Landlord nor anyone on Landlord's behalf has made any representations or warranties with respect to the condition of the Demised Premises. 3.2 Tenant shall design and construct the Facility on the Demised Premises ("Tenant's Work") and install all equipment and fixtures necessary for the Facility's operation subject to, in accordance with and according to the time schedule described in the Agreement. Until the Landlord exercises its rights under section 17 or 24 of this Lease, such equipment and fixtures shall be the personal property of Tenant and hereafter neither the Landlord nor any mortgagee of Landlord shall have any interest therein. 4. BASE RENT. 4.1 Tenant covenants and agrees to pay Landlord a base rent ("Base Rent") during the Term of ONE DOLLAR ($1.00) per year. Base Rent shall be payable annually on January 1 of each and every year of the Term without demand. 4.2 If this lease is in effect at the same time that the Agreement is not in effect, the annual Base Rent payable under this lease shall automatically be increased 2 to the annual fair market rental value of the Demised Premises. The annual fair market rental value shall be determined as of the time immediately before the cessation of the Agreement by appraisal of the American Appraisal Company (or similar appraisal organization). The arbitration provisions set forth in Article 18 of the Agreement shall be utilized to settle any dispute as regards "fair market rental value". Such increased Base Rent shall be payable monthly on the first day of each month. 5. ADDITIONAL RENT AND LATE CHARGES. 5.1 Additional Rent payable by Tenant shall include: (a) subject to the provisions of section 6 hereunder, all taxes, assessments, water rents and other similar governmental charges assessed against or levied upon the Demised Premises or related to the use or occupancy thereof; (b) all premiums on insurance policies required to be maintained on, or in connection with the use of, the Demised Premises pursuant to this lease; (c) all other payments required to be made by Tenant under this lease; and (d) all other expenses and charges which, during the Term, shall arise or be levied, assessed or imposed upon or against the Demised Premises as an incident of the ownership thereof and which are of the kind customarily paid by owners of land and improvements thereto by reason of such ownership, it being the intention of the parties that, during the Term, Tenant shall be chargeable with and shall pay all sums which an owner of the Demised Premises would Day having regard to the safeguarding of its investment and the preservation of the freehold. 5.2 Subject to section 5.3 of this lease, Tenant agrees to pay each item of Additional Rent on or before the date when each becomes due or when billed for the same by Landlord, as applicable. Tenant shall furnish to Landlord, within 30 days after the date upon which any such charge is payable by Tenant as hereinabove provided, official receipts of the appropriate taxing or governmental authority, or other proofs satisfactory to Landlord, evidencing the payment of Additional Rent, except that so long as Landlord is, pursuant to section 6.5 of this lease, paying and billing tenant for real estate 3 taxes and assessments attributable to the Demised Premises, at Tenant's request Landlord shall provide Tenant with copies of all such real estate and assessments bills at the time of billing and evidence of Landlord's payment of the same. If Tenant shall fail to make any payment or to do any act required of it by any provision of this lease within any applicable time periods herein provided (not including cure periods after notice of default), Landlord may make such payment or do such act and the amount of such payment or the cost of doing such act, together with interest thereon at the rate of the Bass Rate then in effect for First Fidelity Bank, National Association, Now Jersey, plus 2% per annum, shall be deemed Additional Rent payable by Tenant upon demand by Landlord. The making of any such payment or the doing of any such act by Landlord shall not constitute a waiver by Landlord of any right or remedy provided by this lease upon Tenant's default in the making of such payment or the doing of such act. All taxes, assessments, water rents and other governmental charges assessed against or levied upon the Demised Premises shall be apportioned between Landlord and Tenant at the Commencement Date and Termination Date. 5.3 Tenant shall have the right to contest or review by appropriate proceedings or in any other manner permitted by law, at Tenant's sole cost and expense, in Tenant's name and/or in Landlord's name (whenever necessary), any tax, assessment or charge, and Landlord shall, without expense or charge to it, cooperate with Tenant and execute any documents or pleadings required for such purposes. If required by Landlord, Tenant shall furnish a surety company bond or other security reasonably satisfactory to Landlord against any liens by reason of such contest. The contest by Tenant may include appeals from any judgments, decrees or orders until a final nonappealable determination shall be made by a court or governmental department or authority having jurisdiction in the matter. 5.4 No payment by Tenant or receipt by Landlord of a lesser amount than the Base Rent and Additional Rent stipulated in this lease shall be deemed other than on account of the earliest stipulated rent, nor shall any endorsement or statement an any check or payment or any writing accompanying any check or payment of such rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this lease. 5.5 If Tenant fails to make any payment o f Base Rent or Additional Rent within 5 days of its due date, 4 Landlord may set off the amount of any such unpaid payments against any monies then due and owing by Landlord to Tenant pursuant to the Agreement. 6. CHANGE IN SCOPE OR AMOUNT OF TAXATION. 6.1 If at any time during the Term the method or scope of taxation prevailing an the date hereof shall be altered, modified or enlarged so as to cause the method of taxation to be changed in whole or in part so that in substitution for the real estate taxes now assessed there may be, in whole or in part, a capital levy or other imposition based on the value of the Demised Premises or the rents received therefrom, or some other form of assessment based in whole or in part on some other valuation of the Landlord's real property comprising the Demised Premises, then the substituted tax or imposition shall be payable and discharged by Tenant in the manner required pursuant to the law promulgated which shall authorize the change in the scope of taxation and as required by the terms and conditions of this lease. 6.2 Nothing contained in this lease shall require Tenant to pay any franchise, estate, inheritance, succession, capital levy or transfer tax of Landlord, or federal income or state income tax or excess profits or revenue tax or other tax based upon Landlord's income, except to the extent (a) such taxes are imposed in whole or partial substitution for real property taxes and (b) Landlord's transfer taxes are payable by Tenant under section 39. 6.3 If any tax which Tenant is required to pay pursuant to sections 6.1 or 6.2 above is a graduated tax, Tenant shall be required to pay only the portion thereof which would have been payable by Landlord if the Demised Premises were the only real property owned by Landlord. 6.4 Notwithstanding anything in this lease (except section 6.5) to the contrary and pursuant to Article 12 of the Agreement, (a) Tenant shall be solely responsible for any sales, use, property, income or other taxes relating to the Facility and its components or the operation of the Facility and, except as otherwise provided by section 12.3 of the Agreement, the sale of energy produced therein and (b) Landlord shall be solely responsible for any sales, use, property, income or other taxes relating to Landlord's Plant (as that term is defined in Article 1 of the Agreement), its components or appurtenances or the sale of the products produced therein. 5 6.5 Notwithstanding section 6.3, so long as single real estate tax bills or bills for assessments attributable to the Entire Property of which the Demised Premises are only a part are submitted during the term of this lease by the municipal or other authorities having jurisdiction, Landlord shall pay such bills to the appropriate authorities and Tenant shall be responsible for (a) 9.1% of the land portion of such tax bills, or such other prorated amount if the tax lot configurations are altered from their present configuration, such latter amount to be calculated on the new percentage that the Demised Premises is of the Entire Property following such alteration, plus (b) 100% of the taxes attributable on such tax bills to the buildings and improvements now or to be located within the Demised Promises including, but not limited to, the Facility, plus (c) that portion of any bills for assessments determined by multiplying the total amount of any such bill by a fraction the numerator of which is the total amount of Tenant's taxes computed in accordance with (b) above and the denominator of which is the total amount of taxes attributable on such tax bills to all buildings and improvements located within the Entire Property, including the Demised Premises. Landlord shall be responsible for 100% of the taxes attributable on such tax bills to the buildings and improvements now or to be located within that portion of the Entire Property not being leased to Tenant hereunder. If there is a dispute between the parties regarding the amount of taxes attributable to. buildings and improvements located within the Demised Premises, the parties agree that the attribution contained in the records of the tax assessor of the City of Newark shall control. If such records do not contain the necessary attribution, such attribution shall be determined by an independent M.A.I. appraiser selected by Landlord. Landlord shall bill Tenant for Tenant's share of all real estate tax bills and bills for assessments and Tenant shall pay such bills as Additional Rent within 10 days of its receipt of such bills. 6.6 Landlord agrees (a) not to bill Tenant for installments of taxes or assessments more than 30 days before the respective dates upon which such installments are due and (b) to elect to pay all assessments which may be paid in installments in as many installments as shall be permissible under applicable law, except that Tenant agrees to pay any additional costs or expenses incurred by Landlord as a result of such election. 7. INSURANCE. 7. 1 Tenant shall keep the improvements on the Demised Premises insured against loss or damage by fire 6 and risks embraced within "all risk coverage" in the locality where the Demised Premises are located in an amount not less than 100% of full insurable value. The term "full insurable value" means the actual replacement cost as defined in the standard "replacement cost" endorsement. Tenant shall also obtain boiler explosion and casualty insurance in an amount not less than ten million dollars ($10,000,000). All insurance policies shall be issued by a company or companies and in a form or forms reasonably satisfactory to Landlord and shall name Landlord and any mortgagees of both Tenant and Landlord as additional insureds but not loss payees. Tenant agrees to use any proceeds received from the insurance policies to repair, restore, replace and/or rebuild any damaged improvements on the Demised Premises so that the fair market value of the Demised Premises will not be decreased from that prevailing prior to the casualty, except as otherwise provided in either section 13 of this lease or in the Construction and Term Credit Agreement dated as of July 18, 1988 between Tenant and National Westminster Bank PLC, including only such amendments which may be made from time to time with the consent of Landlord ("Credit Agreement"). 7.2 Tenant shall obtain and maintain a Landlord's and Tenant's comprehensive general Public Liability Insurance Policy for the joint and several benefit of Landlord and Tenant, in an amount not less than $5,000,000. Tenant shall also obtain blanket contractual insurance in an amount deemed adequate by Landlord to cover the indemnity obligations of Tenant pursuant to all of the terms and provisions of both this lease and the Agreement. Tenant shall provide and keep in force insurance for such other insurable hazards and in such amounts as similarly situated premises are then commonly insured. 7.3 Prior to the earlier of (a) the Commencement Date or (b) the date when Tenant has access to the Demised Premises for any purpose, Tenant shall deliver to Landlord certificates evidencing the issuance of each of the policies required by sections 7.1 and 7.2 and also evidencing that the policies are then in effect. Tenant shall deliver original insurance policies to Landlord within 15 days from the date when Tenant is required to deliver the certificates. All insurance policies shall provide for 30 days advance notice in writing to Landlord and to the respective mortgagees of Tenant or Landlord prior to cancellation or modification. 7.4 The premiums on any insurance policies which Landlord elects to keep in force beyond the Termination Date shall be apportioned as between Landlord and Tenant 7 in such manner that Landlord shall reimburse Tenant for that pro rata portion of the unearned premiums on any policies which remain in force beyond the Termination Date as a result of Landlord's election. 7.5 Neither Landlord nor its agents or servants shall be liable and Tenant waives all claims for damage, regardless of the cause thereof, to persons or property sustained by Tenant, its agent and servants or any occupant of the Demised Premises resulting from the Demised Promises or any part thereof or any part or any equipment or appurtenances becoming out of repair, or resulting from any accident in on or about the Demised Promises or resulting directly or indirectly from any act or neglect of the Tenant or occupant or any other person including Landlord's agents and servants other than such injury or harm as may be caused solely and conclusively by the fault or negligence of Landlord, its directors, officers, employees or representatives. All property belonging to Tenant or any occupant of the Demised Promises shall be there at the risk of the Tenant or such other person only and Landlord shall not be responsible or liable for damages thereto or misappropriation thereof. Except as otherwise provided in section 15.2(B) of the Agreement, Tenant agrees to look solely to the proceeds of its own insurance for indemnity against personal injury, casualty loss and business interruption. 7.6 Except as otherwise provided in section 15.2(A) of the Agreement, Landlord agrees to look solely to the proceeds of its own insurance for indemnity against personal injury, casualty loss and business interruption. 7.7 Each party will use its best efforts to cause each insurance policy carried by it with respect to the Entire Property or the Demised Premises, as applicable, to be written so as to provide that the insurer waives all right of recovery by way of subrogation against the other party in connection with any loss or damage covered by the policy. 7.8 Every 2 years during the Term on the anniversary of the Commencement Date, Landlord shall have the right to give Tenant notice that Landlord is requiring Tenant to increase the amount of coverage under each insurance policy held by Tenant in connection with its operation of the Facility. The maximum new insurance coverage amount which Landlord can require for each policy shall be calculated by multiplying the total amount of insurance coverage in effect as of the Commencement Date by a fraction, the Numerator of which is the Consumer Price Index for Urban Wage Earners and Clerical Workers 8 for New York - Northeastern New Jersey ("CPI") as of the day of the applicable 2-year anniversary date and the denominator Of I which is the CPI as of the Commencement Date. (For example, if the CPI is 200 on the Commencement Date and 220 on the first day of the applicable 2-year anniversary date, the new amount of insurance required would be determined as follows: 220 X Insurance Amount as of the Commencement Date.) 220 in no event shall the amount of insurance coverage for any policy decrease in any 2-year period from that payable for the prior 2-year period. 8. UTILITIES. Tenant shall, at its own cost and expense, pay all utility meter and service charges, including but not limited to those for gas, sewer, electricity, water, standby sprinkler charges and any hookup charges and deposits required by utility suppliers with respect to the Demised Promises. Tenant shall be responsible at its sole cost and expense for arranging installation of separate motors for all utilities servicing the Demised Promises. Except an provided in the preceding sentence, all costs relating to the construction. operation and maintenance of conduits, pipes and drain fixtures for water, waste water, steam or any other utilities shall be allocated between Landlord and Tenant in accordance with all of the terms and provisions of the Agreement including but not limited to Article 4 and 10 thereof. 9. OPERATION, MAINTENANCE AND REPAIR OF DEMISED PREMISES. Tenant shall keep. operate and maintain the Demised Promises in a good state of repair and condition, except for ordinary wear and tear. Tenant shall make all repairs and replacements of every kind and character necessary to preserve and maintain the Demised Premises, the Facility and the appurtenances belonging thereto in accordance with reasonable business practices, and, except as set forth in section 4.2 or otherwise in the Agreement, will not call upon Landlord during the Term for the making of any repairs or replacements whatsoever. All repairs and replacements shall (a) be performed in a good and workmanlike manner, (b) be at least substantially equal in quality and usefulness to the original work, (c) be of first-class modern character and (d) not diminish the fair market value of the Demised Premises. Notwithstanding anything in this lease to -he contrary and in addition to the provisions of this section 9, Tenant shall keep, operate, maintain and repair the Demised Premises and the 9 Facility in accordance with all of the terms and provisions of the Agreement including, but not limited to, sections 4.1, 7.1, 7.2. 7.3, 7.4 and 10.1 thereof. 10. REQUIREMENTS OF PUBLIC AUTHORITIES. Tenant shall suffer no waste or injury in or about the Demised Premises and shall comply at its sole expense with all federal, state, county and municipal laws, ordinances and regulations applicable to the use and occupancy of the Demised Premises including without limiting the generality of the foregoing, (a) compliance with all "Laws" and "Regulations" as those terms are defined in the Agreement, (b) the obtaining of all necessary permits or licenses including, but not limited to, the permits described in section 4.2(B) and Appendix C of the Agreement, (c) the securing of all necessary land use approvals including, but not limited to, a subdivision of the Entire Premises if and when Tenant acquires the Demised Premises, and (d) the making of any structural or nonstructural repairs or replacements of any improvements to the Facility or the Demised Premises that may be required in order to comply with said Laws, ordinances and Regulations. In addition, except as set forth in section 40 of this lease, Tenant shall effect the correction, prevention and abatement of nuisances, violations or other grievances in, upon or connected with the Demised Premises and the Facility and shall also promptly comply with all rules. orders and regulations of the Board of Fire Underwriters and any insurance company insuring the Demised Premises or any improvements thereon. To the extent required by the terms and provisions of the Agreement, Landlord will cooperate when necessary with Tenant's efforts to satisfy the requirements of public authorities. Any environmental permits, licenses or authorizations that have been transferred by Landlord to Tenant shall be returned or transferred to Landlord at the end of the Term in accordance with the terms and provisions of section 4.2 of the Agreement. 11. LANDLORD'S RIGHT TO CURE Landlord and its agents and workmen shall have the right (a) in an emergency and (b) in a non-emergency situation upon advance notice, at reasonable times and only if accompanied by a representative of Tenant, to enter into and upon the Demised Premises for the purpose of inspection and examination of the state of repair and condition thereof. Landlord's entry and inspection shall be conducted subject to Tenant's reasonable safety procedures. Landlord may, but shall not be obligated to make such repairs as shall be necessary as a consequence 10 of any failure of Tenant to meet its obligations under this lease or the Agreement within applicable time periods herein provided (not including cure periods after notice of default) . The cost of any such repairs undertaken by Landlord, together with interest thereon at the rate of the Base Rate then in effect for First Fidelity Bank, National Association, New Jersey, plus 2% per annum, shall be deemed to be Additional Rent payable by Tenant upon demand by Landlord. The making of any such repairs by Landlord shall not constitute a waiver by Landlord of any right or remedy provided by this lease or the Agreement upon Tenant's default in the making of repairs. 12. NET RENT. It is the purpose and intent of Landlord and Tenant that the rent shall be absolutely not to Landlord, so that this lease shall yield. not, to Landlord, the Base Rent and Additional Rent specified in sections 4 and 5 of this lease during the Term without any abatement, deduction, set-off or counterclaim, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised Premises which may arise or become due during or in respect to the Term (except interest, amortization or any other charge or obligation arising in connection with any mortgage placed on the Demised Premises by Landlord. unless the charge or obligation arises solely as a result of an Event of Default by Tenant hereunder) shall be paid by Tenant, except for such obligations and charges as have otherwise expressly been assumed by Landlord in accordance with the terms and conditions of this lease or the Agreement. 13. DESTRUCTION. 13.1 If the Facility or other improvements on the Demised Promises or any part thereof shall be damaged or destroyed by fire, explosion, lightning, vandalism or any other casualty or cause, Tenant shall, except as otherwise provided in the Credit Agreement, at its own cost and expense, repair, restore, replace and/or rebuild the improvements or take such other action as may be necessary so as not to diminish the fair market value of the Demised Premises from that prevailing prior to the damage or destruction. Notwithstanding any such damage or destruction by any casualty or cause, this lease shall continue in full force and effect and there shall be no abatement of Base Rent and Additional Rent payable under this lease and Tenant shall not be discharged or relieved from any of its other obligations under this lease. Tenant expressly waives any rights now or hereafter conferred upon it by statute or otherwise to quit or 11 surrender this lease or the Demised Premises or any part thereof, or to any suspension, diminution, abatement or reduction of rent, on account of any such damage or destruction. Tenant's failure either (a) to commence (which shall include the preparation of architectural drawings and the good faith adjustment of claims with insurers) such repairs, restoration, replacing and/or rebuilding within 60 days following any such damage or destruction or (b) to pursue diligently the completion of the same shall be deemed a default by Tenant under this lease and the Agreement. 13.2 Notwithstanding anything in section 13. 1 to the contrary, if all or substantially all of the Facility shall be damaged or destroyed by any casualty or cause during the last 5 years of the original Term or during any extension of the Term, Tenant shall have the right to cancel this lease by giving written notice to Landlord within 60 days after such damage or destruction provided Tenant removes the Facility from the Demised Promises, levels the land to grade level and thereafter paves the Demised Premises with six inches of concrete as a parking lot. In case of such cancellation, Tenant shall have the right to retain insurance proceeds except that Landlord shall be entitled to receive from Tenant that portion of all insurance proceeds equal to (a) the total of all insurance proceeds received minus (b) the fair market value of the Facility immediately prior to such damage or destruction. 14. INDEMNIFICATION. To the extent set forth in section 15.2(A) of the Agreement, Tenant shall indemnify and save harmless Landlord, except an provided in section 40 of this lease, from all fines, penalties, costs, suits, proceedings, liabilities, damages, claims and actions of any kind arising out of the use and occupation of or in any way connected with the Demised Premises, or by reason of any breach or nonperformance of any covenant or condition of this lease by Tenant. Except as otherwise provided in section 15.2(B) of the Agreement, this indemnification shall extend to all claims by any person or party for death or injury to persons and damage to any property, and to legal expenses, including reasonable attorney's fees, incurred by Landlord in the defense of such claims or in the enforcement of any provision of this lease. 15. NO LIABILITY OF LANDLORD. Except as provided for in section 15.2(B) of the Agreement or in section 40 of this lease, Landlord, 12 whether as owner of the Demised Premises or in any other capacity, shall not be liable for any damage or injury which may be sustained by Tenant or any other person as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, gas, sewer, waste or spoil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like, or of the electrical, ventilation, air conditioning, gas, power, conveyor, refrigeration, sprinkler, heating or other systems, elevators or hoisting equipment, if any, in the Facility and on, over and under the Demised Premises and the Entire Property; or by reason of the elements; or resulting from acts, conduct or omissions on the part of Tenant or of Tenant's agents, employees. guests, licensees, invitees, assiqnees or successors, or on the part of any other person or party. 16. REMOVAL OF SNOW, ETC. Tenant agrees (a) to remove or cause to be removed, as the need for the same arises, all snow and ice from any sidewalks, driveways and parking areas within the Demised Premises, (b) to keep the sidewalks, driveways and parking areas clean and free from any and all defects, obstructions and encumbrances and (c) to keep the Demised Premises in a neat, clean and orderly condition. 17. IMPROVEMENTS AND ALTERATIONS. Tenant covenants and agrees that it will construct the Facility and make any other improvements, changes, installations, renovations, additions or alterations in and about the Demised Premises in accordance with the terms and provisions of the Agreement and this lease. Tenant shall provide Landlord with "as built" plans for any work completed by Tenant pursuant to this section 17. After Tenant constructs the Facility and if Tenant installs or makes any other improvements, additions, installations, renovations, changes or alterations to the Demised Premises, such improvements shall be the property of Tenant as provided in section 3.2 hereof. The Facility and all other improvements, changes, additions, installations, renovations or alterations (including all equipment and movable trade fixtures necessary to maintain the Facility as an ongoing operating Facility) shall be subject to purchase by Landlord, in accordance with the terms and provisions of the Agreement, subject to the lien of the mortgage, if then outstanding, in favor of the leasehold mortgagee as contemplated by the Credit Agreement, which mortgage shall remain a lien on the Facility and any such improvements until all obligations of Tenant to such leasehold mortgagee are satisfied in 13 full or discharged. If Landlord has not exercised such right to purchase, upon Landlord's giving 6 months advance notice to Tenant before the Termination Date or upon Landlord's giving 30 days advance notice before or after Tenant's removal from or abandonment of the Demised Premises, whichever is applicable, Tenant shall remove forthwith the Facility and all other improvements, additions, installations, renovations, changes or alterations, level the land to grade level and thereafter pave the Demised Premises with six inches of concrete as a parking lot. if Tenant exercises any of its options to purchase the Demised Premises described in section 39 hereunder, any improvements, additions, alterations, installations, renovations or changes not already the property of Tenant shall become the property of Tenant upon the closing of the purchase of the Demised Premises. 18. SIGNS. Tenant may erect and maintain signs advertising its business, provided, however, that all signs comply with all laws, ordinances and regulations of any governmental authority having jurisdiction and that Tenant has received the prior written approval of Landlord which approval shall not be unreasonably withheld. Upon the termination of this lease, Tenant shall remove such sign or signs and shall repair any damage to the Demised Premises caused by the erection or removal thereof. 19. ASSIGNMENT AND SUBLETTING. 19.1 Tenant may not sublet all or any portion of the Demised Promises or assign this lease without Landlord's prior written consent except to the extent permitted under this lease and under the terms and provisions of the Agreement. Tenant may collaterally sublet all or any portion of the Demised Premises or collaterally assign this lease without Landlord's consent to any leasehold mortgagee of Tenant who agrees in writing to assume the obligations of Tenant under the Agreement and this lease in the event that such mortgagee (a) forecloses on its mortgage, (b) takes possession of the Demised Premises or (c) assumes the management of the Tenant's operations, provided, however, that any such leasehold mortgagee may neither further assign this lease nor sublet all or any portion of the Demised Premises without Landlord's prior written consent, such consent not to be unreasonably withheld. Landlord shall consent to any further assignment by any such leasehold mortgagee if such assignee (a) executes a written assumption of all of Tenant's obligations under this lease and the Agreement, 14 (b) possesses substantially the same technical expertise and experience in the cogeneration field as the Tenant, (c) has substantially the same net worth as the aggregate net worth of Tenant and O'Brien Energy Systems, Inc. on the date hereof, (d) cures all of Tenant's defaults, if any, under this lease and the Agreement (if then in effect) which are capable of being cured and (e) agrees to pay all reasonable expenses (including, but not limited to attorney's fees) incurred by Landlord in connection with its request for assignment or subletting or with its entering into a new lease pursuant to section 20.3 of this lease. 19.2 If this lease is assigned as set forth in section 19.1, or if the Demised Premises or any part thereof is occupied by anybody other than Tenant, Landlord may collect rent from the assignee or occupant and apply the net amount collected to the rent herein reserved. Notwithstanding any assignment, Tenant herein shall remain liable for the payment of Bass Rent and Additional Rent reserved hereunder and for the performance of all obligations imposed upon Tenant by this lease. 20. MORTGAGING. 20.1 Notwithstanding anything in this Section 20 or this lease to the contrary, Landlord and Tenant may each mortgage, hypothecate or encumber its interest in this lease only (a) in connection and in accordance with either party's exercise of its rights pursuant to Articles 17 and 19 of the Agreement and (b) in accordance with this section 20. Tenant may mortgage, hypothecate or encumber its interest in this lease only in connection with any financing relating to its construction. maintenance or operation of the Facility and such leasehold interest may not be collaterally mortgaged, hypothecated or encumbered in connection with any other financing transaction entered into by Tenant. 20.2 If Tenant mortgages or encumber its interest in this lease pursuant to and in compliance with this section 20, all rights acquired by such mortgagee shall be subject to all the covenants, conditions and restrictions set forth in this lease and the Agreement, and to all rights and interests of Landlord in the Demised Premises and the Entire Property. 20.3 Tenant's mortgagee under any such mortgage may enforce the mortgage and acquire title (either in its own name or in a nominee) to the leasehold estate hereunder in any lawful way, and by its representative or by a receiver, as the case may be, take possession of and manage the Demised Premises. Upon foreclosure of the 15 mortgage, the leasehold estate may be sold or assigned by such mortgagee or nominee subject to the mortgagee's satisfaction of all the provisions of section 19.1 of this lease, and Landlord will recognize the person, firm or corporation acquiring the leasehold estate as the Tenant hereunder and will enter into a new lease with that person, firm or corporation on the same terms and provisions of this lease. Notwithstanding the preceding sentence, Landlord shall have no obligation to enter into such new lease unless and until that person, firm or corporation has (a) cured all of Tenant's defaults, if any, under this lease which are capable of being cured and (b) has agreed to pay all reasonable expenses (including but not limited to attorney's fees) incurred by Landlord in connection with its entering into such new lease. 20.4 If, at the time of the occurrence of any Event of Default described in section 25 of this lease, the Tenant's leasehold estate created hereby is subject to a first mortgage, provided that the mortgagee thereunder has filed written notice with Landlord together with an address for service, the Landlord shall notify such mortgagee in writing of the existence of the Event of Default, specifying the nature thereof. Landlord shall also give written notice of any default by Tenant known to Landlord which, with the lapse of time or giving of notice, or both, would become an Event of Default, including but not limited to notice of Tenant's failure to perform or observe any of its obligations under Article 3 or section 6.2 of the Agreement, such notice to be given immediately following such defaults. The mortgagee shall have a period of 15 days after the date of notice within which to cure the Event of Default, or if it cannot reasonably be cured within said 15-day period but is capable of being cured, within which to diligently begin to cure the same, in which latter case the mortgagee shall diligently prosecute to conclusion all acts necessary to cure the Event of Default. Notwithstanding anything in the preceding sentence to the contrary, the Mortgagee shall with respect to an Event of Default pursuant to section 16.2(i) of the Agreement, have no cure period beyond the time periods set forth in section 16.2(i). in the event of failure by the mortgagee to cure or diligently begin to cure, Landlord may terminate this lease as herein provided without further notice to the mortgagee. The Lease Term may be preserved if the mortgagee within the cure periods set forth in this section (a) cures all monetary defaults hereunder and under the Agreement, (b) cures any default under section 16.2(i) of the Agreement, (c) diligently commences to cure any nonmonetary default hereunder an under the Agreement which default is capable of being cured (except under 16.2(i) of the Agreement) and 16 diligently prosecutes such cure to conclusion, (d) notifies Landlord in writing of its or its nominee's intention to continue to perform and observe all Of Tenant's covenants and obligations hereunder and under the Agreement upon completion of its foreclosure proceedings in accordance with section 20.3, and (e) without delay, commences and diligently prosecutes to conclusion foreclosure proceedings under its mortgage while keeping all monetary and other obligations hereunder and under the Agreement current. 20.5 As used in this lease as a noun (but not as a verb), the word "mortgage" includes any instrument evidencing a loan or loans to Tenant made at any time during the Lease Term which is or are secured in whole or in part by a specific charge against the leasehold interest of Tenant hereby created or any part of such leasehold interest and includes all renewals, modifications, consolidations, replacement and extensions of such instrument or loan and shall include each and every debenture, mortgage. deed of trust or other evidence of security given by way of assignment, sublease or charge upon such leasehold interest and which matures by its terms before, or is not renewable by the obligor to a date beyond, the date herein provided for the termination of this lease. The word mortgagee" means the mortgagee of a mortgage by Tenant and the successors and assigns of such mortgagee. The word "foreclosure" shall encompass the acquisition of the leasehold estate by judicial proceedings or otherwise, including the exercise of a power of sale contained in a mortgage. 20.6 Landlord will at the request and cost of Tenant and the mortgagee: (a) enter into a direct agreement with the first mortgagee described in section 20.4 confirming the provisions of this section, including an agreement not to make any material modification of this lease without the prior written consent of such mortgagee; and (b) execute, date and deliver a certificate as to the status of this lease, including as to whether it is in full force and effect, is modified or unmodified, confirming the rent payable and the state of the accounts between Landlord and Tenant, the existence or nonexistence of defaults and any other matters pertaining to this lease. 20.7 Tenant and the mortgagee shall give Landlord notice advising of the existence of such first 17 quasi-public use, by any power or authority having the right to take the same by condemnation, eminent demain or otherwise, the amount awarded for compensation for the whole of the Demised Premises so taken shall be paid to Landlord. Tenant hereby expressly grants unto Landlord the entire amount of the award or compensation, expressly disclaiming all right, title and interest therein, and agrees that it shall have no claim for any damage or loss against Landlord by reason of the condemnation or taking except that any amount awarded as compensation for the improvements to the Demised Premises, including the Facility (but excluding the value of Tenant's interest in the unexpired term of this lease), shall be paid to Tenant. Landlord acknowledges that Tenant's first leasehold mortgagee is entitled to receive or hold all proceeds which are due and payable to Tenant hereunder and agrees that Landlord shall hold all such proceeds due Tenant in trust for such leasehold mortgagee. This lease shall terminate as of the date title to all of the Demised Premises shall vest in the taking body or the date Tenant is ousted from possession of the Demised Premises, whichever is earlier. Landlord and Tenant shall thereupon be released of and from all obligations and liabilities to each other accruing hereunder thereafter. Tenant shall pay all Base Rent and Additional Rent accrued up to the time of the Termination Date, and if any rent has been paid in advance Landlord shall return the surplus. 23.2 If a part but less than the entire Demised Premises and all of the improvements thereon is so taken by such power or authority as aforesaid, then this lease, together with all of the agreements, covenants, conditions and obligations herein contained shall continue in full force and effect for the balance of the Term as if the taking had not occurred. The amount awarded for compensation for the part of the Demised Premises so taken shall be paid to Landlord. Tenant hereby grants unto Landlord the entire amount of the award or compensation, expressly disclaiming all right, title and interest therein, and agrees that it shall have no claim for any damages or loss against Landlord by reason of such condemnation or taking, except that any amount awarded as compensation for the improvements to the Demised Premises, including the Facility (but excluding the value of Tenant's interest in the unexpired term of this lease), shall be paid to Tenant. In the event of a partial taking such that Tenant's reasonable use of the Demised Premises shall be materially impaired, Tenant shall have the right to terminate this lease as of the date title shall vest in 19 the taking body or the date Tenant is ousted from Possession of the portion taken, whichever is earlier, by giving Landlord written notice. Landlord shall give written notice to Tenant of such proposed taking specifying the portion of the Demised Premises to be taken. Tenant shall give its written notice of termination within 60 days after the giving of Landlord's notice. Tenant's notice shall state the date of termination (not prior to the date of Tenant's actual ouster from possession of the portion of the Demised Premises so taken) and upon that date all Base Rent and Additional Rent shall be apportioned and paid. Thereafter neither Landlord nor Tenant shall have any obligations to or rights against the other party hereunder. 23.3 If the temporary USO Of the whole or any part of the Demised Premises shall be taken by any lawful power or authority by the exercise of the right of condemnation, eminent domain or otherwise, or by agreement between Tenant and those authorized to exercise such right, Tenant shall give prompt notice thereof to Landlord. Landlord shall give prompt notice to Tenant of any notice Landlord receives regarding on temporary taking of the use of the whole or any part of the Demised Premises. In that event the Term shall not be reduced or affected in any way and Tenant shall continue to pay in full the Base Rent, Additional Rent and other charges herein reserved without reduction or abatement. Tenant shall be entitled to receive for itself any award or payment made for such use, provided, however, that if the period of temporary use shall extend beyond the Termination Date, the award or payment shall be ratably apportioned between Landlord and Tenant. 23.4 The terms "condemnation", "taking" or similar terms as herein used shall mean the acquisition by a public or other authority having the right to take the same by condemnation or eminent domain or otherwise, regardless of whether such taking is the result of actual condemnation or of voluntary conveyance by Landlord. 23.5 Tenant agrees to execute and deliver any instruments as may be deemed necessary by Landlord to expedite any condemnation proceeding or to effectuate a proper transfer of title to such governmental or other authority seeking to take or acquire the Demised Premises or any portion thereof. Each party agrees to give the other and Tenant's first leasehold mortgagee, if any, notice of any condemnation or similar proceeding. 23.6 Tenant shall have the right to participate in and appear at any condemnation proceeding involving the 20 Demised Premises and to file an independent claim only with respect to the improvements to the Demised Premises, including the Facility (but excluding any claim with respect to Tenant's interest in the unexpired term of this lease). If, however, Tenant shall assert a claim or right to claim, except for a claim permitted by the provisions of the immediately preceding sentence, Tenant shall be liable to Landlord for all damages sustained and all expenses incurred by Landlord, including counsel fees and costs of legal proceedings, as a result of the assertion by Tenant of that claim. 24. SURRENDER BY TENANT AT END OF TERM 24.1 Subject to and except as otherwise provided by the provisions of section 17 of this lease, Tenant will surrender possession of the Demised Premises and remove all goods and chattels, including equipment and moveable trade fixtures, and other personal property in the possession of Tenant at the end of the Term or at such other time as Landlord may be entitled to re-enter and take possession of the Demised Premises pursuant to any provision of this lease. Tenant shall leave the Demised Premises in good order and condition. Upon surrender of possession of the Demised Promises, all improvements, additions, installations, renovations, changes or alterations to the Demised Promises shall become the property of Landlord , subject to the lien of the mortgage in favor of the. leasehold mortgagee, if then in effect, as contemplated by the Credit Agreement, which mortgage shall remain a lien on the Facility and any such improvements until all obligations of Tenant to such leasehold mortgages are satisfied in full or discharged. In default of surrender of possession and removal of goods and chattels at the time aforesaid, Tenant will pay to Landlord (a) the Basic Rent and Additional Rent reserved by the terms of this lease for such period as Tenant either holds over in possession of the Demised Premises or allows its goods and chattels or other personal property to remain in the Demised Premises and (b) statutory penalties and all other damages which Landlord shall suffer by reason of Tenant holding over in violation of the terms and provisions of this lease, including all reasonable claims for damages made by any succeeding tenant or purchaser of the Demised Premises against Landlord which may be founded upon delay by Landlord in giving possession of the Demised Premises to such succeeding tenant or purchaser, so far as such damages are occasioned by the unlawful holding over of Tenant. 24.2 Subject to and except as otherwise provided by the provisions of section 17 of this lease, if Tenant 21 fails to remove all goods and chattels and other personal property in possession of Tenant, by whomsoever owned, at the end of the Term or at such other time as Landlord may be entitled to re-enter and take possession of the Demised Premises pursuant to any provision of this lease, Tenant hereby irrevocably makes, constitutes and appoints Landlord as the agent and attorney-in- fact of Tenant to remove all goods and chattels and other personal property from the Demised Premises to a reasonably safe place of storage, the moving and storage to be at the sale cost and expense of Tenant. Tenant covenants and agrees to reimburse and pay to Landlord all expenses which Landlord incurs for the removal and storage of all such goods and chattels. Without limiting the foregoing, Tenant shall be deemed to have abandoned such goods, chattels and other personal property and Landlord may elect that the same shall become its property. 24.3 No act or thing done by Landlord shall be deemed an acceptance of the surrender of the Demised Premises unless Landlord shall execute a written release of Tenant and unless Tenant and any first leasehold mortgagee of Tenant shall also execute such written release. Tenant's liability hereunder shall not be terminated by the execution by Landlord of a new lease of the Demised Premises. 25. DEFAULT BY TENANT. 25.1 if before or during the Term there shall occur any of the following events ("Events of Default"): (a) except as otherwise provided in section 25.2, if Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file an answer admitting or not contesting the material allegations of a petition against it in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or any material part of its assets; or (b) except as otherwise provided in section 25.2, if, within 60 days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, 22 dissolution or similar relief under any present or future statute, law or regulation, the proceeding shall not have been dismissed, or if, within 60 days after the appointment without the consent or acquiescence of Tenant of any trustee, receiver or liquidator of Tenant or of any material part of its assets, the appointment shall not have been vacated; or (c) except as otherwise provided in section 25.2, if the interest of Tenant in the Demised Premises shall be sold under execution or other legal process; or (d) if Tenant shall fail to pay any installment of Base Rent or Additional Rent when the same is due and the failure shall continue for 10 days after Landlord gives Tenant notice thereof; or (e) if Tenant shall fail to perform or observe any requirement, obligation, agreement. covenant or condition of this lease, other than the payment of any installment of Base Rent or Additional Rent, and any such failure shall continue for 30 days after Landlord gives Tenant notice thereof, or if such failure cannot be remedied within 30 days, then for a reasonable time thereafter, provided Tenant diligently commences to remedy the failure within the 30-day period and prosecutes the same to completion with diligence; or (f) if any representation or warranty contained in this lease shall prove to be incorrect in any material respect on the date upon which it was made; or (g) if an Event of Default occurs pursuant to section 16.2 of the Agreement; or (h) if there is an event of default by Tenant under any financial agreement involving more than $2,000,000 which relates to the construction or operation of the Facility and which is not cured within any applicable grace periods; or (i) if Tenant fails to obtain or maintain any material permit or license required to construct or operate the Facility; (j) if there is an assignment for the benefit of creditors of Guarantor; or (k) if Guarantor is adjudged a bankrupt or a petition is filed by or against Guarantor under the provisions of any state insolvency law or under the provisions of federal bankruptcy laws; or 23 (l) if the business or principal assets of Guarantor are placed in the hands of a receiver, assignee or trustee; or (m) if Guarantor is dissolved; then at any time following any of such Events of Default, Landlord shall have all of the rights available to Landlord pursuant to section 16.4 of the Agreement, including, but not limited to, Landlord's right to terminate this lease and the Agreement except as otherwise provided in sections 25.2 or 20 hereof. 25.2 The events of default set forth in subsections 25.1(a), (b), (c), (f) and (h) above shall not constitute an Event of Default or otherwise affect the validity of this lease so long as Tenant, in its status as Seller under the Agreement, continues to provide all of the services described in the Agreement on the part of Seller to be performed and complies with its other obligations under this lease and the Agreement, and in such event, this lease shall continue to remain in full force in accordance with the terms herein contained. 25.3 The non-prevailinq party agrees to pay all costs of proceedings brought or defended by the prevailing party for the enforcement of any terms and conditions of this lease, including reasonable attorney's fees and expenses, which, if Landlord is the prevailing party, shall be deemed Additional Rent for the period with respect to which the Event of Default occurred, payable immediately upon the final disposition of any suit. 25.4 Except as limited by section 16.4 of the Agreement, no remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other remedy herein or provided by law or the Agreement, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. The receipt and acceptance by Landlord of rent with knowledge of the default by Tenant in any of Tenant's obligations under this lease shall not be domed a waiver by Landlord of the default. Nothing contained in this lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to or less than the amount of the loss or damages referred to above. 24 25.5 No waiver by Landlord of any Event of Default or any default by Tenant in any covenant, agreement or obligation under this lease or the Agreement shall operate to waive or affect any subsequent Event of Default or default in any covenant, agreement or obligation hereunder or in the Agreement, nor shall any forbearance by Landlord to enforce a right or remedy upon an - Event of Default or any such default be a waiver of any of its rights and remedies with respect to that or any subsequent default or in any other manner operate to the prejudice of Landlord. 26. QUIET ENJOYMENT. Landlord covenants that Tenant, on paying the rental and performing the covenants and conditions contained in this lease, may peaceably and quietly have, hold and enjoy the Demised Premises for the term aforesaid. 27. CERTIFICATES. Each party agrees at any time and from time to time during the Lease Term, within 10 days after written request from the other party, to execute, acknowledge and deliver to the other party or to a third party a statement in writing certifying that this lease is unmodified and in full force and effect (or if there have been modifications, that the. same is in full force and effect as modified and stating the modifications), and the dates to which the Base Rent, Additional Rent and other charges have been paid in advance, if any, and stating whether or not, to the best knowledge of the party making such certificate, the other party is in default in the performance of any covenant, agreement or condition contained in this lease, and, if so, specifying each such default of which such party may have knowledge. Such third party shall have the right to rely upon the contents of any such written statement. 28. NOTICES. 28.1 Whenever it is provided herein that notice, demand, request or other communication shall or may be given to or served upon either of the parties, or if either of the parties shall desire to give or serve upon the other any notice, demand, request or other communication with respect hereto or the Demised Premises, the notice shall be in writing, and. any law or statute to the contrary notwithstanding, shall be given or served as follows: 25 (a) if given or served by Landlord, by hand delivery, by overnight nationwide courier delivery service or by mailing the same to Tenant by registered or certified mail, postage prepaid, return receipt requested, addressed to Tenant at the Demised Premises or at such other address as Tenant may from time to time designate by notice given to Landlord in the manner herein provided, with a copy to any first mortgagee of which Landlord has notice under section 21.6; and (b) if given or served by Tenant, by hand delivery, by overnight nationwide courier delivery service or by mailing the same to Landlord by registered or certified mail, postage prepaid, return receipt requested, addressed to Landlord at the address first set forth above or at such other address as Landlord may from time to time designate by notice given to Tenant in the manner herein provided. 28.2 Every notice, demand, request or other communication hereunder shall be deemed to have been given or served (a) at the time that the same shall be hand delivered or delivered by the courier delivery service or (b) 3 days after the same shall be deposited in the United States mails, postage prepaid, in the manner aforesaid. No notice given by Landlord shall be effective unless given to any first mortgagee of which Landlord has notice under section 21.6. 29. CAPTIONS. The captions to the sections of this lease are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this lease or any part thereof nor in any way affect this lease or any part thereof. 30. COVENANTS AND CONDITIONS. All of the terms and provisions of this lease shall be deemed and construed to be "covenants" and "conditions" to be performed by the respective parties as though words specifically expressing or importing covenants and conditions were used in each separate term and provision hereof. 31. WAIVER OF TRIAL BY JURY. Landlord and Tenant hereby mutually waive their rights to trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto 26 against the other on any matters whatsoever arising out of or in any way connected with this lease, Tenant's use or occupancy of the Demised Premises, and any claim of injury or damage. 32. DEFINITION OF TERM "LANDLORD" When the term "Landlord" is used in this lease it shall be construed to mean and include only the then owner of the fee title of the Demised Premises. Upon the transfer by Landlord of the fee title to the Demised Premises, Landlord shall give Tenant notice in writing of the name and address of Landlord's transferee. In such event the former Landlord shall be automatically freed and relieved from and after the date of such transfer of title of all personal liability with respect to the performance of any of the covenants and obligations on the part of Landlord herein contained to be performed so long as the transfer and conveyance by Landlord is expressly subject to the assumption by the grantee or transferee of such covenants and obligations of Landlord. 33. BROKERAGE REPRESENTATION. Tenant hereby represents and warrants to Landlord that it did not see the Demised Premises with, nor was it introduced to the Demised Premises by, any real estate broker or agent thereof. Tenant further represents and warrants that it knows of no person who is entitled to a real estate brokerage commission or sum in lieu thereof in connection with the execution of this lease or the creation of the tenancy effected by this lease. 34. COVENANTS OF FURTHER ASSURANCES. 34.1 If, in connection with Landlord's obtaining financing for the Demised Premises or the Entire Property, a lender shall request reasonable modifications in this lease as a condition to such financing, Tenant will, contingent upon Tenant's obtaining the prior consent of its mortgagee, not unreasonably withhold, delay or defer its written consent thereto, provided that such modifications do not in Tenant's reasonable judgment (a) materially increase the obligations of Tenant hereunder or under the Agreement or (b) materially adversely affect the leasehold interest hereby created or Tenant's use and enjoyment of the Demised Premises pursuant hereto or to the Agreement. 34.2 If in connection with Tenant's obtaining financing for the Facility or the Demised Premises, a lender shall request reasonable modifications in this 27 lease as a condition to such financing, Landlord will , contingent upon Landlord's obtaining the prior consent of it mortgagee to such modifications, not unreasonably withhold, delay or defer its written consent thereto, provided that such modifications do not in Landlord's reasonable judgment (a) materially decrease the obligations of Tenant hereunder or under the Agreement (b) materially increase the Landlord's obligation hereunder or thereunder or (c) materially adversely affect Landlord's estate and interest hereunder. 35. ENTIRE AGREEMENT This lease contains the entire agreement between the parties and shall not be modified in any manner except by an instrument in writing executed by the parties. 36. APPLICABLE LAW. This lease and the performance thereof shall be governed by and construed in accordance with the laws of the state of Now Jersey. 37. BIND AND INURE CLAUSE. The terms, covenants and conditions of this lease shall be binding upon and inure to the benefit of each of the parties hereto, and their respective successors and assigns. 38. TENANT'S RECOURSE. In any action or proceeding brought by Tenant against Landlord on this lease, Tenant shall look solely to the Demised Premises for the payment of any damages or satisfaction of any liabilities or obligations of Landlord, and no judgment obtained by Tenant shall be enforceable against, or a lien upon, any property of Landlord other than the Demised Premises. This section 38 shall have no applicability to Landlord's liability to Tenant under the Agreement. 39. OPTIONS TO PURCHASE. 39.1 Tenant shall have the right, option and/or obligation to purchase the Demised Premises only to the extent that those rights, options and obligations are given to or required of Tenant under the terms and provisions of the Agreement, including but not limited to Article 5 and section 11.1 of the Agreement. 28 39.2 If Tenant elects or is required to purchase the Demised Premises under section 39.1 of this lease, title thereto (including title to all easements which (a) were theretofore granted by Landlord to Tenant pursuant to this lease and (b) are necessary in order "or Tenant to continue operating the Facility) will be conveyed to Tenant by a Bargain and Sale Deed with Covenant against Grantor's Acts and a properly executed Affidavit of Title, subject to all agreements and restrictions of record (but free of all mortgages and other liens and encumbrances placed by Landlord on the Demised Premises which are capable of satisfaction by the payment of a fixed sum of money), all applicable provisions of the Agreement and all facts which a survey and physical inspection of the Demised Promises would reveal. Tenant shall be obligated at its sole cost and expense to obtain all governmental approvals necessary to consummate such purchase including, but not limited to, the obtaining of any subdivision and, subject to the provisions of section 40 of this lease, environmental approvals (including the complete cost of any necessary environmental cleanup). If Landlord is unable in good faith to convey title as specified herein because of circumstances beyond Landlord's reasonable control, Landlord shall be released from the obligation to convey title, and shall not be liable to Tenant for any damages resulting therefrom. 39.3 If Tenant purchases the Demised Premises, Landlord shall have the right, option and/or obligation thereafter to repurchase the Demised. Premises only to the extent that those rights, options and obligations are given to or required of Landlord under the terms and provisions of the Agreement. The repurchase rights of Landlord shall be reflected in any deed from Landlord to Tenant. 39.4 Landlord shall have the right, option and/or obligation to purchase the Facility only to the extent that those rights, options and obligations are given to or required of Landlord under the terms and provisions of Agreement including, but not limited to, Article 5 and section 16.4 of the Agreement. Any purchase of the Facility and the improvements shall be subject to the lion of the mortgage, if then in effect, in favor of the leasehold mortgagee as contemplated by the Credit Agreement, which mortgage shall remain a lien on the Facility and the improvements until all obligations of Tenant to such leasehold mortgagee are satisfied in full or discharged. 39.5 Neither Landlord nor Tenant may assign their respective options and obligations to purchase the 29 Demised Premises or the Facility, as applicable, except to the extent permitted by their respective mortgages and as otherwise permitted under the terms and provisions of the, Agreement. 39.6 TENANT AIM LANDLORD AGREE THAT TIME IS OF THE ESSENCE NOT ONLY IN EXERCISING ALL OF THEIR RESPECTIVE PURCHASE OPTIONS AND/OR OBLIGATIONS BUT ALSO IN CLOSING THS PURCHASE THEREAFTER. TENANT AND LANDLORD ALSO AGREE THAT TIME IS OF THE ESSENCE REGARDING THE NOTICE OF TERMINATION DESCRIBED IN SECTION 5.1(ii) OF THE AGREEMENT. 40. ENVIRONMENTAL OBLIGATIONS. 40.1 For purposes of this section, (a) "Hazardous Substances" include any pollutants, dangerous substances or any "hazardous wastes" or "hazardous substances" as defined in or pursuant to the Environmental Cleanup Responsibility Act (N.J.S.A. 13: 1K-6 et seq.) ("ECRA"), the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.), the Resource Conservation and Recovery Act (42 U.S. SS6901 et seq.), the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. SS9601 et seq.) or any other state or federal environmental law or regulation. (b) "Enforcement Notice" means a summons, citation, directive, order, claim, litigation, investigation, judgment, letter or other communication, written or oral, actual or threatened, from the Now Jersey Department of Environmental Protection ("NJDEP"), the United states Environmental Protection Agency "USEPA") or other Federal, State or local agency or authority, or any other entity or any individual, concerning any intentional or unintentional action or omission resulting or which might result in the Releasing of Hazardous Substances into the waters or onto the lands of the State of New Jersey, or into waters outside the jurisdiction of the State of New Jersey where damage may have resulted to the lands, waters, fish, shellfish, wildlife, biota, air or other resources owned, managed, hold In trust or otherwise controlled by, or within the jurisdiction of. the State of Now Jersey, or into the 'environment', as such term is defined in 42 U.S.C. SS9601(8). (c) "Releasing', means releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, dumping or otherwise placing. 30 40.2 The Demised Premises shall not be used and/or occupied by the Tenant to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer or process Hazardous Substances, except as disclosed by the Tenant in Appendix A. Notwithstanding the previous sentence, Tenant shall be permitted to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer or process Hazardous Substances in addition to those listed in Appendix A if and only if (a) Tenant obtains Landlord's prior written consent, such consent not to be unreasonably withheld, and (b) the Hazardous Substances are necessary or appropriate in connection with Tenant's operation of the Facility and (c) Tenant proves to Landlord's reasonable satisfaction that all such Hazardous Substances will be used in accordance with all applicable requirements of all applicable public authorities. 40.3 The Demised Premises shall not be used by as a "Major Facility", as such term is defined as a "Major Facility" in N.J.S.A. 58:10- 23.llb(l). 40.4 The Tenant shall not suffer or permit any lien to attach to the Demised Premises as a result of the chief executive of the New Jersey Spill Compensation Fund ("Spill Fund" or "Fund") expending monies from the Fund to pay for "Damages", as such term is defined in N.J.S.A. 58:10-23.11(g) ("Damages") and/or "Cleanup and Removal Costs", as such term is defined in N.J.S.A. 58:1023.11b(d) ("Cleanup and Removal Costs"), arising after the Commencement Date from any intentional or unintentional action or omission of the Tenant, user and/or operator of the Demised Premises, resulting in the Releasing of Hazardous Substances into the waters or onto the lands of the State of Now Jersey, or into waters outside the jurisdiction of the State of New Jersey where damage may have resulted to the lands, waters, fish, shellfish, wildlife, biota, air or other resources owned, managed, held in trust or otherwise controlled by, or within the jurisdiction of, the State of New Jersey. Under no circumstances shall Tenant be responsible for Damages or Cleanup and Removal Costs for the remediation of Hazardous Substances Released at the Demised Premises prior to the Commencement Date or Released by Landlord. 40.5 Tenant shall not suffer or permit any Enforcement Notice or any facts which might result in any Enforcement Notice with respect to the Demised Premises arising, in either case, after the Commencement Date from any intentional or unintentional action or omission of the Tenant, user and/or operator of the Demised Premises, 31 resulting in the Release of Hazardous Substances on or after the Commencement Date. 40.6 If the Tenant obtains knowledge of the assertion of any lien, as set forth in section 40.4, or an Enforcement Notice, as set forth in section 40.5, or obtains knowledge of facts which may give rise to such lien or Enforcement Notice, whether written or oral, it shall promptly notify the Landlord in writing. 40.7 At the request of Landlord during and after the Term, in the event of an Enforcement Notice or other circumstances leading Landlord reasonably to conclude an Enforcement Notice could issue as a result of events, actions or facts occurring or arising after the Commencement Date, the Tenant will retain an environmental consultant, acceptable to the Landlord. to conduct an appropriate on-site inspection of the Demised Premises, including if necessary a geohydrological survey of soil and subsurface conditions as well as other tests, to determine the presence of such Hazardous Substances and the consultant shall certify to the Landlord whether, in his professional judgment, there exists any evidence of the presence of Hazardous Substances on or in the Demised Premises. 40.8 If there shall be filed a lien against the Demised Premises by the NJDEP pursuant to and in accordance with the provisions of N.J.S.A. 58:10-23.11f(f) as a result of the chief executive of the Spill Fund having expended monies from the Spill Fund to pay for Damages and/or Cleanup and Removal Costs attributable to the Releasing of Hazardous Substances after the Commencement Date, the Tenant shall immediately either (a) pay the claim and remove the lien from the Demised Premises, or (b) furnish M a bond satisfactory to the Landlord in the amount of -he claim out of which the lien arises, (ii) a cash deposit in the amount of the claim out of which the lien arises, or (iii) other security reasonably satisfactory to the Landlord in an amount sufficient to discharge the claim out of which the lien arises. 40.9 The Tenant warrants and represents that the Standard Industrial Code ("SIC Code") number for the activities to be carried on within the Demised Premises is 4931, and that no other activities having any different SIC Code numbers shall be conducted on the Demised Premises without the Landlord's prior written consent, which consent may be arbitrarily withheld. 40.10 Compliance with the provisions of ECRA ("ECRA Compliance" or "ECRA Clearance") shall be accomplished by either (a) obtaining an "ECRA Nonapplicability 32 Letter" from the NJDEP (if ECRA is not applicable) or (b) submitting to the NJDEP a "Negative Declaration", as such term is defined in N.J.A.C. 7:1-3.3 ("Negative Declaration") or in lieu thereof submitting and implementing a "cleanup plan", as such term is defined in N.J.A.C. 7:1-3.3 ("Cleanup Plan"). The allocation of responsibility between Tenant and Landlord for ECRA compliance shall be as follows (subject to the allocation of costs pursuant to section 40.11): (a) if ECRA Compliance is necessary because Tenant has exercised any of its rights under the Agreement to purchase either the Demised Premises or the Entire Property (including the Demised Premises), Tenant shall be responsible for ECRA Compliance for both such acquisition and any subsequent resale of said property pursuant to the Agreement; and (b) if ECRA Compliance is necessary because Tenant ceases its operations at the Facility, Tenant shall be responsible for ECRA compliance; and (c) if ECRA Compliance is necessary for any reason other than the reasons set forth in subsections 40.10(a) or (b), the party whose actions caused ECRA Compliance to be necessary shall be responsible for such compliance. Notwithstanding anything in this section 40.10 to the contrary, Tenant and Landlord agree to cooperate with each other and to exchange information relating to ECRA Compliance regardless of which party is responsible for such Compliance. 40.11 The allocation of responsibility as between Tenant and Landlord for the payment of any and all costs and fees ("ECRA Costs") associated with ECRA compliance shall be as follows: (a) all of that portion of ECRA Costs which relates either to (i) obtaining an ECRA Nonapplicability Letter or (ii) submitting a Negative Declaration to the NJDEP, excluding the submission and implementation of any necessary sampling plan, shall be paid by the party who is responsible for ECRA compliance pursuant to section 40.io above; and (b) all of that portion of ECRA Costs which relates to submitting and implementing a sampling plan or 33 a cleanup Plan shall be paid by, and the submission and implementation of the Cleanup Plan shall. to the extent permitted by NJDEP under ECRA, be controlled by (i) Landlord if the Hazardous Substances requiring remediation were either Released prior to the Commencement Date or Released by Landlord and (ii) Tenant if the Hazardous Substances requiring remediation were Released after the Commencement Date and were not Released by Landlord. 40.12 Unless Tenant delivers an ECRA Nonapplicability Letter to Landlord on or before 6 months prior to the end of the Term, Tenant shall commence its ECRA compliance efforts relating to its cessation of operations at east 6 months prior to the end of the Term and diligently pursue such efforts to conclusion. Tenant shall keep Landlord fully informed of its progress in obtaining ECRA Clearance by sending a copy of all correspondence and documents to Landlord and by delivering an ECRA Compliance status report to Landlord every 30 days during the 6-month clearance period. it is understood and agreed by Tenant that Landlord shall have the right to rely an and shall rely on all statements, representations, warranties and commitments made by Tenant to the NJDEP pursuant to this section an if such statements, representations, warranties and commitments had been made directly to the Landlord, if Tenant fails to obtain ECRA Clearance on or before the and of the Term, Tenant shall be liable to Landlord as a holdover tenant, without limiting any other liability of Tenant to Landlord resulting from its default under this lease. 40.13 Whenever the terms ECRA, Spill Fund, Major Facility and similar terms and statutory references are used in this lease, they shall be deemed to include any similar, future or successor statutory references and/or terms as may apply to the Demised Premises and its use and occupancy by Tenant under this lease. 41. GUARANTY. O'Brien Energy Systems, Inc., of which Tenant is a wholly-owned subsidiary, will execute as Appendix 3 to this lease an appropriate guaranty of the due and punctual performance of all of Tenant's obligations under this lease. This guaranty will continue in full force and 34 effect for the duration of this lease unless Landlord and Tenant mutually agree to terminate it, whereupon it will have no further force or effect. 42. RELATIONSHIP TO THE AGREEMENT. Notwithstanding anything in this lease to the contrary, in case of any ambiguity or contradiction between the terms and provisions of this lease and the terms and provisions of the Agreement, the terms and provisions of the Agreement shall control. 43. CONTINUATION OF LEASE Notwithstanding any provision of this lease or the Agreement to the contrary, unless this lease is otherwise continued in connection with the assumption of the Agreement by a purchaser of the "Plant" pursuant to section 5.1(B) of the Agreement (in which case this lease will continue as presently written), so long as there is then no Event of Default by Tenant under this lease, this lease shall not terminate upon the exercise by the Landlord of its rights to sell or abandon the "Plant" as provided in Section 5.1(B) of the Agreement (unless the Tenant purchases the Demised Premises pursuant to such Section 5.1(B)) but shall continue in effect until the twenty-fifth anniversary of the Commencement Date, provided that the parties shall enter into a new lease (or amend this lease) which shall be on the same terms hereof except that (a) Base Rent shall be renegotiated to a fair market rental for comparable premises and (b) all references herein to the Agreement (other than those relating to the production of steam by Tenant and the purchase thereof by Landlord, which references shall be delted) shall, to the extent required to effectuate the purposes of this lease, be replaced by provisions comparable to the provisions of the Agreement. 44. RECORDING. The parties agree that a memorandum of lease in the form attached hereto as Schedule C ("Memorandum of Lease") shall be recorded in the Essex County Register's Office, immediately following the Commencement Date. Neither party shall have the right to record either this entire lease or any writing other than the Memorandum of Lease which describes the terms and provisions of this lease. 35 IN WITNESS WHEREOF, the parties have executed or have caused this lease to be executed by their duly authorized officers and their corporate seals to be hereunto affixed and attested, all as of the day and year first above written. ATTEST By: /s/ William D. Harper William D. Harper V.P. and Secretary ATTEST By: /s/ Carlene B. Balickie Carlene B. Balickie Assistant Secretary NEWARK GROUP INDUSTRIES, INC. (Landlord) By: /s/ Connie B. Smith Connie B. Smith V.P. O'BRIEN (NEWARK) COGENERATION, INC. (Tenant) By: /s/ Sanders Newman Sanders Newman Secretary SCHEDULE A Legal Description of Property To be Leased to O'Brien (Newark) Cogeneration, Inc. In the City of Newark, N.J. By Newark Group Industries, Inc. Beginning at a point in the North Easterly Section of Lot 75, Block 2412, said point being distant 28.0' South of the Southerly R.O.W. of the Central Railroad of N.J. and 60.0' Westerly Property Line of Blanchard and running thence: (1) S13-02'12"E a distance of 110.00' to a point; and thence (2) Sl-30'00"W a distance of 62.54' to a point; and thence (3) N88-30'00"W a distance of 191.00' to a point; and thence (4) Nl-30'00"E a distance of 175.00' to a point; and thence (5) S86-26'00"E a distance of 163.49' to the point or place of Beginning. SCHEDULE B-1 [Drawing of lease area] Steam Purchase Agreement between Landlord and Tenant dated October 3, 1986 as amended by Amendments dated March 8, 1988 and July 18. 1988 (as so amended and as it may be amended from time to time in accordance with the provisions thereof, the "Agreement"), will terminate 120 days after the termination of the Agreement or on such other date as may be provided in the Lease or the Agreement, whether following an extension or renewal hereof or otherwise. 3. The Lease provides the Tenant with (a) the right to extend the lease term for successive additional terms of five (5) years each but only in connection with the renewal of the Agreement and upon the terms contained therein and (b) the right to purchase the Demised Premises and the Entire Property, such purchase rights of Tenant being exercisable upon the terms and conditions as more particularly set forth in the Lease and the Agreement. 4. All of the terms, covenants and conditions of the Lease are fully and particularly set forth in the Lease executed by the parties, which is incorporated herein by reference as if herein set forth in full. IN WITNESS WHEREOF, the parties have set their hands and seals or caused this Memorandum of Lease to be executed by their proper corporate officers and their corporate seals to be affixed, as of the day and year first above written. ATTEST: [Seal] ATTEST: [Seal] NEWARK GROUP INDUSTRIES, INC., Landlord By: O'BRIEN (NEWARK) COGENERATION, INC., Tenant By: STATE OF NEW JERSEY: COUNTY or ESSEX: BE IT REMEMBERED, that on this day of July, 1988, before me, the subscriber, an Attorney-at-Law of the State of New Jersey, personally appeared who, being by me duly sworn and on his oath, deposed and made proof to my satisfaction that he is the of Newark Group Industries, Inc., and the person who has signed the within instrument, and I having first made known to him the contents thereof, he did acknowledge that he signed, sealed with the proper corporate seal and delivered the same as such officer an behalf of the corporation as its voluntary act and deed, made by virtue of authority from its board of directors, for the uses and purposes therein expressed. Attorney-at-Law of New Jersey STATE OF NEW JERSEY: COUNTY OF ESSEX: BE IT REMEMBERED, that an this day of 19 , before me, the subscriber, a Notary Public of the State of , County of personally appeared who, being by me duly sworn and on this oath, deposed and made proof to my satisfaction that he is the of ,and the person who has signed the within instrument; and I having first made known to him the contents thereof, he did acknowledge that he signed, sealed with the proper corporate seal and delivered the same as such officer on behalf of the corporation as its voluntary act and deed, made by virtue of authority from its board of directors, for the uses and purposes therein expressed. Notary Public (Apply Raised Seal and Stamp indicating expiration date of Commission) Prepared by: APPENDIX A Tenant's Hazardous Substance List Type of Hazardous substance 1. No 2 Fuel or Kerosene 2. Ammonia Selective 3. Drew Chemical Adjunct B or F (or equivalent)t Neutral orthophosphate 4. Mekor (R) 70 (or equivalent): Volatile organic oxygen Scavenger/Metal passivator 5. Amercor 8750 Inhibitor (or Equivalent): Neutralizing Amines 6. Advantage (R) 202 Deposit Inhibitor (or equivalent): Polymeric Antiscalant- Sequesterant (as a substitute for Item 3) 7. PerforMax 4021/403 Chlorine Sulfuric Acid 8. Lubricants 9. Sulfuric Acid 10. Sodium Hydroxide (Caustic Soda) 11. Sodium Sulfite 12. Solvents (Degreasers) MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE made this 18th day of July, 1988, BETWEEN NEWARK GROUP INDUSTRIES, a New Jersey corporation located at 57 Freeman Street, Newark, New Jersey 07105 ("Landlord"), AND O'BRIEN (NEWARK) COGENERATION, INC., a Delaware corporation located at 225 South Eighth Street, Philadelphia, Pennsylvania 19106 ("Tenant"), W I T N E S S T H": 1. The parties do hereby acknowledge and declare that they have entered into a lease dated as of July 18, 1988, ("Lease") for a portion of the land in the City of Newark, County of Essex and State of Now Jersey, located at 60 Lockwood Street and being known and designated as Lots 75 and 58, Block 2412 on the Newark, New Jersey Tax Maps ("Entire Property"), and more particularly described in Schedule A hereto ("Demised Premises"). 2. The Lease commenced an July 18, 1988 and, except as otherwise Provided in Section 5.1(B) of the Steam Purchase Agreement between Landlord and Tenant dated October 3, 1986 an amended by Amendments dated March 8, 1986 and July Is, 1988 (as so amended and as it may be amended from time to time in accordance with the Prepared by: /s/ Margaret F. Black Margaret F. Black, Esq. Sills Cummis Zuckerman Radin Tischman Epstein & Gross provisions thereof, the "Agreement"), will terminate 120 days after the termination of the Agreement or on such other date as may be provided in the Lease or the Agreement, whether following an extension or renewal hereof or otherwise. 3. The Lease provides the Tenant with (a) the right to extend the lease term for Successive additional terms of five (5) years each but only in connection with the renewal of the Agreement and upon the terms contained therein and (b) the right to purchase the Demised Premises and the Entire Property, such purchase rights of Tenant being exercisable upon the terms and conditions as more particularly set forth in the Lease and the Agreement. 4. All of the terms, covenants and conditions of the Lease are fully and particularly sot forth in the Lease executed by the parties, which in incorporated herein by reference as if herein set forth in full. 2 IN WITNESS WHEREOF, the parties have set their hands and seals or caused this Memorandum of Lease to be executed by their proper corporate officers as of the day and year first above written. ATTEST By: /s/ William D. Harper William D. Harper, V.P. and Secretary ATTEST By: /s/ Carlene B. Balickie Carlene B. Balickie, Assistant Secretary NEWARK GROUP INDUSTRIES, INC. (Landlord) By: /s/ Connie B. Smith Connie B. Smith, V.P. O'BRIEN (NEWARK) COGENERATION, INC. (Tenant) By: /s/ Sanders Newman Sanders D. Newman Secretary STATE OF NEW JERSEY, COUNTY OF ESSEX SS: I CERTIFY that on July 20, 1988, SANDERS D. NEWMAN personally came before me and this person acknowledged under oath, to my satisfaction that: (a) this person signed, sealed and delivered the attached document as Secretary of O'Brien (Newark) Cogeneration, Inc., the corporation named in this document: (b) the proper corporate seal was affixed; and (c) this document was signed and made by the corporation as its voluntary act and deed by virtue of authority from its Board of Directors. /s/ Margaret F. Black Notary Public/Attorney at Law Of New Jersey STATE OF NM JERSEY, COUNTY OF ESSEX SS: I CERTIFY that on July 15, 1988, CONNIE B. SMITH personally came before me and this person acknowledged under oath, to my satisfaction that: (a) this person signed, sealed and delivered the attached document as Vice President of Newark Group Industries, Inc., the corporation named in this document: (b) the proper corporate seal was affixed; and (c) this document was signed and made by the corporation as its voluntary act and deed by virtue of authority from its Board of Directors. /s/ Margaret F. Black Margaret F. Black Attorney at Law of New Jersey EX-10.30 22 EXHIBIT 10.30 PARLIN LEASE Exhibit 10.30 GROUND LEASE BETWEEN E. I. DU PONT DE NEMOURS AND COMPANY AND O'BRIEN ENERGY SYSTEMS, INC. TABLE OF CONTENTS Paragraph Page 1. PREMISES LEASED 2 2. CONSTRUCTION OF FACILITIES BY TENANT 4 3. TERM 9 4. RENT 9 5. CONDITION PREECEDENT 9 6. TAXES AND ASSESSMENTS 10 7. USE 12 8. REPAIR AND MAINTENANCE 12 9. UTILITIES 13 10. INDEMNIFICATION 13 11. REQUIREMENTS OF PUBLIC AUTHORITY 13 12. ACCESS TO PREMISES 15 13. ASSIGNMENT AND SUBLETTING 15 14. SIGNS 15 15. INSURANCE 15 16. WAIVER OF SUBROGATION 16 17. CASUALTY 17 18. CONDEMNATION 17 19. FEE MORTGAGES 20 TABLE OF CONTENTS (cont'd) Paragraph Page 20. DEFAULT 21 21. BANKRUPTCY AND INSOLVENCY 21 22. WAIVERS 22 23. NOTICES 22 24. SURRENDER 23 25. GOVERNING LAW 23 26. PARTIAL INVALIDITY 23 27. SHORT FORM LEASE 23 28. SUCCESSION 24 GROUND LEASE THIS LEASE AGREEMENT, entered into this 2nd day of , 1986, s by and between E. I.DU PONT DE NEMOURS ND COMPANY, a Delaware corporation, having its principal office and place of business at 1007 Market Street, Wilmington, Delaware 19898 ("LANDLORD"), and O'BRIEN ENERGY SYSTEMS. INC., a Delaware corporation of Philadelphia, Pennsylvania, ("TENANT"). W I T N E S S E T H : WHEREAS, (a) LANDLORD is the owner of a tract of land situate in the Borough of Sayreville. Middlesex County, State of New Jersey, and as more particularly described herein: and (b) It is the intent of the parties hereto that LANDLORD shall lease said land to TENANT upon and; subject to the conditions and limitations hereinafter expressed: and (c) It is the intent of the parties hereto that TENANT will erect a cogeneration facility on said land from which LANDLORD shall purchase steam pursuant to a certain steam purchase contract between the parties hereto ("STEAM CONTRACT"). NOW, THEREFORE, the parties hereto. intending to be legally bound, agree as follows; 1. PREMISES LEASED. LANDLORD, for and in consideration of the rents, covenants and agreements hereinafter reserved, mentioned and contained an the part of TENANT, its successors and permitted assigns, to be kept, paid, observed, and performed, has leased, rented, let and demigod and by these presents does lease, rent and demise unto TENANT, and TENANT does hereby take and hire, upon and subject to the conditions and limitations hereinafter expressed, all that piece, parcel or tract of land with the buildings and improvements thereon now or hereafter erected, situate in Borough of Sayreville, Middlesex County, New Jersey, as more particularly described as follows: BEGINNING at a concrete monument set in the southerly side of Washing Road, 50' wide, said point being a common corner for the parcel herein being described and lands now or formerly of New Jersey Highway Authority; Thence thereby the two (2) following described courses and distances: (1) SO1--06'-OO"E, 338.19' to a set concrete monument and (2) S86-47'-09"E, 156.06' to a concrete monument set at a corner of other lands of E. I. du Pont de Nemours and Company the six (6) following described courses and distances: (1) S28'-49'-27"W, 450.74' to an iron pipe set, last described course also crossing and running along, in part, a 40' wide Jersey Central Power and Light Co. easement, (2) S33'-30"-27"W, 175.92' to a nail set in asphalt, last described course also continuing along westerly side of a Jersey Central Power and Light Co. easement at varying width, (3) N61'-10'-33"W, 267.36' to an iron pipe set, (4) N28-49'-27"E, 445.00' to a concrete monument set in 2 the southerly side of said 40' wide Jersey Central Power and Light Co. easement, (5) S83-53'-33"E, 110.00' to a concrete monument set in the said 40' wide Jersey Central Power and Light Co. easement, Last described course also being along the said 40' wide Jersey Central Power & Light Co. Easement, in part, and (6) NO1-06'-00"W, 382.02' to a found iron pipe an the said southerly side of Washington Road, last described course also recrossing said 40' wide Jersey Central Power and Light Co. easement, Thence along the said southerly side of Washington Road NSS*-54'-00"E, 70.00' to the point and place of BEGINNING. Containing within said described mates and bounds 4.02 acres of land. be the same, more or less. The aforementioned property is also shown on a survey entitled "PROPERTY PLAN FOR PROPERTY OF E. I. DU PONT DE NEMOURS AND COMPANY, PARLIN WORKS" dated December 1, 1986 prepared by MANN- TALLEY ENGINEERS & SURVEYORS, PROJECT NO. 1186-12, a copy of which is attached hereto as EXHIBIT "A". The aforementioned property is subject to the following: (1) all matters of record and any state of facts that is apparent or that an accurate survey or inspection of the aforementioned property would disclose: (2) all agreements not of record but in use; (3) present and future zoning laws, ordinances, resolutions, and regulations of all boards, bureaus, or commissions and bodies of any municipal, county, state or federal sovereign now 3 or hereafter having or acquiring jurisdiction of the aforementioned property and the use. and improvements thereof: (4) The effect of all present and future laws and ordinances relating to TENANT'S, or Occupants use of the aforementioned property: (5) violations of laws and ordinances that might be disclosed by an examination and inspection or search of the aforementioned property as of the date first above written; (6) the condition and state of repair of the aforementioned property as the same may be an the date first above written; (7) all taxes, assessments, water meter and water charges, sewer rents accrued or unaccrued. fixed or not fixed: (8) any defects of title or any encumbrances affecting the aforementioned property or any encroachments existing as of the date first above written. The aforementioned property and all improvements, rights, easements and appurtenances thereunto belonging are hereinafter referred to as "LEASED PREMISES". TO HAVE AND TO HOLD the same, subject as aforesaid, unto TENANT and, subject to the terms, covenants, agreements, provisions, conditions and limitations hereof, for the term described herein. 2. CONSTRUCTION OF FACILITIES BY TENANT. (a) Provided the conditions Of STEAM CONTRACT Article 13 "Preconditions to Performance" are satisfied, TENANT covenants and agrees to construct a cogeneration facility with 4 related improvements on the LEASED PREMISES, without cost or expense to LANDLORD, in accordance with the requirements at all laws, ordinances, codes, orders. rules, and regulations of all governmental authorities having jurisdiction over the LEASED PREMISES and as such facility is more particularly described in STEAM CONTRACT . At such time as final certificates of occupancy or equivalent use certificates shall be issued, TENANT shall be doomed to be in compliance with this subparagraph (a) as to any buildings, structures, and improvements constructed on the LEASED PREMISES. (b) In the event TENANT, in the course of its construction requires an electrical service connection from LEASED PREMISES to an electrical transmission line, upon TENANT's request LANDLORD agrees to provide an easement for such electrical connection along a way as designated by LANDLORD across its lands. (c) TENANT, at its own cost and expense, shall apply for and prosecute with reasonable diligence, all necessary permits and licenses required for the construction mentioned in subparagraph (a) of this Paragraph. LANDLORD, without cost or expense to itself, shall cooperate with TENANT in securing building and other permits and authorizations necessary from time to time for this performance of any construction, alterations or other work permitted to be done by TENANT under this Lease, but such cooperation by LANDLORD shall not be construed as consent to the filing of a mechanic's lien or a notice of intention to file a mechanic's lien or any claim relating thereto. (d) Throughout the duration of this Lease, TENANT agrees that all installations or buildings, structures, and improvements that may be erected on the LEASED PREMISES by 5 TENANT or any subtenants. including, but not limited to, all plumbing, electrical, heating, air-conditioning and Ventilation equipment and systems, and all other equipment, will be installed, operated, and maintained in accordance with the law and with the regulations and requirements of any and all governmental authorities, agencies, or departments, having jurisdiction thereof, without cost or expense to LANDLORD. (e) If, at any time during the term of this Lease, any liens or claims of mechanics. laborers, or materialmen shall be filed against the LEASED PREMISES, or any part of parts thereof, for any work, labor, or materials furnished, alleged to have been furnished or to be furnished pursuant to the written agreement by TENANT or any person holding thereunder, TENANT, within 7 days after: (i) The date of the filing or recording of any such lien, or the filing or recording of any notice of intention to file a lien or claim of lien; and (ii) The receipt by TENANT from LANDLORD of written notice of such filing and recording at TENANT's own cost and expense, it of record, shall cause the same to be discharged by payment, bond, or otherwise; or at the option of TENANT, TENANT shall deposit, in trust, with LANDLORD or with a title company licensed to do business in the State of New Jersey, a sum of money equal to the amount of such recorded lien, plus ton (101) percent thereof, to be applied: (a) To such portion of the amount. if any, an may be determined to be due and owing to the lienor in a final judgment of a court of competent jurisdiction. when and if such 6 final judgment is no longer subject to appeal, or (b)To the payment to the Lienor of all or a portion of said sum when, as any and if written notice shall be sent by TENANT expressly authorizing such payment. (f) TENANT is authorized to demolish all existing building(s), structures, and improvements located on the LEASED PREMISES, and to remove, raze, and/or destroy such trees, plants, shrubs, and topsoil as TENANT may deem necessary, provided that it does so in accordance with all Federal, state and local laws and further provided that such plans for demolition are first reviewed and approved by LANDLORD. TENANT acknowledges that asbestos say be contained within the buildings scheduled to be removed. (g) In the event that TENANT contents any lion or claim, TENANT shall prosecute the contest with reasonable diligence, and TENANT shall at all times effectually stay or prevent any official or judicial sale of the LEASED PREMISES and TENANT shall pay or otherwise satisfy any final judgment (unless TENANT shall appeal same, in which event the last appeal shall be the determining factor) which may be entered against it and thereafter promptly procure record satisfaction of the release of the lion. Subject to TENANT's rights as set forth in this Lease, if TENANT shall ultimately fail to procure a discharge at any such lion, LANDLORD after at least fourteen (14) days' written notice to TENANT (or lesser time if the LEASED PREMISES are threatened with sale or foreclosure), may procure the discharge of such lion by payment or otherwise, and all costs and expenses which LANDLORD may sustain thereby shall be paid by TENANT as additional rent under the provisions of 7 this Lease. In the event that any action shall be brought against LANDLORD to enforce any such lion, and provided TENANT may exercise all of its rights set forth in this Lease, and provided further that TENANT shall have received written notice of such action and an opportunity to defend the same, TENANT shall pay any judgment that may be entered against LANDLORD, and, in addition thereto, shall pay all costs and expenses that may be incurred by LANDLORD in the defense of any such action, provided such judgment shall be final and no longer subject to appeal. (h) Prior to commencing construction of any buildings or improvements. TENANT, without cost to LANDLORD, shall obtain from the general contractor in charge of construction of any buildings and improvements a performance bond and a labor and material payment bond, in the amount at the estimated cost of same issued by a reputable surety company licensed to do business in the State of New Jersey guaranteeing the completion of said buildings and improvements and payment of all costs therefor and incident thereto, or in some instances, at LANDLORD's option, to furnish to the LANDLORD a surety bond naming the TENANT as obligor thereunder. which bond in form, substance, and amount shall be subject to LANDLORD's approval, which it shall not unreasonably withhold, which bond shall name LANDLORD, as co- obligee as its respective interests may appear and a certificate or true copy thereof shall be delivered to LANDLORD. LANDLORD however may waive this requirement if in its sale discretion it is satisfied as to the reputation and credit worthiness of the contractor selected by TENANT 'or construction of the facility. TENANT shall notify LANDLORD by prior written notice as to its selected contractor and LANDLCRD shall have seven (7) days thereafter to elect approval or non-approval. 8 (i) If TENANT shall deliver to LANDLORD a financial statement of TENANT or any person(s) or entities having an interest in TENANT indicating a net worth of not less than Eighty Million Dollars which party shall guarantee to LANDLORD the items as would be set forth in the bonds described above, LANDLORD hereby waives the requirements of subparagraph (h) hereof. 3. TERM. The term of this Lease shall commence upon the date first above written and shall expire upon termination of the STEAM CONTRACT. Should STEAM CONTRACT be cancelled, terminated, or otherwise and for any reason other than LANDLORD's default, then the term of this Lease shall and unless TENANT has elected to conduct an affiliated thermal consuming business in accordance with Article 3(D) of STEAM CONTRACT, and in such case the term hereunder shall not terminate with STEAM CONTRACT but shall continue for the term originally specified in Article 5 of STEAM CONTRACT. 4. RENT. TENANT'S covenants and agrees to pay LANDLORD for LEASED PREMISES, an annual base rental of One Dollar ($1.00) during the term of this Lease payable at the office of LANDLORD as follows: E. 1. du Pont de Nemours and Company Corporate Real Estate Materials and Logistics Department 1007 Market Street Wilmington, Delaware 19898 or at such other place or places as LANDLORD shall from time to time give TENANT written notice at least thirty (30). days in advance. 5. CONDITION PRECEDENT. As a condition precedent to this agreement, LANDLORD shall have received a Certificate of non applicability from the State of New Jersey evidencing that the transaction 9 contemplated herein is not subject to New Jersey's Environmental Cleanup Responsibility Act (ECRA). 6. TAXES AND ASSESSMENTS. (a) Commencing with the date first above written and ending with the termination, cancellation or expiration of this Lease, TENANT shall reimburse LANDLORD for all real estate taxes and any and all assessments, including special assessments, or any tax that may be levied, assessed or imposed by the State of New Jersey or by any political or taxing subdivision thereof, upon or measured by the rents hereunder or the income arising therefrom in lieu of or as a substitute in whole or in part, for any tax upon LEASED PREMISES or which are or may become a lien upon LEASED PREMISES, and all other governmental charges levied against LEASED PREMISES which become due and payable during the term hereof. TENANT'S obligation to pay taxes. special assessments and other impositions shall be contingent upon and subject to the following provisions and conditions; (i) TENANT may take the benefit of the provisions of any statute or ordinance permitting any special assessment to be, paid over a period of time, and TENANT shall be obligated to pay only the installment of such special assessments as shall become due and payable during the term hereof. Any installment falling due after the expiration of the term hereof shall be payable by LANDLORD, even though such unpaid installments shall constitute a lien or liens until paid. (ii) TENANT shall pay its prorata share of taxes, special assessments, other impositions or installments thereof which become due and payable 10 during the years in which the obligation to pay rental hereunder commences and ceases, such prorata share to be determined on the basis which the number of months of the then current tax year for which TENANT is to pay rent shall bear to the entire number of months in said tax year. (b) Nothing in this Lease shall be construed to require TENANT to pay any franchise, income, corporation, inheritance, succession, gift, estate, realty transfer, capital or other tax (except the taxes and assessments provided for in subparagraph (a) of this Paragraph which may be charged or assessed against LANDLORD or any income, excess profit or revenue tax or any other tax which may be assessed against or become a lien upon LEASED PREMISES or the rent accruing therefrom. (c) Except if contested as hereinafter provided, TENANT, upon due notice by LANDLORD or from the taxing authority, shall pay each tax, assessment, or installment thereof, and other imposition before any fine, penalty, interest, or costs may be added by nonpayment. (d) TENANT shall not be required to pay any tax. assessment or other imposition required by the terms of this Lease to be paid so long as TENANT at its own expense shall, in good faith and with due diligence, contest the same or the validity thereof by appropriate legal proceedings. In such a case, TENANT may institute such proceedings in its own name or in the name of LANDLORD or in both names as may be necessary, and TENANT shall indemnify LANDLORD and save it harmless from and against all costs, charges or liabilities in connection with any such proceeding: provided, however, that TENANT shall take no action and shall delay no proceeding so as to 11 jeopardize title of LANDLORD to LEASED PREMISES or its other lands situated in Middlesex County, New Jersey. TENANT shall give LANDLORD prompt written notice of the commencement of any such proceedings. (e) TENANT shall furnish to LANDLORD, within forty-five (45) days after the date when any tax, special assessment or other imposition is payable, copies of the official receipts, or other reasonable proof satisfactory to LANDLORD evidencing payment thereof. (f) TENANT shall pay any and all taxes on its personal property located on LEASED PREMISES directly to the taxing authority. 7. USE. LEASED PREMISES shall be used only for the construction and operation of a cogeneration facility in connection with those services and products to be supplied to LANDLORD under STEAM CONTRACT or if said use is voided by the provisions of Article 3(D) of STEAM CONTRACT, then a use consistent with the operation of an affiliated thermal consuming business shall be allowable. TENANT shall not use or occupy LEASED PREMISES or permit the same to be used or occupied contrary to any appropriate governmental statute, rule, order, ordinance or regulation applicable thereto or in any manner which would violate any certificate of occupancy affecting the same, or which would cause structural injury to the improvements or cause the value or usefulness of LEASED PREMISES or any part thereof to diminish or which would constitute a public or private nuisance or waste. 8. REPAIR AND MAINTENANCE. TENANT agrees that, at its sole cost and expense, it shall keep and maintain LEASED PREMISES, including any altered, rebuilt or additional buildings, structures and other improvements thereto, in good 12 repair. replacement and appearance during the continuance of this Lease and will with reasonable promptness make all structural and nonstructural, foreseen and unforeseen, and ordinary and extraordinary changes and repairs of every kind and nature which may be required to be made upon or in connection with LEASED PREMISES or any part thereof in order to keep and maintain LEASED PREMISES in such good repair, replacement and appearance. LANDLORD shall not be required to maintain, repair. or rebuild. or to make any alterations, replacements or renewals of any nature or description to LEASED PREMISES or any part thereof, whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen, or to maintain LEASED PREMISES or any part thereof in any way, and TENANT hereby expressly waives any right to make repairs or replacements at the expense of LANDLORD which may be provided for in any statute or law in effect at the time of the execution of this Lease or any statute or law which may thereafter be enacted. 9. UTILITIES. TENANT shall supply and pay for all gas, electricity, water, sewer. heat and other utilities used on LEASED PREMISES by TENANT. 10. INDEMNIFICATION. TENANT shall indemnify and save LANDLORD harmless from and against any and all loss, costs, damages, claims, actions or liability on account of the injury to or death of any person or persons or the damage to or destruction of any property arising from or growing out of TENANT'S use and occupancy of LEASED PREMISES unless such loss, costs, damages, claims. actions or liability is caused solely by the fault, failure or negligence of LANDLORD. 11. REQUIREMENTS OF PUBLIC AUTHORITY. (a) During the term of this Lease, TENANT shall. At its own cost and expense, promptly observe and comply with all 13 present and future laws, ordinances, requirements, orders, directives. rules and regulations of the Federal, State, County, Town, Village and City Governments and of all other governmental authorities affecting LEASED PREMISES or appurtenances thereto or any part thereof whether the same are in force at the commencement of the term of this Lease or may in the future be passed, enacted or directed, and TENANT shall pay all costs, expenses, liabilities, losses, damages, fines, penalties. claims and demands. including reasonable counsel fees, that may in any manner arise out of or be imposed because of the failure of TENANT to comply with the covenants of this Paragraph. (b) If TENANT or this Lease is subject to New Jersey's Environmental Clean-Up Responsibility Act (ECRA), the responsibility for clean-up if any, or compliance with such Act. shall root with the party which was the source of the hazardous substance or waste which must be cleaned up. Any wastes or other hazardous substances which were deposited on the site prior to occupancy by TENANT and must be cleaned up shall be the responsibility of LANDLORD. Any toxic or hazardous substances or wastes which are deposited an the Site by TENANT shall be TENANT's responsibility. TENANT's responsibility pursuant to ouch service termination of this lease shall survive expiration or earlier termination of this lease. (c) TENANT shall have the right to contest by appropriate legal proceedings diligently conducted in good faith, in the name of TENANT, or LANDLORD (if legally required), or both (if legally required), without cost or expense to LANDLORD, the validity or application of any law, ordinance, rule. regulation or requirement of the nature referred to in subparagraph (a) of this Paragraph and, if by 14 the terms of any such law, ordinance, order. rule, regulation or requirement, compliance therewith may legally be delayed pending the prosecution Of any such proceeding, TENANT may delay such compliance therewith until the final determination of such proceeding. (d) LANDLORD agrees to execute and deliver any appropriate papers or other instruments which may be necessary or proper to permit TENANT so to contest the validity or application of any such law, ordinance, order, rule, regulation or requirement and to fully cooperate with TENANT in such contest. 12. ACCESS TO PREMISES . LANDLORD or LANDLORD'S agents and designees shall have the right to enter upon LEASED PREMISES at all reasonable times to examine same and to maintain any of its utility or other systems located thereon. 13. ASSIGNMENT AND SUBLETTING. TENANT may not assign this Lease, or sublet all or any part of LEASED PREMISES except that LANDLORD shall consent to an assignment of this lease to the financing institution selected by TENANT in connection with the financing of the cogeneration facility. 14. SIGNS. No signs. advertisement or notices other than those required by law, shall be affixed to or placed upon any part of LEASED PREMISES by TENANT except in such manner and of such size. design and color as shall be approved in advance in writing by LANDLORD. 15. INSURANCE. (a) TENANT shall provide at its expense and keep in force during the term of this Lease, general liability insurance in a good and solvent insurance company or companies licensed to do business in the State of New Jersey, covering all of its liabilities hereunder and in accordance with the 15 limits set forth in STEAM CONTRACT. (b) TENANT shall provide at its expense, and keep in force during the term of this Lease insurance on the buildings and improvements an the LEASED PREMISES insured by a responsible and reputable insurance company or companies against loss or damage by fire and such other hazards an are currently embraced in the standard extended coverage endorsement in the State of New Jersey, and in an amount equal to the full insurable Value Of said buildings and improvements. (c) All insurance policies carried or caused to be carried by TENANT shall be issued in the name of TENANT and the LANDLORD, as their respective interests may appear. (d) In the event that the insurance proceeds received are insufficient to restore, repair, or rebuild said buildings and improvements, TENANT covenants and agrees that it will pay the balance of the amount necessary to restore such buildings or improvements to restore to their former state or erect other buildings and improvements, provided the value thereof is at least equal to the value of the buildings and improvements immediately prior to such damage or destruction. Any excess of insurance proceeds over the cost of repairing or rebuilding shall belong to TENANT. (a) TENANT, in its discretion, may carry such insurance under a blanket fire and other hazards and causes insurance policy or policies issued to TENANT covering the LEASED PREMISES and other premises or property. However, a certificate or true copy thereof evidencing said insurance shall be delivered to LANDLORD on LANDLORD's written request. 16. WAIVER OF SUBROGATION. All insurance policies carried by TENANT covering LEASED PREMISES. including, but not limited to. contents, fire and casualty insurance, shall 16 expressly waive any right on the part of the insurer against the LANDLORD. The TENANT agrees that its policies will include such waiver clause or endorsement. 17. CASUALTY. In the event that, at any time, during the term of this Lease, the buildings and improvements on LEASED PREMISES shall be destroyed or damaged in whole or in part by fire or other cause within the extended coverage of the fire insurance policies carried by TENANT in accordance with this Lease, then, TENANT, at its own cost and expense, shall, cause the same to be repaired, replaced or rebuilt within a period of time which, under all prevailing circumstances, shall be reasonable. In the event LANDLORD's facility located adjacent to LEASED PREMISES shall also have been damaged an or about the same time as TENANT's facility, then as a condition precedent to TENANT's duty to rebuild hereunder LANDLORD shall deliver to TENANT a letter indicating that it plans to rebuild its facility within a two year period and will upon the completion of its facility have a need for steam in accordance with the STEAM CONTRACT. 18. CONDEMNATION. In the event that the whole or any part of LEASED PREMISES be taken by virtue of eminent domain or for any public or quasi- public use, the parties shall be entitled to share in the compensation and award in accordance with the following provisions: (a) If the whole of LEASED PREMISES shall be taken, then this Lease shall cease and determine and LANDLORD shall first receive a sum equal to the fair market value of the land taken, considered as vacant, unencumbered and unrestricted land an of the date of taking, together with interest thereon from the date of taking to the date of payment at the rate paid on the 17 award, and if such value shall be officially determined and stated in the condemnation proceedings, then the amount thereof shall control for the purposes of this provision, otherwise the same, unless agreed upon by the parties to this Lease, shall be determined by arbitration in accordance with the rules then obtaining of the American Arbitration Association in the County of Middlesex, State of New Jersey. TENANT in such case shall receive and retain the remainder at the award, and interest. (b) If only a part of LEASED PREMISES shall be taken, then LANDLORD shall first receive a sum equal to the fair market value of the land taken, considered as unencumbered and unrestricted land, as of the vacant, unencumbered and unrestricted land, as of the date of taking plus the resulting or consequential damage, if any, to the remaining part of the land of LEASED PREMISES, considered as vacant, unencumbered and unrestricted land as of the date of taking, with any interest thereon from the date of taking to the date of payment at the rate paid on the award, and if such value and such resulting or consequential damage be officially determined and stated in the condemnation proceedings, then the amount thereof shall control for the purposes of this provision, otherwise the same, unless agreed upon by the parties to this Lease, shall be determined by arbitration in accordance with the rules then obtaining of the American Arbitration Association in the County of Middlesex, State of New Jersey, and TENANT in each case shall receive the remainder of the award and interest; 18 (i) If the remaining part of LEASED PREMISES not so taken cannot be adequately restored, repaired or reconstructed so as to constitute a complete architectural unit of substantially the same usefulness, design and construction, having regard to the taking, as immediately before such taking, capable of producing, after the payment of all operating expense thereof, the minimum annual rant, additional rent and other charges herein reserved, the debt service charges on any then existing leasehold mortgages hold by a permitted leasehold mortgagee, and after the performance of all covenants, terms, agreements and provisions herein and by law provided to be performed and paid by TENANT, a fair and reasonable net annual income, as hereinafter determined, then TENANT shall have the right, to be exercised by written notice to LANDLORD within sixty (60) days after the date of taking, to terminate this Lease as to such remaining part of LEASED PREMISES not so taken on a date to be specified in said notice not earlier than the date of such taking, in which came TENANT shall pay and satisfy all rent due and accrued hereunder up to such date at such termination including all sums of additional rent and all other charges and shall perform all of the obligations of the TENANT hereunder to such date and thereupon this Lease and the term hereby demised shall cease and determine. Should the parties be unable to agree as to whether the part not taken is susceptible of adequate restoration, repair or reconstruction as aforesaid, such controversy shall be determined by arbitration in accordance with the rules 19 then obtaining of the American Arbitration Association in the County of Middlesex, State of New Jersey: (ii) If the Lease is not terminated as hereinabove provided, then, as to the premises not taken in such condemnation proceeding, TENANT shall proceed, at its own cost and expense, to make an adequate restoration, repair or reconstruction of the part of the building not taken or to rebuild a now building upon the part of the land not taken. If the part of the award so paid to TENANT shall be insufficient fully to pay for such restoration, repair or reconstruction, TENANT shall nevertheless pay the excess cost thereof, and shall fully pay for all such restoration, repair or reconstruction, and complete the same to the satisfaction of LANDLORD and free from mechanic's or materialmen's liens and security interests of all kinds, and shall at all times save LANDLORD free and harmless from any and all such liens; (c) In case of a second or any other additional partial taking or takings from time to time, the provisions hereinabove contained shall apply to each partial taking. (d) The foregoing provisions of this paragraph shall apply only to a taking of the fee of the whole or of a part of LEASED PREMISES. In the case of the taking of an easement or of any interest less than a fee, the parties hereto shall claim and shall be entitled to receive art award and compensation therefor in accordance with their respective legal rights. 19. FEE MORTGAGES. TENANT may not, without the written consent of LANDLORD, mortgage or otherwise create a 20 security interest upon LANDLORDIS fee interest in LEASED PREMISES. LANDLORD may arbitrarily withhold such consent or make such consent subject to any conditions it deems appropriate. 20. DEFAULT. If either party hereto defaults in carrying out any of such party's covenants and agreements herein contained for a period of thirty (30) days after written demand for compliance has been made, such default, at the option of the party not in default, shall give LANDLORD any and all remedies it may be entitled to in law or in equity. 21. BANKRUPTCY AND INSOLVENCY If, after the commencement of the term of this Lease: (a) TENANT then having the title to the leasehold estate created hereunder shall while having such title be adjudicated a bankrupt or adjudged to be insolvent; (b) a receiver or trustee shall be appointed for the aforesaid TENANT'S property and affairs; (c) the aforesaid TENANT shall make an assignment for the benefit of creditors or shall file a petition in bankruptcy or insolvency or for reorganization or shall make application for the appointment of a receiver; or (d) any execution or attachment shall be issued against the aforesaid TENANT or any of the aforesaid TENANT'S property, whereby LEASED PREMISES or any building or buildings or any improvements thereon shall be taken or occupied or attempted to be taken or occupied by someone other than the aforesaid TENANT, except as may herein be permitted, and such adjudication, appointment, assignment, petition. execution or attachment shall not be set aside, vacated. discharged or bonded within one hundred twenty (120) days after the issuance of the same, then a default hereunder shall be deemed to have occurred so that the provisions of this Paragraph shall become effective and LANDLORD shall have the rights and remedies 21 provided for therein. Notwithstanding anything to the contrary hereinabove contained, upon the occurrence of a default pursuant to this Paragraph, if the rent due and payable hereunder shall continue to be paid and the other covenants, conditions and agreements of this Lease on TENANT'S part to be kept and performed shall continue to be kept and performed, no event of default shall have been deemed to have occurred and the provisions of this Paragraph shall not become effective. 22. WAIVERS. Failure of LANDLORD or TENANT to complain of any act or omission on the part of the other party no matter how long the same may continue, shall not be deemed to be a waiver by said party of any of its rights hereunder. No waiver by LANDLORD or TENANT at any time, express or implied, of any breach of any provision of this Lease shall be deemed a waiver of a breach of any other provision of this Lease or a consent to any subsequent breach of the same or any other provision. 23. NOTICES. Every notice, approval, consent or other communication authorized or required by this Lease shall not be effective unless same shall be in writing and sent postage prepaid by United States registered or certified mail, return receipt requested, directed to the other party as follows: To Landlord E. I. du Pont de Nemours and Company Corporate Real Estate Material and Logistics Department 1007 Market Street Wilmington, Delaware 19898 To Tenant O'Brien Energy Systems, Inc. 225 South Eighth Street Philadelphia, PA 19106 Attention Jeffrey D. Barnes, Executive Vice President 22 24. SURRENDER. At the expiration or termination at this Lease, TENANT agrees to deliver up LEASED PREMISES together with all buildings or other improvements erected thereon, to LANDLORD in good order and condition and make good all damage to LEASED PREMISES, ordinary wear and tear excepted, subject however to the acquisition by LANDLORD of all or a portion of the cogeneration facility in accordance with Article 5(B) of the STEAM CONTRACT. That portion of the cogeneration facility not purchased by LANDLORD as provided hereunder shall be removed by TENANT from the LEASED PREMISES within twelve (L2) months following the expiration or earlier termination of this lease. If TENANT fails to so remove, LANDLORD shall have the right to remove the same at TENANT's expense. 25. GOVERNING LAW. This Leas* and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the State of New Jersey. 26. PARTIAL INVALIDITY. If any term. covenant, condition or provision of this Lease or the application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is hold invalid or unenforceable, shall not be affected thereby, and each term, covenant, condition and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 27. SHORT FORM LEASE. The parties will at any time, at the request of either one, promptly execute duplicate originals of an instrument, in recordable form, which will constitute a short form of lease, setting forth a description of LEASED PREMISES, the term of this Lease and any other portions thereof as either party may request. 23 28. SUCCESSION. All of the covenants. agreements. conditions and undertakings of this Lease shall extend and inure to and be binding upon the successors and permitted assigns of the respective parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed an the day and year first above written. ATTEST: /s/ Assistant Secretary ATTEST: /s/ Sanders Newman E. I. DU PONT DE NEMOURS AND COMPANY /s/ PROPERTIES MANAGER O'BRIEN ENERGY SYSTEMS, INC. By /s/ Jeffrey D. Barnes 24 -----END PRIVACY-ENHANCED MESSAGE-----