-----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, SiBIJFZ7Usn6hA5Z2QyXrk9dYPqSn5rujUx6jTQJ0ZJulnfKao3PRuI9cObCtdOw ct60rwiFy7MwDIlnplFVWQ== 0000795185-98-000005.txt : 19980401 0000795185-98-000005.hdr.sgml : 19980401 ACCESSION NUMBER: 0000795185-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 43 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 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: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09208 FILM NUMBER: 98583547 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 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---- FORM 10-K 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 December 31, 1997 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-9208 NRG GENERATING (U.S.) INC. (Exact name of registrant as specified in its charter) Delaware 59-2076187 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 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. As of March 18, 1998, 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 the shares of Common Stock held by non-affiliates of the Company was $51,466,000. 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 Documents Incorporated By Reference The information required for the following items is incorporated by reference to the 1998 Definitive Proxy Statement of NRG Generating (U.S.) Inc.: Item 10 - Directors and Executive Officers of the Registrant Item 11 - Executive Compensation Item 12 - Security Ownership of Certain Beneficial Owners and Management Item 13 - Certain Relationships and Related Transactions Table of Contents Page Number Part I Item 1.Business 2 Item 2.Properties 21 Item 3.Legal Proceedings 21 Item 4.Submission of Matters to a Vote of Security Holders 23 Part II Item 5.Market for the Registrant's Common Equity and Related Stockholder Matters 24 Item 6.Selected Financial Data 26 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A.Quantitative and Qualitative Disclosures about Market Risk 37 Item 8.Financial Statements and Supplementary Data 37 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Part III Item 10.Directors and Executive Officers of the Registrant 38 Item 11.Executive Compensation 38 Item 12.Security Ownership of Certain Beneficial Owners and Management 38 Item 13.Certain Relationships and Related Transactions 38 Part IV Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K 39 Consolidated Financial Statements F-1 Index to Exhibits 41 PART I ITEM 1. BUSINESS. Certain of the statements made in this Item 1 and in other portions of this Report and in documents incorporated by reference herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, those discussed in "Business - Risk Factors" herein. See "Business - Risk Factors - Risks Associated with Forward-Looking Statements." General NRG Generating (U.S.) Inc. (referred to herein with its consolidated subsidiaries as "NRGG" or the "Company") is engaged primarily in the business of developing, owning and operating cogeneration projects which produce electricity and thermal energy for sale under long-term contracts with industrial and commercial users and public utilities. In addition to its energy business, the Company sells and rents power generation and cogeneration equipment through subsidiaries located in the United States and the United Kingdom. The Company currently is pursuing several avenues for the disposition of its equipment sales and rental business. In its role as a developer and owner of energy projects, the Company has developed the following projects in which it currently has an ownership interest: (a) The 52 megawatt ("MW") Newark Boxboard Project (the "Newark Project"), located in Newark, New Jersey, began operations in November 1990; (b) The 122 MW E.I. du Pont de Nemours Parlin Project (the "Parlin Project"), located in Parlin, New Jersey, began operations in June 1991; (c) The 22 MW Philadelphia Cogeneration Project (the "Philadelphia PWD Project"), located in Philadelphia, Pennsylvania, began operations in May 1993, and (d) The 150 MW Grays Ferry Cogeneration Project (the "Grays Ferry Project"), located in Philadelphia, Pennsylvania, began operations in January 1998. The Company owns a one-third interest in the Grays Ferry Cogeneration Partnership (the "Grays Ferry Partnership"), which owns the Grays Ferry Project. As of the date of this Report, the Company and the Grays Ferry Partnership are in litigation with the electric power purchaser from the Grays Ferry Project over, among other things, the effectiveness of the applicable power purchase agreements. See "Item 3. Legal Proceedings." In December 1997, the Company acquired from NRG Energy, Inc. ("NRG Energy") a 117 MW steam and electricity cogeneration project located in Morris, Illinois (the "Morris Project"). 2 The Morris Project is currently under construction with commercial operation currently expected to occur during the fourth quarter of 1998. Formerly known as O'Brien Environmental Energy, Inc. ("O'Brien"), the Company changed its name to NRG Generating (U.S.) Inc. in connection with its emergence from bankruptcy on April 30, 1996, under a plan of reorganization (the "Plan") approved by the U.S. Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). O'Brien had filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code on September 28, 1994. In connection with the consummation of the Plan, all of the shares of O'Brien Class A and Class B Common Stock were canceled and replaced by a new issue of NRGG common stock, par value $.01 per share (the "Common Stock"). In addition, NRG Energy advanced approximately $71.2 million under loan agreements with the Company and purchased approximately 41.86% of the Common Stock for aggregate consideration of approximately $21.2 million. NRG Energy also purchased certain subsidiaries of the Company for $7.5 million and funded a cash distribution to the O'Brien stockholders aggregating $7.5 million. NRG Energy's financial backing of the Plan enabled the Company to provide for full and immediate payment of all undisputed pre-petition claims as well as a provision for post-petition interest. In addition, pursuant to the Plan, NRG Energy and the Company entered into a Co-Investment Agreement (the "Co- Investment Agreement"), pursuant to which NRG Energy has agreed to offer to the Company ownership interests in certain power projects which are initially developed by NRG Energy or with respect to which NRG Energy has entered into a binding acquisition agreement with a third party. The Company was incorporated in Florida in 1981 and subsequently merged with a Delaware corporation in 1984. Prior to the merger, the Company was part of a group of several affiliated companies which had served the power generation market since 1915. Independent Power Market Overview The independent power market (the market for power generated by companies other than traditional utilities) has evolved and is expected by the Company to continue to expand as a result of the growing need for new and replacement power capacity by electric utilities and industrial customers. Historically, regulated utilities in the United States have been the only producers of electric power intended primarily for sale to third parties. The increase in oil prices during the late 1970s and the increasing cost of constructing and financing large coal-fired or nuclear generating facilities along with the enactment of the Public Utility Regulatory Policies Act of 1978 ("PURPA") created a favorable regulatory environment and favorable market conditions for the development of energy projects by companies other than electric utilities. The basic policy judgment behind the encouragement of the development of cogeneration facilities is that the United States' dependence on oil and natural gas resources should be reduced and that the very high incremental costs of large centralized power production facilities should be avoided. However, economic considerations remain the central issue affecting a decision to install a cogeneration project. PURPA provides significant incentives to developers of "qualifying facilities" under PURPA. It designates certain small power production (those utilizing renewable fuels and having a capacity of less than 80 MW) and certain cogeneration facilities as qualifying facilities eligible for various benefits under federal law, including exemption from many of the regulatory requirements 3 applicable to electric utilities. In accordance with PURPA, the Company's projects with one exception are exempt as qualifying facilities, and its proposed projects are intended to be exempt, from rate, financial and similar regulation as a utility as long as they meet the requirements of a qualifying facility. These projects also benefit from regulations that require public utilities to purchase power generated by qualifying projects at the utilities' "avoided cost" (determined in accordance with a formula which varies from state to state but which is generally calculated based upon what the cost to the utility would be to generate the power itself or to purchase it from another source). Power purchase contracts generally must be approved by state public utility commissions. Since the Company benefits from PURPA, the Company's business could be adversely affected by a significant change in PURPA and could otherwise be materially impacted by decisions of federal, state and local legislative, judicial and regulatory bodies. See "Business - Regulation" and "- Risk Factors - Proposed Restructuring of the Electric Utility Industry." Many organizations, including equipment manufacturers and subsidiaries of utilities and contractors, as well as other organizations similar to the Company, have entered the market for the ownership and operation of cogeneration projects. Many of these companies have substantially greater resources and/or access to the capital required to fund such activities than the Company. The Company's primary market is the development and ownership of industrial inside-the-fence cogeneration projects. A substantial portion of the electric output of these facilities may be sold to public utilities. Obtaining power contracts with utilities has become more competitive with the increased use of competitive bidding procedures and the advent of deregulation in the electric utility market. This increased competition may make it more difficult for the Company to secure future projects, may increase project development costs and may reduce the Company's operating margins on any future projects. Any such developments could have a material adverse effect on the Company's results of operations and financial condition. See "Business - Competition" and "- Risk Factors - Competition." Products and Services During the fiscal year ended December 31, 1997, the Company operated principally in two industry segments: (i) energy - the development and ownership of cogeneration projects, the development, ownership and operation of standby/peak shaving projects through wholly- owned subsidiaries and limited partnerships; and (ii) equipment sales, rentals and service - the sale and rental of power generating, cogenerating and standby/peak shaving equipment and associated services. See Note 16 of the Notes to the Consolidated Financial Statements for financial information with respect to industry segments. Energy Segment Overview Set forth below are descriptions of the Company's projects in operation as of December 31, 1997 and one additional project which commenced commercial operation in January 1998. Each of these projects is currently producing revenues through the sale of energy under long- term contracts. In connection with the obtaining of financing for its three cogeneration projects in operation, the Company or the owner of the project has obtained business interruption insurance and performance guarantees by the operators of the projects. These arrangements are negotiated and secured prior to commencement of operations of a project. Taken as a whole, these arrangements reduce the risks associated with any past and future equipment problems or unscheduled plant shutdowns. For 4 example, in the event of an unscheduled breakdown, the Company or the owner of the project generally is entitled, pursuant to its business interruption insurance policy, to the net profit which it is prevented from earning from the particular project, including all charges and expenses which continue during the period of interruption, less the applicable deductible amounts. There can be no assurance, however, that such insurance or guarantees will sufficiently mitigate the risk of unforeseen contingencies. As of the date of this Report, the Company and the Grays Ferry Partnership are in litigation with the electric power purchaser from the Grays Ferry Project over, among other things, the effectiveness of the applicable power purchase agreements. See "Item 3. Legal Proceedings."
Name and Location Rated Approximate Date of Power Company's Of Project Capacity (1) Capital Cost Operation Purchaser Lender Interest (in MWs) (in millions) Cogeneration Parlin 122.0 $112.0 June 1991 Jersey Credit 100% Central Power Suisse(2) Power & Light Company Newark 52.0 56.0 November 1990 Jersey Credit 100% Central Suisse(2) Power & Light Company Grays Ferry 150.0 160.0 January 1998 PECO Energy Chase(3) 33.3% Company Standby/Peak Shaving Philadelphia 22.0 12.0 May 1993 Philadelphia (4) 83% Municipal Authority ____ _____ 346.0 $340.0 (1) See discussion of each particular project which follows for current contract production, which may be less than the stated rated capacity. (2) See Note 8 of the Notes to the Consolidated Financial Statements. (3) This project is financed under a construction loan which may be converted to a 15-year term loan. The Grays Ferry Partnership has received a notice of default from the lender under this construction loan which asserted default, as of the date of this Report, has not been waived. (4) This project is financed under the Company's revolving credit facility. See Note 8 of Notes to the Consolidated Financial Statements for a description of this facility. Cogeneration Cogeneration involves the sequential production of two or more forms of usable energy (e.g. electricity and thermal energy) using a single fuel source, thereby substantially increasing fuel efficiency. The key elements of a cogeneration project are permit applications, contracts for sales of electricity and thermal energy, contracts or arrangements for fuel supply, and project financing and construction. The Company attempts to design and develop its projects so that they qualify for the benefits of PURPA, which exempts qualifying projects from rate, financial and similar utility regulation and requires public utilities to purchase power generated by these projects. Electricity may be sold to utilities and end users of electrical power, including large industrial facilities. Thermal energy from cogeneration plants may be sold to commercial enterprises and other 5 institutions. Large industrial users of thermal energy include plants in the chemical processing, petroleum refining, food processing, pharmaceutical and paper industries. The Company has developed and currently has ownership in three cogeneration projects, the Newark, Parlin and the Grays Ferry Projects. Natural gas for the Newark and Parlin projects is provided by Jersey Central Power and Light Company ("JCP&L") as a part of its obligations under the terms of its power purchase agreements ("PPAs") with NRG Generating (Newark) Cogeneration Inc. ("NRGG Newark") and NRG Generating (Parlin) Cogeneration Inc. ("NRGG Parlin"), respectively, as renegotiated effective April 30, 1996. Previously, the Company bore the risk of fluctuating natural gas prices. In the case of the Grays Ferry Project, gas is currently being provided by purchases on the spot market by the Grays Ferry fuel manager, Exelon Corporation. Natural gas for the Grays Ferry Project will be provided by Aquila Energy Marketing Corporation under a 16-year gas sales agreement. Power Operations, Inc., a subsidiary of NRG Energy, is responsible for the operation and maintenance of the Newark and Parlin facilities under long-term contracts. Philadelphia United Power Corporation, an affiliate of one of the partners, has been engaged under a long-term contract to manage and perform all operation and maintenance of the Grays Ferry Project. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Newark Project. This 52 MW project, which commenced operation in November 1990, is 100%-owned by NRGG Newark, a wholly-owned subsidiary of the Company. The Newark Project is designed to operate continuously and to provide up to 75,000 lbs./hr. of steam to a recycled paper boxboard manufacturing plant owned by Newark Group, Inc., and 52 MW of electricity to JCP&L, each under agreements extending into the year 2015. See Note 8 of the Notes to the Consolidated Financial Statements for a discussion of this project's refinancing. For the fiscal year ended December 31, 1997, this project accounted for approximately $17.3 million in gross revenues, representing approximately 27% of the Company's gross revenues. Parlin Project. This 122 MW project, which commenced operation in June 1991, is 100%-owned by NRGG Parlin, a wholly-owned subsidiary of the Company. The Parlin Project provides up to 120,000 lbs./hr. of steam to a manufacturing plant in Parlin, New Jersey owned by E.I. du Pont de Nemours and Company ("E.I. du Pont"), under an agreement extending until 2021. In addition, the project sells 41 MW of base electric power and up to 73 MW of dispatchable power to JCP&L, under an agreement with an initial term until 2011. Finally, the project sells up to 9 MW of power to NRG Parlin, Inc. ("NPI"), a wholly-owned subsidiary of NRG Energy. NPI resells this power at retail to E.I. du Pont under an agreement extending until 2021. See Note 8 of the Notes to the Consolidated Financial Statements for a discussion of this project's refinancing. For the fiscal year ended December 31, 1997, this project accounted for approximately $21.7 million in gross revenues, representing approximately 33% of the Company's gross revenues. Parlin is also occasionally able to sell marginal power outside its PPA with JCP&L on a short-term basis. Grays Ferry Project. This 150 MW project, which commenced operation in January 1998, is 33.3%-owned by NRGG (Schuylkill) Cogeneration, Inc., a wholly-owned subsidiary of the Company. The Company has executed a partnership agreement with an affiliate of PECO Energy Company ("PECO") and an affiliate of Trigen Energy Corporation ("Trigen") to jointly develop and own this project. The partnership has executed a 25-year agreement with the Trigen-Philadelphia Thermal Energy Corporation, a wholly owned subsidiary of Trigen, for the sale of 6 steam and a 20-year agreement for the sale of electric output with PECO. The project began commercial operation in January 1998 and did not record any revenue in the fiscal year ended December 31, 1997. As of the date of this Report, the Company and the Grays Ferry Partnership are in litigation with PECO Energy over, among other things, the effectiveness of the applicable power purchase agreements. See "Item 3. Legal Proceedings" and Note 19 of the Notes to the Consolidated Financial Statements. Standby/Peak Shaving Standby/peak shaving projects utilize the Company's power generation equipment as a back-up source of electricity for large electrical demand customers. The availability of an alternative energy source allows these customers to benefit from significantly discounted interruptible energy tariffs from their primary electricity provider. The standby/peak shaving generators typically will be required to provide a specified amount of electricity during peak periods. Philadelphia PWD Project. This 22 MW project, owned by O'Brien (Philadelphia) Cogeneration, Inc. ("OPC"), commenced operations in May 1993. The Company owns an 83% interest in OPC, with the remaining 17% interest owned by an unrelated private investor. See Note 18 to the Consolidated Financial Statements. Pursuant to a 20-year energy service agreement, the Philadelphia Municipal Authority (the "Authority") has the right to be supplied with 20 MW of electricity from the project at any time on one hour's notice. In addition, the project uses excess digester gas collected at the Authority's northeast and southwest Philadelphia plants to generate up to approximately 2 MW of electricity which is delivered to the Authority pursuant to a 10- year power generation agreement. In October 1998, the Authority's rate structure with its electrical utility is due to be renegotiated. The outcome of these negotiations could adversely affect the project. However, in the December 23, 1997 Pennsylvania Public Utility Commission order, PECO is to continue to offer the LILR tariff, which is the underlying rate structure between the Authority and PECO, until the end of the restructuring transition period (expected to be June 30th, 2007). The facility was not called on to provide standby power in 1997. For the fiscal year ended December 31, 1997, this project accounted for approximately $4.2 million in gross revenues, representing approximately 6% of the Company's gross revenues. Equipment Sales, Rentals and Services Segment In addition to the energy business, the Company sells and rents power generation and cogeneration equipment and provides related services. The Company operates its equipment sales, rentals and services business principally through two subsidiaries. In the United States, the equipment sales, rentals and services business operates under the name of O'Brien Energy Services Company ("OES"). NRG Generating Limited, a wholly-owned United Kingdom subsidiary, is the holding company for a number of subsidiaries that operate in the United Kingdom under the common name of Puma ("Puma"). The Company has determined that OES and Puma are not a part of its strategic plan for the future, and the Company is currently pursuing several avenues for the disposition of these businesses. The disposition of these businesses is not expected to have a material impact on the Company's financial position or results of operations. 7 O'Brien Energy Services Company A significant portion of the Company's equipment rental business is attributable to the operations of OES. The Company rents power generation and cogeneration equipment to the construction, industrial, military, transportation, mining, utility and entertainment markets. In addition to its rental business, OES sells (i) equipment manufactured by others to turnkey contractors in connection with the construction of the Company's projects, (ii) equipment purchased by it for projects unrelated to those being developed by the Company, and (iii) equipment purchased and reconditioned by it. Finally, OES provides related services including the design, assembly, repair and maintenance of permanent or standby power generation equipment. On a national level, the Company competes with a number of other companies. In addition, there are numerous local competitors in each of the geographic areas in which the Company operates. The Company competes on the basis of experience, service, price and depth of its rental fleet. Puma Puma designs and assembles diesel and natural gas fueled power generation systems ranging in size from 5 kilowatts to 5 MW. These products are engineered and sold for use in prime power base load applications as well as for standby or main failure emergency situations. Major markets for these products include commercial buildings, governmental institutions such as schools, hospitals and public facilities, industrial manufacturing or production plants, shipyards, the entertainment industry and offshore drilling operations. The Company exports many of its products primarily through established distributors and dealers in local areas for delivery to markets such as the Far East, including Hong Kong and mainland China, together with the Middle East and South America. Puma also designs and manufactures custom electrical control and distribution subsystems. These include medium voltage cubicle switchboards, main distribution systems, control instrumentation panels and packaged substations. This equipment receives and distributes power through a building, ship or other self-contained structure. The revenues and operations of the Company's operations in the United Kingdom disclosed below are attributable solely to the equipment sales and services segment of the Company's business. The revenues from such operations accounted for in excess of 50% of that particular segment's revenue in the fiscal year ended December 31, 1997. Six Months Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 (In Thousands) Revenues: United States $ 51,504 $ 27,937 $ 82,917 $ 89,332 United Kingdom 13,300 11,979 13,630 12,915 $ 64,804 $ 39,916 $ 96,547 $ 102,247 Net Income (Loss): United States $ 23,236 $ 6,087 $ (17,591) $ (40,905) United Kingdom 116 336 (122) (14) $ 23,352 $ 6,423 $ (17,713) $ (40,919) Identifiable Assets: United States $ 221,752 $ 164,631 $ 169,657 $ 179,793 United Kingdom 6,142 8,993 8,505 9,955 $ 227,894 $ 173,624 $ 178,162 $ 189,748 8 Project Development Activities General The Company, together with its subsidiaries and affiliates, develops, owns and operates cogeneration projects which produce electricity and thermal energy for sale under long-term contracts with industrial and commercial users and public utilities. Potential project structures include (but are not limited to) sole ownership, general partnerships, limited partnerships, sale leaseback arrangements and other forms of joint venture or debt arrangements. Development activities are pursued by the Company's internal management team. Under a Co-Investment Agreement with NRG Energy, the Company also may acquire ownership interests in certain power projects initially developed by NRG Energy or with respect to which NRG Energy has entered into a binding acquisition agreement with a third party. The Company sells the electricity produced by its projects pursuant to long-term contracts either on a "retail basis" to specific industrial and commercial users or on a "wholesale basis" to local public utilities. Presently, most of the electricity produced by the Company's projects in operation is sold on a wholesale basis. The mix of future energy sales may differ based upon future economic conditions and other circumstances. Internal Project Development The Company has assembled a management team with more than 80 combined years of experience in the development, financing and operation of independent power projects. The Company has formed this team to pursue projects in the industrial inside-the-fence cogeneration market, focusing on natural gas projects in the United States in the 50 MW to 300 MW size. Internal project development activities will focus on greenfield development, acquisitions of operating projects, enhancement of current projects and acquisitions of competitor companies or portfolios. Co-Investment Agreement with NRG Energy Pursuant to the Co-Investment Agreement, NRG Energy agreed to offer to the Company ownership interests in certain power projects which were initially developed by NRG Energy or with respect to which NRG Energy has entered into a binding acquisition agreement with a third party. If any eligible project reaches certain contract milestones (which include the execution of a binding PPA and fuel supply agreement and the completion of a feasibility and engineering study) by April 30, 2003, NRG Energy has agreed to offer to sell to the Company all of NRG Energy's ownership interest in such project. Eligible projects include, with certain exceptions and exclusions, proposed or existing electric power plants within the United States which NRG Energy initially develop or in which NRG Energy proposes to acquire an ownership interest. NRG Energy is obligated under the Co- Investment Agreement to offer to the Company, during the three year period ending on April 30, 1999, projects with an aggregate equity value of at least $60.0 million or a minimum of 150 net MW. As of the date of this Report, ownership interests in projects with an aggregate of more than 130 net MW have been offered under the Co-Investment Agreement, including the 117 net MW Morris Project. Among the exclusions from the Co-Investment Agreement are (i) any ownership interest in a project which is below a level that would cause the project (or its owners) to be in violation of 9 the relevant power purchase agreement or applicable state or federal law upon the generation of electricity for sale by such project, (ii) any indirect ownership interest held by NRG Energy in an eligible project arising from NRG Energy's direct or indirect ownership of equity interests in the Company, (iii) any ownership interest in a facility below 25 MW in capacity, and (iv) any ownership interest that is retained in order to later be sold in an exempt transaction. Exempt transactions include (i) any sale or disposition of an ownership interest that is consummated as a result of a foreclosure or conveyance in lieu of foreclosure of liens or security interests, (ii) any sale or disposition of an ownership interest to a third party that is or will become a participant in the eligible project, where the obligation to sell the interest is incidental to the provision of services or the contribution of assets to the project and is created prior to the execution and delivery of a binding power purchase agreement and fuel supply agreement and the completion of an engineering and feasibility study with respect to the project, and (iii) any sale or disposition of an ownership interest as part of a larger transaction involving the sale of all or substantially all of the assets of NRG Energy or the sale of an equity interest in NRG Energy, provided that the person acquiring the ownership interest agrees to be bound by the Co- Investment Agreement. In December 1997, a wholly-owned subsidiary of the Company purchased the Morris Project from NRG Energy. The Morris Project, with an aggregate of 117 net MW, had been offered under the Co-Investment Agreement. The Company has initiated an arbitration proceeding pursuant to the terms of the Co-Investment Agreement to resolve a dispute with NRG Energy concerning the rights and obligations of the Company and NRG Energy with respect to a 110 MW cogeneration project which the Company contends NRG Energy agreed to sell to an unrelated third party without fulfilling its obligations with respect to such project under the Co-Investment Agreement. See "Item 3. Legal Proceedings." To facilitate the Company's ability to acquire ownership interests which may be offered pursuant to its Co-Investment Agreement, NRG Energy has agreed to finance the Company's purchase of such ownership interests at commercially competitive terms to the extent funds are unavailable to the Company on comparable terms from other sources. Any such financing provided by NRG Energy under the terms of the Co- Investment Agreement is required to be recourse to the Company and secured by a lien on the ownership interest acquired. Such financing also is required to be repaid from the net proceeds received by the Company from offerings of equity or debt securities of the Company (when market conditions permit such offerings to be made on favorable terms) after taking into account the working capital and other cash requirements of the Company as determined by its Board of Directors. In light of the Company's internal development activities, the Company does not expect the Co-Investment Agreement to serve as the primary source of future project development activities. Morris Project In December 1997, NRGG Funding Inc. ("NRGG Funding"), a wholly- owned subsidiary of the Company, completed its acquisition from NRG Energy of all of NRG Energy's interest in a 117 MW project located in Morris, Illinois by acquiring 100% of the interests in NRG (Morris) Cogen, LLC ("Morris LLC"). Morris LLC has the exclusive right to build and operate a cogeneration plant to be located in Morris, Illinois within a petrochemical manufacturing facility, which is owned by Equistar Chemicals LP ("Equistar"), a joint venture of Millennium Chemicals Inc. and Lyondell Petrochemical Company. A 25-year agreement has been executed for the sale of steam and 10 electric output from the project. NRG Energy commenced construction of the Morris Project in September 1997 with commercial operation currently expected to occur in the fourth quarter of 1998. NRGG Funding agreed to assume all of the obligations of NRG Energy and to provide future equity contributions to Morris LLC which are limited to the lesser of 20% of the total project cost or $22.0 million. NRG Energy has guaranteed to the Morris Project's lenders that NRGG Funding will make these future equity contributions, and the Company has guaranteed to NRG Energy the obligation of NRGG Funding to make these future equity contributions. In addition, Morris LLC is obligated to pay NRG Energy $1.0 million as and when permitted under the project's principal loan agreement. Morris LLC has previously paid $4.0 million to NRG Energy in connection with the financial closing of the construction financing of the Morris Project. The Company intends to arrange financing (the terms and manner of which have not been determined by the Company) to fund the required future equity contributions to Morris LLC. NRG Energy is obligated under a Supplemental Loan Agreement between the Company, NRGG Funding and NRG Energy to loan NRGG Funding and the Company (as co-borrower) the full amount of such equity contributions by NRGG Funding, all at NRGG Funding's option. Any such loan will be secured by a lien on all of the membership interests of Morris LLC and will be fully recourse to NRGG Funding and the Company. Under the terms of its energy services agreement with Equistar, Morris LLC has granted to Equistar an option to purchase the Morris Project at its fair market value, as defined in the agreement, at either the fifteenth or twentieth anniversary of the commercial operations date. Equistar also was granted a one-time option to purchase up to a 10% membership interest in Morris LLC. In February 1998 Equistar gave notice of its intention to purchase a 5% passive membership interest. Under the terms of the proposed agreement, Equistar would acquire a 5% passive interest in Morris LLC in exchange for the assumption by Equistar of an obligation to make 5% of the required equity contributions to Morris LLC, expected to be approximately $1.1 million. Other Potential Projects The Company from time to time identifies and considers potential opportunities to develop additional projects as well as to acquire projects in operation or under development and owned by third parties. As of the date of this report, the Company is not party to any definitive agreements with respect to any such potential projects, and no assurances can be made with respect to the likelihood of entering into any such agreements with respect to any such potential projects. As a project developer, the Company is responsible for the evaluation, design, installation and operation of a project. The Company also assumes the responsibility for evaluating project alternatives; obtaining financing, insurance, all necessary licenses, permits and certifications; conducting contract negotiations with local utilities and arranging turnkey construction. In connection with obtaining financing, the Company may negotiate for credit support facilities with equipment suppliers, turnkey construction firms and financial institutions. The Company anticipates that in the ordinary course of its business it will investigate and/or pursue opportunities with respect to various potential projects which will not be completed. Moreover, in certain instances the Company may not generate any revenue from such projects and 11 may not be able to recover its investment in such projects, each of which could have a material adverse effect on the Company. Regulation In connection with the development and operation of its projects, the Company is significantly affected by federal, state and local energy and environmental laws and regulations. The enactment in 1978 of PURPA and the adoption of regulations thereunder by the Federal Energy Regulatory Commission ("FERC") provided incentives for the development of small power production facilities (those utilizing renewable fuels and having a capacity of less than 80 MW) and cogeneration facilities (collectively referred to as "qualifying facilities" or "QFs"). Electric utilities are required to purchase power from such facilities at rates based on the incremental cost of electrical energy (so called "avoided cost"). Under regulations adopted by the FERC and upheld by the United States Supreme Court, such rates are based upon "the incremental cost to an electric utility of electrical energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source." Historically, and as it affects the Company's sales of power from qualifying facilities, avoided cost is generally a function of the purchasing utility's otherwise applicable cost of fuel required to generate electricity and its cost of capital required to construct a power plant to supply such capacity. With the exception of the Parlin Project and parts of the Philadelphia PWD Project, all of the Company's existing electric generating facilities are qualifying small power production facilities or qualifying cogeneration facilities, as these terms are defined in PURPA. Pursuant to authority granted under PURPA, FERC has promulgated regulations which at present generally exempt qualifying facilities from the Federal Power Act, the Public Utility Holding Company Act of 1935 ("PUHCA") and state laws on electric utility regulation. In order to qualify for the benefits provided by PURPA, the Company's QFs must meet certain size, efficiency, fuel and ownership requirements. However, the standards for qualification and the regulations described above are subject to amendment. If the regulations were to be amended, the Company cannot predict the effect of any such amendment on the extent of regulation to which the Company may thereby become subject. In the event that one of the Company's cogeneration facilities failed to meet the requirements of being a "qualifying facility" after relying on that status, the Company would be materially adversely affected. See "Business - Risk Factors - Proposed Restructuring of the Electric Utility Industry." The Company renegotiated the PPA for the Parlin Project during 1996. As permitted under the terms of its renegotiated agreements, NRGG Parlin filed rates with the FERC as a public utility under the Federal Power Act. Previously, the Parlin Project had been certified as a QF by FERC. However, the effect of the rate filing by NRGG Parlin was to relinquish its claim to QF status. FERC has approved the rates filed by NRGG Parlin effective April 30, 1996, and given certain other approvals to NRGG Parlin in connection with the consummation of the Plan. Among other things, NRGG Parlin has received a determination from FERC that it is an exempt wholesale generator ("EWG"). It is thus exempt from all provisions of the PUHCA, and the 12 ownership of NRGG Parlin by the Company does not subject the Company to regulation under PUHCA. The Company is also subject to the Powerplant and Industrial Fuel Use Act of 1978 ("FUA"), which generally limits the ability of power producers to burn natural gas in new baseload generation facilities unless such facilities also have the capability to use coal or any other alternate fuel as a primary energy source. All of the Company's existing projects have either received permanent exemption from the FUA or otherwise complied with its provisions. Environmental Regulations In addition to the regulations described above, the Company's projects must comply with applicable federal, state and local environmental regulations, including those related to water and air quality. These laws and regulations in many cases require a lengthy and complex process of obtaining licenses, permits and approvals from federal, state and local agencies. The environmental regulations under which the Company's projects operate are subject to amendment. The Company cannot predict what effect compliance with such amendments may have on the Company's business or operations. Compliance could require modification of a project and thereby increase its costs, extend its completion date or otherwise adversely affect a project. The environmental regulations likely to have the greatest impact on the Company's business and operations are air quality regulations under the Clean Air Act. All of NRGG's operating plants perform at levels better than current federal performance standards mandated for such plants under the Clean Air Act. Based on the current trend of environmental regulation, management believes that this area of regulation in the U.S. will become more strict. In November 1990, Congress passed the Clean Air Act Amendments of 1990 ("the 1990 Amendments"). The Environmental Protection Agency (the "EPA") is still in the process of implementing the requirements mandated by the 1990 Amendments. In addition, the EPA and the states are in the process of revising existing requirements under the Clean Air Act to make them more stringent. The 1990 Amendments require the EPA to establish technology-based emission standards for hazardous air pollutants. "Electric utility steam generating units" that are greater than 25 MW are excluded from regulation while the EPA conducts a study of hazardous air pollutant emissions from these units to determine whether such regulation is "appropriate and necessary." The final report, which was issued in February 1998, concluded that regulation of hazardous air pollutant emissions from those units is not necessary with a few possible exceptions. The EPA has decided to conduct further studies of certain utility emissions including mercury and will determine at a later date whether regulation of those emissions is appropriate. The EPA plans to issue hazardous air pollutant regulations for combustion sources not included within the scope of the EPA's electric utility study, including internal combustion engines, by November 2000. These regulations may also require the Company to meet additional control requirements. The Company's business and operations may also be impacted by changes to existing regulations under the Clean Air Act. For example, the EPA and the states are in the process of developing more stringent emission limitations to control ground-level ozone. In November 1997, the EPA proposed a rule that would require certain states in the Eastern U.S. to make substantial reductions in NOx emissions. If finalized as proposed, this rule could result in new NOx emission 13 standards being required by the affected states. If more stringent NOx standards are adopted by certain states, NRGG could be required to install additional NOx emission control technology at some of its facilities. In addition, the EPA has revised the current National Ambient Air Quality Standards for ground-level ozone and particulate matter to make them more stringent. These new standards will be implemented by the states over the next several years. Additional control technology requirements may be imposed on existing NRGG plants to comply with the new standards. The Company does not believe that the effect of any such additional requirements, if implemented, will have a material adverse effect on its financial condition or results of operations. All projects in operation and under development are believed to be operating in substantial compliance with or designed to meet currently applicable environmental requirements. To date, compliance with these environmental regulations has not had a material effect on the Company's earnings nor has it required the Company to expend significant capital expenditures. Competition Many organizations, including equipment manufacturers and subsidiaries of utilities and contractors, as well as other organizations similar to the Company, have entered the cogeneration market. Many of these organizations have substantially greater resources than the Company. In addition, obtaining power contracts with utilities has become more competitive with the increased use of competitive bidding procedures and the movement towards deregulation of the electricity energy market. This increased competition may make it more difficult for the Company to secure future projects, may increase project development costs and may reduce the Company's operating margins. In addition, increased competition is leading to the development of a market for merchant plants. Merchant plants are power generation facilities that sell all or a portion of their electricity into the competitive market rather than pursuant to long-term power sales agreements. The operation of a merchant plant is essentially participation in a commodity market, which creates certain risk exposures, including, among other things, underlying price volatility, credit risk, and variation in cash flows. Even though many of its potential competitors have substantially greater resources than the Company, management believes that its experience, particularly if combined with a strategic alliance with a third party with regard to larger projects, will enable it to compete effectively. Principal Customer The Company derived 57%, 46%, 62% and 65% of its revenues in the fiscal year ended December 31, 1997, six months ended December 31, 1996, and the fiscal years ended June 30, 1996 and 1995, respectively, from JCP&L as a result of the operation of the Newark and Parlin facilities. The revenues from JCP&L, as a percent of total Company revenues, are anticipated to decline in the future as new projects are added to the Company's operations. Employees As of December 31, 1997, the Company had approximately 110 full- time employees. 14 Patents The Company and its subsidiaries do not own any patents or trademarks. Backlog Total production backlog relating to the Company's equipment sales, rental and services business was approximately $3.9 million and approximately $1.2 million at December 31, 1997 and 1996, respectively. Risk Factors Capital Requirements The Company's business is capital intensive. The long-term growth of the Company, which involves the development and acquisition of additional power generation projects, will require the Company to seek substantial funds through various forms of financing. While the Company is provided with certain rights under the Co-Investment Agreement that may enable it to finance the acquisition of ownership interests in certain projects that may be offered by NRG Energy, there can be no assurance that the terms on which such financing may be made available will be satisfactory to the Company, and no financing will be made available under the Co-Investment Agreement for the development or acquisition of projects that are not offered to the Company pursuant to the terms of such agreement. There can be no assurance that the Company will be able to arrange the financing needed for these additional projects. Moreover, limitations in the Company's credit agreements may limit its ability to finance future projects on a recourse basis, thereby requiring the Company to finance such future projects on a substantially non-recourse basis. The Company's ability to arrange financing of additional projects and the costs of such capital are dependent on numerous factors, including general economic and capital market conditions, credit availability from banks and other financial institutions, investor confidence in the Company, its partners and in the independent power market, the success of current projects, the perceived quality of new projects and provisions of tax and securities laws that are conducive to raising capital in the manner desired. If the Company is unable to secure such financing, or if the terms of such financing as may be available under the Co-Investment Agreement are not satisfactory to the Company, its business could be materially adversely affected. Management believes that sources of debt financing are available to finance future projects. See "Business - - Project Development Activities." Energy Price Fluctuations and Fuel Supply Costs The Company's PPAs with utilities have typically contained, and may in the future contain, price provisions which in part are linked to the utilities' cost of generating electricity. In addition, the Company's fuel supply prices, with respect to future projects, may be fixed in some cases or may be linked to fluctuations in energy prices. These circumstances can result in high volatility in gross margins and reduced operating income, either of which could have a material adverse effect on the Company's financial position or results of operations. Effective April 30, 1996, the Company renegotiated its PPAs with JCP&L, the primary electricity purchaser from its Newark and Parlin Projects. Under the new PPAs, JCP&L is responsible for all natural gas supply and delivery. Management believes that this change in these PPAs has reduced its historical volatility in gross margins on revenues from such projects by eliminating the Company's exposure to 15 fluctuations in the price of natural gas that must be paid by its Newark and Parlin Projects. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Costs and Expenses." Project Development Risks The development of cogeneration projects often requires many months or years to complete and involves a high degree of risk that any particular project will not be completed. Among the principal elements involved in developing projects are the selection of a site, obtaining commitments from others to purchase electrical power and steam, negotiating fuel supply arrangements, obtaining environmental and other governmental permits and approvals, arranging project financing and turnkey construction. These objectives are subject to a host of uncertainties which in many instances cannot be anticipated. Moreover, these objectives often are achieved independently of one another, and success in achieving one objective does not necessarily result in success in achieving others. For example, the future growth of the Company is dependent, in part, upon the demand for significant amounts of additional or replacement electrical generating capacity and its ability to obtain contracts to supply portions of this capacity. However, even if the Company is successful in the development or acquisition of an interest in a project, the Company may require substantial additional debt or equity financing for such projects, which additional financing may not be available on acceptable terms, if at all. During the period that the Company was in bankruptcy, project development efforts virtually ceased. Since emerging from bankruptcy these efforts have resumed, both through the re-staffing of an internal development team and as a result of the Co-Investment Agreement. There can be no assurance, however, that the Company will be able to obtain satisfactory projects under the Co-Investment Agreement and satisfactory project agreements, construction contracts, necessary licenses and permits or satisfactory financing commitments or that any of the projects discussed in this report or which otherwise might be pursued will ultimately be completed. If its development efforts are not successful, the Company may abandon a project under development. At the time of abandonment, the Company would expense all capitalized development costs incurred in connection therewith and could incur additional losses associated with any related contingent liabilities. Moreover, most acquisition agreements and power purchase agreements permit the seller or customer, respectively, to terminate the agreement or impose penalties if the acquisition or operation of the project (as the case may be) is not achieved by a specified date. Any material unremedied delay in, or unsatisfactory completion of, construction of the Company's projects could have a material adverse effect on the Company's business or financial condition. See "Business - Project Development Activities." Dependence on Certain Customers and Projects The Company's projects (including projects in which it may make minority investments) typically rely on a single customer or a few customers to purchase all of a facility's output, in each case under long-term agreements that provide the support for any project debt used to finance such facilities. See "Business - Principal Customer." The failure of any one customer to fulfill its contractual obligations to a facility could have a material adverse effect on such facility's financial results. As a result, the financial performance of such facilities is dependent on continued performance by customers of their obligations under such long-term agreements and, in addition, on the credit quality of the project's customers. See "Item 3. Legal 16 Proceedings." Regulatory developments, including deregulation and industry restructuring activity, may cause major customers to attempt to renegotiate contracts or otherwise fail to perform their contractual obligations, which in turn could adversely affect the Company's results of operations. In addition, major customers may attempt to renegotiate contracts or otherwise fail to perform their contractual obligations if changes in current economic conditions make the terms of such contracts less favorable to such customers. Risks Involved in Making Minority Investments in Projects The Company currently conducts its business primarily through subsidiaries. However, one of the Company's current project investments consists of a minority interest in a project entity (i.e., the Company beneficially owns 50% or less of the ownership interests), and future investments in projects may also take the form of minority interests. As a result, the Company's ability to control the development, construction, acquisition or operation of such projects may be limited. The Company may be dependent on its co-investors to construct and/or to operate such projects. There can be no assurance that such co-investors will have the same level of experience, technical expertise, human resources management and other attributes as the Company. Any such co-investor may have conflicts of interests, including those relating to its status as a provider of goods or services to, or a purchaser of power or other services from, the project. The approval of its co-investors also may be required for distributions of funds from projects to the Company. General Operating Uncertainties The operation of a power plant involves many risks, including the breakdown or failure of power generation equipment, pipelines, transmission lines or other equipment or processes, fuel interruption, and performance below expected levels of output or efficiency. Each facility may depend on a single or limited number of entities to purchase electricity or thermal energy, to supply water, to supply gas, to transport gas, to dispose of wastes or to wheel electricity. The failure of any such purchasing utility, steam host, water or gas supplier, gas transporter, wheeling utility or other relevant project participant to fulfill its contractual obligations could have a material adverse impact on the Company. Competition Many organizations, including equipment manufacturers and subsidiaries of utilities and contractors, as well as other organizations similar to the Company, have entered the market for the development, ownership and operation of cogeneration projects. Many of these companies have substantially greater resources and/or access to the capital required to fund such activities than the Company. In addition, obtaining power contracts with utilities has become more competitive with the increased use of competitive bidding procedures and the advent of deregulation in the electric utility market. This increased competition may make it more difficult for the Company to secure future projects, may increase project development costs and may reduce the Company's operating margins on any future projects. Any such developments could have a material adverse effect on the Company's results of operations and financial condition. See "Business - Independent Power Market Overview." 17 Proposed Restructuring of the Electric Utility Industry The U.S. Congress is considering legislation to repeal PURPA entirely, or at least to repeal the obligation of utilities to purchase from qualifying facilities thereunder. There is strong support for grandfathering existing QF contracts if such legislation is enacted, and also support for requiring utilities to conduct competitive bidding for new electric generation if the PURPA purchase obligation is eliminated. Since the Company benefits from PURPA, the Company's business could be adversely affected by a significant change in PURPA. See "Business - Independent Power Market Overview," and "Business - Regulation." Various bills have also proposed repeal of PUHCA. Repeal of PUHCA would allow both independent power producers and vertically integrated utilities to acquire retail utilities in the U.S. that are geographically widespread, as opposed to the current limitations of PUHCA which generally require that retail electric systems be capable of physical integration. Also, registered holding companies would be free to acquire non-utility businesses, which they may not do now, with certain limited exceptions. With the repeal of PURPA or PUHCA, competition for independent power generators from vertically integrated utilities would likely increase. While the Company does not believe that any such repeal would necessarily have a material adverse effect on its financial position or results of operations, the long term effect on the Company of any such repeal cannot be predicted. See "Business - Regulation." In addition, the FERC, many state legislatures and public utility commissions ("PUCs") and Congress are currently studying and in some cases implementing proposals to restructure the electric utility industry in the U.S. to permit consumers to choose their utility supplier in a competitive electric energy market. The FERC issued rules in 1996 to require utilities to offer wholesale customers and suppliers open access on their transmission lines on a comparable basis to the utilities' own use of the lines. Virtually all investor-owned utilities have already filed "open access tariffs for wholesale transmission." The utilities contend that they should recover from departing customers their fixed costs that will be "stranded" by the ability of their wholesale customers (and perhaps eventually, their retail customers) to choose new electric power suppliers. These include the costs utilities are required to pay under many QF contracts which the utilities view as excessive when compared with current market prices. Many utilities are therefore seeking ways to lower these contract prices or rescind the contracts altogether, out of concern that their shareholders will be required to bear all or part of such "stranded" costs. Some utilities have engaged in litigation against QFs to achieve these ends. In addition, future U.S. electric rates may be deregulated in a restructured U.S. electric utility industry, and increased competition may result in lower rates and less profit for U.S. electricity sellers. Falling electricity prices and uncertainty as to the future structure of the industry are inhibiting U.S. utilities from entering into long-term power purchase contracts. At the state level the New Jersey Board of Public Utilities ("BPU") has issued a final report and recommendation for introducing retail electric competition in New Jersey beginning in October 1998. Consistent with the BPU's recommendation General Public Utilities, the parent corporation of JCP&L, has filed a restructuring plan with the BPU seeking the recovery of stranded costs including costs that it characterizes as stemming from purchased power commitments. JCP&L is the long term purchaser of power from the Parlin and Newark Projects. The BPU has recently released draft proposed legislation that it believes is necessary to implement retail competition fully in New Jersey. 18 In Pennsylvania the Pennsylvania General Assembly enacted the Electricity Generation Customer Choice and Competition Act in December 1996. The Act provides for phased in retail competition and stranded cost recovery implemented by the Pennsylvania Public Utility Commission ("PaPUC") over several years. PECO Energy Company ("PECO"), the long term purchaser of power from the Grays Ferry Project, recently notified Grays Ferry Cogeneration Partnership that PECO believes the power purchase agreements that it has with Grays Ferry are no longer in effect based on the alleged denial of cost recovery by the PaPUC. Grays Ferry Cogeneration Partnership and other parties including the Company's wholly-owned subsidiary through which it owns its interest in the Partnership have commenced litigation against PECO and the PaPUC seeking injunctive relief and damages. See "Item 3. Legal Proceedings" and Note 19 of the Notes to the Consolidated Financial Statements. While the Company does not believe that ongoing federal and state restructuring efforts necessarily would have a material adverse effect on its financial position or results of operations, the long term effect of any such restructuring on the Company cannot be predicted at this time. See "Business - Regulation." Environmental Law and Regulation The Company and its projects are subject to a number of complex and stringent environmental laws and regulations, affecting many aspects of its present and future operations. These laws and regulations in many cases require a lengthy and complex process of obtaining licenses, permits and approvals from federal, state and local agencies. The environmental regulations under which the Company's projects operate are subject to amendment. The Company cannot predict what effect compliance with such amendments may have on the Company's business or operations. Compliance could require modification of a project and thereby increase its costs, extend its completion date or otherwise adversely affect a project before or after its completion. See "Business - Environmental Regulations." Risks Associated with Foreign Operations The Company's foreign operations (currently consisting primarily of its equipment sales and rental operations) are subject to the risks inherent in doing business in foreign countries, including changes in currency exchange rates, currency restrictions, political changes and expropriation. Although it is impossible to predict the likelihood of such occurrences or their effect on the Company, management believes these risks to be mitigated by the facts that the Company's foreign activities historically have not been concentrated in any single country and have been conducted largely in Europe, which management believes to be subject to fewer of such risks than other regions. In addition, the Company attempts to secure payment for export sales with commercial letters of credit or other secured means. See "Business - Products and Services - Equipment Sales, Rentals and Services Segment." History of Losses The Company reported net income of approximately $23.4 million and $6.4 million for the fiscal year ended December 31, 1997 and six months ended December 31, 1996, respectively. However, due in part to costs associated with its bankruptcy proceeding, the Company incurred losses of approximately $17.7 million and $40.9 million for the fiscal years ended June 30, 1996, and June 30, 1995, respectively. These losses had a material adverse effect on the Company's 19 liquidity and financial position and may continue to adversely affect the Company's liquidity and results of operations in future periods by, among other things, rendering it more difficult for the Company to raise capital or otherwise to conduct project development activities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Influence by NRG Energy, Inc. NRG Energy holds approximately 45.21% of the Company's Common Stock. Four of the Company's eight directors are executive officers of NRG Energy. NRG Energy is a major domestic and international developer of independent power projects. As a result, persons who simultaneously serve as directors or executive officers of the Company and directors or executive officers of NRG Energy may be subject to conflicts of interest with respect to business opportunities or other investments which may be of interest to both NRG Energy and the Company. While the Company's Restated Articles of Incorporation impose certain supermajority requirements in certain circumstances, and the Independent Directors Committee of the Board has exclusive jurisdiction over the Company's contractual relations and other material transactions with NRG Energy (including under the Co-Investment Agreement), NRG Energy's share ownership may permit it to effectively control the outcome of matters which may be submitted to a vote of the shareholders, including the election of directors of the Company. NRG Energy also may exert significant influence over the Company's business and affairs through its representation on the Board of Directors and its other relationships with the Company, including the Co-Investment Agreement. Moreover, NRG Energy, in its business relationships with the Company and in its role as a shareholder of the Company, may have interests which conflict with those of the Company under certain circumstances. See "Business - Project Development Activities - Co- Investment Agreement with NRG Energy." Risks Associated with Forward-Looking Statements This Form 10-K, including the information incorporated by reference herein, contains various forward-looking statements and information that are based on the Company's beliefs and assumptions, as well as information currently available to the Company. From time to time, the Company and its officers, directors or employees may make other oral or written statements (including statements in press releases or other announcements) which contain forward-looking statements and information. Without limiting the generality of the foregoing, the words "believe," "anticipate," "estimate," "expect," "intend," "plan," "seek" and similar expressions, when used in this Form 10-K and in such other statements, are intended to identify forward-looking statements. All forward-looking statements and information in this Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act and are intended to be covered by the safe harbors created thereby. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, those discussed above. Many of such factors are beyond the Company's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. The Company disclaims any obligation to update or review any forward-looking statements contained in this Report or in any statement referencing the risk factors and other cautionary statements set forth in this Report, whether as a result of new information, future events or otherwise. 20 ITEM 2. PROPERTIES. The Company's corporate headquarters are located in Minneapolis, Minnesota. The headquarters for Puma's executive offices and its principal manufacturing facility are located in Ash, Canterbury, Kent, United Kingdom. The headquarters of OES are located on approximately four acres in Wilmington, Delaware. The premises are owned, subject to a mortgage, in fee simple and include an approximately 55,000 square foot building. In addition, OES owns, subject to a mortgage, office and warehouse space in Houston, Texas, on approximately two acres of land. OES leases space for similar purposes in each of Bakersfield and Benicia, California. The office and warehouse space in Texas and in the California locations range from approximately 5,000 to 10,000 square feet. The Newark, Parlin, Grays Ferry and Morris project entities lease property on the site of the Newark, Parlin, Grays Ferry and Morris cogeneration facilities, respectively, from the commercial user of thermal energy for a nominal fee. The term of the lease equals or exceeds that of each respective thermal supply agreement. Management believes that the leased premises are suitable and adequate for the Company's projects. ITEM 3. LEGAL PROCEEDINGS. Litigation The Company or a subsidiary is party to the following legal proceedings: 1. Stevens, et al. v. O'Brien Environmental Energy, Inc., et al., United States District Court for the Eastern District of Pennsylvania, Civil Action No. 94-cv-4577, filed July 27, 1994. This action was filed by certain purchasers of the Class A Common Stock of the Company's predecessor during the class period who allege various violations of the Federal securities laws. The Plaintiffs claim that certain material misrepresentations and nondisclosures concerning the Company's financial conditions and prospects allegedly caused the price of the Common Stock to be artificially inflated during the class period. Management does not expect the outcome to have a material adverse effect on the Company. 2. Blackman and Frantz v. O'Brien, United States District Court, Eastern District of Pennsylvania, Civil Action No. 94-cv-5686, filed October 25, 1995. This action was filed by purchasers of O'Brien debentures during the class period. The Plaintiffs object to treatment of the class under the Bankruptcy Plan. This matter has been consolidated with the Stevens class action case described in paragraph number 1 above. Management does not expect the outcome to have a material adverse effect on the Company. 3. In re: O'Brien Environmental Energy, Case No. 94-26723, U.S. Bankruptcy Court for the District of New Jersey, filed September 29, 1994. Calpine Corporation ("Calpine"), an unsuccessful bidder for the acquisition of the debtor in the bankruptcy case, filed an application for allowance of an administrative claim for approximately $4.5 million in break-up fees and expenses in the bankruptcy case. The Bankruptcy Court denied the 21 application in full, by order dated November 27, 1996. Calpine filed an appeal from the Bankruptcy Court's order denying its application. The appeal has now been fully briefed and the parties are awaiting a decision. Management does not expect the outcome of its bankruptcy case to have a material adverse effect on the Company. 4. Grays Ferry Cogeneration Partnership, Trigen-Schuylkill Cogeneration, Inc., NRGG (Schuylkill) Cogeneration Inc. and Trigen-Philadelphia Energy Corp. v. PECO Energy Company, Adwin (Schuylkill) Cogeneration,Inc. and the Pennsylvania Public Utility Commission, the United States District Court for the Eastern District of Pennsylvania, Civil Action No. 98-CV-1243, filed March 9, 1998. This action arose out of PECO Energy Company's ("PECO") notification to the Grays Ferry Cogeneration Partnership (the "Partnership") that PECO believes its power purchase agreements with the Partnership relating to the Grays Ferry Project are no longer effective and PECO's refusal to pay the electricity rates set forth in the agreement based on its allegations that the Pennsylvania Public Utility Commission has denied cost recovery of the power purchase agreements in retail electric rates. The Plaintiffs include, in addition to the Partnership, the Company's wholly-owned subsidiary through which it owns its interest in the Partnership and two subsidiaries of Trigen Energy Corporation ("Trigen"), one of which subsidiaries is also a one-third owner of the Partnership. Defendant Adwin (Schuylkill) Cogeneration,Inc. is a subsidiary of PECO and also a partner in the Partnership. The Plaintiffs are seeking to enjoin PECO from terminating the power purchase agreements and to compel PECO to pay the rates set forth therein. In addition, the Plaintiffs are seeking actual damages against PECO in an amount in excess of $200 million, punitive damages and attorneys' fees and costs. The Plaintiffs have asserted claims against PECO and its subsidiary which include breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duties and tortious interference with a long- term contract which one of the Trigen Plaintiffs has entered into for the sale of steam to be produced predominantly by the Grays Ferry Project. The lawsuit further seeks to compel PECO to take the necessary actions before the Pennsylvania Public Utility Commission to seek recovery of its costs under the power purchase agreements and to compel the Pennsylvania Public Utility Commission to allow cost recovery of the power purchase agreements in PECO's retail electric rates. On March 19, 1998, the district court dismissed the lawsuit for lack of subject matter jurisdiction. On March 27, 1998, the Plaintiffs filed a motion for reconsideration and leave to file an amended complaint. As of the date of this Report, the Plaintiffs were awaiting the judge's decision on the motion and reviewing their other legal options. Arbitration On January 30, 1998, the Company gave notice to NRG Energy of a dispute to be arbitrated pursuant to the terms of the Co-Investment Agreement. With certain exceptions, the Co-Investment Agreement obligates NRG Energy to offer to sell to the Company "eligible projects," which are defined in the Co-Investment Agreement as certain facilities which generate electricity for sale through the combustion of natural gas, oil or any other fossil fuel. The Co-Investment Agreement provides that if NRG Energy offers to sell an eligible project to the Company and the Company declines to purchase the project, NRG Energy then has the right to sell the project to a third party at a price which equals or exceeds that offered to the Company. See "Business - Project Development Activities - Co-Investment Agreement with NRG Energy." In the arbitration proceeding, the Company contends that NRG Energy breached the Co-Investment Agreement by, 22 among other things, agreeing to sell to an affiliate of Oklahoma Gas and Electric Company, a 110 MW cogeneration project in Oklahoma, without fulfilling NRG Energy's commitment to offer the project to the Company at the same price. The Company intends to request specific performance of the Co-Investment Agreement. NRG Energy has advised the Company that it believes that it had no obligation to offer the project to the Company. Both parties have chosen their respective arbitrators and are awaiting the selection of a third arbitrator from the American Arbitration Association. The Company is subject from time to time to various other claims that arise in the normal course of business, and management believes that the outcome of these matters (either individually or in the aggregate) will not have a material adverse effect on the business or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's stockholders during the quarter ended December 31, 1997. 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock has been quoted and traded under the symbol "NRGG" on the Nasdaq SmallCap Market from March 1997 to November 1997 and on the Nasdaq National Market since November 1997. Prior to March 1997, the Company's Common Stock was not listed on an exchange or on the Nasdaq Stock Market but traded from time to time on the pink sheets and on the OTC Bulletin Board. The high and low sales prices of the Common Stock for the period from March 1997 to December 1997 are shown in the table below. Such prices may have reflected inter-dealer prices, without retail mark-ups, mark downs or commissions, and may not necessarily represent actual transactions. NRGG Common Stock Price Per Share Information for 1997 Price Per Share ($) Period Low High First Quarter (1) 11.250 13.750 Second Quarter 11.125 16.000 Third Quarter 14.250 21.000 Fourth Quarter 18.000 22.375 (1) The Company's Common Stock began trading on the Nasdaq SmallCap Market on March 3, 1997. This information reflects the low and high prices during the period from March 3, 1997 to March 31, 1997. As of March 11, 1998, the Company had approximately 500 holders of record of its Common Stock, not including beneficial owners whose shares are held by banks, brokers and nominees. The Company presently intends to retain all earnings for the operation and expansion of its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Any future determination as to the payment of dividends on the common stock will depend upon future earnings, results of operations, capital requirements, the financial condition of the Company and any other factors the Board of Directors of the Company may consider. Moreover, as a holding company, the Company's ability to pay any dividends in the future will depend largely on the ability of its operating subsidiaries and project entities to pay cash dividends or other cash distributions, which dividends or other cash distributions may be materially limited by the terms of credit agreements or other material contracts to which such operating subsidiaries or project entities may be parties. Two of the Company's principal operating subsidiaries, NRGG Newark and NRGG Parlin, are parties to a Credit Agreement which prohibits the payment of dividends by such subsidiaries to the Company, provided that such dividend payments may be made out of funds 24 available after the payment of various costs and expenses set forth in the Credit Agreement (including without limitation operating costs, various debt service payments and the funding of various accounts required to be maintained pursuant to the Credit Agreement) if certain conditions set forth in the Credit Agreement are satisfied, including without limitation the maintenance of a debt service coverage ratio set forth in the Credit Agreement, the absence of any default or event of default under the Credit Agreement, and the satisfaction of certain conditions relating to the composition of the Board of Directors of the Company. Morris LLC (the owner of the Morris Project) is party to a Construction and Term Loan Agreement which prohibits the payment of distributions or the return of capital to Morris LLC's members except upon the satisfaction of certain conditions which include (i) the acceptance and commercial operation of the facility and conversion of the project's construction loan to term loans, (ii) the absence of any default or event of default under various financing and project documents, (iii) the full prior funding of various accounts required to be maintained by Morris LLC under the Construction and Term Loan Agreement, and (iv) the maintenance of a required debt service coverage ratio. The Company and NRGG Funding also are parties to a supplemental Loan Agreement with NRG Energy which prohibits NRGG Funding (which directly or indirectly owns 100% of the membership interests of Morris LLC) from paying any distributions or dividends unless, among other things, the principal and interest then outstanding does not exceed a prescribed maximum amount and is not projected to exceed the maximum amount prescribed for the next two interest and principal payment dates. The Company is the borrower under another Credit Agreement which prohibits the payment of dividends by the Company without prior written consent unless the Company provides more than 30 days prior to the proposed date of payment of such dividend a letter of credit and a certificate signed by the chief financial officer of the Company that, after giving effect to such dividend payment, no default or event of default (as defined in therein) would occur or reasonably be anticipated to occur. On April 30, 1996, the Bankruptcy Court approved the issuance of 6,474,814 shares of Common Stock of the Company which have been issued since such date and prior to March 31, 1998 pursuant to the terms of the Plan to NRG Energy and holders of O'Brien Class A and Class B Common Stock. Such shares issued to NRG Energy were issued in consideration of a cash payment of approximately $21.2 million, and such shares issued to holders of O'Brien Class A and Class B Common Stock were issued in exchange for such shares of O'Brien Class A and Class B Common Stock. The cash payment from NRG Energy was used by the Company under the Plan to provide for full and immediate payment of all undisputed pre-petition claims as well as a provision for post-petition interest. In connection with the consummation of the Plan, the Company also granted NRG Energy an option to convert $3.0 million of the outstanding principal amount of the loan between NRG Energy and NRGG (Schuylkill) Cogeneration, Inc. ("NSC") in the principal amount of $10.0 million (the "Loan") into shares of Common Stock. On November 25, 1997, the Company issued 396,255 shares of its Common Stock to NRG Energy upon conversion of such portion of the Loan. The securities issued to NRG Energy and the holders of the O'Brien Class A and Class B Common Stock were issued without registration under the Securities Act or under any state or local law, in reliance on the exemptions set forth in Section 1145 of the United States Bankruptcy Code. 25 ITEM 6. SELECTED FINANCIAL DATA. The consolidated selected financial data as of and for each of the periods indicated have been derived from the audited financial statements of the Company. This data should be read in conjunction with, and is qualified in its entirety by reference to, the related financial statements and notes included elsewhere in this Report.
Year Six Months Ended Ended (Dollars in thousands, except per December 31, December 31, Year Ended June 30 share amounts) 1997 1996 (1) 1996 1995 1994 1993 Statement of Operations Data: Revenues: Energy $ 43,210 $ 21,669 $ 66,623 $ 74,455 $ 62,647 $ 65,136 Equipment sales and services 19,415 15,607 25,344 19,639 24,304 18,955 Rental 2,179 1,062 1,895 2,362 5,372 3,636 Related parties - - - - - 515 Development fees and other - 1,578 2,685 5,791 14,266 9,450 Total 64,804 39,916 96,547 102,247 106,589 97,692 Income (loss) before extraordinary item 23,352 4,780 (17,713) (40,919) (16,501) (13,711) Net income (loss). 23,352 6,423 (17,713) (40,919) (16,501) (13,711) Basic earnings (loss) per share(2): Before extraordinary item $ 3.59 $ 0.75 $ (4.24) $ (11.02) $ (4.45) $ (3.70) Extraordinary item - 0.25 - - - - $ 3.59 $ 1.00 $ (4.24) $ (11.02) $ (4.45) $ (3.70) Diluted earnings (loss) per share(2) Before extraordinary item $ 3.48 $ 0.74 $ (4.24) $ (11.02) $ (4.45) $ (3.70) Extraordinary item - 0.25 - - - - $ 3.48 $ 0.99 $ (4.24) $ (11.02) $ (4.45) $ (3.70) Balance Sheet Data: Total assets $227,894 $173,624 $178,162 $189,748 $237,816 $262,529 Long-term debt, net 190,020 150,311 66,789 3,405(3) 67,383 125,152 Convertible senior subordinated Debentures - - - - - 49,174 (1) Effective July 1, 1996, the Company changed its year end from June 30 to December 31. (2) Net income (loss) per share has been restated for all periods presented to reflect the common shares issued under the terms of the Plan. (3) Excludes $60,310 of long-term project financing which was included in current liabilities due to default under the debt agreement.
26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain of the statements made in this Item 7 and in other portions of this Report and in documents incorporated by reference herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, those discussed in "Business - Risk Factors" herein. See "Business - Risk Factors - Risks Associated with Forward-Looking Statements." All amounts set forth in this Item 7 are in thousands. The Company directly and through its subsidiaries develops and owns cogeneration projects which produce electricity and thermal energy for sale to industrial and commercial users and public utilities. In addition, the Company, through its subsidiaries, sells and rents power generation, cogeneration and standby/peak shaving equipment and services. On April 30, 1996, the Company emerged from bankruptcy under a plan approved by the Bankruptcy Court on January 18, 1996. In connection with the consummation of the Plan, NRG Energy advanced approximately $107,418 and purchased approximately 41.86% of the Common Stock. NRG Energy's financial backing of the Plan enabled the Company to provide for full and immediate payment of all undisputed pre- petition claims as well as a provision for post-petition interest. The Plan also provided that all of the shares of O'Brien Class A and Class B Common Stock were canceled and replaced by a new issue of NRGG Common Stock. Net income (loss) per share has been restated for all periods presented to reflect the new common shares issued under the terms of the Plan. Additionally, under the terms of the Plan, NRG Energy acquired the stock of ten wholly-owned subsidiaries from the Company on the closing date which included all of the Company's landfill gas projects (those operating and those in development), the general partner holding a 3% equity interest in the Artesia Cogeneration partnership and a standby power project. Management believes that the sale of these subsidiaries will not have a material adverse effect on its results of operations in future years. The Company currently owns two cogeneration facilities (the Newark and Parlin Projects) with an electric generating capacity of 174 MW. In addition, the Company operates and owns an 83% interest in two standby/peak shaving facilities (together comprising the Philadelphia PWD Project) with a capacity of 22 MW. The Company also has a one- third ownership interest in a cogeneration facility (the "Grays Ferry Project") with an electric generating capacity of 150 MW, which commenced operation in January 1998. As of the date of this Report, the Company and the Grays Ferry Partnership are in litigation with the electric power purchaser from the Grays Ferry Project over, among other things, the effectiveness of the applicable power purchase agreements. See "Item 3. Legal Proceedings". 27 The Company's PPAs with utilities have typically contained, and may in the future contain, price provisions which in part are linked to the utilities' cost of generating electricity. In addition, the Company's fuel supply prices, with respect to future projects, may be fixed in some cases or may be linked to fluctuations in energy prices. These circumstances can result in high volatility in gross margins and reduced operating income, either of which could have a material adverse effect on the Company's financial position or results of operations. Effective April 30, 1996, the Company renegotiated its PPAs with JCP&L, the primary electricity purchaser from its Newark and Parlin Projects. Under the new PPAs, JCP&L is responsible for all natural gas supply and delivery. Management believes that this change in these PPAs has reduced its historical volatility in gross margins on revenues from such projects by eliminating the Company's exposure to fluctuations in the price of natural gas that must be paid by its Newark and Parlin Projects. Both the Newark and Parlin Projects were previously certified as qualifying facilities ("QFs") by the FERC under PURPA. The effect of QF status is generally to exempt a project's owners from relevant provisions of the Federal Power Act, PUHCA, and state utility-type regulation. However, as permitted under the terms of its renegotiated PPAs, Parlin has chosen to file rates with FERC as a public utility under the Federal Power Act. The effect of this filing was to relinquish the Parlin Project's claim to QF status. The FERC approved Parlin's rates effective April 30, 1996 and has determined Parlin to be an EWG. As an EWG, Parlin is exempt from PUHCA, and the ownership of Parlin by the Company does not subject the Company to regulation under PUHCA. Finally, as a seller of power exclusively at wholesale, Parlin is not generally subject to state regulation and, in any case, management believes that Parlin complies with all applicable requirements of state utility law. In addition to the energy business, the Company sells and rents power generation and cogeneration equipment and provides related services. The Company operates its equipment sales, rentals and services business principally through two subsidiaries. In the United States, the equipment sales, rentals and services business operates under the name of O'Brien Energy Services Company. NRG Generating Limited, a wholly-owned United Kingdom subsidiary, is the holding company for a number of subsidiaries that operate in the United Kingdom under the common name of Puma. The Company has determined that OES and Puma are not a part of its strategic plan for the future, and the Company is currently pursuing several avenues for the disposition of these businesses. The disposition of these businesses is not expected to have a material impact on the Company's financial position. Effective January 1, 1997, Power Operation, Inc., a wholly-owned subsidiary of the Company providing operation and maintenance for the Newark and Parlin facilities under long-term contracts, was sold to NRG Energy. This transaction did not have a material financial impact on the operations of these facilities or on the Company's financial condition or results of operations. The terms of this transaction were approved by the Independent Directors Committee of the Company's Board of Directors as required by the Company's Bylaws. The Company entered into a Liquidating Asset Management Agreement on April 30, 1996 with Wexford Management Corp. ("Wexford"), a co- sponsor of the Plan, which, in accordance with the Plan, retains Wexford as manager, operator and liquidator of the Liquidating Assets (as defined in the agreement) of the Company pursuant to the terms and conditions of the agreement. The Board of Directors and officers of the Company have the right to direct and control which assets will be liquidated and the extent of management services required for each 28 Liquidating Asset. The Liquidating Assets identified in the agreement consist of (a) the Company's engine generator sales, service and rental business, (b) the Philadelphia PWD Project, (c) unused equipment and (d) American Hydrotherm ("American Hydrotherm") and two related companies. In December 1996, the Company sold American Hydrotherm and the two related companies to the management of American Hydrotherm. The Company's Board of Directors has decided not to liquidate the Philadelphia PWD Project. Wexford has received compensation in accordance with the terms of the agreement (see Note 1 of the Notes to the Consolidated Financial Statements). Effective July 1, 1996, the Company changed its year end from June 30 to December 31. As a result, "fiscal 1995" refers to the 12-month period ended June 30, 1995 ; "fiscal 1996" refers to the 12-month period ended June 30, 1996; the "1996 transition period" refers to the 6-month period ended December 31, 1996; and "fiscal 1997" refers to the 12-month period ended December 31, 1997. Results of Operations for Fiscal 1997, the 1996 Transition Period and Fiscal 1996 and 1995 Revenues Energy revenues for fiscal 1997, the 1996 transition period and fiscal 1996 and 1995 were $43,210, $21,669, $66,623 and $74,455, respectively. Energy revenues primarily reflect billings associated with the Newark and Parlin Projects and the Philadelphia PWD Project. The increase in energy revenues for fiscal 1997 as compared to the 1996 transition period was primarily due to only six months of revenues reported in the 1996 transition period. The decrease in energy revenues for the 1996 transition period as compared to fiscal 1996 was primarily due to only six months of revenues reported in the 1996 transition period and to the amended PPAs affecting both the Newark and Parlin Projects. The decrease in energy revenues in fiscal 1996 from fiscal 1995 was primarily attributable to a voluntary curtailment of operations at Parlin and to the negative impact of unit fuel cost fluctuations on the energy rate calculation under the Parlin Project's previous PPA. Additionally, a portion of the decrease is attributable to the amended PPAs affecting both the Newark and Parlin Projects for the final two months of fiscal 1996. Revenues recognized by NRGG Parlin for fiscal 1997, the 1996 transition period and fiscal 1996 and 1995 were $21,685, $10,327, $34,867 and $40,784, respectively. NRGG Parlin revenues increased for fiscal 1997 as compared to the 1996 transition period primarily due to only six months of revenues reported in the 1996 transition period. NRGG Parlin revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of revenues reported in the 1996 transition period and to the amended PPA. NRGG Parlin initiated a voluntary curtailment of electric output beginning in the first quarter and extending into the second quarter of fiscal 1996, during off-peak hours, to maintain the correct ratio of thermal to electric production after E.I. du Pont, the steam host, significantly decreased its steam demand by moving a business segment overseas. Additionally, NRGG Parlin's fiscal 1996 revenues were affected by a decrease in the energy rate under the previous PPA adjusted quarterly based on, in part, the average cost of fuel over the preceding year. A mild 1995 winter resulted in unusually low natural gas costs which, after a five quarter lag, lowered the energy rate received during fiscal 1996. NRGG Parlin revenues also decreased in fiscal 1996 by approximately $2,680 from the amended PPA implemented on April 30, 1996. 29 Revenues recognized at NRGG Newark for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $17,319, $9,259, $26,820 and $28,908, respectively. NRGG Newark revenues increased for fiscal 1997 as compared to the 1996 transition period primarily due to only six months of revenues reported in the 1996 transition period. NRGG Newark revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of revenues reported in the 1996 transition period and to the amended PPA. The decrease in revenues in fiscal 1996 from 1995 is primarily attributable to the implementation of the amended PPA in May 1996. Equipment sales and services revenues for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $19,415, $15,607, $25,344 and $19,639, respectively, which principally reflect the operations of OES, Puma and American Hydrotherm. American Hydrotherm was sold in December 1996. Revenues increased for fiscal 1997 as compared to the 1996 transition period primarily due to only six months of revenues reported in the 1996 transition period and to higher sales volumes. Revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of revenues reported in the 1996 transition period, offset in part by the inclusion of nine months of revenues in the period from the operations of Puma. Puma changed its fiscal year end from a fiscal year ended March 31 to a calendar year fiscal year effective on December 31, 1996. Management attributes the increase in fiscal 1996 to a volume increase resulting from successful marketing efforts as well as to an improvement in the U.S. economy. The Company also believes that its bankruptcy filing in September 1994 had some negative impact in fiscal 1995 revenues because of customer uncertainty. OES equipment sales and services revenues for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $6,115, $1,575, $5,232 and $3,575, respectively. Rental revenues for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $2,179, $1,062, $1,895 and $2,362, respectively. Revenues increased for fiscal 1997 as compared to the 1996 transition period primarily due to only six months of revenues reported in the 1996 transition period. Revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of revenues reported in the 1996 transition period. There were no development fees and other revenues for fiscal 1997. Development fees and other revenues for the 1996 transition period and fiscal 1996 and 1995 were $1,578, $2,685 and $5,791, respectively. Revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of revenues reported in the 1996 transition period. The decrease in revenues in 1996 from 1995 was attributable primarily to the Company selling its rights to develop a standby electric project for $1,763, the expiration of a purchase option whereby, the Company retained $775 in forfeited escrow deposits, offset in part to higher gas sales to the Artesia Cogeneration partnership in 1995. Costs and Expenses Cost of energy revenues for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $14,841, $7,229, $45,663 and $46,694, respectively. Cost of energy revenues increased for fiscal 1997 primarily due to only six months of costs reported in the 1996 transition period. Cost of energy revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of costs reported in the 1996 transition period and the 30 result of the amended PPAs in which JCP&L began assuming the cost of fuel for the Newark and Parlin facilities. Cost of equipment sales and services for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $17,037, $12,365, $22,153 and $17,622, respectively. Cost of equipment sales and services increased for fiscal 1997 primarily due to only six months of costs reported in the 1996 transition period, except for the operations of Puma which included nine months of costs for the 1996 transition period and to the recording of $190 in the fourth quarter to reserve for the writedown of inventory. Cost of equipment sales and services decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of costs reported in the 1996 transition period. The fluctuations in cost of equipment sales and services between fiscal 1996 and 1995 primarily correlate to the changes in sales volume in the Company's equipment sales, rental and service businesses. Cost of rental revenues for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $1,817, $834, $1,406 and $2,357, respectively. Cost of rental revenues increased for fiscal 1997 primarily due to only six months of costs reported in the 1996 transition period. Cost of rental revenues decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of costs reported in the 1996 transition period. The decrease in cost of equipment rentals between fiscal 1996 and 1995 is attributable to the reacquisition of the Philadelphia PWD Project from an unrelated private investor. There were no development fees and other costs for fiscal 1997. Cost of development fees and other for the 1996 transition period and fiscal 1996 and 1995 were $1,559, $2,531 and $5,491, respectively. These costs consist principally of costs associated with the sale of various projects either under development or in operation. The Company's gross margins were $31,109 (48.0% of sales), $17,929 (44.9% of sales), $24,794 (25.7% of sales), and $30,083 (29.4% of sales) for fiscal 1997, for the 1996 transition period and for fiscal 1996 and 1995, respectively. The fluctuations are primarily attributable to increased operating efficiency in the energy segment of the Company and to fluctuations in the recovery of fuel costs through energy revenues under the Newark and Parlin Project PPAs in effect until April 30, 1996. Provision for Impaired Assets In the fourth quarter of 1997, the Company completed a thorough review of its business operations and market opportunities. As a result of this review, the Company concluded that the estimated future cash flows to be generated by certain assets were not sufficient to recover their carrying values. Accordingly, the Company recorded an impairment provision of $5,274 for such assets. The provision consisted of property, plant and equipment write downs of $2,778 primarily related to the generator sales and services business, $1,553 for equipment held for sale, $500 to reduce the carrying value of the equity investment in PoweRent, $371 to expense project development costs and $72 for other impairments. The property plant and equipment and PoweRent provisions reduced the asset carrying values to estimated fair values determined by management and the board of directors based on prices of similar assets and various valuation techniques. The equipment held for sale provision represents the write off of remaining equipment which is being scrapped. The project development write off was necessary due to abandonment of certain projects. 31 During fiscal 1996 unrecoverable project development costs of $180 were written off. In fiscal 1995, based on independent market appraisals, the Company recorded charges of $15,985 to write-down property, plant and equipment and $5,655 to write-down equipment held for sale to lower fair values. In addition, project development costs of $4,418 determined to be unrecoverable were written off. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $9,479, $6,149, $12,612 and $15,902, respectively. SG&A increased for fiscal 1997 primarily due to only six months of costs reported in the 1996 transition period, except for the operations of Puma which included nine months of costs for the 1996 transition period and to the recording of $914 in the fourth quarter for various staffing and relocation costs and other reserves. SG&A decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of costs reported in the 1996 transition period. Fiscal 1996 includes a $3,100 cost incurred to terminate an interest rate swap agreement in connection with the Parlin nonrecourse project debt refinancing. Fiscal 1996 SG&A expenses benefited from lower payroll and related tax costs as well as reduced insurance expenses by approximately $2,347 as compared to fiscal 1995. Interest and Other Income Interest and other income for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $1,310, $413, $569 and $2,587, respectively. Interest and other income increased for fiscal 1997 primarily due to only six months of income reported in the 1996 transition period, the settlement of a legal suit, the sale of a development project in Pakistan, offset in part by fees paid to Wexford under the Liquidating Asset Management Agreement and the sale of unused equipment. Interest and other income for the 1996 transition period was positively impacted by interest income earned on escrow account balances established in connection with the nonrecourse financing on the Newark and Parlin facilities. Fiscal 1995 other income includes $1,180 recognized in connection with the original construction of the Philadelphia PWD Project. Reorganization Costs Reorganization costs represent all costs incurred after filing bankruptcy that relate to the Company's reorganization and restructuring efforts. Reorganization costs for fiscal 1996 and 1995 were $12,101 and $8,366, respectively. These costs consist primarily of professional and administrative fees and expenses. Fiscal 1995 expense includes $3,387 to write-off deferred financing costs due to Court-approved reductions in the carrying value of certain prepetition subordinated debentures. Interest and Debt Expense Interest and debt expense for fiscal 1997, for the 1996 transition period and fiscal 1996 and 1995 were $14,768, $7,681, $18,646 and $20,583, respectively. Interest and debt expense increased for fiscal 1997 as compared to the 1996 transition period primarily due to only six months of expense reported in the 1996 transition period. Interest and debt expense decreased for the 1996 transition period as compared to fiscal 1996 primarily due to only six months of expenses reported in the 1996 transition period and to the refinancing of the Newark and Parlin 32 Projects. Fiscal 1996 and 1995 interest and debt expense includes post- petition interest on prepetition liabilities of $6,487 and $6,194, respectively. Fiscal 1996 also includes $1,098 in interest costs associated with loans provided by NRG Energy and $1,433 of deferred financing costs attributable to the nonrecourse debt relating to the Newark and Parlin Projects which were refinanced during the year (see "Liquidity and Capital Resources"). Fiscal 1995 interest and debt expense includes $1,050 paid to the unrelated private investor to extend the Company's reacquisition option period for the Philadelphia PWD Project to August 1994. Extraordinary Item In the 1996 transition period, the Company negotiated a buyout of a subsidiary's capital lease obligation. The lender agreed to accept a $1,100 payment in full satisfaction of the lease. The transaction resulted in an extraordinary gain of $1,643 (net of $124 of state income taxes). Income Taxes For fiscal 1997, for the 1996 transition period and fiscal 1996, the Company realized an overall income tax benefit of $20,454, $268 and $463, respectively. For fiscal 1995, the provision for income taxes was $2,680. The benefit for fiscal 1997 and for the 1996 transition period is derived from the Company's ability to reduce its current and deferred tax liabilities by using net operating loss carryforwards and existing deductible temporary differences to offset current taxable income and future reversals of taxable temporary differences. The benefit for fiscal 1997 was attributable to the reversal of a valuation reserve that was applied against deferred tax assets relating to net operating losses incurred by the Company from fiscal 1992 to fiscal 1996. The benefit for fiscal 1996 was attributable to the utilization of state net operating loss carryforwards as well as a decrease in the deferred tax liability primarily attributable to a change in temporary differences resulting from the landfill gas equipment sold to NRG on April 30, 1996. The 1995 tax provision, consisting primarily of deferred taxes relating to property and equipment, results from the uncertainty of realizing the benefits of the tax loss carryforwards in future years against them. Additionally, most professional fees incurred during the bankruptcy period included in reorganization costs are treated as capital expenditures and are not deductible for income tax purposes (see Note 14 of the Notes to the Consolidated Financial Statements). Net Earnings (Loss) and Earnings (Loss) Per Share The net earnings for fiscal 1997 were $23,352 compared to net earnings for the 1996 transition period of $6,423 and a net loss for fiscal 1996 and 1995 of $17,713 and $40,919, respectively. The basic earnings per share for fiscal 1997 was $3.59 compared to basic earnings per share for the 1996 transition period of $1.00 and basic losses per share for fiscal 1996 and 1995 of $4.24 and $11.02, respectively. The fiscal 1997 net earnings are primarily due to the reversal of a valuation reserve that was applied against deferred tax assets relating to net operating losses incurred by the Company from fiscal 1992 to fiscal 1996 offset in part by the write-off of certain assets. The 1996 transition period net earnings are primarily attributable to higher gross margins due in part to the amended PPAs in which JCP&L began assuming the cost of fuel for the Newark and Parlin facilities. The fiscal 1996 and 1995 net losses are primarily due to the reorganization costs incurred after filing for bankruptcy that relate to the Company's reorganization and restructuring 33 efforts and to the impact of higher fuel costs prior to the amendment of the PPAs at Newark and Parlin in May 1996. Liquidity and Capital Resources On April 30, 1996, NRG Energy funded $107,418 in accordance with the Plan. The Company received $99,918 of which $71,240 was advanced under the terms of three loan agreements between the Company and NRG Energy; $21,178 represented the purchase of new common stock of NRGG and $7,500 was designated as the proceeds for the sale of ten wholly- owned subsidiaries sold to NRG Energy. In addition, NRG Energy transferred $7,500 directly to the Company's stock transfer agent representing a cash distribution by NRG Energy to the O'Brien common stockholders. In May 1996, the Company's wholly-owned subsidiaries NRGG Newark and NRGG Parlin entered into a Credit Agreement (the "Credit Agreement") which established provisions for a $155,000 fifteen-year loan and a $5,000 five-year debt service reserve line of credit. The interest rate on the outstanding principal is variable based on, at the option of Newark and Parlin, LIBOR plus a 1.125% margin or a defined base rate plus a 0.375% margin, with nominal margin increases in the sixth and eleventh year. For any quarterly period where the debt service coverage ratio is in excess of 1.4:1, both margins are reduced by 0.125%. Concurrent with the Credit Agreement, Newark and Parlin entered into an interest rate swap agreement with respect to 50% of the principal amount outstanding under the Credit Agreement. This interest rate swap agreement fixes the interest rate on such principal amount ($71,726 at December 31, 1997) at 6.9% plus the margin. The Company used the proceeds of the loan to repay certain preexisting obligations of the Company including $87,291 of indebtedness to NRG Energy. NRG Energy provided the Company with loans during fiscal 1996 of which $101,679 was outstanding to NRG Energy at June 30, 1996, $14,388 was outstanding at December 31, 1996 and $2,539 was outstanding at December 31, 1997. NSC, a wholly-owned subsidiary of the Company, owns a one-third partnership interest in the Grays Ferry Project currently under construction. In March 1996, the partnership entered into a credit agreement with The Chase Manhattan Bank N.A. to finance the project. The credit agreement obligated each of the project's three partners to make a $10,000 capital contribution prior to the commercial operation of the facility. The Company made its required capital contribution in 1997, and the facility began commercial operations in January 1998. NRG Energy entered into a loan commitment to provide NSC the funding, if needed, for the NSC capital contribution obligation to the Grays Ferry Partnership. Prior to December 31, 1997, NSC had borrowed $10,000 from NRG Energy under this loan agreement, of which $1,900 remained outstanding to NRG Energy at December 31, 1997, and contributed the proceeds to the Grays Ferry Partnership as part of the above-referenced capital contribution. In connection with this loan commitment for the Grays Ferry Project, the Company granted NRG Energy the right to convert $3,000 of borrowings under the commitment into 396,255 shares of common stock of the Company. In October 1997, NRG Energy exercised such conversion right in full. In connection with its acquisition of the Morris Project, NRGG Funding (a wholly-owned subsidiary of the Company) assumed all of the obligations of NRG Energy to provide future equity 34 contributions to Morris LLC, which obligations are limited to the lesser of 20% of the total project cost or $22.0 million. NRG Energy has guaranteed to the Morris Project's lenders that NRGG Funding will make these future equity contributions, and the Company has guaranteed to NRG Energy the obligation of NRGG Funding to make these future equity contributions. The Company intends to arrange financing for either NRGG Funding or itself (the terms and manner of which have not been determined by the Company) to fund the required future equity contributions by NRGG Funding to Morris LLC. In addition, NRG Energy is obligated under a Supplemental Loan Agreement between the Company, NRGG Funding and NRG Energy to loan NRGG Funding and the Company (as co- borrower) the full amount of such equity contributions by NRGG Funding, all at NRGG Funding's option. Any such loan will be secured by a lien on all of the membership interests of Morris LLC and will be recourse to NRGG Funding and the Company. On December 17, 1997, the Company entered into a credit agreement providing for a $30,000 reducing revolving credit facility with a new lender. The facility is secured by the assets and cash flows of the Philadelphia PWD Project as well as the distributable cash flows of the Newark and Parlin projects, and the Grays Ferry Partnership. On December 19, 1997 the Company borrowed $25,000 under this facility. The proceeds were used to repay $16,949 to NRG Energy, to repay $6,551 of obligations of the Philadelphia PWD Project and $1,500 for general corporate purposes. The remaining $5,000 of the facility will become available once security interests in the Philadelphia PWD Project are perfected. The facility reduces by $2,500 on the first and second anniversaries of the agreement and repayment of the outstanding balance is due on the third anniversary of the agreement. Interest is based, at the Company's option, on LIBOR plus a margin ranging from 1.50% to 1.875% or the prime rate plus a margin ranging from 0.75% to 1.125%. The interest rate was 7.84% at December 31, 1997. The facility provides for commitment fees of 0.375% on the unused facility. The Company's principal credit agreements (including the NRGG Newark and NRGG Parlin Credit Agreement) include cross-default provisions that generally permit its lenders to accelerate the indebtedness owed thereunder, to decline to make available any additional amounts for borrowing thereunder, and to exercise certain other remedies in respect of any collateral securing such indebtedness in the event certain defaults or other adverse events occur under certain other instruments or agreements (including financing and other project documents) to which the Company or one or more of its subsidiaries or other entities in which it owns an ownership interest is a party. As a result, a default under one such other instrument or agreement could have a material adverse effect on the Company by causing one or more cross-defaults to occur under one or more of the Company's principal credit agreements, potentially having one or more of the effects set forth above and otherwise adversely affecting the Company's liquidity and capital position. The Grays Ferry Partnership has received a notice of default from the agent for the lenders under its principal loan agreement. As of the date of this Report, management believes that it is not in default under any of its principal credit agreements as a result of the asserted Grays Ferry default. However, either (i) the passage of time under the current circumstances, or (ii) certain actions which may be taken by the lenders to the Grays Ferry Partnership as a consequence of the asserted Grays Ferry default, would result in a cross-default under a $30,000 reducing revolving credit facility that the Company entered into in December 1997 which is further described above. Such a cross- default, if it were to occur, could result in further cross-defaults under other credit agreements of the Company and its subsidiaries. The Company has discussed the Grays Ferry situation with the lender under the $30,000 reducing revolving credit facility and has obtained a temporary waiver 35 of any cross-default under such facility which otherwise might occur. However, there can be no assurance that the Company will be successful continuing to obtain any such waiver if and when it may be needed or in avoiding such cross-defaults. As a result, management believes there exists a risk that the dispute between the Grays Ferry Partnership and its electric power purchaser which caused the asserted Grays Ferry default, if not promptly resolved in favor of the Grays Ferry Partnership, will result in action by the lenders to the Grays Ferry Partnership which could result in cross-defaults under one or more of the Company's principal credit agreements. While the Grays Ferry Partnership is actively pursuing a rapid and favorable resolution of its dispute with the power purchaser, there can be no assurance that the Grays Ferry Partnership will be successful in that regard. As a result, there can be no assurance that the Grays Ferry default will not result in cross-defaults which would have a material adverse effect on the Company's liquidity and financial condition. The Company's Board of Directors has decided not to liquidate the Philadelphia PWD Project, which was identified in the Liquidating Asset Management Agreement. As a result of this decision, Wexford received compensation in accordance with the terms of the Liquidating Asset Management Agreement in fiscal 1997. Inflation Due to the relatively low rate of inflation in recent years management believes that inflation has not had a material impact on its results of operations or financial condition. Year 2000 The Year 2000 issue refers generally to the data structure problem that will prevent systems from properly recognizing dates after the year 1999. For example, computer programs and various types of electronic equipment that process date information by reference to two digits rather than four to define the applicable year may recognize a date using "00" as the year 1900 rather than the year 2000. The Year 2000 problem could result in system failures or miscalculations causing disruptions of operations. The Year 2000 problem may occur in computer software programs, computer hardware systems and any device that relies on a computer chip if that chip relies on date information. Based on a preliminary study, the Company does not anticipate either a significant amount of incremental expense or a disruption in service associated with the Year 2000 and its impact on the Company's systems. However, there can be no assurance that the Company's systems nor the systems of other companies with whom the Company conducts business will be Year 2000 compliant prior to December 31, 1999 or that the failure of any such system will not have a material adverse effect on the Company's business, operating results and financial condition. 36 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following Consolidated Financial Statements of the Company and its subsidiaries and independent auditors' report thereon are included as pages F-1 through F-24 immediately following the signature page of this Annual Report on Form 10-K, and is incorporated herein by reference: Report of Independent Accountants F-1 Financial Statements: Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and June 30, 1996 F-2 Consolidated Statements of Operations for the year ended December 31, 1997, the six months ended December 31, 1996 and the years ended June 30, 1996 and 1995 F-3 Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December 31, 1997, the six months ended December 31, 1996 and the years ended June 30, 1996 and 1995 F-4 Consolidated Statements of Cash Flows for the year Ended December 31, 1997, the six months ended December 31, 1996 and the years ended June 30, 1996 and 1995 F-5 Notes to Consolidated Financial Statements F-6 through F-24 All other supplementary financial information has been omitted because of the absence of the conditions under which it is required. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required for this item is incorporated by reference to the Company's 1998 Definitive Proxy Statement which the Company will file with the Securities and Exchange Commission no later than 120 days subsequent to December 31, 1997. ITEM 11. EXECUTIVE COMPENSATION. The information required for this item is incorporated by reference to the Company's 1998 Definitive Proxy Statement which the Company will file with the Securities and Exchange Commission no later than 120 days subsequent to December 31, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required for this item is incorporated by reference to the Company's 1998 Definitive Proxy Statement which the Company will file with the Securities and Exchange Commission no later than 120 days subsequent to December 31, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required for this item is incorporated by reference to the Company's 1998 Definitive Proxy Statement which the Company will file with the Securities and Exchange Commission no later than 120 days subsequent to December 31, 1997. 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8- K. (a) Documents filed as part of this report. 1. Financial Statements The following consolidated financial statements of the Company and its Subsidiaries and report of independent auditors thereon are included as Pages F-1 through F-24 immediately following the signature page of this Annual Report on Form 10-K. Index to Consolidated Financial Statements Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and June 30, 1996 Consolidated Statements of Operations for the year ended December 31, 1997, the six months ended December 31, 1996 and for the years ended June 30, 1996 and 1995 Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December 31, 1997, the six months ended December 31, 1996 and for the years ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows for the year ended December 31, 1997, the six months ended December 31, 1996 and for the years ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements 2. Financial Statement Schedules All schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. 3. Exhibits The "Index to Exhibits" following the Consolidated Financial Statements of the Company and its subsidiaries is incorporated herein by reference. (b) Reports on Form 8-K The following reports on Form 8-K were filed during the last quarter of the calendar year ended December 31, 1997: 1. Current Report on Form 8-K dated December 30, 1997 reporting information under Items 2 and 7. 39 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, as amended, 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 March 30, 1998 By: Robert T. Sherman, Jr. Chief Executive Officer /s/ Timothy P. Hunstad Vice President and March 30, 1998 By: Timothy P. Hunstad Chief Financial Officer (Principal Accounting Officer) /s/ David H. Peterson Chairman of the Board of Directors March 30, 1998 By: David H. Peterson /s/ Julie A. Jorgensen Director March 30, 1998 By: Julie A. Jorgensen /s/ Lawrence I. Littman Director March 30, 1998 By: Lawrence I. Littman /s/ Craig A. Mataczynski Director March 30, 1998 By: Craig A. Mataczynski /s/ Spyros S. Skouras, Jr. Director March 30, 1998 By: Spyros S. Skouras, Jr. /s/ Charles J. Thayer Director March 30, 1998 By: Charles J. Thayer /s/ Ronald J. Will Director March 30, 1998 By: Ronald J. Will 40 NRG Generating (U.S.) Inc. Consolidated Financial Statements December 31, 1997 Report of Independent Accountants To the Stockholders and Board of Directors of NRG Generating (U.S.) Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of NRG Generating (U.S.) Inc. and its subsidiaries at December 31, 1997, December 31, 1996, and June 30, 1996, and the results of their operations and their cash flows for the year ended December 31, 1997, the six months ended December 31, 1996, and the years ended June 30, 1996 and 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, on April 30, 1996, the company, formerly known as O'Brien Environmental Energy, Inc., was reorganized and emerged from bankruptcy. Price Waterhouse LLP Minneapolis, Minnesota March 30, 1998 F-1 NRG Generating (U.S.) Inc. Consolidated Balance Sheets
(Dollars in thousands) December 31, December 31, June 30, 1997 1996 1996 Assets Current assets: Cash and cash equivalents $ 3,444 $ 3,187 $ 5,022 Restricted cash and cash equivalents 8,527 8,174 8,719 Accounts receivable, net 11,099 11,920 11,627 Receivables from related parties 87 186 461 Notes receivable 27 1,119 1,029 Inventories 2,134 2,897 2,995 Other current assets 1,022 992 1,721 Total current assets 26,340 28,475 31,574 Property, plant and equipment, net 127,574 132,203 134,694 Projects under development 46,376 346 253 Equipment held for sale - 2,628 2,678 Notes receivable, noncurrent - 83 86 Investments in equity affiliates 13,381 3,653 3,449 Deferred financing costs, net 5,643 5,530 4,630 Deferred tax assets, net 7,996 - - Other assets 584 706 798 Total assets $ 227,894 $ 173,624 $ 178,162 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of loans and payables due NRG Energy $ 2,864 $ 1,256 $ 5,485 Current portion of nonrecourse long-term 8,525 7,595 3,000 Current portion of recourse long-term debt 495 3,225 4,115 Short-term borrowings 1,313 2,388 1,793 Accounts payable 20,582 6,131 8,708 Prepetition liabilities 775 2,537 6,895 Other current liabilities 3,083 2,852 7,789 Total current liabilities 37,637 25,984 37,785 Loans due NRG Energy 4,439 14,388 96,929 Nonrecourse long-term debt 165,020 143,972 60,415 Recourse long-term debt 25,000 6,339 6,374 Deferred income taxes - 13,404 14,182 Other liabilities - 50 50 Total liabilities 232,096 204,137 215,735 Stockholders' equity (deficit): Preferred stock, par value $.01, 20,000,000 shares authorized; none issued or outstanding - - - Common stock, par value $.01, 50,000,000 shares authorized; 6,871,069, 6,474,814 and 6,474,814 shares, issued, 6,836,769, 6,440,514 and 6,422,014 shares outstanding, respectively 68 64 64 Additional paid-in capital 65,715 62,719 62,515 Accumulated deficit (69,592) (92,944) (99,367) Other (393) (352) (785) Total stockholders' equity (deficit) (4,202) (30,513) (37,573) Total liabilities and stockholders' equity (deficit) $ 227,894 $ 173,624 $ 178,162
The accompanying notes are an integral part of these financial statements. F-2 NRG Generating (U.S.) Inc. Consolidated Statements of Operations
(Dollars in thousands) Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 Energy revenues $ 43,210 $ 21,669 $ 66,623 $ 74,455 Equipment sales and services 19,415 15,607 25,344 19,639 Rental revenues 2,179 1,062 1,895 2,362 Development fees and other - 1,578 2,685 5,791 64,804 39,916 96,547 102,247 Cost of energy revenues 14,841 7,229 45,663 46,694 Cost of equipment sales and services 17,037 12,365 22,153 17,622 Cost of rental revenues 1,817 834 1,406 2,357 Cost of development fees and other - 1,559 2,531 5,491 33,695 21,987 71,753 72,164 Gross profit 31,109 17,929 24,794 30,083 Selling, general and administrative expenses 9,479 6,149 12,612 15,902 Provision for impaired assets 5,274 - 180 26,058 Income (loss) from operations 16,356 11,780 12,002 (11,877) Interest and other income 1,310 413 569 2,587 Reorganization costs - - (12,101) (8,366) Interest and debt expense (14,768) (7,681) (18,646) (20,583) Income (loss) before income taxes 2,898 4,512 (18,176) (38,239) Provision for income taxes (benefit)(20,454) (268) 2,680 (463) Income (loss) before extraordinary item 23,352 4,780 (17,713) (40,919) Extraordinary item, net of income taxes - 1,643 - - Net income (loss) $ 23,352 $ 6,423 $(17,713) $(40,919) Basic earnings (loss) per share: Before extraordinary item $ 3.59 $ 0.75 $ (4.24) $ (11.02) Extraordinary item - 0.25 - - $ 3.59 $ 1.00 $ (4.24) $ (11.02) Diluted earnings (loss) per share: Before extraordinary item $ 3.48 $ 0.74 $ (4.24) $ (11.02) Extraordinary item - 0.25 - - $ 3.48 $ 0.99 $ (4.24) $ (11.02) Weighted average shares outstanding - Basic 6,511 6,430 4,182 3,712 Weighted average shares outstanding - Diluted 6,725 6,463 4,182 3,712
The accompanying notes are an integral part of these financial statements. F-3 NRG Generating (U.S.) Inc. Consolidated Statements of Stockholders' Equity (Deficit)
(Dollars in thousands) Class A Class B Additional Total Common Common Common Preferred Paid-in Accumulated Stockholders' Stock Stock Stock Stock Capital Deficit Other Equity Balance, June 30, 1994 $130 $39 $ - $ - $41,353 $(40,735) $ (651) $ 136 Currency translation adjustment 25 25 Net loss (40,919) (40,919) Balance, June 30, 1995 130 39 - - 41,353 (81,654) (626) (40,758) Plan of reorganization: Purchase of common stock by NRG Energy 27 21,151 21,178 Exchange class A and B common stock for new common shares, retire treasury shares (130) (39) 37 68 64 - Issue preferred shares to Wexford 49 4,908 4,957 Redemption of preferred shares (49) (4,908) (4,957) Preferred dividends (57) (57) Currency translation Adjustment (223) (223) Net loss (17,713) (17,713) Balance, June 30, 1996 - - 64 - 62,515 (99,367) (785) (37,573) Payment received on treasury stock resulting from reorganization 105 105 Issue restricted stock 99 99 Currency translation adjustment 433 433 Net income 6,423 6,423 Balance, December 31, 1996 - - 64 - 62,719 (92,944) (352) (30,513) NRG Energy conversion of stock option 4 2,996 3,000 Currency translation Adjustment (41) (41) Net income 23,352 23,352 Balance, December 31, 1997 $ - $ - $ 68 $ - $65,715 $(69,592) $ (393) $ (4,202)
F-4 NRG Generating (U.S.) Inc. Consolidated Statements of Cash Flows
(Dollars in thousands) Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 Cash flows from operating activities: Net income (loss) $ 23,352 $ 6,423 $ (17,713) $ (40,919) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary item, net of income taxes - (1,643) - - Depreciation and amortization 7,840 4,869 9,441 14,872 Deferred tax (benefit) expense (21,400) (778) (904) 2,278 Provision for impaired assets 5,274 - 180 26,058 Loss on disposition of property and equipment 756 59 - - Reserve for uncollectible note receivable - - - 3,121 Bankruptcy professional fees accrued - - 432 4,415 Other, net (212) 148 (216) 709 Changes in operating assets and liabilities: Accounts receivable 772 (1,011) 730 (257) Inventories 621 (13) 615 (369) Receivables from related parties 97 275 223 (51) Other assets 178 (277) - - Accounts payable and other current liabilities (289) (6,996) (838) 1,639 Net cash provided by (used in) operating activities 16,989 1,056 (8,050) 11,496 Cash flows from investing activities: Capital expenditures and project development costs (5,858) (1,315) (1,783) (1,102) Proceeds from sale of property and equipment 552 104 - - Proceeds from sale of subsidiaries and projects - - 7,500 1,762 Investment in equity affiliates (10,000) - - - Collections on notes receivable 1,175 10 816 824 Withdrawals from (deposits into) restricted cash accounts - net (353) 545 (5,156) 1,032 Other, net - (120) 227 (676) Net cash (used in) provided by investing activities (14,484) (776) 1,604 1,840 Cash flows from financing activities: Proceeds from long-term debt 24,582 95,000 60,226 5,711 Proceeds from NRG Energy loans 10,000 - 128,078 - Repayments of NRG Energy loans (16,949) (86,035) (26,398) - Repayments of long-term debt (16,857) (6,098) (92,816) (18,061) NRG Energy capital contribution - - 21,178 - Net (repayments) proceeds of short-term borrowings (1,072) 595 193 (785) Payments on prepetition liabilities (1,762) (4,660) (73,483) (1,799) Deferred financing costs (190) (1,121) (4,579) - Payment received on treasury stock resulting from reorganization - 105 - - Issuance of restricted stock - 99 - - Redemption of and dividends on preferred shares - - (5,014) - Net cash (used in) provided by financing activities (2,248) (2,115) 7,385 (14,934) Net increase (decrease) in cash and cash equivalents 257 (1,835) 939 (1,598) Cash and cash equivalents at beginning of year 3,187 5,022 4,083 5,681 Cash and cash equivalents at end of year $ 3,444 $ 3,187 $ 5,022 $ 4,083 Supplemental disclosure of cash flow information: Interest paid $ 15,887 $ 12,472 $ 18,926 $ 11,869 Income taxes paid 1,477 495 110 -
The accompanying notes are an integral part of these financial statements. F-5 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) 1. Business - Liquidity, Capital Resources and Emergence from Bankruptcy NRG Generating (U.S.) Inc. and its subsidiaries ("NRGG" or the "Company") develop and own cogeneration projects which produce electricity and thermal energy for sale to industrial and commercial users and public utilities. In addition, the Company sells and rents power generation, cogeneration and standby/peak shaving equipment and services. On April 30, 1996, O'Brien Environmental Energy, Inc. ("OEE"), the formerly named parent company, emerged from bankruptcy pursuant to a plan (the "Plan") submitted by NRG Energy, Inc. ("NRG Energy"), the O'Brien Official Committee of Equity Security Holders and Wexford Management LLC ("Wexford") and approved by the U.S. Bankruptcy Court for the District of New Jersey (the "Court"). The Plan awarded NRG Energy the rights to acquire a 41.86% equity interest in the Company and generally provided for full and immediate payment of all undisputed prepetition liabilities and included a provision for post-petition interest. The Company was renamed on the April 30, 1996 closing date to NRG Generating (U.S.) Inc. OEE filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code with the Court on September 28, 1994 to pursue financial restructuring efforts under the protection afforded by the U.S. bankruptcy laws. The decision to seek Chapter 11 relief was based on the conclusion that action had to be taken to preserve its business relationships, restructure its debt and maintain the operational strength and assets of the Company. The Company continued its normal operations as Debtor-in-Possession during the bankruptcy period but could not engage in transactions outside the ordinary course of business without approval of the Court. On April 30, 1996, NRG Energy funded approximately $107,418 in accordance with the Plan and OEE's existing Class A and Class B common stock was canceled and became exchangeable for 3,764,457 (58.14%) shares of new common stock. The NRG Energy funding was comprised of: $71,240 advanced under the terms of three loan agreements; $21,178 to purchase 2,710,357 (41.86%) of new common stock; $7,500 for the purchase of ten wholly-owned subsidiaries of OEE; and $7,500 deposited with the Company's stock transfer agent representing a cash distribution of approximately $0.44 per share by NRG Energy to OEE's Class A and Class B common stockholders. Also, on April 30 the Company issued 49,574 shares of series A, 13.5% cumulative preferred stock to Wexford in satisfaction of $4,957 of prepetition unsecured claims allowed by the Court. The preferred shares were redeemed by the Company in May 1996 for $4,957 plus $57 in dividends. The funds received from NRG Energy were disbursed according to the Plan's terms which generally provided for full payment (or cure/reinstatement) of all undisputed prepetition liabilities including the payment of post-petition interest on most prepetition obligations. Additionally, disbursements were made to certain creditors of subsidiary companies whose obligations were not included in prepetition liabilities and for professional fees incurred during the bankruptcy proceedings. Certain other bankruptcy claims filed with the Court remain in dispute. An escrow fund has been established to fully reserve for the remaining disputed claims submitted to the Court. Any remaining escrow funds resulting from the Court disallowing any disputed claims will be disbursed pro rata to all reinstated creditor claimholders as additional post-petition interest. F-6 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) In accordance with the Plan, on April 30, 1996 the Company and Wexford entered into a Liquidating Asset Management Agreement whereby Wexford agreed to assist the Company with the possible liquidation of certain specified assets consisting of (a) the Company's engine generator business, (b) the Philadelphia Cogeneration Project (the "Philadelphia PWD Project"), (c) certain unused equipment, and (d) American Hydrotherm Corporation and two other related subsidiaries. Under the agreement, the Company's board of directors and officers direct and control which assets will be liquidated and the extent of Wexford's services. During 1996 and 1997, the unused equipment, American Hydrotherm and the two other related subsidiaries were sold or otherwise disposed. During 1997, the board of directors decided to retain the Philadelphia PWD Project. The Company has determined that its engine generator business is not a part of its strategic plan for the future and is currently pursuing several avenues for the disposition of this business. Management does not expect that the disposition of this business will have a material effect on the Company's financial position or results of operations. In accordance with the agreement and as approved by the Court, the Company paid Wexford $1,219, and $281 in compensation for services during the year ended December 31, 1997 and six months ended December 31, 1996. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of all majority-owned subsidiaries and all significant intercompany accounts and transactions have been eliminated. Investments in companies, partnerships and projects that are more than 20% but less than majority- owned are accounted for by the equity method. Effective July 1, 1996, the Company changed its year end from June 30 to December 31. The Company filed a transition report on Form 10-K for the period July 1, to December 31, 1996. The periods presented in the Company's consolidated statements of operations, stockholders' equity (deficit) and of cash flows are for the twelve months ended December 31, 1997, the six months ended December 31, 1996 and the twelve months ended June 30, 1996 and 1995. The twelve months ended June 30, 1996 and 1995 are sometimes referred to in these Notes to Consolidated Financial Statements as fiscal 1996 and 1995. Following are condensed results of operations for the twelve months ended December 31, 1997 and 1996 (unaudited). Due to the reorganization, results are not comparable. Unaudited Year Ended Year Ended December 31, December 31, 1997 1996 Revenue $ 64,804 $ 85,562 Cost of revenues 33,695 59,491 Gross profit 31,109 26,071 Operating and other expenses 28,211 38,686 Income (loss) before income tax benefit 2,898 (12,615) Income tax benefit (20,454) (757) Income (loss) before extraordinary item 23,352 (11,858) Extraordinary item - 1,643 Net income (loss) $ 23,352 $(10,215) F-7 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Reorganization Costs and Prepetition Liabilities Expenses incurred after filing bankruptcy related to the Company's reorganization and restructuring efforts have been presented in the consolidated statement of operations as reorganization costs. Liabilities which remain subject to the bankruptcy proceeding are classified on the balance sheet as prepetition liabilities and include provisions for post-petition interest. Revenue Recognition Energy revenues from cogeneration projects are recognized as electricity and steam are delivered. Revenue from sales and rental of power generation equipment are recognized upon shipment or over the term of the rental. Development fee revenue is generally recognized on a cost recovery basis as cash is received (without future lending provisions). Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Inventories Inventories, consisting principally of power generation equipment and related parts held for sale, are valued at the lower of cost (determined primarily by the specific identification method) or market. Property, Plant and Equipment Property, plant and equipment, net of estimated salvage, is depreciated using the straight-line method over the estimated useful lives of the assets which range from five to thirty years. Amortization of equipment acquired under capital leases is recognized on a straight line basis over the shorter of the estimated asset life or lease term. Cost of maintenance and repairs is charged to expense as incurred. Betterments and improvements are capitalized. F-8 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Project Development Costs Project development costs consist of fees, licenses, permits, site testing, bids and other charges, including employee costs, incurred incidental to specific projects under development. Project development costs are expensed in any period in which management determines the costs to be unrecoverable. Deferred Financing Costs Financing costs are deferred and amortized on a straight-line basis over the term of the related debt. Interest expense includes amortization of $407, $199, $1,480 and $570 for the year ended December 31, 1997, the six months ended December 31, 1996 and the years ended June 30, 1996 and 1995, respectively. Accumulated amortization was $585, $410 and $180 at December 31, 1997, December 31, 1996 and June 30, 1996, respectively. Fiscal 1995 reorganization costs reported in the consolidated statement of operations includes $3,387 to write-off deferred financing costs due to Court-approved reductions in the carrying value of certain prepetition subordinated debentures. Nonrecourse Long-term Debt Nonrecourse long-term debt consists of project financing for which the repayment obligation is limited to specific project subsidiaries. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards ("SFAS") No. 109. SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of other assets and liabilities. Valuation allowances are recorded when it is more likely than not that a tax benefit will not be realized. Interest Rate Swap Agreement The Company has entered into an interest rate swap agreement to reduce the impact of changes in interest rates on certain of its variable rate long-term debt. The differentials paid or received under the swap agreement are accrued and recorded as adjustments to interest expense. Foreign Currency Translation The accounts of foreign subsidiaries have been translated in accordance with SFAS No. 52, whereby assets and liabilities are translated at rates of exchange existing at the balance sheet date and revenues and expenses are translated at the average rates of exchange for the period. F-9 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Concentration of Credit Risk The Company primarily sells electricity and steam to public utilities and corporations on the east coast of the United States under long-term agreements. Also, the Company services, sells and rents equipment to various entities worldwide. The Company performs on-going credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. Reclassifications Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no impact on previously reported net income or stockholders' deficit. 3. Restricted Cash and Cash Equivalents Cash and cash equivalents that are not fully available for use in operations are classified as restricted. Restricted cash and cash equivalents relate primarily to debt service reserve accounts required by the nonrecourse project debt for NRG Generating (Newark) Cogeneration, Inc. ("Newark") and NRG Generating (Parlin) Cogeneration, Inc. ("Parlin") and to bankruptcy escrow accounts. Restricted cash and cash equivalents consist of the following: December 31, December 31, June 30, 1997 1996 1996 Bankruptcy escrow accounts $ 770 $2,388 $8,490 Debt service reserve accounts 7,757 5,786 - Other - - 229 $8,527 $8,174 $8,719 4. Property, Plant and Equipment Property, plant and equipment consists of the following: December 31, December 31, June 30, 1997 1996 1996 Plant and equipment $169,839 $171,035 $169,744 Furniture and fixtures 687 759 898 Land, buildings and improvements 1,528 1,538 1,972 Other equipment 37 44 378 $172,091 $173,376 $172,992 Accumulated depreciation and amortization (44,517) (41,173) (38,298) $127,574 $132,203 $134,694 Depreciation expense was $7,320, $3,626, $7,858, and $8,892 for the year ended December 31, 1997, the six months ended December 31, 1996, and the years ended June 30, 1996 and 1995, respectively. F-10 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Plant and equipment relates primarily to the Newark and Parlin cogeneration plants and the Philadelphia PWD Project standby facility. The Newark project consists of a 52 MW cogeneration power plant in Newark, New Jersey which commenced operations in November 1990 and is supplying electricity and steam pursuant to 25-year supply contracts. The Parlin project consists of a 122 MW cogeneration power plant in Parlin, New Jersey which commenced operations on June 26, 1991 and is supplying up to 114 MW of electricity pursuant to a 20-year electric supply contract and steam pursuant to a 30-year supply contract. Effective April 30, 1996, the Company renegotiated its power purchase agreements with Jersey Central Power and Light ("JCP&L"), the primary electricity purchaser from its Newark and Parlin projects. Under the new amendments, JCP&L is responsible for all natural gas supply and delivery. As a result, subsequent to the amendment, energy revenues and cost of energy revenues exclude fuel supply and delivery costs. The Newark project is a qualifying facility as defined in the Public Utility Regulatory Policies Act of 1978. Parlin relinquished its claim to qualifying facility status and filed rates as a public utility under the Federal Power Act. However, Parlin has been determined to be an exempt wholesale generator (EWG). The Parlin project has also changed from a full base load operation to a partial base load/partial dispatchable project. The Philadelphia PWD Project is a 22 MW standby/peak shaving facility in Philadelphia, Pennsylvania which commenced operations in May 1993 and is supplying electricity pursuant to a 20-year energy service agreement. The Company owns an 83% interest in this project. 5. Morris Acquisition In December 1997, NRGG Funding, Inc. ("NRGG Funding"), a wholly owned subsidiary, acquired from NRG Energy the entire ownership interest in a 117 MW steam and electricity cogeneration project ("Morris LLC" or the "Morris Project") under construction in Morris, Illinois. The purchase price was $5 million, of which $4 million was previously paid by Morris LLC from construction financing proceeds. Payment of the remaining $1 million, which is subject to certain contingencies, has been accrued at December 31, 1997. Identifiable assets acquired were $46,480 which are primarily included in the balance sheet caption "Projects Under Development". Identifiable liabilities assumed were $46,480 consisting of nonrecourse long-term debt of $29,855, accounts payables of $15,446 and payables to NRG Energy of $1,179. The estimated total cost of the Morris project is $107,600 which is being financed with project bank debt and future equity contributions. NRGG Funding is obligated to make future equity contributions to Morris LLC in an amount which is the lesser of 20% of the total project cost or $22,000. The future equity contributions are guaranteed by the Company and NRG Energy. In addition, NRG Energy has agreed to make loans available to NRGG Funding and the Company to make the equity contributions. F-11 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) The Morris Project is scheduled to begin commercial operations in the fourth quarter of 1998. Morris LLC has entered into an Energy Services Agreement (the "ESA") with Equistar Chemicals LP ("Equistar") to supply 720,000 pounds of steam per hour and 78 MW of electricity for 25 years. The Company will arrange for the sale of excess energy and non-firm capacity to third parties. Under the terms of the ESA, Equistar has the option to purchase the project for the fair market value, as defined, at either the fifteenth or twentieth anniversary of the commercial operation date. Additionally, Equistar was granted a one-time option to purchase up to a 10% membership interest in the project. On February 10, 1998, Equistar gave notice of its intention to purchase a 5% passive membership interest. Under terms of the proposed agreement, Equistar would acquire a 5% passive interest in the project in exchange for the obligation to assume 5% of the required equity contribution expected to be approximately $1,100. The Company extended the option expiration date to April 30, 1998, to close this transaction. 6. Investments in Equity Affiliates Investments in equity affiliates consists of the following: December 31, December 31, June 30, 1997 1996 1996 Grays Ferry (33% owned) $12,845 $2,659 $2,778 PoweRent Limited (50% owned) 536 994 671 $13,381 $3,653 $3,449 Grays Ferry NRGG (Schuylkill) Cogeneration, Inc. ("NSC"), a wholly-owned subsidiary, has a one-third partnership interest in the Grays Ferry Cogeneration Partnership ("Grays Ferry"). The other partners are affiliates of PECO Energy Company and Trigen Energy Corporation. Grays Ferry has constructed a 150 MW cogeneration facility located in Philadelphia which began commercial operations in January 1998. Grays Ferry has a 25-year contract to supply all the steam produced by the project to Trigen-Philadelphia Energy Corporation through January 8, 2023 and a 20-year contract to supply all of the electricity produced by the project to PECO Energy Company through January 8, 2018. In March 1998, PECO Energy Company asserted that, as a consequence of certain regulatory developments, its power purchase agreement with Grays Ferry was no longer effective. See Note 19. NSC's investment is comprised of $10,000 equity contributed during 1997 pursuant to its commitment under Grays Ferry's financing arrangements and development costs incurred during formation and development of the project. PoweRent Limited PoweRent Limited ("PoweRent) is a 50% owned United Kingdom company that sells and rents power generation equipment. The remaining 50% of PoweRent is owned by a private investor. In 1997 the Company recorded a charge of $500 to reduce the carrying value of its investment in PoweRent (see Note 12). F-12 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) 7. Short-Term Borrowings Short-term borrowings consist of amounts owed financial institutions under lines of credit, primarily in the United Kingdom. At December 31, 1997, December 31, 1996 and June 30, 1996 the Company had aggregate lines of credit of approximately $2,000, $2,400 and $1,800 of which $1,313, $2,388 and $1,793 was outstanding, respectively. The weighted average interest rate on short-term borrowings as of December 31, 1997, December 31, 1996 and June 30, 1996 was approximately 10.0%, 9.9% and 9.1%, respectively. 8. Long-Term Debt Long-term debt consists of the following: December 31, December 31, June 30, 1997 1996 1996 Notes payable, due in monthly installments of principal plus interest at rates ranging from 8.3% to 13.48% maturing on various dates through 1999 $ 733 $ 8,610 $ 8,995 Capital lease obligations - 1,474 4,909 Revolving credit facility 25,000 - - Morris Project financing (nonrecourse) 29,855 - - Newark and Parlin financing (nonrecourse) 143,452 151,047 60,000 199,040 161,131 73,904 Less amounts classified as current (9,020) (10,820) (7,115) $190,020 $150,311 $66,789 Aggregate amounts of long-term debt maturing during each of the next five years are $9,020, $9,848, $33,602, $11,322 and $11,945 in 1998, 1999, 2000, 2001 and 2002, respectively. The Company's principal credit agreements; a revolving credit facility, Morris Project financing and Newark and Parlin financing, include cross-default provisions. As a result, a default under one such instrument or agreement could have a material adverse effect on the Company's liquidity and capital position. The Company was not in default under any of its principal credit agreements at December 31, 1997. See note 19. Revolving Credit Facility On December 17, 1997, the Company entered into a $30,000, three-year reducing, revolving credit facility agreement. At December 31, 1997, $25,000 of the credit facility was utilized; the remaining $5,000 will become available once security interests in the Philadelphia PWD Project are perfected. The proceeds were used to repay $16,949 to NRG Energy, $6,551 of obligations of the Philadelphia PWD Project and $1,500 for general corporate purposes. The facility reduces by $2,500 on the first and second anniversaries of the agreement and repayment of the outstanding balance is due on December 17, 2000. Interest is based, at the Company's option, on LIBOR plus a margin ranging from 1.50% to 1.875% or the prime rate plus a margin ranging from 0.75% to 1.125%, based on the Company's debt service coverage ratio. The interest rate resets based on the borrowing period selected, generally one to six months, and was 7.84% at December 31, 1997. The facility provides for commitment fees of 0.375% on the unused facility. Borrowings are secured by the assets, capital stock and cash flows of the Philadelphia PWD Project as well as the distributable cash flows of Newark, Parlin and Grays Ferry as permitted by these projects' primary lenders. F-13 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) The revolving credit facility agreement specifies that the Company maintain certain covenants with which the Company is in compliance at December 31, 1997. The Company may under certain circumstances be limited in its ability to make restricted payments, as defined, which include dividends and certain purchases and investments, incur additional indebtedness and engage in certain transactions. Morris Project Financing On September 15, 1997, Morris LLC entered into a $91,000 construction and term loan agreement (the "Agreement") to provide nonrecourse project financing for a major portion of the Morris Project. The Agreement provides $85,600 of 20-month construction loan commitments and $5,400 in letter of credit commitments (the "LOC Commitment"). Upon completion of the project, the Construction Loan is due and payable or, if certain criteria are satisfied, may be converted to a five year term loan based on a 25-year amortization with a balloon payment at maturity. At December 31, 1997, $29,855 was outstanding under the Construction Loan and no amounts were pledged under the LOC Commitment. Interest on the Construction Loan is based, at the Company's option, either on the base rate, as defined in the Agreement, or LIBOR plus 0.75%. The interest rate resets based on the Company's selection of the borrowing period ranging from one to six months. The interest rate was 6.6875% at December 31, 1997. Borrowings are secured by NRGG Funding's ownership interest in Morris LLC, cash flows, dividends and any other property that NRGG Funding may be entitled to as an owner in Morris LLC. The Agreement specifies that the Company maintain certain covenants with which the Company is in compliance at December 31, 1997. The Company may under certain circumstances be limited in its ability to make restricted payments, as defined, which include dividends and certain purchases and investments, incur additional indebtedness and engage in certain transactions. Newark and Parlin Financing On May 17, 1996, Newark and Parlin entered into a Credit Agreement (the "Credit Agreement") with provisions for a $155,000 fifteen-year nonrecourse term loan and a $5,000 five-year debt service reserve line of credit. On May 23, 1996, Newark borrowed $60,000 in the form of a temporary term loan under the Credit Agreement. On July 11, 1996, an additional $95,000 was borrowed and the aggregate borrowings were converted into a $155,000 fifteen-year nonrecourse term loan (the "Term Loan") which is a joint and several liability of Newark and Parlin. The Term Loan will be amortized as specified by the Credit Agreement. The interest rate on the outstanding principal is variable based on, at the Company's option, LIBOR plus a 1.125% margin or a defined base rate plus a 0.375% margin. For any quarterly period where the debt service coverage ratio is in excess of 1.4:1, both margins are reduced by 0.125%. The interest rate resets based on the borrowing period selected, generally one to three months. The interest rate was 6.8125% at December 31, 1997. Nominal margin increases for both the LIBOR and the defined base rate will occur in year six and eleven of the Credit Agreement. Upon entering into the Credit Agreement, Newark and Parlin entered into an interest rate swap agreement which fixes the interest rate on 50% of the principal amount outstanding under the Term Loan at 6.9% plus the margin in effect as described above. F-14 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) No amounts were outstanding on the debt service reserve line of credit at December 31, 1997 and 1996. The line carries a commitment fee of 1.125% on the undrawn amount. Newark and Parlin are required to maintain debt service reserve accounts with the lender to provide for future debt service, capital improvements and major maintenance. At December 31, 1997, these balances totaled $7,757 and earned interest at 3.25%. These balances are recorded as restricted cash and cash equivalents in the accompanying financial statements. The Term Loan is secured by all Newark and Parlin assets and a pledge of Newark's and Parlin's capital stock. NRGG has guaranteed repayment of up to $25,000 of the Term Loan and also guaranteed payment by Newark and Parlin of all income and franchise taxes when due. As an inducement to obtain the $60,000 temporary term loan, effective May 23, 1996, NRG Energy guaranteed payment of pre-existing liabilities of Newark and Parlin up to $5,000. The maximum guarantee is reduced as certain defined milestones are reached and eliminated no later than May 23, 2001. At December 31, 1997, the guarantee amount was $3,000. The Credit Agreement specifies that the Company maintain certain covenants with which the Company is in compliance at December 31, 1997. The Company may under certain circumstances be limited in its ability to make restricted payments, as defined, which include dividends and certain purchases and investments, incur additional indebtedness and engage in certain transactions. 9. Loans and Accounts Payables Due NRG Energy Amounts owed to NRG Energy are comprised as follows: December 31, December 31, June 30, 1997 1996 1996 Long-term debt: Note due April 30, 2001 bearing interest at 9.5% $ 2,539 $14,388 $101,679 Grays Ferry note due July 1, 2005 bearing interest at 10.75% 1,900 - - 4,439 14,388 101,679 Less current portion - - (4,750) $ 4,439 $14,388 $ 96,929 Current maturities and accounts payable: Current maturities $ - $ - $ 4,750 Morris LLC acquisition 1,000 - - Accrued interest 821 648 735 Management services, operations and other 1,043 608 - $ 2,864 $ 1,256 $ 5,485 F-15 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) 10. Stockholders' Equity NRG Energy stock option During 1997 NRG Energy made loans aggregating $10,000 to NSC to provide funding for NSC's equity contribution obligation to Grays Ferry. Pursuant to a stock option right approved by the Court and included in the loan commitment agreement, in October 1997 NRG Energy converted $3,000 of the borrowings into 396,255 shares of the Company's common stock. Following exercise of the option, NRG Energy's ownership interest in the Company increased to 45.21%. Earnings per share The Company has adopted SFAS No. 128, "Earnings Per Share", which became effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 requires presentation of basic and diluted earnings per share ("EPS") and restatement of EPS data for all prior periods. Basic EPS includes no dilution and is computed by dividing net income (loss) by the weighted average shares of common stock outstanding. Diluted EPS is computed by dividing net income (loss) by the weighted average shares of common stock and dilutive common stock equivalents outstanding. The Company's dilutive common stock equivalents result from stock options and are computed using the treasury stock method. The following table reconciles the numerators and denominators of the basic and diluted EPS computations for the year ended December 31, 1997 and the six months ended December 31, 1996. The dilutive stock options became outstanding subsequent to June 30, 1996. Accordingly, there was no difference in basic and diluted EPS for the years ended June 30, 1996 and 1995. Year ended Six months ended December 31, 1997 December 31, 1996 Income Shares Income Shares (Numerator)(Denominator) EPS (Numerator)(Denominator) EPS Income before extraordinary item: Basic EPS $23,352 6,511 $3.59 $4,780 6,430 $0.75 Effect of dilutive stock options 33 214 - 33 Diluted EPS $23,385 6,725 $3.48 $4,780 6,463 $0.74 Stock options The Company has reserved 750,000 shares of common stock for issuance under its 1996 and 1997 stock option plans. The plans provide for nonqualified and incentive stock options to be granted to directors, officers, and key employees at an exercise price not less than the fair market value of the common stock at the date of grant. An option will generally expire ten years after the date it is granted and will ordinarily become exercisable as to one third of the shares subject to the option on each of the first three anniversaries of the grant. Following a "change of control" all options granted under the stock option plans may become immediately exercisable. F-16 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Option transactions under these plans are summarized as follows: Weighted Average Number of Shares Option Price Outstanding at June 30, 1996 - Granted 399,000 $5.46 Outstanding at December 31, 1996 399,000 5.46 Granted 305,000 13.19 Canceled (75,000) 5.44 Outstanding at December 31, 1997 629,000 $9.21 The following table summarizes the stock options outstanding and exercisable at December 31, 1997:
Outstanding Exercisable Weighted-Average Exercise Number of Contractual Life Weighted-Average Number of Weighted-Average Price Range Options Remaining Exercise Price Options Exercise Price $5.44-$6.58 324,000 8.8 years $ 5.47 108,000 $ 5.47 $11.58-$16.47 305,000 9.5 years $13.19 - - 629,000 9.1 years $ 9.21 108,000 $ 5.47
The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plans. Had the Company's compensation costs been determined based on the fair value of the awards at the option grant dates consistent with the accounting provisions of SFAS 123 "Accounting for Stock Based Compensation," the Company's net income and EPS for the year ended December 31, 1997 and six months ended December 31, 1996 would have been adjusted to the pro-forma amounts indicated below: Year Ended Six Months Ended December 31, 1997 December 31, 1996 Net Income As reported $23,352 $6,423 Pro-forma $22,695 $6,362 EPS (Diluted) As reported $ 3.48 $ 0.99 Pro-forma $ 3.38 $ 0.98 The estimated weighted average fair value of stock options granted during the year ended December 31, 1997 and the six months ended December 31, 1996 was $6.24 and $2.30 per option, respectively. The fair values were estimated on the grant dates utilizing the Black- Scholes option-pricing model and the following assumptions: F-17 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Year Ended Six Months Ended December 31, 1997 December 31, 1996 Risk free interest rates 6.2 - 6.6% 5.8 - 6.1% Expected life 6 years 6 years Expected volatility 36.7% 30.0% Expected dividends - - Restrictions on retained earnings As a holding company, the Company's ability to pay any dividends in the future will depend largely on the ability of its operating subsidiaries and project entities to pay cash dividends or other cash distributions, which dividends or other cash distributions may be materially limited by the terms of credit agreements or other material contracts to which such operating subsidiaries or project entities may be parties. 11. Extraordinary Item During the six months ended December 31, 1996, the Company negotiated a buyout of a subsidiary's capital lease obligation resulting in an extraordinary gain of $1,643 (net of $124 of state income taxes). 12. Provision for Impaired Assets In the fourth quarter of 1997, the Company completed a thorough review of its business operations and market opportunities. As a result of this review, the Company concluded that the estimated future cash flows to be generated by certain assets were not sufficient to recover their carrying values. Accordingly, the Company recorded an impairment provision of $5,274 for such assets. The provision consisted of property, plant and equipment write downs of $2,778 primarily related to the generator sales and services business, $1,553 for equipment held for sale, $500 to reduce the carrying value of the equity investment in PoweRent, $371 to expense project development costs and $72 for other impairments. The property plant and equipment and PoweRent provisions reduced the asset carrying values to estimated fair values determined by management and the board of directors based on prices of similar assets and various valuation techniques. The equipment held for sale provision represents the write off of remaining equipment which is being scrapped. The project development write off was necessary due to abandonment of certain projects. During fiscal 1996 unrecoverable project development costs of $180 were written off. In fiscal 1995, based on independent market appraisals, the Company recorded charges of $15,985 to write-down property, plant and equipment and $5,655 to write-down equipment held for sale to lower fair values. In addition, project development costs of $4,418 determined to be unrecoverable were written off. 13. Disclosures about Fair Value of Financial Instruments At December 31, 1997 and December 31, 1996, the carrying amounts and fair values of the Company's financial instruments are as follows: F-18 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) December 31, 1997 December 31, 1996 Carrying Fair Carrying Fair Amount Value Amount Value Assets: Cash and cash equivalents $ 3,444 $ 3,444 $ 3,187 $ 3,187 Restricted cash and cash equivalents 8,527 8,527 8,174 8,174 Notes receivable 27 27 1,202 1,202 Liabilities: Short-term borrowings 1,313 1,313 2,388 2,388 Long-term debt 199,040 199,040 161,131 161,131 Loans and payables due NRG Energy 7,303 7,303 15,644 15,644 Interest rate swap - 2,691 - 1,439 The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents and notes receivable approximates the fair value of those instruments due to their short maturity. The fair value of short- term and long-term debt and amounts due NRG Energy are estimated based on interest rates available to the Company for issuance of debt with similar terms and remaining maturities. The fair value of the interest rate swap is the estimated amount that the Company would pay to terminate the interest rate swap agreement at the reporting date. Fair value estimates are made at a specific point in time based on relevant market information about the financial instruments. The estimated fair values of financial instruments presented are not necessarily indicative of the amounts the Company might realize in actual market transactions. 14. Income Taxes Income (loss) before income taxes and extraordinary item consists of the following: Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 United States $ 2,758 $ 4,195 $(18,054) $(38,225) Foreign 140 317 (122) (14) $ 2,898 $ 4,512 $(18,176) $(38,239) The income tax provision (benefit) consists of: Current income taxes: Federal $ - $ 803 $ - $ - State 946 570 792 402 946 1,373 792 402 Deferred income taxes: Federal (20,400) (2,292) (493) 912 State (1,000) 651 (762) 1,366 (21,400) (1,641) (1,255) 2,278 Income tax provision (benefit) excluding extraordinary item $(20,454) $ (268) $ (463) $ 2,680 F-19 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are comprised of the following: December 31, December 31, June 30, 1997 1996 1996 Deferred income tax liabilities: Property, plant & equipment $(18,925) $(18,445) $(18,109) Total deferred tax liabilities (18,925) (18,445) (18,109) Deferred income tax assets: Net operating loss carryforwards 27,525 26,502 28,219 Alternative minimum tax credits 159 183 84 Investment tax credits 1,427 1,622 1,622 Miscellaneous 5,040 5,571 5,521 Valuation allowance (7,230) (28,837) (31,519) Total deferred tax assets 26,921 5,041 3,927 Net deferred tax assets (liabilities) $ 7,996 $(13,404) $(14,182) The difference between tax expense (benefit) calculated at the U.S. federal statutory tax rate and the recorded tax expense (benefit) on pre-tax income before extraordinary item is reconciled below:
Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 Income tax (benefit) on the amount of Federal statutory rate $ 985 $ 1,534 $ (6,180) $(13,001) State income taxes (benefit) (36) 806 252 (286) Current benefit of state operating loss carryforwards (353) (655) (232) - Operating losses with no current tax benefit 1,182 - 3,204 2,272 Other increase (decrease) in valuation allowance (22,232) (1,630) (544) 6,233 Excess liabilities - - - 4,000 Reorganization costs - - 2,636 1,712 Other - (323) 401 1,750 Total income tax provision (benefit) $ (20,454) $ (268) $ (463) $ 2,680
F-20 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) At December 31, 1997, the Company has federal net operating loss carryforwards available to offset future regular taxable income and investment tax credit carryforwards available to offset future federal income taxes payable. These carryforwards expire as follows: Net Operating Loss Investment Tax December 31, Carryforwards Credit Carryforwards 1998 $ - $ 255 1999 - 240 2000 - 409 2001 353 82 2002 3,725 174 2003 1,720 52 2004 4,968 215 2005 13,089 - 2006 4,545 - 2007 15,089 - 2008 10,682 - 2009 6,358 - 2010 9,031 - 2011 - - 2012 1,695 - Total $71,255 $1,427 The Company has $48,719 of state and local net operating loss carryforwards available to offset future state and local taxable income. These carryforwards will expire starting in 1998 and will continue to expire through 2012. The Company also has foreign net operating loss carryforwards of approximately $1,500. The net operating loss carryforwards for alternative minimum tax purposes are approximately $35,363 at December 31, 1997. A valuation allowance was recorded in prior years to reserve primarily for deferred tax assets that were not expected to be recovered through future reversal of existing temporary differences. In management's judgment, realization of the reserved tax benefits did not meet the "more likely than not" recognition criteria of SFAS No. 109 due to the Company's history of operating losses and projections of future taxable income. At December 31, 1997, the valuation allowance was reduced to $7,230 based on management's evaluation of the weight of available evidence about the likelihood of realizing the deferred tax assets. Positive factors contributing to the decision to reduce the valuation allowance included the sustained period of profitability since emergence from bankruptcy and improved outlooks for future earnings. The remaining valuation allowance at December 31, 1997 reserves a portion of the state operating loss carryforwards and certain other temporary differences and all of the investment tax credit, capital loss, and foreign operating loss carryforwards. Under the Plan, NRG Energy acquired a 41.86% equity interest in the Company. This acquisition, along with other shifts in shareholders' stock holdings, amounted to a more than 50% change in ownership in the Company over a three year period. Under the general net operating loss and tax credit carryover rules, utilization of these losses and tax credits would be limited. However, the Internal Revenue Code provides an exception to the general rules for loss corporations that undergo an F-21 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) ownership change by reason of certain bankruptcy proceedings. The Company believes it qualifies for the bankruptcy exception and its net operating loss and tax credit carryforwards are not subject to the change of ownership limitations. The bankruptcy exception rules also provide that if a subsequent ownership change should occur within the two years following the bankruptcy-protected change, the benefits of the bankruptcy exception will be lost and the Company's net operating loss and tax credit carryforwards will be effectively eliminated. As of December 31, 1997, the Company has not undergone a subsequent ownership change in the two year period following the bankruptcy protected change. 15. Transactions with Related Parties NRG Energy provides management, administrative, operation and maintenance services and certain other services to the Company. Interest expense related to loans from NRG Energy was $1,327, $648 and $1,098, for the year ended December 31, 1997, the six months ended December 31, 1996 and for fiscal 1996. Selling, general and administrative expenses include $562, $479 and $129 for reimbursement of services provided by NRG Energy under the terms of a management services agreement for the year ended December 31, 1997, the six months ended December 31, 1996 and for the year ended June 30, 1996. Effective January 1, 1997, Power Operation, Inc., a wholly-owned subsidiary of the Company providing operations and maintenance for the Newark and Parlin facilities under long-term contracts, was sold to NRG Energy. The amount expensed by the Company for these services was $350 in 1997. The Parlin project sells up to 9 MW of power to NRG Parlin, Inc. ("NPI"), a wholly-owned subsidiary of NRG Energy. NPI resells this power at retail to a customer of the Company under an agreement extending until 2021. Total sales to NPI were $1,300 in 1997. NRG Energy is the project manager of the Morris Project acquired in December 1997 by the Company from NRG Energy. 16. Segment Information and Major Customers The Company operates principally in two industry segments. The energy segment consists of the development and ownership of cogeneration and standby/peak shaving projects. The equipment sales, rental and services segment consists of the selling and renting of power generation, cogeneration and standby/peak shaving equipment and services. Information with respect to these business segments is as follows: Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 Revenues: Energy $ 43,210 $ 23,247 $ 69,308 $ 80,246 Equipment sales, rental and services 21,594 16,669 27,239 22,001 $ 64,804 $ 39,916 $ 96,547 $102,247 Identifiable assets: Energy $195,027 $141,890 $142,390 $164,243 Equipment sales, rental and services 8,332 16,170 21,342 22,866 Corporate assets 24,535 15,564 14,430 2,639 $227,894 $173,624 $178,162 $189,748 F-22 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 Operating income (loss): Energy $ 24,984 $ 12,136 $ 16,785 $ 19,642 Equipment sales, rental and services (2,020) 1,018 (754) (20,265) General corporate expenses (6,608) (1,374) (4,029) (11,254) $ 16,356 $ 11,780 $ 12,002 $(11,877) Depreciation expense: Energy $ 6,788 $ 3,272 $ 7,025 $ 7,152 Equipment sales, rental and services 498 333 756 1,494 Not allocable 34 21 77 246 $ 7,320 $ 3,626 $ 7,858 $ 8,892 Capital expenditures: Energy $ 5,115 $ 1,189 $ 273 $ 457 Equipment sales, rental and services 432 31 7 161 Not allocable 168 2 19 126 $ 5,715 $ 1,222 $ 299 $ 744 Revenue by segment consists of sales to unaffiliated customers; intersegment sales are not significant. For the purpose of this presentation, development and other fees are considered revenues of the energy segment. Selling, general and administrative expenses have been allocated to the individual segments on the basis of segment revenues and geographical location. Identifiable assets are those assets that are used in the operations of each business segment. Corporate assets are those not used in the operations of a specific segment and consist primarily of cash, deferred financing costs and deferred taxes. Information with respect to the Company's geographical areas of business is as follows: Six Months Year Ended Ended Year Ended December 31, December 31, June 30, June 30, 1997 1996 1996 1995 Revenues: United States $ 51,504 $ 27,937 $ 82,917 $ 89,332 United Kingdom 13,300 11,979 13,630 12,915 $ 64,804 $ 39,916 $ 96,547 $102,247 Net income (loss): United States $ 23,236 $ 6,087 $(17,591) $(40,905) United Kingdom 116 336 (122) (14) $ 23,352 $ 6,423 $(17,713) $(40,919) Identifiable assets: United States $221,752 $164,631 $169,657 $179,793 United Kingdom 6,142 8,993 8,505 9,955 $227,894 $173,624 $178,162 $189,748 F-23 NRG Generating (U.S.) Inc. Notes to Consolidated Financial Statements (Dollars in thousands) Revenues from one energy customer accounted for 57%, 46%, 62% and 65% for the year ended December 31, 1997, the six months ended December 31, 1996, and the years ended June 30, 1996 and 1995, respectively. 17. Operating Leases Total rental expense under various operating leases was approximately $178, $504, $804 and $1,300 for the year ended December 31, 1997, the six months ended December 31, 1996, and the years ended June 30, 1996 and 1995, respectively. 18. Minority Interest O'Brien (Philadelphia) Cogeneration ("OPC"), a subsidiary of the Company, is 17% owned by an unrelated private investor. OPC is required to make quarterly distributions to the minority owner of 17% of its net earnings. These distributions totaled $244, $125 and $227 for the year ended December 31, 1997, the six months ended December 31, 1996, and fiscal 1996, respectively, and are recorded as interest expense in the consolidated statement of operations. The 17% minority interest is redeemable by the Company at its option for a price equal to 17% of the present value of the projected income stream of OPC. The Company is obligated upon certain events of default to redeem the minority interest at 60% of the Company's redemption price. The Company's redemption price at December 31, 1997 was approximately $2,315. There are no events of default. 19. Subsequent Event On March 9, 1998, the Company announced that it had received notice from PECO Energy ("PECO"), the purchaser of electric power from Grays Ferry Cogeneration Partnership, that PECO believed that its power purchase agreements with the partnership relating to the Grays Ferry project were no longer in effect and that PECO refused to pay the electricity rates set forth in the agreements. The Company has filed a lawsuit against PECO and the Pennsylvania Public Utility Commission seeking to prevent PECO from terminating its power purchase agreements with the Grays Ferry Cogeneration Partnership, to compel PECO to pay the electricity rates set forth in the agreements, and to compel the Pennsylvania Public Commission to allow the costs of the power purchase agreements to be recovered in retail electric rates. The Company is uncertain as to what the outcome of this matter will be or what effect it will have on the business or financial condition of the Company. The Grays Ferry Cogeneration Partnership has received a notice of default from the agent for the lenders under its principal loan agreement. As of the date of this Report, management believes that it is not in default under any of its principal credit agreements as a result of the asserted Grays Ferry default. However, either (i) the passage of time under the current circumstances, or (ii) certain actions which may be taken by the lenders to the Grays Ferry Partnership as a consequence of the asserted Grays Ferry default, would result in a cross-default under a $30,000 reducing revolving credit facility that the Company entered into in December 1997. Such a cross-default, if it were to occur, could result in further cross-defaults under other credit agreements of the Company and its subsidiaries. The Company has obtained a temporary waiver of any cross-default under the $30,000 reducing revolving credit facility. However, there can be no assurance that the Company will be successful continuing to obtain any such waiver if and when it may be needed or in avoiding such cross- defaults. As a result, there can be no assurance that the Grays Ferry default will not result in cross-defaults which would have a material adverse effect on the Company's liquidity and financial condition. F-24 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") filed as Exhibit 2.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 filed as Exhibit 2.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 3.1 Amended and Restated Certificate of Incorporation of the Company filed as Exhibit 3.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 Restated Bylaws of the Company. 10.1 Co-Investment Agreement dated April 30, 1996 between the Company and NRG Energy filed as Exhibit 10.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.2.1 Chapter 11 Financing Agreement dated August 30, 1995 between the Company and NRG Energy filed as Exhibit 10.2.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.2.2 Letter Agreement dated February 20, 1996 between the Company and NRG Energy amending the Chapter 11 Financing Agreement filed as Exhibit 10.2.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.2.3 Letter Agreement dated April 30, 1996 between the Company and NRG Energy further amending the Chapter 11 Financing Agreement filed as Exhibit 10.2.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 41 10.3 Liquidating Asset Management Agreement dated April 30, 1996 between the Company and Wexford filed as Exhibit 10.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.4 Management Services Agreement dated as of January 31, 1996 between the Company and NRG Energy filed as Exhibit 10.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.5.1 Loan Agreement dated April 30, 1996 between the Company and NRG Energy filed as Exhibit 10.5.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.5.2 Note dated April 30, 1996 from the Company to NRG Energy in the principal amount of $45,000,000 filed as Exhibit 10.5.2 to Amendment No. 1 to the Company's Annual Report on Form 10- K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.6.1 Supplemental Loan Agreement dated April 30, 1996 between NRG Energy and the Company filed as Exhibit 10.6.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.6.2 Note dated April 30, 1996 from the Company to NRG Energy in the principal amount of $15,855,545.25 filed as Exhibit 10.6.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.7.1 NRG Newark Cogen Loan Agreement dated April 30, 1996 between NRG Energy and the Company filed as Exhibit 10.7.1 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.7.2 Note dated April 30, 1996 from the Company to NRG Energy in the principal amount of $24,000,000 filed as Exhibit 10.7.2 to Amendment No. 1 to the Company's Annual Report on Form 10- K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 thereunder filed as Exhibit 10.8.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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) filed as Exhibit 10.8.2 to Amendment No. 1 to the Company's Annual Report on Form 10- K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.8.3 Stock Pledge Agreement dated June 28, 1996 between the Company as Pledgor and 42 Credit Suisse filed as Exhibit 10.8.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 (as defined therein) filed as Exhibit 10.8.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 (as defined therein) filed as Exhibit 10.8.5 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.8.6 Tax Indemnification Agreement dated June 28, 1996 between the Company, NRGG Newark, NRGG Parlin and Credit Suisse filed as Exhibit 10.8.6 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.8.7 Assignment and Security Agreement dated June 28, 1996 between NRGG Parlin and Credit Suisse filed as Exhibit 10.8.7 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 filed as Exhibit 10.8.8 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.8.9 Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated June 28, 1996 between NRGG Parlin and Credit Suisse filed as Exhibit 10.8.9 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.8.10 Interest Rate Swap Agreement dated August 2, 1996 between NRGG Newark, NRGG Parlin and Credit Suisse filed as Exhibit 10.8.10 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 filed as Exhibit 10.9.1 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.9.2 Option Agreement dated May 1, 1996 between O'Brien (Schuylkill) Cogeneration Inc. and NRG Energy filed as Exhibit 10.9.2 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.10.1 Gas Supply Agreement dated June 30, 1992 between the Company and The 43 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 Energy Company ("PECO") filed as Exhibit 10.10.6 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 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 filed as Exhibit 10.11.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.11.3 Second Amendment to Power Purchase Agreement dated March 1, 1988 between the Company and JCP&L filed as Exhibit 10.11.3 to Amendment No. 1 to the Company's Annual Report on Form 10- K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.11.4 Letter Agreement dated April 30, 1996 between O'Brien (Newark) Cogeneration, O'Brien (Parlin) Cogeneration and JCP&L filed as Exhibit 10.11.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.11.5 Third Amendment to Power Purchase Agreement dated April 30, 1996 between O'Brien (Newark) Cogeneration and JCP&L filed as Exhibit 10.11.5 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.12 Transmission Service and Interconnection Agreement dated November 17, 1987 44 between O'Brien Energy Systems, Inc. and Public Service Electric and Gas Company filed as Exhibit 10.14 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.13.1 Steam Purchase Agreement dated October 3, 1986 between O'Brien Cogeneration IV, Inc. and Newark Boxboard Co. filed as Exhibit 10.15.1 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.13.2 Amendment to Steam Purchase Agreement dated March 15, 1988 between O'Brien Cogeneration IV, Inc. and Newark Boxboard Co filed as Exhibit 10.15.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.13.3 Amendment to Steam Purchase Agreement dated July 18, 1988 between O'Brien (Newark) Cogeneration, Inc. and Newark Group Industries, Inc. filed as Exhibit 10.15.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.14.1 Operating and Maintenance Agreement dated May 1, 1996 between NRGG Newark and Stewart & Stevenson Operations, Inc. filed as Exhibit 10.16.1 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.14.2 Letter Agreement dated May 10, 1996 between the Company and Stewart & Stevenson Operations, Inc. filed as Exhibit 10.16.2 to Amendment No. 2 to the Company's Annual Report on Form 10- K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.14.3 Letter Agreement dated May 20, 1996 between NRG Generating (Newark) Cogeneration and Stewart & Stevenson Operations, Inc. filed as Exhibit 10.16.3 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.15.1 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. 10.15.2 First Amendment to Agreement for Purchase and Sale Electric Power dated June 11, 1991 between the Company and JCP&L filed as Exhibit 10.17.2 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.15.3 Amended and Restated Agreement for Purchase and Sale of Electric Power dated April 30, 1996 between O'Brien (Parlin) Cogeneration, Inc. and JCP&L filed as Exhibit 10.17.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.15.4 Letter Agreement dated April 30, 1996 between O'Brien (Parlin) Cogeneration, Inc. and JCP&L filed as Exhibit 10.17.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 45 10.16.1 Steam Purchase Contract dated December 8, 1986 between the Company and E.I. du Pont de Nemours("E.I. du Pont") and Company filed as Exhibit 10.20.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.16.2 Amendment No. 1 to Steam Purchase Contract dated January 12, 1988 between the Company and E.I. du Pont filed as Exhibit 10.20.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.16.3 Letter Agreement dated July 25, 1988 between the Company and E.I. du Pont filed as Exhibit 10.20.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.16.4 Amendment No. 3 to Steam Purchase Agreement dated December 12, 1988 between the Company and E.I. du Pont filed as Exhibit 10.20.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.16.5 Amendment No. 4 to Steam Purchase Contract dated July 14, 1989 between the Company and E.I. du Pont filed as Exhibit 10.20.5 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.16.6 Amendment No. 5 to Steam Purchase Contract dated February 16, 1993 between the Company and E.I. du Pont filed as Exhibit 10.20.6 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.17.1 Electricity Purchase Contract dated January 18, 1988 between the Company and E.I. du Pont filed as Exhibit 10.21.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.17.2 Electricity Purchase Contract dated April 30, 1996 between O'Brien (Parlin) Cogeneration Inc. and NRG Parlin Inc. filed as Exhibit 10.21.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.17.3 Assignment of Electricity Purchase Contract dated April 30, 1996 between O'Brien (Parlin) Cogeneration, Inc., NRG Parlin, Inc. and E.I. du Pont filed as Exhibit 10.21.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.18.1 Operating & Maintenance Agreement dated May 1, 1996 between NRG Generating (Parlin) Cogeneration, Inc. and Stewart Stevenson Operations, Inc. filed as Exhibit 10.22.1 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.18.2 Agreement dated May 1, 1996 between the Company, NRGG Newark, NRGG Parlin and Stewart & Stevenson Operations, Inc. filed as Exhibit 10.22.2 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.18.3 Letter Agreement dated May 20, 1996 between NRG Generating (Parlin) 46 Cogeneration, Inc. and Stewart & Stevenson Operations, Inc. filed as Exhibit 10.22.3 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.19 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") filed as Exhibit 10.23 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.20.1 Acquisition Agreement dated March 1, 1996 between Adwin Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill filed as Exhibit 10.24.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.20.2 Side Agreement dated March 1, 1996 between Adwin Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill filed as Exhibit 10.24.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.21.1 Contingent Capacity Purchase Addendum to the Agreement for Purchase of Electric Output (Phase I) dated September 17, 1993 between PECO and Grays Ferry filed as Exhibit 10.25.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.21.2 Contingent Capacity Purchase Addendum to the Agreement for Purchase of Electric Output (Phase II) dated September 17, 1993 between PECO and Grays Ferry filed as Exhibit 10.25.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.21.3 Amendment Agreement dated January 31, 1994 between PECO and Grays Ferry filed as Exhibit 10.25.3 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.21.4 Agreement for Purchase of Electric Output (Phase I) dated July 28, 1992 between PECO and Grays Ferry filed as Exhibit 10.25.4 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.21.5 Agreement for Purchase of Electric Output (Phase II) dated July 28, 1992 between PECO and Grays Ferry filed as Exhibit 10.25.5 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.22.1 Amended and Restated Steam Purchase Agreement dated September 17, 1993 among Philadelphia Thermal Energy Corporation ("PTEC"), Adwin Equipment Company ("Adwin"), The Company and Grays Ferry filed as Exhibit 10.26.1 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 47 10.22.2 Amended and Restated Steam Venture Agreement dated September 17, 1993 among PTEC, Philadelphia United Power Corporation ("PUPCO"), Adwin and the Company filed as Exhibit 10.26.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.23.1 Amended and Restated Project Services and Development Agreement dated September 17, 1993 by and between PUPCO and Grays Ferry filed as Exhibit 10.27.1 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.23.2 Consent to Assignment of Agreement dated March 1, 1996 between PUPCO, Grays Ferry Cogeneration Partnership and The Chase Manhattan Bank, N.A. filed as Exhibit 10.27.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.24 Amended and Restated Site lease, dated September 17, 1993 between PTEC and Grays Ferry filed as Exhibit 10.28 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.25.1 NRG Generating (Newark) Cogeneration Inc./Power Operations, Inc. Operating and Maintenance Agreement dated November 8, 1996 between NRG Generating (Newark) Cogeneration Inc. and Power Operations, Inc. 10.25.2 NRG Generating (Parlin) Cogeneration Inc./Power Operations, Inc. Operating and Maintenance Agreement dated December 31, 1996 between NRG Generating (Parlin) Cogeneration Inc. and Power Operations, Inc. 10.25.3 Guarantee of Operator's Obligations by the Company dated November 8, 1996 relative to NRG Generating (Newark) Cogeneration Inc. 10.25.4 Indemnification Agreement dated March 21, 1997 between NRG Generating (Newark) Cogeneration Inc., NRG Generating (Parlin) Cogeneration Inc., NRG Energy and Credit Suisse First Boston. 10.25.5 Stock Purchase Agreement dated January 1, 1997 between NRG Energy and the Company. 10.25.6 Guarantee of Operator's Obligations by NRG Energy dated March 21, 1997 between NRG Generating (Newark) Cogeneration Inc. and NRG Generating (Parlin) Cogeneration Inc. 10.25.7 Consent to Assignment of Operating Guaranty Agreement dated March 21, 1997 between NRG Generating (Newark) Cogeneration Inc., NRG Generating (Parlin) Cogeneration Inc., NRG Energy and Credit Suisse First Boston. 10.26.1 Credit Agreement dated December 17, 1997 between NRG Generating (U.S.) Inc., MeesPierson Capital Corp. and the Lenders (as defined therein). 10.26.2 Promissory Note dated December 17, 1997 from the Company to MeesPierson Capital Corp. in the principal amount of $30,000,000. 10.26.3 Pledge Agreement dated December 17, 1997, between NRG Generating (U.S.) Inc. and MeesPierson Capital Corp. 10.26.4 Guarantee dated as of December 17, 1997, made by O'Brien (Philadelphia) 48 Cogeneration Inc. in favor of MeesPierson Capital Corp. 10.26.5 General Security Agreement dated as of December 17, 1997, between O'Brien (Philadelphia) Cogeneration Inc. and MeesPierson Capital Corp. 10.26.6 General Security Agreement dated as of December 17, 1997, by NRG Generating (U.S.) Inc. in favor of MeesPierson Capital Corp. 10.26.7 General Security Agreement dated as of December 17, 1997, by O'Brien Energy Services Company in favor of MeesPierson Capital Corp. 10.26.8 Subordination Agreement dated as of December 10, 1997, among MeesPierson Capital Corp., the Senior Lenders, NRG Generating (U.S.) Inc. and NRG Energy, Inc. 10.26.9 Subordination Agreement dated as of December 17, 1997 among MeesPierson Capital Corp., the Senior Lenders, O'Brien (Philadelphia) Cogeneration Inc. and O'Brien Energy Services Company. 10.27.1 Membership Interest Purchase Agreement dated December 10, 1997 between NRG Energy, NRGG Funding Inc. ("NRGG Funding") and the Company filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 30, 1997 and incorporated herein by this reference. 10.27.2 Equity Commitment Agreement dated September 15, 1997 between NRG Energy and The Chase Manhattan Bank ("Chase"). 10.27.3 Assignment and Assumption Agreement dated December 10, 1997 between NRG Energy and NRGG Funding. 10.27.4 Equity Commitment Guaranty, dated as of December 10, 1997 by NRG Energy in favor of Chase and NRG (Morris) Cogen, LLC ("Cogen, LLC"). 10.27.5 Amendment and Consent, dated as of December 10, 1997 among Cogen, LLC and the banks (the "Banks") party to the Credit Agreement, dated as of September 15, 1997, among Cogen, LLC, the Banks and Chase. 10.27.6 Construction Services Agreement dated August 29, 1997 between Cogen, LLC and NRG Energy. 10.27.7 First Amendment to Construction Services Agreement dated December 10, 1997 between Cogen, LLC and NRG Energy. 10.27.8 Construction and Term Loan Agreement dated September 15, 1997 between Cogen, LLC, Chase and the Banks. 10.27.9 Consent and Amendment, dated as of December 10, 1997, among Cogen, LLC, the Banks and Chase. 10.27.10 Pledge and Security Agreement, dated as of December 10, 1997 by NRGG Funding and Morris in favor of Chase. 10.27.11 Supplemental Loan Agreement, dated as of December 10, 1997 between NRG Energy, the Company and NRGG Funding. 10.27.12 Subordination Agreement, dated as of December 10, 1997 between Chase and NRG Energy. 10.27.13 Subordinated Pledge and Security Agreement, dated as of December 10, 1997 by NRGG Funding and Morris to NRG Energy. 49 10.27.14 Operation and Maintenance Agreement dated September 19, 1997 between Cogen, LLC and NRG Morris Operations Inc. 10.27.15 First Amendment to Operation and Maintenance Agreement dated December 10, 1997 between Cogen, LLC and NRG Morris Operations Inc. 10.27.19 Assignment, Assumption and Consent, dated as of December 30, 1997 among NRG Energy, NRGG Funding, the Company and Equistar Chemicals, LP a successor in interest to Millennium Petrochemicals, Inc. 10.27.20 Limited Guaranty dated September 19, 1997 by NRG Energy for the benefit of Cogen, LLC. 10.27.21 First Amendment to Limited Guaranty, dated as of the 10th day of December, 1997 that amends the Limited Guaranty made by NRG Energy for the benefit of Cogen, LLC dated September 19, 1997. 10.28 Newark Lease filed as Exhibit 10.29 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.29 Parlin Lease filed as Exhibit 10.30 to Amendment No. 2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.30.1 NRG Generating (U.S.) Inc. 1996 Stock Option Plan ("1996 Plan") dated September 20, 1996 and filed as Appendix A to the Company's Proxy Statement dated October 28, 1996 and incorporated herein by this reference. 10.30.2 Form of 1996 Plan Incentive Stock Option Agreement filed as Exhibit 10.31.2 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.30.3 Form of 1996 Plan Employee Nonqualified Stock Option Agreement filed as Exhibit 10.31.3 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.30.4 Form of 1996 Plan Nonemployee Director Nonqualified Stock Option Agreement filed as Exhibit 10.31.4 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.31.1 NRG Generating (U.S.) Inc. 1997 Stock Option Plan ("1997 Plan") dated May 1, 1997 and filed as an Appendix to the Company's Proxy Statement dated April 24, 1997 and incorporated herein by this reference. 10.31.2 Form of 1997 Plan Incentive Stock Option Agreement. 10.31.3 Form of 1997 Plan Employee Nonqualified Stock Option Agreement. 10.31.4 Form of 1997 Plan Nonemployee Director Nonqualified Stock Option Agreement. 10.32 Employment Agreement dated March 28, 1997 between the Company and Robert T. Sherman, Jr., and filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997 and incorporated herein by this reference. 50 10.33 Employment Agreement dated August 28, 1997 between the Company and Richard Stone. 10.34 Employment Agreement dated April 30, 1996 between the Company and Leonard A. Bluhm filed as Exhibit 10.32 to Amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and incorporated herein by this reference. 10.35 Confidentiality Agreement dated October 3, 1997 between the Company and NRG Energy. 21 List of Subsidiaries of the Registrant. 23.1 Consent of Price Waterhouse LLP. 27 Financial Data Schedule. 51 EX-3.3 2 EXHIBIT 3.3 RESTATED BYLAWS OF THE COMPANY DATED JANUARY 23, 1998. Exhibit 3.3 NRG GENERATING (U.S.) INC. RESTATED BY-LAWS ARTICLE I MEETINGS OF STOCKHOLDERS 1.1. Annual. The annual meeting of stockholders for the election of directors, ratification or rejection of the selection of auditors and the transaction of such other business as may properly be brought before the meeting shall be held within five months after the end of the corporation's fiscal year, or such other time as may be determined by the board of directors at such time, date and place as the board shall determine by resolution. 1.2. Special. Special meetings of stockholders may be called by the board of directors or the chairman of the board of directors or the Independent Directors' Committee (as described in Section 3.1(b)), at such place, date and time and for such purpose or purposes as shall be set forth in the notice of such meeting. 1.3. Notice of Meetings. Written notice of each meeting of stockholders shall be given by the chairman of the board and/or the secretary in compliance with the provisions of Delaware law. 1.4. List of Stockholders Entitled to Vote. The secretary shall prepare, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. 1 1.5. Quorum. At each meeting of the stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of sixty percent of the voting power of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.9 of these by-laws until a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 1.6. Organization. The chairman or, if he so designates or is absent, the chief executive officer or, in their absence, an executive vice president or vice president designated by the board of directors, shall preside at meetings of the stockholders. The secretary of the corporation shall act as secretary, but in his absence the presiding officer may appoint a secretary. 1.7. Voting; Proxies. (a) Each stockholder shall be entitled to vote in accordance with the number of shares and voting powers of the voting shares held of record by him. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but such proxy, whether revocable or irrevocable, shall comply with the requirements of Delaware law. All elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the voting power of the shares of stock entitled to vote thereon present in person or by proxy at the meeting. (b) Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of stock having no less than the greater of: (i) the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and (ii) 75% of the voting power of the shares of stock entitled to vote thereon. Prompt notice of the taking of the corporate action without a 2 meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 1.8 Fixing Date for Determination of Stockholders of Record. In order that the corporation may determine the stockholders entitled: (a) to notice of or to vote at any meeting of stockholders or any adjournment thereof; (b) to express consent to corporate action in writing without a meeting; (c) to receive payment of any dividend or other distribution or allotment of any rights; or (d) to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix a record date. The record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty nor less than ten days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the board of directors; and (c) in the case of any other action, shall not be more than sixty days prior to such other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 1.9. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 1.10. Judges. All votes by ballot at any meeting of stockholders shall be conducted by two judges appointed for the purpose, either by the directors or by the chairman of the meeting. The judges shall decide upon the qualifications of voters, count the votes and declare the result. 3 1.11. Notice of Stockholder Nomination and Stockholder Business. (a) At a meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. (b) A notice of the intent of a stockholder to make a nomination or to bring any other matter before the meeting shall be made in writing and received by the secretary of the corporation not more than 180 days and not less than 120 days in advance of the annual meeting (provided, however, that the board of directors may reduce from 120 to 100 the minimum number of days in advance of the corporation's annual meeting scheduled for a particular year that a notice of the intent of a stockholder to make a nomination or to bring any other matter before the meeting shall be made in writing and received by the corporation's secretary, if the board of directors determines by the affirmative vote of no fewer than the lesser of all of the directors then in office, or six (6) of the corporation's directors, that it is in the best interest of the corporation to do so)(1) or, in the event of a special meeting of stockholders, such notice shall be received by the secretary of the corporation not later than the close of the fifteenth day following the day on which notice of the meeting is first mailed to stockholders. (c) Every such notice by a stockholder shall set forth: (i) the name and residence address of the stockholder of the corporation who intends to make a nomination or bring up any other matter; (ii) a representation that the stockholder is a holder of the corporation's voting stock and intends to appear in person or by proxy at the meeting to make the nomination or bring up the matter specified in the notice; (iii) with respect to notice of an intent to make a nomination, a description of all arrangements or understandings among the stockholder and each nominee and any other person or persons (naming such person or person) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) with respect to notice of an intent to make a nomination, such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated by the board of directors of the corporation; and (1) This parenthetical was added to this Subsection as of January 20, 1998. 4 (v) with respect to notice of an intent to bring up any other matter, a description of the matter, and any material interest of the stockholder in the matter. (d) Notice of intent to make a nomination shall be accompanied by the written consent of each nominee to serve as director of the corporation if so elected. (e) At the meeting of stockholders, the chairman shall declare out of order and disregard any nomination or any other matter not presented in accordance with this section. ARTICLE II BOARD OF DIRECTORS 2.1. Responsibility and Number. (a) The business and affairs of the corporation shall be managed by or under the direction of a board of directors. (b) The number of directors shall be eight (2); provided that such number of directors may be increased to eight if necessary or required by the terms of any series of preferred stock that may be issued from time to time pursuant to a resolution of the board of directors in accordance with Article FOURTH of the corporation's certificate of incorporation. 2.2. Election; Resignation; Vacancies. (a) At each annual meeting of stockholders, the stockholders shall elect directors, each of whom shall hold office for a term commencing on the date of the annual meeting of stockholders, or such later date as shall be determined by the board of directors, and ending on the next annual meeting of stockholders, or until his or her successor is elected and qualified. Any director may resign at any time upon written notice to the chairman of the board or to the secretary. (b) Except as otherwise provided in these by-laws with respect to Independent Directors (as defined in Section 2.10(c)), the nominees of the board of directors for the election of whom the board will solicit proxies from the stockholders for use at the corporation's annual meeting shall be determined by resolution of the board of directors. (c) Except as otherwise provided in these by-laws with respect to Independent Directors, any vacancy occurring in the board of directors for any reason may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum. Each director so elected shall (2) The number was increased from seven to eight on March 27, 1997. 5 hold office concurrent with the term of other directors or until his successor is elected and qualified. 2.3 Regular Meetings. Unless otherwise determined by resolution of the board of directors, a meeting of the board of directors for the election of officers and the transaction of such other business as may come before it shall be held at such time and places as the board shall from time to time determine. 2.4 Special Meetings. Special meetings of the board of directors may be called by the chairman of the board of directors, the chief executive officer, the president or a vice chairman, or at the request in writing of a majority of the directors then in office or of a majority of the members of the Independent Directors Committee, and shall be called by the secretary. Notice of a special meeting of the board of directors shall be given at least twenty-four hours before the special meeting. 2.5 Quorum; Vote Required for Action. (a) At all meetings of the board of directors, a majority of the whole board shall constitute a quorum for the transaction of business. Except in cases in which applicable law, the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. (b) Except as otherwise specifically provided in the certificate of incorporation or these by-laws; the affirmative vote of a majority of the entire Board of Directors shall be required to: (i) amend the certificate of incorporation or these by-laws; (ii) adopt a plan of liquidation or dissolution of the corporation; (iii) approve any merger, consolidation or other business combination of the corporation or any of its subsidiaries with any person (other than a wholly-owned subsidiary of the corporation); and (iv) appoint members of board committees in accordance with Section 3.1(b) of these by-laws. 2.6. Organization. (a) At its last meeting before, or first meeting after, the annual meeting of stockholders, the board of directors shall elect one of its members to be chairman of the board. The chairman of the board may, but need not be, an officer of or employed in an executive or any other capacity by the corporation. (b) The chairman of the board of directors shall preside at meetings of the board of directors and lead the board in fulfilling its responsibilities as defined in section 2.1 and, in 6 particular, its responsibilities to oversee the performance of the corporation and of the executive management of the corporation. (c) The chairman of the board of directors, or in his absence, the chief executive officer, the president or a vice chairman (in the order stated), or in their absence a member of the board selected by the members present, shall preside at meetings of the board. The secretary of the corporation shall act as secretary, but in his absence the presiding officer may appoint a secretary. 2.7. Transactions with Corporation. (a) No contract or transaction between the corporation and one or more of its directors, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose: (1) if the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) if the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) if the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. (c) Any material transaction between the corporation or any of its subsidiaries on the one hand and NRG Energy, Inc., Northern States Power Company (Minnesota) (or any wholly owned subsidiary of either) on the other hand shall require approval by a majority of the Independent Directors of the corporation, as hereinafter defined. 2.8. Informal Action by Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors, or of any 7 committee thereof, may be taken without a meeting if all members of the board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. 2.9. Telephonic Meetings Permitted. Members of the board of directors, or any committee designated by the board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. 2.10. Independent Directors. (a) No fewer than two of the individuals to constitute the nominees of the board of directors for the election of whom the board will solicit proxies from the stockholders for use at the corporation's annual meeting shall consist of individuals who, on the date of their selection as nominees of the board of directors, would be Independent Directors. (b) In the event the board of directors elects directors between annual meetings of stockholders, the number of such directors who qualify as Independent Directors on the date of their nomination shall be such that no less than two of all directors holding office immediately thereafter shall have been Independent Directors on the date of the first of their nomination or selection as nominees of the board of directors. (c) For purposes of this by-law, the term "Independent Director" shall mean a director who: (i) is not and has not been employed by the corporation or its subsidiaries in an executive capacity within the five years immediately prior to the annual meeting at which the nominees of the board of directors will be voted upon; (ii) is not (and is not affiliated with a company or a firm that is) a significant advisor or consultant to the corporation or its subsidiaries; (iii) is not affiliated with a significant customer or supplier of the corporation or its subsidiaries; (iv) does not have significant personal services contract(s) with the corporation or its subsidiaries; (v) is not affiliated with a tax-exempt entity that receives significant contributions from the corporation or its subsidiaries; (vi) is not an affiliate (as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934), of any beneficial owner directly or indirectly, of 5% or more of the voting power of the outstanding voting stock of the corporation; and (vii) is not a spouse, parent, sibling or child of any person described by (i) through (vi). 8 ARTICLE III COMMITTEES 3.1. Committees of the Board of Directors. (a) The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, consisting of one or more of the directors of the corporation, to be committees of the board of directors ("committees of the board"). All committees of the board may authorize the seal of the corporation to be affixed to any papers which may require it. To the extent provided in any resolution of the board of directors or these by-laws, and to the extent permissible under the laws of the State of Delaware and the certificate of incorporation, any such committee shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation. (b) The board shall have three standing committees: an Audit Committee, a Compensation Committee and an Independent Directors Committee. Subject to the provisions of Sections 3.2 through 3.4 below, each standing committee shall have such number of members as determined by resolution of the directors and each of such members shall be appointed by a majority of the whole board. 3.2. Independent Directors Committee. (a) The Independent Directors Committee shall have three members, two of whom shall be Independent Directors. The Independent Directors Committee shall review the qualifications of individuals for consideration as one of the three members of the Independent Directors Committee. Prior to the annual meeting of the shareholders each year, the Independent Directors Committee shall nominate those individuals to serve on the board and constitute the three members of the Independent Directors Committee for the election of whom the board will solicit proxies. The Independent Directors Committee shall also designate the individuals to fill any vacancies on the board that are to be filled by a member of the Independent Directors Committee and that arise between annual meetings of shareholders. The Independent Directors Committee shall have sole authority and responsibility to make all decisions and take all actions on behalf of the corporation under both the Co- Investment Agreement dated as of April 30, 1996 between NRG Energy, Inc., a Delaware corporation ("NRG") and the corporation and the Management Services Agreement dated as of April 30, 1996 between NRG and the corporation, including without limitation decisions regarding the amendment or modification of such agreements. The Independent Directors Committee shall have and may exercise such other powers, authority and responsibilities as provided in these by-laws or as may be determined by the board of directors. 9 (b) Independent Directors Committee members shall have the right to request and receive such information, reports and/or backup data from employees of the corporation or the corporation's auditors, as the case may be, as they deem necessary to assist them in the conduct of their duties, and such committee shall have the right, without limitation, to retain such advisors and consultants, including attorneys, accountants, engineers or other experts, as it deems necessary or appropriate to assist the members in carrying out the committee's responsibilities. 3.3. Audit Committee. The board of directors shall select the members of the Audit Committee, the majority of whom shall be Independent Directors, and shall designate the chairman of the committee. No officer of the corporation shall be a member of the Audit Committee. The members of the Audit Committee shall not be eligible to participate in any incentive compensation plan for employees of the corporation or any of its subsidiaries. The selection by the committee of accountants for the ensuing calendar year shall be made annually in advance of the annual meeting of stockholders and shall be submitted to the stockholders for ratification or rejection at such meeting. The Audit Committee shall have and may exercise such powers, authority and responsibilities as are normally incident to the functions of an Audit Committee or as may be determined by the board of directors. 3.4. Compensation Committee. (a) The board of directors shall select the members of the executive Compensation Committee and shall designate the chairman of the committee. No officer of the corporation shall be a member of the committee. No member of the committee shall be eligible to participate in any plan falling within the jurisdiction of the committee. The committee shall have and may exercise the powers and authority granted to it by any incentive compensation plan for employees of the corporation or any of its subsidiaries, and such other powers, authority and responsibilities as may be determined by the board of directors. (b) The committee shall determine the compensation of: (a) employees of the corporation who are directors of the corporation; and (b) after receiving and considering the recommendation of the chief executive officer and the president of the corporation, all other employees of the corporation who are officers of the corporation or who occupy such other positions as may be designated by the committee. 10 ARTICLE IV OFFICERS 4.1. Elected officers. The officers of the corporation shall be elected by the board of directors. There shall be a chief executive officer, a president, one or more vice presidents, a secretary, a treasurer and a comptroller. The chief executive officer and the president shall have the powers, authority and responsibilities provided by these by-laws. The officers, other than the chief executive officer and the president, shall each have, in addition to the powers, authority and responsibilities of those officers otherwise provided by the by-laws, such powers, authority and responsibilities as the board of directors or the chief executive officer may determine. The board of directors may also elect persons to hold such other offices as the board of directors shall determine, including one or more vice chairmen of the board. A person may hold any number of offices. Elected officers shall hold their offices at the pleasure of the board of directors, or until their earlier resignation. 4.2 Chief Executive Officer. (a) The chief executive officer shall have the general executive responsibility for the conduct of the business and affairs of the corporation. If the chairman so designates or is absent, the chief executive officer shall preside at meetings of the stockholders. He shall exercise such other powers, authority and responsibilities as the board of directors may determine. (b) In the absence of or during the physical disability of the chief executive officer, the board of directors shall designate an officer who shall have and exercise the powers, authority and responsibilities of the chief executive officer. 4.3 President. The president shall have and exercise such powers, authority and responsibilities as the board of directors may determine. 4.4. Treasurer. The treasurer shall have custody of all funds and securities of the corporation and shall perform all acts incident to the position of treasurer. He shall render such accounts and reports as may be required by the board of directors. The records, books and accounts of the office of the treasurer shall, during the usual hours for business at the office of the treasurer, be open to the examination of any director. 11 4.5 Secretary. The secretary shall keep the minutes of all meetings of stockholders and directors and of such committees of the board of directors as to which he may be so directed. He shall give all required notices and shall have charge of such books and papers as the board of directors may require. He shall submit such reports to the board of directors or to any of the committees of the board or committees of the corporation as the board of directors or any such committee may require. Any action or duty required to be performed by the secretary may be performed by an assistant secretary. 4.6. Comptroller. The comptroller shall be in charge of the accounts of the corporation and shall perform all acts incident to the position of comptroller. He shall submit such reports and records to the board of directors or to any of the committees of the board or committees of the corporation as the board of directors or any such committee may require. 4.7. Subordinate officers. (a) The board of directors may from time to time appoint one or more assistant secretaries, assistant treasurers, assistant comptrollers, and such other subordinate officers as the board of directors may deem advisable. Such subordinate officers shall have such powers, authority and responsibilities as the board of directors may from time to time determine. The board of directors may grant to any committee of the board or the chief executive officer the power and authority to appoint subordinate officers and to prescribe their respective terms of office, powers, authority and responsibilities. Each subordinate officer shall hold his position at the pleasure of the board of directors, the committee of the board appointing him, the chief executive officer and any other officer to whom such subordinate officer reports. (b) In the interval between annual organizational meetings of the board of directors, the chief executive officer shall have the power and authority to appoint such subordinate officers. Such subordinate officers shall serve until the first meeting of the board of directors immediately following the annual meeting of stockholders. 4.8. Resignation, Removal, Suspension and Vacancies. (a) Any officer may resign at any time by giving written notice to the chief executive officer, the president or the secretary. Unless stated in the notice of resignation, the acceptance thereof shall not be necessary to make it effective. It shall take effect at the time specified therein or, in the 12 absence of such specification, it shall take effect upon the receipt thereof. (b) Any officer elected by the board of directors may be suspended or removed at any time by the affirmative vote of a majority of the whole board. Any subordinate officer of the corporation appointed by the board of directors or a committee of the board, or the chief executive officer, may be suspended or removed at any time by a majority vote of a quorum of the board of directors or committee appointing such subordinate officer, or by the chief executive officer or any other officer to whom such subordinate officer reports. (c) The chief executive officer may suspend the powers, authority, responsibilities and compensation of any elected officer or appointed subordinate officer for a period of time sufficient to permit the board or the appropriate committee of the board a reasonable opportunity to consider and act upon a resolution relating to the reinstatement, further suspension or removal of such person. (d) As appropriate, the board of directors, a committee of the board, and/or the chief executive officer may fill any vacancy created by the resignation of any officer. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 5.1. Execution of Contracts. The board, except as in these by-laws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 5.2. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the board may require. 5.3. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board may select, or as may be selected by any officer or 13 officers, assistant or assistants, agent or agents, or attorney or attorneys of the corporation to whom such power shall have been delegated by the board. For the purpose of deposit and for the purpose of collection for the account of the corporation, the President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the corporation who shall from time to time be determined by the board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the corporation. 5.4. General and Special Bank Accounts. The board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the corporation to whom such power shall have been delegated by the board. The board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these by-laws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER 6.1. Certificates for Stock. Except as otherwise provided in the corporation's certificate of incorporation or by-laws, every owner of stock of the corporation shall be entitled to have a certificate or certificates, to be in such form as the board shall prescribe, certifying the number and class of shares of the stock of the corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the corporation by the President or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered 14 to the corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.4. 6.2. Transfers of Stock. Transfers of shares of stock of the corporation shall be made only on the books of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.3, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. Except as otherwise provided in the corporation's certificate of incorporation or these by-laws, the person in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the corporation for transfer, both the transferor and the transferee request the corporation to do so. 6.3. Regulations. The board may make such rules and regulations as it may deem expedient, not inconsistent with these by-laws, concerning the issue, transfer and registration of certificates for shares of the stock of the corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. 6.4. Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the board, it is proper so to do. 15 ARTICLE VII MISCELLANEOUS 7.1. Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the board. 7.2. Waiver of Notices. Whenever notice is required to be given by these by-laws or the certificate of incorporation, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. ARTICLE VIII (3) INDEMNIFICATION 8.1. Directors and Officers. (a) Any person who was or is a party or is threatened to be made a party to or was or is involved (as a witness or otherwise) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than any action or suit by or in the right of the Corporation to procure a judgment in its favor (a "derivative action")) by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified by the Corporation, to the extent authorized by the laws of the State of Delaware as the same exist or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such laws permitted prior to such amendment), against all expenses (including, but not limited to, attorneys' fees) judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding. In the event of any derivative action, such persons shall be indemnified by the Corporation under the same conditions and to the same extent as specified above, except that no indemnification is permitted in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the (3) This article was added on October 28, 1997. 16 adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The indemnification expressly provided by statute in a specific case shall not be deemed exclusive of any other rights to which any person indemnified may be entitled under any lawful agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) The right to indemnification conferred in this Article VIII is and shall be a contract right. The right to indemnification conferred in this Article VIII shall include the right to be paid by the Corporation the expenses (including attorneys' fees and retainers therefor) reasonably incurred in connection with any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within thirty (30) days after the receipt by the Corporation of a statement or statements from a director or officer of the Corporation requesting such advance or advances from time to time; provided, however, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article VIII or otherwise. (c) To obtain indemnification under this Article VIII, an indemnitee shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to such person and is reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification. (d) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or any director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise including service with respect to employee benefit plans, against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each director and officer, and each employee and agent to whom rights of indemnification have been granted as provided in paragraph (e) of this Article VIII, shall be covered by such policy or policies in accordance with its or their terms to the 17 maximum extent of the coverage thereunder for any such director, officer, employee or agent. (e) The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in connection with any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VIII with respect to the indemnification and advancement of expenses of directors and officers of the Corporation." ARTICLE IX (4) DIRECTORS EMERITUS AND HONORARY DIRECTORS 9.1. Directors Emeritus and Honorary Directors The board of directors may from time to time, by resolution passed by a majority of the whole board, create one or more positions of director emeritus or honorary director, and may fill any such position with a retiring or resigning member of the board of directors or other qualified candidate. The board of directors may consult with or seek the advice of a director emeritus or honorary director from time to time, as the board decides is proper, and a director emeritus or honorary director shall make himself or herself reasonably available therefor, including without limitation available for attendance at meetings of the board of directors if the board decides to request such attendance; otherwise, a director emeritus or honorary director shall have no rights, duties or entitlements. A director emeritus or honorary director shall not be a member of the board of directors and shall not be entitled to notices of meetings of the board, nor shall a director emeritus or honorary director be entitled to vote on any business coming before the board or be counted as a member of the board for any purpose (including without limitation determining the number of directors necessary to constitute a quorum or determining whether a quorum is present at a meeting). A director emeritus or honorary director shall serve at the discretion of the board of directors for such term as the board provides in its resolution appointing such director emeritus or honorary director or, in the absence of such a stated term, until the end of the calendar year of his or her appointment. The board of directors may remove any director emeritus or honorary director from such position at any time, with or without cause, by a resolution passed by a majority of the whole board. In the event of any vacancy in any director emeritus or honorary director position for any reason, such position shall thereupon terminate. The board of directors may, by resolution passed by a majority of the whole board, provide for a director emeritus or honorary director to receive such (4) This article was added on January 23, 1998. 18 compensation as the board deems proper in consideration of his or her service. IN WITNESS WHEROF, the undersigned has hereunto set her hand as of the 23rd day of January, 1998. /s/ Karen A. Brennan By: Karen A. Brennan Title: Secretary EX-10.25.1 3 EXHIBIT 10.25.1 NRG GENERATING (NEWARK) COGENERATION INC./POWER OPERATIONS, INC. OPERATING AND MAINTENANCE AGREEMENT DATED NOVEMBER 8, 1996 BETWEEN NRG GENERATING (NEWARK) COGENERATION INC. AND POWER OPERATIONS, INC. Exhibit 10.25.1 NRG GENERATING (NEWARK) COGENERATION INC./ POWER OPERATIONS, INC. OPERATING AND MAINTENANCE AGREEMENT This System Operating and Maintenance Agreement ("Agreement") is made as of the 8th day of November 1996 between NRG Generating (NEWARK) Cogeneration Inc., a Delaware corporation ("Owner"), and Power Operations, Inc., a Delaware corporation ("Operator"), having its principal place of business at Minneapolis, Minnesota, whose obligations hereunder shall be fully guaranteed by NRG Generating (U.S.) Inc. ("NRGG"), pursuant to a Guarantee required by Credit Suisse per Credit Agreement dated May 17, 1996 in the form of Appendix I. Owner and Stewart & Stevenson Operations, Inc. (SSOI) Operator entered into an Operation & Maintenance Contract dated as of May 1, 1996 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 an Third Amendment to the Power Purchase Agreement (as defined below). Owner desires to replace SSOI and Owner and Operator have negotiated the terms and conditions of a new O&M Agreement and desire to enter into 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 follows: 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 and Restated 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 - November 8, 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 or 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 law 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) 18. 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 (unless 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/or 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 Items, 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 falling 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 law 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 are 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 approximately 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 on Exhibit C. 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 and Restated 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 Owner's 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 Operator's 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 law to be obtained and maintained by Owner or in Owner's name; c. Paying all its employees, 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, 6 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 safely and efficiently start-up, operate, and shut down the System equipment and to perform preventative maintenance on the System equipment. 8 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, telephone, water/waste water treatment, waste disposal, special waste disposal and electricity; f. With Operator's 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 and Power Purchase Agreement and thermal revenues under the Steam Purchase Contract with Newark Boxboard; 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; 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 9 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, REIMBURSEMENTS, 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 $150,000.00. 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 last 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 fails 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 on 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. 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; 10 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 than relating to labor and 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 of the 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 Owner's 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 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 of all materials and services to be delivered to the System site covered by Owner's purchase orders issued by Operator, (iii) verify the accuracy of vendors' invoices in connection therewith, and (iv) 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 Section 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 11 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 30 days after receipt of the invoice. All payments shall be made by wire transfer of immediately available funds to Norwest Bank, Minneapolis, Minnesota Account No. (to be furnished later). 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 (1.5%) percent 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 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 subsection 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 the plan prior to the start of the calendar year, and shall meet and exchange information as is necessary and convenient to such end. If 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 Plan and Budget for the calendar year ending December 31, 1997, a copy of which is attached as 12 Exhibit F. All Annual Operating Plan and 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 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 Sections 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 $1,606,997, 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 13 (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 Section VI(2), the Operator's Fee, and, if applicable, the Bonus. 14 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 provided; provided, however, 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 indemnity 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 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. 15 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 Longshoreman & Harbor Workers Compensation Act coverage (if exposure exists) The Employer's Liability Coverage shall not contain 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, covering operations of the System including independent contractors, products and completed operations with broad form 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 and property damage (broad form, including completed operations) in 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 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. shall 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: 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 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 that satisfies statutory requirements and Employers' Liability Insurance with limits of $1,000,000. This insurance shall include All States Coverage and Longshoreman & Harbor Workers Compensation Act coverage (if exposure exists) The Employer's Liability Coverage shall not contain 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, covering operations of the System including independent contractors, products and completed operations with broad form blanket contractual liability coverage (for any written or oral contracts related to the System) and personal injury liability cover- age for claims arising out of the operations of the System for bodily injury and property damage (broad form, including completed opera- tions) in policy limits not less than $1,000,000 combined single limit each occurrence and $2,000,000 16 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 (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 Operator and NRG Generating (U.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 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 and the limits on each, 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 . 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 17 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 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 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. 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: 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 18 notice to Owner; d. By Owner for its convenience, upon 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 fails to comply in all material respects 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 affili- ates 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 main- tain 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 fail- ure or (t) a dispute resolution process has determined that the fail- ure 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 nonappealable 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 than 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 than 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; 19 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 filed 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 fails 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 Operator's 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 effected 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, 20 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: NRG Services, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, Minnesota 55403 Attn: NRG Asset Manager Telephone: 612-373-5498 If to Owner: 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 set 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 21 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 an approved by Operator and no other authorizations, 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 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 22 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 shall 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 subsection 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 subsection 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 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 23 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 XVIII. 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 subsection 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. 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 24 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 effect, 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 25 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: OPERATOR: NRG Generating (Newark) Power Operations, Cogeneration Inc. By:/s/ Leonard Bluhm By:/s/ Timothy P. Hunstad Its: President Its:Secretary 26 EXHIBIT A BONUS/LIQUIDATED DAMAGES For the purpose of determining the liquidated damages ("Liquidated Damages") payable by Operator, 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 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. 27 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 40% of such excess. The availability and heat rate bonus/penalty calculations will be calculated monthly and payable to the end of the Contract Year as set forth in the Third Amendment to Power Purchase Agreement. 28 EXHIBIT B DESCRIPTION OF THE SYSTEM 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. 29 EXHIBIT C SYSTEM CONTRACTS 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 30 EXHIBIT D TERMINATION FOR CONVENIENCE Commencing on the third anniversary of the Effective Date, the Owner may terminate this agreement as set forth in Article XII. The termination fee shall be $200,000 pro-rated 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 the Operator on the Termination Date. 31 EXHIBIT E Outstanding obligations under existing O&M Agreement 32 EXHIBIT F 1997 Budget SEE ATTACHED 33 EX-10.25.2 4 EXHIBIT 10.25.2 NRG GENERATING (PARLIN) COGENERATION INC./POWER OPERATIONS, INC. OPERATING AND MAINTENANCE AGREEMENT DATED DECEMBER 31, 1996 BETWEEN NRG GENERATING (PARLIN) COGENERATION INC. AND POWER OPERATIONS, INC. Exhibit 10.25.2 NRG GENERATING (PARLIN) COGENERATION INC./ POWER OPERATIONS, INC. OPERATING AND MAINTENANCE AGREEMENT This System Operating and Maintenance Agreement ("Agreement") is made as of the 31st day of December 1996 between NRG Generating (PARLIN) Cogeneration Inc., a Delaware corporation ("Owner"), and Power Operations, Inc., a Delaware corporation ("Operator"), having its principal place of business at Minneapolis, Minnesota, whose obligations hereunder shall be fully guaranteed by NRG Generating (U.S.) Inc. ("NRGG"), pursuant to a Guarantee required by Credit Suisse per Credit Agreement dated May 17, 1996 in the form of Appendix I. Owner (formerly named "O'Brien (Parlin) Cogeneration, Inc.") and Stewart & Stevenson Operations, Inc. (SSOI) 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 renegotiated and replaced with an Amended and Restated Power Purchase Agreement (as defined below). Owner desires to replace SSOI and Owner and Operator have negotiated the terms and conditions of a new O&M Agreement and desire to enter into 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 follows: 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 and Restated Power Purchase Agreement - The Amended and Restated 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 - The date the agreement was executed. 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 or 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 law 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 2 reflect Sound Independent Power Industry Practice) 18. 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 (unless 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/or 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 Items, 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 falling 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 law 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 are 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 approximately 120 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 on Exhibit C. 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 and Restated 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 Owner's 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; 4 e. Appointing a plant manager (subject to Owner's approval) who shall supervise the performance of Operator's 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. 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: 5 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 law to be obtained and maintained by Owner or in Owner's name; c. Paying all its employees, 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; 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; 6 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; 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; 7 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 safely and efficiently start-up, operate, and shut down the System equipment and to perform preventative maintenance on the System equipment. 8 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, telephone, water/waste water treatment, waste disposal, special waste disposal and electricity; f. With Operator's 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 and Power Purchase Agreement and thermal revenues under the Steam Purchase Contract with Newark Boxboard; 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; 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 n. Timely paying all of Owner's vendors, suppliers and contractors. 9 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, REIMBURSEMENTS, 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 $200,000.00. 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 last 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 fails 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 on 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. 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; 10 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 than relating to labor and 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 of the 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 Owner's 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 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 of all materials and services to be delivered to the System site covered by Owner's purchase orders issued by Operator, (iii) verify the accuracy of vendors' invoices in connection therewith, and (iv) 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 Section 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. 11 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 30 days after receipt of the invoice. All payments shall be made by wire transfer of immediately available funds to Norwest Bank, Minneapolis, Minnesota Account No. (to be furnished later). 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 (1.5%) percent 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 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 subsection 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 the plan prior to the start of the calendar year, and shall meet and exchange information as is necessary and convenient to such end. If 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 Plan and Budget for the calendar year ending December 31, 1997, a copy of which is attached as Exhibit F. All Annual Operating Plan and 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 12 reduced on a pro rata basis based 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 Sections 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 $2,261,061, 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. 13 10. Operator's consideration for services performed and expenses paid pursuant to this Agreement shall be the reimbursement of expenses described in Section VI(2), the Operator's Fee, and, if applicable, the Bonus. 14 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 provided; provided, however, 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 indemnity 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 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. 15 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 Longshoreman & Harbor Workers Compensation Act coverage (if exposure exists) The Employer's Liability Coverage shall not contain 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, covering operations of the System including independent contractors, products and completed operations with broad form 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 and property damage (broad form, including completed operations) in 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 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. shall 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: 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 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 that satisfies statutory requirements and Employers' Liability Insurance with limits of $1,000,000. This insurance shall include All States Coverage and Longshoreman & Harbor Workers Compensation Act coverage (if exposure exists) The Employer's Liability Coverage shall not contain 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, covering operations of the System including independent contractors, products and completed operations with broad form 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 and property damage (broad form, including completed operations) in 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 (U.S.) Inc. shall be named as additional insureds. 16 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 Operator and NRG Generating (U.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 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 and the limits on each, 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 . 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 in excess of $10,000, Operator shall obtain the prior written approval from Owner. 17 X. OPERATOR REPORTING OBLIGATIONS Operator shall provide Owner with copies of all reports generated by Operator's 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. 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: 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 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); 18 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 fails to comply in all material respects 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 affili- ates 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 nonappealable 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 than 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 than 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; 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 filed 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 19 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 fails 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 Operator's 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 effected 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; 20 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: Power Operations, Inc. 970 Washington Road Parlin, New Jersey 08859 Attn: Operations Manager Telephone: 908-651-1014 If to Owner: 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 set 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: 21 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 an approved by Operator and no other authorizations, 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 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 22 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 shall 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 subsection 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 subsection 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 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 XVIII. 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 subsection 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. 23 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. 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 24 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 effect, 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 25 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: OPERATOR: NRG Generating (Parlin) Power Operations, Cogeneration Inc. By:/s/ Leonard Bluhm By:/s/ Timothy P. Hunstad Its: President Its: Secretary 26 EXHIBIT A BONUS/LIQUIDATED DAMAGES For the purpose of determining the liquidated damages ("Liquidated Damages") payable by Operator, 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 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. 27 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 40% of such excess. The availability and heat rate bonus/penalty calculations will be calculated monthly and payable to the end of the Contract Year as set forth in the Amended and Restated Power Purchase Agreement. 28 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. 29 EXHIBIT C SYSTEM CONTRACTS PARLIN 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 30 EXHIBIT D TERMINATION FOR CONVENIENCE Commencing on the third anniversary of the Effective Date, the Owner may terminate this agreement as set forth in Article XII. The termination fee shall be $200,000 pro-rated 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 the Operator on the Termination Date. 31 EXHIBIT E Outstanding obligations under existing O&M Agreement 32 EXHIBIT F 1997 Budget SEE ATTACHED 33 EX-10.25.3 5 EXHIBIT 10.25.3 GUARANTEE OF OPERATOR'S OBLIGATIONS BY THE COMPANY DATED NOVEMBER 8, 1996 RELATIVE TO NRG GENERATING (NEWARK) COGENERATION INC. Exhibit 10.25.3 NEWARK GUARANTEE OF OPERATOR'S OBLIGATIONS BY NRG GENERATING (U.S.) INC. In consideration of Owner entering into this Operation and Maintenance Contract for the Newark Cogeneration Project with our wholly owned subsidiary company, Power Operations, Inc. ("Operator") NRG Generating (U.S.) Inc. ("Guarantor") hereby agrees to the following guarantees: If Operator fails to perform any of its obligations under this O&M Contract, or execute any of its liabilities arising therefrom, Guarantor will, upon written request from Owner, and after having given Guarantor seven (7) days notice in writing of Owner's intention under this Contract, to make a claim under this Guarantee, forthwith perform such obligations or liabilities on the same terms and conditions as stated in the O&M Contract, mobilizing and using, for that purpose, sufficient personnel and resources. Alternatively, Guarantor will cause a third party acceptable to Owner to perform such obligations or liabilities, the due and faithful performance of which Guarantor will guarantee as if such third party were Operator. This Guarantee shall apply to this O&M Contract including all extensions of time, indulgences, variations or alterations as may be made, given, conceded or agreed upon under this Contract, whether or not Guarantor receives notice and/or approves of these. The Guarantor shall also enter into an agreement to unconditionally and irrevocably indemnify Owners borrower in full and for all costs and expenses incurred in connection with the termination of the Stewart & Stevenson Operations, Inc. Operations and Maintenance Agreement terminated by the Owner on October 28, 1996. Such NRG Guarantee is pursuant to Section 5.32 of the Credit Agreement by and among NRG Generating (Newark) Cogeneration, Inc. and NRG Generating (Parlin) Cogeneration, Inc., Credit Suisse, Greenwich Funding Corporation and any purchasing Lender as Lender and Credit Suisse as Agent dated May 17, 1996. This Guarantee shall be governed by, and construed in accordance with, the laws of the State of New Jersey and all parties agree to subject any disputes that may arise under or in connection with this Guarantee to the jurisdiction of the courts of the State of New Jersey. IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed by its authorized officer as of the date set forth below. NRG GENERATING (U.S.) INC. BY: /s/ Leonard Bluhm TITLE: President & CEO DATE: November 8, 1996 EX-10.25.4 6 EXHIBIT 10.25.4 INDEMNIFICATION AGREEMENT DATED MARCH 21, 1997 BETWEEN NRG GENERATING (NEWARK) COGENERATION INC., NRG GENERATING (PARLIN) COGENERATION INC., NRG ENERGY AND CREDIT SUISSE FIRST BOSTON. Exhibit 10.25.4 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT, dated as of March 21, 1997, to be effective as of January 1, 1997, (this "Agreement"), is made by and among (i) NRG GENERATING (PARLIN) COGENERATION INC., a Delaware corporation ("NRGG Parlin"), (ii) NRG GENERATING (NEWARK) COGENERATION INC., a Delaware corporation ("NRGG Newark"; NRGG Newark and NRGG Parlin, collectively, the "Borrowers"), (iii) NRG ENERGY, INC., a Delaware corporation ("NRG"), (iv) NRG GENERATING (U.S.) INC., a Delaware corporation ("NRGG") and (v) CREDIT SUISSE FIRST BOSTON (formerly known as Credit Suisse, as agent ("Agent") on behalf of and for the benefit of the Secured Parties (as defined in the Credit Agreement referred to below). W I T N E S S E T H WHEREAS, the Borrowers and Agent have previously entered into the Credit Agreement, dated as of May 17, 1996, by and among (i) the Borrowers, (ii) Credit Suisse First Boston and each purchasing lender (the "Lenders") and (iii) Agent (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement"), pursuant to which the Lenders have provided the Loans and the Commitments to Borrowers on the terms and conditions set forth in the Credit Agreement; WHEREAS, NRGG Parlin and Stewart & Stevenson Operations, Inc., a Delaware corporation ("SSOI"), entered into that certain Operations and Maintenance Agreement (the "Parlin SSOI Agreement"), dated as of May 1, 1996; WHEREAS, NRGG Newark and SSOI entered into that certain Operations and Maintenance Agreement (the "Newark SSOI Agreement"; the Parlin SSOI Agreement and the Newark SSOI Agreement, collectively, the "SSOI Agreements") dated as of May 1, 1996; WHEREAS, on October 28, 1996, NRGG Newark terminated the Newark SSOI Agreement pursuant to and in accordance with Section XII(1)(e) thereof; WHEREAS, on December 20, 1996, NRGG Parlin terminated the Parlin SSOI Agreement pursuant to and in accordance with Section XII(1)(e) thereof; WHEREAS, NRGG Newark has entered into that certain Operating and Maintenance Agreement (the "POI Newark Agreement") dated November 8, 1996 between NRGG Newark and Power Operations Inc. ("POI") pursuant to which the POI agreed to operate and maintain NRGG Newark's electric generation facility; WHEREAS, NRGG Parlin has entered into that certain Operating and Maintenance Agreement (the "POI Parlin Agreement") dated December 31, 1996 between NRGG Parlin and POI pursuant to which POI agreed to operate and maintain NRGG Parlin's electric generation facility; WHEREAS, NRG owns 100% of the issued and outstanding capital stock of POI, and NRG and is willing to indemnify the Borrowers for certain costs and expenses incurred in connection with the termination of the SSOI Agreements; WHEREAS, the Borrowers are subsidiaries of NRGG, and NRGG is also willing to indemnify the Borrowers for certain costs and expenses incurred in connection with the termination of the SSOI Agreements NOW THEREFORE, for and in consideration of the premises and the aforesaid loan, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement, to the extent defined therein. 2. Indemnity. NRGG and NRG, as set forth in the following sentence, hereby indemnify and agree to save and hold NRGG Newark and NRGG Parlin harmless from and against any and all losses, liabilities, claims, demands, assessments, actions, suits, proceedings, damages, costs and expenses including without limitation, reasonable attorneys' fees and disbursements (including costs, expenses and legal fees incurred by NRGG Newark and NRGG Parlin, or their respective officers, directors, agents and employees (each of which is herein referred to as an "Indemnified Person") incident to the foregoing or to enforcing said rights of defense and indemnity), arising out of or in connection with NRGG Newark's and NRGG Parlin's termination of (i) the Newark SSOI Agreement (the "SSOI Newark Losses") and (ii) the Parlin SSOI Agreement (the "SSOI Parlin Losses"; with SSOI Newark Losses and SSOI Parlin Losses, being collectively referred to as the "SSOI Losses"), respectively. As between each other, NRGG and NRG agree that they shall allocate SSOI Losses as follows: (1) NRGG shall pay the first $200,000 of SSOI Losses; and (2) NRG shall pay all SSOI Losses in excess of $200,000 to Borrowers. NRGG and NRG agree to reimburse each other as required to achieve the above result, provided that NRG, its officers, directors, agents and employees (each of which is herein referred to as a "NRG Indemnified Person") shall not be entitled to receive an amount of indemnity pursuant to this Section 2 for the amount of any SSOI Losses as and to the extent such amount, when added to all amounts previously paid or reimbursed to a NRG Indemnified Person pursuant to this Section 2 would exceed $200,000. NRG shall indemnify, defend and hold harmless NRGG, its officers, directors, agents and employees and NRGG shall indemnify, defend and hold harmless NRG Indemnified Persons promptly upon demand at any time and from time to time, against any and all SSOI Losses as provided in this Section 2. 2 If any action, suit or proceeding shall be commenced against or any claim, demand or assessment be asserted against an Indemnified Person in respect of which an Indemnified Person proposes to demand defense and indemnification pursuant to this Section 2, and the total amount sought in all such actions, suits, proceedings, claims, demands and assessments is estimated by the applicable Borrower to be $200,000 or less, then NRGG shall be notified to that affect with reasonable promptness and shall have the right, but not the obligation, to assume the entire control of the defense, compromise or settlement thereof, including, at NRGG's expense, employment of counsel satisfactory to the Indemnified Person and in connection therewith, the Indemnified Person shall cooperate fully to make available to NRGG all pertinent information under its control; provided, that failure to provide such notice shall not relieve NRG or NRGG of their obligation to indemnify hereunder. If any action, suit or proceeding shall be commenced against or any claim, demand or assessment be asserted against an Indemnified Person in respect of which an Indemnified Person proposes to demand defense and indemnification pursuant to this Section 2, the control of which action, suit, proceeding, claim, demand, or assessment is not assigned pursuant to the immediately preceding paragraph, NRG shall be notified to that affect with reasonable promptness and shall have the right, but not the obligation, to assume the entire control of the defense, compromise or settlement thereof, including, at NRG's expense, employment of counsel satisfactory to the Indemnified Person and in connection therewith, the Indemnified Person shall cooperate fully to make available to NRG all pertinent information under its control; provided, that failure to provide such notice shall not relieve NRG or NRGG of their obligation to indemnify hereunder. 3. Notice; Contest or Dispute of Charges Borrowers shall provide NRG and NRGG with prompt written notice of any claim for which indemnification is or may be sought pursuant to Section 2 hereof; provided, that failure to provide such notice shall not relieve NRG or NRGG of their obligation to indemnify hereunder, except to the extent that the delay in provision of such notice is prejudicial to NRG or NRGG. If Borrowers shall obtain a repayment from a third party of any claim paid by NRG or NRGG pursuant to Section 2, Borrowers shall promptly pay to NRG or NRGG as the case may be (i) the amount of such repayment, together with any interest (other than interest for the period, if any, after such claim was paid by Borrowers until such claim was paid or reimbursed by NRG or NRGG) received by Borrowers on account of such repayment net of expenses and (ii) the net amount, after taking into account any taxes actually payable as a result of the receipt of such refund or associated interest, of any Federal, state or local income taxes saved by Borrowers in respect of its payment to NRG or NRGG of amounts referred to in clause (i) above and its payment to NRG or NRGG of amounts pursuant to this clause (ii). In no event shall Borrowers be obligated to pay to either NRG or NRGG more than the amount actually received by Borrowers. 3 4. Method of Payment. Any payment required to be made pursuant to Section 2 hereof shall be paid in immediately available funds within 10 Business Days after Borrowers or Agent makes written demand upon NRG and/or NRGG, together with reasonable documentation of the liability of expense to be indemnified pursuant to Section 2. Any such payment shall be made directly to Agent for deposit in the Project Account. 5. No Setoff. The payment obligations of NRG and NRGG hereunder shall be satisfied in all events at the times and in the amounts set forth herein without offset, abatement, withholding or reduction of any kind. 6. Enforcement. Both NRG and NRGG hereby agree that Agent on behalf of the Secured Parties and/or Borrowers shall have the right to directly enforce the provisions hereof against each of them and NRG and NRGG agree to pay all costs, including reasonable attorneys' fees, actually incurred by Agent with respect to any such enforcement in accordance with Section 2 hereof. 7. Notices. All notices, demands, requests and other communications required or permitted hereunder shall be in writing, and shall be given and deemed to have been given in accordance with Section 8.1 of the Credit Agreement and the information set forth immediately below shall apply to NRG and NRGG: If to NRG: 1221 Nicollet Mall Suite 700 Minneapolis, Minnesota 55403 Attention: President Telecopy: If to NRGG: NRG Generating (U.S.) Inc. 1221 Nicollet Mall Suite 610 Minneapolis, Minnesota 55403 Attention: President Telecopy: (612) 373-8833 4 8. Survival of Representations and Warranties. All agreements, representations and warranties made herein or made in writing by NRG and/or NRGG in connection herewith shall survive the execution and delivery of this Agreement and the performance of the obligations contained herein, and shall be deemed to be material and to have been relied upon by Agent and the Secured Parties, regardless of any investigation made by or on behalf of Agent or the Secured Parties. 9. Prior Agreements. The parties hereto hereby agree this Agreement supersedes (i) that certain Indemnification Agreement (the "NRGG Newark Indemnification Agreement") dated as of November 8, 1996, among NRG Newark, NRGG and Agent and (ii) that certain Indemnification Agreement (the "Parlin Indemnification Agreement") dated as of ____________, 199__ among NRG Parlin, NRGG and Agent. 10. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization, without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. Where provisions of any law or regulation resulting in such prohibition or unenforceability may be waived they are hereby waived by NRG, NRGG and Agent to the full extent permitted by law so that this Agreement shall be deemed a valid, binding agreement, enforceable in accordance with its terms. 11. Amendment. This Agreement may be amended, modified or rescinded only by a writing expressly referring to this Agreement and signed by all the parties hereto. 12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. In the event of any assignment or transfer by any Secured Party of any instrument evidencing all or any part of the Obligations, the holder of such instrument shall, subject to the Credit Agreement, be entitled to the benefits of this Agreement. 13. Number and Gender. Whenever used in this Agreement, the singular number shall include the plural and the plural the singular, and the use of any gender shall be applicable to all genders. 5 14. Headings Descriptive. The captions or headings of the several sections an subsections and the table of contents of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 15. Governing Law; Jurisdiction; Waiver of Trial by Jury. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflict of law rules thereof. (b) Jurisdiction. With respect to any legal action or proceeding brought by Agent or the Secured Parties against NRG or NRGG arising out of or in connection with this Agreement, NRG and NRGG hereby irrevocably (i) consent to the jurisdiction of any state or federal court located in the State of New York, (ii) consent to the service of process outside the territorial jurisdiction of said courts in any such action or proceeding by mailing copies thereof by registered United States mail, postage prepaid, to the address specified by NRG or NRGG, as applicable, for the receipt of notices if such address is outside such territorial jurisdiction and (iii) waives any objection to the venue of the aforesaid courts. NRG and NRGG hereby irrevocably designate, appoint and empower CT Corporation System (the "Process Agent", which has consented thereto) as agent to receive for and on behalf of NRG and NRGG service of process in the State of New York. Both NRG and NRGG agree they will at all times continuously maintain either a registered office or an agent to receive service of process in the State of New York on behalf of themselves and their properties with respect to this Agreement. (c) Waiver of Trial by Jury. WITH REGARD TO THIS AGREEMENT, EACH OF THE PARTIES HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING AND FOR ANY COUNTERCLAIM THEREIN. 16. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. 17. Effective Date. The parties hereto agree that the effective date of this agreement shall be January 1, 1997. 18. Term. This Agreement shall continue in effect until repayment in full of all Obligations. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement through their duly authorized representatives as of the date first written above. NRG GENERATING (PARLIN) COGENERATION INC. By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: VP & CFO NRG GENERATING (NEWARK) COGENERATION INC. By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: VP & CFO NRG ENERGY, INC. By:/s/ Ronald J. Will Name: Ronald J. Will Title: Vice President NRG GENERATING (U.S.) INC. By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: VP & CFO CREDIT SUISSE FIRST BOSTON, as Agent By:/s/ Guy Cirincione Name: Guy Cirincione Title: Director By:/s/ Andrew B. Leon Name: Andrew B. Leon Title: Associate 7 EX-10.25.5 7 EXHIBIT 10.25.5 STOCK PURCHASE AGREEMENT DATED JANUARY 1, 1997 BETWEEN NRG ENERGY AND THE COMPANY. Exhibit 10.25.5 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is signed on the 6th day of February 1997, to be effective as of January 1, 1997, by and between NRG Energy, Inc., a Delaware corporation ("Buyer"), and NRG Generating (U.S.) Inc., a Delaware corporation ("Shareholder"). RECITALS WHEREAS, Buyer beneficially owns approximately 41.86% of Shareholder; WHEREAS, Shareholder owns beneficially and of record all of the issued and outstanding shares (the "Shares") of Power Operations Inc., a Delaware corporation (the "Company"); WHEREAS, on October 28, 1996, NRGG Generating (Newark) Cogeneration Inc., a Delaware corporation ("NRGG Newark"), terminated that certain Operating and Maintenance Agreement (the "SSOI Newark Agreement") dated May 1, 1996, between NRGG Newark and Stewart & Stevenson Operations, Inc. ("SSOI"), pursuant to and in accordance with Section XII(1)(e) of the SSOI Newark Agreement; WHEREAS, on December 20, 1996, NRGG Generating (Parlin) Cogeneration Inc., a Delaware corporation ("NRGG Parlin"), terminated that certain Operating and Maintenance Agreement (the "SSOI Parlin Agreement") dated May 1, 1996, between NRGG Parlin and SSOI, pursuant to and in accordance with Section XII(1)(e) of the SSOI Parlin Agreement; WHEREAS, NRGG Newark has entered into that certain Operating and Maintenance Agreement dated November 8, 1996 between NRGG Newark and the Company (the "POI Newark Agreement") pursuant to which the Company agreed to operate and maintain NRGG Newark's electric generation facility; WHEREAS, NRGG Parlin has entered into that certain Operating and Maintenance Agreement dated December 31, 1996 between NRGG Parlin and the Company (the "POI Parlin Agreement") pursuant to which the Company agreed to operate and maintain NRGG Parlin's electric generation facility; WHEREAS, Shareholder desires to sell the Shares and Buyer desires to purchase the Shares on the terms and conditions hereinafter set forth; NOW THEREFORE, in reliance on the representations, warranties and agreements and subject to the terms and conditions hereinafter set forth, the parties hereby agree as follows: 1. Purchase and Sale of Shares. Subject to the terms and conditions contained in this Agreement, at the Closing (as herein defined), Shareholder shall sell, assign, transfer, and deliver to Buyer, and Buyer shall purchase from Shareholder, the Shares. In consideration for the Shares, Buyer shall (i) pay to Seller $10.00 cash, (ii) indemnify, defend and hold harmless Shareholder, its officers, directors, agents and employees (each of which is herein referred to as a "Shareholder Indemnified Person") as provided in Sections 5, 7 and 8 of this Agreement (the "Purchase Price"), and (iii) pay to Seller such amount as is necessary to clear the Company's books as of the close of business on December 31, 1996, as contemplated in Section 2 hereof. The closing of the transactions contemplated by this Agreement (the "Closing"), shall be held simultaneous with the execution of this Agreement (the "Closing Date"). 2. Clearing of Accounts. Shareholder and Buyer agree that Buyer will pay to Shareholder within thirty (30) days after the Closing such amount of funds as is equal to the positive balance of the accounts receivable on the balance sheet of the Company as of the close of business on December 31, 1996. The balance of the accounts receivable on the balance sheet of the Company as of the close of business on December 31, 1996 shall be adjusted after this payment, if and as mutually agreed between the parties, to correct errors existing in the balance as of the time such payment is made, if any. Within thirty (30) days of the date of this Agreement, Shareholder shall submit to Buyer an invoice for any and all expenses of the Company that were funded by Shareholder prior to the date of this Agreement and not reimbursed to Shareholder prior to the date of this Agreement. Buyer shall pay the amount of such invoice to Shareholder within thirty (30) days after Buyer's receipt thereof. If and to the extent that the Company earns a bonus under the POI Newark Agreement for any period of time that includes the period between November 8, 1996 and December 31, 1996, Buyer shall within thirty (30) days after Buyer's receipt of such bonus pay to Shareholder that portion of the bonus as is attributable to the activity of the Company during the referenced period of time. 3. Representations and Warranties of Shareholder. Shareholder represents and warrants to Buyer that: (a) Shareholder has all requisite power and authority to execute and deliver this Agreement. (b) Shareholder has good and marketable title to the shares and owns the shares beneficially and of record, free and clear of any security interests, claims, conditions, liens, pledges, options, encumbrances, charges, agreements, voting trusts, proxies or other arrangements or restrictions whatsoever. (c) Following the Closing, Buyer will own all of the shares free and clear of any liens charges, claims, restrictions (other than those resulting from action of Buyer and other than with respect to applicable federal and state securities laws), preemptive rights or other encumbrances. 2 (d) No consent, approval, authorization or signature of any other party is necessary to transfer ownership (beneficial and of record) of the Shares to Buyer. (e) This Agreement has been duly authorized by Shareholder and constitutes the legal, valid and binding obligation of Shareholder enforceable against it in accordance with its terms, except to the extent limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the enforcement of creditor's rights or by general equitable principles. (f) There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Shareholder. (g) Shareholder is not prohibited by any order, writ, injunction or decree of any body of competent jurisdiction from consummating the transactions contemplated by this Agreement, and no such action or proceeding is pending against Shareholder which questions the validity of this Agreement, any of the transactions contemplated hereby or any action which has been taken by any of the parties in connection herewith or in connection with any of the transactions contemplated hereby. (h) The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, has full corporate power to carry on its business as it is now and has since its incorporation been conducted, and is entitled to own, lease or operate the properties and assets it now owns, leases or operates. (i) The Company is authorized to issue 1000 shares of common stock, $.01 par value ("Common Stock"), 100 shares of Common Stock are issued and outstanding, all of which are owned, of record and beneficially, by Shareholder. All of the shares have been duly authorized and are validly issued, fully paid and nonassessable. There are not, and on the Closing Date there will not be, outstanding (i) any options, warrants or other rights to purchase from the Company any capital stock of the Company, (ii) any securities convertible into or exchangeable for shares of such stock or (iii) any commitments of any kind for the issuance of additional shares of capital stock or options, warrants or other securities of the Company. (j) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the fulfillment of the terms hereof, will (a) violate or result in a breach of, any of the terms and provisions of, or constitute a default under, or conflict with (i) any agreement, contract, commitment, permit, indenture or other instrument to which the Company is a party or by which the Company or 3 its assets, are bound, or give rise to any right of termination, cancellation or acceleration under any such agreement, contract, commitment, permit, indenture or other instrument by any party thereto, (ii) the Articles of Certificate of Incorporation or Bylaws of the Company, or (iii) any law, statute or regulation, or any judgment, decree, order or award of any court, governmental body or arbitrator applicable to the Company; or (b) result in the creation or imposition of any lien, charge, pledge, security interest or encumbrance of any kind on any asset of the Company. (k) The Company does not have any liabilities or obligations of any nature or kind whatsoever, whether known or unknown, liquidated or unliquidated, absolute, accrued, contingent or otherwise, and whether due or to because due (including, without limitation, any liability for taxes and interest, penalties and other charges payable with respect to any such liability or obligation) and there is no existing condition, situation or set of circumstances which could be expected to result in such liabilities other than (i) liabilities related to or connected with the SSOI Losses (as such term is defined in Section 5 hereof) (ii) liabilities specifically reflected or reserved against and provided for in the Company's most recent balance sheet (the "Balance Sheet"), and (iii) liabilities incurred in the ordinary course of business consistent with past practice since the date of the Balance Sheet, which individually or in the aggregate are not material to the Company. 4. Representations and Warranties of Buyer. Buyer hereby represents and warrants to Shareholder that: (a) Buyer is duly organized and existing under the laws of the State of Delaware. (b) This Agreement has been duly and validly authorized by Buyer and constitutes the valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except to the extent limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the enforcement of creditor's rights or by general equitable principles. (c) No consent, approval, authorization or signature of any other party is necessary to transfer ownership (beneficial and of record) of the Shares to Buyer. (d) There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Buyer. 4 (e) Buyer is not prohibited by any order, writ, injunction or decree of any body of competent jurisdiction from consummating the transactions contemplated by this Agreement, and no such action or proceeding is pending against Buyer which questions the validity of this Agreement, any of the transactions contemplated hereby or any action which has been taken by any of the parties in connection herewith or in connection with any of the transactions contemplated hereby. (f) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the fulfillment of the terms hereof, will (a) violate or result in a breach of, any of the terms and provisions of, or constitute a default under, or conflict with (i) any agreement, contract, commitment, permit, indenture or other instrument to which the Buyer is a party or by which the Buyer or its assets, are bound, or give rise to any right of termination, cancellation or acceleration under any such agreement, contract, commitment, permit, indenture or other instrument by any party thereto, (ii) the Articles of Certificate of Incorporation or Bylaws of the Buyer, or (iii) any law, statute or regulation, or any judgment, decree, order or award of any court, governmental body or arbitrator applicable to the Buyer; or (b) result in the creation or imposition of any lien, charge, pledge, security interest or encumbrance of any kind on any asset of the Buyer. (g) Buyer is acquiring the Shares for its own account for investment purposes only and not with a view to, or for resale in connection with, any distribution of such securities within the meaning of the Minnesota Statutes, as amended, or the Securities Act of 1933, as amended, and that Buyer does not presently intend to resell, assign, or otherwise dispose of all or any part of the securities to be acquired hereunder. Buyer further acknowledges that any certificates representing the Shares subscribed for hereunder will contain a legend indicating that said shares are issued in reliance on the exemption provided by Section 80A.15 of the Minnesota Statutes (1996), as amended, and prohibiting further transfer, sale or conveyance of such securities until such securities may, in the opinion of counsel to the issuer, be so transferred, sold or conveyed without a violation of any state or federal securities law. 5. Indemnification for SSOI Losses. Shareholder and Buyer agree that they shall allocate responsibility for any and all losses, liabilities, claims, demands, assessments, actions, suits, proceedings, damages, costs and expenses (other than Shareholder's or Buyer's internal costs and/or expenses), including without limitation, reasonable attorneys' fees and disbursements (including costs, expenses and legal fees incurred by the other party, or such party's officers, directors, agents and employees (each of which is herein referred to as an "Indemnified Person") incident to the foregoing or to enforcing said rights of defense and indemnity), arising out of or in connection with Shareholder's termination of (i) the SSOI Newark Agreement (the "SSOI Newark Losses") and (ii) the SSOI 5 Parlin Agreement (the "SSOI Parlin Losses"; with SSOI Newark Losses and SSOI Parlin Losses, being collectively referred to as the "SSOI Losses"), as follows: (1) Shareholder shall cause either itself, NRGG Newark or NRGG Parlin to pay the first $200,000 of SSOI Losses; and (2) Buyer shall pay all SSOI Losses in excess of $200,000. Shareholder and Buyer agree to reimburse each other as required to achieve the above result, provided that Buyer, its officers, directors, agents and employees (each of which is herein referred to as a "Buyer Indemnified Person") shall not be entitled to receive an amount of indemnity pursuant to this Section 5 for the amount of any SSOI Losses as and to the extent such amount, when added to all amounts previously paid or reimbursed to a Buyer Indemnified Person pursuant to this Section 5 would exceed $200,000. Each party shall indemnify, defend and hold harmless the other party's Indemnified Persons promptly upon demand at any time and from time to time, against any and all SSOI Losses as provided in this Section 5. If any action, suit or proceeding shall be commenced against or any claim, demand or assessment be asserted against an Indemnified Person in respect of which an Indemnified Person proposes to demand defense and indemnification pursuant to this Section 5, and the total amount sought in all such actions, suits, proceedings, claims, demands and assessments is $200,000 or less, then Shareholder shall be notified to that affect with reasonable promptness and shall have the right, but not the obligation, to assume the entire control of the defense, compromise or settlement thereof, including, at Shareholder's expense, employment of counsel satisfactory to the Indemnified Person and in connection therewith, the Indemnified Person shall cooperate fully to make available to Shareholder all pertinent information under its control. If any action, suit or proceeding shall be commenced against or any claim, demand or assessment be asserted against an Indemnified Person in respect of which an Indemnified Person proposes to demand defense and indemnification pursuant to this Section 5, the control of which action, suit, proceeding, claim, demand, or assessment is not assigned pursuant to the immediately preceding paragraph, Buyer shall be notified to that affect with reasonable promptness and shall have the right, but not the obligation, to assume the entire control of the defense, compromise or settlement thereof, including, at Buyer's expense, employment of counsel satisfactory to the Indemnified Person and in connection therewith, the Indemnified Person shall cooperate fully to make available to Buyer all pertinent information under its control. 6. Indemnification of Buyer for Losses other than SSOI Losses. Shareholder shall indemnify, defend and hold harmless Buyer Indemnified Persons promptly upon demand at any time and from time to time, against any and all losses, liabilities, claims, demands, assessments, actions, suits, proceedings, damages and expenses, including without limitation, reasonable attorneys' fees and disbursements (including costs, expenses and legal fees incurred by an Indemnified Person incident to the foregoing or to enforcing said rights of defense and indemnity) (individually a "Loss" and collectively "Losses"), other than SSOI losses, arising out of or in connection with any of the following: 6 (a) Any misrepresentation or breach of any warranty made by Shareholder in this Agreement; or (b) Any breach or non-fulfillment of any covenant or agreement made by Shareholder in this Agreement. If any action, suit or proceeding shall be commenced against or any claim, demand or assessment be asserted against a Buyer Indemnified Person in respect of which a Buyer Indemnified Person proposes to demand defense and indemnification, Shareholder shall be notified to that effect with reasonable promptness and shall have the right, but not the obligation, to assume the entire control of the defense, compromise or settlement thereof, including, at Shareholder's expense, employment of counsel satisfactory to the Buyer Indemnified Person and in connection therewith, the Buyer Indemnified Person shall cooperate fully to make available to Shareholder all pertinent information under its control. 7. Indemnification of Shareholder for Losses other than SSOI Losses. Buyer shall indemnify, defend and hold harmless Shareholder, its officers, directors, agents and employees (each of which is herein referred to as a "Shareholder Indemnified Person") promptly upon demand at any time and from time to time, against any and all losses, liabilities, claims, demands, assessments, actions, suits, proceedings, damages and expenses, including without limitation, reasonable attorneys' fees and disbursements (including costs, expenses and legal fees incurred by an Indemnified Person incident to the foregoing or to enforcing said rights of defense and indemnity) (individually a "Loss" and collectively "Losses"), other than SSOI losses, arising out of or in connection with any of the following: (a) Any misrepresentation or breach of any warranty made by Buyer in this Agreement; or (b) Any breach or non-fulfillment of any covenant or agreement made by Buyer in this Agreement. If any action, suit or proceeding shall be commenced against or any claim, demand or assessment be asserted against a Shareholder Indemnified Person in respect of which a Shareholder Indemnified Person proposes to demand defense and indemnification, Buyer shall be notified to that effect with reasonable promptness and shall have the right, but not the obligation, to assume the entire control of the defense, compromise or settlement thereof, including, at Buyer's expense, employment of counsel satisfactory to the Shareholder Indemnified Person and in connection therewith, the Shareholder Indemnified Person shall cooperate fully to make available to Buyer all pertinent information under its control. 8. Conflicts. Notwithstanding Sections 5, 6, and 7 hereof, Shareholder and Buyer agree that, if an Indemnified Person perceives that there is a potential conflict of interest, between the respective interests or legal positions of the Indemnified Person and the person from whom the Indemnified Person has a right under one of such Sections 5, 6 or 7 to claim indemnity (the "Indemnifying Party"), regarding any action, suit, proceeding, claim, demand or assessment described in Sections 5, 6, or 7 hereof, then the Indemnifying Party shall have no right to assume or retain the control of the defense, compromise or settlement thereof. In such event, upon the 7 written request of the Indemnified Person, the Indemnifying Party shall, at the Indemnifying Party's expense, employ separate counsel chosen by the Indemnified Person to represent the Indemnified Person, and the Indemnifying Party shall turn over to such counsel full control of the Indemnified Person's defense. Notwithstanding the previous sentence, the Indemnified Person shall not settle any such litigation without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld. Each party agrees that the Indemnifying Party may employ counsel, at the Indemnifying Party's expense, to represent such Indemnifying Party in the event of such conflict. 9. Effective Date. The parties hereto agree that he effective date of this agreement shall be January 1, 1997. 10. Survival. All representations, warranties, indemnities, covenants and agreements made by Shareholder or Buyer in this Agreement or in any document or agreement delivered in connection therewith shall survive the Closing, notwithstanding any examination or investigation made by or for any party. 11. Further Assurances. The parties hereto shall cooperate and take such actions, execute such other documents as either may reasonably request in order to carry out the provisions or purpose of this Agreement. 12. Notices. All notices or other communications in connection with the Agreement shall be in writing and shall be considered given when personally delivered or when mailed by registered or certified mail, postage prepaid, return receipt requested, as follows: If to Shareholder: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 -2444 Attention: President If to the Buyer: NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, Minnesota 55403- 2444 Attention: President 13. Entire Agreement. This Agreement sets forth the final and entire agreement of the parties with respect to the subject matter and supersedes any and all prior understandings and agreements. 14. Successors. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns. This Agreement may not be assigned to any party without the prior written consent of the other party hereto. 15. Expenses. Each party to this Agreement shall pay all expenses incurred by it or on its behalf in connection with the preparation, authorization, execution and performance of this Agreement. Each party agrees that there are no other finder's fees or brokerage commissions 8 payable in connection with the transactions contemplated hereby as a result of actions taken by such party. 16. Severability. If any provisions of this Agreement shall be held by any court of competent jurisdiction to be illegal, invalid or unenforceable, such provisions shall be construed and enforced as if it had been more narrowly drawn so as not to be illegal, invalid or unenforceable, and such illegality, invalidity or unenforceability shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. 17. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with, the internal laws, and not the laws pertaining to choice or conflicts of law, of the State of Minnesota. 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed in original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written. NRG ENERGY, INC. By: /s/ Ronald J. Will Name: Ronald J. Will Title: V.P. Operations & Engineering NRG GENERATING (U.S.) INC. By: /s/ Leonard Bluhm Name: Leonard Bluhm Title: Chairman & CEO EX-10.25.6 8 EXHIBIT 10.25.6 GUARANTEE OF OPERATOR'S OBLIGATIONS BY NRG ENERGY DATED MARCH 21, 1997 BETWEEN NRG GENERATING (NEWARK) COGENERATION INC. AND NRG GENERATING (PARLIN) COGENERATION INC. Exhibit 10.25.6 GUARANTY OF OPERATOR'S OBLIGATIONS BY NRG ENERGY, INC. In consideration of, and as an inducement for NRG Generating (Newark) Cogeneration, Inc., a Delaware corporation ("NRGG Newark") and NRG Generating (Parlin) Cogeneration, Inc., a Delaware corporation ("NRGG Parlin"; NRGG Newark and NRGG Parlin, collectively, the "Owners") to enter in certain agreements with Power Operations Inc., a Delaware corporation ("Operator"), NRG Energy, Inc., a Delaware corporation and owner of all of the issued and outstanding stock of Operator ("Guarantor") hereby, irrevocably guarantees to Owners the prompt performance and payment when due, whether by acceleration or otherwise, of all obligations, indebtedness, liabilities or undertakings according to the terms of (i) the Operating Agreement dated November 8, 1996 (the "Newark O&M Contract") between NRGG Newark and Operator and (ii) the Operating Agreement dated December 31, 1996 between NRGG Parlin and Operator (the "Parlin O&M Contract, the Parlin O&M Contract and Newark O&M Contract, collectively the "O&M Contracts"). If Operator fails to perform any of its obligations under either of the O&M Contracts, or execute any of its liabilities arising therefrom, as such obligations and liabilities are limited by the terms thereof, Guarantor will (a) pay upon demand (i) any sum due and to become due, (ii) any damages, costs and expenses entitled to be recovered from Operator 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 written request from such Owner, and after having given Guarantor seven (7) days notice in writing of such Owner's intention under such O&M Contract, to make a claim under the Guaranty, (i) forthwith perform such obligations or liabilities on the same terms and conditions as stated in such O&M Contract mobilizing and using, for that purpose, sufficient personnel and resources, or (ii) cause a third party acceptable to such Owner to perform such obligations or liabilities, the due and faithful performance of which Guarantor will Guaranty as if such third party were Operator. This Guaranty is a Guaranty of payment and not of collection and no action need be brought against Operator as a precondition to the enforcement of this Guaranty. Subject to the terms and provisions hereto set forth, the Guaranty is continuing, absolute and unconditional irrespective of (a) any lack of validity or enforceability of the O&M Contracts, (b) any amendment to, waiver of or consent to, departure from, or failure to exercise any right or remedy under the O&M Contracts, or either of them, (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 Operator or any change in ownership of Operator, or (g) any other circumstances of a similar or different nature which might otherwise constitute a defense available to Operator or the undersigned. 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 both the O&M Contracts including all extensions of time. The Guarantor waives promptness, diligence, any and all demands for payment, any notice of credits extended and shipments or 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 O&M Contracts. No delays on the part of Owners in the exercise by Owners of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No actions of Operator shall in any way impair or affect this Guaranty. The Guarantor has also agreed pursuant to (i) that certain Stock Purchase Agreement (the "POI Stock Purchase Agreement") dated as of February 6, 1997, effective as of January 1, 1997, by and between Guarantor and NRG Generating (U.S.) Inc. ("NRGG"), and (ii) that certain Indemnification Agreement (the "Indemnification Agreement") dated as of even date hereof, among NRGG Newark, NRGG Parlin, Guarantor, NRG Generating (U.S.) Inc. ("NRGG") and Credit Suisse First Boston (formerly Credit Suisse) (The "Agent") to unconditionally and irrevocably and indemnify Owner for costs and expenses incurred in connection with the termination of (a) that certain Operations and Maintenance Agreement, dated as of May 1, 1996 (the "SSOI Newark Agreement") between Stewart & Stevenson Operations, Inc. ("SSOI") and NRGG Newark and (b) that certain Operations and Maintenance Agreement, dated as May 1, 1996 (the "SSOI Parlin Agreement") between SSOI and NRGG Parlin. Such indemnification is pursuant to Section 5.32 of the Credit Agreement by and among NRGG Newark, NRGG Parlin, Credit Suisse First Boston, Greenwich Funding Corporation and any purchasing Lender as Lender and Credit Suisse as Agent dated May 17, 1996. 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 by determined by a court of competent jurisdiction to be illegal or unenforceable, all other provisions shall remain effective. This Guaranty shall be effective as of January 1, 1997. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York and all parties agree to subject any disputes that may arise under or in connection with this Guaranty to the jurisdiction of the courts of the State of New York. IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly executed by its authorized officer as of the date set forth below. NRG ENERGY, INC. By: /s/ Ronald J. Will Name: Ronald J. Will Title: Vice President Dated as of: March 21, 1997 EX-10.25.7 9 EXHIBIT 10.25.7 CONSENT TO ASSIGNMENT OF OPERATING GUARANTEE AGREEMENT DATED MARCH 21, 1997 BETWEEN NRG GENERATING (NEWARK) COGENERATION INC., NRG GENERATING (PARLIN) COGENERATION INC., NRG ENERGY AND CREDIT SUISSE FIRST BOSTON. Exhibit 10.25.7 CONSENT TO ASSIGNMENT OF OPERATING GUARANTY AGREEMENT This Consent to Assignment (this "Consent") is entered into as of March 21, 1997, to be effective as of December 31, 1997, by NRG Energy, Inc., a Delaware corporation (the "Company"), NRG Generating (Parlin) Cogeneration Inc. (formerly known as O'Brien (Parlin") Cogeneration, Inc.), a Delaware corporation ("NRGG Parlin"), and Credit Suisse First Boston (formerly known as Credit Suisse), 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 of May 17, 1996 by and amount (i) NRGG Parlin and NRG Generating (Newark) Cogeneration Inc. (formerly known as O'Brien (Newark) Cogeneration, Inc.), a Delaware corporation ("NRGG Newark"; NRGG Parlin and NRGG Newark, collectively, the "Borrowers"), (ii) Credit Suisse First Boston, 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, for the benefit of NRGG Parlin, has entered into that certain Guaranty Agreement, dated as of even date herewith, to be effective January 1, 1997, (as the same may be amended, modified or supplemented from time to time, the "Assigned Agreement") with respect to the System Operation and Maintenance Agreement, dated as of December 31, 1997 (as the same may be amended, modified or supplemented from time to time, the "O&M Agreement"), between Power Operations, Inc. (the "Operator") and NRGG Parlin; and WHEREAS, NRGG 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 NRGG 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 NRGG 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: 19. Assignment and Security Interest As security for the due and punctual performance and payment of all of NRGG Parlin's obligations under the Credit Agreement, NRGG Parlin has assigned or will assign to Assignee as collateral security, all of NRGG Parlin's rights to and under the Security Agreement (as defined in the Credit Agreement). 20. 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 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 agreements 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. 21. Amendment or Termination of Operating Guaranty (a) The Company covenants and agrees with Agent that without the prior written consent of Agent (i) the Company will not materially amend, modify or terminate the Assigned Agreement and (ii) no waiver by NRGG Parlin of any of the obligations of the Company under the Assigned Agreement, and no consent, approval or election made by NRGG Parlin in connection with the Assigned Agreement shall be effective. (b) In the event that the Operator and Agent, Assignee or their nominee or designee enter into a new O&M Agreement pursuant to Section 3(b) of that certain Consent to Assignment of System Operating and Maintenance Agreement, dated as December 31, 1997, entered into by the Operator, NRGG Parlin and Agent, then the Company shall, at the option of Agent and Assignee, enter into a new Assigned Agreement for the benefit of 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 the rights and obligations of NRGG Parlin under the Assigned Agreement. 22. Payments The Company agrees that until receipt of written notice from Agent that all obligations of NRGG Parlin under the Credit Agreement have been fully satisfied, the Company hereby agrees to make all payments due to NRGG 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. 23. Representations and Warranties The Company hereby represents and warrants to Agent and Assignee as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full power, authority 2 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. (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 may be limited by general principles of equity and by applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors rights generally. (e) 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. (f) 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 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. (g) The Company has not received notice of, or consented to the assignment of any of NRGG Parlin's right, title, or interest in the Assigned Agreement to any person or entity other than Agent and Assignee. 24. 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: 3 If to Agent: Credit Suisse First Boston Eleven Madison Avenue 19th Floor New York, NY 10010-3629 Attention: Project Finance Telecopy: (212) 325-8049 If to NRGG Parlin: NRG Generating (Parlin) Cogeneration, Inc. c/o NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403 Attention: President Telecopy: (612) 373-8833 If to the Company: NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403 Attention: Telecopy: All such notices and communications shall, when mailed, be effective seven (7) days after being deposited in the mail in the manner aforesaid, or when sent by telecopier, upon receipt thereof. 25. 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). 4 26. 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.) 27. 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. 28. Counterparts This Consent may be executed in any number of counterparts, all of which counterparts shall together constitute one and the same instrument. 29. 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. 30. 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. [SIGNATURES APPEAR ON THE NEXT PAGE] 5 IN WITNESS WHEREOF, each of the undersigned has duly executed this Consent as of the date first above written. NRG ENERGY, INC. By:/s/ Ronald J. Will Name: Ronald J. Will Title: Vice President NRG GENERATING (PARLIN) COGENERATION INC. By: Name: Title: Accepted: CREDIT SUISSE FIRST BOSTON, as Agent By:/s/ Guy Cirincione Name: Guy Cirincione Title: Director By:/s/ Andrew B. Leon Name: Andrew B. Leon Title: Associate 6 EX-10.26.1 10 EXHIBIT 10.26.1 CREDIT AGREEMENT DATED DECEMBER 17, 1997 BETWEEN NRG GENERATING (U.S.) INC., MEESPIERSON CAPITAL CORPORATION AND THE LENDERS (AS DEFINED THEREIN). Exhibit 10.26.1 CREDIT AGREEMENT PROVIDING FOR A U.S. $30,000,000 REDUCING REVOLVING CREDIT FACILITY TO BE MADE AVAILABLE TO NRG GENERATING (U.S.) INC. ARRANGED BY MEESPIERSON CAPITAL CORP. Dated as of December 17, 1997 INDEX PAGE SECTION 1 DEFINITIONS 1 1.1 Defined Terms 1 1.2 Construction 44 1.3 GAAP 44 SECTION 2 REPRESENTATIONS AND WARRANTIES 44 2(a) Due Organization and Power 44 2(b) Capitalization...... 44 2(c) Authorization and Consents.. 45 2(d) Binding Obligations.................. 45 2(e) No Violation........................... 45 2(f) Litigation 45 2(g) No Default 46 2(h) Existing Projects and Project Agreements 46 2(i) Insurance 47 2(j) Financial Information 48 2(k) Tax Returns 48 2(l) ERISA 48 2(m) Margin Regulations 48 2(n) Investment Company Act 49 2(o) Security Interests 49 2(p) Business of Project Entities 49 2(q) EWG Status: Qualifying Cogeneration Facility Status 49 2(r) Regulation of Borrower Entities 49 2(s) Title to and Sufficiency of Assets 50 2(t) Labor Matters 50 2(u) Transactions with Affiliates 50 2(v) Environmental Matters and Claims 50 2(w) Bank Accounts 52 2(x) Survival 52 2(y) No Material Adverse Effect 52 i SECTION 3 ADVANCES 52 3.1(a) Purposes 52 3.1(b) Making of the Advances 53 3.1(c) Maximum Number of LIBOR Rate Advances 53 3.2 Drawdown Notice 53 3.3 Effect of Drawdown Notices 53 3.4 Notation of Advances 54 SECTION 4 CONDITIONS 54 4.1 Conditions Precedent to Drawdown of the Initial Advance 54 4.2 Further Conditions Precedent 58 4.3 Breakfunding Costs 59 4.4 Satisfaction After Drawdown 59 SECTION 5 REPAYMENT, REDUCTION AND PREPAYMENT 60 5.1 Repayment 60 5.2 Reductions of the Credit Facility 60 5.3 Prepayment; Reborrowing 60 5.4 Optional and Mandatory Conversions 60 5.5 Interest and Costs with Prepayments 61 5.6 Pro Rata Reduction of Commitments 61 SECTION 6 INTEREST AND RATE 61 6.1 Payment of Interest; Interest Rate 61 6.2 Calculation of Interest 62 6.3 Maximum Interest 62 SECTION 7 PAYMENTS 62 7.1 Place of Payments, No Set Off 62 7.2 Tax Forms 63 7.3 Tax Credits 63 ii SECTION 8 ACCOUNTS 63 8.1 Collection Account 63 8.2 Application of Assigned Moneys 63 8.3 Assignment of Collection Account 64 SECTION 9 EVENTS OF DEFAULT 64 9.1 64 9.1(a) Non-Payment of Principal 64 9.1(b) Non-Payment of Interest or Other Amounts 64 9.1(c) Representations 64 9.1(d) Certain Covenants 65 9.1(e) Other Covenants 65 9.1(f) Indebtedness 65 9.1(g) Stock Ownership 65 9.1(h) Failure to Maintain Status. 66 9.1(i) Bankruptcy 66 9.1(j) Termination of Operations; Sale of Assets 66 9.1(k) Judgments 66 9.1(l) Inability to Pay Debts 66 9.1(m) Project Agreements 66 9.1(n) ERISA Debt 67 9.1(o) Invalidity or Revocation of Guarantee 67 9.1(p) Dissolution 67 9.2 Indemnification 68 9.3 Application of Moneys 68 9.4 Alleged PECO Option 69 9.5 Equipment Liens 70 SECTION 10 COVENANTS 70 10.1 70 10.1(A)(i) Performance of Credit Facility Agreements 70 10.1(A)(ii) Notice of Default, Etc. 70 10.1(A)(iii) Obtain Consents 71 10.1(A)(iv) Financial Information 71 10.1(A)(v) Corporate Existence 72 iii 10.1(A)(vi) Books and Records 72 10.1(A)(vii) Taxes and Assessments 72 10.1(A)(viii) Inspection 72 10.1(A)(ix) Compliance with Statutes, Etc. 72 10.1(A)(x) Environmental Matters 73 10.1(A)(xi) ERISA 73 10.1(A)(xii) Consolidated Debt Service Coverage Ratio 73 10.1(A)(xiii) Borrower Debt Service Coverage Ratio 74 10.1(A)(xiv) Maintenance of Properties, Etc. 74 10.1(A)(xv) Revenue Collection Account; Assignment 74 10.1(A)(xvi) Performance of Project Agreements 74 10.1(A)(xvii) Operating Logs 75 10.1(A)(xviii) Maintenance of Insurance 75 10.1(A)(xix) Use of Proceeds 75 10.1(A)(xx) Additional Documents; Filings and Recordings 75 10.1(B)(i) Liens 76 10.1(B)(ii) Capital Expenditures 76 10.1(B)(iii) Indebtedness 76 10.1(B)(iv) Change in Business 77 10.1(B)(v) Sale or Pledge of Shares 77 10.1(B)(vi) Sale of Assets 77 10.1(B)(vii) Changes in Offices or Names 77 10.1(B)(viii) Consolidation and Merger 77 10.1(B)(ix) Limitation on Dividends 77 10.1(B)(x) Amendment, Termination, Etc. of Project Agreements 78 10.1(B)(xi) Fiscal Year 78 10.1(B)(xii) Transactions with Affiliates 78 10.1(B)(xiii) Investments 78 iv SECTION 11 ASSIGNMENT. 79 SECTION 12 ILLEGALITY, INCREASED COSTS, NON-AVAILABILITY, ETC. 79 12.1 Illegality 79 12.2 Increased Costs 80 12.3 Nonavailability of Funds 81 12.4 Compensation for Losses 81 12.5 Replacement of Lender 81 SECTION 13 FEES AND EXPENSES 83 13.1 Commitment Fee 83 13.2 Administrative Fee 83 13.3 Expenses 83 SECTION 14 APPLICABLE LAW, JURISDICTION AND WAIVER 84 14.1 Applicable Law 84 14.2 Jurisdiction 84 14.3 WAIVER OF JURY TRIAL 84 SECTION 15 THE AGENT 85 15.1(a) Appointment of Agent 85 15.1(b) Appointment of Security Trustee 85 15.2 Distribution of Payments 85 15.3 Holder of Interest in Note 85 15.4 No Duty to Examine, Etc. 86 15.5 Agent as Lender 86 15.6(a) Obligations of Agent 86 15.6(b) No Duty to Investigate 86 15.7(a) Discretion of Agent 86 15.7(b) Instructions of Majority Lenders 86 15.8 Assumption re Event of Default 87 15.9 No Liability of Agent or Lenders 87 15.10 Indemnification of Agent 88 15.11 Consultation with Counsel 88 15.12 Resignation 88 15.13 Representations of Lenders 88 15.14 Notification of Event of Default 89 v SECTION 16 NOTICES AND DEMANDS 89 16.1 Notices 89 SECTION 17 MISCELLANEOUS 90 17.1 Time of Essence 90 17.2 Unenforceable, etc., Provisions - Effect 90 17.3 References 90 17.4 Prior Agreements, Merger 90 17.5 Entire Agreement, Amendments 91 17.6 Indemnification 91 17.7 Headings 92 vi SCHEDULE 1 The Lenders and the Commitments 2 Margin 2(b) Capitalization 2(f) Litigation 2(h) Material Governmental Approvals 2(i) Insurance 2(o) Consents to Granting of Security Interests 2(s) Exceptions to Title 2(u) Transactions with Affiliates 2(v) Environmental Matters 2(w) Bank Accounts EXHIBIT CONTENTS A Form of Note B Form of Guarantee C Form of Borrower Pledge D Form of Acknowledgment E Form of General Security Agreement F Form of Assignment and Assumption Agreement G Form of Compliance Certificate H Form of Drawdown Notice I Form of Subordination Agreement J Form of Letter of Credit K Form of Mortgage vii CREDIT AGREEMENT THIS CREDIT AGREEMENT is made as of the 17th day of December, 1997, by and among (1) NRG GENERATING (U.S.) INC., a corporation incorporated under the laws of Delaware with offices at 1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403 (the "Borrower"), (2) MEESPIERSON CAPITAL CORP. ("MPCC"), as arranger (the "Arranger"), (3) the banks and financial institutions whose names and addresses are set out in Schedule 1 (together, the "Lenders", each a "Lender"), and (4) MPCC, as agent (the "Agent") and security trustee (the "Security Trustee") for the Lenders. WITNESSETH THAT: WHEREAS, the Borrower desires to obtain Commitments from the Lenders pursuant to which Advances will be made to the Borrower from time to time prior to the Maturity Date; and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth, to extend such Commitments and make such Advances to the Borrower. NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS 1.1 In this Agreement the words and expressions specified below shall, except where the context otherwise requires, have the meanings attributed to them below: "Acceptable Accounting Firm" means Price Waterhouse LLP, or such other nationally recognized accounting firm as shall be approved by the Agent, such approval not to be unreasonably withheld; "Acknowledgment(s)" means the acknowledgments and undertakings executed by the Project Entities (and in the case of Grays Ferry, together with NRGG (Schuylkill) Cogeneration Inc.) in connection with the Assignment of Collection Account substantially in the form of Exhibit D hereto pursuant to which the Project Entities shall, among other things, covenant to make all permissible distributions of Project Cash Flow to the Collection Account; "Advance(s)" means any amount advanced to the Borrower hereunder as either a Base Rate Advance or a LIBOR Rate Advance or (as the context may require) the aggregate amount of all such advances for the time being outstanding; "Adwin" means Adwin Equipment Company, a Pennsylvania corporation; "Adwin Schuylkill" means Adwin (Schuylkill) Cogeneration, Inc., a Pennsylvania corporation; "Affiliate" means with respect to any Person, any other Person directly or indirectly controlled by or under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as applied to any Person means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of that Person whether through ownership of voting securities or by contract or otherwise; "Agreement" means this Agreement, as the same shall be amended, modified or supplemented from time to time; "Alternative Fuel" means fuel, other than natural gas delivered pursuant to a purchase agreement, that is permitted to be used to operate an Existing Project to meet its 2 objectives, including, but not limited to, kerosene; "Applicable Rate" means any rate of interest on the Advances from time to time applicable pursuant to Section 6.1; "Aquila" means Aquila Energy Marketing Corporation, a Delaware corporation; "Aquila Tracking Account means the Tracking Account Agreement" Agreement dated as of November 9, 1995 between Grays Ferry, Aquila and Utilicorp as amended by Amendment No. 1 dated as of March 1, 1996; "Assigned Moneys" means sums received by the Agent, the Security Trustee, the Lenders or the Arranger pursuant to the Assignment of Collection Account; "Assignment and Assumption means the Assignment and Assumption Agreement(s)" Agreement(s) executed pursuant to Section 11 substantially in the form set out in Exhibit F; "Assignment of Collection means the first priority assignment of Account" the Collection Account in favor of the Security Trustee, made by the Borrower pursuant to Section 8.3; "Banking Day(s)" means day(s) on which banks are open for the transaction of business in London, England (in respect of LIBOR Rate Advances only) and New York, New York; "Base Rate" means a fluctuating rate of interest per annum equal to the higher of: (a) the rate of interest most recently publicly announced by the Reference 3 Bank in New York City, New York as its prime rate; and (b) the Federal Funds Rate, plus 1/2 of 1%. The Base Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. Changes in the rate of interest on any Advance maintained as a Base Rate Advance shall take effect simultaneously with each change in the Base Rate. The Agent shall give notice promptly to the Borrower of changes in the Base Rate; "Base Rate Advance" means an Advance bearing interest based on the Base Rate; "Borrower Debt Service Coverage Ratio" means, with respect to the Borrower on any date, the ratio of (i) the aggregate of (A) cash distributions to the Borrower from the Project Entities for the four fiscal quarters for which financial information in respect thereof is available immediately prior to such date plus (B) fees received by the Borrower from the Project Entities during such period, to (ii) the Borrower's Debt Service during such four fiscal quarters, provided, however, that such ratio shall be determined by reference only to fiscal quarters ending after the Initial Drawdown Date; "Borrower Entities" means each of the Borrower, OESC and the Project Entities, any Subsidiary of any Project Entity, or any of them; 4 "Borrower Pledge" means a pledge of the capital stock owned by the Borrower or any Affiliate of Philadelphia Cogeneration, OESC and any other entity owning assets of the Philadelphia Cogeneration Project, executed by the Borrower pursuant to Section 4.1(c) substantially in the form of Exhibit C; "Borrower's Debt Service" shall mean for any period, the sum of (i) interest expense for such period plus (ii) the excess of (A) the Credit Facility Balance over (B) the amount of the Credit Facility available under the Credit Facility on the next Scheduled Reduction Date, provided that item (ii) shall never be more than $2,500,000; "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute and regulation promulgated thereunder; "Collateral" means all property or other assets, real or personal, tangible or intangible, whether now owned or hereafter acquired in which the Agent, Security Trustee or the Lenders has been granted a security interest pursuant to this Agreement and/or any Security Document; "Collection Account" has the meaning ascribed thereto in Section 8; "Commitment(s)" means, in relation to a Lender, the portion of the Credit Facility set out opposite its name in Schedule 1 or, as the case may be, in any relevant Assignment and Assumption Agreement, as reduced from time to time pursuant to the terms of this Agreement; 5 "Compliance Certificate" means a certificate certifying the compliance by the Borrower with all of its covenants contained herein and showing the calculations thereof in reasonable detail, delivered by the chief financial officer of the Borrower, in his capacity as an officer, to the Agent from time to time pursuant to Section 10.1(A)(iv) in the form set out in Exhibit G, or in such other form as the Agent may agree; "Consolidated Debt Service means, with respect to the Borrower Coverage Ratio" and the Project Entities on any date, the ratio of (i) the aggregate of (A) total EBITDA of the Project Entities attributable to the Borrower for the four fiscal quarters for which financial information in respect thereof is available immediately prior to such date plus (B) fees received by the Borrower or its Subsidiaries from the Project Entities for such period, to (ii) the sum of (x) the portion of debt service of each Project Entity attributable to the Borrower plus (y) Borrower's Debt Service for the four fiscal quarters for which financial information in respect thereof is available immediately prior to such date; provided, however, that such ratio shall be determined by reference only to fiscal quarters ending after the Initial Drawdown Date; "Credit Facility" means the sums to be advanced by the Lenders to the Borrower pursuant to this Agreement in an aggregate amount not to exceed at any one time outstanding Thirty Million Dollars ($30,000,000); provided, however, that (i) until such time as the Borrower shall have provided the Agent with evidence reasonably satisfactory to 6 the Agent that the Borrower or Philadelphia Cogeneration, as the case may be, shall have purchased and/or redeemed all of the minority interest of the Revocable Trust of Marsha Reines Perelman in Philadelphia Cogeneration the aggregate amount to be advanced to the Borrower pursuant to this Agreement shall not exceed Twenty-nine Million Dollars ($29,000,000) and (ii) until such time as Philadelphia Cogeneration shall have executed and delivered the Mortgage the aggregate amount to be advanced to the Borrower pursuant to this Agreement shall not exceed Twenty- five Million Dollars ($25,000,000), and provided, further, that until such time as the Borrower shall have provided the Agent with evidence reasonably satisfactory to the Agent that the Equipment Liens shall have been released, the aggregate amount to be advanced to the Borrower pursuant to this Agreement shall be further reduced by the aggregate amount of the Indebtedness secured by all Equipment Liens which have not been released; "Credit Facility Balance" means the Dollar amount of the Advances at any relevant time then outstanding as reduced by payments pursuant to the terms of this Agreement; "Credit Facility Period" means the period from the Initial Drawdown Date to the date on which all amounts owing under the Credit Facility and all other amounts owing to the Agent, the Arranger, the Security Trustee and the Lenders pursuant to this Agreement, the Note and the Security Documents become repayable and are repaid in full; 7 "Default Rate" means the rate per annum equal to the Applicable Rate plus two percent (2%); "Depository" shall have the meaning ascribed thereto in Section 8.01; "Dollars" and the means the legal currency, at sign "$" any relevant time hereunder, of the United States of America and, in relation to all payments hereunder, in same day funds settled through the New York Clearing House Interbank Payments System (or such other Dollar funds as may be determined by the Agent to be customary for the settlement in New York City of banking transactions of the type herein involved); "Drawdown Dates" means the dates, each being a Banking Day falling not later than the day immediately preceding the Maturity Date, upon which the Borrower has requested that an Advance be made available to the Borrower as provided in Section 3; "Drawdown Notice" has the meaning ascribed thereto in Section 3.2; "DuPont" means E.I. duPont de Nemours and Company, a Delaware corporation, and its successors and assigns; "DuPont Power Purchase Agreement" means the Electricity Purchase Contract, dated January 18, 1988, between DuPont and O'Brien (Parlin) Cogeneration, Inc., as the same may be amended, restated, supplemented or otherwise modified from time to time; "EBITDA" means, with respect to any Person for any period, (A) net income (or net loss), plus 8 (B) to the extent deducted in determining net income, (i) interest expense, (ii) depreciation expense, (iii) amortization expense, (iv) federal, state and local income taxes and (v) all other non cash charges minus (C) any non-cash income or non-cash gains to the extent added in determining such net income; "Energy Service Agreements" means the Northeast Energy Service Agreement and the Southwest Energy Service Agreement, or either of them; "Environmental Affiliate" means any person or entity, the liability of which for Environmental Claims any Security Party or Subsidiary of any Security Party may have assumed by contract or operation of law; "Environmental Approvals" has the meaning ascribed thereto in Section 2(v); "Environmental Claim(s)" has the meaning ascribed thereto in Section 2(v); "Environmental Laws" has the meaning ascribed thereto in Section 2(v); "Equipment Liens" has the meaning ascribed thereto in Section 3.1(a); "ERISA" means the Employment Retirement Income Security Act of 1974, as amended; "ERISA Affiliate" means a trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Code; 9 "Events of Default" means any of the events set out in Section 9.1; "Exchange Act" means the Securities and Exchange Act of 1934, as amended; "Existing Project(s)" means the Newark Project, the Parlin Project, the Grays Ferry Project and the Philadelphia Cogeneration Project, or any of them; "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Banking Day, for the next preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Banking Day, the average of the quotations for such day on such transactions received by the Agent from three (3) Federal funds brokers of recognized standing selected by the Agent; "FPA" means the Federal Power Act, as amended from time to time, and all rules and regulations promulgated thereunder; "Future Project(s)" means (a) the Millennium Project, and (b) any other electric generation project(s) (other than the Existing Projects), including without limitation cogeneration projects, hereafter owned and operated, in whole or in part, by the Borrower, any Subsidiary of the Borrower, or any Project Entity; 10 "GAAP" has the meaning ascribed thereto in Section 1.3; "General Security Agreement(s)" means the general security agreements in respect of (i) all of the personal property of Philadelphia Cogeneration, (ii) equipment leased or subleased by OESC to Philadelphia Cogeneration and (iii) equipment leased or subleased by the Borrower to OESC and in turn subleased by OESC to Philadelphia Cogeneration as referenced in clause (ii) above, to be executed by each of the Borrower, Philadelphia Cogeneration and OESC in favor of the Security Trustee pursuant to Section 4.1(d) and substantially in the form set out in Exhibit E; "Good Faith Contest" means the contest of an item if the item is diligently contested in good faith by appropriate proceedings timely instituted and (i) adequate cash reserves (or, at the applicable Borrower Entity's option, bonds or other security reasonably satisfactory to Agent) are established with respect to the contested item, and (ii) during the period of such contest, the enforcement of any contested item is effectively stayed; "Governmental Approval" means all authorizations, consents, approvals, registrations, waivers, exemptions, variances, franchises, permissions, permits and licenses of, and filings and declarations with, and rulings by any Governmental Authority including, without limitation, all ordinances, and resolutions of Governmental Authorities relating to each Existing Project; 11 "Governmental Authority" means the United States Federal Government, any state or other political subdivision thereof, including any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to such government; "Grays Ferry" means Grays Ferry Cogeneration Partnership, a Pennsylvania general partnership; "Grays Ferry Construction means, collectively, (a) the Agreement Contract" for Engineering, Procurement and Construction Services dated as of August 31, 1995 (the "Original Construction Contract"), (b) Amendment No. One to the Original Construction Contract dated as of October 16, 1995, (c) Amendment No. Two to the Original Construction Contract dated as of October 23, 1995, (d) Amendment No. Three to the Original Construction Contract dated as of December 31, 1995, (e) Amendment No. Four to the Original Construction Contract dated February 29, 1996, (f) the Westinghouse Letter re Options under the Original Construction Contract dated as of March 1, 1996 (g) the Letter Agreement re Project Investigation dated as of March 1, 1996 and (h) the Letter Agreement re Release, dated November 11, 1995, each made between Grays Ferry and Westinghouse; "Grays Ferry Construction means that certain letter agreement dated Management Agreement" as of February 20, 1996 among Grays Ferry and NRG. 12 "Grays Ferry Dock Facility means the Dock Facility Service Agreement Service Agreement" dated as of November 11, 1991, among PTDC, Trigen and Grays Ferry; "Grays Ferry Gas Contract(s)" means the Grays Ferry Gas Sales Agreement, the Grays Ferry Gas Services Agreements, the Grays Ferry Gas Transportation Agreements, the Aquila Tracking Account Agreement and any other material contracts relating to the supply and transportation of natural gas fuel to the Grays Ferry Project; "Grays Ferry Gas Sales means the Gas Sales Agreement dated as Agreement" of November 9, 1995 among Aquila, UtiliCorp and Grays Ferry, as amended by Amendment No. 1 dated March 1, 1996; "Grays Ferry Gas Services means, collectively, the Agreement(s)" PAID Service Contract, the PAID Service Agreement and the PAID Assignment Agreement, each closing certificate, document or instrument delivered by the City of Philadelphia or PAID relating to the foregoing agreements and the Trigen Gas Services Agreement; "Grays Ferry Gas Transportation means, collectively, (a) Agreements" the Capacity Release Umbrella Agreement (Contract No. 900285) dated as of February 16, 1996 between Grays Ferry and TETCO (including Addenda Numbers 882232 through 882248), (b) the Service Agreement for Rate Schedule FT-1 (Contract No. 800516), dated February 29, 1996 between Grays Ferry and TETCO, (c) the Service Agreement for Rate Schedule FT-1 (Contract No. 800514) dated February 29, 1996, between TETCO and 13 PAID, (d) the Service Agreement for Rate Schedule FT-1 (Contract No. 800515), dated as of February 29, 1996 between TETCO and PAID and (e) the TETCO Letter Agreement; "Grays Ferry Ground Lease" means, collectively, the Grays Ferry Lease and the Grays Ferry Master Lease; "Grays Ferry Lease" means the Amended and Restated Site Lease dated September 17, 1993 between Trigen and Grays Ferry; "Grays Ferry Management means the Project Management Agreement" Services Letter Agreement dated February 20, 1996 among Adwin Schuylkill, O'Brien Schuylkill and Trigen; "Grays Ferry Master Lease" means the Schuylkill Station Lease Agreement dated January 30, 1987 between PECO and Trigen; "Grays Ferry O&M Agreement" means the Amended and Restated Project Services and Development Agreement dated as of September 17, 1993 between Grays Ferry and the Grays Ferry Operator; "Grays Ferry Operator" means Philadelphia United Power Corporation, a Pennsylvania corporation, or such other Person as shall be approved by the Majority Lenders to operate the Grays Ferry Project; "Grays Ferry Partnership means the Amended and "Agreement" Restated Partnership Agreement of Grays Ferry, dated March 1, 1996 among O'Brien Schuylkill, Adwin Schuylkill and Trigen-Schuylkill; 14 "Grays Ferry Power Purchase means, collectively, (a) the Agreement" Agreement for Purchase of Electric Output (Phase I) dated as of July 28, 1992, (b) the Agreement for Purchase of Electric Output (Phase II) dated as of July 28, 1992, (c) the Contingent Capacity Purchase Addenda (Phase I), dated as of September 17, 1993, (d) the Contingent Capacity Purchase Addenda (Phase II), dated as of September 17, 1993, (e) Amendment Agreement to Power Purchase Agreements, dated January 31, 1994, each between Grays Ferry and PECO and (f) the Activation Notice, dated as of March 30, 1995; "Grays Ferry Project" means the approximately 150 MW gross gas and oil fired cogeneration facility to be constructed by Westinghouse under the Grays Ferry Construction Contract, including the related electric power transmission, fuel supply and fuel transportation facilities, fuel storage facilities, fuel contracts and other facilities, services or goods that are ancillary, incidental, necessary or reasonably related to the marketing, management, servicing, ownership or operation of the foregoing, or otherwise, as well as the applicable Project Agreements and other contractual arrangements with customers, suppliers and contractors or any infrastructure facilities related thereto; "Grays Ferry Project Agreements" means the Grays Ferry Construction Contract, the Grays Ferry Gas Contracts, the Grays Ferry Steam Sales Agreement, the Grays Ferry Power Purchase Agreement, the Grays Ferry O&M Agreement, the Grays Ferry Lease, the 15 Grays Ferry Master Lease, the Grays Ferry Steam Venture Agreement, the Grays Ferry Dock Facility Service Agreement, the Grays Ferry Partnership Agreement, the Grays Ferry Settlement Agreement, the O'Brien Assignment Agreements (Grays Ferry), the Grays Ferry Relocation Agreement, the Grays Ferry Management Agreement, and the Grays Ferry Construction Management Agreement; "Grays Ferry Relocation means the Relocation Agreement" Agreement dated as of March 1, 1996 between PECO and Grays Ferry; "Grays Ferry Settlement means the Settlement Agreement" Agreement and Mutual Release, dated as of November 16, 1995, among Canadian Imperial Bank of Commerce, Chadbourne & Parke, Grays Ferry and Adwin; "Grays Ferry Steam means, collectively, (a) the Amended and Sales Agreement" Restated Steam Purchase Agreement dated as of September 17, 1993 among Trigen, Adwin, the Borrower and Grays Ferry and (b) the Letter Agreement Regarding Steam Pricing dated March 1, 1996 between Trigen and Grays Ferry; "Grays Ferry Steam means, collectively, (a) the Venture Agreement" Amended and Restated Steam Venture Agreement dated September 17, 1993 among Trigen, Operator, Adwin and the Borrower, as amended and (b) the Agreement relating to Amended and Restated Steam Venture Agreement dated September 29, 1993 among Trigen, Operator, Adwin, the Borrower and Grays Ferry; 16 "Ground Lease" means the Newark Ground Lease, the Parlin Ground Lease, the Philadelphia Cogeneration Leases or the Grays Ferry Ground Lease; "Guarantee" means the guarantee in favor of the Security Trustee to be executed by Philadelphia Cogeneration in respect of the obligations of the Borrower under this Agreement and under the Note pursuant to Sections 4.l(d) substantially in the form set out in Exhibit B; "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all 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, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) 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 that the amount of such indebtedness 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, and (vii) all 17 indebtedness of other Persons guaranteed by such Person to the extent such indebtedness is guaranteed by 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, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables; provided, however, in the case of the Borrower, "Indebtedness" shall not include (i) any Lien granted by the Borrower on any equity interest of Borrower in any Subsidiary of Borrower as security for any debt of such Subsidiary in respect of any Future Project or any debt with respect to such Subsidiary's project or project owner in respect of any Future Project, or (ii) subject to the limitations set forth in Section 10.1(B)(iii), any equity funding commitment made or guaranteed by Borrower, regardless of whether such equity funding commitment is assigned or otherwise pledged as security for any debt of any Subsidiary in respect of any Future Project or any debt with respect to such Subsidiary's project or project owner in respect of any Future Project. 18 For purposes of calculating the amount of any Indebtedness hereunder, there shall be no double-counting of direct obligations, guarantees and reimbursement obligations for letters of credit; "Initial Drawdown Date" means the Drawdown Date, being not later than December 19, 1997, upon which the Borrower has requested that the first Advance be made available to the Borrower as provided in Section 3; "Interest Notice" means a notice to the Agent specifying the duration of any relevant Interest Period; "Interest Period" means with respect to any LIBOR Rate Advance, each period commencing on the date such LIBOR Rate Advance is made or converted from a Base Rate Advance or the last day of the next preceding Interest Period with respect to such LIBOR Rate Advance and ending on the same day in the first, second, third or sixth (as selected by the Borrower) calendar month thereafter, except that each such Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate subsequent calendar month; Notwithstanding the foregoing, (i) no Interest Period may extend beyond the Maturity Date; (ii) each Interest Period which would otherwise end on a day which is not a Banking Day shall end on the next succeeding Banking Day (or, if 19 such next succeeding Banking Day falls in the next succeeding calendar month, on the next preceding Banking Day); (iii) each Interest Period which would otherwise commence before and end after the Maturity Date shall end on the Maturity Date; and (iv) notwithstanding clauses (i) and (iii) above, if any Interest Period would have a duration of less than one month, such LIBOR Rate Advances shall be Base Rate Advances during such period; "Interest Rate Agreements" means 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 designed to protect the Borrower or any of its Subsidiaries against fluctuations in interest rates to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary hereafter; "Investment" in any Person means (i) any loan, extension of credit or advance to such Person, (ii) any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of such Person, or (iii) any capital contribution to such Person; "JCP&L" means Jersey Central Power & Light Company, a utility corporation organized and existing under the laws of the State of New Jersey, and its successors and permitted assigns; 20 "Letter of Credit" means a letter of credit in favor of the Security Trustee, issued from time to time pursuant to Section 10.1(B)(ix) by a financial institution reasonably acceptable to the Agent, in an amount equal to six (6) months' of the Borrower's Debt Service and in substantially the form of set out in Exhibit J; "LIBOR Rate" means, with respect to any Interest Period for any LIBOR Rate Advance, the rate per annum determined by the Agent to be equal to the quotient (rounded upwards, if necessary, to the next higher 1/16 of 1%) of (y) (i) the rate of interest for deposits in Dollars for a period equal to the number of days in such Interest Period which appears on Page "LIBO" on the Reuters monthly money rate service as of 11:00 A.M., London time, on the day that is two London Banking Days prior to the first day of such Interest Period, or (ii) if such rate does not appear on the Reuters Page "LIBO" at such time, the rate per annum at which deposits in Dollars are offered to the Agent in immediately available funds at its LIBOR lending office in an amount comparable to the principal amount of such LIBOR Rate Advance for a period equal to such Interest Period at approximately 10:00 A.M., New York City time, on the date two Banking Days before the first day of such Interest Period, divided by (z) a number equal to 1.00 minus the LIBOR Rate Reserve Percentage; "LIBOR Rate Advance" means an Advance bearing interest based on the LIBOR Rate; "LIBOR Rate Reserve means, for any day, the 21 maximum percentage Percentage" (expressed as a decimal) specified from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirements (including, but not limited to, supplemental, marginal and emergency reserves) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such System. The LIBOR Rate shall be adjusted automatically with respect to any LIBOR Rate Advance outstanding on the effective date of any change in the LIBOR Rate Reserve Percentage, as of such effective date; "Lien" means any mortgage, deed of trust, security interest, pledge, hypothecation, escrow arrangement, assignment for security, charge, encumbrance, lien (statutory or other) or other preferential arrangement in the nature of a security interest, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any such agreement, and the filing of any statement under the Uniform Commercial Code or comparable law of any jurisdiction evidencing a lien; "Majority Lenders" means any Lender or Lenders whose Commitments exceed one-half of the total Commitments, or, if the Commitments have terminated, any Lender or Lenders holding in the aggregate in excess of one-half of the Credit Facility Balance; 22 "Margin" means an interest rate margin which will vary based upon the Consolidated Debt Service Coverage Ratio as set forth in Schedule 2; "Material Adverse Effect" means a material adverse effect on (i) the ability of any Security Party to perform its obligations to Arranger, the Agent, the Security Trustee or the Lenders under this Agreement, the Note or any of the Security Documents or (ii) the business, property, assets, liabilities, operations or condition (financial or otherwise) of the Borrower and the other Security Parties taken as a whole; "Material Governmental Approval" means all Governmental Approvals which are required under applicable law in connection with the operation, maintenance, ownership or leasing of the Projects other than such Governmental Approvals as are immaterial in nature; "Materials of Environmental has the meaning ascribed Concern" thereto in Section 2(v); "Maturity Date" means that date which is three years from the Initial Drawdown Date or if such day is not a Banking Day, the next following Banking Day unless such next following Banking Day falls in the following month, in which case the Maturity Date shall be the immediately preceding Banking Day; "Millennium Project" means the approximately 117 MW gas- fired co-generation facility located at the premises of Millennium Petro Chemicals, Inc. in Morris, Illinois, including the related electric power transmission, fuel supply and fuel transportation facilities, 23 fuel storage facilities, fuel contracts and other facilities, services or goods that are ancillary, incidental, necessary or reasonably related to the marketing, management, servicing, ownership or operation of the foregoing, or otherwise, as well as the applicable project agreements and other contractual arrangements with customers, suppliers and contractors or any infrastructure facilities related thereto; "Mortgage" means the leasehold mortgage in respect of the Philadelphia Cogeneration Leases in favor of the Security Trustee executed by Philadelphia Cogeneration pursuant to Section 4.1(d) substantially in the form of Exhibit K; "Newark" means NRG Generating (Newark) Cogeneration Inc., a Delaware corporation; "Newark Consents" means, collectively, the consents with respect to each Newark Project Agreement assigned to Credit Suisse First Boston; "Newark Ground Lease" means the Ground Lease, dated July 18, 1988, as amended pursuant to an agreement dated July 20, 1988 and the Stipulation of Settlement, as the same may be amended, modified or supplemented from time to time; "Newark Group" means Newark Group Industries, Inc., a New Jersey corporation f/k/a Newark Boxboard Company, and its successors and permitted assigns; "Newark Mortgage" means the Mortgage, dated as of May 17, 1996, between Newark and Credit Suisse 24 First Boston, as the same may be amended, modified, supplemented or re- recorded from time to time; "Newark Operations and Maintenance Agreement" means the Operating and Maintenance Agreement, dated as of November 8, 1996, by and between Newark and POI, as such agreement may be amended, modified or supplemented from time to time; "Newark Pledge Agreement" means the Stock Pledge Agreement with respect to the capital stock of Newark dated as of May 17, 1996 by Borrower in favor of Credit Suisse First Boston; "Newark Power Purchase means the Agreement for Agreement" Purchase of Electric Power, dated March 10, 1986, between O'Brien Energy Systems, Inc. and JCP&L, as amended by Letter Agreement, dated June 2, 1986, as further amended by the Second Amendment to Power Purchase Agreement, dated as of March 1, 1988, as assigned by O'Brien Energy Systems, Inc. to O'Brien (Newark) Cogeneration, Inc. pursuant to Assignment Agreement, dated as of July 22, 1988, as further amended by the Third Amendment to Power Purchase Agreement executed April 30, 1996, as the same may be further amended, modified or supplemented from time to time; "Newark Project" means the 52 MW power plant located in Newark, New Jersey, including the related electric power transmission, fuel supply and fuel transportation facilities, fuel storage facilities, fuel contracts and other facilities, services or goods that are ancillary, incidental, necessary or 25 reasonably related to the marketing, management, servicing, ownership or operation of the foregoing, or otherwise, as well as the applicable Project Agreements and other contractual arrangements with customers, suppliers and contractors or any infrastructure facilities related thereto; "Newark Project Agreements" means the Newark Power Purchase Agreement, Newark Ground Lease, Newark Steam Agreement, Newark Transmission Agreement, Newark Operations and Maintenance Agreement, the Operating Guaranty, and the Newark Consents; "Newark Steam Agreement" means the Steam Purchase Agreement, dated October 3, 1986, between O'Brien Cogeneration IV, Inc. and Newark Group, as amended by Amendment to Steam Purchase Agreement between O'Brien Cogeneration IV, Inc. and Newark Group, executed March 8, 1988, as further amended by Amendment to Steam Purchase Agreement between O'Brien (Newark) Cogeneration, Inc. (formerly known as O'Brien Cogeneration IV, Inc.) and Newark Group, as the same may be further amended, modified or supplemented from time to time; "Newark Transmission Agreement" means the Transmission Service and Interconnection Agreement, dated November 17, 1987, between O'Brien Energy Systems, Inc. and PSE&G, as assigned by O'Brien Energy Systems, Inc. to O'Brien (Newark) Cogeneration, Inc. (formerly known as O'Brien Cogeneration IV, Inc.) and Newark 26 Group, as the same may be amended, modified or supplemented from time to time; "Northeast Agreements" means the Northeast Energy Service Agreement, the Northeast Master Lease, the Northeast Lease, the Northeast Collection Facilities Lease, the Northeast Collection Facilities Sublease Agreement, the Northeast Gas Supply Agreement, the Northeast Gas Supply Contract and the Northeast Service Contract; "Northeast Collection means the Collection Facilities Facilities Lease" Lease dated as of June 30, 1992 made between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Northeast Facility; "Northeast Collection means the Collection Facilities Facilities Sublease Sublease Agreement dated as of Agreement" June 30, 1992 made between the Philadelphia Municipal Authority and Philadelphia Biogas in respect of the Northeast Facility; "Northeast Demised Premises" means the certain parcels of land together with improvements thereon erected subject of the Northeast Lease; "Northeast Energy Service means that certain energy Agreement" service agreement dated June 30, 1992 by and between Philadelphia Municipal Authority and Philadelphia Cogeneration in respect of the Northeast Facility; "Northeast Facility" means the cogeneration facility operated by Philadelphia Cogeneration on the Northeast Demised Premises; "Northeast Gas Supply means the Gas Supply Agreement 27 Agreement" dated as of June 30, 1992 between Philadelphia Biogas and the Philadelphia Municipal Authority in respect of the Northeast Facility; "Northeast Gas Supply means the Gas Supply Contract Contract" dated as of June 30, 1992 between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Northeast Facility; "Northeast Lease" means that certain sublease dated June 30, 1992 by and between Philadelphia Municipal Authority, as lessor, and Philadelphia Cogeneration, as lessee, in respect of the Northeast Demised Premises; "Northeast Master Lease" means the Lease dated June 30, 1992 between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Northeast Facility; "Northeast Service Contract" means the Service Contract made as of June 30, 1992 between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Northeast Facility; "Note" means that certain promissory note to be executed by the Borrower to the order of the Security Trustee pursuant to Section 4.1(c), to evidence the Advances substantially in the form set out Exhibit A; "NRG Energy" means NRG Energy, Inc., a Delaware corporation; "OESC" means O'Brien Energy Services Company, a Delaware corporation; 28 "OESC Financing Program" means the annual, or from time to time, asset-based debt financing required for the acquisition of assets for the OESC Rental Fleet; "OESC Rental Fleet" means the engine-generator sets employed by OESC and leased or rented to customers from which revenues are derived; "O'Brien Assignment Agreements" means, collectively, (a) the (Grays Ferry) Agreement of Assignment, Assumption, Consent and Release dated as of March 1, 1996, among the Borrower, Adwin, Grays Ferry, PUPCO, and Trigen and (b) the O'Brien Signature Agreement dated March 1, 1996, among the Borrower, Adwin, Grays Ferry, PTDC, Adwin Schuylkill, O'Brien Schuylkill, PUPCO and Trigen; "O'Brien Schuylkill" means O'Brien (Schuylkill) Cogeneration, Inc., a Delaware corporation; "Operating Guaranty" means the Corporate Guaranty dated as of March 21, 1997, effective as of January 1, 1997, among NRG Energy, Newark, Parlin and POI; "PAID" means the Philadelphia Authority for Industrial Development, a public instrumentality of the City of Philadelphia; "PAID Assignment Agreement" means, collectively, (a) the Assignment of Service Agreement dated as of March 1, 1996 by PAID in favor of Grays Ferry, and (b) the Assignment of FT-1 Agreements dated as of March 1, 1996 by PAID in favor of Grays Ferry; 29 "PAID Service Agreement" means the Service Agreement dated as of January 28, 1996 between PAID and the City of Philadelphia; "PAID Service Contract" means the Service Contract dated as of January 28, 1996 between PAID and Grays Ferry; "Parlin" means NRG Generating (Parlin) Cogeneration Inc., a Delaware corporation; "Parlin Consents" means, collectively, the consents with respect to each Parlin Project Agreement assigned to Credit Suisse First Boston (other than the DuPont Power Purchase Agreement); "Parlin Ground Lease" means the Ground Lease, dated January 2, 1986, between O'Brien (Parlin) Cogeneration, Inc. and DuPont, as the same may be amended, modified or supplemented from time to time; "Parlin Mortgage" means the Mortgage, dated as of June 28, 1996, between Parlin and Credit Suisse First Boston, as the same may be amended, modified, supplemented or re-recorded from time to time; "Parlin Operations and Maintenance Agreement" means the Operating and Maintenance Agreement dated as of December 31, 1996, by and between Parlin and POI, as such agreement may be amended, modified or supplemented from time to time; "Parlin Pledge Agreement" means the Stock Pledge Agreement with respect to the capital stock of Parlin dated as of June 28, 1996 by Borrower in favor of Credit Suisse First Boston; 30 "Parlin Power Purchase Agreement" means the Amended and Restated Agreement for Purchase and Sale of Electric Power between Parlin and JCP&L executed April 30, 1996, as the same may be further amended, modified or supplemented from time to time; "Parlin Project" means the approximately 122 MW power plant located in Sayerville, New Jersey, including the related electric power transmission, fuel supply and fuel transportation facilities, fuel storage facilities, fuel contracts and other facilities, services or goods that are ancillary, incidental, necessary or reasonably related to the marketing, management, servicing, ownership or operation of the foregoing, as well as the applicable Project Agreements and other contractual arrangements with customers, suppliers and contractors or any infrastructure facilities related thereto; "Parlin Project Agreements" means the Parlin Power Purchase Agreement, Parlin Ground Lease, Parlin Steam Agreement, Parlin Operations and Maintenance Agreement, Parlin Non Disturbance Agreement, Wholesale Power Purchase Agreement, DuPont Power Purchase Agreement, Operating Guaranty, and the Parlin Consents; "Parlin Steam Agreement" means the Steam Purchase Contract, dated December 8, 1996, between DuPont and O'Brien Energy Systems, Inc., as amended by Agreement between O'Brien Energy Systems, Inc. and DuPont, Amendment 1 to Steam Purchase Agreement, dated January 12, 1988, as amended by Letter, dated July 25, 1988, from G.R. Carson of DuPont to 31 Robert Shinn of O'Brien Energy Systems, Inc., as amended by Agreement between O'Brien Energy Systems, Inc. and DuPont, Amendment No. 3 to Steam Purchase Agreement, executed December 12, 1988, as amended by Amendment Number Four to Steam Purchase Contract between O'Brien Energy Systems, Inc. and DuPont (Parlin Cogeneration Facility), executed July 14, 1989 and July 26, 1989, and amended by Amendment No. 5 to Steam Purchase Agreement, executed January 22, 1993 and February 16, 1993, as assigned by O'Brien Energy Systems, Inc. to O'Brien (Parlin) Cogeneration, Inc. and as further amended by Amendment No. 6 to Steam Purchase Agreement executed November 15, 1994, as the same may be further amended, modified or supplemented from time to time; "PECO" means PECO Energy Company, formally known as Philadelphia Electric Company, a Pennsylvania corporation; "Permitted Investments" means any of the following: (a) Investments in commercial paper maturing in 270 days or less from the date of issuance which, (i) are issued by any commercial bank of recognized standing (or its parent corporation) under the laws of the United States of America, any state thereof or any foreign jurisdiction, having capital and surplus in excess of $300,000,000, or (ii) at the time of acquisition, is rated one of the two highest ratings by Standard &Poor's Ratings Services or by Moody's Investors Services, Inc. or any substantially similar commercial paper or short-term ratings 32 by any other nationally recognized credit rating agency domiciled in the United States of America or the United Kingdom of similar standing (a "Substitute Rating Agency"); (b) Investments in obligations issued by or guaranteed by the United States of America or any agency or instrumentality of the United States of America; (c) Investments in certificates of deposit, time deposits or bankers' acceptances issued by a bank or trust company organized under the laws of the United States of America or any State thereof, having capital, surplus and undivided profits aggregating at least $300,000,000 or having a rating of A or better from both S&P and Moody's (if only one of S&P and Moody's has issued a rating, then from S&P or Moody's, as the case may be, or if neither S&P or Moody's has issued a rating, then from a nationally recognized rating agency acceptable to Agent); (d) Investments in indebtedness of any governmental body of the United States of America or any State or political subdivision thereof, which indebtedness is at all times accorded one of the two highest ratings by S&P, Moody's, or a Substitute Rating Agency maturing not later than three years from the date of acquisition thereof (or, if maturing more than three years after the date of acquisition, which is subject to a put at par by the holder thereof on a weekly or more frequent basis); 33 (e) Investments in money market investment programs which are classified as a current asset in accordance with GAAP and which are administered by reputable financial institutions having capital, surplus and undivided profits of at least $300,000,000 and which are registered under the Investment Company Act of 1940; and (f) Investments in repurchase obligations, with a term of not more than thirty days for underlying securities of the types described in clauses (a) and (b) above, entered into with any bank meeting the qualifications specified in clause (a) above; "Permitted Liens" means any Liens that are: (a) Liens for taxes, or other governmental levies and assessments that (i) do not arise under ERISA or Environmental Laws and (ii) are not yet due or which are subject to a Good Faith Contest; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not past due for a period of more than 90 days or which are subject to a Good Faith Contest; (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, trade contracts (other than for borrowed money), leases, statutory 34 obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions (including landmarking and zoning restrictions), royalties, leasehold and fee interest covenants and other similar encumbrances incurred or imposed in the ordinary course of business which are not of the nature of a Lien for security purposes and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of any Security Party; (f) Liens arising under the Security Documents; (g) Liens for purchase money obligations, provided that any such Lien encumbers only the assets so purchased; (h) Liens arising from legal proceedings, so long as such proceedings are being contested in Good Faith Contest and so long as execution is stayed on all judgments resulting from any such proceedings; (i) Liens referred to in the title insurance policies delivered in connection with the Credit Agreements described in Section 10.1B(iii)(b)(vi); (j) Liens securing Indebtedness permitted under Section 10.1B(iii)(b), including without limitation pledges by the Borrower of its equity interest in any 35 Future Projects as security for such permitted Indebtedness; and (k) the Lien in favor of NRG on the shares of stock of O'Brien Schuylkill owned by the Borrower pursuant to that certain NRG Subordinated Stock Pledge Agreement dated as of March 1, 1996 among NRG Energy, the Borrower, O'Brien Schuylkill and The Chase Manhattan Bank; "Person" means any individual, sole proprietorship, corporation, partnership (general or limited), limited liability company, business trust, bank, trust company, joint venture, association, joint stock company, trust or other unincorporated organization, whether or not a legal entity, or any government or agency or political subdivision thereof; "Philadelphia Biogas" means Philadelphia Biogas Supply, Inc., a Delaware corporation; "Philadelphia Cogeneration" means O'Brien (Philadelphia) Cogeneration Inc., a Delaware corporation; "Philadelphia Cogeneration means the Southwest Lease Leases" and the Northeast Lease, or either of them; "Philadelphia Cogeneration means the Operation & Maintenance Operation & Maintenance Contract dated as of May 15, 1993 Contract" between Philadelphia Cogeneration and OESC in respect of the Northeast Facility and the Southwest Facility; "Philadelphia Cogeneration Project" means the Northeast Facility and the 36 Southwest Facility; "Philadelphia Cogeneration means the Southwest Agreements Project Agreements" and the Northeast Agreements; "Philadelphia Municipal means The Philadelphia Authority" Municipal Authority, a body corporate and politic organized and existing under the laws of the Commonwealth of Pennsylvania; "Plan" means any employee benefit plan covered by Title IV of ERISA; "POI" means Power Operations, Inc., a Delaware corporation; "Prepayment Amount" has the meaning ascribed thereto in Section 9.4; "Project Agreement(s)" means the Grays Ferry Project Agreements, the Newark Project Agreements, the Parlin Project Agreements, the Philadelphia Cogeneration Project Agreements and any other agreements, contracts or leases of any kind whatsoever pursuant to which the Borrower is entitled directly, indirectly, by assignment or otherwise to receive payments in respect of any Existing Project, or any of them; "Project Cash Flow" means any and all moneys or cash distributions made or permitted to be made by the Project Entities to the Borrower with respect to the Existing Projects (but excluding amounts on deposit (i) in the Operating Account (as such term is defined in Section 7.5 of that certain Credit Agreement, dated March 1, 1996, among Grays Ferry, the financial 37 institutions listed on Exhibit H thereto and The Chase Manhattan Bank) prior to the distribution thereof in accordance with the terms of such Credit Agreement, and (ii) in the Project Account (as such term is defined in Section 5.1(b) of that certain Credit Agreement, dated as of May 17, 1996, among Newark, Parlin, Credit Suisse, Greenwich Funding Corporation and any Purchasing Lender and Credit Suisse) prior to the distribution thereof in accordance with the terms of such Credit Agreement; "Project Entity(ies)" means Grays Ferry, Newark, Parlin, Philadelphia Cogeneration and any other Affiliate of the Borrower owning any Existing Project; "PSE&G" means Public Service Electric & Gas Company, a utility corporation organized and existing under the laws of the State of New Jersey, and its successors and assigns; "PTDC" means Philadelphia Thermal Development Corporation, a Pennsylvania corporation; "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time, and all rules and regulations promulgated thereunder; "PUPCO" means Philadelphia United Power Corporation, a Pennsylvania corporation. "PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended from time to time, and all rules and regulations adopted thereunder; 38 "QF Certificate" means, with respect to each Project Entity which is a Qualifying Cogeneration Facility, the certification or certifications as to the qualifying status of such Project Entity, as the same are more particularly described in Section 2(q); "Qualifying Cogeneration Facility" has the meaning specified for such term in PURPA; "Reduction Dates" means the Scheduled Reduction Dates and the Voluntary Reduction Dates, or any of them; "Reference Bank" means The Chase Manhattan Bank; "Scheduled Reduction Dates" means each of the dates falling at intervals of one (1) year after the Initial Drawdown Date and prior to the Maturity Date; if such day is not a Banking Day, the next following Banking Day, unless such next following Banking Day falls in the following calendar month, in which case the relevant Scheduled Reduction Date shall be the immediately preceding Banking Day; "Security Documents" means the Guarantee, the Borrower Pledge, the Assignment of Collection Account, the General Security Agreement, the Mortgages, the Subordination Agreements and any other documents that may be executed as security for the Credit Facility and the Security Parties' obligations in connection therewith; "Security Party(ies)" means the Borrower, OESC and Philadelphia Cogeneration, or any of them; 39 "Southwest Agreements" means the Southwest Energy Service Agreement, the Southwest Master Lease, the Southwest Lease, the Southwest Collection Facilities Lease, the Southwest Collection Facilities Sublease Agreement, the Southwest Gas Supply Agreement, the Southwest Gas Supply Contract and the Southwest Service Contract; "Southwest Collection means the Collection Facilities Facilities Lease" Lease dated as of June 30, 1992 made between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Southwest Facility; "Southwest Collection means the Collection Facilities Facilities Sublease Sublease Agreement dated as of Agreement" June 30, 1992 made between the Philadelphia Municipal Authority and Philadelphia Biogas in respect of the Southwest Facility; "Southwest Demised Premises" means the parcels of land together with improvements thereon erected subject of the Southwest Lease; "Southwest Energy Service means that certain energy Agreement" service agreement dated June 30, 1992 by and between Philadelphia Municipal Authority and Philadelphia Cogeneration in respect of the Southwest Facility; "Southwest Facility" means the cogeneration facility operated by Philadelphia Cogeneration on the Southwest Demised Premises; "Southwest Gas Supply means the Gas Supply Agreement Agreement" dated as of June 30, 1992 between Philadelphia Biogas and the Philadelphia Municipal Authority in respect of the Southwest Facility; 40 "Southwest Gas Supply means the Gas Supply Contract Contract" dated as of June 30, 1992 between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Southwest Facility; "Southwest Lease" means that certain sublease dated June 30, 1992 by and between Philadelphia Municipal Authority, as lessor, and Philadelphia Cogeneration, as lessee, in respect of the Southwest Demised Premises; "Southwest Master Lease" means the Lease dated June 30, 1992 between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Southwest Facility; "Southwest Service Contract" means the Service Contract made as of June 30, 1992 between the City of Philadelphia and the Philadelphia Municipal Authority in respect of the Southwest Facility; "Steam Sales Agreement" means the Newark Steam Sales Agreement, the Parlin Steam Sales Agreement or the Grays Ferry Steam Sales Agreement; "Subordination Agreement(s)" means the subordination agreement or agreements to be executed by (i) the Borrower, OESC and the Agent subordinating the rights of the Borrower and OESC to payments from Philadelphia Cogeneration in respect of, among other things, equipment rentals to the rights of the Agent, the Arranger and the Lenders under and in connection with this Agreement pursuant to Sections 4.1(c) and (e) and (ii) the Borrower, the Borrower's creditors and the Agent 41 pursuant to Section 10.1(B)(iii), each to be substantially in the form of Exhibit I; "Subsidiaries" means, with respect to any Person, any business entity of which more than 50% of the outstanding voting stock is owned directly or indirectly by such Person and one or more other Subsidiaries of such Person; "Taxes" means any present or future income or other taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever, except for taxes on or measured by the overall net income of each Lender imposed by its jurisdiction of incorporation or applicable lending office, the United States of America, the State or City of New York or any governmental subdivision or taxing authority of any thereof or by any other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted solely by reason of the activities of the Borrower or any of the Subsidiaries); "Termination Event" shall mean (i) a "reportable event", as such term is defined in Section 4043 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC) (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer", as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a 42 Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan under Section 4041(c) of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA, (iv) the institution of proceedings to terminate a Plan or a Multiemployer Plan or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; "TETCO" means Texas Eastern Transmission Corporation, a Texas corporation; "TETCO Letter Agreement" means the January 26, 1996 letter by and among Grays Ferry, Trigen, TETCO, and Sun Company, Inc. (R&M); "Trigen" means Trigen-Philadelphia Energy Corporation, a Pennsylvania corporation (formerly known as Philadelphia Thermal Energy Corporation and Philadelphia Thermal Corporation); "Trigen Gas Services Agreement" means the Gas Services Agreement between Trigen and Grays Ferry dated March 1, 1996; "Trigen-Schuylkill" means Trigen-Schuylkill Cogeneration, Inc., a Pennsylvania corporation; "Utilicorp" means Utilicorp United, Inc., a Delaware corporation; "Voluntary Reduction Date" means each of the dates each being a Banking Day, on which the Borrower has requested, as provided in Section 5.2(b), that the Commitments be reduced; 43 "Westinghouse" means Westinghouse Electric Corporation, a Pennsylvania corporation; "Withdrawal Liability" shall have the meaning given to such term under Part 1 of Subtitle E of Title IV of ERISA. 1.2 Construction. Words importing the singular number only shall include the plural and vice versa. Words importing persons shall include companies, firms, corporations, partnerships, unincorporated associations and their respective successors and assigns. 1.3 GAAP. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles as in effect from time to time in the United States of America consistently applied ("GAAP") and all financial statements submitted pursuant to this Agreement shall be prepared in accordance with, and all financial data submitted pursuant hereto shall be derived from financial statements prepared in accordance with, GAAP. 2. REPRESENTATIONS AND WARRANTIES In order to induce the Arranger, the Agent, the Security Trustee and the Lenders to enter into this Agreement and to induce the Lenders to make the Credit Facility available, the Borrower hereby represents and warrants to the Arranger, the Agent, the Security Trustee and the Lenders (which representations and warranties shall survive the execution and delivery of this Agreement and the Note and the drawdown of the Advances hereunder) that: (a) Due Organization and Power. Each Borrower Entity is duly formed and is validly existing in good standing under the laws of its jurisdiction of organization and is properly qualified to do business and in good standing in every jurisdiction where the failure to maintain such qualification or good standing could reasonably be expected to result in a Material Adverse Effect. Each Borrower Entity has full power to carry on its business as now being conducted and has complied with all statutory, regulatory and other requirements relative to such business and such agreements, except where non-compliance could not reasonably be expected to result in a Material Adverse Effect. Each Security Party has full power and authority to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party. (b) Capitalization. The authorized capital stock or other equity interests of each of the Borrower Entities (other than the Borrower) are held as set forth on Schedule 2(b) and except as set forth thereon no shares of the capital stock or other equity 44 interests of the Borrower Entities are issued and outstanding. Except as set forth on Schedule 2(b), all of the issued and outstanding shares of capital stock of each Borrower Entity are duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens (to the extent owned by the Borrower), and such shares were issued in compliance with all applicable state, federal and foreign laws concerning the issuance of securities. Except as set forth on Schedule 2(b), there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition of any shares of capital stock or other securities or equity interests of the Borrower Entities (to the extent owned by the Borrower). (c) Authorization and Consents. All necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each Security Party to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party and, in the case of the Borrower, to borrow, service and repay the Advances and, as of the date of this Agreement, no further consents or authorities are necessary for the service and repayment of the Advances or any part thereof, including, without limitation, any consent or approval of, or notice to, or other action with or by, any Governmental Authority, regulatory body or any other Person which has not been made or obtained and in full force and effect. (d) Binding Obligations. This Agreement, the Note and the Security Documents constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each Security Party as is a party thereto enforceable against such Security Party in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights. (e) No Violation. The execution and delivery of, and the performance of the provisions of, this Agreement, the Note and the Security Documents to which it is to be a party by each Security Party do not contravene any applicable law or regulation existing at the date hereof, any Governmental Approval or any contractual restriction binding on such Security Party or the certificate of incorporation or by-laws (or equivalent instruments) thereof. (f) Litigation. Except as set forth on Schedule 2(f), no action, suit or proceeding is pending or, to the Borrower's knowledge, threatened against any Borrower Entity before any court, board of arbitration or administrative agency which could reasonably be expected to result in any Material Adverse Effect. There is no injunction, writ, preliminary restraining order or any order of any nature issued by an arbitrator or 45 other Governmental Authority directing that any material aspect of the transactions provided for in this Agreement not be consummated as herein or therein provided. (g) No Default. No Borrower Entity is in default under any material agreement by which it is bound, or is in default in respect of any financial commitment or obligation, in either case the default of which could reasonably be expected to result in a Material Adverse Effect. (h) Existing Projects and Project Agreements. Upon the date hereof and as of the date of the making of each Advance: (i) All Material Governmental Approvals required under applicable law in connection with the operation, maintenance and ownership of the Existing Projects are set forth on Schedule 2(h). Each Material Governmental Approval has been obtained, is validly issued, is in full force and effect, is not subject to appeal by any Person, and, to the knowledge of the Borrower, is free from conditions or requirements compliance with which could reasonably be expected to result in a Material Adverse Effect. There is no proceeding pending or, to the knowledge of the Borrower, threatened which is reasonably likely to result in the rescission, revocation, material modification, suspension, determination of invalidity or limitation of effectiveness of any Material Governmental Approval. To the knowledge of the Borrower, the information set forth in each application and other written material submitted by or on behalf of each Project Entity to the applicable Governmental Authority in connection with such Material Governmental Approval was accurate and complete in all material respects at the time such application or other written material was submitted. Each Existing Project complies in all material respects with all covenants, conditions, restrictions and reservations in the Material Governmental Approvals relating to such Existing Project and the Project Agreements applicable thereto and all laws applicable thereto, except to the extent any non- compliance could not reasonably be expected to result in a Material Adverse Effect; (ii) Each Project Agreement to which a Project Entity is a party is a legal, valid and binding agreement of such Project Entity enforceable against such Project Entity in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and subject to general equitable principles; 46 (iii) All representations and warranties set forth in each Project Agreement by the Borrower Entity which is a party thereto are true and correct in all material respects (the determination of such material truth and correctness to be made by the Agent in good faith) as though made as of the date hereof, except to the extent any such representation or warranty relates to a prior date; (iv) Each Existing Project will be able to be operated on a safe and commercially sound basis in compliance with all Governmental Approvals and applicable Project Agreements and laws, so that the performance and facility guarantees and specifications provided for in the applicable Project Agreements and Governmental Approvals can be substantially met during the term of this Agreement and each Project Entity can duly and punctually meet its obligations under the applicable Project Agreements and Governmental Approvals in accordance with the terms thereof, except to the extent any inadvertent non-compliance with such Governmental Approvals and Project Agreements could not reasonably be expected to have a Material Adverse Effect; provided, however, that such inadvertent noncompliance must be remedied or cured within 30 days of any Borrower Entity's obtaining knowledge thereof. Each Project Entity has adequate inventories and spare parts to operate its respective Project in accordance with the Project Agreements, Governmental Approvals and applicable law; (v) Each Existing Project includes facilities for the storage of Alternative Fuel (including kerosene) sufficient to meet its obligations under the Project Agreements, Governmental Approvals and laws applicable thereto; and (vi) Each Project Entity is the sole owner of its respective Existing Project free and clear of all Liens (other than Permitted Liens). (i) Insurance. Schedule 2(i) (which shall be updated by the Borrower and provided to the Agent not less often than annually) sets forth a complete and accurate description of all material policies of insurance that will be in effect as of the Initial Drawdown Date. To the knowledge of the Borrower, such policies are with companies rated "A-" or better by Best's Insurance Guide and Key Rating or other insurance companies of recognized responsibility satisfactory to the Agent, and the coverages provided by such policies are in amounts and cover such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which each Borrower Entity operates and, in any event, other than to 47 account for amortization of loan repayments, the insurance coverages shall not be less than the insurance coverages set forth in Schedule 2(i). (j) Financial Information. Except as otherwise disclosed in writing to the Agent on or prior to the date hereof, all financial statements, information and other data furnished by any Borrower Entity to the Agent are complete and correct, such financial statements have been prepared in accordance with GAAP (except, in the case of interim financial statements, for the absence of footnotes) and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements and since such date or dates, there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data. (k) Tax Returns. Each Borrower Entity has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect on such Borrower Entity and except for those taxes the amount or validity of which is currently being contested in a Good Faith Contest. (l) ERISA. The execution and delivery of this Agreement, the Note and the Security Documents and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by any Borrower Entity or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA insofar as ERISA applies thereto which is reasonably likely to result in such Borrower Entity or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate would have a Material Adverse Effect. Prior to the date hereof, the Borrower has delivered to the Agent a list of all Plans to which any Borrower Entity or any ERISA Affiliate is a "party in interest" (within the meaning of Section 3(14) of ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of the Code). (m) Margin Regulations. No Borrower Entity is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G, T, U, or X of the Board of Governors of the Federal Reserve System) and no proceeds of any Advance will be used in a manner which would violate, or result in a violation of, such Regulation, G, T, U, or X. 48 (n) Investment Company Act. No Borrower Entity is an "investment company" nor a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (o) Security Interests. Except to the extent consents set forth in Schedule 2(o) are required to create a first priority perfected security interest in the Collateral, the security interests created in favor of the Security Trustee under the Security Documents are valid and perfected, first priority security interests (subject only to Permitted Liens) superior and prior to the rights of all Persons (except those rights of the holders of Permitted Liens), whether the property subject to the security interests is now owned by the Security Party granting such security interest or is hereafter acquired. The Security Documents (including Uniform Commercial Code financing statements) have been duly filed, recorded and/or registered in each office and in each jurisdiction where required to create and perfect the lien and security interest described above. The chief executive office and chief place of business of each Security Party and the office in which the records relating to the earnings and other receivables of each Security Party are kept is located, as of the date hereof, at the locations set forth on Schedule 2(o) for such Security Party. Such locations are the sole offices or places of business maintained by each Security Party as of the date hereof. To the knowledge of the Borrower, no Security Party has transacted any business during the five year period prior to the date of this Agreement under any name other than those set forth on Schedule 2(o). (p) Business of Project Entities. No Project Entity has engaged in any business other than the operation of its respective Existing Project nor is any Project Entity a party to any contract, operating lease, agreement or commitment which, either individually, or in the aggregate is material to the operation of its respective Existing Project other than the Project Agreements applicable thereto. (q) EWG Status; Qualifying Cogeneration Facility Status. Parlin is an Exempt Wholesale Generator and each of the Newark Project, the Grays Ferry Project and the Philadelphia Cogeneration Project is a Qualifying Cogeneration Facility. Each of Newark, Grays Ferry and Philadelphia Cogeneration has maintained and established by filing the QF Certificate for each of the Newark Project, the Grays Ferry Project and Philadelphia Cogeneration Project, with such filings reflecting the ownership and operation of such Projects. Each of the Newark Project, the Grays Ferry Project and the Philadelphia Cogeneration Project is owned and operated in the manner contemplated by its QF Certificate. (r) Regulation of Borrower Entities. None of the Borrower Entities, the Agent, the Security Trustee nor any Lender is or will be, solely as a result of the participation by such parties separately or as a group in the transactions contemplated hereby or in any Project Agreement, or by the ownership, use or operation of any 49 Existing Project in accordance with its respective Project Agreements, subject to regulation by any Governmental Authority as a "public utility" under the FPA, a "holding company" under PUHCA, a utility under state law, or a subsidiary or affiliate of any of the foregoing; provided, however, that Parlin is subject to regulation as a "public utility" under the FPA. None of the Agent, the Security Trustee nor any Lender will, solely by reason of its or their ownership or operation of the Philadelphia Cogeneration Project upon the exercise of remedies under the Security Documents, be subject to financial, organizational or rate regulation by any Governmental Authority as a "public utility" under the FPA, a "holding company" under PUHCA, a utility under state law, or a subsidiary or affiliate of any of the foregoing. (s) Title to and Sufficiency of Assets. Except as set forth on Schedule 2(s), each Borrower Entity has good, valid and sufficient title to (or a leasehold interest in) its assets and properties. Each of the Borrower Entities has good, marketable, indefeasible and insurable title in fee simple (or its equivalent under applicable law) to the real property owned by it, all of which is listed on Schedule 2(s). Except as specified in Schedule 2(s), none of the real property owned or leased by any Borrower Entity is located within any federal, state or municipal flood plain. Except as set forth on Schedule 2(s), the security interests granted to the Security Trustee by the Security Parties are first and prior security interests and no Security Party has granted any security interests in the Collateral owned by it other than those granted to the Security Trustee hereunder. All leases necessary for the conduct of the business of the Borrower Entities as presently conducted and as proposed to be conducted are valid and subsisting and are in full force and effect. The Borrower Entities enjoy peaceful and undisturbed possession under all material leases to which they are parties (all such leases being set forth on Schedule 2(s)). The services to be performed, the materials to be supplied and the easements, licenses and other rights granted or to be granted to each Project Entity pursuant to the Project Agreements and Governmental Approvals applicable thereto provide or will provide such Project Entity with all rights and property interests required to enable such Project Entity to obtain all services, materials or rights (including access) required for the operation and maintenance of its Existing Project, including such Project Entity's full and prompt performance of its obligations, and full and timely satisfaction of all conditions precedent to the performance by others of their obligations under such Project Agreements and Governmental Approvals. (t) Labor Matters. There are no strikes or other material labor disputes or grievances, charges or complaints with respect to any employee or group of employees pending or, to the knowledge of the Borrower, threatened against any Borrower Entity. (u) Transactions with Affiliates. Set forth on Schedule 2(u) is a true, accurate and complete description of all transactions between any Borrower Entity and any Affiliate thereof since August 14, 1997 which required or which will require in the 50 case of any Borrower Entity the payment by such Borrower Entity of an aggregate amount equal to or greater than $100,000 during any twelve- month period. (v) Environmental Matters and Claims. Except as set forth on Schedule 2(v), (i) each of the Borrower Entities is in compliance with all applicable United States federal, state and local laws, regulations, rules and orders relating to pollution prevention or protection of the environment or exposure to Materials of Environmental Concern (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, rules and orders ("Environmental Laws") relating to (1) emissions, discharges, releases or threatened releases of substances defined as "hazardous substances," "hazardous materials," "contaminants," "pollutants," "hazardous wastes" or "toxic substances" in (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. ? 9601 et seq., (ii) the Hazardous Materials Transportation Act, 49 U.S.C. ? 1801 et seq., (iii) the Resource Conservation and Recovery Act, 42 U.S.C. ? 6901 et seq., (iv) the Federal Water Pollution Control Act, as amended, 33 U.S.C. ? 1251 et seq., (v) the Clean Air Act, 33 U.S.C. ? 7401 et seq., (vi) the Toxic Substances Control Act, 15 U.S.C. ? 2601 et seq. or (vii) the Safe Drinking Water Act, 42 U.S.C. ? 300f et seq. ("collectively, Materials of Environmental Concern"), or (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, all to the extent the failure to comply with Environmental Laws could reasonably be expected to have a Material Adverse Effect; (ii) each of the Borrower Entities has all permits, licenses, approvals, consents or other authorizations required under applicable Environmental Laws ("Environmental Approvals") and is in compliance with all Environmental Approvals required to operate their business as then being conducted, all to the extent the failure to maintain or comply with an Environmental Approval could reasonably be expected to have a Material Adverse Effect; (iii) none of the Borrower Entities has received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigatory costs, cleanup costs, response and/or remedial costs (whether incurred by a governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Environmental Approval, and in each case which could reasonably be expected to have a Material Adverse Effect ("Environmental Claim") (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines, penalties 51 and other costs, if any, payable by the Security Parties in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); (iv) there are no circumstances that may prevent or interfere with such compliance in the future; (v) no Materials of Environmental Concern are currently located at, in, on, under or about or are being released from any of the properties on which the Projects are located (or any other property with respect to which any Borrower Entity has or may have liability either contractually or by operation of law) in a manner which violates any applicable Environmental Law, or for which cleanup or corrective action of any kind is required under any applicable Environmental Law where such violation, cleanup or corrective action could reasonably be expected to have a Material Adverse Effect; (vi) no notice of violation, Lien, complaint, suit, order or other notice with respect to the environmental condition of any of the properties on which the Projects are located (or any other property with respect to which any of the Borrower Entities has or may have liability either contractually or by operation of law) is outstanding or, to the Borrower's knowledge, threatened against a Borrower Entity which could reasonably be expected to result in a Material Adverse Effect. (w) Bank Accounts. Schedule 2(w) sets forth the account numbers and locations of all bank accounts of each Borrower Entity. (x) Survival. All representations, covenants and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Advances and the issuance of the Note to be issued by the Borrower hereunder. (y) No Material Adverse Effect. Since June 30, 1997, there has not occurred any event or condition resulting in a Material Adverse Effect. 3. ADVANCES 3.1 (a) Purposes. The Lenders shall make the Advances available to the Borrower for the purpose of making advances or loans to any Affiliates of the Borrower, for the purposes of (i) refinancing the Borrower's existing $5,500,000 credit facility with PECO Energy Company, (ii) enabling (A) the Borrower or Philadelphia Cogeneration to purchase the minority interest of the Revocable Trust of Marsha Reines Perelman in Philadelphia Cogeneration and (B) the Borrower or Philadelphia Biogas to purchase the minority interest of the Revocable Trust of Marsha Reines Perelman in Philadelphia Biogas, (iii) refinancing the existing Indebtedness of the Borrower to NRG Energy, (iv) refinancing the existing Indebtedness of Borrower, OESC and/or Philadelphia Cogeneration, as the case may be, to each of GE Capital Corporation, Fleet Credit Corporation, Financing for Science and Industry, Inc., FINOVA Capital Corporation, New England Capital Corporation and WASCO Funding Corp. and obtaining the release 52 of the Liens securing such Indebtedness (the "Equipment Liens"), and (v) for general working capital purposes. (b) Making of the Advances. Each of the Lenders, relying upon each of the representations and warranties set out in Section 2, hereby severally and not jointly agrees with the Borrower that, subject to and upon the terms of this Agreement, it will on the Drawdown Dates, make the Advances available through the Agent to the Borrower in an aggregate amount not to exceed its Commitment ratably with the other Lenders according to their respective Commitments. The maximum aggregate amount of all Advances which may be outstanding at any time under this Agreement is the aggregate amount of the Credit Facility, as reduced pursuant to Section 5.2. All Advances shall be in a minimum amount of Two Hundred Fifty Thousand Dollars ($250,000). (c) Maximum Number of LIBOR Rate Advances. The maximum number of LIBOR Rate Advances that may be outstanding at any time under this Agreement shall be six (6). 3.2 Drawdown Notice. The Borrower shall, in respect of all Advances, serve a written notice in the form of Exhibit H hereto (a "Drawdown Notice") on the Agent (which shall promptly furnish a copy to each Lender) by facsimile or otherwise (i) for a LIBOR Rate Advance, not later than 11:00 A.M., New York City time, at least two (2) Banking Days prior to the date of the proposed LIBOR Rate Advance, and (ii) for a Base Rate Advance, not later than 11:00 A.M., New York City time, on the day of the proposed Base Rate Advance. Each Drawdown Notice shall specify (a) the date of the proposed borrowing (which shall be a Banking Day), (b) the principal amount of the Advance to be made by the Lenders on that date, (c) whether such Advance is a Base Rate Advance or a LIBOR Rate Advance, (d) if a LIBOR Rate Advance, the Interest Period requested by the Borrower, and (e) the disbursement instructions for the proceeds of such Advance. Each Drawdown Notice shall be effective upon receipt by the Agent and shall be irrevocable. 3.3 Effect of Drawdown Notices. Each Drawdown Notice shall be deemed to constitute a warranty by the Borrower (a) that the representations and warranties stated in Section 2 (updated mutatis mutandis) are true and correct on and as of the date of such Drawdown Notice and will be true and correct on and as of the relevant Drawdown Date as if made on such date, except to the extent such representations and warranties relate to a prior date and except that the Borrower shall not be required to update the Schedules hereto to the extent changes have occurred in the information disclosed therein from and after the date hereof (provided that such exception shall not relieve the Borrower of its obligations to provide or update certain information relating to matters disclosed on such Schedules under Section 10.1A hereof), (b) that after giving effect to the borrowing made pursuant to such Drawdown Notice, the Credit Facility Balance shall not exceed the 53 maximum amount then available hereunder pursuant to the terms hereof and (c) that no Event of Default nor any event which with the giving of notice or lapse of time or both would constitute an Event of Default has occurred and is continuing. 3.4 Notation of Advances. Each Advance made by the Lenders to the Borrower may be evidenced by a notation of the same made by the Agent on the grid attached to the Note, which notation, absent manifest error, shall be prima facie evidence of the amount of the relevant Advance. 4. CONDITIONS 4.1 Conditions Precedent to Drawdown of the Initial Advance. The obligation of the Lenders to make the initial Advance available to the Borrower under this Agreement shall be expressly subject to the following conditions precedent: (a) the Agent shall have received the following documents in form and substance satisfactory to the Agent and its legal advisor: (i) copies, certified as true and complete by an officer of each of the Security Parties, of the resolutions of the board of directors of such Security Party evidencing approval of this Agreement, the Note and those Security Documents to which it is to be a party and authorizing an appropriate officer or officers or attorney-in- fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (ii) copies, certified as true and complete by an officer of each of the Security Parties, of all documents evidencing any other necessary action (including actions by such parties thereto other than the Security Parties as may be required by the Agent), approvals or consents with respect to this Agreement, the Note, and the Security Documents; (iii) copies, certified as true and complete by an officer of the Borrower and each of the Project Entities, of the constating instruments of the Borrower and each Project Entity; (iv) certificate of the Secretary of the Borrower certifying that it legally and beneficially owns, directly or indirectly, the issued and outstanding capital stock and partnership 54 interests of each of the Project Entities and that such capital stock and/or interests as set out in Schedule 2(b), are free and clear of any liens, claims, pledges or other encumbrances whatsoever other than as disclosed to the Lenders in writing on or before the date hereof; (v) certificate of the Secretary of each Project Entity certifying as to the record ownership of all of its issued and outstanding capital stock or partnership interests, as the case may be; (vi) certificates of the jurisdiction of formation of each of the Borrower Entities as to the good standing thereof; and (viii) certificate of the Secretary of each of the Borrower Entities as to the incumbency and signatures of the officers authorized to act for each such entity. (b) the Agent shall have received in form and substance satisfactory to it and its legal advisors: (i) environmental reports and/or reliance letters which shall contain the results of the review of the environmental audit of Philadelphia Cogeneration, permitting issues and other matters of environmental concern with respect to the Existing Projects; (ii) an engineer's report on the technical condition of the equipment utilized by the Philadelphia Cogeneration Project; (iii) evidence, in the form of self- certification, that each of the Existing Projects (other than the Parlin Project) shall be a Qualifying Cogeneration Facility and that each Project Entity (other than Parlin) shall have maintained and established by filing the necessary certificates with respect thereto; (iv) evidence that the capital stock or other equity interests of each of the Project Entities held by the Borrower is held free and clear of all Liens other than Permitted Liens; 55 (v) evidence that the Security Trustee has, for the benefit of the Lenders and the Agent, a valid and perfected first priority security interest in the Collateral (subject only to Permitted Liens) and that the Equipment Liens have been terminated; (vi) evidence that all Governmental Approvals and filings and consents from third parties required in connection with the transactions contemplated hereby have been obtained; (vii) evidence that none of the Existing Projects includes any real property located within an area that has been identified by the Director of the Federal Emergency Management Agency as an area having special flood hazards and for which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended; and (viii) with respect to the Advance the proceeds of which are to be used to acquire the minority interest of Philadelphia Cogeneration held by the Revocable Trust of Marsha Reines Perelman, evidence that such interest will be held by the Borrower or Philadelphia Cogeneration free and clear of all Liens; and (ix) written acknowledgment from The Chase Manhattan Bank of its receipt of notice of the pledge and assignment of the Collection Account to the Security Trustee pursuant to Section 8.3. (c) the Borrower shall have duly executed and delivered to the Agent: (i) the Note; (ii) each Security Document to which it is to be a party; (iii) Uniform Commercial Code Financing Statements for filing with New Jersey, Pennsylvania, Delaware and Minnesota and in such other jurisdictions as the Agent may reasonably require; and 56 (iv) stock certificates representing 83% of the issued and outstanding shares of capital stock of Philadelphia Cogeneration, together with irrevocable undated stock powers duly endorsed in blank. (d) Philadelphia Cogeneration shall have duly executed and delivered to the Agent: (i) the Security Documents to which it is to be a party, and (ii) Uniform Commercial Code Financing Statements for filing with Pennsylvania, Delaware and Minnesota and in such other jurisdictions as the Agent may reasonably require. (e) OESC shall have duly executed and delivered: (i) the Security Documents to which it is to be a party, and (ii) Uniform Commercial Code Financing Statements for filing with Pennsylvania, Delaware, California and Minnesota and in such other jurisdictions as the Agent may reasonably require. (f) the Agent shall have received fully executed copies of the Subordination Agreements; (g) the Agent shall have received a certificate of an officer of Philadelphia Cogeneration, in his capacity as an officer, confirming the representations and warranties with respect to solvency set forth in the Guarantee and containing conclusions as to the solvency of Philadelphia Cogeneration; (h) the Agent shall have received consents from the Philadelphia Municipal Authority to (i) the assignment of the Philadelphia Cogeneration Leases to the Security Trustee pursuant to the Mortgage and (ii) the assignment of Energy Service Agreements to the Security Trustee, pursuant to the General Security Agreement. (i) the Agent shall be satisfied that neither the Borrower nor any of the Project Entities is subject to any Environmental Claim which could have a Material Adverse Effect; 57 (j) the Agent shall have received payment in full of all fees and expenses due to the Agent, the Arranger and the Lenders under Section 14; (k) the Borrower shall have established the Collection Account pursuant to Section 8 and each of the Project Entities shall have executed and delivered to the Security Trustee its Acknowledgment; (l) the Agent shall have received evidence satisfactory to it and to its legal advisor that, save for the liens created by the filing of any Uniform Commercial Code Financing Statements, the Borrower Pledge, the Assignments, or any other Security Document there are no liens, charges or encumbrances of any kind whatsoever on any of the Collateral except as permitted hereby or by any of the Security Documents; (m) the Agent shall have received legal opinions addressed to the Agent and the Lenders from (i) Troutman Sanders LLP, as counsel for the Security Parties, (ii) Dechert Price & Rhoads, as local Pennsylvania counsel for the Security Parties, and (iii) Seward & Kissel, special counsel to the Agent, in each case in such form as the Agent may reasonably require; and (n) the Agent shall have received (i) a certified copy of, or binder for, each of the insurance policies required by Section 2.1(i), such policies to be in form and substance, and issued by companies, reasonably satisfactory to the Agent, together with evidence satisfactory to the Agent that such insurance complies with the provisions of Section 2.1(i) and with the provisions of the Project Agreements, and that all premiums then due with respect to such insurance have been paid and (ii) a written report of an insurance consultant describing the insurance obtained by each Project Entity with respect to its Existing Project and stating that the required insurance is in full force and effect and provides reasonable and adequate coverage for such Existing Project. Each of the Agent, the Security Trustee, the Arranger and each of the Lenders hereby agrees that, notwithstanding any provision or term to the contrary set forth in this Agreement, the execution and delivery of the Mortgage shall not be a condition precedent to the funding of the Initial Advance, provided (i) that the amount available under the Credit Facility shall be reduced as set forth in the definition of "Credit Facility" in Section 1.1 above, and (ii) that Philadelphia Cogeneration shall execute and deliver the Mortgage, together with such opinions and Uniform Commercial Code financing statement filings as the Agent shall reasonably request, by not later than forty-five (45) days from and after the Initial Drawdown Date, and it is expressly agreed that the failure to so deliver the Mortgage within such 45-day period shall constitute an Event of Default hereunder. 58 4.2 Further Conditions Precedent. The obligation of the Lenders to make any Advance available to the Borrower under this Agreement shall be expressly and separately subject to the following further conditions precedent on the relevant Drawdown Date: (a) the Agent having received a Drawdown Notice in accordance with the terms of Section 3.2; (b) the representations stated in Section 2 (updated mutatis mutandis to such date) being true and correct as if made on and as of that date except to the extent such representations and warranties relate to a prior date and except that the Borrower shall not be required to update the Schedules hereto to the extent changes have occurred in the information disclosed therein from and after the date hereof (provided that such exception shall not relieve the Borrower of its obligations to provide or update certain information relating to matters disclosed on such Schedules under Section 10.1A hereof); (c) no Event of Default having occurred and being continuing and no event having occurred and being continuing which, with the giving of notice or lapse of time, or both, would constitute an Event of Default; (d) the Agent being satisfied that no change in any applicable laws, regulations, rules or in the interpretation thereof shall have occurred which make it unlawful for any Security Party to make any payment as required under the terms of this Agreement, the Note, the Security Documents or any of them; and (e) there having been no Material Adverse Effect since the date hereof. 4.3 Breakfunding Costs. In the event that, on any date specified for the making of an Advance in any Drawdown Notice, the Lenders shall not be obliged under this Agreement to make such Advance available under this Agreement, the Borrower shall indemnify and hold the Lenders fully harmless against any actual losses which the Lenders (or any thereof) may sustain as a result of borrowing or agreeing to borrow funds to meet the drawdown requirement of such Drawdown Notice. At the Borrower's request, each such Lender shall provide the Borrower with reasonable evidence of such actual losses incurred by such Lender. 4.4 Satisfaction after Drawdown. Without prejudice to any of the other terms and conditions of this Agreement, in the event the Lenders, in their sole discretion, advance any Advance prior to the satisfaction of all or any of the conditions referred to elsewhere in Sections 4.1 or 4.2, the Borrower hereby covenants and undertakes to satisfy or procure the satisfaction of such condition or conditions within seven (7) days after the 59 relevant Drawdown Date (or such longer period as the Lenders, in their sole discretion, may agree). 5 REPAYMENT, REDUCTION AND PREPAYMENT 5.1 Repayment. The Borrower shall repay all outstanding Advances (subject to such reduction and prepayments as hereinafter set forth) on the Maturity Date and, to the extent required to comply with the limitations set forth in Section 5.2 below, on each Reduction Date. 5.2 Reductions of the Credit Facility. The Credit Facility shall be reduced: (a) on each of the Scheduled Reduction Dates, by Two Million Five Hundred Thousand Dollars ($2,500,000), and (b) on any Voluntary Reduction Date, by such amount as the Borrower may indicate to the Agent in writing at least ten (10) days in advance of such date. On each Reduction Date, each Lender's Commitment shall be reduced by an amount equal to (i) the ratio of such Lender's Commitment to the aggregate of the Commitments on such date, multiplied by (ii) the amount by which the total Credit Facility is to be so reduced on such date. On each Reduction Date the Borrower shall, if necessary, prepay the Credit Facility in the amount required so that the Credit Facility Balance shall not exceed the aggregate of the Commitments as reduced pursuant to this Section 5.2. 5.3 Prepayment; Reborrowing. Subject to the provisions of Section 5.5 in the case of the prepayment of any LIBOR Rate Advance on any day other than the last day of the Interest Period with respect to such LIBOR Rate Advance, the Borrower may, at its option, without penalty or premium, on any Banking Day, prepay all or any portion of the principal of any Advance. The Borrower shall deliver to the Agent (which shall promptly furnish a copy to each Lender) notice of such prepayment on not less than three (3) Banking Days with respect to each LIBOR Rate Advance and one (1) Banking Day with respect to each Base Rate Advance (which notice shall be irrevocable and shall specify the date and amount of prepayment). Each prepayment shall be in a minimum amount of One Million Dollars ($1,000,000). Subject to the limits and upon the conditions herein provided (including the reduction of the Commitments provided in Section 5.2), the Borrower may from time to time prepay the Advances and thereafter re-borrow such Advances or a portion thereof. 5.4 Optional and Mandatory Conversions. Subject to Section 5.5, the Borrower may, at its option (i) on the last day of any Interest Period, convert a LIBOR Rate 60 Advance into a Base Rate Advance, (ii) on the last day of any Interest Period, continue a LIBOR Rate Advance as a LIBOR Rate Advance, and (iii) on any Banking Day, convert a Base Rate Advance into a LIBOR Rate Advance; provided, that, except as otherwise provided in this Agreement to the contrary, the Borrower shall deliver to the Agent (which will promptly send a copy to each Lender) a Notice of Conversion or Continuation by 11:00 A.M., New York City time, (A) in the case of clauses (ii) and (iii) above, not less than three Banking Days prior to the date of each such conversion or continuation, and (B) in the case of clause (i) above, on or prior to the date of such conversion. Each Notice of Conversion or Continuation shall specify (x) the amount of each Advance to be continued or converted, (y) the date of such continuation or conversion, and (z) the type of Advance to be continued or converted (and in the case of a conversion, the type of Advance to result from such conversion and, if such Advance is to be converted into a LIBOR Rate Advance, the Interest Period). Subject to Section 9.2, upon the occurrence of an Event of Default all LIBOR Rate Advances will be converted to Base Rate Advances upon termination of the then applicable Interest Periods. 5.5 Interest and Costs with Prepayments. Any prepayment of the Advances made hereunder (including, without limitation, those made pursuant to Sections 5.2 and 5.3) shall be subject to the condition that on the date of prepayment all accrued interest to the date of such prepayment shall be paid in full with respect to the Advances or portions thereof being prepaid, together with any and all actual costs or expenses incurred by any Lender in connection with any breaking of funding. At the Borrower's request, each such Lender shall provide the Borrower with reasonable evidence of such actual losses incurred by such Lender. 5.6 Pro-Rata Reduction of Commitments. If the Commitments of the Lenders are reduced pursuant to Section 5.2 or any other provision of this Agreement, the Commitments shall be reduced on the Reduction Dates falling on or after the date of such reduction by the same proportion as that by which the amount of the aggregate of the Commitments of the Lenders is so reduced and the remaining reductions pursuant to Section 5.2 shall be adjusted proportionately to reflect such reduction. 6. INTEREST AND RATE 6.1 Payment of Interest; Interest Rate. (a) The Borrower hereby promises to pay to the Lenders interest on the unpaid principal amount of each Advance made to the Borrower for the period commencing on the date of such Advance until but not including the stated maturity thereof (whether by acceleration or otherwise) or the date of prepayment thereof (i) during the periods such Advance is a Base Rate Advance, at the Base Rate plus the Margin, and (ii) during the periods such Advance is a LIBOR Rate Advance, at the LIBOR Rate plus the Margin (as the case may be from time to time, the "Applicable Rate"); provided, however, that after the occurrence and during the 61 continuance of an Event of Default under Section 9.1(a) or (b) or, after notice from the Agent, an Event of Default mentioned elsewhere in Section 9.1, all outstanding Advances shall bear interest at the Default Rate. (b) Notwithstanding the foregoing, the Borrower hereby promises to pay interest on any Advance made to the Borrower and (to the extent that the payment of such interest shall be legally enforceable) on any overdue installment of interest, and on any other amount payable by such Borrower hereunder which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until but not including the date the same is paid in full at the Default Rate. (c) Except as provided in the next sentence, accrued interest on each Advance shall be payable (x) in respect of each Base Rate Advance, quarterly, on the last Banking Day of each calendar quarter, (y) in respect of each LIBOR Rate Advance on the last day of each Interest Period, except that if the Borrowers shall select an Interest Period in excess of three (3) months, accrued interest shall be payable during such Interest Period on each three (3) month anniversary of the commencement of such Interest Period and upon the last day of such Interest Period, and (z) in the case of all Advances together with each repayment of principal thereof. Interest payable at the Default Rate shall be payable from time to time on demand of the Agent. 6.2 Calculation of Interest. All interest shall accrue from day-to- day and be calculated on the actual number of days elapsed and on the basis of a three hundred sixty (360) day year with respect to each LIBOR Rate Advance and on the basis of a 365/366 day year with respect to each Base Rate Advance. 6.3 Maximum Interest. Anything in this Agreement or the Note to the contrary notwithstanding, the interest rate on any Advance shall in no event be in excess of the maximum rate permitted by applicable law. 7. PAYMENTS 7.1 Place of Payments, No Set Off. All payments to be made hereunder by the Borrower shall be made to the Agent, not later than 11 a.m. New York time (any payment received after 11 a.m. New York time shall be deemed to have been paid on the next Banking Day) on the due date of such payment, at its office located at 445 Park Avenue, New York, New York 10022 or to such other office of the Agent as the Agent may direct, without set-off or counterclaim and free from, clear of, and without deduction for, any Taxes, provided, however, that, subject to such Lender's compliance with Section 7.2 below, if the Borrower shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Lenders hereunder, then the Borrower shall pay 62 such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Borrower shall promptly send to the Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Lenders. 7.2 Tax Forms. Each Lender shall promptly provide the Borrower with two duly completed copies of Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party that exempts withholding tax on payments under this Agreement or the Note or certifying that the income receivable pursuant to this Agreement or the Note is effectively connected with the conduct of a trade or business in the United States. 7.3 Tax Credits. If any Lender obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Borrower has paid additional amounts as aforesaid (and each Lender agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Lender shall reimburse the Borrower for the amount of the credit so obtained. Each Lender agrees that in the event that Taxes are imposed on account of the situs of its loans hereunder, such Lender, upon acquiring knowledge of such event, shall, if commercially reasonable, shift such loans on its books to another office of such Lender so as to avoid the imposition of such Taxes. 8. ACCOUNTS 8.1 Collection Account. The Borrower shall procure that each Project Entity shall make all distributions of Project Cash Flow and that all of such Project Cash Flow shall be paid, whether by the Borrower or by the Project Entities, to an account maintained by, and in the name of, the Security Trustee for the account of the Borrower, at The Chase Manhattan Bank (the "Depository") (Account No. 100970300; Ref.: NRG GENERATING (U.S.) INC.) (the "Collection Account"). The Collection Account shall be subject to the exclusive control of the Security Trustee and to the pledge, assignment and security interest granted in Section 8.3. The Security Trustee shall be entitled to apply the Assigned Moneys toward payment of the Credit Facility Balance and interest thereon then due and payable and all other charges and indebtedness which then may be due and payable under this Agreement, the Note or any of the Security Documents. 8.2 Application of Assigned Moneys. So long as no Event of Default specified herein or in any of the Security Documents, and no event which, with the lapse of time or 63 the giving of notice, would become an Event of Default shall have occurred and be continuing, the Security Trustee shall, upon receipt from the Borrower of a request therefor and a certification by an officer of the Borrower (in form and substance satisfactory to the Security Trustee) that all of the representations and warranties stated in Section 2 (updated mutatis mutandis to the date of such certification) are true and correct as if made on the date of such certification (except to the extent such representations and warranties relate to a prior date and except that the Borrower shall not be required to update the Schedules hereto to the extent changes have occurred in the information disclosed therein from and after the date hereof (provided that such exception shall not relieve the Borrower of its obligations to provide or update certain information relating to matters disclosed on such Schedules under Section 10.1A hereof)) cause the Depository to remit from the Collection Account to such account as may be specified by the Borrower in writing the balance thereof. Upon the occurrence of an Event of Default, and so long as the same shall be continuing, all moneys then held in the Collection Account and all Assigned Moneys thereafter received by the Security Trustee or the Depository shall be applied as provided in Section 9.3. 8.3 Assignment of Collection Account. All monies held in the Collection Account and all Assigned Moneys received by the Agent, the Security Trustee or the Lenders shall be collateral security for the payment and performance by the Borrower of its obligations hereunder and under the Note and the Security Documents and the Borrower hereby pledges, assigns and grants the Security Trustee a security interest in the Borrower's interest in and to the Collection Account and the Assigned Moneys. If an Event of Default shall occur and so long as the same shall be continuing, all monies held in the Collection Account and all Assigned Moneys thereafter received by the Agent, the Security Trustee or the Lenders may be applied as provided in Section 9.3. 9. EVENTS OF DEFAULT 9.1 In the event that any of the following events shall occur and be continuing: (a) Non-Payment of Principal. Any payment of principal due on a Reduction Date or on the Maturity Date is not paid on such due date; or (b) Non-Payment of Interest or Other Amounts. Any interest on any Advance or any other amount becoming payable to the Agent, the Security Trustee, the Arranger or any Lender under this Agreement, under the Note or under any of the Security Documents is not paid on the due date or date of demand (as the case may be), and such default continues unremedied for a period of five (5) Banking Days; or (c) Representations. Any representation, warranty or other statement made by the Borrower in this Agreement or by any Security Party in any of the Security 64 Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith proves to have been untrue or misleading in any material respect as at the date as of which made or confirmed and such default is not cured within 30 days after written notice thereof, provided such cure period shall only apply if the granting thereof could not reasonably be expected to have a Material Adverse Effect; or (d) Certain Covenants. Any Security Party defaults in the performance or observance of any covenant contained in Sections 10.1(A) (ii), (v), (vii), (xii), (xiii), (ix), (xv), (xix) or Section 10.1(B); or (e) Other Covenants. Any Security Party defaults in the due and punctual observance or performance of any other term, covenant or agreement contained in this Agreement, in the Note, in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith, or it becomes impossible or unlawful for any Security Party to fulfill any such term, covenant or agreement or there occurs any other event which constitutes a default under this Agreement, under the Note or under any of the Security Documents, in each case other than an Event of Default referred to elsewhere in this Section 9.1, and, if such default is capable of being remedied, such default, continues unremedied or unchanged, as the case may be, for a period of thirty (30) days after such Security Party obtains knowledge of such default or, if (i) such failure is incapable of being remedied in 30 days, and (ii) the applicable Security Party is proceeding with diligence and good faith to remedy such failure and such failure could not reasonably be expected to result in a Material Adverse Effect, and (iii) no distributions are made to the Borrower pursuant to Section 8.2 during the cure period provided in this paragraph (e), 90 days after the earlier of (i) the date on which such failure first becomes known to any Security Party or (ii) the date on which a written notice thereof shall have been given to the Borrower by the Agent or any Lender; or (f) Indebtedness. Any Security Party or Project Entity shall default in the payment when due (subject to any applicable grace period) of any Indebtedness or of any other indebtedness, in either case, in the outstanding principal amount equal to or exceeding Two Hundred Fifty Thousand Dollars ($250,000) or such Indebtedness or indebtedness is accelerated or any party becomes entitled to enforce the security for any such Indebtedness or indebtedness and such party shall take steps to enforce the same, unless such default or enforcement is being contested in good faith and by appropriate proceedings or other acts and the Security Party, Subsidiary or Affiliate, as the case may be, shall set aside on its books adequate reserves with respect thereto; or (g) Stock Ownership. (i) NRG Energy shall cease to directly own at least such number of shares of capital stock of the Borrower as it did on the Initial 65 Drawdown Date (together with any shares acquired as a result of any stock splits, warrants, rights, options or stock dividends associated with such shares), (ii) the Borrower shall cease to directly own its interest in any Project Entity as set out in Schedule 2(b), or (iii) any Project Entity shall cease to directly own one hundred percent (100%) of its respective Existing Project; or (h) Failure to Maintain Status. Failure of any Project Entity to maintain its status as either the owner of a Qualifying Cogeneration Facility or as an Exempt Wholesale Generator; (i) Bankruptcy. The Borrower or any Project Entity thereof commences any proceeding under any reorganization, arrangement or readjustment of debt, dissolution, winding up, adjustment, composition, bankruptcy or liquidation law or statute of any jurisdiction, whether now or hereafter in effect ("Proceeding"), or there is commenced against any thereof any Proceeding and such Proceeding remains undismissed or unstayed for a period of sixty (60) days or any receiver, trustee, liquidator or sequestrator of, or for, any thereof or any substantial portion of the property of any thereof is appointed and is not discharged within a period of sixty (60) days or any thereof by any act indicates consent to or approval of or acquiescence in any Proceeding or the appointment of any receiver, trustee, liquidator or sequestrator of, or for, itself or of, or for, any substantial portion of its property; or (j) Termination of Operations; Sale of Assets. Except as expressly permitted under this Agreement, the Borrower or any Project Entity ceases its operations or sells or otherwise disposes of all or substantially all of its assets or all or substantially all of the assets of the Borrower or any Project Entity are seized or otherwise appropriated; or (k) Judgments. Any judgment or order is made the effect whereof is to render ineffective or invalid this Agreement, the Note or any of the Security Documents; or (l) Inability to Pay Debts. The Borrower or any Project Entity is unable to pay or admits in writing its inability to pay its debts as they fall due or a moratorium shall be declared in respect of any material indebtedness of the Borrower or any Project Entity; or (m) Project Agreements. There occurs any default or event of default under any Project Agreement which is continuing which could reasonably be expected to result in a Material Adverse Effect and such default or event of default shall not be remediable or, if remediable, shall continue unremedied for a period terminating on the last day of the applicable cure period, if any, specified in the relevant Project Agreement, 66 or shall not be waived by the appropriate party; provided that for purposes of this Section 9.1(m) only, "Project Agreements" shall not include the Assignment of the DuPont Power Purchase Agreement, dated as of April 30, 1996 from Parlin to NRG Parlin Inc.; provided, further, that, to the extent caused by a default or event of default by a Person other than a Borrower Entity with respect to a Project Agreement, such failure to comply, breach or default shall not be an event of default under this Section 9.1(m) if (A) such failure to comply, breach or default is cured within 60 days of the date of occurrence thereof, or (B)(1) such Project Agreement is replaced within 60 days of the date of such failure to comply, breach or default with a substitute Project Agreement in form and substance reasonably satisfactory to the Majority Lenders, (2) the party or parties (other than the applicable Borrower Entity) to such substitute Project Agreement are acceptable to the Majority Lenders, and, in the opinion of the Majority Lenders, are capable of performing their obligations under such substitute Project Agreement, (3) in the case of substitution of a Philadelphia Cogeneration Project Agreement, the Security Trustee shall have been granted a security interest in any substitute Philadelphia Cogeneration Project Agreement for the benefit of the Lenders to the same extent as the Philadelphia Cogeneration Project Agreement being replaced, or (4) in the case of substitution of any Steam Sales Agreement, the Ground Lease for the applicable Existing Project shall not be terminable as a result of the termination of such Steam Sales Agreement; or (n) ERISA Debt. The Borrower, any Project Entity or any ERISA Affiliate shall (i) fail to pay when due an amount or amounts which it shall have become liable to pay under Title IV of ERISA and such failure to pay could reasonably be expected to result in a Material Adverse Effect or (ii) incur, or shall reasonably expect to incur, individually or collectively, any Withdrawal Liability or liability upon the happening of a Termination Event and such incurrence could reasonably be expected to a result in a Material Adverse Effect; or (o) Invalidity or Revocation of Guarantee. The Guarantee shall at any time and for any reason cease to be valid and binding or Philadelphia Cogeneration shall purport to renounce or revoke the Guarantee; or (p) Dissolution. The liquidation, dissolution, termination, acquisition or consolidation of any Security Party other than as permitted by Section 10.1(B)(viii); then the Lenders' obligation to make any Advance available shall cease and the Agent on the instructions of the Majority Lenders may, by notice to the Borrower, declare the entire unpaid balance of the then outstanding Advances, accrued interest and any other sums payable by the Borrower hereunder or under the Note due and payable, whereupon the same shall forthwith be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided that upon the happening of an event specified in subsections (i) of this Section 9.1 with respect to the Borrower, 67 the Note shall be immediately due and payable without declaration or other notice to the Borrower. In such event, the Lenders may proceed to protect and enforce their rights by action at law, suit in equity or in admiralty or other appropriate proceeding, whether for specific performance of any covenant contained in this Agreement, in the Note or in any Security Document, or in aid of the exercise of any power granted herein or therein, or the Lenders may proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the Lenders, or proceed to take any action authorized or permitted under the terms of any Security Document or by applicable law for the collection of all sums due, or so declared due, on the Note, including, without limitation, the right to appropriate and hold or apply (directly, by way of set-off or otherwise) to the payment of the obligations of the Borrower to the Lenders hereunder and/or under the Note (whether or not then due) all moneys and other amounts of the Borrower then or thereafter in possession of any Lender, the balance of any deposit account (demand or time, mature or unmatured) of the Borrower then or thereafter with any Lender and every other claim of the Borrower then or thereafter against any of the Lenders. 9.2 Indemnification. The Borrower agrees to, and shall, indemnify and hold the Agent, the Security Trustee, the Arranger and the Lenders harmless against any out-of-pocket loss, as well as against any reasonable costs or expenses (including reasonable legal fees and expenses), which any of the Agent, the Security Trustee, the Arranger or the Lenders sustains or incurs as a result of any default in payment of the principal amount of the Advances, interest accrued thereon or any other amount payable hereunder, under the Note or under any Security Documents including, but not limited to, all actual losses incurred in liquidating or re-employing fixed deposits made by third parties or funds acquired to effect or maintain the Advances or any portion thereof. At the Borrower's request, each such Lender shall provide the Borrower with reasonable evidence of such actual losses incurred by such Lender. 9.3 Application of Moneys. Except as otherwise provided in any Security Document, all moneys received by the Agent, the Security Trustee, the Arranger or the Lenders under or pursuant to this Agreement, the Note or any of the Security Documents after the happening of any Event of Default (unless cured to the satisfaction of, or waived by, the Majority Lenders) shall be applied by the Agent in the following manner: (a) first, in or towards the payment or reimbursement of any expenses or liabilities incurred by the Agent, the Security Trustee, the Arranger or the Lenders in connection with the ascertainment, protection or enforcement of its rights and remedies hereunder, under the Note and under any of the Security Documents, (b) secondly, in or towards payment of all other sums which may be owing to the Agent, the Security Trustee, the Arranger or the Lenders under this 68 Agreement, under the Note, under the fee letter between the Borrower and the Agent of even date herewith or under any of the Security Documents, (c) thirdly, in or towards payment of any interest owing in respect of the Advances, (d) fourthly, in or towards repayment of principal owing in respect of the Advances, (e) fifthly, in prepayment of principal of any then outstanding Advances, and (f) sixthly, the surplus (if any) shall be paid to the Borrower or to whosoever else may be entitled thereto. 9.4 Alleged PECO Option. Each of the Agent, the Security Trustee, the Arranger and each of the Lenders hereby (a) acknowledges that PECO has claimed that it possesses an option to purchase the common stock of Philadelphia Cogeneration, as set forth in the payoff letter and related release from PECO to the Borrower, dated on or about the date hereof, copies of which have been delivered to the Agent, which claim the Borrower disputes and has so advised PECO, (b) agrees that, notwithstanding any provision or term to the contrary set forth in this Agreement or any of the Security Documents, such claim and the existence of any such option (and the existence of the Revocable Trust of Marsha Perelman's "right of first refusal" to purchase the Philadelphia Cogeneration common stock upon the exercise by PECO of its claimed option to purchase such stock) shall not by themselves constitute an Event of Default under this Agreement or an event of default under any of the Security Documents, (c) agrees that, notwithstanding any provisions or term to the contrary set forth in this Agreement or any of the other Security Documents, the exercise of such claimed option by PECO (or the exercise by the Revocable Trust of Marsha Perelman of its "right of first refusal" to purchase the Philadelphia Cogeneration common stock upon the exercise by PECO of its claimed option to purchase such stock) shall not constitute an Event of Default under this Agreement or an event of default under any of the Security Documents, provided that (i) the Borrower pays to the Agent, immediately upon the Borrower's receipt thereof, as a prepayment of the Advances, an amount equal to the greater of (x) the net proceeds received by the Borrower from any such purchase and sale, and (y) $9,500,000 (such greater amount being referred to as the "Prepayment Amount"), and (ii) the Credit Facility shall be permanently reduced by the Prepayment Amount, and (d) agrees that, upon receipt of the Prepayment Amount, the Agent, the Security Trustee and the Lenders shall, if requested by the Borrower, (i) release all of their Liens in the Collateral consisting of assets relating to the Philadelphia Cogeneration Project, including 69 without limitation the common stock of Philadelphia Cogeneration, the Collateral subject to the Mortgage, all personal property of Philadelphia Cogeneration and OESC serving as Collateral for the Advances, and all personal property of the Borrower located at the Philadelphia Cogeneration Project, and (ii) execute and deliver, at the Borrower's expense, such releases and terminations as the Borrower may reasonably request in order to evidence such release. 9.5 Equipment Liens. Each of the Agent, the Security Trustee, the Arranger and each of the Lenders hereby agrees that, notwithstanding any provision or term to the contrary set forth in this Agreement or any of the Security Documents, the existence of the Equipment Liens shall not constitute an Event of Default under this Agreement or an event of default under any of the Security Documents, provided that the Borrower shall deliver evidence in form and substance reasonably satisfactory to the Agent of the release of all of the Equipment Liens by not later than forty-five (45) days from and after the Initial Drawdown Date, and it is expressly agreed that the failure to so deliver such evidence within such 45-day period shall constitute an Event of Default hereunder. 10. COVENANTS 10.1 The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents: A. The Borrower will, and will procure that each other Security Party will: (i) Performance of Credit Facility Agreements. Duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Agent, the Arranger, the Security Trustee and the Lenders) of, the terms of this Agreement, the Note and the Security Documents; (ii) Notice of Default, Etc. Promptly upon obtaining knowledge thereof (and in any event within ten (10) days thereof), inform the Agent of the occurrence of (a) any Event of Default or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (b) any litigation or governmental proceeding pending or threatened against it or against any of the Project Entities which could reasonably be expected to have a Material Adverse Effect, and (c) any other event or condition which is reasonably likely to have a Material Adverse Effect on its ability, or the ability of any of the Security Parties, to perform its obligations under this Agreement, under the Note and/or under any of the Security Documents; 70 (iii) Obtain Consents. Without prejudice to Section 2(a) and this Section 10, obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its and the other Security Parties' respective obligations under this Agreement, under the Note and under the Security Documents; (iv) Financial Information. At the expense of the Borrower, deliver to the Agent: (a) as soon as available but not later than 105 days after the end of each fiscal year of the Borrower complete copies of the consolidated financial reports of the Borrower and its Subsidiaries (in the case of the Borrower, together with a Compliance Certificate), all in reasonable detail, which shall include at least the consolidated balance sheet of such entity and its Subsidiaries as of the end of such year and the related consolidated statements of income and sources and uses of funds for such year, which shall be audited reports prepared by an Acceptable Accounting Firm; (b) as soon as available but not less than 60 days after the end of each of the first three quarters of each fiscal year of the Borrower a quarterly interim consolidated balance sheet of the Borrower and its Subsidiaries and the related consolidated profit and loss statements and sources and uses of funds (in the case of the Borrower, together with a Compliance Certificate), all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of the Borrower; (c) within 30 days of the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which the Borrower shall have filed with the Securities and Exchange Commission or any similar governmental authority; (d) promptly upon the mailing thereof to the shareholders of the Borrower, copies of all financial statements, reports, proxy statements and other communications provided to the Borrower's shareholders; and 71 (e) such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), operating logs for each Existing Project, lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to the business of the Borrower as the Agent may from time to time reasonably request, certified to be true and complete by the chief financial officer of the Borrower; (v) Corporate Existence. Do or cause to be done, and procure that each Project Entity shall do or cause to be done, all things necessary to: (a) preserve and keep in full force and effect its corporate or partnership existence; and (b) preserve and keep in full force and effect all licenses, franchises, permits and assets necessary to the conduct of its business, except, in the case of clause (b) only, where the failure to do so could not reasonably be expected to result in a Material Adverse Effect; (vi) Books and Records. Keep, and cause each Project Entity to keep, proper and accurate books of record and account in accordance with GAAP throughout the Credit Facility Period; (vii) Taxes and Assessments. Pay and discharge, and cause each Project Entity to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto; (viii) Inspection. Allow, and cause each Project Entity to allow, any representative or representatives designated by any Lender, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on the reasonable request thereof, to examine (at a location where normally kept) its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, at reasonable times and upon reasonable prior notice; (ix) Compliance with Statutes, etc. Do or cause to be done, and cause each Project Entity to do and cause to be done, all things necessary to comply in all material respects with all material laws, and the rules and regulations thereunder, applicable to the Borrower or such Project Entity, including, without limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters; 72 (x) Environmental Matters. Promptly upon the occurrence of any of the following conditions, provide to the Agent a certificate of an officer thereof, specifying in detail the nature of such condition and its proposed response or the response of its Environmental Affiliates: (a) its receipt or the receipt by any Project Entity or any Environmental Affiliates of the Borrower or any Project Entity of any written communication whatsoever that alleges that such person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (b) knowledge by it, or by any Project Entity or any Environmental Affiliates of the Borrower or any Project Entity that there exists any Environmental Claim pending or threatened against any such person, which could reasonably be expected to have a Material Adverse Effect, or (c) any release, emission, discharge or disposal of any Material of Environmental Concern that could form the basis of any Environmental Claim against it, any Project Entity or against any Environmental Affiliates of the Borrower or any Project Entity under applicable Environmental Law, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect. Upon the written request by the Agent, it will submit to the Agent at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection; (xi) ERISA. Forthwith upon learning of the occurrence of any material liability of the Borrower or any Project Entity or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which the Borrower or any Project Entity or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Agent written notice thereof; (xii) Consolidated Debt Service Coverage Ratio. Maintain a Consolidated Debt Service Coverage Ratio of not less than 1:20 to 1:00 provided, however, that if the Consolidated Debt Service Coverage Ratio is at least 1.0 to 1.0, if (A) within thirty days after the occurrence of a breach of this Section 10.1(A)(xii), the Borrower provides Agent with a business plan (satisfactory to Agent), including, without limitation, the projections for the immediately succeeding twelve month period, which incorporate the assumptions set forth in the business plan, describing the steps the Borrower will take to cause the Consolidated Debt Service Coverage Ratio to be 1.2 to 1.0 or better (together with such information as Agent may reasonably request) and (B) the Borrower is proceeding with diligence and good faith to implement such business plan, then the Borrower shall have up to ninety days after the occurrence of such breach to bring the Consolidated Debt Service Coverage Ratio to a level of at least 1.2 to 1.0; provided, further, that during such ninety (90) day period, the Borrower shall be entitled 73 to no moneys from the Collection Account and the Lenders shall not be obligated to make any Advances under the Credit Facility; (xiii) Borrower Debt Service Coverage Ratio. Maintain a Borrower Debt Service Coverage Ratio of not less than 2:00 to 1:00; provided, however, that if the Borrower Debt Service Coverage Ratio is at least 1.3 to 1.0, if (A) within thirty days after the occurrence of a breach of this Section 10.1(A)(xiii), the Borrower provides Agent with a business plan (satisfactory to Agent), including, without limitation, the projections for the immediately succeeding twelve month period, which incorporate the assumptions set forth in the business plan, describing the steps the Borrower will take to cause the Borrower Debt Service Coverage Ratio to be 2.0 to 1.0 or better (together with such information as Agent may reasonably request) and (B) the Borrower is proceeding with diligence and good faith to implement such business plan, then the Borrower shall have up to ninety days after the occurrence of such breach to bring the Borrower Debt Service Coverage Ratio to a level of at least 2.0 to 1.0; provided, further, that during such ninety (90) day period, the Borrower shall be entitled to no moneys from the Collection Account and the Lenders shall not be obligated to make any Advances under the Credit Facility; (xiv) Maintenance of Properties, Etc. Preserve and maintain good and marketable title to all of its properties and assets which are necessary in the conduct of its business in good working order and condition, ordinary wear and tear excepted, subject to no Liens other than Permitted Liens; (xv) Revenue Collection Account; Assignment. Throughout the Credit Facility Period, shall cause each Project Entity to make all permissible distributions of Project Cash Flow and shall cause all such Project Cash Flow to be paid into the Revenue Collection Account; (xvi) Performance of Project Agreements. Cause each Project Entity to (A) perform and observe all of its covenants and agreements contained in the Governmental Approvals and any of the Project Agreements to which it is a party, unless the failure to perform or observe such covenants and agreements could not reasonably be expected to result in a Material Adverse Effect, (B) preserve, protect and defend its rights contained in the Governmental Approvals and any of the Project Agreements to which it is a party, unless the failure to preserve, protect or defend such rights could not reasonably be expected to result in a Material Adverse Effect and (C) maintain in full force and effect each of the Project Agreements to which it is a party and all contracts, permits and Governmental Approvals relating thereto which are necessary for the maintenance and operation its Existing Project; 74 (xvii) Operating Logs. Cause each Project Entity at its sole cost and expense to (A) maintain at its respective Existing Project daily operating logs showing, among other things the electrical output of such Existing Project, (B) keep maintenance and repair reports in sufficient detail to indicate the nature and date of all work done, (C) maintain a current operating manual and a complete set of plans, accounting records and specifications reflecting all alterations and (D) maintain all other records, logs and other materials required by the relevant Project Agreements or any Governmental Approval; (xviii) Maintenance of Insurance. Maintain or cause to be maintained with insurance companies rated "A-" or better by Best's Insurance Guide and Key Ratings or other insurance companies of recognized responsibility reasonably satisfactory to the Agent, insurance in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Security Party or Project Entity operates, and in any event the insurance coverages shall not be less than the insurance coverages set forth on Schedule 2(i). The Borrower shall, upon the request of the Agent, promptly provide a schedule indicating the policies maintained by each of the Borrower and each Project Entity, coverage limits of liability, effective dates of coverage, insurance carrier names and policy numbers. Borrower shall cause the Security Trustee to be named as loss payee or as an additional named insured in respect of the Philadelphia Cogeneration Project, for the account of the Lenders and the Agent itself. Evidence of payment of premiums for such insurance policies shall be delivered to the Agent at least thirty (30) days prior to the expiration thereof and such insurance policies shall be delivered to the Agent promptly upon its request therefor; (xix) Use of Proceeds. Use the proceeds of all Advances only as set forth in Section 3.1(a); (xx) Additional Documents; Filings and Recordings. Execute and deliver from time to time as reasonably requested by Agent, at such Security Party's expense, such other documents in connection with the rights and remedies of the Security Trustee, Agent and Lenders granted or provided for by the Security Documents, as applicable, which are necessary to consummate the transactions contemplated therein. Each Security Party shall, at its own expense, take all reasonable actions that have been or shall be requested by the Security Trustee to establish, maintain, protect, perfect and continue the perfection of the security interests of the Security Trustee created by the Security Documents including the execution of such instruments, and providing such other information as may be required to enable the Security Trustee to effect any such action. Without limiting the generality of the foregoing, each Security Party shall execute or cause to be executed and shall file or cause to be filed such financing statements, continuation statements, fixture filings, assignments, mortgages or deed of trust in all 75 places necessary or advisable (in the opinion of counsel for the Security Trustee) to establish, maintain and perfect such security interests and in all other places that the Security Trustee shall reasonably request. B. The Borrower will not, and will procure that each Project Entity will not, without the prior written consent of the Agent (or the Majority Lenders or all of the Lenders if required by Section 16.7): (i) Liens. Create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral except Permitted Liens. (ii) Capital Expenditures. Make any capital expenditures (excluding ordinary or scheduled maintenance) in relation to any Existing Project, in any calendar year, exceeding (i) with respect to the Parlin Project and the Grays Ferry Project, $2,000,000, (ii) with respect to the Newark Project, $1,000,000, or (iii) with respect to the Philadelphia Cogeneration Project, $500,000; provided, however, that, during the calendar year 1997, such capital expenditures of up to $2,000,000 may be made in respect of the Newark Project; (iii) Indebtedness. Incur any Indebtedness except (a) Indebtedness hereunder or in connection herewith to the Agent, the Arranger, the Security Trustee or the Lenders, or (b) so long as no Event of Default occurs and is continuing: (i) if non-recourse to the Borrower, Indebtedness of any Subsidiary of the Borrower which is formed after the Initial Drawdown Date; (ii) Indebtedness of the Borrower to NRG Energy which is subordinated, pursuant to a Subordination Agreement, to the Borrower's obligations under this Agreement, the Note and any of the Security Documents; (iii) Indebtedness of up to $1,000,000 during each calendar year during the Credit Facility Period of OESC pursuant to the OESC Financing Program, for use in the ordinary course of business of OESC to finance the OESC Rental Fleet; (iv) unsecured Indebtedness of the Borrower, if subordinated, pursuant to a Subordination Agreement, to the Borrower's obligations under this Agreement, the Note and the Security Documents, the terms of any such Indebtedness to be acceptable to the Agent; (v) Indebtedness of any Project Entity, if non-recourse to the Borrower, under interest rate swap agreements to hedge interest rate exposure for permitted non-recourse financings; (vi) Indebtedness under (A) that certain Credit Agreement, dated as of March 1, 1996, among Grays Ferry, the financial institutions listed on Exhibit H thereto and The Chase Manhattan Bank, N.A., and (B) that certain Credit Agreement, dated as of May 17, 1996, among Newark, Parlin, Credit Suisse, Greenwich Funding Corporation and any Purchasing Lender and Credit Suisse; and (vii) Indebtedness of Grays Ferry incurred under fuel price hedges as the same were in effect on March 1, 1996; 76 (iv) Change in Business. Materially change the nature of its business or commence any business materially different from its current business; (v) Sale or Pledge of Shares. Sell, assign, transfer, pledge or otherwise convey or dispose of any of the shares or direct or indirect interest (including by way of spin-off, installment sale or otherwise) of the capital stock of or other equity interests in any Project Entity; (vi) Sale of Assets. Sell, or otherwise dispose of, any Existing Project or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole, except for (a) sales and dispositions of obsolete, worn or replaced property not used or useful in such Project Entity's business provided that the proceeds thereof (to the extent not used to replace such obsolete, worn or replace property) shall be deposited in the Collection Account and (b) transfers of assets from OESC to Philadelphia Cogeneration, and from the Borrower to Philadelphia Cogeneration, in connection with the consolidation of the Philadelphia Cogeneration operating assets; (vii) Changes in Offices or Names. Change the location of the chief executive office of any Security Party, the office of the chief place of business any such parties, the office of the Security Parties in which the records relating to the earnings or insurances of the Existing Projects are kept unless the Agent shall have received thirty (30) days prior written notice of such change; (viii) Consolidation and Merger. Consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into the Borrower or any Project Entity provided, that, Philadelphia Cogeneration and OESC may merge and/or consolidate their operations into Philadelphia Cogeneration as long as the security interest of the Security Trustee in their assets maintains its priority and effectiveness; (ix) Limitation on Dividends. Directly or indirectly declare or pay any dividend or make any distribution on its capital stock (other than stock dividends) or distribution to partners, as the case may be (any such payments being defined as "Dividends") (except that the Project Entities may distribute Project Cash Flow to the Borrower and Philadelphia Cogeneration and Philadelphia Biogas may pay regularly scheduled dividends on their respective stock held by the Revocable Trust of Marsha Reines Perelman until such time as such shares are redeemed by Philadelphia Cogeneration or Philadelphia Biogas or purchased by the Borrower) unless not less than thirty (30) days prior to the proposed date of payment of such Dividend the Borrower shall have delivered to the Agent (A) a certificate signed by the chief financial officer of the Borrower that, after giving effect to such proposed Dividend Payment, no Default or 77 Event of Default would occur or reasonably be anticipated to occur and/or be continuing and (B) the Letter of Credit; (x) Amendment, Termination, Etc. of Project Agreements. Terminate, cancel or suspend, or permit or consent to any termination, cancellation or suspension of, or enter into or consent to or permit the assignment of the rights or obligations of any party to, any of the Project Agreements or Governmental Approvals. The Borrower shall not permit any Project Entity to, directly or indirectly, amend, modify, supplement or waive, or permit or consent to the amendment, modification, supplement or waiver of, any of the provisions of, or give any consent under, any of the Project Agreements without (A) first submitting to the Agent a copy of such proposed amendment, modification, supplement, waiver or consent and (B) if in the reasonable judgment of the Agent, such proposed amendment, modification, supplement, waiver or consent could reasonably be expected to result in a Material Adverse Effect, the express prior written consent of the Majority Lenders thereto; (xi) Fiscal Year. Change its fiscal year; (xii) Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate except for (A) transactions contemplated by existing operations and maintenance agreements and/or management agreements in respect of the Existing Projects, (B) transactions contemplated by the April 30, 1996 Management Services Agreement between the Borrower and NRG Energy, and (C) other transactions in the ordinary course of business and pursuant to the reasonable requirements of such Security Party's or Project Entity's business and upon fair and reasonable terms no less favorable than would be obtained in an comparable arm's length transaction with a Person not an Affiliate, which, as to any transaction with NRG Energy or its Affiliates, shall be conclusively determined if the Independent Committee of the Board of Directors of the Borrower approves such transaction; and (xiii) Investments. Make any Investments except (i) investments, directly or indirectly, in Future Projects and (ii) Permitted Investments or use any part of the proceeds of any Advance to purchase margin stock (as defined in the regulations referred to below) or for any other purpose which would result in the violation by any Borrower Entity of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System or to extend credit to others for any such purpose. 78 11. ASSIGNMENT. This Agreement shall be binding upon, and inure to the benefit of, the Borrower and the Lenders, the Arranger, the Security Trustee and the Agent and their respective successors and assigns, except that the Borrower may not assign any of its rights or obligations hereunder. Each Lender shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in the Credit Facility to any subsidiary, holding company or other affiliate of such Lender, to any subsidiary or other affiliate company of any thereof or, with the consent of the Borrower and the Agent, not to be unreasonably withheld, to any other bank or financial institution (in a minimum amount of not less than $5,000,000, provided, however, that, unless otherwise agreed to in writing by the Agent and the Borrower (such consent of the Borrower not to be unreasonably withheld), after giving affect to any such assignment or grant of participation, such Lender's remaining Commitment shall be in an amount equal to at least $5,000,000), and such Lender shall forthwith give notice of any such assignment or participation to the Borrower; provided, however, that any such an assignment must be made pursuant to an Assignment and Assumption Agreement. The Borrower will take all reasonable actions requested by the Agent or any Lender to effect an assignment, including, without limitation, the execution of a written consent to an Assignment and Assumption Agreement. Voting rights of any participants shall be limited to those matters with respect to which the affirmative vote of the Lender from which it purchased its participation would be required. Pledges of a Lender's loans under the this Agreement are permitted without restriction to any Federal Reserve Bank in support of borrowings made by the pledging Lender to such Federal Reserve Bank. Separate Notes to individual Lenders will be issued only upon request and only in connection with a pledge thereof to a Federal Reserve Bank. 12. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC. 12.1 Illegality. In the event that by reason of any change in any applicable law, regulation or regulatory requirement or in the interpretation thereof, a Lender has a reasonable basis to conclude that it has become unlawful for any Lender to maintain or give effect to its obligations as contemplated by this Agreement, such Lender shall inform the Agent and the Borrower to that effect, whereafter the liability of such Lender to make its Commitment available shall forthwith cease and the Borrower shall be required either to repay to such Lender that portion of the Advances advanced by such Lender immediately or, if such Lender so agrees, to repay such portion of the Advances to the Lender on the last day of any then current Interest Period in accordance with and subject to the provisions of Section 12.5, provided, that, should such illegality relate solely to a Lender's ability to make LIBOR Rate Advances, any such LIBOR Rate Advances outstanding shall be converted to Base Rate Advances and such Lender's obligation to make Base Rate Advances available to the Borrower shall continue. In any such event, 79 but without prejudice to the aforesaid obligations of the Borrower to repay such portion of the Advances, the Borrower and the relevant Lender shall negotiate in good faith with a view to agreeing on terms for making such portion of the Advances available from another jurisdiction or otherwise restructuring such portion of the Credit Facility on a basis which is not unlawful. 12.2 Increased Costs. If any change in applicable law, regulation or regulatory requirement, or in the interpretation or application thereof by any governmental or other authority, shall: (i) subject any Lender to any Taxes with respect to its income from the Credit Facility, or any part thereof, or (ii) change the basis of taxation to any Lender of payments of principal or interest or any other payment due or to become due pursuant to this Agreement (other than a change in the basis effected by the jurisdiction of organization of such Lender, the jurisdiction of the principal place of business of such Lender, the United States of America, the State or City of New York or any governmental subdivision or other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted solely by reason of the activities of the Borrower or any of the other Security Parties) or such other jurisdiction where the Credit Facility may be payable), or (iii) impose, modify or deem applicable any reserve requirements or require the making of any special deposits against or in respect of any assets or liabilities of, deposits with or for the account of, or loans by, a Lender, or (iv) impose on any Lender any other condition affecting the Credit Facility or any part thereof, and the result of the foregoing is either to increase the cost to such Lender of making available or maintaining its Commitment or any part thereof or to reduce the amount of any payment received by such Lender (collectively, "Increased Costs"), then and in any such case if such increase or reduction in the opinion of such Lender materially affects the interests of such Lender under or in connection with this Agreement: (a) the Lender shall notify the Agent and the Borrower of the happening of such event, and 80 (b) the Borrower agrees forthwith upon demand to pay to such Lender the amount of such Increased Costs. PROVIDED, however, that the foregoing provisions shall not be applicable in the event that Increased Costs to the Lender result from the exercise by the Lender of its right to assign its rights or obligations under Section 12. At the Borrower's request, such Lender shall provide the Borrower with reasonable evidence of the Increased Costs to such Lender. Each Lender shall notify the Borrower of any event that will entitle such Lender to compensation under this Section within 45 days after such Lender obtains actual knowledge thereof, provide that if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable under this Section, only be entitled to payment for Increased Costs incurred from and after the date that is 45 days prior to the date that such Lender does give such notice. Except as provided in the preceding sentence, the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay any amounts pursuant to this Section. 12.3 Nonavailability of Funds. If the Agent shall determine that, by reason of circumstances affecting the London Interbank Market generally, adequate and reasonable means do not or will not exist for ascertaining the Applicable Rate for any LIBOR Rate Advance for any Interest Period, the Agent shall give notice of such determination to the Borrower, and the right of the Borrower to select LIBOR Rate Advances shall be suspended until the Agent shall notify the Borrower that the circumstances causing such suspension no longer exists. During such suspension, all Advances shall be made as Base Rate Advances. 12.4 Compensation for Losses. Where any Advance or a portion thereof is to be repaid by the Borrower pursuant to this Section 12, the Borrower agrees simultaneously with such repayment to pay to the relevant Lender all accrued interest to the date of actual payment on the amount repaid and all other sums then payable by the Borrower to the relevant Lender pursuant to this Agreement, together with such amounts as may be necessary to compensate such Lender for any actual loss, premium or penalties incurred or to be incurred thereby on account of funds borrowed to make, fund or maintain its Commitment or such portion thereof for the remainder (if any) of the then current Interest Period or Periods, if any, but otherwise without penalty or premium. At the Borrower's request, such Lender shall provide the Borrower with reasonable evidence of the actual loss, premium or penalty incurred by such Lender. 12.5 Replacement of Lender. (a) In the event that (i) any Lender requests compensation pursuant to Section 12.2 or 12.4, (ii) the obligation of any Lender to make or continue its proportionate interest in the Loans or the Commitments is terminated 81 pursuant to Section 12.1, (iii) the obligation of any Lender to make or continue LIBOR Rate Advances shall be suspended pursuant to Section 12.3, or (iv) any Lender becomes insolvent or fails to make any Advance in response to a request for borrowing by the Borrower where the Majority Lenders have made the respective Advances to be made by them in response to such request, then, so long as such condition exists and no Event of Default has occurred and is continuing, the Borrower may either (x) designate another financial institution (such financial institution being herein called a "Replacement Lender") acceptable to the Agent (which acceptance shall not be unreasonably withheld) and which is not an Affiliate of the Borrower, to assume such Lender's Commitment hereunder and to purchase the Advances of such Lender and such Lender's rights under this Agreement and the Notes and any other Security Documents held by such Lender, all without recourse to or representation or warranty by, or expense to, such original Lender, for a purchase price equal to the outstanding principal amount of the Advances payable to such Lender plus any accrued but unpaid interest on such Advances and accrued but unpaid fees owing to such Lender under this Agreement, and upon such assumption, purchase and substitution, and subject to the execution and delivery to the Agent by the Replacement Lender of documentation satisfactory to the Agent (pursuant to which such Replacement Lender shall assume the obligations of such original Lender under this Agreement), the Replacement Lender shall succeed to the rights and obligations of such original Lender hereunder, or (y) pay to such Lender the outstanding principal amount of the Advances and accrued but unpaid interest on such Advances and accrued but unpaid fees owing to such Lender under this Agreement. In the event that the Borrower exercises its rights under the preceding sentence, the Lender against which such rights were exercised shall no longer be a party hereto or have any rights or obligations hereunder. If the Borrower exercises its rights under clause (y) above against any Lender, then the outstanding Advances and the Commitments shall be reduced to the extent of such Lender's pro rata share of the Advances and the Commitments. (b) If the Borrower exercises its rights under clause (y) of Section 12.5(a) hereof, the Borrower may, not later than the first anniversary of such exercise, designate another financial institution (such financial institution being herein called a "Substitute Lender") acceptable to the Agent (which acceptance shall not be unreasonably withheld) and which is not an Affiliate of the Borrower, to assume the Commitments of the Lender against which such rights were exercised and, subject to the execution and delivery to the Agent by the Substitute Lender of documentation satisfactory to the Lender, the Substitute Lender shall become a party to this Agreement as a Lender. Upon the Substitute Lender becoming a party to this Agreement, the Borrower shall borrow Advances from the Substitute Lender in such a manner and in such amounts as will result in the outstanding principal amount of the Advances held by the Lenders being pro rata according to the amounts of their respective Commitments. 82 13 FEES AND EXPENSES 13.1 Commitment Fee. The Borrower shall pay to the Agent for the account of the Lenders a fee in an amount equal to three-eighths of one percent (3/8%) per annum on the committed but undrawn amount of the Credit Facility from the date hereof through the Maturity Date quarterly in arrears, provided, however that, if on the last day of any calendar quarter the average amount of outstanding Advances under the Credit Facility during the immediately preceding four calendar quarters is less than 80% of the Credit Facility (as reduced from time to time), the commitment fee payable hereunder shall for such calendar quarter be increased to one-half of one percent (1/2%). Such fee shall accrue from day-to-day and be calculated on the actual number of days elapsed and a three hundred and sixty (360) day year. 13.2 Administrative Fee. The Borrower shall pay the Agent an annual administrative fee of $30,000, payable on the Initial Drawdown Date and on each anniversary thereof (excluding the Maturity Date). 13.3 Expenses. The Borrower agrees, whether or not the transactions hereby contemplated are consummated, on demand to pay, or reimburse the Agent, the Security Trustee and the Arranger for their payment of, the reasonable expenses of the Agent, the Security Trustee, the Arranger and (after the occurrence and during the continuance of an Event of Default) the Lenders incident to said transactions (and in connection with any supplements, amendments, waivers or consents relating thereto or incurred in connection with the enforcement or defense of any of the Agent's, the Security Trustee's, the Arranger's and the Lenders' rights or remedies with respect thereto or in the preservation of the Agent's, the Security Trustee's, the Arranger's and the Lenders' priorities under the documentation executed and delivered in connection therewith) including, without limitation, all reasonable costs and expenses of the Agent, the Security Trustee and the Arranger of preparation, negotiation, execution and administration (other than routine administration) of this Agreement and the documents referred to herein, the reasonable fees and disbursements of the Agent's counsel in connection therewith, as well as the reasonable fees and expenses of any independent appraisers, surveyors, engineers and other consultants reasonably retained by the Agent, the Security Trustee or the Arranger in connection with this transaction (provided, however, that unless an Event of Default has occurred, neither the Agent, the Security Trustee or the Arranger shall be entitled to reimbursement of any consultants fees and expenses unless the Borrower shall have received notice of the intention to retain such consultants and a reasonable opportunity to provide such party with the requested information), all reasonable costs and expenses, if any, in connection with the enforcement of this Agreement, the Note and the Security Documents and stamp and other similar taxes, if any, incident to the execution and delivery of the documents (including, without limitation, the Note) herein contemplated and to hold the Agent, the Security Trustee, the Arranger and the Lenders free and 83 harmless in connection with any liability arising from the nonpayment of any such stamp or other similar taxes. Such taxes and, if any, interest and penalties related thereto as may become payable after the date hereof shall be paid immediately upon demand by the Borrower to the Agent, the Security Trustee, the Arranger or the Lenders, as the case may be, when liability therefor is no longer contested by such party or parties or reimbursed immediately by the Borrower to such party or parties after payment thereof (if the Agent, the Security Trustee, the Arranger or the Lenders, at their sole discretion, chooses to make such payment). 14 APPLICABLE LAW, JURISDICTION AND WAIVER 14.1 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 14.2 Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Lenders, the Agent, the Security Trustee or the Agent under this Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Borrower by mailing (certified or registered mail) or delivering the same by hand to the Borrower at the address indicated for notices in Section 16.1. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding. A judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Lenders, the Agent, the Security Trustee or the Arranger) after exhaustion of any appeals taken against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Borrower will advise the Agent promptly of any change of address for the purpose of service of process. Notwithstanding anything herein to the contrary, the Lenders may bring any legal action or proceeding in any other appropriate jurisdiction. 14.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND AMONG THE BORROWER, THE OTHER SECURITY PARTIES, THE ARRANGER, THE AGENT, THE SECURITY TRUSTEE AND THE LENDERS THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER 84 ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE NOTE, THE GUARANTEE OR THE SECURITY DOCUMENTS. 15. THE AGENT 15.1 (a) Appointment of Agent. Each of the Lenders hereby irrevocably appoints and authorizes the Agent (which for purposes of this Section 15 shall be deemed to include the Agent acting in its capacity as Security Trustee pursuant to Section 15.1(b)) to take such action as agent on its behalf and to exercise such powers under this Agreement, the Note and the Security Documents as are delegated to the Agent by the terms hereof and thereof. Neither the Agent nor any of its directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under this Agreement, the Note or the Security Documents or in connection therewith, except for its or their own gross negligence or willful misconduct. (b) Appointment of Security Trustee. Each of the Lenders irrevocably appoints the Security Trustee as security trustee on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Lenders or any of them or for the benefit thereof under or pursuant to this Agreement, the Note or any of the Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Lender in the Agreement, the Note or any Security Document), (ii) all moneys, property and other assets paid or transferred to or vested in any Lender or any agent of any Lender or received or recovered by any Lender or any agent of any Lender pursuant to, or in connection with, this Agreement, the Note or the Security Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Lender or any agent of any Lender in respect of the same (or any part thereof). The Security Trustee hereby accepts such appointment. 15.2 Distribution of Payments. Whenever any payment is received by the Agent from the Borrower or any other Security Party for the account of the Lenders, or any of them, whether of principal or interest on the Note, commissions, fee under Section 13.1 or otherwise, it will thereafter cause to be distributed on the same day if received before 11 a.m. New York time, or on the next day if received thereafter, like funds relating to such payment ratably to the Lenders according to their respective Commitments, in each case to be applied according to the terms of this Agreement. 15.3 Holder of Interest in Note. The Agent may treat each Lender as the holder of all of the interest of such Lender in the Note. 85 15.4 No Duty to Examine, Etc. The Agent shall not be under a duty to examine or pass upon the validity, effectiveness or genuineness of any of this Agreement, the Note, the Security Documents or any instrument, document or communication furnished pursuant to this Agreement or in connection therewith or in connection with the Note, or any Security Document, and the Agent shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be. 15.5 Agent as Lender. With respect to that portion of the Advances made available by it, the Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall include the Agent in its capacity as a Lender. The Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with, the Borrower and the other Security Parties as if it were not the Agent. 15.6 (a) Obligations of Agent. The obligations of the Agent under this Agreement, under the Note and under the Security Documents are only those expressly set forth herein and therein. (b) No Duty to Investigate. The Agent shall not at any time be under any duty to investigate whether an Event of Default, or an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred or to investigate the performance of this Agreement, the Note or any Security Document by any Security Party. 15.7 (a) Discretion of Agent. The Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement, the Note and the Security Documents, unless the Agent shall have been instructed by the Majority Lenders to exercise such rights or to take or refrain from taking such action; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. (b) Instructions of Majority Lenders. The Agent shall in all cases be fully protected in acting or refraining from acting under this Agreement, under the Note or under any Security Document in accordance with the instructions of the Majority Lenders, and any action taken or failure to act pursuant to such instructions shall be binding on all of the Lenders. Neither this Agreement nor any of the Security Documents nor any terms hereof or thereof may be amended unless such amendment is approved by the Borrower and the Majority Lenders, provided that no such amendment shall, without the consent of each Lender affected hereby, (i) extend the Credit Facility Period, or 86 reduce the rate or extend the time of payment of principal or interest or fees thereon, or reduce the principal amount of the Advances, (ii) increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any default or Event of Default or any mandatory repayment of Advances shall not constitute a change in the terms of any Commitment of any Lender), (iii) amend, modify or waive any provision of this Section 15, (iv) amend the definition of Majority Lenders, (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (vi) release any Security Party from any of its obligations under any Security Document except as expressly provided herein or in such Security Document or (vii) amend any provision relating to the maintenance of collateral under Section 9.3. All amendments approved by the Majority Lenders under this Section 15 must be in writing and signed by the Borrower and each of the Lenders. In the event that any Lender is unable to or refuses to sign an amendment approved by the Majority Lenders hereunder, such Lender hereby appoints the Agent as its Attorney-In-Fact for the purposes of signing such amendment. No provision of this Section 15 or any other provisions relating to the Agent may be modified without the consent of the Agent. 15.8 Assumption re Event of Default. Except as otherwise provided in Section 15.14, the Agent shall be entitled to assume that no Event of Default, or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, unless the Agent has been notified by any Security Party of such fact, or has been notified by a Lender that such Lender considers that an Event of Default or such an event (specifying in detail the nature thereof) has occurred and is continuing. In the event that the Agent shall have been notified by any Security Party or any Lender in the manner set forth in the preceding sentence of any Event of Default or of an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, the Agent shall notify the Lenders and shall take action and assert such rights under this Agreement, under the Note and under the Security Documents as the Majority Lenders shall request in writing. 15.9 No Liability of Agent or Lenders. Neither the Agent nor any of the Lenders shall be under any liability or responsibility whatsoever: (A) to any Security Party or any other person or entity as a consequence of any failure or delay in performance by, or any breach by, any other Lenders or any other person of any of its or their obligations under this Agreement or under any Security Document; (B) to any Lender or Lenders as a consequence of any failure or delay in performance by, or any breach by, any Security Party of any of its respective obligations under this Agreement, under the Note or under the Security Documents; or 87 (C) to any Lender or Lenders for any statements, representations or warranties contained in this Agreement, in any Security Document or in any document or instrument delivered in connection with the transaction hereby contemplated; or for the validity, effectiveness, enforceability or sufficiency of this Agreement, the Note , any Security Document or any document or instrument delivered in connection with the transactions hereby contemplated. 15.10 Indemnification of Agent. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Security Parties or any thereof), pro rata according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including legal fees and expenses incurred in investigating claims and defending itself against such liabilities) which may be imposed on, incurred by or asserted against, the Agent in any way relating to or arising out of this Agreement, the Note, or any Security Document, any action taken or omitted by the Agent thereunder or the preparation, administration, amendment or enforcement of, or waiver of any provision of, this Agreement, the Note, or any Security Document, except that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. 15.11 Consultation with Counsel. The Agent may consult with legal counsel selected by the Agent and shall not be liable for any action taken, permitted or omitted by it in good faith in accordance with the advice or opinion of such counsel. 15.12 Resignation. The Agent may resign at any time by giving sixty (60) days' written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Lenders and shall have accepted such appointment within sixty (60) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank or trust company of recognized standing. The appointment of any successor Agent shall be subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld. After any retiring Agent's resignation as Agent hereunder, the provisions of this Section 15 shall continue in effect for its benefit with respect to any actions taken or omitted by it while acting as Agent. 15.13 Representations of Lenders. Each Lender represents and warrants to each other Lender and the Agent that: (i) In making its decision to enter into this Agreement and to make its Commitment available hereunder, it has independently taken whatever steps it considers 88 necessary to evaluate the financial condition and affairs of the Security Parties, that it has made an independent credit judgment and that it has not relied upon any statement, representation or warranty by any other Lender or the Agent; and (ii) So long as any portion of its Commitment remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Security Parties. 15.14 Notification of Event of Default. The Agent hereby undertakes to promptly notify the Lenders, and the Lenders hereby promptly undertake to notify the Agent and the other Lenders, of the existence of any Event of Default which shall have occurred and be continuing of which the Agent or any Lender has actual knowledge. 16. NOTICES AND DEMANDS 16.1 Notices. All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower at the address or telecopy number set forth below and to the Lenders, the Agent and the Security Trustee at their address and telecopy number set forth in Schedule 1 or at such other address or telecopy number as such party may hereafter specify for the purpose by notice to each other party hereto. Each such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused. If to the Borrower: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telecopy No. (612) 373-8833 89 with a copy to: Troutman Sanders LLP 600 Peachtree Street, N.W. Suite 5200 Atlanta, Georgia 30308-2216 Attention: M. Stuart Sutherland, Esq. Telecopy No. (404) 885-3900 17. MISCELLANEOUS 17.1 Time of Essence. Time is of the essence of this Agreement but no failure or delay on the part of any Lender, the Agent, the Security Trustee or the Arranger to exercise any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by any Lender, the Agent, the Security Trustee or the Arranger of any power or right hereunder preclude any other or further exercise thereof or the exercise of any other power or right. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law. 17.2 Unenforceable, etc., Provisions - Effect. In case any one or more of the provisions contained in this Agreement, the Note or in any Security Document would, if given effect, be invalid, illegal or unenforceable in any respect under any law applicable in any relevant jurisdiction, said provision shall not be enforceable against the relevant Security Party, but the validity, legality and enforceability of the remaining provisions herein or therein contained shall not in any way be affected or impaired thereby. 17.3 References. References herein to Sections, Schedules and Exhibits are to be construed as references to sections of, schedules to and exhibits to, this Agreement. 17.4 Prior Agreements, Merger. Any and all prior understandings and agreements heretofore entered into between the Security Parties on the one part, and the Agent, the Security Trustee, the Arranger or the Lenders, on the other part, whether written or oral, are superseded by and merged into this Agreement and the other agreements (the forms of which are exhibited hereto) to be executed and delivered in connection herewith to which the Security Parties, the Security Trustee, the Arranger, the Agent and/or the Lenders are parties, which alone fully and completely express the agreements between the Security Parties, the Security Trustee, the Arranger, the Agent and the Lenders with respect to the subject matter hereof. 90 17.5 Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof including all parties added hereto pursuant to an Assignment and Assumption Agreement and, subject to Section 15.7(b) cannot be amended other than by written agreement signed by all such parties. 17.6 Indemnification. The Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to indemnify each Lender, the Agent, the Security Trustee and the Arranger, their respective successors and assigns, and their respective officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, asserted against or incurred by, any Indemnitee as a result of, or arising out of or in any way related to or by reason of any investigation, litigation or other proceeding related to this Agreement, the Credit Facility or the use of proceeds of the Advances, including without limitation any investigation, litigation or other proceeding related to, (a) any violation by any Security Party of any applicable Environmental Law, (b) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by any Security Party (or, after foreclosure, by any Lender, the Agent, the Security Trustee, the Arranger or any of their respective successors or assigns), (c) the breach of any representation, warranty or covenant set forth in Sections 2.1(v) or 10.1A.(x) and (d) the alleged PECO option referenced in Section 9.4 above; provided, that the foregoing indemnity will not, as to any Indemnitee, apply to losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements, to the extent they are found by a judgment of a court of competent jurisdiction to arise from (A) the willful misconduct or gross negligence of such Indemnitee or (B) a dispute between the Borrower and such Indemnitee in which the Borrower prevails. Each such Indemnitee shall use its best efforts to, upon becoming aware of any event which may result in the Borrower being required to perform any of its indemnity obligations under this Section, promptly notify the Borrower (provided that failure to so notify shall not mitigate the obligations of the Borrower hereunder). If and to the extent that the obligations of the Security Parties under this Section are unenforceable for any reason, the Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. The obligations of the Security Parties under this 91 Section 17.7 shall survive the termination of this Agreement and the repayment to the Lender of all amounts owing thereto under or in connection herewith. 17.7 Headings. In this Agreement, Section headings are inserted for convenience of reference only and shall not be taken into account in the interpretation of this Agreement. 92 IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written. NRG GENERATING (U.S.) INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO MEESPIERSON CAPITAL CORP. By: /s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By: /s/ John O'Connor Name: John O'Connor Title: Senior Vice President CONSENT AND AGREEMENT Each of the undersigned, referred to in the foregoing Credit Agreement as the "Security Parties", hereby consents and agrees to said Credit Agreement and to the documents contemplated thereby and to the provisions contained therein relating to conditions to be fulfilled and obligations to be performed by the undersigned pursuant to or in connection with said Credit Agreement and agrees particularly to be bound by the representations, warranties and covenants relating to the undersigned contained in Sections 2 and 10 of said Credit Agreement and by the indemnification provisions of Section 17.7 of said Credit Agreement to the same extent as if the undersigned were a party to said Credit Agreement. O'BRIEN (PHILADELPHIA) COGENERATION INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO O'BRIEN ENERGY SERVICES COMPANY By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO EX-10.26.2 11 EXHIBIT 10.26.2 PROMISSORY NOTE DATED DECEMBER 17, 1997 FROM THE COMPANY TO MEESPIERSON CAPITAL CORPORATION IN THE PRINCIPAL AMOUNT OF $30,000,000. Exhibit 10.26.2 PROMISSORY NOTE in favor of MEESPIERSON CAPITAL CORP., as Agent December 17, 1997 PROMISSORY NOTE US $30,000,000 December 17, 1997 New York, New York FOR VALUE RECEIVED, the undersigned, NRG GENERATING (U.S.) INC., a corporation incorporated under the laws of the State of Delaware (the "Borrower"), hereby promises to pay to the order of MEESPIERSON CAPITAL CORP., a corporation incorporated under the laws of the State of Delaware, in its capacity as agent for the Lenders which are parties to the Credit Agreement (as such terms are hereinafter defined) (the "Agent"), with offices at 445 Park Avenue, New York, New York, the principal sum of Thirty Million United States Dollars (US $30,000,000) or, if less, the aggregate unpaid principal amount of the Advances from time to time outstanding made by the Lenders to the Borrower pursuant to the Credit Agreement. The Borrower shall repay the principal amount of such Advances as provided in Section 5 of the Credit Agreement, but in any event no later than the Maturity Date. Words and expressions used herein (including those in the foregoing paragraph) and defined in the Credit Agreement shall have the same meaning herein as therein defined. The Credit Facility Balance shall bear interest at the Applicable Rate. Any principal payment not paid when due, whether by acceleration or otherwise, shall bear interest thereafter at a rate per annum of two percent (2%) over the Applicable Rate in effect with respect thereto at the time of such default. All interest shall accrue from day to day and be calculated on the actual number of days elapsed and on the basis of a 360 day year with respect to each LIBOR Rate Advance and on the basis of a 365/366 day year with respect to each Base Rate Advance. Both principal and interest are payable in lawful money of the United States of America to the Agent, at its New York branch located at 445 Park Avenue, New York, New York (or to such other office of the Agent as the Agent may direct), in immediately available same day funds. The Agent may endorse the amount and the date of the making of each Advance evidenced hereby and each payment of principal hereunder on the grid annexed hereto and made a part hereof, which endorsement shall constitute prima facie evidence of the accuracy of the information so endorsed; provided, however, that any failure to endorse such information on such grid shall not in any manner affect the obligation of the Borrower to make payment of principal and interest in accordance with the terms of this Promissory Note. If this Promissory Note or any payment required hereunder becomes due and payable on a day which is not a Banking Day (as hereinafter defined) the due date thereof shall be extended until the next following Banking Day (in which event, interest shall be payable during such extension at the rate applicable immediately prior thereto), unless such next following Banking Day falls in the following month in which case such payment shall be payable on the Banking Day immediately preceding the day on which such payment would otherwise be payable. "Banking Day" means a day on which banks are open for the transaction of business of the nature required by this Promissory Note in London, England (with respect to LIBOR Rate Advances only), and New York. This Promissory Note is the Note referred to in, and is entitled to the security and benefits of, (1) the Credit Agreement (the "Credit Agreement"), dated December __, 1997, by and among the Borrower, the Agent, and the Lenders whose names are set forth on Schedule 1 thereto, and (2) the Security Documents. Upon the occurrence of any Event of Default under the Credit Agreement, the principal hereof and accrued interest hereon may be declared to be and shall thereupon become, forthwith, due and payable. Presentment, demand, protest and notice of dishonor of this Promissory Note or any other notice of any kind are hereby expressly waived. THE BORROWER AND, BY THEIR ACCEPTANCE HEREOF, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO OR ANY BENEFICIARY HEREOF ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS PROMISSORY NOTE. THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 2 IN WITNESS WHEREOF, the Borrower has executed and delivered this Promissory Note on the date and year first above written. NRG GENERATING (U.S.) INC. By /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO 3 ADVANCES AND PAYMENTS OF PRINCIPAL Type Amount of Unpaid of Amount of Principal Paid Principal Notation Date Advance Advance or Prepaid Balance Made By 4 EX-10.26.3 12 EXHIBIT 10.26.3 PLEDGE AGREEMENT DATED DECEMBER 17, 1997 BETWEEN NRG GENERATING (U.S.) INC. AND MEESPIERSON CAPITAL CORPORATION. Exhibit 10.26.3 PLEDGE AGREEMENT NRG GENERATING (U.S.) INC., and MEESPIERSON CAPITAL CORP., as Security Trustee December 17, 1997 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT is made as of this 17 day of December, 1997, between NRG GENERATING (U.S.) INC., a Delaware corporation having offices at 1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403 (the "Borrower") and MeesPierson Capital Corp., a Delaware corporation having offices at 445 Park Avenue, New York, New York ("MPCC"), as security trustee (the "Pledgee"). WITNESSETH: WHEREAS: A. Pursuant to a credit agreement dated as of December 17, 1997 (the "Credit Agreement") made by and among (i) the Borrower, as borrower, (ii) MPCC, as arranger, (iii) the banks and financial institutions whose names and addresses are set out in Schedule 1 thereto (together, the "Lenders") and (iv) MPCC, as agent (in such capacity, the "Agent') and security trustee (in such capacity the "Security Trustee") for the Lenders, the Lenders, subject to the terms thereof, have agreed to make advances to the Borrower of up to Thirty Million United States Dollars (US$30,000,000) outstanding at any time (the "Credit Facility"); B. As of the date hereof, the Borrower is the registered and beneficial owner of 83% of the issued and outstanding shares of capital stock (the "Pledged Shares") of O'Brien (Philadelphia) Cogeneration Inc., a Delaware corporation (the "Pledged Corporation") and the Pledged Shares are represented by stock certificates described in Schedule 1 hereto (collectively, the "Stock Certificates"); and C. It is a condition precedent to the availability of the Credit Facility to the Borrower that the Borrower execute and deliver to the Pledgee, among other things, this Pledge Agreement. NOW, THEREFORE, in consideration of the premises the Borrower agrees with the Pledgee as follows: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings when used herein. 2. Grant of Security. As security for the full and prompt payment to the Agent and the Lenders of all sums owing by the Borrower to the Lenders whether for principal, interest, fees, expenses or otherwise, under and in connection with the Credit Agreement, the Note and the other Security Documents or otherwise and the due and punctual performance by the Borrower of its obligations in connection therewith (all of the above now or hereafter existing, together the "Obligations"), the Borrower hereby pledges, assigns, transfers and delivers to the Pledgee as Agent and Security Trustee for the Lenders the Pledged Shares and hereby grants to the Pledgee a first lien on, and first security interest in, the Pledged Shares. 3. Pledge Documents. Concurrently with the execution of this Pledge Agreement, the Borrower shall execute and deliver to the Pledgee Irrevocable Proxies in favor of the Pledgee in respect of the Pledged Shares in the form set out in Exhibit A hereto (the "Irrevocable Proxies"), and shall deliver to the Pledgee the Stock Certificates together with signed, undated stock powers pertaining thereto duly executed in blank. 4. Representations and Warranties. The Borrower represents and warrants that: (i) it is the legal and beneficial owner of, and has good and marketable title to, the Pledged Shares, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever, except the lien and security interest created by this Pledge Agreement and the delivery of the Pledged Shares to the Pledgee; (ii) it has full power, authority and legal right to execute, deliver and perform this Pledge Agreement and to create the collateral security interest for which this Pledge Agreement provides; (iii) the Pledged Shares of the Pledged Corporation (a) have been duly and validly issued and are fully paid and nonassessable and (b) constitute eighty-three percent (83%) of the issued and outstanding capital stock of the Pledged Corporation, the only capital stock of the Pledged Corporation not owned by the Borrower being the seventeen percent (17%) owned by the Revocable Trust of Marsha Reines Perelman (the "Perelman Shares"); 2 (iv) as of the date hereof, the Pledged Corporation has not entered into any options, warrants or other agreements to issue additional capital stock and there are no voting trusts or other shareholder agreements or arrangements relating to the Pledged Shares other than in respect of the Perelman Shares; (v) this Pledge Agreement constitutes a valid obligation of the Borrower, legally binding upon it and enforceable in accordance with its terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditor's rights; (vi) the pledge, hypothecation, assignment and delivery of the Pledged Shares pursuant to this Pledge Agreement creates a valid first perfected security interest in each of the Pledged Shares and the proceeds thereof; (vii) except for consents obtained prior to the date hereof, no consent of any other party (including stockholders of the Borrower) is required in connection with the execution, delivery, performance, validity, enforceability or enforcement of this Pledge Agreement, and, except to the extent obtained prior to the date hereof, no consent, license, approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery, performance, validity, enforceability or enforcement of this Pledge Agreement; and (viii) the execution, delivery and performance of this Pledge Agreement will not violate or contravene any provision of any existing law or regulation or decree of any court, governmental authority, bureau or agency having jurisdiction in the premises or of the Articles of Incorporation, by-laws or other charter documents of the Borrower or of any mortgage, indenture, security agreement, contract, undertaking or other agreement to 3 which the Borrower is a party or which purports to be binding upon it or any of its properties or assets and will not result in the creation or imposition of any lien, charge or encumbrance on, or security interest in, any of its properties or assets pursuant to the provisions of any such mortgage, indenture, security agreement, contract, undertaking or other agreement. 5. Covenants. The Borrower hereby covenants that during the continuance of this security: (i) it shall warrant and defend the right and title of the Pledgee conferred by this Pledge Agreement in and to the Pledged Shares at the cost of the Borrower against the claims and demands of all persons whomsoever; (ii) except as herein provided, without the prior written consent of the Pledgee, it shall not sell, assign, transfer, charge, pledge or encumber in any manner any part of the Pledged Shares or suffer to exist any encumbrance on the Pledged Shares; (iii) without the prior written consent of Pledgee, it shall not vote the Pledged Shares in favor of the consolidation, merger, dissolution, liquidation or any other corporate reorganization of the Pledged Corporation, except as permitted under Section 10.1B(viii) of the Credit Agreement; (iv) without the prior written consent of the Pledgee it shall not take from the Pledged Corporation any undertaking or security in respect of its liability hereunder or in respect of any other liability of the Pledged Corporation to the Borrower and the Borrower shall not prove nor have the right of proof in competition with the Pledgee, for any monies whatsoever owing from the Pledged Corporation to the Borrower, in any insolvency or liquidation, or analogous proceedings under any applicable law, of the Borrower; and 4 (v) The Pledged Corporation shall not issue any additional shares of its capital stock nor enter into any options, warrants or other agreements to do so. 6. Delivery of Additional Shares. If the Borrower shall become entitled to receive or shall receive any stock certificates (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital, or issued in connection with any reorganization), option or rights, whether as an addition to, in substitution of, or in exchange for any of the Pledged Shares or upon acquisition of the Perelman Shares as contemplated by the Credit Agreement, the Borrower agrees to accept the same as the agent of the Pledgee and to hold the same in trust for the benefit of the Pledgee and to deliver the same forthwith to the Pledgee in the exact form received, with the endorsement of the Borrower when necessary and/or appropriate undated stock powers duly executed in blank, and irrevocable proxies for any stock certificates so received, in substantially the form of Exhibit A, to be held by the Pledgee, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Pledged Shares on the liquidation or dissolution of the Pledged Corporation shall be paid over to the Pledgee to be held by it as additional collateral security for the Obligations. 7. Collateral. All property at any time pledged to the Pledgee hereunder by the Borrower (whether described herein or not) and all income therefrom and proceeds thereof, are herein collectively sometimes called the "Collateral". 8. Voting Rights. The Pledgee shall as pledgee and as the holder of the Irrevocable Proxies receive notice (if an Event of Default shall have occurred and is continuing) and shall have the right to vote the Pledged Shares at its own discretion at any annual or special meeting of the shareholders of the Pledged Corporation, as the case may be, provided, however, that the Pledgee shall not exercise such right to vote unless an Event of Default shall have occurred and be continuing. 9. Default. The security constituted by this Pledge Agreement shall become immediately enforceable on the occurrence of an Event of Default under the Credit Agreement. 10. Remedies. At any time after the security constituted by this Pledge Agreement shall have become enforceable as aforesaid, the Pledgee shall be entitled without further notice to the Borrower: 5 (i) to sell, assign or convert into money all or any part of the Collateral in such manner and upon such terms and for such consideration (whether in cash, securities or other assets, whether deferred or not and whether at public or private sale) as the Pledgee may in its absolute discretion think fit with the right to the Pledgee upon such sale to purchase the whole or any part of the Collateral, free of any right or equity of redemption in the Borrower, which right and/or equity is hereby expressly waived; (ii) to cause the resignation of the then existing directors and officers of the Pledged Corporation and to elect new directors and appoint new officers of the Pledged Corporation and to exercise through such directors and officers the powers of management of the Pledged Corporation; and (iii) to exercise all voting and other corporate rights at any meeting of the Pledged Corporation and exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Shares of the Pledged Corporation as if it was the absolute owner thereof, including, without limitation, the right to exchange at its discretion, any and all of such Pledged Shares upon the merger, consolidation, reorganization, recapitalization or other readjustment of the Pledged Corporation or, upon the exercise by such Pledged Corporation or the Pledgee of any right, privilege or option pertaining to any of the Pledged Shares, and in connection therewith, to deposit and deliver any and all of the Pledged Shares of the Pledged Corporation with any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it. In addition to the rights and remedies granted to it in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Pledgee shall have rights and remedies of a secured party under the Uniform Commercial Code of the State of New York. 6 11. No Duty on Pledgee. The Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. 12. Application of Proceeds. All moneys collected or received by the Pledgee pursuant to this Pledge Agreement shall be dealt with as provided in Section 9.3 of the Credit Agreement. 13. Termination. When all of the Obligations shall have been fully satisfied, the Pledgee agrees that it shall forthwith release the Borrower from its Obligations hereunder and the Irrevocable Proxies shall terminate forthwith and be delivered to the Borrower forthwith together with the other items furnished to the Pledgee pursuant to Section 3 hereof. 14. Further Assurances. The Borrower shall from time to time, and at all times after the security constituted by this Pledge Agreement shall have become enforceable, execute all such further instruments and documents and do all such things as the Pledgee may reasonably deem desirable for the purpose of obtaining the full benefit of this Pledge Agreement and of the rights, title, interest, powers, authorities and discretions conferred on the Pledgee by this Pledge Agreement including (without limitation) causing the Pledged Corporation to execute any such instruments and documents as aforesaid. The Borrower hereby irrevocably appoints the Pledgee its attorney-in- fact for it and in its name and on its behalf and as its act and deed to execute, seal and deliver and otherwise perfect any deed, assurance, agreement, instrument or act which it may reasonably deem desirable for any of the purposes of this Pledge Agreement; provided that the Pledgee shall not exercise such power until the security constituted by this Pledge Agreement shall have become enforceable. The Pledgee shall have full power to delegate this power of attorney but no such delegation shall preclude the subsequent exercise of such power by the Pledgee itself or preclude the Pledgee from subsequent delegation to some other person and any delegation may be revoked by the Pledgee at any time. 15. No Waiver; Remedies Cumulative and Exclusive. The Pledgee shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by the Pledgee, and then only to the extent therein set forth. A waiver by the Pledgee of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Pledgee would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of the Pledgee, any right, power 7 or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. 16. Changes in Writing; Successors and Assigns. None of the terms or provisions of this Pledge Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the Pledgee. This Pledge Agreement and all obligations of the Borrower hereunder shall be binding upon the successors and assigns of the Borrower and shall, together with the rights and remedies of the Pledgee hereunder, inure to the benefit of the Pledgee, its respective successors and assigns. 17. Notices. All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower at the address or telecopy number set forth below and to the Lenders, the Agent and the Security Trustee at their address and telecopy number set forth in Schedule 1 to the Credit Agreement or at such other address or telecopy number as such party may hereafter specify for the purpose by notice to each other party hereto. Each such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused. If to the Borrower: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telecopy No. (612) 373-8833 with a copy to: Troutman Sanders LLP 600 Peachtree Street, N.W. Suite 5200 8 Atlanta, Georgia 30308-2216 Attention: M. Stuart Sutherland, Esq. Telecopy No. (404) 885-3900 If the Pledgee: MeesPierson Capital Corp. 445 Park Avenue New York, New York 10022 Attention: Hendrik J. Vroege Telecopy No. (212) 801-0420 18. Governing Law. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the principles of conflicts of law thereof. 19. Submission to Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by the Pledgee under this Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Borrower by mailing (certified or registered mail) or delivering the same by hand to the Borrower at the address indicated for notices in Section 18. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding. A judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Pledgee or the Lenders) after exhaustion of any appeals taken against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Borrower will advise the Pledgee promptly of any change of address for the purpose of service of process. Notwithstanding anything herein to the contrary, the Pledgee or the Lenders may bring any legal action or proceeding in any other appropriate jurisdiction. 20. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE PLEDGEE HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, 9 PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS PLEDGE AGREEMENT. 21. Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Pledgee in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity and unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 22. Counterparts. This Pledge Agreement may be signed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. 23. Headings. In this Pledge Agreement, section headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Pledge Agreement. IN WITNESS whereof the parties hereto have caused this Pledge Agreement to be duly executed the day and year first above written. NRG GENERATING (U.S.) INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO 10 MEESPIERSON CAPITAL CORP. By: /s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By: /s/ John T. Connors Name: John T. Connors Title: Exec. V.P. 11 EXHIBIT A IRREVOCABLE PROXY The undersigned, the registered and beneficial owner of the below described shares of O'BRIEN (PHILADELPHIA) COGENERATION INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby makes, constitutes and appoints MeesPierson Capital Corp. ("the Pledgee") with full power to appoint a nominee or nominees to act hereunder from time to time, the true and lawful attorney and proxy of the undersigned to vote the issued shares of the Company represented by Share Certificate(s) No(s). at all annual and special meetings of shareholders of the Company or take any action by written consent with the same force and effect as the undersigned might or could do, hereby ratifying and confirming all that the said attorney or their nominee or nominees shall do or cause to be done by virtue hereof. The said shares have been pledged (the "Pledge") to the Pledgee pursuant to a Pledge Agreement dated December __, 1997. This power and proxy is coupled with an interest and is irrevocable and shall remain irrevocable so long as the Pledge is outstanding and is in full force and effect. IN WITNESS whereof the undersigned has caused this instrument to be duly executed this __ day of ________, ________. NRG GENERATING (U.S.) INC. By /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO SCHEDULE 1 STOCK CERTIFICATES REPRESENTING PLEDGED SHARES Certificate # # of Shares 6 100 EX-10.26.4 13 EXHIBIT 10.26.4 GUARANTEE DATED AS OF DECEMBER 17, 1997, MADE BY O'BRIEN (PHILADELPHIA) COGENERATION, INC. IN FAVOR OF MEESPIERSON CAPITAL CORPORATION. Exhibit 10.26.4 GUARANTEE in favor of MEESPIERSON CAPITAL CORP., as Security Trustee December 17, 1997 GUARANTEE THIS GUARANTEE, dated as of December 17, 1997, is made by O'BRIEN (PHILADELPHIA) COGENERATION INC., a Delaware corporation, (the "Guarantor"), in favor of MEESPIERSON CAPITAL CORP., a corporation organized under the laws of the State of Delaware, in its capacity as security trustee under the Credit Agreement referred to in Recital (A) below. WITNESSETH THAT: WHEREAS: (A) By a Credit Agreement dated as of December 17, 1997 (the "Credit Agreement") and made by and among (i) NRG Generating (U.S.) Inc., a Delaware corporation (the "Borrower"), (ii) MeesPierson Capital Corp. ("MPCC"), as arranger (the "Arranger"), (iii) the Lenders (as such term is defined in the Credit Agreement) and (iv) MPCC, as agent (the "Agent") and security trustee (the "Security Trustee") for the Lenders, the Lenders have agreed to make available to the Borrower upon the terms and conditions therein described a three year revolving credit facility in the maximum principal amount not to exceed at any one time outstanding Thirty Million United States Dollars ($30,000,000) (the "Credit Facility"). Words and expressions used herein as defined terms but not defined herein shall have the meanings ascribed thereto in the Credit Agreement. (B) It is a condition precedent to the Lenders making the Credit Facility available to the Borrower that the Guarantor enter into this Guarantee and otherwise agree to be bound by the terms of this Guarantee. NOW, THEREFORE, in consideration of the premises and for other valuable consideration, the receipt and adequacy of which the Guarantor hereby acknowledges, the Guarantor hereby agrees as follows: 1. GUARANTEE (a) The Guarantor hereby unconditionally and irrevocably guarantees as primary obligor and not merely as surety to the Security Trustee, for the account of the Agent, the Security Trustee, the Arranger and the Lenders (together, the "Creditors") on first demand the due and punctual payment, when due, whether by acceleration or otherwise, of all sums owing by the Borrower to any of the Creditors under the Credit Agreement, the Note and the Security Documents, together with any and all reasonable out-of-pocket legal costs and other reasonable expenses incurred in connection therewith by any of the Creditors and, in case of extension of time of payment or renewal in whole or in part of the said obligations of the Borrower, the prompt payment when due of all said sums according to such extension or extensions or renewal or renewals, whether by acceleration or otherwise. (b) The Guarantor makes this guarantee (hereinafter, this "Guarantee") irrespective of the validity, regularity or enforceability of the Credit Agreement, the Note or any of the Security Documents or any of the obligations under the Credit Agreement, the Note and the Security Documents and irrespective of any present or future law or order of any government (whether of right or in fact) or of any agency thereof purporting to reduce, amend or otherwise affect any obligation of the Borrower or to vary the terms of payment or to restrict the right or power of the Borrower or of the Guarantor to make payment of any of their respective obligations to any of the Creditors. This Guarantee is a guarantee of payment and performance and not of collection. 2. REPRESENTATIONS AND WARRANTIES The Guarantor hereby represents and warrants to the Security Trustee on behalf of the Creditors (which representations and warranties shall survive the execution and delivery of this Guarantee) that the representations set forth in Section 2 of the Credit Agreement insofar as they relate to the Guarantor are true and correct and hereby incorporate, repeat and represent, on its own behalf, without limitation, such representations as though they were set forth herein at length. 3. COVENANTS (a) The Guarantor hereby covenants and undertakes with the Security Trustee, on behalf of the Creditors, that from the date hereof and so long as any principal, interest or other monies are owing by the Borrower under or in connection with the Credit Agreement, the Note, the Security Documents, or any of them, it will: (i) duly perform and observe the terms of this Guarantee; (ii) promptly upon obtaining knowledge thereof, inform the Agent of the occurrence of (a) any Event of Default (as such term is defined in the Credit Agreement) or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of 2 Default, (b) any litigation or governmental proceeding pending or threatened against it which could reasonably be expected to have a material adverse effect on its business, assets, operations, property or financial condition and (c) any other event or condition which is reasonably likely to have a material adverse effect on its ability to perform its obligations under this Guarantee; (iii) obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its obligations under this Guarantee; and (iv) perform each and every covenant and undertaking in the Credit Agreement applicable to it or procure the performance thereof as though such covenants and undertakings were set forth at length herein. (b) The Guarantor hereby covenants and undertakes with the Security Trustee on behalf of the Creditors that, from the date hereof and so long as any principal, interest or other monies are owing by the Borrower under or in connection with the Credit Agreement, the Note, the Security Documents or any of them, it will not, without the prior written consent of the Majority Lenders (or all of the Lenders if required by Section 16.7(b) of the Credit Agreement) other than as expressly permitted by the terms of the Credit Agreement and the Security Documents: (i) sell, assign, transfer, pledge or otherwise convey or dispose of or issue any of the shares of its capital stock to anyone other than the Borrower, except as permitted under clause (iii) below; (ii) sell, or otherwise dispose of, or grant any security interest in, lien on or encumbrance over any of its assets which constitute Collateral, except for sales and dispositions of obsolete, worn or replaced property not used or useful in Guarantor's business provided that the proceeds thereof (to the extent not used to replace such obsolete, worn or replaced property) shall be deposited in the Collection Account; or (iii) consolidate with, or merge into, any corporation, or merge any corporation into it; provided, however, that the Guarantor shall be permitted to merge with or consolidate with any other Security Party so long as no Event of Default would result therefrom and 3 the Guarantor is the surviving entity in such merger or consolidation. 4. PAYMENTS 4.1 Payment. (a) All payments by the Guarantor under this Guarantee shall be made in the same manner as the Borrower is required to make payments under the Loan Agreement as specifically set forth therein. (b) On all sum or sums for which the Guarantor is liable hereunder interest shall be due at the Default Rate specified in Section 1.1 in the Credit Agreement from the date of the demand made hereunder until the date of payment of such amount by the Guarantor. 4.2 Taxes; Withholdings. Subject to such Creditor's compliance with Section 4.3 below, if the Guarantor shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Creditor hereunder, then the Guarantor shall pay such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Guarantor shall promptly send to the Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Creditors. 4.3 Tax Forms. Each Creditor shall promptly provide the Guarantor with two duly completed copies of Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Creditor is entitled to benefits under an income tax treaty to which the United States is a party that exempts withholding tax on payments under this Guarantee or the Note or certifying that the income receivable pursuant to this Guarantee or the Note is effectively connected with the conduct of a trade or business in the United States. 4.4 Tax Credits. If any Creditor obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Guarantor has paid additional amounts as aforesaid (and each Creditor agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Creditor shall reimburse the Guarantor for the amount of the credit so obtained. 4 5. PRESERVATION OF RIGHTS (a) The Guarantor hereby consents that from time to time, the time for the performance and/or observance by the Borrower of any of the agreements, covenants or conditions in the Credit Agreement, the Note or the Security Documents, or any of them, on the part of the Borrower to be performed and/or observed may be waived or the time of performance thereof extended by the Creditors and payment of any sums owing or payable under any such document may be extended or any such document may be renewed in whole or in part or modified in any respect or any collateral or arrangement provided for by any such document as security for any obligation contemplated by any such document may be exchanged, surrendered, released or otherwise dealt with as the Creditors may determine, that the time for the making of any payment of any obligation hereby guaranteed may be accelerated in accordance with any agreement between any of the Creditors and the Borrower, and that any of the acts mentioned in any of said documents may be done and that any other guarantor of any of the obligations hereby guaranteed and/or any document or security therefor may be released in whole or in part without affecting the obligations of the Guarantor hereunder. (b) The Guarantor hereby waives any presentment, demand of payment, protest and notice of nonpayment or protest thereof or of any exchange, sale, surrender, release or other handling or disposition of such collateral or arrangement. The obligations of the Guarantor hereunder shall not be affected by receipt by any Creditor of any proceeds of any security at any time held by any of the Creditors. (c) The Guarantor agrees that so long as the Borrower remains under any actual or contingent liability under the Credit Agreement and the Security Documents any rights which the Guarantor may at any time have by reason of the performance by the Guarantor of its obligations hereunder (a) to be indemnified by the Borrower and/or (b) to claim any contribution from any other guarantor or Security Party of the Borrower's obligations under the Credit Agreement or the Security Documents and/or (c) to take the benefit (in whole or in part) of any security taken pursuant to this Guarantee or the Credit Agreement or the Security Documents by, all or any of the persons to whom the benefit of the Guarantor's obligations are given, shall be exercised by the Guarantor in such manner and upon such terms as the Creditors may require and further agrees to hold any monies at any time received by it as a result of the exercise of any such rights or otherwise for and on behalf of and to the order of the Creditors for application in or towards payment of any sums at any time owed by the Borrower under the Credit Agreement or the Security Documents. 5 (d) The Guarantor further agrees that its liabilities hereunder shall be unconditional irrespective of any other circumstance which might otherwise constitute a discharge at law or in equity of a guarantor or surety. The Guarantor further guarantees that all payments made by the Borrower, the Guarantor, or either of them, to any of the Creditors on any obligation hereby guaranteed will, when made, be final and agrees that, if any such payment is recovered from, or repaid by, any of the Creditors in whole or in part in any bankruptcy, insolvency or similar proceeding instituted by or against the Borrower, or the Guarantor, or either of them, this Guarantee shall continue to be fully applicable to such obligation to the same extent as though the payment so recovered or repaid had never been originally made on such obligation. (e) The Creditors may enforce the Guarantor's obligations hereunder without in any way first pursuing or exhausting any other rights or remedies which any of the Creditors may have against the Borrower, or against any other person, firm or corporation, or against any security any of the Creditors may hold. (f) The Guarantor hereby irrevocably waives all rights of subrogation (whether contractual, under Section 509 of Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto (herein called the "Bankruptcy Code"), under common law, or otherwise) to the claims of any of the Creditors against the Borrower and all contractual, statutory or common law rights of contribution, reimbursement, indemnification and similar rights and "claims" (as such term is defined in the Bankruptcy Code) against the Borrower which arise in connection with, or as a result of, this Guarantee, until such time as the obligations of the Borrower under or in connection with the Credit Agreement, the Note and the Security Documents have been indefeasibly paid in full. (g) The Guarantor shall not assign, transfer, hypothecate or dispose of any claim that it has or may have against the Borrower while any indebtedness of the Borrower to the Creditors remains unpaid, without the written consent of each of the Creditors. (h) Any delay in or failure to exercise any right or remedy of any of the Creditors shall not be deemed a waiver of any obligation of Guarantor or right of any of the Creditors. This Agreement may be modified, and any of the Creditors' rights hereunder waived, only by an agreement in writing signed by all of the Lenders. (i) Notice of acceptance by the Security Trustee on behalf of the Creditors of this Guarantee and of the incurring of any or all of the obligations hereby guaranteed is hereby waived by the Guarantor, and this Guarantee and all of the terms 6 and provisions hereof shall immediately be binding upon the Guarantor from the date of execution hereof. 6. BENEFIT OF GUARANTEE; ASSIGNMENT This Guarantee shall inure to the benefit of the Creditors, their successors and permitted assigns, and shall bind the successors and assigns of the Guarantor. 7. WAIVER OF JURY TRIAL; GOVERNING LAW; JURISDICTION THE GUARANTOR AND, BY ITS ACCEPTANCE HEREOF, EACH OF THE SECURITY TRUSTEE AND THE CREDITORS, HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO OR BENEFICIARY HEREOF ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTEE. THIS GUARANTEE AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING HEREUNDER SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF NEW YORK. Unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code shall have the meanings therein stated. The Guarantor hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Creditors under this Guarantee or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Guarantor by mailing (certified or registered mail) or delivering the same by hand to the Guarantor at the address indicated for notices in Section 9. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Guarantor as such, and shall be legal and binding upon the Guarantor for all the purposes of any such action or proceeding. A judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Guarantor to the Creditors) after exhaustion of any appeals taken against the Guarantor in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the 7 judgment. The Guarantor will advise the Agent promptly of any change of address for the purpose of service of process. Notwithstanding anything herein to the contrary, the Creditors may bring any legal action or proceeding in any other appropriate jurisdiction. 8. FRAUDULENT CONVEYANCES; FRAUDULENT TRANSFERS Notwithstanding anything to the contrary contained in the Credit Agreement, the Note, this Guarantee or any of the other Security Documents, in the event that any court or other judicial body of competent jurisdiction determines that legal principles of fraudulent conveyances, fraudulent transfers or similar concepts are applicable in evaluating the enforceability against the Guarantor or its assets of the Credit Agreement, the Note, this Guarantee or any other Security Document granted by the Guarantor as security for its obligations hereunder and that under such principles, this Guarantee or such other Security Documents would not be enforceable against the Guarantor or its assets unless the following provisions of this Section 8 had effect, then, the maximum liability of the Guarantor hereunder (the ``Maximum Liability Amount'') shall be limited so that in no event shall such amount exceed the lesser of (i) the Indebtedness and (ii) an amount equal to the aggregate, without double counting, of (a) ninety- five percent (95%) of the Guarantor's Adjusted Net Worth (as hereinafter defined) on the date hereof, or on the date enforcement of this Guarantee is sought (the ``Determination Date''), whichever is greater, (b) the aggregate fair value of the Guarantor's Subrogation and Contribution Rights (as hereinafter defined) and (c) the amount of any Valuable Transfer (as hereinafter defined) to the Guarantor, provided that the Guarantor's liability under this Guarantee shall be further limited to the extent, if any, required so that the obligations of the Guarantor under this Guarantee shall not be subject to being set aside or annulled under any applicable law relating to fraudulent transfers or fraudulent conveyances. In determining the limitations, if any, on the amount of any of the Guarantor's obligations hereunder pursuant to the preceding sentence, any rights of subrogation or contribution (collectively the ``Subrogation and Contribution Rights'') which the Guarantor may have on the Determination Date with respect to any other guarantor of the Indebtedness under applicable law shall be taken into account. As used in Section 8, ``Indebtedness'' of the Guarantor shall mean, all of the Guarantor's present or future indebtedness whether for principal, interest, fees, expenses or otherwise, to the Creditors under the Credit Agreement, the Note and the Security Documents. As used herein ``Adjusted Net Worth'' of the Guarantor shall mean, as of any date of determination thereof, an amount equal to the lesser of (a) an amount equal to the excess of (i) the amount of the present fair salable value of the assets of the Guarantor over (ii) the amount that will be required to pay the Guarantor's probable liability on its then existing debts, including contingent liabilities, as they become absolute and matured, and (b) an amount equal to (i) the excess of the sum of the Guarantor's property at a fair valuation over (ii) the amount of all liabilities of the Guarantor, contingent or otherwise, 8 as such terms are construed in accordance with applicable laws governing determinations of the insolvency of debtors. In determining the Adjusted Net Worth of the Guarantor for purposes of calculating the Maximum Liability Amount for the Guarantor, the liabilities of the Guarantor to be used in such determination pursuant to each section (ii) of the preceding sentence shall in any event exclude (a) the liability of the Guarantor under this Guarantee and the other Security Documents to which it is a party, (b) the liabilities of the Guarantor subordinated in right of payment to this Guarantee and (c) any liabilities of the Guarantor for Subrogation and Contribution Rights to any of the other guarantors. As used herein ``Valuable Transfer'' shall mean, in respect of the Guarantor, (a) all loans, advances or capital contributions made to the Guarantor with proceeds of the Credit Facility, (b) all debt securities or other obligations of the Guarantor acquired from the Guarantor or retired by the Guarantor with proceeds of the Credit Facility, (c) the fair market value of all property acquired with proceeds of the Loan and transferred, absolutely and not as collateral, to the Guarantor, (d) all equity securities of the Guarantor acquired from the Guarantor with proceeds of the Credit Facility, and (e) the value of any other economic benefits in accordance with applicable laws governing determinations of the insolvency of debtors, in each such case accruing to the Guarantor as a result of the Credit Facility and this Guarantee. 9. NOTICES Notices and other communications hereunder shall be in writing and may be given at the address or telecopy number set forth below: 9 If to the Guarantor: O'Brien (Philadelphia) Cogeneration Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telecopy No. (612) 373-8833 with a copy to: Troutman Sanders LLP 600 Peachtree Street, N.W. Suite 5200 Atlanta, Georgia 30308-2216 Attention: M. Stuart Sutherland, Esq. Telecopy No. (404) 885-3900 If to the Security Trustee: MeesPierson Capital Corp. 445 Park Avenue New York, New York 10022 Attn: Mr. Hendrick Vroege Telecopy No. (212) 801-0420 or to such other address as any party shall from time to time specify in writing. Any notice sent by telecopy shall be confirmed by letter dispatched as soon as practicable thereafter. Every notice or demand shall, except so far as otherwise expressly provided by this Guarantee, be deemed to have been received (provided that it is received prior to 2 p.m. New York time), in the case of a telecopy, on the date of dispatch thereof (provided that if the date of dispatch is not a Banking Day in the locality of the party to whom such notice or communication is sent it shall be deemed to have been received on the next following Banking Day in such locality), and, in the case of a letter, at the time of receipt thereof. 10 10. HEADINGS In this Guarantee, Section headings are inserted for convenience of reference only and shall be ignored in the interpretation hereof. IN WITNESS WHEREOF, this Guarantee has been duly executed by the Guarantor as of this 17 day of December, 1997. O'BRIEN (PHILADELPHIA) COGENERATION INC. By /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO 11 EX-10.26.5 14 EXHIBIT 10.26.5 GENERAL SECURITY AGREEMENT DATED AS OF DECEMBER 17, 1997 BETWEEN O'BRIEN (PHILADELPHIA) COGENERATION INC. AND MEESPIERSON CAPITAL CORP. Exhibit 10.26.5 GENERAL SECURITY AGREEMENT of O'BRIEN (PHILADELPHIA) COGENERATION INC. in favor of MEESPIERSON CAPITAL CORP. December 17, 1997 GENERAL SECURITY AGREEMENT THIS GENERAL SECURITY AGREEMENT ("this Agreement") dated as of December 17, 1997, is entered into by and between O'BRIEN (PHILADELPHIA) COGENERATION INC., a corporation incorporated under the laws of the State of Delaware, having offices at 1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403 (the "Grantor"), and MEESPIERSON CAPITAL CORP., a corporation incorporated under the laws of the State of Delaware, with offices at 445 Park Avenue, New York, New York (the "Security Trustee"). W I T N E S S E T H T H A T : WHEREAS: A. By a Credit Agreement dated as of December 17, 1997 (the "Credit Agreement") made among the Security Trustee, as Agent and Security Trustee, the banks and financial institutions whose names and addresses are set out in Schedule 1 thereto (the "Lenders"), and NRG Generating (U.S.) Inc. (the "Borrower"), the Lenders, subject to the terms thereof, have agreed to make advances to the Borrower of up to Thirty Million United States Dollars (US$30,000,000) outstanding at any time (the "Credit Facility"); B. The Borrower is an affiliate of the Grantor, and the financial accommodations made to the Borrower under the Credit Facility will be of benefit to the Grantor; and C. Pursuant to the Credit Agreement it is a condition precedent to the availability of the Credit Facility that the Grantor execute and deliver to the Security Trustee this Agreement and grant the security interests contemplated hereby in order to create in favor of the Security Trustee a valid and perfected security interest, as that term is defined in the Uniform Commercial Code of New York (the "Code"), in the Collateral (as such term is hereinafter defined), as security for the payment and performance of all the obligations of the Borrower under and in connection with the Credit Agreement and the Note (as such term is defined in the Credit Agreement) now or hereafter existing whether for principal, interest, fees, expenses or otherwise and all secured obligations of the Grantor now or hereafter existing under this Agreement (all such obligations of the Grantor are hereinafter collectively referred to as the "Secured Obligations"). NOW, THEREFORE, in consideration of the premises, the parties hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. 2. Grant of Security. The Grantor, as legal and beneficial owner, as security for the Secured Obligations, hereby assigns, pledges, transfers and sets over unto the Security Trustee and its successors and assigns, and hereby grants to the Security Trustee a security interest in, all of the Grantor's right, title and interest in and to the following property (hereinafter referred to as the "Collateral"): (a) Any and all equipment (as defined in the Code) of the Grantor, or in which it has rights, whether now owned or hereafter acquired, and all machinery, tools, office equipment, furniture, furnishings, fixtures, rolling stock, dies and tools used or useful in Grantor's business, structures, leasehold improvements, installations, equipment and appurtenances hereafter constructed, drilled or placed and any and all goods, equipment and tangible property held or used by the Grantor, supplies and materials on hand, and all personal property of every kind, nature and description, whether affixed to land or imbedded therein or otherwise, of the Grantor together with all present and future improvements or products of, accessions, attachments and other additions to and substitutes and replacements for, all or any part of the foregoing (all of the foregoing types or items of property and interests described in this paragraph are hereinafter collectively referred to in this Agreement as the "Personal Property"); (b) Any and all general intangibles (as defined in the Code) of the Grantor, whether now existing or hereafter acquired or arising, including, without limitation, all contracts, Energy Service Agreements, leases, power purchase agreements, steam sale agreements and any other contractual rights (including any rights to distributions under any partnership agreements), partnership interests, copyrights, royalties, licenses, sublicenses, trademarks, trade names, service marks, patent and proprietary rights, blueprints, drawings, designs, trade secrets, plans, diagrams, schematics, assembly and display materials relating thereto and all customer lists, including, without limitation, all present and future rights, titles, interests and estates now owned or hereafter acquired by the Grantor (including, without limitation, all rights to receive payments) under or by virtue of all agreements, or under or by virtue of all contracts ; provided, however, any of the foregoing (including the Permits but excluding the Energy Services Agreements which shall under all circumstances be subject to the pledge and assignment hereunder and as to which Grantor has obtained all necessary consents to permit such pledge and assignment) which by their terms would become void, voidable, terminable or revocable or would constitute a breach or default thereunder if pledged or assigned hereunder or if a security interest therein were granted hereunder are expressly excepted and excluded from the lien and terms of this Agreement to the extent necessary to avoid such voidness, 2 violability, terminability or revocability; provided further, however, the Grantor will use all reasonable efforts to obtain all consents necessary to permit such pledge, assignment and security interest (all of the foregoing rights, titles, interests and estates referred to or described in this paragraph are hereinafter collectively referred to in this Agreement as the "Intangibles Collateral"). As used herein, "Permits" shall mean any authorizations, consents, approvals, waivers, exemptions, variances, registrations, leases, tariffs, certifications, franchises, permissions, permits and licenses now or hereafter of, and filings and declarations now or hereafter with, and rulings now or hereafter by, any Governmental Authority (including, without limitation, the QF Certificate), including those with respect to the reconstruction, repair, alteration, addition, improvement, replacement, use, operation or management of the Philadelphia Cogeneration Project (including, without limitation, all Governmental Approvals now or hereafter held in the name or for the benefit of the Grantor); (c) Any and all present and future accounts (as defined in the Code) (including, but not limited to, all open accounts, accounts receivable and rights to payment of money, hire due or to become due and moneys arising under or pursuant to the Intangibles Collateral or to any other agreements, documents or instruments relating to any property whether or not owned or leased by the Grantor), chattel paper, documents, instruments, cash and noncash proceeds, all returned or repossessed goods and all books, records, computer tapes, programs and ledger books arising therefrom or relating thereto and other rights arising from or by virtue of, or from the voluntary or involuntary sale or other disposition of, or collections with respect to, or insurance proceeds payable with respect to, or proceeds payable by virtue of warranty or other claims and causes of action (i) for money, loss or damages arising out of or in any way connected with the use, operation or management of any property of the Grantor or (ii) against manufacturers of or claims against any other person or entity with respect to all or any part of the Personal Property and other property whether or not owned or leased by the Grantor (all of the foregoing types and items of property and interests described in this paragraph are hereinafter collectively referred to in this Agreement as the "Accounts"); (d) Any and all inventory (as defined in the Code) of the Grantor, or in which it has rights, whether now owned or hereafter acquired, wherever located, including, without limitation, all goods (as defined in the Code) of the Grantor held for sale or lease or furnished or to be furnished under contracts of service, all goods held for display or demonstration, goods on lease or consignment, recess, finished goods and supplies used or consumed in the Grantor's business, together with all documents, documents of title, warehouse receipts, bills of lading or orders for the delivery of all, or any portion, of the foregoing (all of the foregoing types and items of property and 3 interests described in this paragraph are hereinafter collectively referred to in this Agreement as the "Inventory Collateral"); (e) Any and all other interests of every kind and character which the Grantor now has or at any time hereafter acquires in and to any property whether or not owned or leased by the Grantor, any interest of the Grantor in the goods or inventory produced therefrom or stored thereon, the Personal Property, the Intangibles Collateral, the Accounts and the Inventory Collateral and all property, real, personal or mixed, tangible or intangible, which is used or useful in connection with any property whether or not owned or leased by the Grantor, any interest of the Grantor in the goods or inventory produced therefrom or stored thereon, the Personal Property, the Intangibles Collateral, the Accounts and the Inventory Collateral and the proceeds and products of all of the foregoing and all moneys of any kind whatsoever arising from or in connection with the Grantor's ownership, sale or lease of the interest of the Grantor in the goods or inventory produced therefrom or stored thereon, the Personal Property, the Intangibles Collateral, the Accounts and the Inventory Collateral, including without limitation, any and all money and claims for moneys due and to become due to the Grantor with respect to the actual constructive, agreed, arranged or compromised total loss, or requisition, purchase, seizure, or taking in any manner of title or ownership of any property of the Grantor, and all claims for damage or compensation with respect thereto, and any indemnity, warranty or guaranty otherwise payable by reason of loss or damage to, or otherwise with respect to, any interest of the Grantor in the goods or inventory produced therefrom or stored thereon, the Personal Property, the Intangibles Collateral, the Accounts and the Inventory Collateral, whether now owned or hereafter acquired; and (f) Any and all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, the Personal Property, the Intangibles Collateral, the Accounts and the Inventory Collateral, including without limitation (i) all claims of the Grantor against third parties for loss of, damage to or destruction of, or of proceeds payable under, or unearned premiums with respect to policies of insurance in respect of, any of the Personal Property, the Intangibles Collateral, the Accounts or the Inventory Collateral; (ii) any condemnation payments with respect to any of the Personal Property, the Intangibles Collateral, the Accounts or the Inventory Collateral, in each case whether now existing or hereafter arising; and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Personal Property, the Intangibles Collateral, the Accounts or the Inventory Collateral, including, without limitation, all other rights, claims and benefits of the Grantor against any person arising out of, relating to or in connection with, any of the Personal Property, the Intangibles Collateral, the Accounts or the Inventory Collateral.] 4 The security interest of the Security Trustee contained herein shall cover, and shall include a continuing general assignment in favor of the Security Trustee in, any and all documents, contracts, liens and security instruments, guarantees, books and records evidencing, securing or relating to the Collateral and the insurance to be secured to cover same in accordance with Section 5 hereof. 3. Security for Secured Obligations. This Agreement secures the payment and performance of all of the Secured Obligations. 4. Representations and Warranties. The Grantor represents and warrants as follows: (a) The Grantor owns the Collateral free and clear of any lien, security interest, charge or encumbrance except for any Permitted Liens. Except with respect to Permitted Liens, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office. (b) Appropriate financing statements and mortgages have been or are concurrently herewith being filed at all governmental offices in each jurisdiction where such filing is necessary to perfect the security interest intended to be covered hereby and such security interest shall, upon such filing, constitute a perfected security interest in the Collateral in favor of the Security Trustee (to the extent that such security interest can be perfected in the Collateral by filing a financing statement or mortgage under the Code or applicable state or foreign law) which are enforceable as such against all creditors of and purchasers from the Grantor (other than purchasers who take free of such liens, encumbrances or security interests under the Code) and against any owner or purchaser of the real property where any of the equipment is located and any present or future creditor obtaining any lien, encumbrance or security interest on such real property. All other filings and other actions requested by the Security Trustee to perfect and protect the security interest granted herein have been duly made or taken. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (other than as contemplated by sub-clause (c) immediately preceding this sub-clause) is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor or (ii) for the perfection of or the exercise by the Security Trustee of its right and remedies hereunder. 5 (d) All material agreements and rights constituting the Collateral (including, but not limited to the Intangibles Collateral) are valid and subsisting and are in full force and effect; and all rentals, royalties and other material amounts due and payable by the Grantor in respect thereof (and, to Grantor's knowledge, all rentals, royalties and other material amounts due and payable by third parties in respect thereof) have been paid or provision for such payment satisfactory to the Security Trustee has been made; all of Grantor's obligations in respect thereof have been timely met; and all leases, agreements and all other material obligations to lessors and others attendant to the ownership of the Collateral have been timely met and duly performed. Except to the extent incurred in the ordinary course of business, the Accounts are free from any claim for credit, deduction or allowance of any party obligated in respect thereof and free from any defense, dispute, setoff or counterclaim and there is no extension or indulgence with respect thereto. 5. Further Assurances. (a) The Grantor agrees that from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or advisable, or that the Security Trustee may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Security Trustee to exercise and enforce its rights and remedies hereunder with respect to the Collateral. Without limiting the generality of the foregoing, the Grantor shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or advisable, or as the Security Trustee may reasonably request, whether in a jurisdiction where the Code has been adopted or any other jurisdiction, in order to perfect and preserve the security interests granted or purported to be granted hereby. (b) The Grantor hereby authorizes the Security Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. In the event that the Security Trustee files any such financing statements or renewals without the signature of the Grantor, it shall provide the Grantor with notice thereof as soon as practicable after such filing. (c) The Grantor will furnish to the Security Trustee from time to time as the Security Trustee may reasonably request statements and schedules further identifying and describing the Collateral and such other reports in connection therewith, all in reasonable detail. 6 (d) Upon reasonable notice without materially interfering with the ordinary course or conduct of the Grantor's business, the Security Trustee shall at all times have full and free access during normal business hours to all the books, correspondence and records of the Grantor, and the Security Trustee or its representatives may examine the same, take extracts therefrom and make photocopies thereof, and the Grantor agrees to render to the Security Trustee, at the Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Security Trustee and its representatives shall at all times, upon reasonable notice, without materially interfering with the ordinary course or conduct of the Grantor's business, also have the right to enter into and upon any premises where any of the Collateral is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (e) The Grantor will comply with all requirements of law applicable to the Collateral or any part thereof other than those requirements with which the failure to comply would not have a material adverse effect on the existence, condition or value of the Collateral or the security interests granted hereunder; provided, however, that the Grantor may contest any requirement of law in any reasonable manner which shall not, in the reasonable opinion of the Security Trustee, materially adversely affect the Security Trustee's rights or the priority of their security interests in the Collateral. (f) Without thirty (30) days' prior written notice to the Security Trustee, the Grantor shall not (i) change its chief executive office or principal place of business, (ii) change the location at which it maintains its records relating to the Intangibles Collateral or Accounts, and (iii) except as permitted under the Credit Agreement, remove its Personal Property from any of the counties in which such Personal Property is presently located (other than temporary removals of Personal Property which are in the ordinary course of Grantor's business). Grantor shall furnish to the Security Trustee from time to time, as the Security Trustee may reasonably request, reports identifying the locations where the Collateral is located. (g) The Grantor shall not change its corporate name, identity or corporate structure, nor carry on business under any name other than its corporate name, unless (i) it has given to the Security Trustee not less than thirty days prior written notice of its intention to do so, specifying such new corporate name, identity or corporate structure, and providing such other information in connection therewith as the Security Trustee may reasonably request, and (ii) with respect to such new corporate name, identity or corporate structure, it shall have taken all action, requested by the Security Trustee in its reasonable discretion, to maintain the security interest of the Security 7 Trustee in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (h) The Grantor shall pay promptly, or cause to be paid promptly, when due all property and other material taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith and adequate reserves have been maintained therefor. (i) The Grantor will maintain all Collateral necessary in the Grantor's business in good operating condition, ordinary wear and tear and immaterial impairments of value and damage by the elements excepted, and will provide maintenance, service and repairs necessary for such purpose. (j) The Grantor shall, within ten days of acquiring an ownership interest in any Collateral having a value in excess of Twenty- Five Thousand Dollars ($25,000) on which a security interest under the Code can only be perfected by appropriate notations on the certificate of title relating to such Collateral, deliver to the Security Trustee any and all certificates of title, applications for title or similar evidence of ownership of such Collateral and shall cause the Security Trustee to be named as lienholder on any such certificate of title or other evidence of ownership. (k) The Grantor will, promptly upon request, provide to the Security Trustee all information and evidence it may reasonably request concerning the Collateral, and in particular the Accounts, to enable the Security Trustee to enforce the provisions of this Agreement. 6. Security Trustee Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Security Trustee as the Grantor's attorney-in-fact, with full authority in the name, place and stead of the Grantor, from time to time in the Security Trustee's discretion, should an Event of Default (as such term is defined in the Credit Agreement) have occurred and be continuing to take any action and to execute any document which the Security Trustee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, 8 (ii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) above, and (iii) to file any claims or take any action or institute any proceedings which the Security Trustee may deem necessary or advisable for the recovery of any of the Collateral or otherwise to enforce the rights of the Security Trustee with respect thereto created by this Agreement. 7. Concerning Account Debtors. (a) If the Security Trustee so directs at any time after the occurrence and during the continuation of an Event of Default, the Grantor agrees (i) to cause all payments on account of the Accounts to be made directly to the Security Trustee and (ii) that the Security Trustee may, at its option, directly notify the obligors with respect to any of the Accounts to make such payments. The Grantor agrees to be bound by any commercially reasonable collection, compromise, forgiveness, extension or other action taken by the Security Trustee with respect to the Accounts. Without notice to or assent by the Grantor, the Security Trustee shall apply any or all amounts then or thereafter deposited with it in the manner provided in Section 11 of this Agreement. The costs and expenses (including reasonable attorneys' fees) of collection, whether incurred by the Grantor or the Security Trustee, shall be borne by the Grantor. (b) The Grantor shall endeavor to cause to be collected from the account debtor named in each of its Accounts, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted collection procedures in accordance with all applicable laws), any and all amounts owing under or on account of such Account, and apply forthwith upon receipt thereof of all such amounts as are so collected to the outstanding balance of such Account, except that, unless an Event of Default shall have occurred and be continuing, the Grantor may allow in the ordinary course of business as adjustments to amounts owing under its Accounts (i) an extension or renewal of the time or times of payment or settlement for less than the total unpaid balance in the ordinary course of business, consistent with the Grantor's existing policies with respect thereto and which the Grantor finds appropriate at the time in accordance with sound business judgment, and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services. The costs and expenses (including, without limitation, reasonable attorneys' fees) of collection, whether incurred by the Grantor or the Security Trustee, shall be borne by the Grantor. 8. Instruments. If any of the Accounts become evidenced by an instrument, chattel paper or letter of credit (each defined in the Code), the Grantor, upon notice from the Security Trustee and provided an Event of Default has occurred and is continuing, 9 shall promptly, and in any event within ten days, notify the Security Trustee thereof, and upon request by the Security Trustee promptly deliver such instrument, chattel paper or letter of credit as further security under this Agreement. 9. Security Trustee May Perform. If the Grantor fails to perform any agreement contained herein, the Security Trustee may itself perform, or cause to be performed, such agreement, and the expenses of the Security Trustee incurred in connection therewith shall be payable by the Grantor. 10. The Security Trustee's Duties. The powers conferred on the Security Trustee hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon the Security Trustee to exercise any such powers. Except for the safe custody of any of the Collateral which, from time to time, may come into its possession and the accounting for moneys actually received by it hereunder, the Security Trustee shall have no duty as to the Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Collateral. 11. Remedies. The security constituted by this Agreement shall be enforceable if an Event of Default shall have occurred and be continuing: (a) The Security Trustee may exercise, in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Code (whether or not the Code shall be applied by the court in the jurisdiction in which enforcement of the security interest contained herein is sought) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Security Trustee forthwith, assemble all or any part of the Collateral as directed by the Security Trustee and make it available to the Security Trustee, at a place to be designated by the Security Trustee which is reasonably convenient to both parties, and (ii) without notice, except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Security Trustee's offices or elsewhere, for cash, and at such price or prices and upon such other terms as the Security Trustee may deem commercially reasonable. The Security Trustee shall give the Grantor at least ten days' notice of the time and place of any public sale. The Grantor agrees that ten days' notice of any such sale is commercially reasonable notification. The Security Trustee shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Security Trustee 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. 10 (b) All cash proceeds received by the Security Trustee in respect of any sale of, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Security Trustee pursuant to Section 13 of this Agreement) in whole or in part by the Security Trustee as set forth in Section 9 of the Credit Agreement. 12. Non-Interference with Remedies; Specific Performance. (a) The Grantor agrees that following the occurrence and during the continuance of an Event of Default it will not at any time pledge, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Collateral or the possession thereof by any purchaser at any sale hereunder, and the Grantor waives the benefit of all such laws to the extent it lawfully may do so. The Grantor agrees it will not interfere with any right, power or remedy of the Security Trustee provided for in this Agreement now or hereafter existing at law or in equity or by statute or otherwise, or with the exercise or beginning of the exercise by the Security Trustee of any one or more of such rights, powers or remedies. (b) The Grantor agrees that a breach of any of the agreements or covenants contained in this Agreement will cause irreparable injury to the Security Trustee, that the Security Trustee has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every agreement and covenant contained in this Agreement shall be specifically enforceable against the Grantor, and the Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such agreements or covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such Secured Obligations. 13. Indemnity, Expenses and Interest. (a) The Grantor shall on demand of the Security Trustee pay to the Security Trustee (on a full indemnity basis) all costs, charges, losses, liabilities and expenses expended, paid or incurred by the Security Trustee (whether before or after this Agreement becomes enforceable), including any tax thereon and reasonable professional fees including attorneys' fees, in connection with any breach of the covenants or undertakings herein or the exercise of any rights exercisable under it or the recovery of any of the Secured Obligations by the Security Trustee, including, without limitation, any remuneration and other sums at any time payable to the Security Trustee and all costs, charges, losses, liabilities and expenses connected with the protection, realization, enforcement or release of any provision of this Agreement, except to the extent the same results from the Security Trustee's gross negligence or willful misconduct. 11 (b) The Grantor shall after demand by the Security Trustee pay to the Security Trustee interest at a rate per annum equal to the Default Rate on all of the costs, charges, losses, liabilities and expenses referred to this clause. So long as no Event of Default has occurred and is continuing, such interest shall accrue and be payable from the date on which the Grantor receives notice from the Security Trustee, otherwise, such interest shall accrue and be payable from the date such cost, charge, loss, liability or expense was incurred by the Security Trustee. 14. Security Interest Absolute. All rights of the Security Trustee and the security interest granted hereunder, and all Secured Obligations, shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of the Credit Agreement or the Note, or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Grantor or any other person under or in connection with the Credit Agreement or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the Note or the terms of any thereto; or (iii) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Grantor in respect of the Secured Obligations or this Agreement. 15. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure therefrom by the Grantor, shall be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 16. Successors and Assigns. Whenever in this Agreement reference is made to any person, such reference shall be deemed to include the successors and assigns of such person. 17. Notices. Every notice or other communication under this Agreement shall be in writing and may be given by telex or telecopy as follows: 12 If to the Grantor: O'Brien (Philadelphia) Cogeneration Inc. 1221 Nicollet Mall Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telecopy No.: (612) 373-8833 with a copy to: Troutman Sanders LLP 600 Peachtree Street, N.W. Suite 5200 Atlanta, Georgia 30308-2216 Attention: M. Stuart Sutherland, Esq. Telecopy No.: (404) 885-3900 If to the Security Trustee: MeesPierson Capital Corporation 445 Park Avenue New York, New York 10022 Attention: Hendrik Vroege Telecopy No.: (212) 801-0420 or to such other address as either party shall from time to time specify in writing to the other. Any notice sent by telex or telecopy shall be confirmed by letter dispatched as soon as practicable thereafter. Every notice or other communication as shall, except so far as otherwise expressly provided by this Agreement, be deemed to have been received (provided it is received prior to 2 p.m. New York time; otherwise it shall be deemed to have been received on the next following Banking Day (as such term is defined in the Credit Agreement)) in the case of a telex or telecopy at the time the transmitting machine 13 provides confirmation of dispatch thereof (provided further that if the date of dispatch is not a Banking Day in the locality of the party to whom such notice or demand is sent it shall be deemed to have been received on the next following Banking Day in such locality) and, in the case of a letter, at the time of receipt thereof. 18. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until payment in full of the Secured Obligations, (ii) be binding upon the Grantor, its successors and assigns, and (iii) inure to the benefit of the Security Trustee and its respective successors, transferees and assigns. Upon the payment in full of the Secured Obligations, the security interest granted hereby shall terminate and all rights in and to the Collateral shall revert to the Grantor. Upon any such termination, the Security Trustee will, at the Grantor's expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. 19. Headings. In this Agreement, clause headings are inserted for convenience of reference only and shall not be considered in the interpretation of this Agreement. 20. Waiver of Jury Trial. IT IS MUTUALLY AGREED BY AND BETWEEN THE PARTIES HERETO THAT EACH OF THEM HEREBY WAIVES TRAIL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND ANY SECURITY DOCUMENT TO WHICH THE GRANTOR OR THE ASSIGNEE MAY BE A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 21. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT ANY REFERENCE TO CONFLICTS OF LAWS PRINCIPLES OF THAT STATE. 22. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be deemed to be duplicate originals and which shall constitute one and the same instrument. 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized on the day and year first above written. O'BRIEN (PHILADELPHIA) COGENERATION INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO MEESPIERSON CAPITAL CORP. By: /s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By: /s/ John T. Connors Name: John T. Connors Title: Exec. V.P. 15 EX-10.26.6 15 EXHIBIT 10.26.6 GENERAL SECURITY AGREEMENT DATED AS OF DECEMBER 17, 1997 BY NRG GENERATING (U.S.) INC. IN FAVOR OF MEESPIERSON CAPITAL CORP. Exhibit 10.26.6 GENERAL SECURITY AGREEMENT of NRG GENERATING (U.S.) INC. in favor of MEESPIERSON CAPITAL CORP. December 17, 1997 GENERAL SECURITY AGREEMENT THIS GENERAL SECURITY AGREEMENT ("this Agreement") dated as of December 17, 1997, is entered into by and between NRG GENERATING (U.S.) INC., a corporation incorporated under the laws of the State of Delaware, having offices at 1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403 (the "Grantor"), and MEESPIERSON CAPITAL CORP., a corporation incorporated under the laws of the State of Delaware, with offices at 445 Park Avenue, New York, New York (the "Security Trustee"). W I T N E S S E T H T H A T : WHEREAS: A. By a Credit Agreement dated as of December 17, 1997 (the "Credit Agreement") made among the Security Trustee, as Agent and Security Trustee, the banks and financial institutions whose names and addresses are set out in Schedule 1 thereto (the "Lenders"), and Grantor, the Lenders, subject to the terms thereof, have agreed to make advances to the Grantor of up to Thirty Million United States Dollars (US$30,000,000) outstanding at any time (the "Credit Facility"); B. Pursuant to the Credit Agreement it is a condition precedent to the availability of the Credit Facility that the Grantor execute and deliver to the Security Trustee this Agreement and grant the security interests contemplated hereby in order to create in favor of the Security Trustee a valid and perfected security interest, as that term is defined in the Uniform Commercial Code of New York (the "Code"), in the Collateral (as such term is hereinafter defined), as security for the payment and performance of all the obligations of the Grantor under and in connection with the Credit Agreement and the Note (as such term is defined in the Credit Agreement) now or hereafter existing whether for principal, interest, fees, expenses or otherwise and all secured obligations of the Grantor now or hereafter existing under this Agreement (all such obligations of the Grantor are hereinafter collectively referred to as the "Secured Obligations"). NOW, THEREFORE, in consideration of the premises, the parties hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. 2. Grant of Security. The Grantor, as legal and beneficial owner, as security for the Secured Obligations, hereby assigns, pledges, transfers and sets over unto the Security Trustee and its successors and assigns, and hereby grants to the Security Trustee a security interest in, all of the Grantor's right, title and interest in and to the following property (hereinafter referred to as the "Collateral"): (a) Any and all equipment (as defined in the Code) of the Grantor, or in which it has rights, whether now owned or hereafter acquired, which is used in connection with, or located at, the Northeast Facility or the Southwest Facility of the Philadelphia Cogeneration Project owned and operated by O'Brien (Philadelphia) Cogeneration Inc., together with all present and future improvements or products of, accessions, attachments and other additions to and substitutes and replacements for, all or any part of the foregoing (all of the foregoing types or items of property and interests described in this paragraph are hereinafter collectively referred to in this Agreement as the "Equipment"); and (b) Any and all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, the Equipment, including without limitation (i) all claims of the Grantor against third parties for loss of, damage to or destruction of, or of proceeds payable under, or unearned premiums with respect to policies of insurance in respect of, any of the Equipment; (ii) any condemnation payments with respect to any of the Equipment, whether now existing or hereafter arising; and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Equipment, including, without limitation, all other rights, claims and benefits of the Grantor against any person arising out of, relating to or in connection with, any of the Equipment. The security interest of the Security Trustee contained herein shall cover, and shall include a continuing general assignment in favor of the Security Trustee in, any and all documents, contracts, liens and security instruments, guarantees, books and records evidencing, securing or relating to the Collateral and the insurance to be secured to cover same in accordance with Section 5 hereof. 3. Security for Secured Obligations. This Agreement secures the payment and performance of all of the Secured Obligations. 4. Representations and Warranties. The Grantor represents and warrants as follows: 2 (a) The Grantor owns the Collateral free and clear of any lien, security interest, charge or encumbrance except for any Permitted Liens. Except with respect to Permitted Liens, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office. (b) Appropriate financing statements and mortgages have been or are concurrently herewith being filed at all governmental offices in each jurisdiction where such filing is necessary to perfect the security interest intended to be covered hereby and such security interest shall, upon such filing, constitute a perfected security interest in the Collateral in favor of the Security Trustee (to the extent that such security interest can be perfected in the Collateral by filing a financing statement or mortgage under the Code or applicable state or foreign law) which are enforceable as such against all creditors of and purchasers from the Grantor (other than purchasers who take free of such liens, encumbrances or security interests under the Code) and against any owner or purchaser of the real property where any of the equipment is located and any present or future creditor obtaining any lien, encumbrance or security interest on such real property. All other filings and other actions requested by the Security Trustee to perfect and protect the security interest granted herein have been duly made or taken. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (other than as contemplated by sub-clause (c) immediately preceding this sub-clause) is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor or (ii) for the perfection of or the exercise by the Security Trustee of its right and remedies hereunder. 5. Further Assurances. (a) The Grantor agrees that from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or advisable, or that the Security Trustee may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Security Trustee to exercise and enforce its rights and remedies hereunder with respect to the Collateral. Without limiting the generality of the foregoing, the Grantor shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or advisable, or as the Security Trustee may reasonably request, whether in a jurisdiction where the Code has been adopted or any other jurisdiction, in order to perfect and preserve the security interests granted or purported to be granted hereby. 3 (b) The Grantor hereby authorizes the Security Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. In the event that the Security Trustee files any such financing statements or renewals without the signature of the Grantor, it shall provide the Grantor with notice thereof as soon as practicable after such filing. (c) The Grantor will furnish to the Security Trustee from time to time as the Security Trustee may reasonably request statements and schedules further identifying and describing the Collateral and such other reports in connection therewith, all in reasonable detail. (d) Upon reasonable notice without materially interfering with the ordinary course or conduct of the Grantor's business, the Security Trustee shall at all times have full and free access during normal business hours to all the books, correspondence and records of the Grantor, and the Security Trustee or its representatives may examine the same, take extracts therefrom and make photocopies thereof, and the Grantor agrees to render to the Security Trustee, at the Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Security Trustee and its representatives shall at all times, upon reasonable notice, without materially interfering with the ordinary course or conduct of the Grantor's business, also have the right to enter into and upon any premises where any of the Collateral is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (e) The Grantor will comply with all requirements of law applicable to the Collateral or any part thereof other than those requirements with which the failure to comply would not have a material adverse effect on the existence, condition or value of the Collateral or the security interests granted hereunder; provided, however, that the Grantor may contest any requirement of law in any reasonable manner which shall not, in the reasonable opinion of the Security Trustee, materially adversely affect the Security Trustee's rights or the priority of their security interests in the Collateral. (f) Without thirty (30) days' prior written notice to the Security Trustee, the Grantor shall not (i) change its chief executive office or principal place of business, (ii) change the location at which it maintains its records relating to the Equipment, and (iii) except as permitted under the Credit Agreement, remove the Equipment from any of the counties in which such Equipment is presently located. Grantor shall furnish to the Security Trustee from time to time, as the Security Trustee may reasonably request, reports identifying the locations where the Collateral is located. 4 (g) The Grantor shall not change its corporate name, identity or corporate structure, nor carry on business under any name other than its corporate name, unless (i) it has given to the Security Trustee not less than thirty days prior written notice of its intention to do so, specifying such new corporate name, identity or corporate structure, and providing such other information in connection therewith as the Security Trustee may reasonably request, and (ii) with respect to such new corporate name, identity or corporate structure, it shall have taken all action, requested by the Security Trustee in its reasonable discretion, to maintain the security interest of the Security Trustee in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (h) The Grantor shall pay promptly, or cause to be paid promptly, when due all property and other material taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith and adequate reserves have been maintained therefor. (i) The Grantor will maintain all Collateral necessary in the Grantor's business in good operating condition, ordinary wear and tear and immaterial impairments of value and damage by the elements excepted, and will provide maintenance, service and repairs necessary for such purpose. (j) The Grantor shall, within ten days of acquiring an ownership interest in any Collateral having a value in excess of Twenty- Five Thousand Dollars ($25,000) on which a security interest under the Code can only be perfected by appropriate notations on the certificate of title relating to such Collateral, deliver to the Security Trustee any and all certificates of title, applications for title or similar evidence of ownership of such Collateral and shall cause the Security Trustee to be named as lienholder on any such certificate of title or other evidence of ownership. (k) The Grantor will, promptly upon request, provide to the Security Trustee all information and evidence it may reasonably request concerning the Collateral to enable the Security Trustee to enforce the provisions of this Agreement. 6. Security Trustee Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Security Trustee as the Grantor's attorney-in-fact, with full authority in the name, place and stead of the Grantor, from time to time in the Security Trustee's discretion, should an Event of Default (as such term is defined in the Credit Agreement) have occurred and be continuing to take any action and to execute any 5 document which the Security Trustee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (ii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) above, and (iii) to file any claims or take any action or institute any proceedings which the Security Trustee may deem necessary or advisable for the recovery of any of the Collateral or otherwise to enforce the rights of the Security Trustee with respect thereto created by this Agreement. 7. Security Trustee May Perform. If the Grantor fails to perform any agreement contained herein, the Security Trustee may itself perform, or cause to be performed, such agreement, and the expenses of the Security Trustee incurred in connection therewith shall be payable by the Grantor. 8. The Security Trustee's Duties. The powers conferred on the Security Trustee hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon the Security Trustee to exercise any such powers. Except for the safe custody of any of the Collateral which, from time to time, may come into its possession and the accounting for moneys actually received by it hereunder, the Security Trustee shall have no duty as to the Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Collateral. 9. Remedies. The security constituted by this Agreement shall be enforceable if an Event of Default shall have occurred and be continuing: (a) The Security Trustee may exercise, in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Code (whether or not the Code shall be applied by the court in the jurisdiction in which enforcement of the security interest contained herein is sought) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Security Trustee forthwith, assemble all or any part of the Collateral as directed by the Security Trustee and make it available to the Security Trustee, at a place to be designated by the Security Trustee which is reasonably convenient to both parties, and (ii) without notice, except as 6 specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Security Trustee's offices or elsewhere, for cash, and at such price or prices and upon such other terms as the Security Trustee may deem commercially reasonable. The Security Trustee shall give the Grantor at least ten days' notice of the time and place of any public sale. The Grantor agrees that ten days' notice of any such sale is commercially reasonable notification. The Security Trustee shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Security Trustee 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. (b) All cash proceeds received by the Security Trustee in respect of any sale of, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Security Trustee pursuant to Section 11 of this Agreement) in whole or in part by the Security Trustee as set forth in Section 9 of the Credit Agreement. 10. Non-Interference with Remedies; Specific Performance. (a) The Grantor agrees that following the occurrence and during the continuance of an Event of Default it will not at any time pledge, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Collateral or the possession thereof by any purchaser at any sale hereunder, and the Grantor waives the benefit of all such laws to the extent it lawfully may do so. The Grantor agrees it will not interfere with any right, power or remedy of the Security Trustee provided for in this Agreement now or hereafter existing at law or in equity or by statute or otherwise, or with the exercise or beginning of the exercise by the Security Trustee of any one or more of such rights, powers or remedies. (b) The Grantor agrees that a breach of any of the agreements or covenants contained in this Agreement will cause irreparable injury to the Security Trustee, that the Security Trustee has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every agreement and covenant contained in this Agreement shall be specifically enforceable against the Grantor, and the Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such agreements or covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such Secured Obligations. 7 11. Indemnity, Expenses and Interest. (a) The Grantor shall on demand of the Security Trustee pay to the Security Trustee (on a full indemnity basis) all costs, charges, losses, liabilities and expenses expended, paid or incurred by the Security Trustee (whether before or after this Agreement becomes enforceable), including any tax thereon and reasonable professional fees including attorneys' fees, in connection with any breach of the covenants or undertakings herein or the exercise of any rights exercisable under it or the recovery of any of the Secured Obligations by the Security Trustee, including, without limitation, any remuneration and other sums at any time payable to the Security Trustee and all costs, charges, losses, liabilities and expenses connected with the protection, realization, enforcement or release of any provision of this Agreement, except to the extent the same results from the Security Trustee's gross negligence or willful misconduct. (b) The Grantor shall after demand by the Security Trustee pay to the Security Trustee interest at a rate per annum equal to the Default Rate on all of the costs, charges, losses, liabilities and expenses referred to this clause. So long as no Event of Default has occurred and is continuing, such interest shall accrue and be payable from the date on which the Grantor receives notice from the Security Trustee, otherwise, such interest shall accrue and be payable from the date such cost, charge, loss, liability or expense was incurred by the Security Trustee. 12. Security Interest Absolute. All rights of the Security Trustee and the security interest granted hereunder, and all Secured Obligations, shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of the Credit Agreement or the Note, or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Grantor or any other person under or in connection with the Credit Agreement or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the Note or the terms of any thereto; or (iii) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Grantor in respect of the Secured Obligations or this Agreement. 12. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure therefrom by the Grantor, shall be effective 8 unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Successors and Assigns. Whenever in this Agreement reference is made to any person, such reference shall be deemed to include the successors and assigns of such person. 14. Notices. Every notice or other communication under this Agreement shall be in writing and may be given by telex or telecopy as follows: If to the Grantor: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telecopy No.: (612) 373-8833 with a copy to: Troutman Sanders LLP 600 Peachtree Street, N.W. Suite 5200 Atlanta, Georgia 30308-2216 Attention: M. Stuart Sutherland, Esq. Telecopy No.: (404) 885-3900 9 If to the Security Trustee: MeesPierson Capital Corporation 445 Park Avenue New York, New York 10022 Attention: Hendrik Vroege Telecopy No.: (212) 801-0420 or to such other address as either party shall from time to time specify in writing to the other. Any notice sent by telex or telecopy shall be confirmed by letter dispatched as soon as practicable thereafter. Every notice or other communication as shall, except so far as otherwise expressly provided by this Agreement, be deemed to have been received (provided it is received prior to 2 p.m. New York time; otherwise it shall be deemed to have been received on the next following Banking Day (as such term is defined in the Credit Agreement)) in the case of a telex or telecopy at the time the transmitting machine provides confirmation of dispatch thereof (provided further that if the date of dispatch is not a Banking Day in the locality of the party to whom such notice or demand is sent it shall be deemed to have been received on the next following Banking Day in such locality) and, in the case of a letter, at the time of receipt thereof. 15. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until payment in full of the Secured Obligations, (ii) be binding upon the Grantor, its successors and assigns, and (iii) inure to the benefit of the Security Trustee and its respective successors, transferees and assigns. Upon the payment in full of the Secured Obligations, the security interest granted hereby shall terminate and all rights in and to the Collateral shall revert to the Grantor. Upon any such termination, the Security Trustee will, at the Grantor's expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. 16. Headings. In this Agreement, clause headings are inserted for convenience of reference only and shall not be considered in the interpretation of this Agreement. 17. Waiver of Jury Trial. IT IS MUTUALLY AGREED BY AND BETWEEN THE PARTIES HERETO THAT EACH OF THEM HEREBY 11 WAIVES TRAIL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND ANY SECURITY DOCUMENT TO WHICH THE GRANTOR OR THE ASSIGNEE MAY BE A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT ANY REFERENCE TO CONFLICTS OF LAWS PRINCIPLES OF THAT STATE. 19. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be deemed to be duplicate originals and which shall constitute one and the same instrument. 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized on the day and year first above written. NRG GENERATING (U.S.) INC. By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO MEESPIERSON CAPITAL CORP. By:/s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By:/s/ John O'Connor Name: John O'Connor Title: Senior Vice President 12 EX-10.26.7 16 EXHIBIT 10.26.7 GENERAL SECURITY AGREEMENT DATED AS OF DECEMBER 17, 1997 BY O'BRIEN ENERGY SERVICES COMPANY IN FAVOR OF MEESPIERSON CAPITAL CORP. Exhibit 10.26.7 GENERAL SECURITY AGREEMENT of O'BRIEN ENERGY SERVICES COMPANY in favor of MEESPIERSON CAPITAL CORP. December 17, 1997 GENERAL SECURITY AGREEMENT THIS GENERAL SECURITY AGREEMENT ("this Agreement") dated as of December 17, 1997, is entered into by and between O'BRIEN ENERGY SERVICES COMPANY, a corporation incorporated under the laws of the State of Delaware, having offices at 920 Church Street, Wilmington, Delaware 19899 (the "Grantor"), and MEESPIERSON CAPITAL CORP., a corporation incorporated under the laws of the State of Delaware, with offices at 445 Park Avenue, New York, New York (the "Security Trustee"). W I T N E S S E T H T H A T : WHEREAS: A. By a Credit Agreement dated as of December 17, 1997 (the "Credit Agreement") made among the Security Trustee, as Agent and Security Trustee, the banks and financial institutions whose names and addresses are set out in Schedule 1 thereto (the "Lenders"), and NRG Generating (U.S.) Inc. (the "Borrower"), the Lenders, subject to the terms thereof, have agreed to make advances to the Borrower of up to Thirty Million United States Dollars (US$30,000,000) outstanding at any time (the "Credit Facility"); B. The Borrower is an affiliate of the Grantor, and the financial accommodations made to the Borrower under the Credit Facility will be of benefit to the Grantor; and C. Pursuant to the Credit Agreement it is a condition precedent to the availability of the Credit Facility that the Grantor execute and deliver to the Security Trustee this Agreement and grant the security interests contemplated hereby in order to create in favor of the Security Trustee a valid and perfected security interest, as that term is defined in the Uniform Commercial Code of New York (the "Code"), in the Collateral (as such term is hereinafter defined), as security for the payment and performance of all the obligations of the Borrower under and in connection with the Credit Agreement and the Note (as such term is defined in the Credit Agreement) now or hereafter existing whether for principal, interest, fees, expenses or otherwise and all secured obligations of the Grantor now or hereafter existing under this Agreement (all such obligations of the Grantor are hereinafter collectively referred to as the "Secured Obligations"). NOW, THEREFORE, in consideration of the premises, the parties hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. 2. Grant of Security. The Grantor, as legal and beneficial owner, as security for the Secured Obligations, hereby assigns, pledges, transfers and sets over unto the Security Trustee and its successors and assigns, and hereby grants to the Security Trustee a security interest in, all of the Grantor's right, title and interest in and to the following property (hereinafter referred to as the "Collateral"): (a) Any and all equipment (as defined in the Code) of the Grantor, or in which it has rights, whether now owned or hereafter acquired, together with all present and future improvements or products of, accessions, attachments and other additions to and substitutes and replacements for, all or any part of the foregoing (all of the foregoing types or items of property and interests described in this paragraph are hereinafter collectively referred to in this Agreement as the "Equipment"); and (b) Any and all proceeds of, and all other profits, rentals or receipts, in whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other disposition of, or realization upon, the Equipment, including without limitation (i) all claims of the Grantor against third parties for loss of, damage to or destruction of, or of proceeds payable under, or unearned premiums with respect to policies of insurance in respect of, any of the Equipment; (ii) any condemnation payments with respect to any of the Equipment, whether now existing or hereafter arising; and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Equipment, including, without limitation, all other rights, claims and benefits of the Grantor against any person arising out of, relating to or in connection with, any of the Equipment. The security interest of the Security Trustee contained herein shall cover, and shall include a continuing general assignment in favor of the Security Trustee in, any and all documents, contracts, liens and security instruments, guarantees, books and records evidencing, securing or relating to the Collateral and the insurance to be secured to cover same in accordance with Section 5 hereof. 3. Security for Secured Obligations. This Agreement secures the payment and performance of all of the Secured Obligations. 4. Representations and Warranties. The Grantor represents and warrants as follows: 2 (a) The Grantor owns the Collateral free and clear of any lien, security interest, charge or encumbrance except for any Permitted Liens. Except with respect to Permitted Liens, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office. (b) Appropriate financing statements and mortgages have been or are concurrently herewith being filed at all governmental offices in each jurisdiction where such filing is necessary to perfect the security interest intended to be covered hereby and such security interest shall, upon such filing, constitute a perfected security interest in the Collateral in favor of the Security Trustee (to the extent that such security interest can be perfected in the Collateral by filing a financing statement or mortgage under the Code or applicable state or foreign law) which are enforceable as such against all creditors of and purchasers from the Grantor (other than purchasers who take free of such liens, encumbrances or security interests under the Code) and against any owner or purchaser of the real property where any of the equipment is located and any present or future creditor obtaining any lien, encumbrance or security interest on such real property. All other filings and other actions requested by the Security Trustee to perfect and protect the security interest granted herein have been duly made or taken. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (other than as contemplated by sub-clause (c) immediately preceding this sub-clause) is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor or (ii) for the perfection of or the exercise by the Security Trustee of its right and remedies hereunder. 5. Further Assurances. (a) The Grantor agrees that from time to time, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or advisable, or that the Security Trustee may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Security Trustee to exercise and enforce its rights and remedies hereunder with respect to the Collateral. Without limiting the generality of the foregoing, the Grantor shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or advisable, or as the Security Trustee may reasonably request, whether in a jurisdiction where the Code has been adopted or any other jurisdiction, in order to perfect and preserve the security interests granted or purported to be granted hereby. 3 (b) The Grantor hereby authorizes the Security Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. In the event that the Security Trustee files any such financing statements or renewals without the signature of the Grantor, it shall provide the Grantor with notice thereof as soon as practicable after such filing. (c) The Grantor will furnish to the Security Trustee from time to time as the Security Trustee may reasonably request statements and schedules further identifying and describing the Collateral and such other reports in connection therewith, all in reasonable detail. (d) Upon reasonable notice without materially interfering with the ordinary course or conduct of the Grantor's business, the Security Trustee shall at all times have full and free access during normal business hours to all the books, correspondence and records of the Grantor, and the Security Trustee or its representatives may examine the same, take extracts therefrom and make photocopies thereof, and the Grantor agrees to render to the Security Trustee, at the Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Security Trustee and its representatives shall at all times, upon reasonable notice, without materially interfering with the ordinary course or conduct of the Grantor's business, also have the right to enter into and upon any premises where any of the Collateral is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (e) The Grantor will comply with all requirements of law applicable to the Collateral or any part thereof other than those requirements with which the failure to comply would not have a material adverse effect on the existence, condition or value of the Collateral or the security interests granted hereunder; provided, however, that the Grantor may contest any requirement of law in any reasonable manner which shall not, in the reasonable opinion of the Security Trustee, materially adversely affect the Security Trustee's rights or the priority of their security interests in the Collateral. (f) Without thirty (30) days' prior written notice to the Security Trustee, the Grantor shall not (i) change its chief executive office or principal place of business, (ii) change the location at which it maintains its records relating to the Equipment, and (iii) except as permitted under the Credit Agreement, remove the Equipment from any of the counties in which such Equipment is presently located. Grantor shall furnish to the Security Trustee from time to time, as the Security Trustee may reasonably request, reports identifying the locations where the Collateral is located. 4 (g) The Grantor shall not change its corporate name, identity or corporate structure, nor carry on business under any name other than its corporate name, unless (i) it has given to the Security Trustee not less than thirty days prior written notice of its intention to do so, specifying such new corporate name, identity or corporate structure, and providing such other information in connection therewith as the Security Trustee may reasonably request, and (ii) with respect to such new corporate name, identity or corporate structure, it shall have taken all action, requested by the Security Trustee in its reasonable discretion, to maintain the security interest of the Security Trustee in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. (h) The Grantor shall pay promptly, or cause to be paid promptly, when due all property and other material taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith and adequate reserves have been maintained therefor. (i) The Grantor will maintain all Collateral necessary in the Grantor's business in good operating condition, ordinary wear and tear and immaterial impairments of value and damage by the elements excepted, and will provide maintenance, service and repairs necessary for such purpose. (j) The Grantor shall, within ten days of acquiring an ownership interest in any Collateral having a value in excess of Twenty- Five Thousand Dollars ($25,000) on which a security interest under the Code can only be perfected by appropriate notations on the certificate of title relating to such Collateral, deliver to the Security Trustee any and all certificates of title, applications for title or similar evidence of ownership of such Collateral and shall cause the Security Trustee to be named as lienholder on any such certificate of title or other evidence of ownership. (k) The Grantor will, promptly upon request, provide to the Security Trustee all information and evidence it may reasonably request concerning the Collateral to enable the Security Trustee to enforce the provisions of this Agreement. 6. Security Trustee Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Security Trustee as the Grantor's attorney-in-fact, with full authority in the name, place and stead of the Grantor, from time to time in the Security Trustee's discretion, should an Event of Default (as such term is defined in the Credit Agreement) have occurred and be continuing to take any action and to execute any 5 document which the Security Trustee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (ii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) above, and (iii) to file any claims or take any action or institute any proceedings which the Security Trustee may deem necessary or advisable for the recovery of any of the Collateral or otherwise to enforce the rights of the Security Trustee with respect thereto created by this Agreement. 7. Security Trustee May Perform. If the Grantor fails to perform any agreement contained herein, the Security Trustee may itself perform, or cause to be performed, such agreement, and the expenses of the Security Trustee incurred in connection therewith shall be payable by the Grantor. 8. The Security Trustee's Duties. The powers conferred on the Security Trustee hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon the Security Trustee to exercise any such powers. Except for the safe custody of any of the Collateral which, from time to time, may come into its possession and the accounting for moneys actually received by it hereunder, the Security Trustee shall have no duty as to the Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to the Collateral. 9. Remedies. The security constituted by this Agreement shall be enforceable if an Event of Default shall have occurred and be continuing: (a) The Security Trustee may exercise, in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Code (whether or not the Code shall be applied by the court in the jurisdiction in which enforcement of the security interest contained herein is sought) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Security Trustee forthwith, assemble all or any part of the Collateral as directed by the Security Trustee and make it available to the Security Trustee, at a place to be designated by the Security Trustee which is reasonably convenient to both parties, and (ii) without notice, except as 6 specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Security Trustee's offices or elsewhere, for cash, and at such price or prices and upon such other terms as the Security Trustee may deem commercially reasonable. The Security Trustee shall give the Grantor at least ten days' notice of the time and place of any public sale. The Grantor agrees that ten days' notice of any such sale is commercially reasonable notification. The Security Trustee shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Security Trustee 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. (b) All cash proceeds received by the Security Trustee in respect of any sale of, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Security Trustee pursuant to Section 11 of this Agreement) in whole or in part by the Security Trustee as set forth in Section 9 of the Credit Agreement. 10. Non-Interference with Remedies; Specific Performance. (a) The Grantor agrees that following the occurrence and during the continuance of an Event of Default it will not at any time pledge, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Collateral or the possession thereof by any purchaser at any sale hereunder, and the Grantor waives the benefit of all such laws to the extent it lawfully may do so. The Grantor agrees it will not interfere with any right, power or remedy of the Security Trustee provided for in this Agreement now or hereafter existing at law or in equity or by statute or otherwise, or with the exercise or beginning of the exercise by the Security Trustee of any one or more of such rights, powers or remedies. (b) The Grantor agrees that a breach of any of the agreements or covenants contained in this Agreement will cause irreparable injury to the Security Trustee, that the Security Trustee has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every agreement and covenant contained in this Agreement shall be specifically enforceable against the Grantor, and the Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such agreements or covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such Secured Obligations. 7 11. Indemnity, Expenses and Interest. (a) The Grantor shall on demand of the Security Trustee pay to the Security Trustee (on a full indemnity basis) all costs, charges, losses, liabilities and expenses expended, paid or incurred by the Security Trustee (whether before or after this Agreement becomes enforceable), including any tax thereon and reasonable professional fees including attorneys' fees, in connection with any breach of the covenants or undertakings herein or the exercise of any rights exercisable under it or the recovery of any of the Secured Obligations by the Security Trustee, including, without limitation, any remuneration and other sums at any time payable to the Security Trustee and all costs, charges, losses, liabilities and expenses connected with the protection, realization, enforcement or release of any provision of this Agreement, except to the extent the same results from the Security Trustee's gross negligence or willful misconduct. (b) The Grantor shall after demand by the Security Trustee pay to the Security Trustee interest at a rate per annum equal to the Default Rate on all of the costs, charges, losses, liabilities and expenses referred to this clause. So long as no Event of Default has occurred and is continuing, such interest shall accrue and be payable from the date on which the Grantor receives notice from the Security Trustee, otherwise, such interest shall accrue and be payable from the date such cost, charge, loss, liability or expense was incurred by the Security Trustee. 12. Security Interest Absolute. All rights of the Security Trustee and the security interest granted hereunder, and all Secured Obligations, shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of the Credit Agreement or the Note, or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Grantor or any other person under or in connection with the Credit Agreement or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the Note or the terms of any thereto; or (iii) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Grantor in respect of the Secured Obligations or this Agreement. 12. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure therefrom by the Grantor, shall be effective 8 unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Successors and Assigns. Whenever in this Agreement reference is made to any person, such reference shall be deemed to include the successors and assigns of such person. 14. Notices. Every notice or other communication under this Agreement shall be in writing and may be given by telex or telecopy as follows: If to the Grantor: O'Brien Energy Services Company 920 Church Street Wilmington, Delaware 19899 Attention: Vice President-CFO Telecopy No.: (___) ___-____ with a copy to: Troutman Sanders LLP 600 Peachtree Street, N.W. Suite 5200 Atlanta, Georgia 30308-2216 Attention: M. Stuart Sutherland, Esq. Telecopy No.: (404) 885-3900 9 If to the Security Trustee: MeesPierson Capital Corporation 445 Park Avenue New York, New York 10022 Attention: Hendrik Vroege Telecopy No.: (212) 801-0420 or to such other address as either party shall from time to time specify in writing to the other. Any notice sent by telex or telecopy shall be confirmed by letter dispatched as soon as practicable thereafter. Every notice or other communication as shall, except so far as otherwise expressly provided by this Agreement, be deemed to have been received (provided it is received prior to 2 p.m. New York time; otherwise it shall be deemed to have been received on the next following Banking Day (as such term is defined in the Credit Agreement)) in the case of a telex or telecopy at the time the transmitting machine provides confirmation of dispatch thereof (provided further that if the date of dispatch is not a Banking Day in the locality of the party to whom such notice or demand is sent it shall be deemed to have been received on the next following Banking Day in such locality) and, in the case of a letter, at the time of receipt thereof. 15. Continuing Security Interest. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until payment in full of the Secured Obligations, (ii) be binding upon the Grantor, its successors and assigns, and (iii) inure to the benefit of the Security Trustee and its respective successors, transferees and assigns. Upon the payment in full of the Secured Obligations, the security interest granted hereby shall terminate and all rights in and to the Collateral shall revert to the Grantor. Upon any such termination, the Security Trustee will, at the Grantor's expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. 16. Headings. In this Agreement, clause headings are inserted for convenience of reference only and shall not be considered in the interpretation of this Agreement. 17. Waiver of Jury Trial. IT IS MUTUALLY AGREED BY AND BETWEEN THE PARTIES HERETO THAT EACH OF THEM HEREBY 10 WAIVES TRAIL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND ANY SECURITY DOCUMENT TO WHICH THE GRANTOR OR THE ASSIGNEE MAY BE A PARTY OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT ANY REFERENCE TO CONFLICTS OF LAWS PRINCIPLES OF THAT STATE. 19. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be deemed to be duplicate originals and which shall constitute one and the same instrument. 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized on the day and year first above written. O'BRIEN ENERGY SERVICES COMPANY By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO MEESPIERSON CAPITAL CORP. By:/s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By:/s/ John T. Connors Name: John T. Connors Title: Exec. V.P. 12 EX-10.26.8 17 EXHIBIT 10.26.8 SUBORDINATION AGREEMENT DATED AS OF DECEMBER 10, 1997 AMONG MEESPIERSON CAPITAL CORP., THE SENIOR LENDERS, NRG GENERATING (U.S.) INC. AND NRG ENERGY, INC. Exhibit 10.26.8 SUBORDINATION AGREEMENT in favor of MEESPIERSON CAPITAL CORP. December 10, 1997 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT dated as of December 10, 1997 among (1) MEESPIERSON CAPITAL CORP. (the "Agent"), (2) the banks and financial institutions whose names and addresses are set out in Schedule 1 (together, the "Senior Lenders", each a "Senior Lender"), (3) NRG GENERATING (U.S.) INC. (the "Company") and (4) NRG ENERGY, INC. (the "Subordinated Lender"). BACKGROUND As a condition to the Senior Lenders providing a credit facility in favor of the Company, the Subordinated Lender has agreed to enter into this subordination agreement to provide for the subordination of the Subordinated Indebtedness to the Senior Indebtedness. AGREEMENTS NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. 1.1. General Terms. For purposes of this Agreement, the following terms shall have the following meanings: "Agreements" shall mean, collectively, the Credit Agreement and the Subordinated Lending Agreement. "Credit Agreement" shall mean that certain Credit Agreement dated as of December 10, 1997 by and among, the Company, the Agent and the Senior Lenders, as the same may be amended, modified or supplemented from time to time. "Company" shall mean NRG Generating (U.S.) Inc., a Delaware corporation. "Creditors" shall mean, collectively, the Agent, the Senior Lenders and the Subordinated Lender, and their respective successors and assigns. "Distribution" shall mean any payment by the Company, whether in cash, in kind, securities or any other property. "Event" shall have the meaning set forth in Section 2.2(c) hereof. "Subordinated Lender" shall mean NRG Energy, Inc. and any other Person(s) at any time or in any manner acquiring any right or interest in any of the Subordinated Indebtedness. "Person" shall mean an individual, a partnership, a corporation (including a business trust), a joint stock company, a trust, a limited liability corporation, a limited liability partnership, an unincorporated association, a joint venture or other entity, or a government or any agency, instrumentality or political subdivision thereof. "Senior Indebtedness" shall mean all obligations of any kind owed by the Company to the Senior Lenders and the Agent from time to time under or pursuant to the Credit Agreement or any Note or Guaranty issued thereunder including, without limitation, all principal of and interest on the Advances made thereunder (including all interest accruing after commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company) charges, expenses, fees and other sums chargeable to the Company by the Senior Lenders or the Agent, and reimbursement, indemnity or other obligations payable to the Senior Lenders and the Agent. Senior Indebtedness shall continue to constitute Senior Indebtedness, notwithstanding the fact that such Senior Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided or disallowed under the federal Bankruptcy Code or other applicable law. Senior Indebtedness shall also include any indebtedness of the Company incurred in connection with an extension, modification, amendment or refinancing of the Credit Agreement. "Senior Lender(s)" shall have the meaning set forth in the introductory paragraph of this Agreement. "Subordinated Indebtedness" shall mean all principal, interest and other amounts payable or chargeable, contingent or otherwise, in connection with the Subordinated Lending Agreement. "Subordinated Lending Agreement" shall mean that certain Supplemental Loan Agreement, dated as of December 10, 1997, by and between the Subordinated Lender, the Company and NRGG Funding Inc. ("Funding") and all promissory notes, agreements, guaranties, documents and instruments now or at any time 2 hereafter executed and/or delivered by the Company with or in favor of the Subordinated Lender in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.2. Other Terms. Capitalized terms not otherwise defined herein shall have the meanings given to them in the Credit Agreement. 1.3. Certain Matters of Construction. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any instruments or agreements, including, without limitation, references to any of the Credit Agreement or the Subordinated Lending Agreement shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof in accordance with the provisions of this Agreement. 2. Covenants. The Company and the Subordinated Lender hereby covenant that until the Senior Indebtedness shall have been paid in full and satisfied in cash and the Credit Agreement shall have been terminated, all in accordance with the terms of the Credit Agreement, each will comply with such of the following provisions as are applicable to it: 2.1. Transfers. The Subordinated Lender covenants that any transferee from it of any Subordinated Indebtedness shall, prior to acquiring such interest, execute and deliver a counterpart of this Subordination Agreement to each other party hereto. 2.2. Subordination Provisions. Notwithstanding any other provision of the Subordinated Indebtedness to the contrary, any Distribution with respect to the Subordinated Indebtedness is and shall be expressly junior and subordinated in right of payment to all amounts due and owing upon all Senior Indebtedness outstanding from time to time to the extent and on the terms and conditions set forth herein. Notwithstanding anything herein to the contrary, this Agreement shall in no way impair or otherwise affect: (i) the obligations of Funding to the Subordinated Lender under, or the rights and remedies of the Subordinated Lender (including, without limitation, the right of the Subordinated Lender to receive payments of any nature from Funding) in accordance with, the terms of the Subordinated Lending Agreement; (ii) subject to the waiver provisions of Section 8.02 of the Subordinated Lending Agreement, the obligation 3 of the Company to return to Funding any payments of any nature received by the Company in violation of the terms of the Subordinated Lending Agreement, to which the Senior Lenders hereby consent; ; or (iii) the obligations of Funding and NRG Morris Inc. (collectively, the "Pledgors") to the Subordinated Lender under the Pledge and Security Agreement dated as of December __, 1997 pursuant to which the Pledgors grant to the Subordinated Lender a security interest in all of the outstanding membership interests of NRG (Morris) Cogen LLC, all proceeds thereof and certain other related collateral (collectively, the "Collateral") or the rights and remedies of the Subordinated Lender thereunder, including without limitation, its right to receive payments of any nature relating to such Collateral. (a) Payments. The Company shall make no Distribution on the Subordinated Indebtedness until such time as the Senior Indebtedness shall have been paid in full in cash and the Credit Agreement shall have been irrevocably terminated; provided, however, so long as no Event of Default shall have occurred and be continuing under the Credit Agreement, the Company may pay and the Subordinated Lender may receive and retain regularly scheduled payments of principal and interest on the Subordinated Indebtedness as set forth on the Effective Date in the Subordinated Lending Agreement. No optional redemptions or mandatory redemptions of Subordinated Indebtedness shall be permitted without the express written consent of the Senior Lender. Following the occurrence of an Event of Default, upon and after receipt by the Company and the Subordinated Lender of written notice of such Event of Default from the Agent (such notice, the "Default Notice"), the Company shall make no Distribution on the Subordinated Indebtedness and the Subordinated Lender shall not be entitled to receive or retain any such Distribution in respect of the Subordinated Indebtedness; provided, further, that notwithstanding the foregoing restriction, the Company may pay and the Subordinated Lender shall be entitled to receive and retain any principal or interest payment which shall have become due and payable (on a non-accelerated basis) on the earliest to occur of (x) the date on which all such Events of Defaults set forth in the Default Notice shall have been cured or waived, and (y) payment in full in cash of all Senior Indebtedness (except for claims which were not in existence at the time of termination of the Credit Agreement and repayment in full of the Senior Indebtedness) and the termination of the Credit Agreement. Only one Default Notice may be sent within any 360-day period with respect to any Event of Default which was in existence at the time the Default Notice was sent. (b) Limitation on Acceleration. During any period described in Section 2.2 (a) hereof in which a Distribution is not permitted to be made on Subordinated Indebtedness (any such period, a "Non-Payment Period"), the Subordinated Lender shall 4 not be entitled to accelerate the maturity of the Subordinated Indebtedness, exercise any remedies or commence any action or proceeding to recover any amounts due or to become due with respect to Subordinated Indebtedness, provided, however, the foregoing limitation on acceleration or exercise of any remedies shall not be applicable following (x) the occurrence of an Event (as to which Section 2.2 (c) shall apply) or (y) following the maturity or acceleration of all Senior Indebtedness; provided, further, the prohibition against exercise of remedies shall not prohibit the Subordinated Lender from exercising equitable remedies for defaults under the Subordinated Lending Agreement which are not payment defaults so long as such equitable remedies do not result in acceleration of the Subordinated Indebtedness or payment of any Subordinated Indebtedness. (c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the event of any insolvency or bankruptcy proceedings relative to the Company or its property, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, or, in the event of any proceedings for voluntary liquidation, dissolution or winding-up of the Company or distribution or marshalling of its assets or any composition with creditors of the Company, whether or not involving insolvency or bankruptcy, or the appointment of a receiver, intervenor or conservator of, or trustee, custodian or similar officer for the Company or any substantial part of its property (each individually or collectively, an "Event"), then all Senior Indebtedness shall be paid in full and satisfied in cash and the Credit Agreement terminated before any Distribution shall be made on account of any Subordinated Indebtedness. Any such Distribution which would, but for the provisions hereof, be payable or deliverable in respect of the Subordinated Indebtedness, shall be paid or delivered directly to the Agent for the benefit of the Senior Lenders until amounts owing upon Senior Indebtedness shall have been paid in full in cash and the Credit Agreement has been irrevocably terminated. (d) Acceleration. In the event all Senior Indebtedness becomes due and payable, whether by acceleration, maturity or otherwise, no Distribution shall thereafter be made on account of the Subordinated Indebtedness until all Senior Indebtedness shall be paid in full in cash and the Credit Agreement is terminated. (e) Power of Attorney. To enable the Agent on behalf of itself and the Senior Lenders to assert and enforce its rights hereunder in any proceeding referred to in Section 2.2(c) or upon the happening of any Event, the Agent or any person whom it may designate is hereby irrevocably appointed attorney in fact for the Subordinated Lender with full power to act in the place and stead of the Subordinated Lender to present and file such proofs of claim against the Company on account of all or any part of the Subordinated Indebtedness as the Agent may deem advisable in the event the Subordinated Lender fails to do so prior to 30 days prior to the expiration of the time 5 to file such claim or claims and to receive and collect any and all dividends or other payments made thereon and to apply the same on account of Senior Indebtedness to the extent provided for under this Agreement. The Subordinated Lender will execute and deliver to the Agent such instruments as may be required by the Agent to enforce any and all Subordinated Indebtedness, to effectuate the aforesaid power of attorney and to effect collection of any and all dividends or other payments which may be made at any time on account thereof, and the Subordinated Lender hereby irrevocably appoints the Agent as its lawful attorney and agent to execute financing statements on behalf of the Subordinated Lender and hereby further authorizes the Agent to file such financing statements in any appropriate public office. (f) Payments Held in Trust. Should any Distribution or the proceeds thereof, in respect of the Subordinated Indebtedness, be collected or received by the Subordinated Lender or any Affiliate (as such term is defined in Rule 405 of Regulation C adopted by the Securities and Exchange Commission pursuant to the Securities Act of 1933) of the Subordinated Lender at a time when the Subordinated Lender is not permitted to receive any such Distribution or proceeds thereof (including if same is collected or received when there is or would be after giving effect to such payment an Event of Default and the Agent thereafter gives a Default Notice with respect to such Default), then the Subordinated Lender will forthwith deliver, or cause to be delivered, the same to the Agent in precisely the form held by the Subordinated Lender (except for any necessary endorsement) and until so delivered, the same shall be held in trust by the Subordinated Lender, or any such Affiliate, as the property of the Agent and the Senior Lenders and shall not be commingled with other property of the Subordinated Lender or any such Affiliate. (g) Subrogation. Subject to the prior payment in full in cash of the Senior Indebtedness and the termination of the Credit Agreement, to the extent that the Agent for the benefit of itself and the Senior Lenders has received any Distribution on the Senior Indebtedness which, but for this Agreement, would have been applied to the Subordinated Indebtedness, the Subordinated Lender shall be subrogated to the then or thereafter rights of the Agent and the Senior Lenders including, without limitation, the right to receive any Distribution made on Senior Indebtedness until the principal of, interest on and other charges due under the Subordinated Indebtedness shall be paid in full; and, for the purposes of such subrogation, no Distribution to the Agent for the benefit of the Senior Lenders to which the Subordinated Lenders would be entitled except for the provisions of this Agreement shall, as between the Company, its creditors (other than the Agent and the Senior Lenders) and the Subordinated Lenders, be deemed to be a Distribution by the Company to or on account of Senior Indebtedness, it being understood that the provisions hereof are and are intended solely for the purpose of 6 defining the relative rights of the Subordinated Lender on the one hand, and the Agent and the Senior Lenders on the other hand. (h) Scope of Subordination. The provisions of this Agreement are solely to define the relative rights of the Subordinated Lender and the Agent and the Senior Lenders. Nothing in this Agreement shall impair, as between the Company and the Subordinated Lender the unconditional and absolute obligation of the Company to punctually pay the principal, interest and any other amounts and obligations owing under the Subordinated Lending Agreement in accordance with the terms thereof, subject to the rights of the Agent and the Senior Lenders under this Agreement. 3. Miscellaneous. 3.1. Provisions of Subordinated Note. From and after the date hereof, the Company and the Subordinated Lender shall cause each promissory note or other document evidencing the Subordinated Indebtedness to contain a provision to the following effect: "This Note is subject to the Subordination Agreement, dated as of December __, 1997, among the Maker, the Payee and MeesPierson Capital Corporation under which this Note and the Maker's obligations hereunder are subordinated in the manner set forth therein to the prior payment of certain obligations to the holders of Senior Indebtedness as defined therein." Proof of compliance with the foregoing shall be promptly given to the Agent. 3.2. Additional Agreements. In the event that the Senior Indebtedness is refinanced in full, the Subordinated Lender agrees at the request of such refinancing party to enter into a subordination agreement on terms identical to those contained in this Subordination Agreement. 3.3. Survival of Rights. The right of Agent or any Senior Lender to enforce the provisions of this Agreement shall not be prejudiced or impaired by any act or omitted act of the Company, the Agent or any Senior Lender including forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of security in respect of any Senior Indebtedness or noncompliance by the Company with such provisions, regardless of the actual or imputed knowledge of the Agent or such Senior Lender. 7 3.4. Receipt of Agreements. The Subordinated Lender hereby acknowledges that it has delivered to the Agent a correct and complete copy of the Subordinated Lending Agreement as in effect on the date hereof. The Agent hereby acknowledges that it has delivered to the Subordinated Lender a correct and complete copy of the Credit Agreement as in effect on the date hereof. 3.5. No Amendment of Subordinated Lending Agreement. So long as the Credit Agreement remains in effect, neither the Company nor the Subordinated Lender shall enter into any amendment to or modification of the Subordinated Lending Agreement which relates to or affects the principal amount, interest rate, payment terms, or any other material covenant or agreement of the Company thereunder or in respect thereof (including, without limitation, Section 8.02 thereof), without the prior written consent of the Agent and the Senior Lenders. 3.6. Amendments to Credit Agreement. Nothing contained in this Agreement, or in any other agreement or instrument binding upon any of the parties hereto, shall in any manner limit or restrict the ability of the Agent and the Senior Lenders from increasing or changing the terms of the Advances under the Credit Agreement, or to otherwise waive, amend or modify the terms and conditions of the Credit Agreement, in such manner as the Agent, the Senior Lenders and the Company shall mutually determine. The Subordinated Lender hereby consents to any and all such waivers, amendments, modifications and compromises, and any other renewals, extensions, indulgences, releases of collateral or other accommodations granted by the Agent and the Senior Lenders to the Company from time to time, and agrees that none of such actions shall in any manner affect or impair the subordination established by this Subordination Agreement in respect of the Subordinated Indebtedness. 3.7. Notice of Default and Certain Events. The Agent, the Senior Lenders and the Subordinated Lender shall undertake in good faith to notify the other of the occurrence of any of the following as applicable: (a) the obtaining of actual knowledge of the occurrence of any default under the Subordinated Lending Agreement; (b) the acceleration of any Senior Indebtedness by the Agent and the Senior Lenders or of any Subordinated Indebtedness by the Subordinated Lender; (c) the granting by the Agent and the Senior Lenders of any waiver of any Event of Default under the Credit Agreement or the granting by the 8 Subordinated Lender of any waiver of any "default" or "event of default" under the Subordinated Lending Agreement; or (d) the payment in full by the Company (whether as a result of refinancing or otherwise) of all Senior Indebtedness. The failure of any party to give such notice shall not affect the subordination of the Subordinated Indebtedness as provided in this Subordination Agreement. 3.8. Notices. Any notice or other communication required or permitted pursuant to this Subordination Agreement shall be deemed given (a) when personally delivered to any officer of the party to whom it is addressed, (b) on the earlier of actual receipt thereof or three (3) days following posting thereof by certified or registered mail, postage prepaid, or (c) upon actual receipt thereof when sent by a recognized overnight delivery service or (d) upon actual receipt thereof when sent by telecopier to the number set forth below with telephone communication confirming receipt and subsequently confirmed by registered, certified or overnight mail to the address set forth below, in each case addressed to each party at its address set forth below or at such other address as has been furnished in writing by a party to the other by like notice: If to the Agent and the Senior Lenders: MeesPierson Capital Corporation 445 Park Avenue New York, New York 10022 Attention: Hendrik Vroege Telephone: 212-801-0200 Telecopier: 212-801-0420 If to the Subordinated Lender: NRG Energy, Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telephone: 612-373-5300 Telecopier: 612-373-8833 9 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telephone: 612-373-5300 Telecopier: 612-373-8833 3.9. Books and Records. The Subordinated Lender shall (a) make notations on the books of the Subordinated Lender beside all accounts or on other statements evidencing or recording any Subordinated Indebtedness to the effect that such Subordinated Indebtedness is subject to the provisions of this Agreement and (b) furnish the Agent, upon reasonable request from time to time, a statement of the account between the Subordinated Lender and the Company. 3.10 Binding Effect; Other. This Subordination Agreement shall be a continuing agreement, shall be binding upon and shall inure to the benefit of the parties hereto from time to time and their respective successors and assigns, shall be irrevocable and shall remain in full force and effect until the Senior Indebtedness shall have been satisfied or paid in full in cash and the Credit Agreement shall have terminated, but shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any amount paid by or on behalf of the Company with regard to the Senior Indebtedness is rescinded or must otherwise be restored or returned upon or as a result of the occurrence of an Event, or otherwise, all as though such payments had not been made. If any payment to the Subordinated Lender is turned over to the Agent and/or the Senior Lenders pursuant to the provisions of this Subordination Agreement and such payment is returned upon or as a result of the occurrence of an Event, the Agent shall reverse the application of such payments to the Senior Indebtedness and return such payment (without interest) to the Subordinated Lender. No action which the Agent, any Senior Lender or the Company may take or refrain from taking with respect to the Senior Indebtedness, including any amendments thereto, shall affect the provisions of this Subordination Agreement or the obligations of the Subordinated Lender hereunder. Any waiver or amendment hereunder must be evidenced by a signed writing of the party to be bound thereby, and shall only be effective in the specific instance. This Subordination Agreement shall be governed by and construed in accordance with the laws of the State of New York. The headings in this Subordination Agreement are for convenience of reference only, and shall not alter or otherwise affect the meaning hereof. 10 4. Representations and Warranties. (a) The Subordinated Lender represents and warrants to the Agent and the Senior Lenders that the Subordinated Lender is the holder of the Subordinated Indebtedness. The Subordinated Lender agrees that it shall not (i) assign or transfer any of the Subordinated Indebtedness without (x) prior notice being given to the Agent and (y) such assignment or transfer being made expressly subject to the terms of this Subordination Agreement, (ii) exercise any right of set- off or convert any Subordinated Indebtedness to equity, in either event without the written consent of the Agent and the Senior Lenders. The Subordinated Lender further warrants to the Agent and the Senior Lenders that it has full right, power and authority to enter into this Subordination Agreement and, to the extent it is an agent or trustee for other parties, that this Subordination Agreement shall fully bind all such other parties. (b) Each Senior Lender severally represents and warrants to the Subordinated Lender that it is the holder of Senior Indebtedness. The Agent and each Senior Lender further warrants to the Subordinated Lender that it has full right, power and authority to enter into this Subordination Agreement and, to the extent the Senior Lender is an agent or trustee for other parties, that this Subordination Agreement shall fully bind all such other parties. 5. Proceedings. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST ANY SUBORDINATED LENDER WITH RESPECT TO THIS OR ANY RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE SUPREME COURT OF THE STATE OF NEW YORK, ANY FEDERAL DISTRICT COURT WITHIN THE STATE OF NEW YORK, OR ELSEWHERE AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT THE SUBORDINATED LENDER, THE AGENT, EACH SENIOR LENDER AND THE COMPANY ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHTS OF THE AGENT AND THE SENIOR LENDERS TO BRING PROCEEDINGS AGAINST THE SUBORDINATED LENDER IN ANY COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE SUBORDINATED LENDER AGAINST THE AGENT AND/OR ANY SENIOR LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR 11 CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK. THE SUBORDINATED LENDER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. 6. Waiver Of Jury Trial. EACH CREDITOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH CREDITOR HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT EITHER OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 12 IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of this 10th day of December, 1997. MEESPIERSON CAPITAL CORP., as Agent and Lender By:/s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By:/s/ John O'Connor Name: John O'Connor Title: Senior Vice President NRG ENERGY, INC. By:/s/ David H. Peterson Name: David H. Peterson Title: President & CEO 13 COMPANY'S ACKNOWLEDGMENT The undersigned hereby acknowledges and agrees to the foregoing Subordination Agreement. The undersigned agrees to be bound by the terms and provisions thereof as they relate to the relative rights of the Creditors with respect to each other. However, nothing therein shall be deemed to amend, modify, supersede or otherwise alter the terms of the respective agreements between the undersigned and each Creditor. The undersigned further agrees that the Subordination Agreement is solely for the benefit of the Creditors and shall not give the undersigned, its successors and assigns, or any other person, any rights vis-a-vis any Creditor. NRG GENERATING (U.S.) INC. By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO 14 EX-10.26.9 18 EXHIBIT 10.26.9 SUBORDINATION AGREEMENT DATED AS OF DECEMBER 17, 1997 AMONG MEESPIERSON CAPITAL CORP., THE SENIOR LENDERS, O'BRIEN (PHILADELPHIA) COGENERATION INC. AND O'BRIEN ENERGY SERVICES COMPANY. Exhibit 10.26.9 SUBORDINATION AGREEMENT in favor of MEESPIERSON CAPITAL CORP. December 17, 1997 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT dated as of December 17, 1997 among (1) MEESPIERSON CAPITAL CORP. (the "Agent"), (2) the banks and financial institutions whose names and addresses are set out in Schedule 1 (together, the "Senior Lenders", each a "Senior Lender"), (3) O'BRIEN (PHILADELPHIA) COGENERATION INC. (the "Company") and (4) O'BRIEN ENERGY SERVICES COMPANY (the "Subordinated Lender"). BACKGROUND As a condition to the Senior Lenders providing a credit facility in favor of NRG GENERATING (U.S.) INC. ("NRGG"), the Subordinated Lender has agreed to enter into this subordination agreement to provide for the subordination of the Subordinated Indebtedness to the Senior Indebtedness. AGREEMENTS NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. 1.1. General Terms. For purposes of this Agreement, the following terms shall have the following meanings: "Agreements" shall mean, collectively, the Credit Agreement and the Subordinated Lending Agreement. "Credit Agreement" shall mean that certain Credit Agreement dated as of December 17, 1997 by and among, NRGG, the Agent and the Senior Lenders, as the same may be amended, modified or supplemented from time to time. "Company" shall mean O'Brien (Philadelphia) Cogeneration Inc., a Delaware corporation. "Creditors" shall mean, collectively, the Agent, the Senior Lenders and the Subordinated Lender, and their respective successors and assigns. "Distribution" shall mean any payment by the Company, whether in cash, in kind, securities or any other property. "Event" shall have the meaning set forth in Section 2.2(c) hereof. "Subordinated Lender" shall mean O'Brien Energy Services Company and any other Person(s) at any time or in any manner acquiring any right or interest in any of the Subordinated Indebtedness. "Person" shall mean an individual, a partnership, a corporation (including a business trust), a joint stock company, a trust, a limited liability corporation, a limited liability partnership, an unincorporated association, a joint venture or other entity, or a government or any agency, instrumentality or political subdivision thereof. "Senior Indebtedness" shall mean all obligations of any kind owed by the Company to the Senior Lenders and the Agent from time to time under or pursuant to the Credit Agreement or any Note or Guaranty issued thereunder including, without limitation, all principal of and interest on the Advances made thereunder (including all interest accruing after commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company) charges, expenses, fees and other sums chargeable to the Company by the Senior Lenders or the Agent, and reimbursement, indemnity or other obligations payable to the Senior Lenders and the Agent. Senior Indebtedness shall continue to constitute Senior Indebtedness, notwithstanding the fact that such Senior Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided or disallowed under the federal Bankruptcy Code or other applicable law. Senior Indebtedness shall also include any indebtedness of the Company incurred in connection with an extension, modification, amendment or refinancing of the Credit Agreement. "Senior Lender(s)" shall have the meaning set forth in the introductory paragraph of this Agreement. "Subordinated Indebtedness" shall mean all lease payments, principal, interest and other amounts payable or chargeable, contingent or otherwise, in connection with the Subordinated Lending Agreement. "Subordinated Lending Agreement" shall mean collectively those certain lease or sublease agreements set forth on Exhibit A attached hereto and all promissory notes, agreements, guaranties, documents and instruments now or at any time hereafter executed and/or delivered by the Company with or in favor of the Subordinated 2 Lender in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.2. Other Terms. Capitalized terms not otherwise defined herein shall have the meanings given to them in the Credit Agreement. 1.3. Certain Matters of Construction. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any instruments or agreements, including, without limitation, references to any of the Credit Agreement or the Subordinated Lending Agreement shall include any and all modifications or amendments thereto and any and all extensions or renewals thereof in accordance with the provisions of this Agreement. 2. Covenants. The Company and the Subordinated Lender hereby covenant that until the Senior Indebtedness shall have been paid in full and satisfied in cash and the Credit Agreement shall have been terminated, all in accordance with the terms of the Credit Agreement, each will comply with such of the following provisions as are applicable to it: 2.1. Transfers. The Subordinated Lender covenants that any transferee from it of any Subordinated Indebtedness shall, prior to acquiring such interest, execute and deliver a counterpart of this Subordination Agreement to each other party hereto. 2.2. Subordination Provisions. Notwithstanding any other provision of the Subordinated Indebtedness to the contrary, any Distribution with respect to the Subordinated Indebtedness is and shall be expressly junior and subordinated in right of payment to all amounts due and owing upon all Senior Indebtedness outstanding from time to time to the extent and on the terms and conditions set forth herein. (a) Payments. The Company shall make no Distribution on the Subordinated Indebtedness until such time as the Senior Indebtedness shall have been paid in full in cash and the Credit Agreement shall have been irrevocably terminated; provided, however, so long as no Event of Default shall have occurred and be continuing under the Credit Agreement, the Company may pay regularly scheduled lease payments on the Subordinated Indebtedness as set forth on the Effective Date in the Subordinated 3 Lending Agreement, provided, however, that such lease payments shall be paid by the Company to the Collection Account for distribution in accordance with the terms of the Credit Agreement. Following the occurrence of an Event of Default, upon and after receipt by the Company and the Subordinated Lender of written notice of such Event of Default from the Agent (such notice, the "Default Notice"), the Company shall make no Distribution on the Subordinated Indebtedness and the Subordinated Lender shall not be entitled to receive or retain any such Distribution in respect of the Subordinated Indebtedness; provided, further, that notwithstanding the foregoing restriction, the Company may pay and the Subordinated Lender shall be entitled to receive and retain any principal or interest payment which shall have become due and payable (on a non-accelerated basis) on the earliest to occur of (x) the date on which all such Events of Defaults set forth in the Default Notice shall have been cured or waived, and (y) payment in full in cash of all Senior Indebtedness (except for claims which were not in existence at the time of termination of the Credit Agreement and repayment in full of the Senior Indebtedness) and the termination of the Credit Agreement. Only one Default Notice may be sent within any 360-day period with respect to any Event of Default which was in existence at the time the Default Notice was sent. (b) Limitation on Acceleration. During any period described in Section 2.2 (a) hereof in which a Distribution is not permitted to be made on Subordinated Indebtedness (any such period, a "Non-Payment Period"), the Subordinated Lender shall not be entitled to accelerate the maturity of the Subordinated Indebtedness, exercise any remedies or commence any action or proceeding to recover any amounts due or to become due with respect to Subordinated Indebtedness, provided, however, the foregoing limitation on acceleration or exercise of any remedies shall not be applicable following (x) the occurrence of an Event (as to which Section 2.2 (c) shall apply) or (y) following the maturity or acceleration of all Senior Indebtedness; provided, further, the prohibition against exercise of remedies shall not prohibit the Subordinated Lender from exercising equitable remedies for defaults under the Subordination Lending Agreement which are not payment defaults so long as such equitable remedies do not result in acceleration of the Subordinated Indebtedness or payment of any Subordinated Indebtedness. (c) Prior Payment of Senior Indebtedness in Bankruptcy, etc. In the event of any insolvency or bankruptcy proceedings relative to the Company or its property, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, or, in the event of any proceedings for voluntary liquidation, dissolution or winding-up of the Company or distribution or marshalling of its assets or any composition with creditors of the Company, whether or not involving insolvency or 4 bankruptcy, or the appointment of a receiver, intervenor or conservator of, or trustee, custodian or similar officer for the Company or any substantial part of its property (each individually or collectively, an "Event"), then all Senior Indebtedness shall be paid in full and satisfied in cash and the Credit Agreement terminated before any Distribution shall be made on account of any Subordinated Indebtedness. Any such Distribution which would, but for the provisions hereof, be payable or deliverable in respect of the Subordinated Indebtedness, shall be paid or delivered directly to the Agent for the benefit of the Senior Lenders until amounts owing upon Senior Indebtedness shall have been paid in full in cash and the Credit Agreement has been irrevocably terminated. (d) Acceleration. In the event all Senior Indebtedness becomes due and payable, whether by acceleration, maturity or otherwise, no Distribution shall thereafter be made on account of the Subordinated Indebtedness until all Senior Indebtedness shall be paid in full in cash and the Credit Agreement is terminated. (e) Power of Attorney. To enable the Agent on behalf of itself and the Senior Lenders to assert and enforce its rights hereunder in any proceeding referred to in Section 2.2(c) or upon the happening of any Event, the Agent or any person whom it may designate is hereby irrevocably appointed attorney in fact for the Subordinated Lender with full power to act in the place and stead of the Subordinated Lender to present and file such proofs of claim against the Company on account of all or any part of the Subordinated Indebtedness as the Agent may deem advisable in the event the Subordinated Lender fails to do so prior to 30 days prior to the expiration of the time to file such claim or claims and to receive and collect any and all dividends or other payments made thereon and to apply the same on account of Senior Indebtedness to the extent provided for under this Agreement. The Subordinated Lender will execute and deliver to the Agent such instruments as may be required by the Agent to enforce any and all Subordinated Indebtedness, to effectuate the aforesaid power of attorney and to effect collection of any and all dividends or other payments which may be made at any time on account thereof, and the Subordinated Lender hereby irrevocably appoints the Agent as its lawful attorney and agent to execute financing statements on behalf of the Subordinated Lender and hereby further authorizes the Agent to file such financing statements in any appropriate public office. (f) Payments Held in Trust. Should any Distribution or the proceeds thereof, in respect of the Subordinated Indebtedness, be collected or received by the Subordinated Lender or any Affiliate (as such term is defined in Rule 405 of Regulation C adopted by the Securities and Exchange Commission pursuant to the Securities Act of 1933) of the Subordinated Lender at a time when the Subordinated Lender is not permitted to receive any such Distribution or proceeds thereof (including if 5 same is collected or received when there is or would be after giving effect to such payment an Event of Default and the Agent thereafter gives a Default Notice with respect to such Default), then the Subordinated Lender will forthwith deliver, or cause to be delivered, the same to the Agent in precisely the form held by the Subordinated Lender (except for any necessary endorsement) and until so delivered, the same shall be held in trust by the Subordinated Lender, or any such Affiliate, as the property of the Agent and the Senior Lenders and shall not be commingled with other property of the Subordinated Lender or any such Affiliate. (g) Subrogation. Subject to the prior payment in full in cash of the Senior Indebtedness and the termination of the Credit Agreement, to the extent that the Agent for the benefit of itself and the Senior Lenders has received any Distribution on the Senior Indebtedness which, but for this Agreement, would have been applied to the Subordinated Indebtedness, the Subordinated Lender shall be subrogated to the then or thereafter rights of the Agent and the Senior Lenders including, without limitation, the right to receive any Distribution made on Senior Indebtedness until the principal of, interest on and other charges due under the Subordinated Indebtedness shall be paid in full; and, for the purposes of such subrogation, no Distribution to the Agent for the benefit of the Senior Lenders to which the Subordinated Lenders would be entitled except for the provisions of this Agreement shall, as between the Company, its creditors (other than the Agent and the Senior Lenders) and the Subordinated Lenders, be deemed to be a Distribution by the Company to or on account of Senior Indebtedness, it being understood that the provisions hereof are and are intended solely for the purpose of defining the relative rights of the Subordinated Lender on the one hand, and the Agent and the Senior Lenders on the other hand. (h) Scope of Subordination. The provisions of this Agreement are solely to define the relative rights of the Subordinated Lender and the Agent and the Senior Lenders. Nothing in this Agreement shall impair, as between the Company and the Subordinated Lender the unconditional and absolute obligation of the Company to punctually pay the principal, interest and any other amounts and obligations owing under the Subordinated Lending Agreement in accordance with the terms thereof, subject to the rights of the Agent and the Senior Lenders under this Agreement. 3. Miscellaneous. 3.1. Provisions of Subordinated Note. From and after the date hereof, the Company and the Subordinated Lender shall cause each promissory note or other document evidencing the Subordinated Indebtedness to contain a provision to the following effect: 6 "This Note is subject to the Subordination Agreement, dated as of December 17, 1997, among the Maker, the Payee and MeesPierson Capital Corporation under which this Note and the Maker's obligations hereunder are subordinated in the manner set forth therein to the prior payment of certain obligations to the holders of Senior Indebtedness as defined therein." Proof of compliance with the foregoing shall be promptly given to the Agent. 3.2. Additional Agreements. In the event that the Senior Indebtedness is refinanced in full, the Subordinated Lender agrees at the request of such refinancing party to enter into a subordination agreement on terms identical to those contained in this Subordination Agreement. 3.3. Survival of Rights. The right of Agent or any Senior Lender to enforce the provisions of this Agreement shall not be prejudiced or impaired by any act or omitted act of the Company, the Agent or any Senior Lender including forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of security in respect of any Senior Indebtedness or noncompliance by the Company with such provisions, regardless of the actual or imputed knowledge of the Agent or such Senior Lender. 3.4. Receipt of Agreements. The Subordinated Lender hereby acknowledges that it has delivered to the Agent a correct and complete copy of the Subordinated Lending Agreement as in effect on the date hereof. The Agent hereby acknowledges that it has delivered to the Subordinated Lender a correct and complete copy of the Credit Agreement as in effect on the date hereof. 3.5. No Amendment of Subordinated Lending Agreement. So long as the Credit Agreement remains in effect, neither the Company nor the Subordinated Lender shall enter into any amendment to or modification of the Subordinated Lending Agreement which relates to or affects the principal amount, interest rate, payment terms, or any other material covenant or agreement of the Company thereunder or in respect thereof, without the prior written consent of the Agent and the Senior Lenders. 3.6. Amendments to Credit Agreement. Nothing contained in this Agreement, or in any other agreement or instrument binding upon any of the parties hereto, shall in any manner limit or restrict the ability of the Agent and the Senior Lenders from increasing or changing the terms of the Advances under the Credit 7 Agreement, or to otherwise waive, amend or modify the terms and conditions of the Credit Agreement, in such manner as the Agent, the Senior Lenders and the Company shall mutually determine. The Subordinated Lender hereby consents to any and all such waivers, amendments, modifications and compromises, and any other renewals, extensions, indulgences, releases of collateral or other accommodations granted by the Agent and the Senior Lenders to the Company from time to time, and agrees that none of such actions shall in any manner affect or impair the subordination established by this Subordination Agreement in respect of the Subordinated Indebtedness. 3.7. Notice of Default and Certain Events. The Agent, the Senior Lenders and the Subordinated Lender shall undertake in good faith to notify the other of the occurrence of any of the following as applicable: (a) the obtaining of actual knowledge of the occurrence of any default under the Subordinated Lending Agreement; (b) the acceleration of any Senior Indebtedness by the Agent and the Senior Lenders or of any Subordinated Indebtedness by the Subordinated Lender; (c) the granting by the Agent and the Senior Lenders of any waiver of any Event of Default under the Credit Agreement or the granting by the Subordinated Lender of any waiver of any "default" or "event of default" under the Subordinated Lending Agreement; or (d) the payment in full by the Company (whether as a result of refinancing or otherwise) of all Senior Indebtedness. The failure of any party to give such notice shall not affect the subordination of the Subordinated Indebtedness as provided in this Subordination Agreement. 3.8. Notices. Any notice or other communication required or permitted pursuant to this Subordination Agreement shall be deemed given (a) when personally delivered to any officer of the party to whom it is addressed, (b) on the earlier of actual receipt thereof or three (3) days following posting thereof by certified or registered mail, postage prepaid, or (c) upon actual receipt thereof when sent by a recognized overnight delivery service or (d) upon actual receipt thereof when sent by telecopier to the number set forth below with telephone communication confirming receipt and subsequently confirmed by registered, certified or overnight mail to the 8 address set forth below, in each case addressed to each party at its address set forth below or at such other address as has been furnished in writing by a party to the other by like notice: If to the Agent and the Senior Lenders: MeesPierson Capital Corporation 445 Park Avenue New York, New York 10022 Attention: Hendrik Vroege Telephone: 212-801-0200 Telecopier: 212-801-0420 If to the Subordinated Lender: O'Brien Energy Services Company 920 Church Street Wilmington, Delaware 19899 Attention: Vice President-CFO Telephone: ___-___-____ Telecopier: ___-___-____ If to the Company: O'Brien (Philadelphia) Cogeneration Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 Attention: Vice President-CFO Telephone: 612-___-____ Telecopier: 612-373-8833 3.9. Books and Records. The Subordinated Lender shall (a) make notations on the books of the Subordinated Lender beside all accounts or on other statements evidencing or recording any Subordinated Indebtedness to the effect that such Subordinated Indebtedness is subject to the provisions of this Agreement and (b) furnish the Agent, upon reasonable request from time to time, a statement of the account between the Subordinated Lender and the Company. 3.10 Binding Effect; Other. This Subordination Agreement shall be a continuing agreement, shall be binding upon and shall inure to the benefit of the parties hereto from time to time and their respective successors and assigns, shall be irrevocable and shall remain in full force and effect until the Senior Indebtedness shall have been satisfied or paid in full in cash and the Credit Agreement shall have terminated, but shall 9 continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any amount paid by or on behalf of the Company with regard to the Senior Indebtedness is rescinded or must otherwise be restored or returned upon or as a result of the occurrence of an Event, or otherwise, all as though such payments had not been made. If any payment to the Subordinated Lender is turned over to the Agent and/or the Senior Lenders pursuant to the provisions of this Subordination Agreement and such payment is returned upon or as a result of the occurrence of an Event, the Agent shall reverse the application of such payments to the Senior Indebtedness and return such payment (without interest) to the Subordinated Lender. No action which the Agent, any Senior Lender or the Company may take or refrain from taking with respect to the Senior Indebtedness, including any amendments thereto, shall affect the provisions of this Subordination Agreement or the obligations of the Subordinated Lender hereunder. Any waiver or amendment hereunder must be evidenced by a signed writing of the party to be bound thereby, and shall only be effective in the specific instance. This Subordination Agreement shall be governed by and construed in accordance with the laws of the State of New York. The headings in this Subordination Agreement are for convenience of reference only, and shall not alter or otherwise affect the meaning hereof. 4. Representations and Warranties. (a) The Subordinated Lender represents and warrants to the Agent and the Senior Lenders that the Subordinated Lender is the holder of the Subordinated Indebtedness. The Subordinated Lender agrees that it shall not (i) assign or transfer any of the Subordinated Indebtedness without (x) prior notice being given to the Agent and (y) such assignment or transfer being made expressly subject to the terms of this Subordination Agreement, (ii) exercise any right of set- off or convert any Subordinated Indebtedness to equity, in either event without the written consent of the Agent and the Senior Lenders. The Subordinated Lender further warrants to the Agent and the Senior Lenders that it has full right, power and authority to enter into this Subordination Agreement and, to the extent it is an agent or trustee for other parties, that this Subordination Agreement shall fully bind all such other parties. (b) Each Senior Lender severally represents and warrants to the Subordinated Lender that it is the holder of Senior Indebtedness. The Agent and each Senior Lender further warrants to the Subordinated Lender that it has full right, power and authority to enter into this Subordination Agreement and, to the extent the Senior Lender is an agent or trustee for other parties, that this Subordination Agreement shall fully bind all such other parties. 10 5. Proceedings. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST ANY SUBORDINATED LENDER WITH RESPECT TO THIS OR ANY RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE SUPREME COURT OF THE STATE OF NEW YORK, ANY FEDERAL DISTRICT COURT WITHIN THE STATE OF NEW YORK, OR ELSEWHERE AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT THE SUBORDINATED LENDER, THE AGENT, EACH SENIOR LENDER AND THE COMPANY ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHTS OF THE AGENT AND THE SENIOR LENDERS TO BRING PROCEEDINGS AGAINST THE SUBORDINATED LENDER IN ANY COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE SUBORDINATED LENDER AGAINST THE AGENT AND/OR ANY SENIOR LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK. THE SUBORDINATED LENDER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. 6. Waiver Of Jury Trial. EACH CREDITOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH CREDITOR HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION 11 SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT EITHER OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 12 IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of this 17th day of December, 1997. MEESPIERSON CAPITAL CORP., as Agent and Lender By:/s/ Hendrik J. Vroege Name: Hendrik J. Vroege Title: Vice President By:/s/ John T. Connors Name: John T. Connors Title: Exec. V.P. O'BRIEN ENERGY SERVICES COMPANY By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO 13 COMPANY'S ACKNOWLEDGMENT The undersigned hereby acknowledges and agrees to the foregoing Subordination Agreement. The undersigned agrees to be bound by the terms and provisions thereof as they relate to the relative rights of the Creditors with respect to each other. However, nothing therein shall be deemed to amend, modify, supersede or otherwise alter the terms of the respective agreements between the undersigned and each Creditor. The undersigned further agrees that the Subordination Agreement is solely for the benefit of the Creditors and shall not give the undersigned, its successors and assigns, or any other person, any rights vis-a-vis any Creditor. O'BRIEN (PHILADELPHIA) COGENERATION INC. By:/s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: Vice President-CFO 14 EXHIBIT A SUBORDINATED LENDING AGREEMENT All contracts, leases or other agreements, whether oral or written, by and between the Subordinated Lender and the Company, relating to the lease to or use by the Company of equipment owned or leased by the Subordinated Lender. 15 EX-10.27.2 19 EXHIBIT 10.27.2 EQUITY COMMITMENT AGREEMENT DATED SEPTEMBER 15, 1997 BETWEEN NRG ENERGY AND THE CHASE MANHATTAN BANK ("CHASE"). Exhibit 10.27.2 Execution Version EQUITY COMMITMENT AGREEMENT dated as of September 15, 1997 among NRG ENERGY, INC. NRG (MORRIS) COGEN, LLC and THE CHASE MANHATTAN BANK, as Collateral Agent EQUITY COMMITMENT AGREEMENT This EQUITY COMMITMENT AGREEMENT, dated as of September 15, 1997 (this "Agreement"), is made and entered into by and among NRG Energy, Inc., a Delaware corporation ("NRG"), NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Borrower"), and The Chase Manhattan Bank, a banking corporation organized and existing under the laws of the State of New York, in its capacity as Collateral Agent under the Loan Agreement referred to below for the benefit of the Banks hereinafter described. WITNESSETH: WHEREAS, the Borrower proposes to develop, construct, own and operate an approximately 117 megawatt gas-fired cogeneration plant, producing electricity and steam together with related facilities (the "Project") at the Morris, Illinois complex of Millennium Petrochemicals Inc. (formerly Quantum Chemical Corporation), a Virginia corporation; and WHEREAS, the Borrower and The Chase Manhattan Bank, as collateral agent (together with its successors in such capacity, the "Collateral Agent") for the banks that are or may from time to time become parties to the Loan Agreement (as defined below), have entered into a Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Loan Agreement"), with the banks party thereto (the "Banks") and The Chase Manhattan Bank, in its capacity as agent for the Banks (in such capacity, the "Agent Bank"), pursuant to which the Banks will make construction loans and term loans and extend other credit to the Borrower for the purpose of financing the cost of developing, constructing, starting up and operating the Project and certain related expenses (the "Loans"); and WHEREAS, pursuant to the Loan Agreement, the Borrower is obligated to maintain a Construction Account; and WHEREAS, on the date hereof, NRG and NRG Morris Inc., a Delaware corporation and a wholly-owned subsidiary of NRG ("NRGMI"), beneficially own 99% and 1%, respectively, of the issued and outstanding membership interests in the Borrower; and WHEREAS, it is a condition precedent to the making of Loans by the Banks that this Agreement shall have been entered into by the parties hereto and shall have become unconditionally and fully effective in accordance with it terms; and WHEREAS, NRG will derive substantial benefit from the making of the Loans by the Banks to the Borrower. 2 NOW, THEREFORE, in consideration of the above recited premises and in order to induce the Banks to make the Loans to the Borrower, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Loan Agreement. 1. Equity Contributions. The Borrower and NRG each hereby acknowledge and agree: a. Subject to the terms of Section 1.b below, NRG shall make cash equity contributions (each an "Equity Contribution") to the Borrower by payment to the Construction Account on the date and in the amount specified in any Equity Requisition Certificate, in the form of Exhibit A attached hereto (each an "Equity Requisition Certificate"), delivered by the Borrower to NRG. All such amounts in the Construction Account shall be used in accordance with, and for the purposes expressly set forth in, the Loan Agreement. b. From time to time, but not more frequently than once per month, the Borrower may execute and submit to NRG an Equity Requisition Certificate requesting a Equity Contribution; provided, however, that no Equity Contribution shall be made, and the Borrower may not request such a Equity Contribution, if: (i) subject to Section 2 below, as of the date on which such Equity Contribution is requested, the Dollar amount of all Construction Loan Borrowings is less than Eighty-Four Million Dollars ($84,000,000); or (ii) the total amount of the requested Equity Contribution, plus the amount of all prior Equity Contributions, shall be greater than the lesser of (y) twenty percent (20%) of the total Project Costs (as set forth in the then current Construction Budget) or (z) Twenty-Two Million Dollars ($22,000,000) (the lesser of such amounts being hereinafter referred to as the "Maximum Equity Commitment"); provided, however, that if any requested Equity Contribution, together with the aggregate of all previous Equity Contributions, exceeds the Maximum Equity Commitment, NRG shall make an Equity Contribution equal to the Maximum Equity Commitment less the amount of all previous Equity Contributions; or (iii) such Equity Contribution is requested on or after the Construction Loan Maturity Date. 3 2. Event of Default. Notwithstanding any other provision of this Agreement, if (i) an Event of Default shall occur and be continuing, or (ii) the Date Certain shall occur and the Construction Loans shall not have converted to Term Loans pursuant to the Credit Agreement, NRG shall, upon the occurrence of such Event of Default or on the Date Certain, as the case may be, make a cash equity contribution (a "Default Equity Contribution") to the Borrower by payment to the Proceeds Account of an amount equal to the Maximum Equity Commitment less the aggregate of all previous Equity Contributions. 3. New Member Equity Commitment; Release of NRG Equity Commitment. a. If, at any time when NRG has continuing obligations under this Agreement, NRG sells or otherwise transfers its entire membership interest in the Borrower to NRG Generating (U.S.) Inc., a Delaware corporation ("NRG Generating"), in accordance with Section 4.1 of the Pledge Agreement, then the Borrower and the Collateral Agent, for and on behalf of the Agent Bank and the Banks, shall release NRG from its obligations under this Agreement provided NRG has delivered or caused to be delivered to the Collateral Agent the following: (i) a written assumption agreement, in form and substance satisfactory to the Required Banks, pursuant to which NRG Generating assumes all of the then unperformed obligations of NRG under this Agreement, duly executed by NRG Generating; and (ii) a written guaranty by NRG in favor of the Collateral Agent and the Borrower guarantying the obligations of NRG Generating under this Agreement, as assumed pursuant to clause (i) immediately above, substantially in the form of Exhibit B attached hereto or otherwise approved by Agent Bank, and duly executed by NRG. b. If any Person (other than NRG Generating) shall be added as a new member of the Borrower with the prior written consent of the Required Banks pursuant to Section 4.1 of the Pledge Agreement (any such Person, a "New Member"), the equity commitment obligations of NRG (or NRG Generating, as applicable) under Sections 1 and 2 hereof shall be reduced by the amount of any equity commitment granted by such New Member to the Collateral Agent for the benefit of the Banks, which equity commitment and any credit support provided therefor shall be in form and substance acceptable to each Bank. 4. Representations and Warranties. NRG represents and warrants to the Borrower and the Collateral Agent, for its own benefit and for the benefit of the other 4 Secured Parties, which representations and warranties shall survive the execution and delivery of this Agreement that: a. NRG is a corporation duly organized and validly existing under the Laws of the Sate of Delaware, and is duly qualified, authorized to do business and in good standing as a foreign corporation in every jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified except to the extent the failure to be so qualified would not reasonably be expected to result in a Material Adverse Effect. As used in this Section 4.a and otherwise in this Agreement, the term "Material Adverse Effect" shall mean a material adverse effect on either (i) the operations, business, financial condition or property of NRG and its subsidiaries on a consolidated basis, or (ii) the ability of NRG to perform in a timely manner its material obligations under this Agreement. b. The execution, delivery and performance of this Agreement, the compliance by NRG with the provisions hereof, and the consummation of the transactions contemplated hereby, will not (i) conflict with or result in a breach or violation of any of the respective charters or bylaws of NRG or any of its subsidiaries or any material franchise or license of NRG or any of the terms or provisions thereof, (ii) constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to, any bond, note, debenture or other evidence of Indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which NRG or any of its subsidiaries is a party or by which it or any of them is bound, or to which any properties of NRG or any of its subsidiaries is or may be subject, (iii) contravene any order of any court or Governmental Authority or body having jurisdiction over NRG or any of its subsidiaries or any of their properties, or (iv) violate or conflict with any statute, rule or regulation or administrative or court decree applicable to NRG or any of its subsidiaries or any of their respective properties, in the case of clauses (ii), (iii) and (iv) which conflict, breach, violation, default or contravention, singly or in the aggregate with each other conflict, breach, violation, default or contravention, could reasonably be expected to result in a Material Adverse Effect. c. NRG has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. d. The execution, delivery and performance by NRG of this Agreement have been duly authorized by all necessary corporate action on the part of NRG 5 and do not require any approval or consent of any holder (or any trustee for any holder) of any Indebtedness or other obligation of NRG or any other Person or entity, except approvals or consents which have previously been obtained and which are in full force and effect. e. This Agreement has been duly authorized, executed and delivered by NRG and constitutes a legally valid and binding agreement, enforceable against NRG in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors' rights and remedies generally and to principles of equity (regardless of whether enforcement is sought at law or in equity). f. There is no legislation, litigation, action, suit, proceeding or investigation pending or (to the best of NRG's knowledge after due inquiry) threatened against NRG before or by any court, administrative agency, arbitrator or Governmental Authority which if adversely determined individually or in the aggregate, (i) could reasonably be expected to result in a Material Adverse Effect or (ii) questions the validity, binding effect or enforceability hereof, any action taken or to be taken pursuant hereto or any of the transactions contemplated hereby. g. The financial statements of NRG provided or to be provided as contemplated in the Credit Agreement and the other Financing Documents are or will be true, correct and complete as of the dates specified therein and fully and accurately present the financial condition of NRG as of the dates and for the periods specified. There has been no material adverse change in the financial condition of NRG from the date of NRG's most recent audited financial statements delivered to the Agent Bank (except as heretofore disclosed to the Agent Bank in a writing delivered by or on behalf of NRG). h. NRG is in compliance with all Laws applicable to it except to the extent that the failure to comply therewith could reasonably be expected to result in a Material Adverse Effect. 5. Covenants and Agreements. NRG hereby covenants and agrees that it shall faithfully observe and fulfill, and shall cause to be observed and fulfilled, each and all of the following covenants: a. NRG shall not merge or consolidate with or into any other entity unless the surviving entity (if other than NRG) expressly agrees to assume all the obligations of NRG under this Agreement and each other Transaction 6 Document to which NRG is a party and expressly agrees to otherwise be subject to the terms of this Agreement and each other Transaction Document to which NRG is a party. b. Neither NRG nor any of its Affiliates shall commence or join with any other Person (other than the Agent Bank, the Collateral Agent or any of the Banks) in commencing any Event of Bankruptcy against the Borrower. c. NRG agrees that it will not, and that it will cause its subsidiaries not to, enter into any bond, note, debenture or other evidence of Indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument which would conflict with the performance by NRG of its obligations pursuant to this Agreement or compliance by NRG with the provisions hereof or pursuant to which this Agreement would constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien. 6. Action by Collateral Agent. The Collateral Agent shall be entitled to rely on any notice received by it from the Agent Bank, any Bank or the Borrower stating that any Event of Default shall have occurred and shall not be under any duty or responsibility to make any independent verification of such statement. 7. Enforcement. NRG hereby agrees that the Collateral Agent shall have the right to directly enforce the provisions hereof which are binding upon NRG against NRG and NRG hereby agrees to pay all costs, including reasonable attorneys' fees, incurred with respect to the enforcement of such provisions of this Agreement against NRG, which enforcement costs, regardless of when incurred, shall be payable by NRG on the earlier of (a) the date on which a final judgment shall be obtained against NRG with respect to this Agreement and any and all applicable appeal periods with respect thereto shall have expired and (b) the date on which NRG and the Collateral Agent shall have otherwise resolved (including by way of settlement) any dispute with respect to the enforcement of this Agreement against NRG. 8. Assignment and Consent. NRG consents to the terms and provisions of the Security Documents, including the assignment of this Agreement to the Collateral Agent for the benefit of the Banks. NRG agrees that the Collateral Agent (acting for the benefit of the Banks) and any assignee thereof shall be entitled to exercise any and all rights of the Borrower under this Agreement in accordance with the terms thereof (in its own name or in the name of the Borrower), and NRG shall comply in all respects with such exercise. Without limiting the generality of the foregoing, the Collateral Agent and any assignee thereof shall have the full right and power to enforce directly against NRG and its assignees any and all obligations of NRG under this Agreement and otherwise to exercise any and all remedies hereunder and under the Security Documents and to make 7 any and all requests required or permitted to be made by the Borrower (in its own name or in the name of the Borrower) under this Agreement. 9. Limitation of Liability. Notwithstanding anything else in this Agreement or any other Transaction Document, NRG's liability in respect of this Agreement is limited to the equity contributions specified in Sections 1 and 2 of this Agreement. Neither NRG nor any shareholder, officer, employee, controlling Person, executive, director, agent or Affiliate (other than the Borrower) of NRG (herein referred to as "operatives") shall be liable for payments or other obligations due by the Borrower under the Loan Agreement or any other Transaction Document or for the payment or performance by the Borrower of any other Obligation. In the event of foreclosure or other sale or disposition of properties, no judgment for any deficiency upon the obligations of the Borrower under any Financing Document shall be obtainable by the Banks against NRG or any of such operatives except, in the case of each of such parties and their respective operatives, with respect to any then-remaining collateral pledged by such parties and their respective operatives, respectively. Notwithstanding the foregoing, nothing in this Section 9 shall be deemed to affect or diminish the obligations of NRG or any operative under this Agreement or any other Transaction Document to which NRG or any such operative is a party. 10. Payment Absolute. a. Subrogation. Notwithstanding any payment or payments made or caused to be made by NRG hereunder, NRG shall not be entitled to be subrogated to any of the rights of the Secured Parties or any collateral security or guaranty held by the Secured Parties in connection with the Borrower's Obligations, nor shall NRG seek any reimbursement from the Borrower in respect of payments made or caused to be made by NRG hereunder. If any amount shall be paid to NRG as a result of such subrogation rights at any time prior to the Loan Agreement Termination Date, such amount shall be held by NRG in trust for the Secured Parties, segregated from other funds of NRG, and shall be turned over to the Collateral Agent for the benefit of the Secured Parties, in the exact form received by NRG (duly endorsed by NRG to the Collateral Agent for the benefit of itself and the other Secured Parties, if required), to be applied against Obligations in such order as the Collateral Agent (as directed by the Agent Bank, acting pursuant to the Credit Agreement) may elect. b. Unconditional Obligation. The obligations of NRG under Sections 1 and 2 hereof shall be absolute, unconditional and irrevocable under any and all circumstances and shall be performed by NRG regardless of any circumstance whatsoever which might otherwise constitute an excuse for nonperformance of the obligations of NRG under Sections 1 and 2. Without limiting the generality of the foregoing, NRG shall remain obligated to 8 the extent provided hereunder, notwithstanding that, without any reservation of rights by or against NRG and without notice to or further assent by NRG, any demand for payment of any amount due pursuant to the Loan Agreement or any other Financing Document may be rescinded by the Secured Parties and any of the Loans or other extensions of credit thereunder continued and such amounts, or the liability of any other Person upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto may, form time to time, in whole or part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Secured Parties, and the Loan Agreement or any other Financing Document or any other document executed in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Secured Parties may deem advisable from time to time, and any collateral security or guaranty or right of offset at any time held by the Secured Parties for the payment of such amounts may be sold or exchanged, waived, surrendered or released. None of the Secured Parties shall have any obligation to protect, secure, perfect or inquire as to any Lien at any time held by any of them as security for any amount due under the Loan Agreement or any other Financing Document or any property subject to any such Lien and the failure of any of the Secured Parties to do any of the foregoing shall have no effect on the obligations of NRG hereunder and none of the Secured Parties shall have any liability for the performance or observance of any of the obligations or duties of the Borrower under the Loan Agreement or under any other Transaction Document and the Borrower's failure to perform any such obligations or duties shall not impair the obligations of NRG hereunder. c. Continuing Obligations. The obligations set forth herein shall continue to be effective or shall be reinstated, as the case may be, if at any time and for any reason, any payment made hereunder by NRG is rescinded or must otherwise be returned by the Secured Parties, all as though such payment had not been made. 11. No Setoff. NRG shall not have the right to withhold or offset against any payment due for any reason including, without limitation, any dispute between the Borrower and NRG. 12. Third Party Beneficiaries. The agreements of the parties hereto are intended to benefit the Secured Parties and their respective successors and assigns. 9 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14. Survival. The terms of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. All representations, warranties and indemnities contained herein or made in writing by NRG in connection herewith shall survive the execution and delivery of this Agreement and the performance of the obligations contained herein until the Conversion Date. 15. Notices. Except as otherwise expressly provided herein, (a) all notices and other communications provided for hereunder shall be provided in writing and shall be sent by personal delivery, telecopy, overnight courier or, if such courier service is not available, by certified mail with postage prepaid to any party at the address set forth below its signature on this Agreement, or at such other address as shall be designated by a party in a written notice to the other parties hereto and (b) all such notices and communications shall be effective seven (7) days after being deposited in the mails in the manner as aforesaid, when delivered by personal delivery, one (1) day after delivery to the courier in the manner as aforesaid, or when sent by telecopier, upon confirmation of receipt. 16. Successors and Assigns. This Agreement shall inure to the benefit of the parties hereto, the Agent Bank and each of the Banks, as third party beneficiaries, and their successors and assigns, and shall bind the heirs, executors, administrators, personal representatives, successors and assigns of such Persons. NRG shall not assign or otherwise transfer all or any of its obligations hereunder other than in accordance with Section 3 hereof. 17. Bankruptcy. NRG hereby irrevocably waives any protection it may be entitled to under Section 365(c)(1) and (2) and Section 365(e)(1) and (2) of the Bankruptcy Code upon the occurrence of an Event of Bankruptcy with respect to the Borrower (a "Proceeding"). In the event the trustee in bankruptcy or the debtor-in-possession takes any action (including, without limitation, the institution of any action, suit or other proceeding) in a Proceeding for the purpose of enforcing the obligations of NRG under Section 1 or 2 hereof, NRG agrees (a) not to assert any defense, claim or counterclaim denying liability under Section 1 or 2 hereof on the basis that this Agreement is either (i) not an executory contract or (ii) an executory contract that cannot be assumed, assigned or enforced, or on any other theory directly or indirectly based on Section 365(c)(1) and (2) or Section 365(e)(1) and (2) of the Bankruptcy Code or any successor provision of law and (b) to make all payments hereunder regardless of any rejection or termination (by operation of law or otherwise) of this Agreement by the Borrower. If a Proceeding shall occur, NRG agrees after the occurrence of such Proceeding to reconfirm its prepetition waiver of any protection it may be entitled to under Section 365(c)(1) and (2) and Section 365(e)(1) and (2) of the Bankruptcy Code and, to give effect to such waiver, NRG consents to the 10 assumption and enforcement of each provision of this Agreement by the debtor-in-possession or the Borrower's trustee in bankruptcy, as the case may be. 18. Amendments. This Agreement or any provision hereof may not be rescinded, canceled, modified, changed or waived by any party hereto without the prior written consent of the Collateral Agent (as directed by the Agent Bank, acting upon the instructions of the Required Banks). 19. Governing Law. This Agreement is a contract made under the Laws of the State of New York of the United States and shall for all purposes be governed by and construed in accordance with the Laws of such State without regard to the conflict of law rules thereof (other than Section 5-1401 of the New York General Obligations Law). 20. Consent to Jurisdiction. a. Any legal action or proceeding against either NRG or the Borrower with respect to this Agreement may be brought in the courts of the State of New York in the County of New York or of the United States for the Southern District of New York and, by execution and delivery of this Agreement, each of NRG and the Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. NRG and the Borrower each agrees that a judgment, after exhaustion of all available appeals, in any such action or proceeding shall be conclusive and binding upon such party, and may be enforced in any other jurisdiction by a suit upon such judgment, a certified copy of which shall be conclusive evidence of the judgment. NRG and the Borrower each hereby irrevocably designates, appoints and empowers CT Corporation System, with offices on the date hereof at 1633 Broadway, New York, New York 10019, as its designee, appointee and agent of any to receive, accept and acknowledge for and on its behalf, and in respect of its property, service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, NRG and the Borrower each agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Collateral Agent. NRG and the Borrower each further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its address referred to in Section 15 hereof, such service to become effective thirty (30) days after such mailing. Nothing herein shall affect the right of the Collateral Agent or any other Person to serve process in any other manner permitted by 11 Law or to commence legal proceedings or otherwise proceed against either party in any other jurisdiction. b. NRG and the Borrower each hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. c. WITH REGARD TO THIS AGREEMENT AND EACH OTHER TRANSACTION DOCUMENT TO WHICH EITHER NRG OR THE BORROWER IS A PARTY, EACH OF NRG, THE BORROWER, THE AGENT BANK, THE BANKS (BY ACCEPTING THE BENEFITS OF THIS AGREEMENT) AND THE COLLATERAL AGENT HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. 21. No Waiver. No failure to exercise and no delay in exercise, on the part of the Collateral Agent, of any right, remedy, power or privilege provided herein or by statute or at law or in equity shall operate as a waiver thereof; nor shall any single or partial exercise of any thereof preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 12 IN WITNESS WHEREOF, the undersigned has executed this Equity Commitment Agreement as of the date first above written. NRG Energy, Inc. By: /s/ James J. Bender Name: James J. Bender Title: Vice President Address for Notices: 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attn: Chief Financial Officer (with a copy to General Counsel at the same ad dress) NRG (Morris) Cogen, LLC By: /s/ James J. Bender Name: James J. Bender Title: Management Committee Member Address for Notices: 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attn: President THE CHASE MANHATTAN BANK, as Collateral Agent By: /s/ Annette M. Marsula Name: Annette M. Marsula Title: Assistant Vice President Address for Notices: 450 West 33 Street 15th Floor New York, New York 10001 Attn: Annette M. Marsula [Signature page to Equity Commitment Agreement among NRG Energy, Inc., NRG (Morris) Cogen, LLC and The Chase Manhattan Bank, as Collateral Agent] EXHIBIT A FORM OF EQUITY REQUISITION CERTIFICATE [DATE] NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attn: Ladies and Gentlemen: This Equity Requisition Certificate is delivered to you pursuant to Section 1 of that certain Equity Commitment Agreement, dated as of September 15, 1997 (the "Equity Commitment Agreement"), by and among you ("NRG"), the undersigned (the "Borrower") and The Chase Manhattan Bank, in its capacity as Collateral Agent (the "Collateral Agent"). Capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Equity Commitment Agreement. The Borrower hereby requests that NRG make an Equity Contribution to the Borrower on the date and in the amount requested below (the "Requested Equity Contribution"), which amount is to be paid to the Construction Account: Date of funding: ___________________ Amount of Contribution: $__________________ The Borrower hereby certifies that as of the date of funding: (1) the Dollar amount of all Construction Loan Borrowings made to or for the benefit of the Borrower under the Loan Agreement is equal to or greater than $84,000,000; (2) the total amount of the Requested Equity Contribution, plus the amount of all prior Equity Contributions, is equal to $ , which amount is less than or equal to the lesser of (y) $ representing twenty percent (20%) of the total 1 Project Costs (as set forth in the current Construction Budget), or (z) Twenty-Two Million Dollars ($22,000,000); and (3) the Construction Loan Maturity Date has not occurred. Very truly yours, NRG (MORRIS) COGEN, LLC By: _______________________ Name: Title: 2 EXHIBIT B FORM OF EQUITY COMMITMENT GUARANTY This EQUITY COMMITMENT GUARANTY (this "Guaranty" or this "Agreement"), dated as of [INSERT DATE], by NRG ENERGY, INC., a Delaware corporation ("Guarantor"), in favor of NRG (MORRIS) COGEN, LLC (the "Borrower") and THE CHASE MANHATTAN BANK, as collateral agent for the Banks (as defined below) (in such capacity, the "Collateral Agent") under the Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Credit Agreement"), among the Borrower, the Collateral Agent, the banks party thereto (the "Banks") and The Chase Manhattan Bank, as agent for the Banks (in such capacity, the "Agent Bank"). RECITALS A. As a condition precedent to the Agent Bank, the Collateral Agent and the Banks entering into the Credit Agreement and the Banks making the Loans and extending other credit to the Borrower thereunder, Guarantor executed an Equity Commitment Agreement, dated as of September 15, 1997 (the "Equity Commitment Agreement"), in favor of the Borrower and the Collateral Agent. B. Pursuant to an [INSERT NAME OF AGREEMENT], dated as of the date hereof, Guarantor is selling all of its membership interests in the Borrower to NRG Generating (U.S.) Inc. ("NRG Generating"). C. Pursuant to an Assignment and Assumption Agreement, dated as of the date hereof (the "Assignment and Assumption Agreement"), between Guarantor and NRG Generating, NRG Generating is assuming all of Guarantor's obligations under the Equity Commitment Agreement. D. Guarantor owns [INSERT PERCENTAGE] of the outstanding shares of capital stock of NRG Generating. E. It is a condition to the Banks' willingness to continue to make Loans and extend other credit to the Borrower under the Credit Agreement that Guarantor enter into this Agreement. F. Guarantor acknowledges that it will obtain substantial benefit if the Banks continue to make Loans and extend other credit to the Borrower under the Credit Agreement. G. The obligations of Guarantor hereunder are being incurred concurrently with the assumption by NRG Generating of Guarantor's obligations under the Equity Commitment Agreement pursuant to the Assignment and Assumption Agreement. H. Capitalized terms used but not otherwise defined herein shall have the respective meanings given them in the Equity Commitment Agreement (including terms incorporated therein from the Credit Agreement). AGREEMENT NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, receipt of which is hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty by Guarantor of NRG Generating Obligation. Guarantor unconditionally and irrevocably guarantees payment to the Borrower and to the Collateral Agent, for the benefit of the Agent Bank and the Banks, when due of any and all amounts payable by NRG Generating to the Borrower from time to time pursuant to Sections 1 and 2 of the Equity Commitment Agreement and performance in full of all of NRG Generating's obligations under Sections 1 and 2 of the Equity Commitment Agreement. 2. Additional Provisions to Guarantor Obligations. (a) In addition to the obligations under Section 1 of this Agreement, Guarantor agrees to pay upon demand all fees and expenses incurred by the Collateral Agent and the Borrower in successfully enforcing against Guarantor any of its obligations and liabilities hereunder or the terms hereof, including, without limitation, reasonable fees and expenses of legal counsel. Guarantor waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply under the terms hereof, and waives diligence, presentment, demand of payment, notice of dishonor or non-payment, protest, notice of protest, of any such obligations, suit or taking other action by the Collateral Agent or the Borrower against, and giving any notice of default or other notice to, or making any demand on, any party liable thereon (including Guarantor). (b) Guarantor's obligation under this Agreement is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and is in no way conditioned on or contingent upon any attempt to enforce in whole or in part NRG Generating's obligations to the Collateral Agent and the Borrower under the Equity Commitment Agreement. If NRG Generating fails to pay or perform any liabilities or obligations to the Collateral Agent or the Borrower under Section 1 or 2 of the Equity Commitment Agreement as and when 2 they are due, Guarantor shall forthwith pay and perform such liabilities or obligations, with any such payment to be made in immediately available funds. Each failure by NRG Generating to pay or perform any liabilities or obligations arising under Section 1 or 2 of the Equity Commitment Agreement shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. (c) The Collateral Agent and the Borrower may, at any time and from time to time without the consent of or notice to Guarantor, except such notice as may be required by applicable Law which cannot be waived, without incurring responsibility to Guarantor or impairing or releasing the obligations of Guarantor hereunder, upon or without any terms or conditions and in whole or in part, (i) exercise or refrain from exercising any rights against NRG Generating or others (including Guarantor) or otherwise act or refrain from acting; (ii) release any other guarantor from its obligations without obtaining the consent of Guarantor and without affecting or impairing the obligations of Guarantor hereunder; (iii) settle or compromise any obligations hereby guaranteed and/or any obligations incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any obligations which may be due to the Collateral Agent, the Borrower or others; (iv) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner or in any order any property by whomsoever pledged or mortgaged to secure or howsoever securing the liabilities or obligations hereby guaranteed or any liabilities or obligations incurred directly or indirectly in respect thereof or hereof and/or any offset thereagainst; (v) apply any sums by whomsoever paid or howsoever realized to any obligations of NRG Generating to the Collateral Agent or the Borrower regardless of what obligations remain unpaid; (vi) consent to or waive any breach of, or any act, omission or default under, the Equity Commitment Agreement or otherwise amend, modify or supplement the Equity Commitment Agreement or any of such other instruments or agreements; and/or (vii) act or fail to act in any manner referred to in this Agreement which may deprive Guarantor of its right, if any, to subrogation or reimbursement against NRG Generating or any other Person to recover full indemnity for any payments made pursuant to this Agreement or of its right of contribution against any other party. (d) No invalidity, irregularity or unenforceability of the obligations hereby guaranteed shall affect, impair or be a defense to this Agreement. (e) In the event that, notwithstanding the provisions of Section 2(b) hereof, this Agreement shall be deemed revocable in accordance with applicable Law, then any such revocation shall become effective only upon actual receipt by the Collateral Agent and the Borrower of written notice of revocation 3 signed by Guarantor. No revocation or termination hereof shall affect in any manner rights arising under this Agreement with respect to obligations and liabilities outstanding on the date of receipt by the Collateral Agent and the Borrower of written notice of such revocation or termination and the sole effect of any revocation and termination hereof shall be to exclude from this Agreement obligations and liabilities thereafter arising which are unconnected with obligations and liabilities theretofore arising or transactions theretofore entered into (Guarantor shall remain liable for all obligations incurred hereunder prior to such revocation or termination). 3. Representations and Warranties. Guarantor makes the representations and warranties set forth below to the Borrower and to the Collateral Agent, acting for its own benefit and for the benefit of the other Secured Parties, which representations and warranties shall survive the execution and delivery of this Agreement: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. (b) Guarantor has taken all necessary corporate action to authorize its execution and delivery of this Agreement and the performance of its obligations hereunder. (c) This Agreement has been duly executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting creditors' rights generally and subject to general equitable principles. (d) All Governmental Approvals and actions necessary in connection with the execution and delivery by Guarantor of this Agreement and the performance of its obligations hereunder have been obtained or performed and remain valid and in full force and effect. (e) The execution, delivery and performance of this Agreement, the compliance by Guarantor with the provisions hereof and the consummation of the transactions contemplated hereby, will not (i) conflict with or result in a breach or violation of any of the respective charters or bylaws of Guarantor or any of its subsidiaries or any material franchise or license of Guarantor or any of the terms or provisions thereof, (ii) constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any Lien with respect to, any bond, note, debenture or other 4 evidence of Indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which Guarantor or any of its subsidiaries is a party or by which it or any of them is bound, or to which any properties of Guarantor or any of its subsidiaries is or may be subject, (iii) contravene any order of any court or Governmental Authority or body having jurisdiction over Guarantor or any of its subsidiaries or any of their properties or (iv) or conflict with any statute, rule or regulation or administrative or court decree applicable to Guarantor or any of its subsidiaries or any of their respective properties, in the case of clauses (ii), (iii) and (iv) which conflict, breach, violation, default or contravention, singly or in the aggregate with each other conflict, breach, violation, default or contravention, could reasonably be expected to result in a Material Adverse Effect. As used in this clause (e) and otherwise in this Agreement, the term "Material Adverse Effect" shall mean a material adverse effect on either (A) the operations, business, financial condition or property of Guarantor or any of its subsidiaries on a consolidated basis or (B) the ability of Guarantor to perform in a timely manner its obligations under this Agreement. (f) There is no legislation, litigation, action, suit, proceeding or investigation pending or (to the best of Guarantor's knowledge after due inquiry) threatened against Guarantor before or by any court, administrative agency, arbitrator or Governmental Authority which if adversely determined individually or in the aggregate, (i) could reasonably be expected to result in a Material Adverse Effect or (ii) questions the validity, binding effect or enforceability hereof, any action taken or to be taken pursuant hereto or any of the transactions contemplated hereby. (g) All quarterly and annual financial statements heretofore delivered by or in respect of Guarantor to the Collateral Agent, the Agent Bank, the Banks or the Borrower are true, correct and complete as of the dates referred to therein, do not fail to disclose any material liabilities, whether direct or contingent, fairly present the financial condition of Guarantor as of the date thereof and are prepared in accordance with GAAP. (h) Guarantor possesses all franchises, certificates, licenses, permits and other Governmental Approvals necessary for it to own its properties, conduct its business and perform its obligations under this Agreement. (i) Guarantor (i) is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the ICA, and (ii) is not subject to regulation as a "holding company," a "public utility company," or an "affiliate" or a "subsidiary company" of a "registered holding company" as defined in PUHCA. 5 4. Covenants: Guarantor agrees that: (a) Guarantor shall maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement and will obtain any that may become necessary in the future. (b) Guarantor shall comply in all material respects with all applicable Laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement. (c) (i) Annual Financial Statements. Guarantor shall deliver to the Collateral Agent and the Borrower, within one hundred twenty (120) days after the close of each fiscal year of Guarantor, the consolidated and consolidating balance sheets of Guarantor and its consolidated Affiliates as at the end of such fiscal year and the related consolidated and consolidating statements of income, retained earnings and cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year and certified, in the case of the consolidated financial statements, by independent certified public accountants of recognized national standing in the United States. (ii) Notice of Default or Litigation. Promptly, and in any event within two (2) Business Days after an Authorized Officer of Guarantor obtains knowledge thereof, Guarantor shall give to the Collateral Agent and the Borrower notice of the occurrence of any event or of any litigation or governmental proceeding pending (a) against Guarantor or any of its Affiliates which could affect the business, operations, property, assets, condition (financial or otherwise) or prospects of Guarantor so as to materially and adversely affect the ability of Guarantor to perform its obligations hereunder or (b) with respect to this Agreement, which event or pending proceeding is likely to materially and adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects of Guarantor and its Affiliates taken as a whole. (iii) Other Information. From time to time, Guarantor shall provide to the Collateral Agent and the Borrower such other information or documents (financial or otherwise) regarding Guarantor as the Collateral Agent or the Borrower may reasonably request and as may be available to Guarantor without undue cost or effort. 5. Subrogation. Guarantor shall not exercise any rights which it may acquire by way of subrogation under this Agreement, by any payment made hereunder or 6 otherwise, until all of the liabilities and obligations of NRG Generating to the Collateral Agent and the Borrower under the Equity Commitment Agreement shall have indefeasibly been paid in full in cash or cash equivalents. If any amount shall be paid to Guarantor on account of such subrogation rights at any time when all such liabilities and obligations shall not have been indefeasibly paid in full in cash or cash equivalents, such amount shall be held in trust for the benefit of the Collateral Agent and the Borrower and shall forthwith be paid to the Collateral Agent or the Borrower, as applicable, and applied to such liabilities and obligations, whether matured or unmatured. 6. Successions or Assignments. (a) This Agreement shall inure to the benefit of the respective successors or assigns of the Collateral Agent and the Borrower who shall have, to the extent of their interest, the rights of the Collateral Agent and the Borrower hereunder. (b) This Agreement is binding upon Guarantor and its successors and assigns. Guarantor is not entitled to assign its obligations hereunder to any other Person without the written consent of the Collateral Agent and the Borrower, which may be granted or withheld in the Collateral Agent's or the Borrower's sole discretion (in the case of the Collateral Agent, as directed by the Agent Bank, acting in accordance with the Credit Agreement), and any purported assignment in violation of this provision shall be void. 7. Waivers. (a) No delay on the part of the Collateral Agent or the Borrower in exercising any of its rights (including those hereunder) and no partial or single exercise thereof and no action or non-action by the Collateral Agent or the Borrower, with or without notice to Guarantor or anyone else, shall constitute a waiver of any rights or shall affect or impair this Agreement. (b) Guarantor agrees that, if the Collateral Agent or the Borrower bring any judicial proceedings in relation to any such matter, Guarantor will not interpose any counterclaim or setoff of any nature. (c) If any amount payable by Guarantor hereunder is not paid as and when due, then Guarantor authorizes the Collateral Agent and the Borrower to proceed, without prior notice, by right of set-off, counterclaim or otherwise, against any assets of Guarantor that may at any time be in the possession of the Collateral Agent or the Borrower or any branch or office thereof, to the full extent of all amounts payable to the Collateral Agent and the Borrower hereunder. 7 (d) Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the obligations of NRG Generating under Sections 1 and 2 of the Equity Commitment Agreement and notice of or proof of reliance by the Collateral Agent or the Borrower upon this Agreement. (e) Guarantor waives diligence, presentment, protest, demand for payment and notice of default to or upon NRG Generating with respect to the obligations under Sections 1 and 2 of the Equity Commitment Agreement. 8. Interpretation. The Section headings in this Agreement are for the convenience of reference only and shall not affect the meaning or construction of any provision hereof. 9. Notices. All notices in connection with this Agreement shall be given by notice in writing, hand-delivered or sent by facsimile transmission, or by certified mail return-receipt requested (airmail, if overseas), postage prepaid. All such notices shall be sent to the appropriate telecopier number or address, as the case may be, set forth below or to such other number or address as shall have been subsequently specified by written notice to each other party hereto, and shall be sent with copies, if any, as indicated below. All such notices shall be effective upon receipt. The addresses for notice shall be as follows: (a) The address of Guarantor is: NRG ENERGY, INC. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: President Telephone No.: (612) 373-5400 Telecopier No.: (612) 373-5430 With a copy to: NRG ENERGY, INC. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: General Counsel (b) The address of the Collateral Agent is: THE CHASE MANHATTAN BANK 450 West 33rd Street, 15th Floor New York, NY 10001 8 Attention: A. Marsula, Assistant Vice President, International Project Finance, Global Trust Services Telephone No.: (212) 946-7557 Telecopier No.: (212) 946-8177/8178 (c) The address of the Borrower is: NRG (MORRIS) COGEN, LLC 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: President Telephone No.: (612) 373-5400 Telecopier No.: (612) 373-5430 With a copy to: NRG (MORRIS) COGEN, LLC 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: General Counsel 10. Amendments. Notwithstanding anything contained herein that may be construed to the contrary, as between Guarantor, the Collateral Agent and the Borrower, this Agreement may be amended only with the written consent of the Collateral Agent, the Borrower and Guarantor, with the Collateral Agent acting as directed by the Agent Bank (acting upon the instructions of the Required Banks). 11. Jurisdiction; Governing Law. (a) Any action or proceeding relating in any way to this Agreement may be brought and enforced in the courts of the State of New York. Any such process or summons in connection with any such action or proceeding may be served by mailing a copy thereof by certified or registered mail, or any substantially similar form of mail, addressed to the applicable party as provided for notices hereunder. By execution and delivery of this Agreement, Guarantor irrevocably agrees to designate, appoint and empower CT Corporation System, with its offices as of the date hereof at 1633 Broadway, New York, New York 10019, to receive for an on its behalf service of process in the State of New York and further irrevocably consents to the service of process outside the territorial jurisdiction of said courts by mailing copies thereof in accordance with the immediately preceding sentence. Guarantor represents and warrants that it has taken, and will continue to take, all actions necessary to retain CT Corporation 9 System as its registered agent for service of process in the State of New York for the term hereof. (b) This Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the Laws of the State of New York without reference to principles of conflict of laws (other than Section 5- 1401 of the New York General Obligations Law). 12. Integration of Terms. This Agreement contains the entire agreement among the parties hereto relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. 13. Termination; Reinstatement of Guaranty. (a) Subject to the provisions of Section 13(b) hereof, this Agreement shall terminate following the payment in full of all amounts due hereunder or under Sections 1 and 2 of the Equity Commitment Agreement. (b) Notwithstanding the provisions of Section 13(a) hereof, this Agreement shall be reinstated if at any time following the termination of this Agreement under Section 13(a) hereof, any payment or performance by Guarantor under this Agreement or NRG Generating under Section 1 or 2 of the Equity Commitment Agreement is rescinded or must otherwise be returned by the Collateral Agent, the Borrower or any other Person upon the insolvency, bankruptcy, reorganization, dissolution or liquidation of NRG Generating or Guarantor and is so rescinded or returned to the party or parties making such payment or performance, all as though such payment had not been made. Such period of reinstatement shall continue until satisfaction of the conditions contained in, and shall continue to be subject to, the provisions of this Section 13. 14. Waiver of Jury Trial. THE COLLATERAL AGENT (AND THE AGENT BANK AND THE BANKS AS THIRD PARTY BENEFICIARIES HEREUNDER), THE BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL AGENT, THE BORROWER, GUARANTOR OR NRG GENERATING. THIS PROVISION IS MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT, THE BORROWER AND GUARANTOR TO ENTER INTO THIS AGREEMENT. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 10 IN WITNESS WHEREOF, Guarantor has caused this Equity Commitment Guaranty to be duly executed and delivered as of the day and year first written above. NRG ENERGY, INC. By:__________________________ Name: Title: Acknowledged and Accepted: THE CHASE MANHATTAN BANK, as Collateral Agent By: __________________________ Name: Title: NRG (MORRIS) COGEN, LLC By: ___________________________ Name: Title: S-1 EX-10.27.3 20 EXHIBIT 10.27.3 ASSIGNMENT AND ASSUMPTION AGREEMENT DATED DECEMBER 10, 1997 BETWEEN NRG ENERGY AND NRGG FUNDING. Exhibit 10.27.3 ASSIGNMENT AND ASSUMPTION AGREEMENT This ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of December 10, 1997 (this "Agreement"), is made and entered into by and between NRG ENERGY, INC., a Delaware corporation ("NRG Energy"), and NRGG FUNDING INC., a Delaware corporation ("NRGG Funding"). RECITALS WHEREAS, NRG (Morris) Cogen, LLC (the "Borrower") entered into the Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Credit Agreement"), with the banks party thereto (the "Banks"), The Chase Manhattan Bank as agent for the Banks (in such capacity, the "Agent Bank") and The Chase Manhattan Bank as collateral agent for the Banks (in such capacity, the "Collateral Agent"), pursuant to which the Banks have agreed to make construction and term loans and extend other credit to the Borrower for the purpose of financing the cost of developing, constructing, starting-up and operating an approximately 117 megawatt gas-fired cogeneration facility in Morris, Illinois (the "Project"); WHEREAS, as a condition precedent to the Banks, the Agent Bank and the Collateral Agent entering into the Credit Agreement and the Banks extending credit to the Borrower thereunder, NRG Energy executed and delivered the Equity Commitment Agreement, dated as of September 15, 1997 (the "Equity Commitment Agreement"), in favor of the Borrower and the Collateral Agent, pursuant to which NRG Energy agreed to make equity contributions to the Borrower from time to time; WHEREAS, pursuant to the Membership Interest Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), NRG Energy is transferring all of its equity interest in the Borrower to NRGG Funding; WHEREAS, upon execution and delivery of the Purchase Agreement, NRGG Funding will own 99% of the membership interests in the Borrower and, accordingly, will derive substantial benefit from the extension of credit by the Banks to the Borrower under the Credit Agreement; and WHEREAS, it is condition precedent to the Banks continuing to extend credit to the Borrower under the Credit Agreement that NRG Energy and NRGG Funding execute and deliver this Agreement, the form and substance of which must be consented to by the Required Banks; AGREEMENT NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS; PRINCIPLES OF CONSTRUCTION Section 1.1 Defined Terms. (a) Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meanings given to such terms in the Equity Commitment Agreement (including terms incorporated therein from the Credit Agreement). (b) The following terms shall have the following respective meanings: "Amended LLC Agreement" shall have the meaning given to the term "LLC Agreement" in the Pledge Agreement. "Equity Guarantee" shall mean the Equity Commitment Guaranty, dated as of the date hereof, by NRG Energy in favor of the Borrower and the Collateral Agent. "First Amendment to the Credit Agreement" shall mean the Amendment and Consent, dated as of the date hereof, among the Borrower and the Banks. "NRGG Documents" shall mean, collectively, the NRGG Financing Documents and the NRGG Purchase Documents. "NRGG Financing Documents" shall mean this Agreement, the Equity Commitment Agreement, the Equity Guarantee, the Pledge Agreement, the Subordination Agreement, the First Amendment to the Credit Agreement and the Financing Statements (as defined under the Pledge Agreement) filed in connection with the Liens granted to the Collateral Agent in the Pledge Agreement. "NRGG Purchase Documents" shall mean the Purchase Agreement, the Amended LLC Agreement, the Supplemental Loan Agreement and the Subordinated Pledge Agreement. "Pledge Agreement" shall mean the Pledge and Security Agreement, dated as of the date hereof, among NRGG Funding, NRG MI and the Collateral Agent. "Purchase Agreement" shall mean the Membership Interest Purchase Agreement, dated as of the date hereof, between NRG Energy, NRG Generating and NRGG Funding. 2 "Subordinated Pledge Agreement" shall mean the Subordinated Pledge and Security Agreement, dated as of the date hereof, among NRGG Funding, NRG MI and NRG Energy. "Subordination Agreement" shall mean the Subordination Agreement, dated as of the date hereof, between NRG Energy and the Collateral Agent. "Supplemental Loan Agreement" shall mean the Supplemental Loan Agreement, dated as of the date hereof, between NRG Energy and NRGG Funding. Section 1.2 Principles of Construction. Unless otherwise expressly provided herein, the principles of construction set forth in Section 1.4 of the Credit Agreement shall apply to this Agreement. ARTICLE II ASSIGNMENT AND ASSUMPTION; ACKNOWLEDGMENT Section 2.1 Assignment and Assumption. NRG Energy hereby assigns, conveys and transfers all of NRG Energy's estate, right, title and interest in, to and under the Equity Commitment Agreement to NRGG Funding and NRGG Funding hereby assumes all liabilities, obligations and duties thereunder. Section 2.2 Acknowledgment and Consent. By executing this Agreement, the parties hereto acknowledge, consent and agree that, upon the satisfaction of the conditions set forth in Article IV of this Agreement, NRG Energy shall be released from all liabilities, obligations and duties under the Equity Commitment Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES NRGG Funding represents and warrants as follows, which representations and warranties shall survive the execution and delivery of this Agreement: Section 3.1 Due Incorporation; Qualification. NRGG Funding is a corporation duly organized and validly existing under the Laws of the State of Delaware, and is qualified to own property and transact business in every jurisdiction where the ownership of its property and the nature of its business as currently conducted and as contemplated to be conducted requires it to be qualified, except where the failure to so qualify could not reasonably be expected to result in a Material Adverse Effect (as herein defined). For purposes of this Agreement, "Material Adverse Effect" shall mean a material adverse effect on any of (i) the operations, business, financial condition or property of NRGG Funding and its subsidiaries on a consolidated basis, (ii) the ability of NRGG Funding to perform in a timely manner its material obligations under the NRGG Documents to which 3 it is or is intended to be a party or (iii) the rights and interests of the Banks, the Agent Bank and the Collateral Agent under the Transaction Documents. Section 3.2 Authority; Authorization, Execution and Delivery; Enforceability. NRGG Funding has full power, authority and legal right to enter into this Agreement and the other NRGG Documents to which it is or is intended to be a party and to perform its obligations hereunder and thereunder. The execution, delivery and performance of the NRGG Documents to which NRGG Funding is or is intended to be a party have been duly authorized by all necessary corporate action on the part of NRGG Funding. The NRGG Documents to which NRGG Funding is or is intended to be a party have been duly executed and delivered by NRGG Funding and constitute legal, valid and binding obligations of NRGG Funding enforceable against NRGG Funding in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar Laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). Section 3.3 Consents; Governmental Approvals. No consent of any other party (including, without limitation, stockholders or creditors of NRGG Funding) and no Governmental Approval is required which has not been obtained for the execution, delivery and performance by NRGG Funding of the NRGG Documents to which it is or is intended to be a party, other than any consent or Governmental Approval not required as of the date this representation is made or deemed made and that will be obtained on or before the date on which such consent or Governmental Approval is required to be obtained. Section 3.4 No Conflicts. The execution, delivery and performance by NRGG Funding of the NRGG Documents to which it is or is intended to be a party will not (i) require any consent or approval of the Board of Directors of NRGG Funding which has not been obtained, (ii) violate the provisions of NRGG Funding's certificate of incorporation or bylaws, (iii) violate the provisions of any Law (including, without limitation, any usury Laws), regulation or order of any Governmental Authority applicable to NRGG Funding, (iv) result in a breach of or constitute a default under any material agreement relating to the management or affairs of NRGG Funding, or any indenture or loan or credit agreement or any other material agreement, lease or instrument to which NRGG Funding is or is intended to be a party or by which NRGG Funding or any of its material properties may be bound or (v) result in or create any Lien (other than Permitted Liens) under, or require any consent which has not been obtained under, any indenture or loan or credit agreement or any other material agreement, instrument or document, or the provisions of any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority binding upon NRGG Funding or any of its properties. 4 Section 3.5 Litigation. No Event of Bankruptcy has occurred with respect to NRGG Funding and there is no action, suit or proceeding at Law or in equity or by or before any Governmental Authority, arbitral tribunal or other body now pending against NRGG Funding or, to the best knowledge of NRGG Funding, threatened against NRGG Funding which questions the validity or legality of or seeks damages in connection with the NRGG Documents to which NRGG Funding is or is intended to be a party. Section 3.6 Compliance with Laws. NRGG Funding has been in the past and is in current compliance with all Laws applicable to it, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect (as defined in Section 3.1 hereof). Section 3.7 Financial Statements. The financial statements of NRGG Funding provided or to be provided as contemplated in Section 4.5 hereof or in any other Financing Document are or will be true, correct and complete as of the dates specified therein and fully and accurately present the financial condition of NRGG Funding as of the dates and for the periods specified. There has been no material adverse change in the financial condition of NRGG Funding from the date of NRGG Funding's most recent audited financial statements delivered to the Agent Bank (except as heretofore disclosed to the Agent Bank in a writing delivered by or on behalf of NRGG Funding). Section 3.8 Regulation. NRGG Funding is not (a) an "investment company" or a company "controlled" by an "investment company," within the meaning of the ICA. NRGG Funding is a "subsidiary company" of a "holding company," as those terms are defined in PUHCA, but NRGG Funding is exempt from all provisions of PUHCA except Section 9(a) thereof by virtue of Section 3(a)(2) thereof. NRGG Funding is not a "public utility" or similar entity under applicable federal or state Law. ARTICLE IV CONDITIONS PRECEDENT The release of NRG Energy of its liabilities, obligations and duties under the Equity Commitment Agreement is subject to the following conditions precedent: Section 4.1 NRGG Financing Documents. The Agent Bank shall have received each NRGG Financing Document (together with all amendments, supplements, schedules and exhibits thereto), each of which (a) shall have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be in form and substance reasonably satisfactory to each Bank and (iii) shall be in full force and effect. All representations and warranties contained in each NRGG Financing Document shall be true and correct in all material respects and no default or event of default shall have occurred thereunder. 5 Section 4.2 NRGG Purchase Documents. The Agent Bank shall have received copies of each NRGG Purchase Document (together with all amendments, supplements, schedules and exhibits thereto), each of which (a) shall have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be in form and substance reasonably satisfactory to the Agent Bank and (iii) shall be in full force and effect. All representations and warranties contained in each NRGG Purchase Document shall be true and correct in all material respects and no default or event of default shall have occurred thereunder. Section 4.3 Pledged Collateral. Pursuant to the terms of the Pledge Agreement, the Liens on the Pledged Collateral (as defined in the Pledge Agreement) shall have been duly created or attached and such Liens shall have been perfected to create a first priority security interest in and charge over the Pledged Collateral (as defined in the Pledge Agreement) in favor of the Collateral Agent for the benefit of itself and the other Secured Parties. All Taxes, fees and other charges payable in connection therewith shall have been paid in full by NRGG Funding or the Borrower. Section 4.4 Corporate Documents. The Agent Bank shall have received each of the following in form and substance satisfactory to it: (a) a certificate of an Authorized Officer of NRGG Funding, dated as of the date hereof, certifying as true, complete and correct attached copies of (i) the certificate of incorporation of NRGG Funding, (ii) the bylaws of NRGG Funding and (iii) the resolutions of the board of directors of NRGG Funding approving and authorizing the execution, delivery and performance of the NRGG Documents to which NRGG Funding is or is intended to be a party; (b) a certificate of an Authorized Officer of NRGG Funding, dated as of the date hereof, certifying the names and true signatures of the incumbent officers of NRGG Funding authorized to sign the NRGG Documents to which NRGG Funding is or is intended to be a party; and (c) evidence that NRGG Funding is duly authorized to carry on its business as now being conducted by it, and as proposed to be conducted by it, in each jurisdiction in which it is required to be so authorized. Section 4.5 Financial Statements. The Agent Bank shall have received true, correct and complete copies of the audited financial statements for the most recently completed fiscal year of NRGG Funding. Section 4.6 Legal Opinions. The Agent Bank shall have received (a) an opinion of counsel to NRGG Funding substantially in the form of Exhibit A hereto and otherwise in form and substance satisfactory to the Agent Bank and (b) an opinion of counsel to 6 NRG Energy substantially in the form of Exhibit B hereto and otherwise in form and substance satisfactory to the Agent Bank. Section 4.7 Appointment of Agent. NRGG Funding shall have appointed an agent for service of process on terms satisfactory to the Agent Bank and shall have paid all fees necessary for such process agent to act as such through the Final Maturity Date. ARTICLE V MISCELLANEOUS Section 5.1 Notices. NRGG Funding's address and telephone and telecopier numbers for the provision of notices under each NRGG Document to which it is or is intended to be a party are as follows: NRGG Funding Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403 Attention: President and Chief Executive Officer Telephone: (612) 373-5300 Telecopier: (612) 373-5430 Section 5.2 Third Party Beneficiaries. The agreements of the parties hereto are intended to benefit the Banks, the Agent Bank and the Collateral Agent and their respective successors and assigns. Section 5.3 Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 5.4 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 5.5 Headings Descriptive. The headings of the several Sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 7 Section 5.6 Governing Law. This Agreement is a contract made under the Laws of the State of New York of the United States and shall for all purposes be governed by and construed in accordance with the Laws of such State without regard to the conflict of law rules thereof (other than Section 5-1401 of the New York General Obligations Law). Section 5.7 Entire Agreement. This Agreement, together with any other agreement executed in connection herewith, is intended by the parties as a final expression of their agreement as to the matters covered hereby and is intended as a complete and exclusive statement of the terms and conditions thereof. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 8 IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. NRG ENERGY, INC. By:/s/ David H. Peterson Name: David H. Peterson Title: President NRGG FUNDING INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: VP-CFO Acknowledged and consented to: THE CHASE MANHATTAN BANK, as a Bank By: /s/ Kevin P. O'Neill Name: Kevin P. O'Neill Title: Vice President THE CHASE MANHATTAN BANK, as Agent Bank By: /s/ Kevin P. O'Neill Name: Kevin P. O'Neill Title: Vice President THE CHASE MANHATTAN BANK, as Collateral Agent By: /s/ Annette M. Marsula Name: Annette M. Marsula Title: Assistant Vice President Acknolwedged and consented to: THE BANK OF NEW YORK By: /s/ John N. Wyatt Name: John N. Wyatt Title: Vice President NATEXIS BANQUE By: /s/ D.J.R. Osten Name: D.J.R. Osten Title: First VP THE SUMITOMO TRUST AND BANKING COMPANY, LTD. By: /s/ Suraj P. Bhatia Name: Suraj P. Bhatia Title: Senior Vice President Exhibit A to Assignment and Assumption Agreement FORM OF OPINION OF COUNSEL TO NRGG FUNDING 1. NRGG Funding Inc. (the "Company") is a corporation duly organized and validly existing under the laws of the State of Delaware and is qualified to do business in each jurisdiction in which such qualification is required. 2. The Company has the corporate or other applicable power and authority and full legal right to execute and deliver each of the NRGG Documents to which it is a party and to perform its obligations thereunder. 3. The execution, delivery and performance by the Company of each NRGG Document to which it is a party have been duly authorized by all requisite action on the part of the Company. 4. Each of the NRGG Documents to which the Company is a party has been duly executed and delivered by the Company. 5. Neither the execution and delivery by the Company of each NRGG Document to which it is a party, nor the performance by it of its obligations under each such NRGG Document, contravenes or conflicts with (i) its Certificate of Incorporation, or other applicable constituent documents, as the case may be, (ii) any agreement or instrument (including, without limitation, each other NRGG Document) to which it is a party or by which its properties or assets are bound and (iii) any judicial or administrative judgment, injunction, order or decree that is binding upon it or its properties or assets. 6. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any court, governmental body or authority, or any subdivision thereof, is required to authorize or is required in connection with the execution and delivery by the Company of any NRGG Document to which it is a party, or in connection with the performance of its obligations thereunder or the consummation of the transactions contemplated thereby other than those that have been obtained or made and are in full force and effect or will be obtained or made prior to the time the same is required and thereafter remains in full force and effect. 7. Each of the NRGG Documents to which the Company is a party constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 8. Neither the execution, delivery and performance by the Company of each of the NRGG Documents to which it is party, nor the consummation by the Company of the transactions contemplated therein, violates any Applicable Laws. 9. All Government Approvals which under Applicable Laws are required to be obtained or made by the Company in connection with the due execution and delivery of, or performance by the Company of its obligations under, each of the NRGG Documents to which it is party have been obtained or made. This opinion may be relied upon by the Banks, the Agent Bank, the Collateral Agent and any assignees of or participants in the interests of the Banks under the Credit Agreement. Exhibit B to Assignment and Assumption Agreement FORM OF OPINION OF COUNSEL TO NRG ENERGY 1. NRG Energy, Inc. (the "Company") is a corporation duly organized and validly existing under the laws of the State of Delaware and is qualified to do business in each jurisdiction in which such qualification is required. 2. The Company has the corporate or other applicable power and authority and full legal right to execute and deliver each of the NRGG Documents to which it is a party and to perform its obligations thereunder. 3. The execution, delivery and performance by the Company of each NRGG Document to which it is a party have been duly authorized by all requisite action on the part of the Company. 4. Each of the NRGG Documents to which the Company is a party has been duly executed and delivered by the Company. 5. Neither the execution and delivery by the Company of each NRGG Document to which it is a party, nor the performance by it of its obligations under each such NRGG Document, contravenes or conflicts with (i) its Certificate of Incorporation, or other applicable constituent documents, as the case may be, (ii) any agreement or instrument (including, without limitation, each other NRGG Document) to which it is a party or by which its properties or assets are bound and (iii) any judicial or administrative judgment, injunction, order or decree that is binding upon it or its properties or assets. 6. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any court, governmental body or authority, or any subdivision thereof, is required to authorize or is required in connection with the execution and delivery by the Company of any NRGG Document to which it is a party, or in connection with the performance of its obligations thereunder or the consummation of the transactions contemplated thereby other than those that have been obtained or made and are in full force and effect or will be obtained or made prior to the time the same is required and thereafter remains in full force and effect. 7. Each of the NRGG Documents to which the Company is a party constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 8. Neither the execution, delivery and performance by the Company of each of the NRGG Documents to which it is party, nor the consummation by the Company of the transactions contemplated therein, violates any Applicable Laws. 9. All Government Approvals which under Applicable Laws are required to be obtained or made by the Company in connection with the due execution and delivery of, or performance by the Company of its obligations under, each of the NRGG Documents to which it is party have been obtained or made. This opinion may be relied upon by the Banks, the Agent Bank, the Collateral Agent and any assignees of or participants in the interests of the Banks under the Credit Agreement. EX-10.27.4 21 EXHIBIT 10.27.4 EQUITY COMMITMENT GUARANTY DATED AS OF DECEMBER 10, 1997 BY NRG ENERGY IN FAVOR OF CHASE AND NRG (MORRIS) COGEN, LLC ("COGEN LLC"). Exhibit 10.27.4 EQUITY COMMITMENT GUARANTY This EQUITY COMMITMENT GUARANTY (this "Guaranty" or this "Agreement"), dated as of December 10, 1997, by NRG ENERGY, INC., a Delaware corporation ("Guarantor"), in favor of NRG (MORRIS) COGEN, LLC (the "Borrower") and THE CHASE MANHATTAN BANK, as collateral agent for the Banks (as defined below) (in such capacity, the "Collateral Agent") under the Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Credit Agreement"), among the Borrower, the Collateral Agent, the banks party thereto (the "Banks") and The Chase Manhattan Bank, as agent for the Banks (in such capacity, the "Agent Bank"). RECITALS A. As a condition precedent to the Agent Bank, the Collateral Agent and the Banks entering into the Credit Agreement and the Banks making the Loans and extending other credit to the Borrower thereunder, Guarantor executed an Equity Commitment Agreement, dated as of September 15, 1997 (the "Equity Commitment Agreement"), in favor of the Borrower and the Collateral Agent. B. Pursuant to that certain Membership Interest Purchase Agreement, dated as of the date hereof, Guarantor is selling all of its membership interests in the Borrower to NRGG Funding Inc. ("NRGG Funding"). C. Pursuant to an Assignment and Assumption Agreement, dated as of the date hereof (the "Assignment and Assumption Agreement"), between Guarantor and NRGG Funding, NRGG Funding is assuming all of Guarantor's obligations under the Equity Commitment Agreement. D. Guarantor owns 45% of the outstanding shares of capital stock of NRG Generating and NRG Generating owns 100% of the outstanding shares of capital stock of NRGG Funding. E. It is a condition to the Banks' willingness to continue to make Loans and extend other credit to the Borrower under the Credit Agreement that Guarantor enter into this Agreement. F. Guarantor acknowledges that it will obtain substantial benefit if the Banks continue to make Loans and extend other credit to the Borrower under the Credit Agreement. G. The obligations of Guarantor hereunder are being incurred concurrently with the assumption by NRGG Funding of Guarantor's obligations under the Equity Commitment Agreement pursuant to the Assignment and Assumption Agreement. H. Capitalized terms used but not otherwise defined herein shall have the respective meanings given them in the Equity Commitment Agreement (including terms incorporated therein from the Credit Agreement). AGREEMENT NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, receipt of which is hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty by Guarantor of NRGG Funding Obligation. Guarantor unconditionally and irrevocably guarantees payment to the Borrower and to the Collateral Agent, for the benefit of the Agent Bank and the Banks, when due of any and all amounts payable by NRGG Funding to the Borrower from time to time pursuant to Sections 1 and 2 of the Equity Commitment Agreement and performance in full of all of NRGG Funding's obligations under Sections 1 and 2 of the Equity Commitment Agreement. 2. Additional Provisions to Guarantor Obligations. (a) In addition to the obligations under Section 1 of this Agreement, Guarantor agrees to pay upon demand all fees and expenses incurred by the Collateral Agent and the Borrower in successfully enforcing against Guarantor any of its obligations and liabilities hereunder or the terms hereof, including, without limitation, reasonable fees and expenses of legal counsel. Guarantor waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply under the terms hereof, and waives diligence, presentment, demand of payment, notice of dishonor or non-payment, protest, notice of protest, of any such obligations, suit or taking other action by the Collateral Agent or the Borrower against, and giving any notice of default or other notice 2 to, or making any demand on, any party liable thereon (including Guarantor). (b) Guarantor's obligation under this Agreement is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and is in no way conditioned on or contingent upon any attempt to enforce in whole or in part NRGG Funding's obligations to the Collateral Agent and the Borrower under the Equity Commitment Agreement. If NRGG Funding fails to pay or perform any liabilities or obligations to the Collateral Agent or the Borrower under Section 1 or 2 of the Equity Commitment Agreement as and when they are due, Guarantor shall forthwith pay and perform such liabilities or obligations, with any such payment to be made in immediately available funds. Each failure by NRGG Funding to pay or perform any liabilities or obligations arising under Section 1 or 2 of the Equity Commitment Agreement shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. (b) The Collateral Agent and the Borrower may, at any time and from time to time without the consent of or notice to Guarantor, except such notice as may be required by applicable Law which cannot be waived, without incurring responsibility to Guarantor or impairing or releasing the obligations of Guarantor hereunder, upon or without any terms or conditions and in whole or in part, (i) exercise or refrain from exercising any rights against NRGG Funding or others (including Guarantor) or otherwise act or refrain from acting; (ii) release any other guarantor from its obligations without obtaining the consent of Guarantor and without affecting or impairing the obligations of Guarantor hereunder; (iii) settle or compromise any obligations hereby guaranteed and/or any obligations incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any obligations which may be due to the Collateral Agent, the Borrower or others; (iv) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner or in any order any property by whomsoever pledged or mortgaged to secure or howsoever securing the liabilities or obligations hereby guaranteed or any liabilities or obligations incurred directly or indirectly in respect thereof or hereof and/or any offset there against; (v) apply any sums by 3 whomsoever paid or howsoever realized to any obligations of NRGG Funding to the Collateral Agent or the Borrower regardless of what obligations remain unpaid; (vi) consent to or waive any breach of, or any act, omission or default under, the Equity Commitment Agreement or otherwise amend, modify or supplement the Equity Commitment Agreement or any of such other instruments or agreements; and/or (vii) act or fail to act in any manner referred to in this Agreement which may deprive Guarantor of its right, if any, to subrogation or reimbursement against NRGG Funding or any other Person to recover full indemnity for any payments made pursuant to this Agreement or of its right of contribution against any other party. (d) No invalidity, irregularity or unenforceability of the obligations hereby guaranteed shall affect, impair or be a defense to this Agreement. (e) In the event that, notwithstanding the provisions of Section 2(b) hereof, this Agreement shall be deemed revocable in accordance with applicable Law, then any such revocation shall become effective only upon actual receipt by the Collateral Agent and the Borrower of written notice of revocation signed by Guarantor. No revocation or termination hereof shall affect in any manner rights arising under this Agreement with respect to obligations and liabilities outstanding on the date of receipt by the Collateral Agent and the Borrower of written notice of such revocation or termination and the sole effect of any revocation and termination hereof shall be to exclude from this Agreement obligations and liabilities thereafter arising which are unconnected with obligations and liabilities theretofore arising or transactions theretofore entered into (Guarantor shall remain liable for all obligations incurred hereunder prior to such revocation or termination). 3. Representations and Warranties. Guarantor makes the representations and warranties set forth below to the Borrower and to the Collateral Agent, acting for its own benefit and for the benefit of the other Secured Parties, which representations and warranties shall survive the execution and delivery of this Agreement: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. 4 (b) Guarantor has taken all necessary corporate action to authorize its execution and delivery of this Agreement and the performance of its obligations hereunder. (c) This Agreement has been duly executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting creditors' rights generally and subject to general equitable principles. (d) All Governmental Approvals and actions necessary in connection with the execution and delivery by Guarantor of this Agreement and the performance of its obligations hereunder have been obtained or performed and remain valid and in full force and effect. (e) The execution, delivery and performance of this Agreement, the compliance by Guarantor with the provisions hereof and the consumma- tion of the transactions contemplated hereby, will not (i) conflict with or result in a breach or violation of any of the respective char- ters or bylaws of Guarantor or any of its subsidiaries or any material franchise or license of Guarantor or any of the terms or provisions thereof, (ii) constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any Lien with respect to, any bond, note, debenture or other evidence of Indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which Guarantor or any of its subsidiaries is a party or by which it or any of them is bound, or to which any properties of Guarantor or any of its subsidiaries is or may be subject, (iii) contravene any order of any court or Governmental Authority or body having jurisdiction over Guarantor or any of its subsidiaries or any of their properties or (iv) or conflict with any statute, rule or regulation or administra- tive or court decree applicable to Guarantor or any of its subsid- iaries or any of their respective properties, in the case of clauses (ii), (iii) and (iv) which conflict, breach, violation, default or contravention, singly or in the aggregate with each other conflict, breach, violation, default or contravention, could reasonably be expected to result in a Material Adverse Effect. As used in this clause (e) and otherwise in this Agree- 5 ment, the term "Material Adverse Effect" shall mean a material adverse effect on either (A) the operations, business, financial condition or property of Guarantor or any of its subsidiaries on a consolidated basis or (B) the ability of Guarantor to perform in a timely manner its obligations under this Agreement. (f) There is no legislation, litigation, action, suit, proceeding or investigation pending or (to the best of Guarantor's knowledge after due inquiry) threatened against Guarantor before or by any court, administrative agency, arbitrator or Governmental Authority which if adversely determined individually or in the aggregate, (i) could reasonably be expected to result in a Material Adverse Effect or (ii) questions the validity, binding effect or enforceability hereof, any action taken or to be taken pursuant hereto or any of the transactions contemplated hereby. (g) All quarterly and annual financial statements heretofore delivered by or in respect of Guarantor to the Collateral Agent, the Agent Bank, the Banks or the Borrower are true, correct and complete as of the dates referred to therein, do not fail to disclose any material liabilities, whether direct or contingent, fairly present the financial condition of Guarantor as of the date thereof and are prepared in accordance with GAAP. (h) Guarantor possesses all franchises, certificates, licenses, permits and other Governmental Approvals necessary for it to own its properties, conduct its business and perform its obligations under this Agreement. (i) Guarantor is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the ICA. (j) Guarantor is a "subsidiary company" of a "holding company" as those terms are defined in the Public Utility Holding Company Act of 1935, as amended ("PUHCA"); however, Guarantor is exempt from all provisions of PUHCA by virtue of Section 3(a)(2) thereof. 6 4. Covenants: Guarantor agrees that: (a) Guarantor shall maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement and will obtain any that may become necessary in the future. (b) Guarantor shall comply in all material respects with all applicable Laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement. (i) Annual Financial Statements. Guarantor shall deliver to the Collateral Agent and the Borrower, within one hundred twenty (120) days after the close of each fiscal year of Guarantor, the consolidated and consolidating balance sheets of Guarantor and its consolidated Affiliates as at the end of such fiscal year and the related consolidated and consolidating statements of income, retained earnings and cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year and certified, in the case of the consolidated financial statements, by independent certified public accountants of recognized national standing in the United States. (ii) Notice of Default or Litigation. Promptly, and in any event within two (2) Business Days after an Authorized Officer of Guarantor obtains knowledge thereof, Guarantor shall give to the Collateral Agent and the Borrower notice of the occurrence of any event or of any litigation or governmental proceeding pending (a) against Guarantor or any of its Affiliates which could affect the business, operations, property, assets, condition (financial or otherwise) or prospects of Guarantor so as to materially and adversely affect the ability of Guarantor to perform its obligations hereunder or (b) with respect to this Agreement, which event or pending proceeding is likely to materially and adversely affect the business, operations, property, assets, condition (financial or otherwise) or prospects of Guarantor and its Affiliates taken as a whole. 7 (iii) Other Information. From time to time, Guarantor shall provide to the Collateral Agent and the Borrower such other information or documents (financial or otherwise) regarding Guarantor as the Collateral Agent or the Borrower may reasonably request and as may be available to Guarantor without undue cost or effort. 5. Subrogation. Guarantor shall not exercise any rights which it may acquire by way of subrogation under this Agreement, by any payment made hereunder or otherwise, until all of the liabilities and obligations of NRGG Funding to the Collateral Agent and the Borrower under the Equity Commitment Agreement shall have indefeasibly been paid in full in cash or cash equivalents. If any amount shall be paid to Guarantor on account of such subrogation rights at any time when all such liabilities and obligations shall not have been indefeasibly paid in full in cash or cash equivalents, such amount shall be held in trust for the benefit of the Collateral Agent and the Borrower and shall forthwith be paid to the Collateral Agent or the Borrower, as applicable, and applied to such liabilities and obligations, whether matured or unmatured. 6. Successions or Assignments. (a) This Agreement shall inure to the benefit of the respective successors or assigns of the Collateral Agent and the Borrower who shall have, to the extent of their interest, the rights of the Collateral Agent and the Borrower hereunder. (b) This Agreement is binding upon Guarantor and its successors and assigns. Guarantor is not entitled to assign its obligations hereunder to any other Person without the written consent of the Collateral Agent and the Borrower, which may be granted or withheld in the Collateral Agent's or the Borrower's sole discretion (in the case of the Collateral Agent, as directed by the Agent Bank, acting in accordance with the Credit Agreement), and any purported assignment in violation of this provision shall be void. 7. Waivers. (a) No delay on the part of the Collateral Agent or the Borrower in exercising any of its rights (including those hereunder) and no partial or single 8 exercise thereof and no action or non-action by the Collateral Agent or the Borrower, with or without notice to Guarantor or anyone else, shall constitute a waiver of any rights or shall affect or impair this Agreement. (b) Guarantor agrees that, if the Collateral Agent or the Borrower bring any judicial proceedings in relation to any such matter, Guarantor will not interpose any counterclaim or setoff of any nature. (c) If any amount payable by Guarantor hereunder is not paid as and when due, then Guarantor authorizes the Collateral Agent and the Borrower to proceed, without prior notice, by right of set-off, counterclaim or otherwise, against any assets of Guarantor that may at any time be in the possession of the Collateral Agent or the Borrower or any branch or office thereof, to the full extent of all amounts payable to the Collateral Agent and the Borrower hereunder. (d) Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the obligations of NRGG Funding under Sections 1 and 2 of the Equity Commitment Agreement and notice of or proof of reliance by the Collateral Agent or the Borrower upon this Agreement. (e) Guarantor waives diligence, presentment, protest, demand for payment and notice of default to or upon NRGG Funding with respect to the obligations under Sections 1 and 2 of the Equity Commitment Agreement. 8. Interpretation. The Section headings in this Agreement are for the convenience of reference only and shall not affect the meaning or construction of any provision hereof. 9. Notices. All notices in connection with this Agreement shall be given by notice in writing, hand-delivered or sent by facsimile transmission, or by certified mail return-receipt requested (airmail, if overseas), postage prepaid. All such notices shall be sent to the appropriate telecopier number or address, as the case may be, set forth below or to such other number or address as shall have been subsequently specified by written notice to each other party hereto, and shall be sent with copies, if any, as indicated below. All such notices shall be effective upon receipt. The addresses for notice shall be as follows: 9 (a) The address of Guarantor is: NRG ENERGY, INC. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: President Telephone No.: (612) 373-5400 Telecopier No.: (612) 373-5430 With a copy to: NRG ENERGY, INC. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: General Counsel (b) The address of the Collateral Agent is: THE CHASE MANHATTAN BANK 450 West 33rd Street, 15th Floor New York, NY 10001 Attention: A. Marsula, Assistant Vice President, International Project Finance, Global Trust Services Telephone No.: (212) 946-7557 Telecopier No.: (212) 946-8177/8178 (c) The address of the Borrower is: NRG (MORRIS) COGEN, LLC 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: President Telephone No.: (612) 373-5400 Telecopier No.: (612) 373-5430 10 With a copy to: NRG (MORRIS) COGEN, LLC 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: General Counsel 10. Amendments. Notwithstanding anything contained herein that may be construed to the contrary, as between Guarantor, the Collateral Agent and the Borrower, this Agreement may be amended only with the written consent of the Collateral Agent, the Borrower and Guarantor, with the Collateral Agent acting as directed by the Agent Bank (acting upon the instructions of the Required Banks). 11. Jurisdiction; Governing Law. (a) Any action or proceeding relating in any way to this Agreement may be brought and enforced in the courts of the State of New York. Any such process or summons in connection with any such action or proceeding may be served by mailing a copy thereof by certified or registered mail, or any substantially similar form of mail, addressed to the applicable party as provided for notices hereunder. By execution and delivery of this Agreement, Guarantor irrevocably agrees to designate, appoint and empower CT Corporation System, with its offices as of the date hereof at 1633 Broadway, New York, New York 10019, to receive for an on its behalf service of process in the State of New York and further irrevocably consents to the service of process outside the territorial jurisdiction of said courts by mailing copies thereof in accordance with the immediately preceding sentence. Guarantor represents and warrants that it has taken, and will continue to take, all actions necessary to retain CT Corporation System as its registered agent for service of process in the State of New York for the term hereof. (b) This Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the Laws of the State of New York without reference to principles of conflict of laws (other than Section 5-1401 of the New York General Obligations Law). 11 12. Integration of Terms. This Agreement contains the entire agreement among the parties hereto relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. 13. Termination; Reinstatement of Guaranty. (a) Subject to the provisions of Section 13(b) hereof, this Agreement shall terminate following the payment in full of all amounts due hereunder or under Sections 1 and 2 of the Equity Commitment Agreement. (b) Notwithstanding the provisions of Section 13(a) hereof, this Agreement shall be reinstated if at any time following the termination of this Agreement under Section 13(a) hereof, any payment or performance by Guarantor under this Agreement or NRGG Funding under Section 1 or 2 of the Equity Commitment Agreement is rescinded or must otherwise be returned by the Collateral Agent, the Borrower or any other Person upon the insolvency, bankruptcy, reorganization, dissolution or liquidation of NRG Generating or Guarantor and is so rescinded or returned to the party or parties making such payment or performance, all as though such payment had not been made. Such period of reinstatement shall continue until satisfaction of the conditions contained in, and shall continue to be subject to, the provisions of this Section 13. 14. Waiver of Jury Trial. THE COLLATERAL AGENT (AND THE AGENT BANK AND THE BANKS AS THIRD PARTY BENEFICIARIES HEREUNDER), THE BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL AGENT, THE BORROWER, GUARANTOR OR NRG GENERATING. THIS PROVISION IS MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT, THE BORROWER AND GUARANTOR TO ENTER INTO THIS AGREEMENT. 12 IN WITNESS WHEREOF, Guarantor has caused this Equity Commitment Guaranty to be duly executed and delivered as of the day and year first written above. NRG ENERGY, INC. By:/s/ David H. Peterson Name: David H. Peterson Title: President & CEO Acknowledged and Accepted: THE CHASE MANHATTAN BANK, as Collateral Agent By: /s/ Annette M. Marsula Name: Annette M. Marsula Title: Assistant Vice President NRG (MORRIS) COGEN, LLC By: /s/ Craig Mataczynski Name: Craig Mataczynski Title: President EX-10.27.5 22 EXHIBIT 10.27.5 AMENDMENT AND CONSENT, DATED AS OF December 10, 1997 among Cogen, LLC and the banks ("Banks") party to the Credit Agreement, dated as of September 15, 1997, among Cogen, LLC, the Banks and Chase. Exhibit 10.27.5 AMENDMENT AND CONSENT AMENDMENT AND CONSENT, dated as of December 10, 1997 (this "Amendment and Consent"), among NRG (MORRIS) COGEN, LLC (the "Borrower"), a Delaware corporation, and the banks party to the Credit Agreement (as defined below) (the "Banks"). RECITALS WHEREAS, the Borrower entered into that certain Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Credit Agreement"), with the Banks, The Chase Manhattan Bank as agent for the Banks (in such capacity, the "Agent Bank") and The Chase Manhattan Bank as collateral agent for the Banks (in such capacity, the "Collateral Agent"), to obtain funds to finance the ownership, development, engineering, construction, start-up, testing, operation and maintenance of an approximately 117 MW gas fired cogeneration plant in Morris, Illinois (the "Project"). Capitalized terms used but not defined in this Amendment and Consent shall have the meanings given to such terms in the Credit Agreement; WHEREAS, pursuant to the Membership Interest Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), between NRG Energy and NRGG Funding Inc., a Delaware corporation ("NRGG Funding"), NRG Energy is transferring all of its equity interests in the Borrower to NRGG Funding; WHEREAS, the Borrower and the Banks would like to amend the Credit Agreement as set forth herein to reflect the transactions contemplated by the Purchase Agreement and the documents executed in connection therewith; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Borrower and the Banks hereby agree as follows: Section 1. Amendments. 1.1. Section 1.1 of the Credit Agreement is hereby amended by inserting the following definitions after the definition of "Equity Commitment Agreement" therein: "Equity Guarantee" shall mean the Equity Commitment Guaranty, dated as of December 10, 1997, by NRG Energy in favor of the Borrower and the Collateral Agent. "Equity Guarantor" shall mean NRG Energy. 1.2. Section 1.1 of the Credit Agreement is hereby amended by inserting the following definition after the definition of "NRG Morris Consent" therein: "NRGG Funding" shall mean NRGG Funding Inc., a Delaware corporation. 1.3. The definition of "Financing Documents" in Section 1.1 of the Credit Agreement is hereby amended by deleting " and" after the word "Consents" in the second line thereof and replacing such deleted text with ","; and is hereby further amended by inserting the words " and the Equity Guarantee" after the words "Equity Commitment Agreements" in the second line thereof. 1.4. The definition of "Pledge Agreement" in Section 1.1 of the Credit Agreement is hereby amended by deleting the current definition in its entirety and replacing such deleted provision with the following: "Pledge Agreement" shall mean the Pledge and Security Agreement, dated as of December 10, 1997, among NRGG Funding, NRG MI and the Collateral Agent. 1.4. Section 3.2(a) of the Credit Agreement is hereby amended by inserting " the Equity Guarantor," after "any Equity Contributor," in the tenth line thereof. 1.5. Section 8.1(f) of the Credit Agreement is hereby amended by deleting " or" in the second line thereof and replacing such deleted text with ","; and is hereby further amended by inserting " or the Equity Guarantor if it has continuing obligations under the Equity Guarantee" at the end of such Section. Section 2. Consent. Each Bank hereby (a) consents to the transactions contemplated in the Purchase Agreement and (b) agrees that the transfer by NRG Energy of its membership interests in the Borrower to NRGG Funding pursuant to the Purchase Agreement constitutes a Permitted Transfer (as defined in the Pledge and Security Agreement, dated as of September 15, 1997 (the "Original Pledge Agreement"), among NRG Energy, NRG MI and the Collateral Agent) under Section 4.1(a) of the Original Pledge Agreement. Section 3. Amendments and Consent Limited Precisely as Written; Ratification; References. The amendments and the consent herein are limited precisely as written and shall not be deemed to be a consent or waiver to, or modification of, any other term or condition in the Credit Agreement or any of the documents referred to herein or therein. Except as expressly amended hereby, the Credit Agreement is ratified and confirmed in all respects. On and after the date hereof, whenever the Credit Agreement is referred to in any of the Transaction Documents or in any of the other documents or 2 papers to be executed and delivered in connection therewith or with the Credit Agreement, such term shall be deemed to mean the Credit Agreement as amended hereby. Section 4. Governing Law. This Amendment and Consent shall be construed in accordance with and shall be governed by 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). Section 5. Waiver of Jury Trial. EACH OF THE BORROWER AND THE BANKS HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AMENDMENT AND CONSENT OR ANY MATTER ARISING HEREUNDER. Section 6. Headings Descriptive. The headings of the several Sections of this Amendment and Consent are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Amendment and Consent. Section 7. Counterparts. This Amendment and Consent may be executed in one or more counterparts and when signed by all parties listed below shall constitute a single binding agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the parties have caused this Amendment and Consent to be duly executed by their officers thereunto duly authorized as of the day and year first written above. NRG (MORRIS) COGEN, LLC By: /s/ Craig Mataczynski Name: Craig Mataczynski Title: President THE CHASE MANHATTAN BANK, as a Bank By: /s/ Kevin P. O'Neill Name: Kevin P. O'Neill Title: Vice President THE BANK OF NEW YORK By: /s/ John N. Watt Name: John N. Watt Title: Vice President NATEXIS BANQUE By: /s/ D.J.R. Osten Name: D.J.R. Osten Title: First V.P. THE SUMITOMO TRUST AND BANKING COMPANY, LTD. By: /s/ Suraj P. Bhatia Name: Suraj P. Bhatia Title: Senior Vice President EX-10.27.6 23 EXHIBIT 10.27.6 CONSTRUCTION SERVICES AGREEMENT DATED AUGUST 29, 1997 BETWEEN COGEN, LLC AND NRG ENERGY. Exhibit 10.27.6 CONSTRUCTION SERVICES CONTRACT This Construction Services Contract (this "Contract") is made and entered into as of the 29th day of August, 1997, by and between NRG Energy, Inc. ("NRG") and NRG (Morris) Cogen, LLC ("Client"). Client accepts performance of the work outlined under "Scope of NRG's Services" in accordance with the attached General Terms and Conditions, Construction Management Services Contract. ARTICLE 1 - SCOPE OF NRG'S SERVICES A. NRG shall furnish the construction management services set forth on Attachment 1 (the "Work") to Client. B. NRG's work shall be performed in connection with the construction of a 118 MW natural gas fired electrical steam generating facility at Millenium Petrochemical's Morris, Illinois plant ("Project"). ARTICLE 2 - NRG'S COMPENSATION Client shall pay NRG for the Work as set forth on Attachment 2. ARTICLE 3 - ACCEPTANCE Client and NRG agree to accept the Scope of NRG's Services and NRG's Compensation set forth above in accordance with the attached General Terms and Conditions, Construction Management Services Contract. Acceptance of this offer by ordering the start of the Work or otherwise is limited to acceptance of the terms and conditions of this Contract. Notwithstanding any additional terms that may be embodied in Client's purchase order or acknowledgment issued in response to this offer, the Work is performed only on the condition that Client assents to the terms and conditions set forth herein and objection is made to any varying or additional terms or conditions contained in Client's purchase order or acknowledgment. NRG (MORRIS) COGEN, LLC NRG ENERGY, INC. By: /s/ Craig Mataczynski By: /s/ Ronald J. Will Printed Name: Craig A. Mataczynski Printed Name: Ronald J. Will Title: Management Committee Title: Vice President Operations Representative and Engineering Date: 29 August, 1997 Date: August 29, 1997 2 GENERAL TERMS AND CONDITIONS CONSTRUCTION MANAGEMENT SERVICES CONTRACT INTRODUCTION: These general terms and conditions apply to the Work to be performed by NRG as set forth on the face of this Contract and generally apply to the services of one or more engineers or technicians performing engineering and/or consulting services in or for the Project. SCOPE OF SERVICES: The scope of services to be performed under this Contract shall be as set forth on the face of this Contract. Client may add to or delete services from the scope of Work and the provisions of this Contract shall apply to such changes. In the event of any such change or any delay, change, or occurrence beyond the reasonable control of NRG, NRG shall be entitled to an equitable adjustment of compensation and schedule. COMPENSATION, PAYMENT, AND AUDIT: Compensation for the Work shall be as set forth on the face of this Contract. NRG shall invoice Client monthly for the Work performed and Client shall pay such invoice in full within ten (10) days after its receipt. For a period of one (1) year following completion of the Work, Client, its auditor, or other authorized representatives shall be afforded access at reasonable times to NRG's accounting records relating to the Work in order to audit all charges for the Work (except fixed mark-ups, fixed fees, lump sum amounts, and NRG's standard rates). CHARGES FOR THE WORK: Client shall reimburse NRG for all costs, charges, expenses, taxes, fees, and losses not compensated by insurance, which are incurred by NRG in the performance of the Work. These shall include, but not be limited to: 1. Charges for time of all personnel employed by NRG in the performance of the Work, plus a fixed mark-up of one hundred percent (100%) of the time charges to cover Federal and State payroll taxes and insurance, company benefit programs, overhead, and profit. This fixed mark-up shall be subject to appropriate adjustment for any changes in payroll taxes or insurance, or changes in company benefit programs. 2. Transportation, traveling, hotel, and living expenses, including use of employees' personal cars at NRG's current standard rates. All reasonable moving, relocation, travel, and living expenses incurred in connection with assignment of NRG's permanent personnel to a location other than NRG's permanent offices and from such location at the conclusion of assignment. 3. Miscellaneous expenses, including but not limited to telegrams, telex, telefacsimile, telephone services, postage, and similar miscellaneous items incurred in connection with the Work (all at NRG's current standard rates). 4. Reproduction costs of all drawings, manuals, specifications, and other documents required for the Work; and costs for the use of computer, all at NRG's current standard 3 rates or at actual cost to NRG if prepared by others. 5. Cost of any permits, fees, licenses, or royalties required for the Work. Costs of any sales, use, or similar taxes or fees imposed by a Federal, State, Municipal, or other government or agency thereof. 6. Fees, costs, damages, or disbursements incurred in connection with any labor, patent, or commercial litigation or any third party claim, suit, or cause of action, arising out of or in connection with the performance of the Contract by NRG (except disputes between NRG and Client), or claims, suits or causes of action pursued on behalf of Client by NRG. 7. Premiums and brokerage fees on all bonds and insurance policies which may be required by Client in addition to those listed herein, and any loss under the deductible features of any insurance policies, whether furnished by NRG or Client. Notwithstanding the foregoing, or any estimates contained in Attachment 2, NRG agrees that its total compensation for Work, including the Administrative Fee of $200,000, shall not exceed $1.2 million. PROSECUTION OF THE WORK; FORCE MAJEURE: NRG shall substantially complete the Work in accordance with the Project Schedule mutually agreed upon between Client and NRG. Any completion dates specified are tentative only and NRG shall have no liability to Client for late completion. If the prosecution of the Work is delayed or affected by any of the following force majeure occurrences: acts or failures to act by Client, or any separate contractors, engineers, vendors, or consultants employed by Client, or any other party not in privity of contract with NRG; acts of God or the elements; acts or failures to act by government or any agency thereof; changes, inaccuracies, incompleteness, or differences in site conditions or any data or information supplied to NRG; changes in laws or regulations; delays in permitting; delays in receipt of engineering data or vendor drawings; fire; unusually severe weather, natural disasters, or unavoidable casualties; riot; civil disorders; labor shortages or disputes; strikes, picketing, or arbitration proceedings; delays in transportation, material, or equipment deliveries; material, equipment, or fuel shortages; or any other causes beyond NRG's reasonable control, the Project Schedule shall be extended for the period of time attributable to such delay and all fixed elements of pricing, if any, shall be equitably adjusted. LIABILITY INSURANCE: During performance of this Contract, NRG shall keep in force Worker's Compensation Insurance/Employer's Liability Insurance for its employees with limits required by law; Comprehensive or Commercial General Liability Insurance, with a $1,000,000 combined occurrence and combined aggregate bodily injury and property damage limit, and Automobile Liability Insurance, with a combined single limit of $1,000,000. 4 WAIVER OF SUBROGATION: Client waives all rights and any subrogation rights such as it or its insurers may have against NRG, its vendors and subcontractors and their employees, agents, officers, directors, and any of their affiliated or associated companies, for any losses or damages, including without limitation loss of use and all consequential damages thereof, to its existing plant or other property, including without limitation property to be incorporated into the Project, resulting from any and all risks and losses, however and whenever arising, including without limitation those arising from risks of fire, or other extended coverage or similar perils, business interruption, transit damages or losses, vandalism and malicious mischief, or other risks covered under a broad form All Risks Difference In Conditions insurance policy. In the event that the constructor of the facilities or Project is to carry insurance on the Project, Client agrees to include a provision in its contract with the constructor requiring the constructor to supply NRG with a written waiver of its rights of recovery and its insurance carrier's right of subrogation as provided above. INDEMNITY: NRG agrees to indemnify and save Client harmless from any loss, cost or expense claimed by third parties for property damage and bodily injury including death, to the extent caused by the negligence or willful misconduct of NRG, its agents, employees or NRG's affiliates in connection with NRG's work hereunder. Client agrees to indemnify and save NRG harmless from any loss, cost or expense claimed by third parties for property damage and bodily injury, including death, to the extent caused by the negligence or willful misconduct of Client, its agents or employees in connection with NRG's work hereunder. If the negligence or willful misconduct of both NRG and Client (or a person identified above for whom each is liable) is the cause of such damage or injury, the loss, cost or expense shall be shared between NRG and Client in proportion to their relative degrees of negligence or willful misconduct and the right of indemnity shall apply for such proportion. LIMITED WARRANTY: 1. NRG warrants that the services performed under this Contract will be in accordance with accepted professional standards and practices existing as of the date that such services are performed. The sole and exclusive remedy for breach of this warranty shall for NRG to re- perform the item of defective Work, written notice of which is promptly given by Client to NRG within a period of one (1) year from the date that the defective work is performed under this Contract. All costs of any re-performance shall be reimbursed by Client to NRG, but NRG shall receive no additional profit thereon. 2. NRG shall not be responsible for the construction means, methods, techniques, sequences, or procedures, or safety precautions (including without limitation and by way of example, any duty imposed by any occupational safety and health legislation), and programs incident thereto; or for the acts or omissions of Client or any constructor of the Project or any of the constructor's agents, employees, or subcontractors; or for the acts or omissions of material or equipment manufacturers or suppliers; or for the acts or omissions of any engineer on the Project. 5 3. THERE ARE NO WARRANTIES OTHER THAN THE ABOVE, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, APPLICALE TO NRG'S SERVICES OR THE WORK UNDER OR OTHERWISE ARISING OUT OF THIS CONTRACT. LIMITATION OF LIABILITY: Whether due to delay, breach of contract or warranty, tort (including without limitation negligence), or any other cause, neither NRG nor its vendors or subcontractors shall be liable for any special, indirect, punitive, or consequential damages of any nature, including without limitation loss of actual or anticipated profits, revenues, or product, loss by reason of shutdown, nonoperation, or increased expense of manufacturing or operation, or any costs, labor, or materials required for reconstruction or repairs. NRG's liability under or arising out of this Contract shall in no event exceed the Administrative Fee of $200,000. COMPLIANCE WITH LAWS: 1. NRG shall comply with all laws and regulations existing as of the date of this Contract applicable to NRG in the performance of its obligations under this Contract, including without limitation applicable Federal, State, and local wage and hour laws and regulations, and all other laws and regulations pertaining to employer- employee relations. 2. NRG shall not have any responsibility or obligation in obtaining approvals of governmental bodies or boards, but shall assist Client in obtaining necessary permits or approvals. As it is recognized that laws and regulations, including but not limited to those governing the emissions of gases, odor, liquids, solids, and sounds, are or may be changing from time to time, any modification of or addition to the Project which may be required after the effective date of this Contract in order to cause the Project to comply with any applicable law or regulation pertaining to the control or emission of gases, odor, liquids, solids, or sounds shall be considered a change in the Work and the applicable adjustment therefor shall be accomplished. GOVERNING LAW: The terms of this Contract shall be construed and interpreted under, and all respective rights and duties of the parties shall be governed by, the laws of the State of Minnesota. TERM; TERMINATION: This Agreement shall continue in force through the commercial operations and final acceptance of the Project. Notwithstanding the foregoing, this Agreement may be terminated in the event of a material breach if the breaching party fails to cure such breach within thirty (30) days of receipt of written notice thereof from the other party. Upon termination, NRG will promptly turn over to Client all specifications, requisitions, construction instructions, and all other documents, whether in final form or not, which were prepared by NRG while performing the Work pursuant to this Contract. Client shall thereafter assume all obligations, commitments, or other liabilities that NRG shall have 6 theretofore incurred or made in connection with its performance of the Work and for which NRG has not been paid and released. RELATIONSHIPS TO OTHERS: This Contract shall be binding upon and inure to the benefit of the respective successors, executors, administrators, and assigns of Client and NRG. NRG may subcontract a portion of this Contract or the Work to an affiliated or associated company of NRG. If NRG makes any such subcontract, all liability protections, releases, and disclaimers for the benefit of NRG under this Contract shall also be for the benefit of said affiliated or associated company. Client acknowledges and agrees that the obligations and liabilities of NRG, as well as the limitation thereon, all as set forth in this Contract, shall be applicable to NRG's associated or affiliated companies to the same extent as if such associated or affiliated companies were a signatory party to the Contract. Client further acknowledges and agrees that such liabilities and obligations of, and remedies against, NRG and its said associated or affiliated companies are sole and exclusive, are in lieu of all other rights and remedies, whether in contract, tort (including without limitation negligence), law or equity, and in no event shall exceed, in the aggregate, NRG's liability and obligations to and remedies of Client under or related to this Contract. SCOPE OF THE CONTRACT: All negotiations, proposals, and agreements prior to the date of this Contract are merged herein and superseded hereby, there being no agreements, warranties, liabilities (negligence or otherwise), or understandings other than those written or specified in this Contract. This Contract constitutes the entire agreement between the parties. No obligation or covenant of good faith or fair dealing shall be implied or interpreted as conferring upon either party any right, duty, obligation, or benefit other than expressly set forth in this Contract, notwithstanding the fact that certain of the terms and conditions of this Contract may give either party discretion in the manner of performance under this Contract. No changes, modifications, or amendments to this Contract shall be valid unless agreed to by the parties in writing and signed by their authorized officers. Client and NRG represent that this Contract constitutes a bargained-for allocation of the full risks of loss and damages related to the Contract and that each party has relied on such provisions as being an effective and enforceable expression of, and limitation on, the rights and duties of the parties. Titles and headings used in this Contract are for ease of reference only and shall not be considered in interpreting this Contract. This Contract shall not be construed as granting any rights to any third party based on the theory of third party beneficiary or otherwise. 7 EX-10.27.7 24 EXHIBIT 10.27.7 FIRST AMENDMENT TO CONSTRUCTION SERVICES AGREEMENT DATED DECEMBER 10, 1997 BETWEEN COGEN, LLC, AND NRG ENERGY. Exhibit 10.27.7 FIRST AMENDMENT to CONSTRUCTION SERVICES AGREEMENT This FIRST AMENDMENT to CONSTRUCTION SERVICES AGREEMENT is entered into as of December 10, 1997 by and between NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Client") and NRG Energy, Inc. ("NRG"). WHEREAS, Client and NRG are parties to that certain Construction Services Agreement dated as of August 29, 1997 (the "Construction Services Agreement"); WHEREAS, Client and NRG wish to amend the Construction Services Agreement as herein provided; NOW, THEREFORE, Client and NRG hereby agree as follows: 1. Article 1 of the Construction Services Agreement shall be amended by adding the following paragraph C to the end thereof: C. Client shall have the right, upon 30 days written notice documenting the basis for such action, to require NRG to remove for cause the person selected as the Construction Manager from such position, subject to NRG's rights to a 30-day cure period (but absent such a cure, NRG will remove such person from such position following such a request by Client). As soon as practical after any such removal, NRG shall appoint a new Construction Manager, after first obtaining Client's consent to such new appointment which consent shall not be unreasonably withheld. 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Construction Services Agreement or any other agreement referred to therein, or prejudice any right or rights which Client or NRG may now have or may have in the future under or in connection with the Construction Services Agreement. Except as expressly modified hereby, the terms and provisions of the Construction Services Agreement shall continue in full force and effect. All references to the Construction Services Agreement shall hereafter be deemed to refer to the Construction Services Agreement as modified hereby. 3. This Amendment may be executed in separate counterparts by Client and NRG, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF MINNESOTA, BUT WITHOUT GIVING EFFECT TO.CONFLICTS OF LAW PROVISIONS. IN WITNESS WHEREOF, Client and NRG have caused their duly authorized representatives to execute and deliver this Amendment as of the date first above written. NRG (MORRIS) COGEN, LLC By /s/ Craig Mataczynski Name: Craig Mataczynski Title: President NRG ENERGY, INC. By /s/ David H. Peterson Name: David H. Peterson Title: President & CEO EX-10.27.8 25 EXHIBIT 10.27.8 CONSTRUCTION AND TERM LOAN AGREEMENT DATED SEPTEMBER 15, 1997 BETWEEN COGEN, LLC, CHASE AND THE BANKS. Exhibit 10.27.8 Execution Version CONSTRUCTION AND TERM LOAN AGREEMENT dated as of September 15, 1997 among NRG (MORRIS) COGEN, LLC, as Borrower THE BANKS, as herein defined THE CHASE MANHATTAN BANK, as Agent Bank and THE CHASE MANHATTAN BANK, as Collateral Agent TABLE OF CONTENTS ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION 1 Section 1.1 . Definitions 1 Section 1.2. Accounting Terms and Determinations 29 Section 1.3. Types of Loans 30 Section I.4. Certain Principles of Interpretation 30 ARTICLE II. AMOUNT AND TERMS OF CREDIT FACILITIES 31 Section 2.1. Construction Loans 31 Section 2.2. Letters of Credit 32 Section 2.3. Term Loans 35 Section 2.4. Notice of Borrowing 36 Section 2.5. Disbursement of Funds 37 Section 2.6. Notes 39 Section 2.7. Interest 39 Section 2.8. Interest Periods 41 Section 2.9. Minimum Amount and Maximum Number of LIBOR Rate Loans 42 Section 2.10. Conversion or Continuation 42 Section 2.11. Reduction of Commitments 43 Section 2.12. Optional Prepayments 43 Section 2.13. Mandatory Prepayments 43 Section 2.14. Method and Place of Payment 45 Section 2.15. Fees 45 Section 2.16. Interest Rate Unascertainable; Increased Costs; Illegality 46 Section 2.17. Funding Losses 48 Section 2.18. Increased Capital 49 Section 2.19. Taxes 49 Section 2.20. Notice of Increased Amounts 51 Section 2.21. Use of Proceeds 51 Section 2.22. Sharing of Payments, Etc. 51 ARTICLE III. CONDITIONS PRECEDENT 52 Section 3.1. Conditions Precedent to Initial Construction Loans 52 Section 3.2. Conditions Precedent to the Making of All Loans and Issuance of Letters of Credit 60 Section 3.3. Conditions Precedent to Conversion to Term Loans 62 Section 3.4. Conditions; General Principles 65 ARTICLE IV. REPRESENTATIONS AND WARRANTIES 65 Section 4.1. Status; Power and Authority; Due Authorization; Enforceability 66 Section 4.2. No Violation 67 Section 4.3. Litigation 67 Section 4.4. Financial Statements; Financial Condition; Etc 67 Section 4.5. Material Adverse Change 67 Section 4.6. Use of Proceeds; Margin Regulations 67 Section 4.7. Governmental Approvals 67 i Section 4.8. Compliance with Applicable Laws 68 Section 4.9. Sole Purpose Nature; Business 68 Section 4.10. Collateral 69 Section 4.11. Security Interests and Liens 69 Section 4.12. Patents, Trademarks, Etc. 69 Section 4.13. Investment Company Act; Public Utility Holding Company Act 69 Section 4.14. Governmental Regulation 69 Section 4.15. Sufficient Rights 70 Section 4.16. Property Rights, Utilities, Etc. 70 Section 4.17. No Defaults 70 Section 4.18. Payment of Taxes 71 Section 4.19. ERISA 71 Section 4.20. Transaction Documents 71 Section 4.21. True and Complete Disclosure; Assumptions 71 Section 4.22. Ownership and Related Matters 72 Section 4.23. Environmental Matters 72 Section 4.24. Other Filings 73 Section 4.25. Qualifying Facility Status 73 Section 4.26. Subsidiaries, Etc. 73 ARTICLE V. AFFIRMATIVE COVENANTS 73 Section 5.1. Information Covenants 73 Section 5.2. Maintenance of Existence 76 Section 5.3. Books, Records and Inspections 76 Section 5.4. Taxes and Claims 77 Section 5.5. Governmental Approvals 77 Section 5.7. Insurance 77 Section 5.8. Mobilization Budget; Operating Budget; Major Maintenance Budget; Spare Parts List; Heat Rate 78 Section 5.9. Project Implementation 81 Section 5.10. Further Assurances 81 Section 5.11. Use of Proceeds 82 Section 5.12. Title 82 Section 5.13. Project Documents 82 Section 5.14. Qualifying Facility Status 82 Section 5.15. Application of Revenues 82 Section 5.16. Interest Rate Protection Agreements 82 Section 5.17. Long Term Service Agreement 82 Section 5.18. RO EPC Contract 83 Section 5.19. Payment 83 Section 5.20. ERISA 83 Section 5.21. Punch List 83 Section 5.22. Operator Termination 83 Section 5.23. Minor Punch List Items 84 Section 5.24. Gas Agreement 84 Section 5.25. Millennium Letter of Credit 84 ii ARTICLE VI. NEGATIVE COVENANTS 84 Section 6.1. Distributions 84 Section 6.2. Indebtedness 84 Section 6.3. Liens 86 Section 6.4. Restriction on Fundamental Changes 86 Section 6.5. Subsidiaries; Advances, Investments and Loans 87 Section 6.6. Arm's Length Transactions 87 Section 6.7. Sole Purpose Nature 87 Section 6.8. Certain Restrictions 87 Section 6.9. Sale of Assets 87 Section 6.10. Amendment of Project Documents 87 Section 6.11. Change Orders; Budgets 87 Section 6.12. Margin Regulations 88 Section 6.13. Additional Project Agreements 88 Section 6.14. Expenditures 88 Section 6.15. Amendments to Construction Schedule or Progress Payment Schedule; Test Procedures 88 Section 6.16. Restricted Uses 89 Section 6.17. NGC Agreement 89 ARTICLE VII. ACCOUNTS AND CASH FLOWS 89 Section 7.1. Establishment and Maintenance of Project Accounts 89 Section 7.2 Permitted Investments 90 Section 7.3. Funding of the Construction Account 91 Section 7.4. Funding of the Revenue Account and Payment of Operation and Maintenance Expenses 91 Section 7.5. Debt Payment Account 92 Section 7.7. Funding of the Maintenance Reserve Account 93 Section 7.8. Funding of the Debt Service Reserve Account 93 Section 7.8. Funding of the NGC Reserve Account 94 Section 7.9. Funding of the Distribution Retention Account; Distributions 94 Section 7.10. Funding of the Proceeds Account; Application of Proceeds 95 Section 7.11. Letter of Credit Account 100 Section 7.12. Event of Default 101 ARTICLE VIII. EVENTS OF DEFAULT; REMEDIES 101 Section 8.1. Events of Default 101 Section 8.2. Rights and Remedies 104 Section 8.3. Application of Proceeds 105 ARTICLE IX. THE AGENT BANK 106 Section 9.1. Appointment 106 Section 9.2. Delegation of Duties 106 Section 9.3. Exculpatory Provisions 107 Section 9.4. Reliance by Agent Bank 107 Section 9.5. Notice of Default 107 Section 9.6. Non-Reliance on Agent Bank and Other Banks 108 iii Section 9.7. Bank Indemnification 108 Section 9.8. Agent Bank in its Individual Capacity 109 Section 9.9. Successor Agent Bank 109 ARTICLE X. THE COLLATERAL AGENT 109 Section 10.1. Appointment 109 Section 10.2. Delegation of Duties 110 Section 10.3. Exculpatory Provisions 110 Section 10.4. Reliance by Collateral Agent 110 Section 10.5. Notice of Default 111 Section 10.6. Non-Reliance on Collateral Agent and Other Banks 111 Section 10.7. Bank Indemnification 112 Section 10.8. Collateral Agent in its Individual Capacity 112 Section 10.9. Successor Collateral Agent 112 Section 10.10. Administration of the Collateral 113 ARTICLE XI. MISCELLANEOUS 113 Section 11.1. Payment of Expenses and Indemnity 113 Section 11.2. Right of Set-off 116 Section 11.3. Notices 117 Section 11.4. Successors and Assigns; Participation; Assignments 117 Section 11.5. Amendments and Waivers 120 Section 11.6. No Waiver; Remedies Cumulative 121 Section 11.7. No Third Party Beneficiaries 121 Section 11.8. Counterparts 121 Section 11.9. Effectiveness 122 Section 11.10. Headings Descriptive 122 Section 11.11. Marshalling; Recapture 122 Section 11.12. Severability 122 Section 11.13. Survival 122 Section 11.14. Domicile of Loans 122 Section 11.15. Independence of Covenants 122 Section 11.16. Limitation of Liability 123 Section 11.17. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial 123 Section 11.18. Confidentiality 124 Section 11.19. Removal by Assignment of Banks 125 Section 11.20. Change of Lending Office 126 SCHEDULES Schedule 1.1: Accounts Schedule 1.1(A): Banks and Commitments Schedule 1.1(B): Maintenance Reserve Amounts Schedule 1.1(C): Site Description Schedule 1.1(D): Sample Debt Service Coverage Ratio and Excess Cash Flow Calculations Schedule 3.1(g)(i)(A): Filing Jurisdictions Schedule 3.1(g)(i)(B): Results of Lien Searches iv Schedule 3.1(o): Governmental Approvals Schedule 4.20: Material Contracts Schedule 4.23: Environmental Matters Schedule 5.7: Required Insurance EXHIBITS Exhibit A: Form of Consent and Agreement Exhibit B: Form of Construction Note Exhibit C: Form of Term Note Exhibit D: Form of Notice of Borrowing Exhibit E: Form of Request for Issuance Exhibit F: Form of Notice of Conversion or Continuation Exhibit G: Form of Restoration Requisition Exhibit H: Form of Independent Engineer's Initial Drawing Certificate Exhibit I: Form of Independent Engineer's Subsequent Drawing Certificate Exhibit J: Form of Independent Engineer's Conversion Certificate Exhibit K: Form of Transfer Supplement Exhibit L: Form of Confidentiality Agreement Exhibit M: Form of Disbursement Certificate Exhibit N: Form of NGC Letter of Credit Exhibit O: Form of Millennium Letter of Credit v CONSTRUCTION AND TERM LOAN AGREEMENT, dated as of September 15, 1997, among NRG (MORRIS) COGEN, LLC, a Delaware limited liability company (the "Borrower"), the Banks (as hereinafter defined), THE CHASE MANHATTAN BANK, acting in its capacity as agent for the Banks (together with its successors in such capacity, the "Agent Bank"), and THE CHASE MANHATTAN BANK, acting in its capacity as collateral agent for the Banks (together with its successors in such capacity, the "Collateral Agent"). W I T N E S S E T H: WHEREAS, the Borrower wishes to obtain funds to finance the ownership, development, engineering, construction, start-up, testing, operation and maintenance of the Project (as hereinafter defined) in Grundy County, located at the Energy Purchaser's (as hereinafter defined) Morris Plant (as hereinafter defined) complex in the State of Illinois; and WHEREAS, subject to and upon the terms and conditions herein set forth, the Banks are willing to provide financing to the Borrower as provided for herein; NOW, THEREFORE, it is agreed: ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION. Section 1.1 . Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. "Acceptance" shall have the meaning provided in Section 2.4 of the EPC Contract or in a similar provision of the RO EPC Contract, as applicable. "Acceptance Date" shall mean the first date on which all of the conditions which must be satisfied in order to achieve Acceptance shall have been satisfied. "Additional Project Documents" shall mean any contract, agreement, letter of intent, understanding or instrument entered into by or on behalf of the Borrower after the Closing Date in connection with the development, construction, testing, operation, maintenance or repair of the Project and/or the use of the Site, including, without limitation, the RO EPC Contract, the Long Term Service Agreement and the NGC Guarantee. "Additional Project Party" shall mean each Person (other than the Agent Bank, the Collateral Agent and the Banks) party to an Additional Project Document. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by or under direct or indirect common control with such Person. A Person shall be deemed to "control" another Person if such Person possesses, directly or indirectly, the power to (i) vote fifteen percent (15%) or more of the securities having ordinary voting power for the election of directors of such other Person or (ii) direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent Bank" shall have the meaning set forth in the preamble hereof, and shall include any successor agent bank appointed in accordance with Section 9.9. "Agent Bank's Office" shall mean One Chase Manhattan Plaza, New York, New York 10081, or such other office as the Agent Bank may hereafter designate in writing as such to the other parties hereto. "Agreement" shall mean this Construction and Term Loan Agreement. "Ancillary Documents" shall mean, with respect to each Additional Project Document, (i) each security instrument (which may consist of an amendment to a Security Document) necessary or desirable to grant to the Collateral Agent a first priority perfected Lien in such Additional Project Document and all property interests received by the Borrower in connection therewith, (ii) all recorded financing statements and other filings required to perfect such Liens, (iii) opinions of counsel for the Borrower and the other parties to such Additional Project Document, (iv) a Consent with respect to such Additional Project Document from such other parties, (v) formation documents and similar documents for such other parties and (vi) evidence of the Borrower's and such other parties' authorization of such Additional Project Document, all of the items described in clauses (i) through (vi) immediately above in form and substance reasonably satisfactory to the Required Banks. "Applicable Margin" shall mean: (i) at all times with respect to the Base Rate Loans, 0.000%; and (ii) with respect to the LIBOR Rate Loans, (a) 0.750% from the Closing Date to but excluding the Conversion Date, (b) 1.000% from and including the Conversion Date to but excluding the second anniversary thereof, (c) 1.125% from and including the second anniversary of the Conversion Date to but excluding the fourth anniversary thereof and (d) 1.250% from and including the fourth anniversary of the Conversion Date to and including the Final Maturity Date. 2 "Approved Restoration Plan" shall mean a plan (including details as to budget, schedule and sources of funds) submitted to and approved in writing by the Agent Bank (in consultation with the Independent Engineer), which approval shall not be unreasonably withheld or delayed, relating to the rebuilding, repairing, restoring or replacing of the Project upon damage to or destruction of, or upon condemnation or appropriation or any similar event with respect to, all or a portion of the Project. "Asset Sale Proceeds" shall have the meaning provided in Section 7.10(a)(v). "Assignee" shall have the meaning provided in Section 11.4(c). "Auditors" shall mean Price Waterhouse LLP or such other firm of independent public accountants as the Borrower may, with the prior written consent of the Agent Bank, from time to time appoint as its auditors. "Authorized Officer" shall mean, (i) with respect to any Person that is a corporation or a limited liability company, the president, any vice president, the treasurer, the chief financial officer or, for any limited liability company, the manager of such Person, (ii) with respect to any Person that is a partnership, an Authorized Officer of a general partner of such Person, or (iii) with respect to any Person, such other representative of such Person that is approved by the Agent Bank in writing. No Person shall be deemed to be an Authorized Officer unless named on a certificate of incumbency of such Person delivered to the Agent Bank on or after the Closing Date. "Bankruptcy Code" shall mean Title 11, Section 101 et seq. of the United States Code titled "Bankruptcy", as amended from time to time, and any successor statute thereto. "Banks" shall mean the Persons listed on Schedule 1.1(A) and the Purchasing Banks which from time to time become parties hereto in accordance with Section 11.4(d). "Base Case Forecasts" shall mean the financial projections relating to the operation of the Project which satisfy the requirements of Section 3.1(t). "Base Rate" shall mean, for any day, the higher of (i) the rate of interest from time to time announced by the Agent Bank at the Agent Bank's Office as its prime commercial lending rate (which rate is not intended to be the lowest rate of interest charged by the Agent Bank in connection with extensions of credit to debtors) or (ii) the Federal Funds Rate for such day plus 0.500% per annum. 3 "Base Rate Loans" shall mean Loans made and/or being maintained at a rate of interest based upon the Base Rate. "Borrower" shall have the meaning set forth in the preamble hereof. "Borrowing" shall mean the incurrence of one Type of Loan on a given date (or resulting from conversions or continuations on a given date), having, in the case of LIBOR Rate Loans, the same Interest Period. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day that is not a Saturday or a Sunday in the United States or a day on which banking institutions chartered by the State of New York or the United States are required or authorized by Law or other government actions to be closed and (ii) with respect to all notices and determinations in connection with, and payments of principal of and interest on, LIBOR Rate Loans, any date which is a Business Day described in clause (i) and which is also a day for trading by and between banks for United States Dollar deposits in the London interbank market. "Capital Lease" shall mean any lease which in accordance with GAAP is required to be capitalized on the balance sheet of the Borrower, and for purposes of this Agreement, the amount of obligations of the Borrower under any Capital Lease shall be the amount so capitalized. "Cash Flow" shall mean, for any period, the sum of the following: (i) all cash paid to the Borrower during such period in connection with the Energy Services Agreement; (ii) all interest and investment earnings paid to the Borrower or the Project Accounts during such period on amounts on deposit in the Project Accounts; (iii) all cash paid to the Borrower during such period under any insurance policy as business interruption insurance proceeds; and (iv) all other cash paid to the Borrower during such period; provided, however, that, notwithstanding the foregoing, Cash Flow shall not include any amounts received by the Borrower as Liquidated Performance Damages, as Liquidated Delay Damages, as Loss Proceeds, as Condemnation Proceeds, as Asset Sale Proceeds, as Other Proceeds, as Loans, under any Interest Rate Protection Agreement or as an Equity Contribution (including any Default Equity Contribution). "Change Orders" shall have the meaning provided in Section 2.4 of the EPC Contract or in a similar provision of the RO EPC Contract, as applicable. "Chase" shall mean The Chase Manhattan Bank, a New York banking corporation. "Claim" shall have the meaning provided in Section 11.1(d). 4 "Closing Date" shall mean the date on which the initial Construction Loans are advanced hereunder. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. "Collateral" shall mean all property and interests in property now owned or hereafter acquired by the Borrower, including any property or interest in or upon which a Lien has been or is purported to have been granted to the Collateral Agent or any other Secured Party under any of the Security Documents, including without limitation, the Mortgaged Property. "Collateral Agent" shall have the meaning set forth in the preamble hereof, and shall include any successor collateral agent appointed in accordance with Section 10.9. "Collateral Agent's Office" shall mean 450 West 33rd Street, 15th Floor, New York, New York 10001, or such other office as the Collateral Agent may hereafter designate in writing as such to the other parties hereto. "Commercial Operation" shall have the meaning provided in Section 1 of the Energy Services Agreement. "Commercial Operation Date" shall mean the date on which the Project shall have achieved Commercial Operation in accordance with the terms of the Energy Services Agreement. "Commitment Fee" shall have the meaning provided in Section 2.15(a). "Commitments" shall mean, the Construction Loan Commitments, the Letter of Credit Commitments and the Term Loan Commitments, each as in effect at the time to which such reference relates. "Condemnation Proceeds" shall have the meaning provided in Section 7.10(a)(ii). "Confidential Information" shall have the meaning provided in each Confidentiality Agreement. "Confidentiality Agreement" shall have the meaning provided in Section 11.18. 5 "Consent" shall mean any of the Millennium Consent, the Kiewit Indus trial Consent, the Kiewit Construction Consent, the NRG Morris Consent, the NRG Energy Consent, the NGC Consent or, with respect to any Additional Project Document, a consent and agreement of each party to such Additional Project Document (other than the Borrower), substantially in the form of Exhibit A, with such modifications as may be approved in writing by the Agent Bank. "Construction Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Construction Account. "Construction Budget" shall mean a budget, in form and substance satisfactory to the Agent Bank and certified as true and correct by an Authorized Officer of the Borrower, which sets forth all costs anticipated to be incurred for the development, construction, start-up and testing of the Project (including items set forth on the Progress Payment Schedule), as the same may be modified from time to time in accordance with Section 6.11. "Construction Guarantor" shall mean Kiewit Construction Company, a Delaware corporation. "Construction Loan Commitment" shall mean at any time, for any Bank, the amount set forth opposite such Bank's name on Schedule 1.1(A) under the heading "Construction Loan Commitment", as such amount may be reduced from time to time pursuant to Section 2.11 and Section 11.4(d) or increased pursuant to Section 11.4(c) in the case of an assignment thereunder of Credit Exposure to such Bank from another Bank. "Construction Loan Maturity Date" shall mean the earliest to occur of (i) the Conversion Date, (ii) the Date Certain and (iii) the date on which all outstanding Loans shall have become due and payable pursuant to Section 8.2 . "Construction Loans" shall have the meaning provided in Section 2.1(a). "Construction Schedule" shall have the meaning provided in Section 2.4 of the EPC Contract or in a similar provision of the RO EPC Contract, as applicable, each as the same may be modified from time to time in accordance with Section 6.15. "Construction Note" shall mean a promissory note of the Borrower dated the Closing Date in the form of Exhibit B. "Contest" shall mean, with respect to any Tax, Lien or claim, a contest pursued in good faith and by appropriate proceedings diligently conducted, so long as (i) 6 adequate reserves have been established with respect thereto in accordance with GAAP, (ii) any Lien filed in connection therewith shall have been removed from the record by the bonding of such Lien by a reputable surety company satisfactory to the Required Banks, or security satisfactory to the Required Banks is otherwise provided to assure the discharge of the obligation thereunder and of any additional charge, penalty or expense arising from or incurred as a result of such contest, (iii) if it becomes necessary to prevent the delivery of a tax deed or other similar instrument conveying the Mortgaged Property or any portion thereof because of non-payment of any such Tax, Lien or claim being contested, then the Borrower shall pay the same in sufficient time to prevent the delivery of such tax deed or other similar instrument, (iv) the failure to pay any such Tax, Lien or claim during the pendency of such contest would not otherwise result in a material adverse effect on the Person subject to any such Tax, Lien or claim and (v) the Person subject to any such Tax, Lien or claim has no knowledge of any actual or proposed additional deficiency or additional assessment in connection therewith that is not provided for in any of clauses (i) through (iv) immediately above. "Contingent Obligation" shall mean, with respect to any Person, (i) any indemnity or similar obligation of such Person under any agreement or instrument and (ii) any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, 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 (1) for the purchase or payment of any such primary obligation or (2) 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 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. "Contractor Parent Company Guarantee" shall mean the Contractor Parent Company Guarantee, dated July 10, 1997, between the Construction Guarantor and the Borrower. "Control Agreement" shall mean the Securities Account Control Agreement, dated as of September 15, 1997, among the Borrower, the Collateral Agent and The Chase Manhattan Bank as Securities Intermediary. "Controlled Group" means all members of a controlled group of corporations and all trades and businesses (whether or not incorporated) under common control 7 that together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Conversion Date" shall mean the date, occurring on or before the Construction Loan Maturity Date, on which all of the conditions precedent to the making of the Term Loans set forth in Section 3.2 and Section 3.3 are satisfied or waived by the Banks and the Construction Loans then outstanding (after giving effect to any prepayment made on such date) are converted to Term Loans. "Credit Exposure" shall have the meaning provided in Section 11.4(b). "Date Certain" shall mean the date which is twenty (20) months from the Closing Date; provided that such date may be extended at the written request of the Borrower and subject to the prior written consent of each Bank. "Date of Issuance" shall mean, with respect to any Letter of Credit, the date on which such Letter of Credit is issued for the account of the Borrower. "Debt Payment Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Debt Payment Account. "Debt Service Coverage Ratio" shall mean, for any period of four (4) consecutive fiscal quarters ending on a Quarterly Date (provided that in the event that all or any part of one or more of such fiscal quarters is prior to the Acceptance Date, there shall be substituted for such fiscal quarter or quarters, the Base Case Forecasts for an equal number of fiscal quarters commencing immediately after such Quarterly Date), the ratio of (i) (a) Cash Flow, minus (b) the aggregate amount of Operation and Maintenance Expenses paid or payable during such period (other than those funded by a transfer from the Maintenance Reserve Account), minus (c) any deposit into the Maintenance Reserve Account for such period, to (ii) the sum of Mandatory Debt Service (after adjustment for any net Interest Rate Protection Payments by or to the Borrower) payable by the Borrower with respect to such period and the aggregate amount of overdue Mandatory Debt Service (after adjustment for any net Interest Rate Protection Payments by or to the Borrower) from previous periods, all as determined on a cash basis, but otherwise in accordance with GAAP; provided that principal of the Term Loans due on the Final Maturity Date will be excluded from any calculation of the Debt Service Coverage Ratio. As an example and without limiting the foregoing, a sample calculation of the Debt Service Coverage Ratio is set forth on Schedule 1.1(D). "Debt Service Reserve Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other ac- 8 count at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Debt Service Reserve Account. "Debt Service Reserve Letter of Credit" shall mean any letter of credit in form and substance satisfactory to the Agent Bank issued by a bank rated at least "A" by S&P and "A2" by Moody's, credited to the Debt Service Reserve Account and naming the Collateral Agent as beneficiary thereunder. "Debt Service Reserve Required Balance" shall mean an amount equal to the sum of the next two (2) quarterly principal and interest payments coming due on the Loans. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Default Equity Contribution" shall have the meaning given to such term in Section 2 of each Equity Commitment Agreement. "Default Equity Proceeds" shall mean the proceeds of any Default Equity Contribution. "Default Rate" shall have the meaning provided in Section 2.7(c). "Defaulted Amount" shall have the meaning provided in Section 2.5(c). "Defaulting Bank" shall have the meaning provided in Section 2.5(c). "Deferred Approvals" shall have the meaning provided in Section 4.7. "Development Fee" shall have the meaning provided in clause (ii) of the definition of Project Costs. "Disbursement Certificate" shall mean a certificate, signed by an Authorized Officer of the Borrower, in the form of Exhibit M. "Distribution Conditions" shall have the meaning provided in Section 7.9. "Distribution Retention Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Distribution Retention Account. "Distributions" shall have the meaning provided in Section 6.1. 9 "Dollars" shall mean the lawful currency of the United States. "Domestic Lending Office" shall mean, with respect to any Bank, the office designated to the Agent Bank and the Borrower by such Bank from time to time as its Domestic Lending Office. "Energy Adjustment Payments" shall have the meaning provided in Section 1 of the Energy Services Agreement. "Energy Purchaser" shall mean Millennium Petrochemicals Inc., a Virginia corporation. "Energy Services Agreement" shall mean the Energy Services Agreement, dated June 3, 1997, between the Borrower and the Energy Purchaser, as amended by the Letter Agreement and the Second Letter Agreement. "Environmental Approvals" shall mean any Governmental Approval required under any applicable Environmental Law. "Environmental Claim" shall mean any written notice, claim, demand or similar communication by any Person alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties) arising out of, based on or resulting from (i) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned by such Person or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Environmental Approval. "Environmental Laws" shall mean all Laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation, Laws relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. "EPC Contract" shall mean the EPC Contract for an Approximately 118 mW Cogeneration Plant in Aux Sable Township, Grundy County, Illinois, dated as of July 7, 1997, between the Borrower and the EPC Contractor. "EPC Contractor" shall mean Kiewit Industrial, Co., a Delaware corporation. 10 "Equipment Lease" shall mean the Equipment Lease Agreement, dated June 3, 1997, between the Borrower and the Energy Purchaser, as amended by Amendment No. 1 to Equipment Lease, dated September 13, 1997, between the Borrower and the Energy Purchaser. "Equity Contribution" shall mean the proceeds received by the Borrower pursuant to any Equity Commitment Agreement, "Equity Contributor" shall mean any Person (other than the Borrower or the Collateral Agent) party to any Equity Commitment Agreement. "Equity Commitment Agreement" shall mean (i) the Equity Commitment Agreement, dated as of September 15, 1997, among NRG Energy, the Borrower and the Collateral Agent, and (ii) any equity commitment agreement in form and substance satisfactory to the Agent Bank entered into by any future Equity Contributor. "Equity Holder" shall mean any Person holding a membership interest in the Borrower. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "Event of Bankruptcy" shall mean, with respect to any Person, the occurrence of any of the following events: (i) the commencement by such Person of a voluntary case concerning itself under the Bankruptcy Code or similar Law; (ii) an involuntary case is commenced against such Person and the petition is not controverted within ten (10) days, or is not dismissed within sixty (60) days, after commencement of the case; (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of such Person or such Person commences any other proceedings under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar Law of any jurisdiction whether now or hereafter in effect relating to such Person or there is commenced against such Person any such proceeding which remains undismissed for a period of sixty (60) days; 11 (iv) the entrance of any order of relief or other order approving any such case or proceeding involving such Person; (v) such Person is adjudicated insolvent or bankrupt; (vi) such Person suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of sixty (60) days; (vii) such Person makes a general assignment for the benefit of creditors; (viii) such Person shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (ix) such Person shall by any act or failure to act consent to, approve of or acquiesce in any of the foregoing; or (x) any partnership, corporate or limited liability company action, as the case may be, is taken by such Person for the purpose of effecting any of the foregoing. "Event of Condemnation" shall have the meaning provided in Section 7.10(a)(ii). "Event of Default" shall mean the occurrence of any of the events described in Section 8.1. "Event of Loss" shall have the meaning provided in Section 7.10(a)(i). "Excess Cash Flow" shall mean, for any period, the excess of (i) (a) all Cash Flow for such period, plus (b) any excess amount redeposited into the Revenue Account from the other Project Accounts pursuant to Article VII, minus (ii) the sum of (a) all Operation and Maintenance Expenses with respect to such period which are not funded by a transfer from the Maintenance Reserve Account, (b) Mandatory Secured Debt Service (after adjustment for any net Interest Rate Protection Payments by or to the Borrower) payable by the Borrower with respect to such period, (c) the aggregate amount of overdue Mandatory Secured Debt Service (after adjustment for any net Interest Rate Protection Payments by or to the Borrower) from previous periods, (d) Mandatory Unsecured Debt Service (after adjustment for any net Interest Rate Protection Payments by or to the Borrower) payable by the Borrower with respect to such period, (e) the aggregate 12 amount of overdue Mandatory Unsecured Debt Service (after adjustment for any net Interest Rate Protection Payments by or to the Borrower) from previous periods, (f) all deposits made into the Maintenance Reserve Account, the Debt Service Reserve Account and the NGC Reserve Account during such period and (g) all other required payments and prepayment of obligations during such period, all as determined on a cash basis, but otherwise in accordance with GAAP. As an example and without limiting the foregoing, a sample calculation of Excess Cash Flow is set forth on Schedule 1.1(D). "Expiration Date" shall mean the expiration date of the relevant Letter of Credit as set forth therein. "Federal Funds Rate" shall mean, for any day, the rate per annum, rounded upwards, if necessary, to the nearest 1/100th of one percent (1%), equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be the rate on such transactions on the immediately preceding Business Day as so published on the next succeeding Business Day and (ii) if no such rate is so published on the next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent Bank on such day on such transactions as determined by the Agent Bank. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System as constituted from time to time, or any successor thereto. "Fees" shall mean all fees payable from time to time pursuant to Section 2.15. "Final Maturity Date" shall mean the earlier of (i) the date which is five (5) years after the Conversion Date and (ii) the date on which all outstanding Loans shall become due and payable pursuant to Section 8.2. "Financing Documents" shall mean the Loan Documents, the Security Documents, the Consents and the Equity Commitment Agreements. "Force Majeure" shall mean any event or circumstance that constitutes "force majeure" or an "uncontrollable circumstance" under any Project Document. "Forward Market Price" shall have the meaning given to such term in Section 1.16 of the NGC Agreement. 13 "Fuel Consultant" shall mean Reed Consulting Group or any other Person from time to time appointed by the Agent Bank (at the direction of the Required Banks) to act as fuel consultant for the purposes of this Agreement and as notified to the Borrower. "Fuel Expenses" shall mean, for any period, the cost of supply and transportation for all fuel delivered to the Project. "GAAP" shall mean generally accepted accounting principles in the United States as in effect from time to time, consistently applied. "Gas Contracts" shall mean collectively, the NIGAS Agreement, the NIGAS Letter Agreement and the NGC Agreement. "Governmental Approval" shall mean any action, order, authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, filing or registration by or with any Governmental Authority. "Governmental Authority" shall mean any United States government, governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, federal, state or local, having jurisdiction over the matter or matters in question. "Ground Lease" shall mean the Ground Lease and Easement Agreement, dated June 3, 1997, between the Borrower and the Energy Purchaser, as amended by Amendment No. 1 to Ground Lease and Easement Agreement, dated September 13, 1997, between the Borrower and the Energy Purchaser. "Guaranteed Heat Rate" shall have the meaning set forth for such term in the Operation and Maintenance Agreement. "Heat Rate Formula" shall have the meaning provided in Section 5.8(f). "ICA" shall mean the Investment Company Act of 1940, as amended. "Indebtedness" shall mean, with respect to any Person, without duplication, (i) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables on terms of sixty (60) days or less incurred in the ordinary course of business of such Person but only to the extent paid on such terms), (ii) all obligations of such Person evidenced by a note, bond, debenture or similar instrument, (iii) all obligations of such Person under Capital Leases, (iv) the stated amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (v) all Indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such 14 Indebtedness has been assumed, (vi) all obligations of such Person under any Interest Rate Protection Agreement and any currency swap or similar agreement and (vii) all Contingent Obligations of such Person. "Indemnitee" shall have the meaning provided in Section 11.1(d). "Independent Engineer" shall mean R.W. Beck, Inc. or any other Person from time to time appointed by the Agent Bank (at the direction of the Required Banks) to act as independent engineer for the purposes of this Agreement and as notified to the Borrower. "Insurance Consultant" shall mean Aon Risk Services or any other person from time to time appointed by the Agent Bank (at the direction of the Required Banks) to act as insurance consultant for the purposes of this Agreement and as notified to the Borrower. "Interest Period" shall have the meaning provided in Section 2.8(a). "Interest Rate Protection Agreement" shall mean any interest rate ex change, collar, cap or similar agreement providing interest rate protection entered into by the Borrower. "Interest Rate Protection Payment" shall mean any net payment made in respect of any Interest Rate Protection Agreement. "Investment Grade Rating" shall mean a rating of "BBB- " or higher from S&P or a rating of "Baa3" or higher from Moody's. "Issuing Bank" shall mean Chase, as a Bank and in its capacity as issuer of the Letters of Credit, or such other Bank as the Agent Bank may select from time to time. "Kiewit Construction Consent" shall mean the Consent and Agreement, dated as of September 15, 1997, between the Construction Guarantor and the Collateral Agent. "Kiewit Industrial Consent" shall mean the Consent and Agreement, dated as of September 15, 1997, between the EPC Contractor and the Collateral Agent. "Law" shall mean, with respect to any Governmental Authority, any constitutional provision, law, statute, rule, regulation, ordinance, treaty, order, decree, judgment, decision, certificate, holding, injunction, Governmental Approval or requirement of such Governmental Authority along with the interpretation and administration thereof by any Governmental Authority charged with the interpretation or administration 15 thereof. Unless the context clearly requires otherwise, the term "Law" shall include each of the foregoing (and each provision thereof) as in effect at the time in question, including any amendments, supplements, replacements or other modifications thereto or thereof, and whether or not in effect at the date of this Agreement. "Letter Agreement" shall mean the letter agreement, dated August 28, 1997, between the Borrower and the Energy Purchaser. "Letter of Credit" shall have the meaning provided in Section 2.2(a). "Letter of Credit Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office and designated as the Letter of Credit Account or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Letter of Credit Account. "Letter of Credit Availability Date" shall have the meaning provided in Section 2.2(a). "Letter of Credit Commitment" shall mean at any time, for any Bank, the amount set forth opposite such Bank's name on Schedule 1.1(A) hereto under the heading "Letter of Credit Commitment", as such amount may be reduced from time to time pursuant to Section 2.11 or 11.4(d), or increased pursuant to Section 11.4(c) in the case of an assignment thereunder of Credit Exposure to such Bank from another Bank. "Letter of Credit Fee" shall have the meaning provided in Section 2.15(d). "Letter of Credit Termination Date" shall mean the Final Maturity Date. "LIBOR" shall mean the London Interbank Offered Rate. "LIBOR Rate" shall mean with respect to each day during each Interest Period pertaining to any LIBOR Rate Loan, the rate per annum equal to (i) the rate (rounded upwards to the nearest 1/16th of one percent (1%)) for one, two, three or six months (at the election of the Borrower) Dollar deposits as it appears on the display designated as "Telerate British Bankers Assoc. Interest Settlement Rates Page" on Telerate System Incorporated, or such other page as may replace such page on that service, at or about 11:00 a.m. London time, two London Banking Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period or (ii) if such service is not available, the rate at which one, two, three or six months (at the election of the Borrower) Dollar deposits offered by the principal London office of the Agent Bank at or about 11:00 a.m. London time in the London interbank market two (2) London Banking Days prior to the beginning of such Interest Period for delivery on the first day of such 16 Interest Period in an aggregate amount comparable to the principal amount of the relevant LIBOR Rate Loan. "LIBOR Rate Lending Office" shall mean, with respect to any Bank, the office designated to the Agent Bank and the Borrower by such Bank from time to time as its LIBOR Rate Lending Office. "LIBOR Rate Loans" shall mean Loans made and/or being maintained at a rate of interest based upon the LIBOR Rate. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, mandatory deposit arrangement with any party owning Indebtedness of the Borrower, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable Law. "Liquidated Damages" shall mean any Liquidated Delay Damages or Liquidated Performance Damages. "Liquidated Delay Damages" shall mean any amount payable to or for the account of the Borrower under Section 12.1 of the EPC Contract or any other agreement as a result of delayed delivery or performance with respect to the Project or any goods or services supplied in connection with the Project. "Liquidated Performance Damages" shall mean any amount payable to or for the account of the Borrower under (i) Section 12.2, 12.3, 12.4 or 12.5 of the EPC Contract, (ii) Section 8.2 or 8.3 of the Operation and Maintenance Agreement, (iii) Section 2 of the O&M Guarantee, (iv) a similar provision of the RO EPC Contract or (v) any other agreement as a result of failure, diminished performance or efficiency with respect to the Project or any goods or services supplied in connection with the Project. "Loan Agreement Termination Date" shall mean the date on which all of the Commitments have been terminated and the Obligations (other than amounts in respect of indemnities hereunder that are not then due) are indefeasibly paid in full. "Loan Documents" shall mean this Agreement and the Notes. "Loans" shall mean the Construction Loans and/or the Term Loans, as applicable. 17 "London Banking Days" shall mean (i) for all purposes other than as covered by clause (ii) below, any day that is not a Saturday or a Sunday in London, England or on which banking institutions in London, England are required or authorized by Law or other government actions to be closed and (ii) with respect to all notices and determinations in connection with, and payments of principal of and interest on, LIBOR Rate Loans, any day which is a London Banking Day described in clause (i) and which is also a day for trading by and between banks for United States Dollar deposits in the London interbank market. "Long-Term Service Agreement" shall mean the long term service program to be entered into between the Borrower and the Maintenance Contractor in accordance with Section 5.17 to provide for major maintenance to the Project's combustion turbines. "Loss Proceeds" shall have the meaning provided in Section 7.10(a)(i). "Maintenance Contractor" shall mean a third party provider of gas turbine overhaul and service maintenance with recognized industry experience and standing which is reasonably acceptable to the Agent Bank (in consultation with the Independent Engineer). "Maintenance Reserve Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other ac count at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Maintenance Reserve Account. "Maintenance Reserve Amount" shall mean, for any calendar year, the amount set forth opposite such calendar year on Schedule 1.1(B), as the same may be modified from time to time with the prior written consent of the Agent Bank (in consultation with the Independent Engineer), such consent not to be unreasonably withheld. "Major Maintenance Budget" shall have the meaning provided in Section 5.8(b). "Major Maintenance Expenses" shall mean all expenditures by the Borrower on regularly scheduled (or reasonably anticipated) maintenance of the Project in accordance with good utility practice and vendor and supplier requirements constituting major maintenance (including, without limitation, teardowns, overhauls, capital improvements, replacements and/or refurbishment of major components of the Project). "Make-up Amount" shall have the meaning provided in Section 2.5(c). 18 "Mandatory Debt Service" shall mean Mandatory Secured Debt Service and/or Mandatory Unsecured Debt Service, as applicable. "Mandatory Secured Debt Service" shall mean, without duplication, all payments of principal, interest and other amounts due with respect to the Loans and any other senior secured Permitted Debt of the Borrower. "Mandatory Unsecured Debt Service" shall mean, without duplication, all payments of principal, interest and other amounts due with respect to any senior unsecured Permitted Debt of the Borrower. "Margin Stock" shall have the meaning provided in Regulation U and Regulation G. "Material Adverse Effect" shall mean a material adverse effect on one or more of the following: (i) the operations, business, financial condition or property of the Borrower; (ii) the ability of the Borrower to perform in a timely manner its material obligations under the Transaction Documents to which it is a party; (iii) the rights and interests of the Banks, the Agent Bank and the Collateral Agent under the Transaction Documents; or (iv) the value of the Collateral or the validity or priority of the security interests therein granted to the Collateral Agent. "Materials of Environmental Concern" shall mean chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products. "Millennium Consent" shall mean the Consent and Agreement, dated as of September 15, 1997, between the Energy Purchaser and the Collateral Agent. "Minimum Performance Standards" shall have the meaning provided in Section 2.4 of the EPC Contract. "Minor Punch List Items" shall mean any Punch List item which is not necessary for completion of the Performance Tests or Acceptance and for which the Borrower has retained two hundred percent (200%) of the cost thereof (as approved by the Independent Engineer) as provided in Section 10.3 of the EPC Contract. "Monthly Progress Invoice" shall mean any monthly progress invoice delivered to the Borrower by the EPC Contractor pursuant to Section 5.2.2 of the EPC Contract. "Moody's" shall mean Moody's Investors Services, Inc. or any successor thereto which is a nationally recognized rating agency. 19 "Morris Plant" shall have the meaning provided in Section 1 of the Energy Services Agreement. "Mortgage" shall mean the Leasehold Construction and Term Mortgage, Security Agreement and Fixture Financing Statement in the Aggregate Principal Amount of up to $91,000,000, dated as of September 15, 1997, from the Borrower to the Collateral Agent. "Mortgaged Property" shall mean the property and interests that the Mortgage purports to encumber. "MW" shall mean megawatt. "Necessary Project Approvals" shall have the meaning provided in Section 4.7. "NGC" shall mean Natural Gas Clearinghouse, a Colorado general partnership. "NGC Agreement" shall mean the Natural Gas Purchase and Sale Agreement, dated as of September 12, 1997, by and between the Borrower and NGC. "NGC Consent" shall mean the Consent and Agreement, dated as of September 15, 1997, between NGC and the Collateral Agent. "NGC Guarantee" shall mean the corporate guarantee by NGC Corporation in favor of the Borrower required to be provided by NGC on or before August 1, 1998 pursuant to Section 6.1(a) of the NGC Agreement. "NGC Reserve Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the NGC Reserve Account. "NGC Reserve Required Balance" shall have the meaning provided in Section 7.8. "NIGAS" shall mean the Northern Illinois Gas Company, an Illinois corporation. "NIGAS Agreement" shall mean the Agreement, dated as of August 26, 1997, between the Borrower and NIGAS. 20 "NIGAS Letter Agreement" shall mean the Letter Agreement, dated September 18, 1997, among the Collateral Agent, the Borrower and NIGAS. "Non-Defaulting Bank" shall have the meaning provided in Section 2.5(c). "Note" shall mean any Construction Note and/or any Term Note, as applicable. "Notice of Borrowing" shall mean a Notice of Borrowing substantially in the form of Exhibit D. "Notice of Conversion or Continuation" shall mean a Notice of Conversion or Continuation in the form of Exhibit F. "Notice to Proceed" shall have the meaning provided in Section 2.4 of the EPC Contract. "NRG Energy" shall mean NRG Energy, Inc., a Delaware corporation. "NRG Energy Consent" shall mean the Consent and Agreement, dated as of September 15, 1997, between the O&M Guarantor and the Collateral Agent. "NRG Generating" shall mean NRG Generating (U.S.) Inc., a Delaware corporation. "NRG MI" shall mean NRG Morris Inc., a Delaware corporation. "NRG Morris Consent" shall mean the Consent and Agreement, dated as of September 15, 1997, between the Operator and the Collateral Agent. "O&M Change Order" shall have the meaning provided for the term "Change Order" in the Operation and Maintenance Agreement. "O&M Deliverable" shall mean any of the following: (i) any safety plan developed pursuant to Section 4.1.2 of the Operation and Maintenance Agreement; (ii) any procedures for handling hazardous substances developed pursuant to Section 4.1.3 of the Operation and Maintenance Agreement; 21 (iii) any administrative procedures, reporting procedures or other procedures developed pursuant to Section 4.1.4 of the Operation and Maintenance Agreement; or (iv) any management plan developed pursuant to Section 4.1.18 of the Operation and Maintenance Agreement. "O&M Guarantee" shall mean the Limited Guaranty, dated September 19, 1997, by the O&M Guarantor for the benefit of the Borrower. "O&M Guarantor" shall mean NRG Energy. "Obligations" shall mean all obligations, liabilities and Indebtedness of every nature of the Borrower from time to time owing to any Secured Party under any Financing Document including, without limitation, (i) all principal, interest and fees, (ii) any amounts (including, without limitation, insurance premiums, licensing fees, recording and filing fees and taxes) which the Secured Parties expend on behalf of the Borrower because the Borrower fails to make any such payment when required under the terms of any Transaction Document, (iii) all amounts required to be paid under any indemnification or similar provision, (iv) all fees and expenses required to be paid by or on behalf of the Borrower pursuant to Section 11.1 and similar sections of the other Financing Documents and (v) any obligations under any Secured Interest Rate Protection Agreement. "Operating Budget" shall have the meaning provided in Section 5.8(a). "Operating Year" shall have the meaning provided for such term in the Operation and Maintenance Agreement. "Operation and Maintenance Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Operation and Maintenance Account. "Operation and Maintenance Agreement" shall mean the Operation and Maintenance Agreement, dated September 19, 1997, between the Borrower and the Operator. "Operation and Maintenance Expenses" shall mean, for any period, the sum without duplication of (i) payments due under the Operation and Maintenance Agreement, (ii) Fuel Expenses, (iii) reasonable and necessary insurance costs, (iv) property, sales and franchise taxes (other than taxes imposed on or measured by income or receipts) to which the Project may be subject (or payments in lieu of such taxes to which the Project may be subject), (v) reasonable and necessary costs and fees incurred in connection with 22 obtaining and maintaining in effect the Necessary Project Approvals (including the Deferred Approvals), (vi) reasonable and necessary legal, accounting and other professional fees incurred in connection with any of the foregoing items, (vii) the reasonable costs of administration and enforcement of the Transaction Documents and (viii) any other expenses approved in writing by the Required Banks (it being understood that the reasonableness and necessity of all such expenses shall be determined by the Required Banks after consultation with the Independent Engineer and the Insurance Consultant or the Banks', the Agent Bank's or the Collateral Agent's other advisors or counsel, as appropriate). In no event shall Project Costs be considered Operation and Maintenance Expenses. "Operator" shall mean NRG Morris Operations Inc., a Delaware corporation. "Other Proceeds" shall have the meaning provided in Section 7.10(a)(vi). "Participant" shall have the meaning provided in Section 11.4(b). "Payment Date" shall mean the last Business Day of any calendar month. "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Performance Tests" shall have the meaning provided in Section 2.4 of the EPC Contract. "Permitted Debt" shall have the meaning provided in Section 6.2. "Permitted Investments" shall mean any of the following: (i) marketable direct obligations of the United States; (ii) marketable obligations directly and fully guaranteed as to interest and principal by the United States; (iii) demand deposits with the Collateral Agent and time deposits, certificates of deposit and banker's acceptances issued by any member bank of the Federal Reserve System which is organized under the Laws of the United States or any state thereof or any United States branch of a foreign bank; (iv) commercial paper or tax-exempt obligations given the highest rating by each of S&P and Moody's; (v) obligations of the Collateral Agent or any bank described in clause (iii) immediately above in respect of the repurchase of obligations of the type as described in clauses (i) and (ii) immediately above, provided that such repurchase obligations shall be fully secured by obligations of the type described in said clauses (i) and (ii) and the possession of such obligations shall be owned by the Collateral Agent; (vi) instruments issued by investment companies having a portfolio consisting ninety-five percent (95%) or more of obligations of the type described in clauses (i), (ii) and (v) immediately above and 23 having a maturity of ninety (90) days or less; and (vii) eurodollar certificates of deposit issued by the Collateral Agent or any bank described in clause (iii) above. "Permitted Liens" shall have the meaning provided in Section 6.3. "Person" shall mean any individual, partnership, joint venture, firm, limited liability company, corporation, association, trust or other enterprise or any Governmental Authority. "Petrochemical Industry Consultant" shall mean Chem Systems Inc. or any other Person from time to time appointed by the Agent Bank (at the direction of the Required Banks) to act as petrochemical industry consultant for the purposes of this Agreement and as notified to the Borrower. "Plan" shall mean at any time an employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code that is either (i) maintained by a member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions. "Planned Date Certain" shall have the meaning provided in Section 2.3(c). "Pledge Agreement" shall mean the Pledge Agreement, dated as of September 15, 1997, among NRG Energy, NRG MI and the Collateral Agent. "Preliminary Operating Budget" shall have the meaning provided in Section 3.3(h). "Proceeds Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Proceeds Account. "Progress Payment Schedule" shall mean the Work Breakdown Schedule and the Guaranteed Maximum Drawdown Schedule set forth in Schedule E to the EPC Contract, or any similar schedule (or schedules) contained in the RO EPC Contract, as applicable. "Project" shall mean, at all times, the Site and the facilities constructed or being constructed pursuant to the EPC Contract and the RO EPC Contract. 24 "Project Accounts" shall have the meaning provided in Section 7.1. "Project Costs" shall mean the following costs and expenses incurred by the Borrower and approved by the Agent Bank (in consultation with the Independent Engineer) in the Construction Budget or otherwise in writing: (i) costs incurred by the Borrower under the EPC Contract and the RO EPC Contract (except for Change Orders and O&M Change Orders not approved in accordance with Section 6.11) and other costs directly related to the design, engineering, permitting, construction, installation, testing, start-up and operation and maintenance during start-up of the Project; (ii) fees and expenses incurred by or on behalf of the Borrower in connection with the development of the Project and the consummation of the transactions contemplated by this Agreement, including, without limitation, financial, accounting, legal, surveying and consulting fees, the costs of preliminary engineering, the costs of obtaining the Necessary Project Approvals (including the Deferred Approvals), security deposits or other amounts payable under the Project Documents, the Energy Adjustment Payments to the Energy Purchaser and a development fee (the "Development Fee") payable to NRG Energy not to exceed $5,000,000 in the aggregate; provided that (i) no more than $4,000,000 of the Development Fee shall be paid prior to the Conversion Date and (ii) the remaining $1,000,000 of the Development Fee shall be paid on or after the Conversion Date to the extent, and only to the extent, that all other Project Costs have been paid in full; (iii) interest on the Construction Loans; (iv) financing fees and expenses in connection with the Commitments, including, without limitation, Fees payable prior to the Conversion Date, fees and expenses associated with any Interest Rate Protection Agreement and the fees and expenses of the Agent Bank's and the Collateral Agent's counsel, the Independent Engineer, the Fuel Consultant, the Petrochemical Industry Consultant and the Insurance Consultant; (v) taxes incurred in connection with the Project; (vi) insurance premiums with respect to the Title Insurance Policy and the insurance required pursuant to Section 5.7; and (vii) initial funding requirements of the Debt Service Reserve Account and Maintenance Reserve Account up to their respective initial required balances. 25 "Project Documents" shall mean the Energy Services Agreement, the EPC Contract, the Contractor Parent Company Guarantee, the Operation and Maintenance Agreement, the O&M Guarantee, the Gas Contracts, the Ground Lease and the Equipment Lease. "Project Equity Amount" shall mean twenty percent (20%) of the aggregate amount of all Project Costs; provided, however, that the Project Equity Amount shall not at any time exceed $22,000,000. "Project Party" shall mean each Person (other than the Agent Bank, the Collateral Agent and the Banks) that is a party to any Transaction Document (including any Additional Project Party). "Pro Rata Share" shall mean, as to any Bank, a fraction (expressed as a percentage), the numerator of which shall be the aggregate amount of such Bank's outstanding Loans and Letters of Credit (or Commitments (x) if no Loans are then outstanding and (y) for any application of such term pursuant to Section 2.4(c), 2.5(a), 2.5(c), 2.11 or 11.19), and the denominator of which shall be the aggregate amount of outstanding Loans and Letters of Credit for all Banks (or the total Commitments if no Loans are then outstanding). "PUHCA" shall mean the Public Utility Holding Company Act of 1935, as amended from time to time. "Punch List" shall have the meaning provided in Section 2.4 of the EPC Contract or in a similar provision of the RO EPC Contract, as applicable. "Purchasing Banks" shall have the meaning provided in Section 11.4(d). "Qualifying Facility" shall mean a "small power production facility" or a "qualifying cogeneration facility" in accordance with the Public Utility Regulatory Policies Act of 1978, as amended from time to time. "Quarterly Dates" shall mean the last Business Day of each March, June, September and December of each fiscal year of the Borrower, the first of which shall be the first such day after the Conversion Date. "Regulations D, G, T, U and X" shall mean such regulations of the Federal Reserve Board as may be from time to time in effect and any successor to all or any portion thereof. "Regulatory Counsel" shall mean Troutman Sanders LLP. 26 "Reimbursement Obligation" shall have the meaning provided in Section 2.2(d). "Request for Issuance" shall have the meaning provided in Section 2.2(b). "Required Banks" shall mean Banks holding more than sixty-six and two thirds percent (66_%) of the principal amount of Loans outstanding, or, if no Loans are outstanding, Commitments. "Restoration Requisition" shall mean a certificate, signed by an Authorized Officer of the Borrower, in the form of Exhibit G. "Revenue Account" shall mean the account of such name described on Schedule 1.1 established at the Collateral Agent's Office, or any other account at the Collateral Agent's Office designated by the Borrower with the consent of the Collateral Agent to serve as the Revenue Account. "RO EPC Contract" shall mean an agreement to be entered into between the Borrower and the supplier of the reverse osmosis water purification system in accordance with Section 5.18 to provide for the engineering, procurement and construction of such system. "RO EPC Contractor" shall mean the party which enters into the RO EPC Contract with the Borrower and provides services thereunder. "Second Letter Agreement" shall mean the letter agreement, dated September 19, 1997, between the Borrower and the Energy Purchaser. "Secured Interest Rate Protection Agreement" shall mean any Interest Rate Protection Agreement entered into by the Borrower with a Bank in accordance with Section 6.2. "Secured Party" shall mean any of the Agent Bank, the Collateral Agent or any of the Banks. "Security Agreement" shall mean the Assignment and Security Agreement, dated as of September 15, 1997, between the Borrower and the Collateral Agent. "Security Documents" shall mean all documents under which a security interest is granted to the Collateral Agent to secure the Borrower's obligations under the Financing Documents, including, without limitation, the Security Agreement, the Pledge Agreement, the Mortgage and the Control Agreement. 27 "Site" shall mean those certain parcels described on Schedule 1.1(C) and all easements, licenses and other rights necessary for access to and enjoyment of the Project site for the purposes contemplated in the Transaction Documents. "Spare Parts List" shall have the meaning provided in Section 5.8(d). "S&P" shall mean Standard & Poor's Corporation or any successor thereto which is a nationally recognized rating agency. "Stated Amount" shall mean the face amount of the relevant Letter of Credit as set forth therein. "Subsidiary" shall mean, with respect to any Person, (i) any corporation fifty percent (50%) or more of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (ii) any partnership, association, joint venture or other entity in which such Person, directly or indirectly through Subsidiaries, is either a general partner or has a fifty percent (50%) or greater equity interest at the time. "Taxes" shall have the meaning provided in Section 4.18. "Technical Specifications" shall have the meaning provided in Section 2.4 of the EPC Contract or in a similar provision of the RO EPC Contract, as applicable. "Term Loan" shall have the meaning provided in Section 2.3(a). "Term Loan Commitment" shall mean, at any time, for any Bank, the lesser of (i) the amount set forth opposite such Bank's name in Schedule 1.1(A) under the heading "Term Loan Commitment", as the same may be reduced from time to time pursuant to Sections 2.11 and 11.4(d) or increased pursuant to Section 11.4(c) in the case of an assignment thereunder of Credit Exposure to such Bank from another Bank and (ii) the outstanding principal amount of such Bank's Construction Loans (prior to giving effect to any payment of Construction Loans on the Conversion Date), together with accrued and unpaid interest and Commitment Fees and Letter of Credit Fees thereon. "Term Note" shall mean a promissory note of the Borrower dated the Conversion Date in the form of Exhibit C. "Title Insurance Policy" shall have the meaning provided in Section 3.1(l)(ii). 28 "Total Construction Loan Commitment" shall mean the sum of the Construction Loan Commitments of all of the Banks. "Total Letter of Credit Commitment" shall mean the sum of the Letter of Credit Commitments of all of the Banks. "Total Term Loan Commitment" shall mean the sum of the Term Loan Commitments of all of the Banks. "Transaction Documents" shall mean the Financing Documents and the Project Documents. "Transferee" shall have the meaning provided in Section 11.4(f). "Transfer Supplement" shall have the meaning provided in Section 11.4(d). "Type" shall have the meaning provided in Section 1.3. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York or in any other relevant jurisdiction. "United States" shall mean the United States of America. "Welfare Plan" shall mean a "welfare plan," as defined in Section 3(1) of ERISA. "Withholding Taxes" shall have the meaning provided in Section 2.19(a). Section 1.2. Accounting Terms and Determinations. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Agent Bank, the Collateral Agent or the Banks hereunder shall (unless otherwise disclosed to the Agent Bank, the Collateral Agent or the Banks, as the case may be, in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared in accordance with GAAP (other than, in the case of interim financial statements, the absence of normally recurring year-end adjustments and notes) applied on a basis consistent with that used in the preparation of the latest financial statements furnished to the Agent Bank, the Collateral Agent or the Banks, as the case may be, hereunder (which, prior to the first financial statements delivered under Section 5.1, shall mean the financial statements referred to in Section 3.1(n)). All calculations made for the purposes of determining compliance with the terms 29 of this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with that used in the preparation of the annual or quarterly financial statements furnished to the Agent Bank pursuant to Section 5.1 unless (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Required Banks shall so object in writing within thirty (30) days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.1, shall mean the financial statements referred to in Section 3.1(n)). (b) The Borrower shall deliver to the Agent Bank at the same time as the delivery of any annual or quarterly financial statement under Section 5.1 a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above, and reasonable estimates of the differences between such statements arising as a consequence thereof. (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 5.1, the Borrower shall not change the last day of its fiscal year from December 31 of each year, or the last days of the first three (3) fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively, each except with the prior written consent of the Required Banks. Section 1.3. Types of Loans. Loans hereunder are distinguished by "Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a LIBOR Rate Loan, each of which constitutes a Type. Section I.4. Certain Principles of Interpretation. (a) Unless otherwise expressly specified herein, any agreement, contract or document defined or referred to herein shall mean such agreement, contract or document in the form (including all amendments and letter agreements relating thereto) delivered to the Agent Bank and the Banks on the Closing Date as the same may thereafter be amended, supplemented or otherwise modified (including, without limitation, in the case of the EPC Contract or the RO EPC Contract, Change Orders, and in the case of the Operation and Maintenance Agreement, O&M Change Orders) from time to time in accordance with the terms of this Agreement and of the other Loan Documents. Unless otherwise stated, any reference in this Agreement to any Person shall include its permitted 30 successors and assigns and, in the case of any Government Authority, any Person succeeding to its functions and capacities. (b) Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall, unless otherwise expressly specified herein, refer to this Agreement as a whole and not to any particular provision of this Agreement and all references to Sections, Schedules or Exhibits shall be references to Sections of or Schedules or Exhibits to, as the case may be, this Agreement unless otherwise expressly specified herein. ARTICLE II. AMOUNT AND TERMS OF CREDIT FACILITIES. Section 2.1. Construction Loans. (a) Subject to and upon the terms and conditions herein set forth, each Bank severally and not jointly agrees, at any time and from time to time on and after the Closing Date and prior to the Construction Loan Maturity Date, to make loans, including any amounts to refinance drawings under any Letter of Credit issued pursuant to Section 2.2(a) (collectively, "Construction Loans"), to the Borrower, which Construction Loans shall not exceed in aggregate principal amount at any time the outstanding Construction Loan Commitment of such Bank. The Total Construction Loan Commitment shall expire, and each Construction Loan shall either be converted to a Term Loan upon satisfaction of the terms and conditions set forth herein or shall mature and be due and payable, on the Construction Loan Maturity Date, without further action on the part of any Bank, the Agent Bank or the Collateral Agent. Once repaid, Construction Loans may not be reborrowed. Construction Loans converted into Term Loans shall not be deemed to be repaid or discharged, but shall be deemed to be continued as Term Loans as provided herein. (b) The requested amount of any Borrowing of Construction Loans to pay interest on the Construction Loans arising after the Commercial Operation Date shall be reduced by any amount then on deposit in the Revenue Account to the extent not reasonably anticipated by the Borrower to be needed to pay Operation and Maintenance Expenses on the Business Day immediately prior to the day on which the Borrowing request was made. Each Borrowing of Construction Loans shall, after giving effect to the reduction provided for in the preceding sentence, be in the aggregate minimum amount of $1,000,000 or any integral multiple of $500,000 in excess thereof, except for the final Construction Loan Borrowing which may be in the amount of the Project Costs remaining at the time of such Borrowing. 31 (c) The Borrower shall not be required to make scheduled principal payments on the Construction Loans. The outstanding principal amount of any Construction Loan which shall not have converted to a Term Loan pursuant to Section 3.3 on or prior to the Date Certain, together with interest accrued thereon, shall be due and payable on the Date Certain. If the Borrower does not repay such amounts within five (5) days after the Date Certain, the Collateral Agent, if directed by the Agent Bank (acting upon the instructions of the Required Banks) and without prejudice to any other remedies available to the Banks hereunder or under any other Financing Document including, without limitation, the declaration of an Event of Default, acceleration of the Obligations and the exercise of remedies in respect thereof, shall thereafter apply all Excess Cash Flow to the repayment of outstanding Construction Loans. All such Excess Cash Flow shall be applied first to any interest or Fees that are then due on any such Construction Loans and then to the unpaid principal amount of such Construction Loans in the inverse order of maturity. Section 2.2. Letters of Credit. (a) Subject to and upon the terms and conditions hereof, the Letter of Credit Commitments may be utilized, upon the written request of the Borrower, by the issuance by the Issuing Bank of (i) an irrevocable stand-by letter of credit substantially in the form of Exhibit N for the account of the Borrower and naming NGC as the beneficiary thereof to secure the Borrower's obligations under Section 6.1(b) of the NGC Agreement or (ii) an irrevocable stand-by letter of credit substantially in the form of Exhibit O for the account of the Borrower and naming the Energy Purchaser as beneficiary to satisfy the Borrower's obligations under Section 32.1 of the Energy Services Agreement (the letters of credit described in clauses (i) and (ii) are herein collectively referred to as "Letters of Credit"); provided that in no event shall (i) the aggregate Stated Amount of all Letters of Credit, including all unreimbursed drawings thereon, exceed the Total Letter of Credit Commitment as in effect from time to time or (ii) the expiration date of any Letter of Credit extend beyond the Letter of Credit Termination Date. The Letters of Credit shall, subject to the satisfaction of the terms and conditions set forth herein, be available on and after the date which is twelve (12) months after the Closing Date (such date, the "Letter of Credit Availability Date"). (b) The Borrower shall give the Agent Bank at least four (4) Business Days irrevocable prior written notice, substantially in the form of Exhibit E (effective upon receipt), specifying the date (which shall be no later than ninety (90) days preceding the Letter of Credit Termination Date) each Letter of Credit is to be issued, describing in reasonable detail the proposed terms of such Letter of Credit (including the Stated Amount thereof) and the nature of the transactions or obligations proposed to be supported thereby (such notice, a "Request for Issuance"); provided that the expiration date of any Letter of Credit shall be on or prior to the Letter of Credit Termination Date. Upon receipt of any Request for Issuance, the Agent Bank shall advise the Issuing Bank of 32 the contents thereof. The Total Letter of Credit Commitment shall expire on the Letter of Credit Termination Date. (c) On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Letter of Credit Commitment of each Bank shall be deemed to be utilized for all purposes hereof in an amount equal to such Bank's Pro Rata Share of the then undrawn face amount of such Letter of Credit. Each Bank (other than the Issuing Bank) agrees that, upon the issuance of any Letter of Credit hereunder, it shall automatically acquire a participation in the Issuing Bank's liability under such Letter of Credit in an amount equal to such Bank's Pro Rata Share of such liability, and each Bank (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and discharge when due, its Pro Rata Share of the Issuing Bank's liability under such Letter of Credit. (d) Upon any drawing under any Letter of Credit, the Borrower hereby unconditionally agrees to pay and reimburse the Agent Bank for the account of the Issuing Bank for the amount of such drawing (the "Reimbursement Obligation") at or prior to the date on which payment is to be made by the Issuing Bank in accordance with the terms of such Letter of Credit to the beneficiary thereunder, without further action on the part of the Issuing Bank, the Agent Bank, the Collateral Agent or any Bank, and without presentment, demand, notice, protest or other formalities of any kind. In the event that the Borrower does not pay the full amount of any proposed drawing with respect to any such Letter of Credit referred to in the preceding sentence on or prior to the date payment is to be made by the Issuing Bank, the Borrower shall also pay, to the Agent Bank for the account of the Banks, interest on such amount at a rate per annum equal to the Base Rate plus the Applicable Margin for Base Rate Loans plus two percent (2%). (e) If the Borrower fails to reimburse the Issuing Bank for a demand for payment under any Letter of Credit by the date of payment by the Issuing Bank thereunder, the Agent Bank shall give each Bank prompt notice of the amount of the demand for payment, specifying such Bank's Pro Rata Share of the amount of the related demand for payment. (f) Each Bank (other than the Issuing Bank) shall pay to the Agent Bank for account of the Issuing Bank at the Agent Bank's Office in dollars and in immediately available funds, the amount of such Bank's Pro Rata Share of any payment under any Letter of Credit upon notice by the Issuing Bank (through the Agent Bank) to such Bank requesting such payment and specifying such amount. Each such Bank's obligation to make such payments to the Agent Bank for account of the Issuing Bank under this clause (f), and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, 33 the failure of any other Bank to make its payment under this clause (f), the financial condition of the Borrower (or any other account party), the existence of any Default or Event of Default or the termination of the Commitments. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever. (g) Upon the making of each payment by a Bank to the Issuing Bank pursuant to clause (f) above in respect of any Letter of Credit, such Bank shall, automatically and without any further action on the part of the Agent Bank, the Collateral Agent, the Issuing Bank or such Bank, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by the Borrower hereunder and (ii) a participation in a percentage equal to such Bank's Pro Rata Share in any interest or other amounts payable by the Borrower hereunder in respect of such Reimbursement Obligation. Upon receipt by the Issuing Bank from or for the account of the Borrower of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of set-off or application of proceeds of any collateral security), the Issuing Bank shall promptly pay to the Agent Bank for the account of each Bank entitled thereto, such Bank's Pro Rata Share of such payment, each such payment by the Issuing Bank to be made in the same money and funds in which received by the Issuing Bank. In the event any payment received by the Issuing Bank and so paid to the Banks hereunder is rescinded or must otherwise be returned by the Issuing Bank, each Bank shall, upon the request of the Issuing Bank (through the Agent Bank) repay to the Issuing Bank (through the Agent Bank) the amount of such payment paid to such Bank, with interest from the date of such request at the rate specified in clause (j) of this Section 2.2. (h) Promptly following the end of each calendar month, the Issuing Bank shall deliver (through the Agent Bank) to each Bank and the Borrower a notice describing the aggregate amount of all Letters of Credit outstanding at the end of such month. Upon the request of any Bank from time to time, the Issuing Bank shall deliver any other information reasonably requested by such Bank with respect to each Letter of Credit then outstanding. (i) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 3, be subject to the conditions precedent that (i) such Letter of Credit shall be in such form and contain such terms as shall be satisfactory to the Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type, (ii) such Letter of Credit shall be posted in connection with the Borrower's obligations under Section 6.1(b) of the NGC Agreement or Section 32.1 of the Energy Services Agreement, as applicable, and (iii) the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested 34 consistent with its then current practices and procedures with respect to letters of credit of the same type. (j) To the extent that any Bank fails to pay any amount required to be paid pursuant to clause (f) or (g) of this Section 2.2 on the due date therefor, such Bank shall pay interest to the Issuing Bank (through the Agent Bank) on such amount from and including such due date to but excluding the date such payment is made (i) during the period from and including such due date to but excluding the date three (3) Business Days thereafter, at a rate per annum equal to the Base Rate and (ii) thereafter, at a rate per annum equal to the Default Rate. (k) The Borrower hereby indemnifies and holds harmless each Bank, the Agent Bank and the Collateral Agent from and against any and all claims and damages, losses, liabilities, costs or expenses which such Bank, the Agent Bank or the Collateral Agent may incur (or which may be claimed against such Bank, the Agent Bank or the Collateral Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by the Issuing Bank under any Letter of Credit; provided that the Borrower shall not be required to indemnify any Bank, the Agent Bank or the Collateral Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complies with the terms of such Letter of Credit or (ii) in the case of the Issuing Bank, such Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.2(k) is intended to limit the other rights and obligations of the Borrower, any Bank, the Agent Bank or the Collateral Agent under this Agreement or under applicable Law. (l) If an Event of Default shall have occurred and be continuing, the Borrower shall, immediately upon the request of the Agent Bank, make a deposit into the Letter of Credit Account in accordance with the provisions of Section 7.11; provided, however, that if an Event of Bankruptcy with respect to the Borrower has occurred, the request described in this clause (l) shall not be required and shall be deemed to have been made upon the occurrence of the subject Event of Default. Section 2.3. Term Loans. (a) Subject to and upon the terms and conditions herein set forth, each Bank severally and not jointly agrees on the Conversion Date to convert all or a portion of the Construction Loans outstanding on such date, after giving effect to any prepayment of Construction Loans made on such date, to term loans (collectively, "Term Loans"). No Bank shall be obligated to make Term Loans in excess of the Term Loan Commitment of such Bank. Each Term Loan shall mature and be due and payable on the 36 Final Maturity Date without further action on the part of any Bank, the Agent Bank or the Collateral Agent. Once repaid, Term Loans may not be reborrowed. (b) Each Term Loan shall be repaid by the Borrower, without premium or penalty, in amounts equal to the following percentages of the aggregate amount of such Term Loan, on the Quarterly Dates specified below: Quarterly % of Term Quarterly % of Term Date Loan Date Loan 1 0.000% 11 0.720% 2 0.000% 12 0.720% 3 0.000% 13 0.852% 4 0.000% 14 0.852% 5 0.000% 15 0.852% 6 0.000% 16 0.852% 7 0.000% 17 0.944% 8 0.000% 18 0.944% 9 0.720% 19 0.944% 10 0.720% 20 90.880% Any remaining outstandings shall be due and payable at the Final Maturity Date. (c) The schedule set forth in clause (b) of this Section 2.3 assumes that the Conversion Date shall occur on or prior to the date (the "Planned Date Certain") which is twenty (20) months after the Closing Date. If the Conversion Date occurs after the Planned Date Certain, such schedule will be adjusted accordingly by eliminating the applicable Quarterly Dates(s) (in direct order of maturity) and increasing the percentages set forth opposite the remaining Quarterly Dates, on a pro rata basis, by the percentage attributable to such eliminated Quarterly Date. Section 2.4. Notice of Borrowing. (a) Whenever the Borrower desires to borrow Loans hereunder, it shall submit a Notice of Borrowing to the Agent Bank at the Agent Bank's Office prior to 10:00 A.M., New York City time, at least one (1) Business Day prior to each Base Rate Loan and at least three (3) Business Days prior to each LIBOR Rate Loan to be made hereunder. Each such Notice of Borrowing shall be irrevocable, shall be signed by an 36 Authorized Officer of the Borrower and shall specify (i) the aggregate principal amount of the requested Loans, (ii) the date of Borrowing (which shall be a Business Day) and (iii) whether such Loans shall consist of Base Rate Loans or LIBOR Rate Loans and, if LIBOR Rate Loans, the initial Interest Period to be applicable thereto. (b) No more than one (1) Notice of Borrowing may be submitted in any calendar month. (c) Promptly but in any event on the same day as the Agent Bank's receipt of such Notice of Borrowing pursuant to Section 2.4(a), the Agent Bank shall provide each Bank with a copy thereof and inform each Bank as to its Pro Rata Share of the Loans requested thereunder after giving effect to any reduction in the requested amount thereof pursuant to Section 2.1(b). Section 2.5. Disbursement of Funds. (a) No later than 1:00 P.M., New York City time, on the date specified in each Notice of Borrowing, each Bank will make available its Pro Rata Share of the Construction Loans requested to be made on such date, in Dollars and immediately available funds, at the Agent Bank's Office. After the Agent Bank's receipt of the proceeds of any Construction Loans (including, without limitation, any Make-up Amounts), the Agent Bank will promptly thereafter make available to the Borrower, in the manner specified in Article VII, the aggregate of the amounts so made available in the type of funds actually received plus the amount then on deposit in the Revenue Account by virtue of which the requested amount of Construction Loans was reduced pursuant to Section 2.1(b). (b) Unless the Agent Bank shall have been notified by any Bank prior to the date of a Borrowing that such Bank does not intend to make available to the Agent Bank its portion of the Construction Loans to be made on such date, the Agent Bank may assume that such Bank has made such amount available to the Agent Bank on such date and the Agent Bank in its sole discretion may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent Bank by such Bank, or provided to the Agent Bank pursuant to clause (c) of this Section 2.5, and the Agent Bank has made such amount available to the Borrower, the Agent Bank shall be entitled to recover such corresponding amount on demand from such Bank. If the Agent Bank notifies the Borrower at the time of any disbursement that the Agent Bank has made an amount available upon the failure of a Bank to do so, then if such Bank does not pay such corresponding amount forthwith upon the Agent Bank's demand therefor, and the Agent Bank has not received such amount pursuant to clause (c) of this Section 2.5, the Agent Bank may notify the Borrower and the Borrower shall immediately thereupon repay such corresponding amount to the Agent Bank. The Agent Bank shall also be entitled to recover from such Bank or the 37 Borrower, without duplication, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent Bank to the Borrower to the date such corresponding amount is recovered by the Agent Bank, at a rate per annum equal to the then applicable rate of interest, calculated in accordance with Section 2.7, for the respective Type of Loans. Nothing herein shall be construed to relieve any Bank from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder. Notwithstanding anything contained herein or in any other Loan Document to the contrary, the Agent Bank may apply all funds and the proceeds of Collateral available for the payment of any Obligations first to repay any amount owing by any Bank or the Borrower to the Agent Bank as a result of any Bank's failure to fund its Loans hereunder. (c) If the Agent Bank determines that any Bank (a "Defaulting Bank") will not make available to the Agent Bank its portion (the "Defaulted Amount") of Construction Loans to be made on the date specified in the relevant Notice of Borrowing, the Agent Bank shall promptly notify each other Bank (each a "Non-Defaulting Bank") of the Defaulted Amount and provide each Non-Defaulting Bank the opportunity to fund all or a portion of the Defaulted Amount by providing such Non- Defaulting Bank's Make-up Amount (as defined below) to the Agent Bank in Dollars and immediately available funds at the Agent Bank's Office on the date specified in the relevant Notice of Borrowing; provided, however, that notwithstanding anything in this clause (c) to the contrary, (i) neither the Agent Bank nor any Non-Defaulting Bank shall in any way be obligated to fund any portion of the Defaulted Amount and (ii) any funding by any Non-Defaulting Bank of all or any portion of a Defaulted Amount shall not increase the Commitments of such Non-Defaulting Bank or obligate such Non-Defaulting Bank to fund all or any portion of further Defaulted Amounts. Any Non- Defaulting Bank which intends to fund all or a portion of the Defaulted Amount shall promptly provide written notice to the Agent Bank indicating such intention and specifying the portion of the Defaulted Amount which such Non-Defaulting Bank intends to fund (such Bank's "Make-up Amount"). If the aggregate of the Make-up Amounts specified in the notices received by the Agent Bank from the Non-Defaulting Banks pursuant to the preceding sentence exceeds the Defaulted Amount, the Agent Bank shall (x) determine each Non-Defaulting Bank's Make-up Amount on a pro rata basis with reference to such Non-Defaulting Bank's Commitment divided by the aggregate of the Commitments of all Non-Defaulting Banks and (y) notify such Non-Defaulting Bank thereof. Any Non-Defaulting Bank funding all or any portion of a Defaulted Amount shall agree with the Borrower on the fees, if any, such Non-Defaulting Bank shall charge with respect to such funding. Nothing in this clause (c) shall alter or modify any rights the Borrower may have against a Defaulting Bank. 38 Section 2.6. Notes. (a) The Borrower's obligation to pay the principal of and interest on each Bank's Construction Loans shall be evidenced by a Construction Note and the Borrower's obligation to pay principal of and interest on each Bank's Term Loans shall be evidenced by a Term Note. Each such Note shall be duly executed and delivered by the Borrower in favor of the appropriate Bank in a principal amount equal to such Bank's Construction Loan Commitment or Term Loan Commitment, as applicable, with blanks appropriately completed in conformity herewith. On the date on which the Construction Loans are converted to Term Loans in accordance with Section 3, or, if the Construction Loans are not so converted, on the date all of the Obligations are indefeasibly paid in full in cash or cash equivalents, each Bank shall return its Construction Note to the Borrower, which Construction Note shall be marked "Paid in Full." (b) Each Bank is hereby authorized, at its option, either (i) to endorse on the schedule attached to each of its Notes (or on a continuation of such schedule attached to such Note and made a part thereof) an appropriate notation evidencing the date and amount of each Loan evidenced thereby and the date and amount of each principal and interest payment in respect thereof, or (ii) to record such Loans and such payments in its books and records. Such schedule or such books and records, as the case may be, shall constitute prima facie evidence of the accuracy of the information contained therein. Section 2.7. Interest. (a) Base Rate. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date of the making of such Base Rate Loan until such Base Rate Loan shall be paid in full or converted to a LIBOR Rate Loan at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time. Interest accruing at the Base Rate will be calculated on the basis of the actual number of days elapsed in a year of three hundred sixty-five (365) or three hundred sixty- six (366) days, as appropriate. (b) LIBOR Rate. The Borrower agrees to pay interest in respect of the unpaid principal amount of each LIBOR Rate Loan from the date of the making of such LIBOR Rate Loan until such LIBOR Rate Loan shall be paid in full or converted to a Base Rate Loan at a rate per annum which shall be equal to the sum of the Applicable Margin plus the relevant LIBOR Rate. The Agent Bank shall determine the LIBOR Rate at the beginning of each Interest Period. Interest accruing at the LIBOR Rate will be calculated on the basis of the actual number of days elapsed in a year of three hundred sixty (360) days. 39 (c) Default Rate. In the event that, and for so long as, an Event of Default specified in Section 8.1 shall have occurred and be continuing, the outstanding principal amount of all Loans and, to the extent permitted by Law, accrued interest in respect of all Loans, shall bear interest at a rate per annum (the "Default Rate") equal to the sum of two percent (2%) plus the interest rate otherwise applicable hereunder to such principal amount in effect from time to time until such Loan has been paid in full or such Event of Default has ceased to exist. (d) Payments. Interest on each Loan shall accrue from and including the date of the Borrowing thereof to but excluding the date of any repayment thereof and shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Payment Date, (ii) in respect of each LIBOR Rate Loan, on the last day of each Interest Period applicable to such Loan and, in the case of an Interest Period for LIBOR Rate Loans of six (6) months, on the date occurring three (3) months from the first day of such Interest Period and on the last day of such Interest Period, and (iii) in the case of all Loans, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) Notification of Rates. The Agent Bank shall, upon deter mining a LIBOR Rate for any Interest Period, promptly notify the Borrower and the Banks thereof. (f) Excessive Interest. It is the intention of the parties hereto to conform strictly to applicable usury Laws and, anything herein or elsewhere to the contrary notwithstanding, the Obligations shall be subject to the limitation that the Borrower shall not be required to pay, and the Secured Parties shall not be entitled to charge or receive, any interest to the extent that such interest exceeds the maximum rate of interest which the Secured Parties are permitted by applicable Law to contract for, charge or receive and which would not give rise to any claim or defense of usury. If, as a result of any circumstances whatsoever, performance of any provision hereof or of any of the Loan Documents shall, at the time performance of such provision is due, violate applicable usury Law, then, ipso facto, the obligation to be performed shall be reduced to the highest lawful rate, and if, from any such circumstance, the Secured Parties shall ever receive interest or anything which might be deemed interest under applicable Law which would exceed the highest lawful rate, the amount of such excess interest shall be applied to the reduction of the principal amount owing on account of the Notes or the amounts owing on other Obligations and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of the Obligations, such excess shall be refunded to the Borrower. 40 Section 2.8. Interest Periods. (a) The Borrower shall, in each Notice of Borrowing or Notice of Conversion or Continuation in respect of the making of, conversion into or continuation of a LIBOR Rate Loan, select the interest period (each an "Interest Period") applicable to such LIBOR Rate Loan, which Interest Period shall, at the option of the Borrower, be either a one-month, two-month, three-month or six-month period; provided, that: (i) the initial Interest Period for any LIBOR Rate Loan shall commence on the date of the making of such LIBOR Rate Loan (including the date of any conversion from a Base Rate Loan) and each Interest Period occurring thereafter in respect of such LIBOR Rate Loan shall commence on the date on which the immediately preceding Interest Period, if any, expires; (ii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period applicable to a Borrowing of LIBOR Rate Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the Business Day preceding the day of scheduled expiration; (iii) if any Interest Period applicable to a Borrowing of LIBOR Rate Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) no Interest Period in respect of any Construction Loan or Term Loan shall extend (A) in the case of any Construction Loan, beyond the Construction Loan Maturity Date to the extent that Construction Loans are not to be converted on the Construction Loan Maturity Date to Term Loans, or (B) in the case of any Term Loan, beyond the Final Maturity Date; and (v) no Interest Period in respect of a Term Loan shall extend beyond any date upon which a repayment of the Term Loans is required to be made pursuant to Section 2.13 unless the aggregate principal amount of Term Loans which are Base Rate Loans or which have Interest Periods which will expire on or before such date is equal to or in 41 excess of the amount of the Term Loan repayment required to be made on such date. (b) If upon the expiration of any Interest Period, the Borrower shall have failed to elect a new Interest Period to be applicable to the respective LIBOR Rate Loan as provided above, the Borrower shall be deemed to have elected to convert such LIBOR Rate Loan into a Base Rate Loan effective as of the expiration date of such current Interest Period. Section 2.9. Minimum Amount and Maximum Number of LIBOR Rate Loans. All borrowings, conversions, continuations, payments, prepayments and selection of Interest Periods hereunder shall be made or selected so that, after giving effect thereto, (i) the aggregate principal amount of any Borrowing comprised of LIBOR Rate Loans shall not be less than $1,000,000 or an integral multiple of $500,000 in excess thereof, and (ii) there shall be no more than six (6) Borrowings comprised of LIBOR Rate Loans outstanding at any time. Section 2.10. Conversion or Continuation. (a) The Borrower shall have the option (i) to convert at any time all or any part of outstanding Base Rate Loans to LIBOR Rate Loans, (ii) to convert all or any part of outstanding LIBOR Rate Loans to Base Rate Loans on the expiration date of the Interest Period applicable to such LIBOR Rate Loans or (iii) to continue all or any part of outstanding LIBOR Rate Loans as LIBOR Rate Loans for an additional Interest Period on the expiration of the Interest Period applicable to such outstanding LIBOR Rate Loans; provided that no Loan may be continued at the end of an Interest Period as, or converted into, a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing if the Required Banks shall have notified the Borrower through the Agent Bank that LIBOR Rate Loans shall not be available during such period. (b) In order to elect to convert or continue a Loan under this Section 2.10, the Borrower shall deliver an irrevocable Notice of Conversion or Continuation to the Agent Bank no later than 10:00 A.M., New York City time, (i) at least one (1) Business Day in advance of the proposed conversion date in the case of a conversion to a Base Rate Loan, and (ii) at least three (3) Business Days in advance of the proposed conversion or continuation date in the case of a conversion to, or a continuation of, a LIBOR Rate Loan. A Notice of Conversion or Continuation shall specify (w) the requested conversion or continuation date (which shall be a Business Day), (x) the amount and Type of the Loan to be converted or continued, (y) whether a conversion or continuation is requested, and if a conversion, into what Type of Loan and (z) in the case of a conversion to, or a continuation of, a LIBOR Rate Loan, the requested Interest Period. Promptly after receipt of a Notice of Conversion or Continuation under this Section 2.10, the Agent Bank shall provide each Bank with a copy thereof. 42 Section 2.11. Reduction of Commitments. Upon at least five (5) Business Days' prior irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Agent Bank (which notice the Agent Bank shall promptly transmit to each of the Banks), the Borrower shall have the right, without premium or penalty, to permanently reduce each Bank's Pro Rata Share of all or part of the unused Total Construction Loan Commitment or Total Letter of Credit Commitment; provided that any partial reduction shall be in a minimum aggregate amount of $1,000,000; and provided, further that the Borrower shall have the right to reduce the amount of the unused Total Construction Loan Commitment pursuant to this Section 2.11 only if the sum of the Total Construction Loan Commitment remaining after such reduction, together with the Project Equity Amount, is sufficient, in the judgment of the Required Banks, for the Project to achieve Final Completion (as defined in the EPC Contract) and for the Borrower to pay all obligations due and owing or to become due and owing with respect thereto. The Total Term Loan Commitment shall be automatically reduced pro rata with any reduction of the Total Construction Loan Commitment. Section 2.12. Optional Prepayments. The Borrower shall have the right to prepay outstanding Loans in whole or in part from time to time without penalty or premium on the following terms and conditions: (i) the Borrower shall give the Agent Bank written notice, which notice shall be irrevocable, of its intent to prepay Loans, at least five (5) Business Days prior to the prepayment, which notice shall specify the amount of such prepayment and what Types of Loans are to be prepaid, and, in the case of LIBOR Rate Loans, the specific Borrowing(s) of LIBOR Rate Loans which are to be prepaid, and which notice the Agent Bank shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an aggregate principal amount of $1,000,000 or any integral multiple of $500,000 in excess thereof; and (iii) prepayments of LIBOR Rate Loans made pursuant to this Section 2.12 may be made only on the last day of the Interest Period applicable thereto unless accompanied by a payment for all funding losses in accordance with Section 2.17. All prepayments shall be applied first to any interest or Fees accrued in respect of the Loans designated to be prepaid, and then to the unpaid principal of such Loans on a pro rata basis among all Loans of the same Type. Section 2.13. Mandatory Prepayments. (a) Unless converted to Term Loans, the Borrower shall repay all outstanding Construction Loans on the Construction Loan Maturity Date. On the Final Maturity Date, the Borrower shall pay the entire amount of the Loans. (b) The Borrower shall repay outstanding Construction Loans in accordance with Section 2.1(c). (c) If an Event of Loss shall occur, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(b) and in an amount 43 equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (d) If an Event of Condemnation shall occur, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(c) and in an amount equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (e) If any Liquidated Performance Damages are received by or on behalf of the Borrower, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(d) and in an amount equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (f) If any Liquidated Delay Damages are received by or on behalf of the Borrower, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(e) and in an amount equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (g) If any Asset Sale Proceeds are received by or on behalf of the Borrower, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(f) and in an amount equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (h) If any Other Proceeds are received by or on behalf of the Borrower, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(g) and in an amount equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (i) If on any Quarterly Date the Debt Service Coverage Ratio for the previous four fiscal quarters is less than 1.1 to 1, the Borrower shall prepay the Loans with all Excess Cash Flow available on each Payment Date following such Quarterly Date until the next Quarterly Date on which the Debt Service Coverage Ratio for the then previous four fiscal quarters is at least 1.1 to 1. (j) If any Default Equity Proceeds are received by or on behalf of the Borrower, the Borrower shall prepay the Loans to the extent required and at the times specified in Section 7.10(h) and in an amount equal to the amount, if any, that the Collateral Agent is required to withdraw from the Proceeds Account for such purpose. (k) All prepayments of Loans made pursuant to any of clauses (c) through (j) of this Section 2.13 shall be applied first to any interest or Fees that are due on any Loan, next to interest or Fees accrued in respect of the Loans to be prepaid, and then to the unpaid principal of Loans to be prepaid in the inverse order of maturity. 44 (l) With respect to each prepayment required to be made pursuant to any of clauses (c) through (j) of this Section 2.13, the Borrower may designate, by written notice to the Agent Bank on or before the date of such prepayment, the Types of Loans which are to be prepaid and, in the case of LIBOR Rate Loans, the specific Borrowing(s) of LIBOR Rate Loans which are to be prepaid; provided that (i) if the Borrower fails to make any such designation on or before any date on which Loans are to be prepaid pursuant to this Section 2.13, all outstanding Base Rate Loans shall be repaid in full prior to the prepayment of any LIBOR Rate Loans; (ii) prepayments of LIBOR Rate Loans may only be made on the last day of an Interest Period applicable thereto unless all Base Rate Loans have been repaid in full; and (iii) if any prepayment of LIBOR Rate Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than $1,000,000, such Borrowing shall immediately be converted into Base Rate Loans. Section 2.14. Method and Place of Payment. (a) Except as otherwise specifically provided therein, all payments and prepayments under the Loan Documents shall be made to the Agent Bank for the account of the Banks entitled thereto not later than 12:00 Noon, New York City time, on the date when due and shall be made in Dollars and immediately available funds at the Agent Bank's Office, and any funds received by the Agent Bank after such time shall, for all purposes hereof (including the following sentence), be deemed to have been paid on the next succeeding Business Day. Except as otherwise specifically provided herein, the Agent Bank shall thereafter cause to be distributed on the date of receipt thereof to each Bank in like funds its Pro Rata Share of the payments so received. (b) Unless otherwise provided herein, whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and the amount of such payment shall bear interest at the applicable rate during such extension. (c) All payments made by the Borrower hereunder and under the other Financing Documents shall be made irrespective of, and without any reduction for, any set-offs or counterclaims. Section 2.15. Fees. (a) The Borrower agrees to pay to the Agent Bank for the account of each Bank a commitment fee (the "Commitment Fee") of 0.375% per annum on each Bank's Pro Rata Share of the daily average unutilized portion of the Total Construction Loan Commitment during the period from the date hereof through and including the Final Maturity Date. The accrued and unpaid Commitment Fee shall be payable in arrears for 45 the period from and including the Closing Date through and including the Final Maturity Date, quarterly on each Payment Date. The Commitment Fee shall be calculated on the actual number of days elapsed in a year of three hundred sixty (360) days. (b) The Borrower shall pay to the Agent Bank for account of the Issuing Bank all charges, costs, fees and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit, drawings thereunder and other transactions relating thereto. (c) The Borrower shall pay when due to the Agent Bank and the Collateral Agent such other fees as shall have been separately agreed to by the Agent Bank and/or the Collateral Agent and the Borrower in writing. (d) On the last Business Day in each calendar quarter (or portion thereof) commencing on the Closing Date and ending on the Letter of Credit Termination Date and on the Expiration Date of each Letter of Credit, the Borrower shall pay to the Agent Bank for the benefit of the Banks a letter of credit fee (the "Letter of Credit Fee") for such quarter then ending and such Expiration Date, as applicable, at the rates per annum described below and computed in the following manner. From and including the Closing Date to but excluding the Letter of Credit Availability Date, the Letter of Credit Fee shall be equal to the Total Letter of Credit Commitment multiplied by 0.375%. On and after the Letter of Credit Availability Date, the Letter of Credit Fee shall be equal to the sum of: (i) for each outstanding Letter of Credit, the product of (A) (1) from and including the date of issuance of such Letter of Credit to but excluding the Conversion Date, 0.750% (2) from and including the Conversion Date to but excluding the date which is two (2) years after the Conversion Date, 1.000%, (3) from and including the date which is two years after the Conversion Date to but excluding the date which is four (4) years after the Conversion Date, 1.125%, and (4) from and including the date which is four (4) years after the Conversion Date to and including the date which is five (5) years after the Conversion Date, 1.250%, multiplied by (B) the daily average Stated Amount of such Letter of Credit multiplied by (C) a fraction the numerator of which is the number of days in such quarter (or portion thereof) or the number of days in the period beginning on the last day of the previous quarter and ending on the Expiration Date of such Letter of Credit, as applicable, and the denominator of which is three hundred sixty (360); plus (ii) (A) the daily average for such quarter of the excess of (1) the Total Letter of Credit Commitment over (2) the aggregate of the Stated Amounts of all outstanding Letters of Credit, multiplied by (B) 0.375%. Section 2.16. Interest Rate Unascertainable; Increased Costs; Illegality. (a) In the event that the Agent Bank, in the case of clause (i) below, or any Bank, in the case of clauses (ii) and (iii) below, shall have reasonably 46 determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining a LIBOR Rate for any Interest Period, that by reason of any changes arising after the date of this Agreement affecting the London interbank market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the LIBOR Rate; or (ii) at any time, that the relevant LIBOR Rate shall not represent the effective cost to such Bank of funding or maintaining a LIBOR Rate Loan, or such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder in respect of any LIBOR Rate Loan, in any such case because of (x) any change since the later of (1) the date of this Agreement or (2) the date upon which such Bank became a Bank pursuant to Section 11.4(d) (such date, the "Bank Effective Date") in any applicable Law and including the introduction of any new Law (such as but not limited to a change in official reserve requirements) whether or not having the force of Law and whether or not failure to comply therewith would be unlawful, and/or (y) other circumstances arising after the applicable Bank Effective Date affecting such Bank or the London interbank market or the position of such Bank in such market; or (iii) at any time, that the making or continuance by it of any LIBOR Rate Loan has become unlawful by compliance by such Bank in good faith with any Law (whether or not having the force of Law and whether or not failure to comply therewith would be unlawful) in place as of the applicable Bank Effective Date or has become impracticable as a result of a contingency occurring after the applicable Bank Effective Date which materially and adversely affects the London interbank market; then, and in any such event, the Agent Bank or such Bank shall, promptly after making such determination, give notice (by telephone promptly confirmed in writing) to the Borrower and (if applicable) the Agent Bank of such determination (which notice the Agent Bank shall promptly transmit to each of the other Banks). Thereafter (A) in the case of clause (i) above, the Borrower's right to request LIBOR Rate Loans of the Type affected shall be suspended, and any Notice of Borrowing or Notice of Conversion or Continuation given by the Borrower with respect to any Borrowing of such LIBOR Rate Loans which has not yet been made, converted or continued (as the case may be) shall be deemed canceled and rescinded by the Borrower, (B) in the case of clause (ii) above, the Borrower shall pay to such Bank, upon such Bank's delivery of a written demand therefor 48 to the Borrower, with a copy to the Agent Bank, such additional amounts (in the form of an increased rate of interest, or a different method of calculating interest, or otherwise, as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reduction in amounts received or receivable hereunder and (C) in the case of clause (iii) above, the Borrower shall take one of the actions specified in clause (b) below as promptly as possible and, in any event, within the time period required by Law. The written demand provided for in clause (B) immediately above shall specify the bases for, and set forth the computation of, the claimed amount in reasonable detail and, absent manifest error, shall be final, conclusive and binding upon all of the parties hereto. (b) In the case of any LIBOR Rate Loan affected by the circumstances described in clause (a)(ii) above the Borrower may, and in the case of any LIBOR Rate Loan affected by the circumstances described in clause (a)(iii) above the Borrower shall, either (x) if any such LIBOR Rate Loan has not yet been made but is then the subject of a Notice of Borrowing or a Notice of Conversion or Continuation, be deemed to have canceled and rescinded such notice, or (y) if any such LIBOR Rate Loan is then outstanding, require the affected Bank to convert each such LIBOR Rate Loan into a Loan of a different Type at the end of the applicable Interest Period or such earlier time as may be required by Law, in each case by giving the Agent Bank notice thereof on the Business Day that the Borrower was notified by the Bank pursuant to clause (a) above; provided, however, that all Banks whose LIBOR Rate Loans are affected by the circumstances described in clause (a) above shall be treated in the same manner under this clause (b). (c) In the event that the Agent Bank determines at any time following its giving of notice based on the conditions described in clause (a)(i) above that such conditions no longer exist, the Agent Bank shall promptly give notice thereof to the Borrower and the Banks, whereupon the Borrower's right to request LIBOR Rate Loans of the affected Type from the Banks and the Banks' obligation to make such LIBOR Rate Loans shall be restored. (d) In the event that a Bank determines at any time following its giving of a notice based on the conditions described in clause (a)(iii) above that such conditions no longer exist, such Bank shall promptly give notice thereof to the Borrower and the Agent Bank, whereupon the Borrower's right to request LIBOR Rate Loans of the affected Type from such Bank and such Bank's obligation to make such LIBOR Rate Loans shall be restored. Section 2.17. Funding Losses. The Borrower shall compensate each Bank, upon such Bank's delivery of a written demand therefor to the Borrower, with a copy to the Agent Bank (which demand shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto), for all reasonable losses, expenses and 48 liabilities (including, without limitation, any loss, expense or liability incurred by such Bank in connection with the liquidation or reemployment of deposits or funds required by it to make or carry its LIBOR Rate Loans, and including losses of anticipated profits), that such Bank actually sustains: (i) if for any reason (other than a default by such Bank) a Borrowing of, or conversion from or into, or a continuation of, LIBOR Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion or Continuation (whether or not rescinded, canceled or withdrawn or deemed rescinded, canceled or withdrawn); (ii) if any repayment (including, without limitation, payment after acceleration) or conversion of any of its LIBOR Rate Loans occurs on a date which is not the last day of the Interest Period applicable thereto; (iii) if any prepayment of any of its LIBOR Rate Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of any default by the Borrower in repaying its LIBOR Rate Loans or any other amounts owing hereunder in respect of its LIBOR Rate Loans when required by the terms of this Agreement. Calculation of all amounts payable to a Bank under this Section 2.17 shall be made on the assumption that such Bank has funded its relevant LIBOR Rate Loan through the purchase of a LIBOR deposit, bearing interest at the LIBOR Rate, in an amount equal to the amount of such LIBOR Rate Loan, with a maturity equivalent to the Interest Period applicable to such LIBOR Rate Loan and through the transfer of such LIBOR deposit from an offshore office of such Bank to a domestic office of such Bank in the United States, provided that each Bank may fund its LIBOR Rate Loans in any manner that it in its sole discretion chooses and the foregoing assumption shall only be made in order to calculate amounts payable under this Section 2.17. Section 2.18. Increased Capital. If any Bank shall have determined that compliance with any applicable Law, guideline, request or directive enacted after the Bank Effective Date applicable to such Bank (whether or not having the force of Law), has or would have the effect of reducing the rate of return on the capital or assets of such Bank or any Person controlling such Bank as a consequence of its commitments or obligations hereunder, then from time to time, upon such Bank's delivery of a written demand therefor to the Borrower (with a copy to the Agent Bank), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank or Person for such reduction. Each written demand for compensation under this Section 2.18 shall specify the bases for, and set forth the computation of, the claimed amount in reasonable detail, and, absent manifest error, shall be final, conclusive and binding upon all of the parties hereto. Section 2.19. Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without reduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or 49 assessed by any Governmental Authority excluding, in the case of the Agent Bank and each Bank, net income and franchise taxes imposed on the Agent Bank or such Bank by (i) the jurisdiction under the Laws of which the Agent Bank or such Bank is organized or any political subdivision or taxing authority thereof or therein, (ii) by any jurisdiction in which such Bank's Domestic Lending Office or LIBOR Rate Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein, or (iii) the State of Illinois as a result of the presence or activities of the Agent Bank or any Bank in such jurisdictions that are not related to the transactions contemplated by the Loan Documents (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Withholding Taxes"). If any Withholding Taxes are required to be withheld from any amounts payable to the Agent Bank, the Collateral Agent or any Bank hereunder or under the Notes as a result of a change in Law occurring after the Closing Date, the amounts so payable to the Agent Bank, the Collateral Agent or such Bank shall be increased to the extent necessary to yield to the Agent Bank, the Collateral Agent or such Bank (after payment of all Withholding Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Withholding Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower shall send to the Agent Bank for its own account or for the account of the Collateral Agent or such Bank, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Withholding Taxes when due to the appropriate taxing authority or fails to remit to the Agent Bank the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent Bank, the Collateral Agent and the Banks for any incremental taxes, interest or penalties that become payable by the Agent Bank, the Collateral Agent or any Bank as a result of any such failure. The provisions of this Section 2.19 shall survive the termination of this Agreement and the payment of the Notes and all other Obligations. (b) Each Bank that is not incorporated under the Laws of the United States or a state thereof (including each Purchasing Bank that becomes a party to this Agreement pursuant to Section 11.4(d)) represents and warrants that it is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes or is entitled to an exemption from backup withholding tax and agrees that, prior to the first date on which any payment is due to it hereunder, it will deliver to the Borrower and the Agent Bank (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Bank is entitled to receive payments under this Agreement and the Notes payable to it without deduction or withholding of any United States federal income taxes and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Bank which delivers to the Borrower and the Agent Bank a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence further undertakes to deliver to the Borrower and the Agent Bank two further 50 copies of Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower, and such extensions or renewals thereof as may reasonably be requested by the Borrower, certifying in the case of a Form 1001 or 4224 that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in Law) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Borrower that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. Section 2.20. Notice of Increased Amounts. Notwithstanding anything herein to the contrary, no Bank shall be entitled to demand compensation or be compensated under this Article II other than under Section 2.19 to the extent that such compensation relates to any period of time more than ninety (90) days prior to the date upon which such Bank first notified the Borrower of the occurrence of the event entitling such Bank to such compensation (unless, and to the extent, that any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). Section 2.21. Use of Proceeds. The Borrower shall use the proceeds of the Construction Loans solely to pay Project Costs. The Borrower shall use the proceeds of the Term Loans solely to repay the outstanding Construction Loans and accrued and unpaid interest and Fees thereof. Section 2.22. Sharing of Payments, Etc. (a) The Borrower agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim which a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it for the account of the Borrower at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, the Reimbursement Obligations or any other amount payable to such Bank hereunder, that is not paid when due (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent Bank thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. (b) If any Bank shall obtain from the Borrower payment of any principal of or interest on any Loan or Reimbursement Obligation owing to it or payment of any other amount under this Agreement or any Note held by it or any other Loan 51 Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Agent Bank as provided herein), and, as a result of such payment, such Bank shall have received a greater percentage of the principal of or interest on the Loans or Reimbursement Obligations or such other amounts then due hereunder by the Borrower to such Bank than the percentage received by any of the other Banks, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans or Reimbursement Obligations or such other amounts, respectively, owing to such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all of the Banks shall share the benefit of such excess payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans or Reimbursement Obligations or such other amounts, respectively, owing to each of the Banks. To such end all of the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Borrower agrees that any Bank so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans or other amounts (as the case may be) owing to such Bank in the amount of such participation. (d) Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or obligation of the Borrower. If, under any applicable bankruptcy, insolvency or other similar Law, any Bank receives a secured claim in lieu of a set-off to which this Section 2.22 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 2.22 to share in the benefits of any recovery on such secured claim. ARTICLE III. CONDITIONS PRECEDENT. Section 3.1. Conditions Precedent to Initial Construction Loans. The obligation of each Bank to make its initial Construction Loan is subject to the satisfaction on the Closing Date of the following conditions precedent, all of which shall be satisfactory to each of the Banks: (a) Loan Documents. The Agent Bank shall have received this Agreement (together with all amendments, supplements, schedules, and exhibits thereto) and an appropriately completed Construction Note for each Bank, each of which (i) shall 52 have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be substantially in the form of the appropriate form attached hereto (if such form is attached) or otherwise in form and substance reasonably satisfactory to each Bank, and (iii) shall be in full force and effect. All representations and warranties contained in each Loan Document shall be true and correct in all material respects and no default or event of default shall have occurred thereunder. (b) Project Documents. The Agent Bank shall have received copies of each Project Document (together with all amendments, supplements, schedules and exhibits thereto) (other than the Long Term Service Agreement, the RO EPC Contract and the NGC Guarantee), each of which (i) shall have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be substantially in the form of the appropriate form attached hereto (if such form is attached) or otherwise in form and substance reasonably satisfactory to the Agent Bank, and (iii) shall be in full force and effect. All representations and warranties contained in each Project Document shall be true and correct in all material respects and no default or event of default shall have occurred thereunder which could reasonably be expected to result in a Material Adverse Effect. (c) Security Documents. The Agent Bank shall have received each Security Document (together with all amendments, supplements, schedules and exhibits thereto), each of which (i) shall have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be substantially in the form of the appropriate form attached hereto (if such form is attached) or otherwise in form and substance reasonably satisfactory to each Bank, and (iii) shall be in full force and effect. All representations and warranties contained in each Security Document shall be true and correct in all material respects and no default or event of default shall have occurred thereunder. (d) Equity Commitment Agreements. The Agent Bank shall have received an Equity Commitment Agreement from each Equity Holder (other than NRG MI) (together with all amendments, supplements, schedules and exhibits thereto), each of which (i) shall have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be substantially in the form of the appropriate form attached hereto (if such form is attached) or otherwise in form and substance reasonably satisfactory to each Bank, and (iii) shall be in full force and effect. All representations and warranties contained in each Equity Commitment Agreement shall be true and correct in all material respects and no default or event of default shall have occurred thereunder which could reasonably be expected to result in a Material Adverse Effect. 53 (e) Due Diligence Review. The Agent Bank shall have completed to its satisfaction a review of the Borrower, the Project and the Site, and nothing shall have come to the attention of the Agent Bank during such review that, in the reasonable view of the Agent Bank, would result in a Material Adverse Effect. (f) Consents. Each Project Party (other than the Borrower and any Additional Project Party) shall have entered into a Consent with respect to each Project Document to which it is a party, each of which shall be unconditional and in full force and effect in accordance with its respective terms and shall be in form and substance reasonably satisfactory to each Bank. The Agent Bank shall have received true and correct copies of each such Consent. (g) Filings and Searches; Survey and Easements. (i) Pursuant to the terms of the Security Documents, the Liens on the Collateral shall have been duly created or attached. In addition, such Liens on all of the Collateral shall have been perfected and, where appropriate, registered, to create a first priority security interest in and charge over the Collateral (subject only to Permitted Liens) in favor of the Collateral Agent for the benefit of itself and the other Secured Parties. All Taxes (including, but not limited to, mortgage recording taxes and recording fees), fees and other charges payable in connection therewith shall have been paid in full by the Borrower. Without limiting the preceding sentence, the Borrower shall have duly authorized, executed and delivered or, as the case may be, provided: (A) financing statements or other instruments to be duly filed on the Closing Date under the applicable Law of each jurisdiction listed on Schedule 3.1(g)(i)(A), including evidence of payment of all recording and other taxes, as may be necessary or, in the reasonable opinion of the Agent Bank, the Collateral Agent and the Banks, desirable to perfect such Liens on the Collateral; (B) to the extent available in the applicable jurisdiction, certified copies of requests for information or copies, or equivalent reports, which shall be issued within a reasonable time prior to the Closing Date, listing all effective financing statements that name the Borrower or any Equity Holder as debtor and that are filed in any jurisdiction in which the Borrower, any Equity Holder or the Collateral owned by any of them is located (or deemed located by reason of the location of the Borrower or any Equity Holder, as the case may be, or by operation of applicable Law), a list of which is attached hereto as Schedule 3.1(g)(i)(B), together with copies of such other financing statements and instruments (none of which shall reveal Liens on any of the Collateral except to the extent evidencing Permitted Liens or Liens otherwise acceptable to the Agent Bank, the Collateral Agent and the Banks); 54 (C) evidence of the completion of all other recordings and filings of, or with respect to, the Security Documents as may be necessary or, in the opinion of the Agent Bank, the Collateral Agent and the Banks, desirable to perfect the Liens on the Collateral purported to be created thereby; and (D) evidence of the completion of all other actions necessary or, in the reasonable opinion of the Agent Bank and the Collateral Agent, desirable to perfect and protect the Liens purported to be created by the Security Documents on all of the Collateral. (ii) The Agent Bank shall have received a current survey of the Site, conforming with First American Title Insurance Company survey standards and otherwise acceptable to each Bank, prepared by a registered or licensed surveyor acceptable to each Bank and the title company insuring the Collateral Agent's interest in the Mortgaged Property, certified to the Borrower, the Agent Bank, the Collateral Agent, the Banks and said title company, showing: (i) the location of the Site; (ii) all easements benefiting the Site (or constituting a portion of the Site), all easements affecting the Site and all rights of way and existing utility lines referred to in the Title Insurance Policy or disclosed by a physical inspection of the Site; (iii) any established building lines, whether by zoning or agreement, and areas affected by restrictive covenants affecting the Site; (iv) adequate access to the Mortgaged Property; (v) encroachments, if any, and the extent thereof in feet and inches upon the Site and onto property adjacent to the Site; and (vi) any improvements, whether existing or to the extent constructed, and the relationship of such improvements by distances to the perimeter of the Site, established building lines and street lines. (iii) The Agent Bank shall have received evidence satisfactory to each Bank that the Borrower has obtained all easements, licenses, rights-of-way and any other rights necessary for the construction, operation and maintenance of the Project free and clear of all Liens (other than Permitted Liens). (h) Independent Engineer's Report. The Agent Bank shall have received (i) a report of the Independent Engineer, in form and substance satisfactory to the Agent Bank, addressing, among other matters, (A) the technical feasibility of the Project, (B) the reasonableness of the Construction Schedule and the Construction Budget, (C) the sufficiency of the completion and performance tests contained in the EPC Contract, (D) the adequacy of environmental permitting and the environmental site assessment, and (E) the reasonableness of the primary assumptions upon which the projections of sales of excess electrical power are based and (ii) a certificate of the Independent Engineer substantially in the form of Exhibit H. (i) Fuel Consultant's Report. The Agent Bank shall have received a report of the Fuel Consultant, in form and substance satisfactory to the Agent Bank, addressing certain items with respect to the adequacy of the gas supply plan for the Project, 55 including, without limitation, (i) the short- and long-term risk of insufficient gas supply for the Project, (ii) the reasonableness of the gas supply, transportation, distribution and storage arrangements for the Project and (iii) the consistency of the gas supply arrangements for the Project with the Energy Services Agreement and the other relevant Project Documents. (j) Petrochemical Industry Consultant's Report. The Agent Bank shall have received a report of the Petrochemical Industry Consultant, in form and substance satisfactory to the Agent Bank, addressing the long-term viability of the Morris Plant. (k) Insurance Consultant's Report. The Agent Bank shall have received a certificate of the Insurance Consultant stating that (i) all insurance coverages required to be obtained by or on behalf of the Borrower, the EPC Contractor or the Energy Purchaser have been obtained and (ii) all such insurance coverages are in full force and effect. (l) Insurance. (i) The Agent Bank shall have received insurance certificates evidencing that all insurance coverages required under Section 5.7 to be obtained by or on behalf of the Borrower or the EPC Contractor have been obtained and are in full force and effect. (ii) The Agent Bank shall have received a paid policy of mortgage title insurance (the "Title Insurance Policy"), in an amount equal to $91,000,000, in form and substance satisfactory to the Agent Bank, issued by a title insurance company satisfactory to the Agent Bank (with such reinsurance in such amounts and with such title insurance companies as may be required and approved by the Agent Bank), containing no exceptions (printed or otherwise) other than those approved by the Agent Bank, and insuring that the Collateral Agent has a good, valid and enforceable first Lien of record on the Mortgaged Property free and clear of all defects and encumbrances. (m) Opinions of Counsel. The Agent Bank shall have received the following legal opinions, each of which shall be in form and substance satisfactory to the Agent Bank and shall be dated the Closing Date: (i) Opinion of Counsel of James J. Bender, Esq., as corporate counsel to the Borrower, NRG Energy and the Operator; (ii) Opinion of Counsel of Maslon, Edelman, Borman & Brand LLP, as outside counsel to the Borrower, NRG Energy and the Operator; (iii) Opinion of Counsel of Pedersen & Houpt, as local counsel to the Borrower, NRG Energy and the Operator; 56 (iv) Opinion of Counsel of Troutman Sanders LLP, as regulatory counsel to the Borrower; (v) Opinion of Counsel of Henley R. Webb, Esq., as corporate counsel to the Energy Purchaser, and Opinion of Counsel of Mayer, Brown & Platt, as outside counsel to the Energy Purchaser, (vi) Opinion of Counsel of Bruce W. Ballai, Esq., as corporate counsel to the EPC Contractor; (vii) Opinion of Counsel of Thomas C. Stortz, Esq., as corporate counsel to the Construction Guarantor; (viii) Opinion of Counsel of Alexander C. Allison, Esq., as corporate counsel to NIGAS, and Opinion of Counsel of Mayer, Brown & Platt, as outside counsel to NIGAS; and (ix) Opinion of Counsel of Charles H. Brownman, Esq., as corporate counsel to NGC, and Opinion of Counsel of John C. Herbert, Esq., as corporate counsel to NGC. (n) Financial Statements and Information. The Agent Bank shall have received (i) true, correct and complete copies of audited financial statements for the most recently completed fiscal year for each Equity Holder (other than NRG MI), each Equity Contributor, the Energy Purchaser, the EPC Contractor, the Construction Guarantor and the O&M Guarantor, and (ii) true, correct and complete copies of unaudited pro forma financial statements (if audited statements are not otherwise available) for the most recent fiscal quarter for the Borrower and the Operator, each in form and substance satisfactory to each Bank. (o) Governmental Approvals. (i) Schedule 3.1(o) shall list all Necessary Project Approvals (including all Deferred Approvals), (ii) all Necessary Project Approvals (other than Deferred Approvals) shall be in full force and effect as of the Closing Date and (iii) the Agent Bank shall have received (A) true, correct and complete copies of all Necessary Project Approvals and (B) a certificate of an Authorized Officer of the Borrower stating that (1) Schedule 3.1(o) lists all Necessary Project Approvals (including all Deferred Approvals), (2) all Necessary Project Approvals (other than Deferred Approvals) are in full force and effect as of the Closing Date and (3) the copies of Necessary Project Approvals received by the Agent Bank are true, correct and complete copies of the originals of such Necessary Project Approvals. (p) No Default, Etc. (i)(A) No default or event of default shall have occurred and be continuing under any Transaction Document, (B) all representations 57 and warranties made by the Borrower, and to the best of its knowledge each other Project Party, in the Transaction Documents shall be true and correct in all material respects, (C) no litigation or other proceeding shall be pending, or, to the best of the Borrower's knowledge, threatened against the Borrower or, to the best of its knowledge, any other Project Party that could reasonably be expected to result in a Material Adverse Effect and (D) there shall have been no material adverse change in the projected Project Costs or the business operations, prospects or financial or other condition of the Borrower or, to the best of the Borrower's knowledge, any Equity Holder, any Equity Contributor, the Energy Purchaser, the EPC Contractor, the Construction Guarantor, the Operator, the O&M Guarantor or any other Project Party (excluding Additional Project Parties) and (ii) the Agent Bank shall have received a certificate of an Authorized Officer of the Borrower certifying as to the foregoing. (q) Qualifying Facility Status. The Agent Bank shall have received evidence reasonably satisfactory to it and to the Independent Engineer demonstrating that, on or prior to the Commercial Operation Date, either (i) the Project will be able to attain Qualifying Facility status through self certification (including, without limitation (A) efficiency calculations in form and substance satisfactory to the Independent Engineer and (B) an opinion of Regulatory Counsel to that effect in form and substance satisfactory to the Agent Bank), or (ii) the Borrower will otherwise be able to sell electricity and steam to the Energy Purchaser and to wholesale purchasers without being regulated as an "electric utility" or an "electric utility holding company" under applicable federal and state Law. (r) Utility Regulation. The Agent Bank shall have received evidence reasonably satisfactory to it that the sale of electricity by the Project will not result in the regulation of the Borrower, NRG Energy or any other Project Party as an "electric utility" or an "electric utility holding company" under applicable federal or state Law, including, without limitation, an opinion of Regulatory Counsel and/or other counsel to the Borrower to that effect in form and substance satisfactory to the Agent Bank. (s) Construction Budget, Construction Schedule and Progress Payment Schedule. The Agent Bank shall have received the Construction Budget, the Construction Schedule and the Progress Payment Schedule for the Project, each (i) certified as complete and accurate in all material respects by an Authorized Officer of the Borrower and (ii) in form and substance satisfactory to the Agent Bank. (t) Base Case Forecasts. The Agent Bank shall have received the Base Case Forecasts for the Project, in form and substance satisfactory to the Agent Bank and the Independent Engineer, evidencing, after giving effect to the financing of the Project, an average projected Debt Service Coverage Ratio of at least 1.4 to 1 and a minimum projected Debt Service Coverage Ratio of at least 1.2 to 1, each through the Final Maturity Date. 58 (u) Notice to Proceed. The Borrower shall have issued, and the EPC Contractor shall have acknowledged the receipt of, the Notice to Proceed. (v) Certificate of EPC Contractor. The Agent Bank shall have received a certificate of the EPC Contractor, in form and substance satisfactory to the Agent Bank, stating that (i) the Borrower is not in default under the EPC Contract, (ii) no Change Orders are required under the EPC Contract other than Change Orders which have been delivered to the Agent Bank and reviewed and approved by the Independent Engineer and (iii) to the best of its knowledge, after reasonable inquiry, no event constituting Uncontrollable Circumstances (as defined in the EPC Contract) has occurred and is continuing under the EPC Contract. (w) Fees and Expenses. The Agent Bank shall have received on the Closing Date, for its account and for the account of each Bank, as applicable, all Fees and other fees, costs and expenses of the Independent Engineer, the Fuel Consultant, the Insurance Consultant, the Petrochemical Industry Consultant and any legal counsel retained by the Agent Bank or the Collateral Agent due and payable hereunder on or before the Closing Date, including, without limitation, the fees and expenses accrued and invoiced through the Closing Date. (x) No Material Adverse Effect. No event shall have occurred which could reasonably be expected to result in a Material Adverse Effect. (y) Appointment of Independent Auditors. Arrangements satisfactory to the Agent Bank shall have been made for the appointment of the Auditors, and the Agent Bank shall have received a copy of the documents authorizing the Auditors to communicate directly with the Agent Bank and the Collateral Agent. (z) Appointment of Agent for Service of Process. The Borrower and all other obligors under the Financing Documents shall have appointed an agent for service of process on terms satisfactory to the Agent Bank and shall have paid all fees necessary for such process agent to act as such through the Final Maturity Date. (aa) Notice of Borrowing The Agent Bank shall have received an executed Notice of Borrowing in respect of the Loans to be made on the Closing Date which Notice of Borrowing shall contain the certifications required hereunder each made as of the date of such Notice of Borrowing and as of the date on which the Loan is to be made. (bb) Corporate Documents. The Agent Bank shall have received each of the following in form and substance satisfactory to it: 59 (i) a certificate of an Authorized Officer of each Project Party (other than Additional Project Parties), dated as of the Closing Date, certifying as true, complete and correct attached copies of (A) the certificate of formation or certificate of incorporation, as applicable, of such Project Party, (B) the bylaws or similar document of such Project Party and (C) the resolutions of the managers or board of directors, as applicable, of such Project Party approving and authorizing the execution, delivery and performance of all Transaction Documents to which such Project Party is a party; (ii) a certificate of an Authorized Officer of each Project Party (other than Additional Project Parties), dated as of the Closing Date, certifying the names and true signatures of the incumbent officers of such Project Party authorized to sign the Transaction Documents to which such Project Party is a party; and (iii) evidence that each Project Party (other than Additional Project Parties) is duly authorized to carry on its business as now being conducted by it, and as proposed to be conducted by it, in each jurisdiction in which it is required to be so authorized. (cc) Environmental Matters. The Agent Bank shall (i) be satisfied that the Borrower does not have any present or contingent liability relating to any Environmental Approval, Environmental Claim or Environmental Law which is not covered by an indemnity agreement satisfactory to the Agent Bank in form and substance, (ii) be satisfied that the Borrower presently is in compliance with all Environmental Laws and all Environmental Approvals in all material respects, and (iii) have received evidence that all Environmental Approvals necessary to construct and operate the Project (other than Environmental Approvals that are Deferred Approvals) have been obtained and are in full force and effect. (dd) Payment of Subcontractors. If all or any part of the proceeds of the Loans to be made on the Closing Date are to be paid to the EPC Contractor, the Agent Bank shall have received a certificate of the EPC Contractor substantially in the form of Schedule Q to the EPC Contract. Section 3.2. Conditions Precedent to the Making of All Loans and Issuance of Letters of Credit. The obligation of each Bank to extend any credit, including the obligation to make, extend or increase Loans (including any Loan made on the Closing Date) and the obligation of the Issuing Bank to issue any Letter of Credit, is subject to the satisfaction on the date such Loan is to be made or such Letter of Credit is to be issued, of the following conditions precedent, all of which shall be satisfactory to each Bank: 60 (a) No Defaults, Etc. (i)(A) No default or event of default shall have occurred and be continuing under any Transaction Document, (B) all representations and warranties made by the Borrower, and to the best of its knowledge each other Project Party, in the Transaction Documents shall be true and correct in all material respects, (C) no litigation or other proceeding shall be pending, or, to the best of its knowledge, threatened against the Borrower or, to the best of its knowledge, any other Project Party that could reasonably be expected to result in a Material Adverse Effect and (D) there shall have been no material adverse change in the projected Project Costs or the business operations, prospects or financial or other condition of the Borrower or, to the best of the Borrower's knowledge, any Equity Holder, any Equity Contributor, the Energy Purchaser, the EPC Contractor, the Construction Guarantor, the Operator, the O&M Guarantor or any other Project Party and (ii) the Agent Bank shall have received a certificate of an Authorized Officer of the Borrower certifying as to the foregoing. (b) Independent Engineer's Certificate. The Agent Bank shall have received a certificate of the Independent Engineer substantially in the form of Exhibit I. (c) Insurance. The Agent Bank shall have received (i) a certificate of an Authorized Officer of the Borrower, in form and substance satisfactory to the Agent Bank, stating that (A) all insurance coverages required to be obtained by or on behalf of the Borrower are in place and are in full force and effect and (B) to the best knowledge of the Borrower, all insurance coverages required to be obtained by or on behalf of the EPC Contractor or the Energy Purchaser are in place and in full force and effect, and (ii) a notice of title continuation or an endorsement of the title company insuring the Collateral Agent's interest in the Mortgaged Property updating the Title Insurance Policy to the date of disbursement of such Loan or the issuance of such Letter of Credit, as the case may be, showing no intervening Liens (other than Permitted Liens) or encumbrances on the Mortgaged Property and showing that there has been no change in the state of title and no survey exceptions not theretofore approved by each Bank, which endorsements shall have the effect of setting the coverage of the Title Insurance Policy. (d) Governmental Approvals. All Necessary Project Approvals required to be in place as of such date shall be in full force and effect and the Agent Bank shall have received (i) true, correct and complete copies of all such Necessary Project Approvals and (ii) a certificate of an Authorized Officer of the Borrower confirming the statements set forth in this clause (d). (e) Payment of Subcontractors. If all or any portion of the Loans to be made on such date are to be paid to the EPC Contractor, the Agent Bank shall have received a certificate from the EPC Contractor substantially in the form of Schedule Q to the EPC Contract. 61 (f) Material Adverse Effect. No event or condition shall have occurred that could reasonably be expected to result in a Material Adverse Effect. (g) Additional Project Documents. The Agent Bank shall have received copies of Additional Project Documents required to be in place as of such date and not previously delivered to the Agent Bank (together with all amendments, supplements and exhibits thereto) and all Ancillary Documents in respect of such Additional Project Documents, each of which (i) shall have been duly authorized, executed and delivered by each Person party thereto (other than the Agent Bank, the Collateral Agent and the Banks), (ii) shall be in the form of the appropriate form attached hereto (if such form is attached) or otherwise in form and substance satisfactory to the Agent Bank, and (iii) shall be in full force and effect. All representations and warranties contained in each such Additional Project Document shall be true and correct in all material respects and no default or event of default shall have occurred thereunder which could reasonably be expected to result in a Material Adverse Effect. (h) Notice of Borrowing; Request for Issuance. The Agent Bank shall have received an executed Notice of Borrowing in respect of the Loans to be made, or a Request for Issuance in respect of any Letter of Credit to be issued, on such date, which Notice of Borrowing or Request for Issuance shall contain the certifications required hereunder, each made as of the date of such Notice of Borrowing or Request for Issuance and as of the date on which the Loans are to be made or the Letter of Credit is to be issued. (i) Equity Contribution. Each Equity Contributor shall have made all Equity Contributions required under the Equity Commitment Agreement to which such Equity Contributor is a party; provided, however, that the condition precedent set forth in this clause (i) shall apply only if the aggregate Dollar amount of all Construction Loan Borrowings equals or exceeds $84,000,000. Section 3.3. Conditions Precedent to Conversion to Term Loans. The obligation of the Banks to convert Construction Loans to Term Loans is subject to the satisfaction on the date of such conversion of the following conditions precedent, all of which shall be satisfactory to each Bank: (a) Acceptance; Commercial Operation. Each of the following shall have occurred and the Agent Bank shall have received a certificate of an Authorized Officer of the Borrower confirming the occurrence thereof: (i) the Project shall have achieved Acceptance; (ii) all Punch List items (other than Minor Punch List Items) shall have been completed; and 62 (iii) the Project shall have achieved Commercial Operation. (b) Independent Engineer's Certificate. The Agent Bank shall have received a certificate of the Independent Engineer substantially in the form of Exhibit J. (c) Transaction Documents. Each Transaction Document entered into by or on behalf of the Borrower with a Project Party which has obligations that continue after the Conversion Date shall be in full force and effect and the Agent Bank shall have received a certificate of an Authorized Officer of the Borrower confirming the foregoing. (d) No Defaults, Etc. (i)(A) No default or event of default shall have occurred and be continuing under any Transaction Document, (B) all representations and warranties made by the Borrower, and to the best of its knowledge each other Project Party, in the Transaction Documents shall be true and correct in all material respects, (C) no litigation or other proceeding shall be pending, or, to the best of the Borrower's knowledge, threatened against the Borrower or, to the best of its knowledge, any other Project Party that could reasonably be expected to result in a Material Adverse Effect and (D) there shall have been no material adverse change in the projected Project Costs or the business operations, prospects or financial or other condition of the Borrower or, to the best of the Borrower's knowledge, any other Project Party and (ii) the Agent Bank shall have received a certificate of an Authorized Officer of the Borrower certifying as to the foregoing. (e) Legal Opinions. The Agent Bank shall have received the following legal opinions, each of which shall be in form and substance satisfactory to the Agent Bank and shall be dated the Conversion Date: (i) Opinion of Counsel of corporate counsel to the Borrower, NRG Energy (so long as the O&M Guarantee is in effect) and the Operator; (ii) Opinion of Counsel of outside counsel to the Borrower, NRG Energy (so long as the O&M Guarantee is in effect) and the Operator; (iii) Opinion of Counsel of local counsel to the Borrower, NRG Energy (so long as the O&M Guarantee is in effect) and the Operator; (iv) Opinion of Counsel of regulatory counsel to the Borrower; (v) Opinion of Counsel of counsel to the Energy Purchaser; (vi) Opinion of Counsel of counsel to NIGAS; (vii) Opinion of Counsel of counsel to NGC; and 63 (viii) Opinion of Counsel of counsel to the Maintenance Contractor. (f) Insurance; Title. The Agent Bank shall have received (i) insurance certificates evidencing that all insurance coverages required to be obtained by or on behalf of the Borrower, the Operator or the Energy Purchaser under Section 5.7 have been obtained and are in full force and effect, (ii) a certificate of the Insurance Consultant stating that (A) all insurance coverages required to be obtained by or on behalf of the Borrower, the Operator or the Energy Purchaser have been obtained and (B) all such insurance coverages are in full force and effect and (iii) a notice of title continuation or an endorsement of the title company insuring the Collateral Agent's interest in the Mortgaged Property updating the Title Insurance Policy to the Conversion Date, showing no intervening Liens (other than Permitted Liens) or encumbrances on the Mortgaged Property and showing that there has been no change in the state of title and no survey exceptions not theretofore approved by each Bank, which endorsements shall have the effect of setting the coverage of the Title Insurance Policy. (g) Government Approvals. (i) All Necessary Project Approvals required to be obtained by the Conversion Date shall be in full force and effect and (ii) the Agent Bank shall have received (A) true, correct and complete copies of such Necessary Project Approvals and (B) a certificate of an Authorized Officer of the Borrower stating that (1) such Necessary Project Approvals are in full force and effect as of the Conversion Date and (2) the copies of such Necessary Project Approvals received by the Agent Bank are true, correct and complete copies of the originals of such Necessary Project Approvals. (h) Operating Budget. The Agent Bank shall have received the initial operating budget prepared pursuant to Section 4.17 of the Operation and Maintenance Agreement (the "Preliminary Operating Budget"), together with any completed extensions thereto prepared pursuant to Section 6.2.1 of the Operation and Maintenance Agreement, all in form and substance satisfactory to the Agent Bank. (i) Equity Commitments. Each Equity Contributor shall have fully satisfied its obligations under its Equity Commitment Agreement and the Agent Bank shall have received a certificate of an Authorized Officer of the Borrower confirming that such obligations have been satisfied. (j) Debt Service Reserve. Amounts on deposit in the Debt Service Reserve Account, together with any Debt Service Reserve Letter of Credit credited thereto, shall equal or exceed the Debt Service Reserve Required Balance and the Agent Bank shall have received evidence thereof in form and substance satisfactory to it. (k) Material Adverse Effect. No event shall have occurred which could reasonably be expected to result in a Material Adverse Effect. 64 (l) Qualifying Facility Status. The Agent Bank shall have received evidence satisfactory to it that the Project has obtained Qualifying Facility status through self- certification. (m) Term Notes. The Agent Bank shall have received an appropriately completed Term Note for each Bank, each of which (i) shall have been duly authorized, executed and delivered by the Borrower, (ii) shall be substantially in the form of Exhibit C and (iii) shall be in full force and effect. All representations and warranties contained in each Term Note shall be true and correct in all material respects and no default or event of default shall have occurred thereunder. Section 3.4. Conditions; General Principles. (a) The acceptance of the proceeds of each Loan shall constitute a representation and warranty by the Borrower to each of the Banks that all of the conditions required to be satisfied under this Article III in connection with the making of such Loan have been satisfied. (b) All of the agreements, instruments, reports, opinions and other documents and papers referred to in this Article III, unless otherwise expressly specified, shall be delivered to the Agent Bank for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks, and shall be satisfactory in form and substance to each Bank. ARTICLE IV. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent Bank, the Collateral Agent and the Banks to enter into this Agreement and the Banks to make the Loans, and to induce the Issuing Bank to issue the Letters of Credit, the Borrower makes the following representations and warranties, which shall survive the execution and delivery of this Agreement and the Notes, the making of each Loan and the issuance of each Letter of Credit. Any reference in any representation or warranty to a Transaction Document shall include only Transaction Documents that have been entered into on or prior to the date such representation or warranty is made or deemed made. Section 4.1. Status; Power and Authority; Due Authorization; Enforceability. (a) The Borrower (i) is a limited liability company duly organized, validly existing and in good standing in accordance with the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and is in good standing as a foreign limited liability company under the laws of each other jurisdiction in 66 which it owns or leases real property or in which the nature of its business requires it to be so qualified, except where the failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect. (b) The Borrower has full power and authority to (i) own the property and assets owned by it and lease the property and assets leased by it, (ii) transact the business in which it is engaged or proposes to be engaged, (iii) execute and deliver each of the Transaction Documents to which it is or is intended to be a party and (iv) perform its obligations under and consummate the transactions contemplated by the Transaction Documents to which it is or is intended to be a party. (c) The Borrower has taken all necessary action to authorize the execution, delivery and performance of the Transaction Documents to which it is or is intended to be a party. No consent or authorization of, filing with or other act by or in respect of any Governmental Authority or other Person is required in connection with the execution, delivery and performance by the Borrower of the Transaction Documents to which it is or is intended to be a party or the validity and enforceability of the Transaction Documents, except for the Deferred Approvals. (d) This Agreement and each other Transaction Document to which the Borrower is or is intended to be a party, when executed and delivered by the Borrower, will constitute a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms except as the enforcement thereof may be limited by applicable bankruptcy, insolvency or similar Laws affecting the enforcement of rights of creditors generally and except to the extent that enforcement of rights and remedies set forth therein may be limited by equitable principles (regardless of whether enforcement is considered in a court of law or a proceeding in equity). Section 4.2. No Violation. Neither the execution, delivery or performance by the Borrower of the Transaction Documents to which it is or is intended to be a party, nor compliance with or performance of the terms thereof (a) will contravene or violate any applicable provision of Law to which the Borrower or any of its assets is subject, (b) will conflict or be inconsistent with, result in any breach of, or constitute a default under, any agreement to which the Borrower is a party or to which it or any of its assets is subject, (c) result in the creation or imposition of (or the obligation to create or impose) any Lien (other than Permitted Liens) upon any of the property or assets of the Borrower, except, in the case of each of clauses (a), (b) and (c), any contravention, violation, conflict, inconsistency, breach, default, creation or imposition that could not reasonably be expected to result in a Material Adverse Effect, or (d) will violate the certificate of formation, agreement of limited liability company or any other constitutive documents of the Borrower. 66 Section 4.3. Litigation. There are no actions, suits, investigations or proceedings by or before any Governmental Authority or arbitrator pending or, to the best of the Borrower's knowledge, threatened against the Borrower, the Project or, to the best of the Borrower's knowledge, any other Project Party which could reasonably be expected to result in a Material Adverse Effect. Section 4.4. Financial Statements; Financial Condition; Etc. The financial statements of the Borrower delivered to the Agent Bank pursuant to Section 3.1(n) (including the related notes and schedules thereto) were prepared in accordance with GAAP and fairly present the financial condition and the results of operations of the Borrower on the dates and for the periods covered thereby, except as disclosed in the notes thereto and, with respect to interim financial statements, subject to normally recurring year-end adjustments. As of the Closing Date, the Borrower has no Contingent Obligations or other undisclosed material obligations not shown on such financial statements except for indemnity obligations under the Transaction Documents. Section 4.5. Material Adverse Change. Since the ending date of the most recent audited (or unaudited if audited statements were not available) financial statements delivered pursuant to Section 3.1(n), no event, condition or circumstance has existed or has occurred which has resulted in or could reasonably be expected to result in a Material Adverse Effect. Section 4.6. Use of Proceeds; Margin Regulations. All proceeds of each Loan will be used by the Borrower only in accordance with the provisions of Section 5.11. No part of the proceeds of any Loan will be used by the Borrower to purchase or carry any Margin Stock (as defined in Regulation U) or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X. Section 4.7. Governmental Approvals. All Governmental Approvals which under applicable Law are required to have been obtained in connection with (i) the due execution, delivery and performance by the Borrower of the Transaction Documents to which it is or is intended to be a party, (ii) the construction and operation of the Project as contemplated by the Transaction Documents and (iii) the grant by the Borrower of the Liens granted under the Security Documents or the validity, perfection and enforceability thereof or for the exercise by the Collateral Agent of its rights and remedies thereunder (all of the foregoing, the "Necessary Project Approvals"), have been obtained, are in full force and effect, if so required are in the name of the Borrower and are final and all appeal periods with respect thereto have expired or terminated, except those approvals listed on Part B of Schedule 3.1(o) but only to the extent such approvals are not required to have been obtained prior to the date this representation is made or deemed made (collectively, the "Deferred Approvals"). Each such Necessary Project Approval (other 67 than the Deferred Approvals) is listed on Part A of Schedule 3.1(o) and the information set forth in each application submitted by or on behalf of the Borrower in connection with each such Necessary Project Approval was accurate and complete in all material respects at the time of submission and continues to be accurate and complete in all material respects to the extent required for the issuance or continued effectiveness of the related Necessary Project Approval, and the Borrower has no knowledge of any event, act, condition or state of facts inconsistent with such information. The Borrower reasonably believes that each Deferred Approval shall be obtained in a final and non-appealable form in the ordinary course prior to the time it is required to be obtained hereunder or under the other Transaction Documents. There is no action, suit, investigation or proceeding pending, or, to the best knowledge of the Borrower, threatened, that could result in the modification, rescission, termination or suspension of any Governmental Approval referred to in Schedule 3.1(o) obtained prior to the date this representation is made or deemed made. Section 4.8. Compliance with Applicable Laws. (a) The Borrower has been and is currently in compliance with all applicable Laws, except where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect. (b) With respect to any date prior to the Conversion Date, the Project is being owned, developed and constructed in compliance with all applicable Laws and in compliance with the requirements of all Necessary Project Approvals except such noncompliance as could not, singly and in the aggregate, result in a Material Adverse Effect. (c) As constructed, the Project will conform to and comply with all federal, state and local zoning, environmental, land use and other Laws and the requirements of all Necessary Project Approvals and Deferred Approvals except such noncompliance as could not, singly and in the aggregate, result in a Material Adverse Effect. (d) With respect to any date after the Conversion Date, the Project is being owned, operated and maintained in compliance with all applicable Laws and in compliance with the requirements of all Necessary Project Approvals and Deferred Approvals except such noncompliance as could not, singly and in the aggregate, result in a Material Adverse Effect. Section 4.9. Sole Purpose Nature; Business. The Borrower (i) does not engage in any business other than business relating to the ownership, development, financing, construction, operation and maintenance of the Project and the activities related thereto as contemplated by the Transaction Documents and (ii) is not a party to any agreement, contract or commitment other than the Transaction Documents and those 68 agreements and instruments which it is permitted to enter into in accordance with the terms of the Transaction Documents. Section 4.10. Collateral. The Borrower has good, marketable and valid title in and to all of the Collateral, free and clear of all Liens other than Permitted Liens. Section 4.11. Security Interests and Liens. The Security Documents create, as security for the Obligations, a valid and enforceable perfected first priority security interest in all of the Collateral, in favor of the Collateral Agent, subject to no Liens other than Permitted Liens. All Governmental Approvals necessary or desirable to perfect such security interest have been duly effected or taken. Section 4.12. Patents, Trademarks, Etc. The Borrower owns or has the right to use all patents, trademarks, copyrights, licenses, franchises and other such rights or adequate licenses therein, free from burdensome restrictions, which are reasonably necessary for the ownership, development, construction, operation and maintenance of the Project, to the extent required as of the date on which the representation set forth in this Section 4.12 is made or deemed made, except where failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 4.13. Investment Company Act; Public Utility Holding Company Act. The Borrower is not (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the ICA, (ii) subject to regulation as a "holding company," a "public utility company," or an "affiliate" or a "subsidiary company" of a "registered holding company," as defined in PUHCA, or (iii) subject to any other Law which purports to restrict or regulate its ability to borrow money. Section 4.14. Governmental Regulation. (a) The Borrower is not, and, by reason of (i) the ownership of the Project or the operation thereof by the Borrower or (ii) any other transaction contemplated by this Agreement or any of the other Transaction Documents, will not be deemed by any Governmental Authority to be, subject to financial, organizational or rate regulation as (A) a "public utility" within the meaning of Section 201(e) of the Federal Power Act, (B) an "electric utility company", a "public utility company", or a "holding company" under PUHCA or (C) a "public utility" within the meaning of Section 3-105 of the Public Utilities Act of the State of Illinois, 220 ILCS 5/3-105 (1997). (b) None of the Agent Bank, the Collateral Agent or the Banks will, solely by reason of (i) the ownership, construction, operation and maintenance of the Project by the Borrower as contemplated by the Notice of Self-Certification of a Qualifying Cogeneration Facility filed by the Borrower with the Federal Energy Regulatory Commission on September 5, 1997 on Docket No. QF97-140-000, (ii) the making of any 69 Loans or (iii) the securing of the Obligations by Liens on the Collateral, be deemed by any Governmental Authority to be, or to be subject to regulation as (A) a "public utility" within the meaning of Section 201(e) of the Federal Power Act, (B) an "electric utility company", a "public utility company", or a "holding company" under PUHCA or (C) a "public utility" within the meaning of Section 3-105 of the Public Utilities Act of the State of Illinois, 220 ILCS 5/3-105 (1997). (c) If (i) the Project continues to be operated as contemplated by the Notice of Self-Certification of a Qualifying Cogeneration Facility filed by the Borrower with the Federal Energy Regulatory Commission on September 5, 1997 on Docket No. QF97-140-000 and (ii) none of the Agent Bank, the Collateral Agent or any of the Banks is otherwise a "person primarily engaged in the generation or sale of electric power (other than electric power solely from cogeneration facilities or small power production facilities)" within the meaning of 18 C.F.R. 292.206, none of the Agent Bank, the Collateral Agent or any of the Banks will, solely by reason of ownership or operation of the Project upon the exercise of its remedies under the Security Documents, be deemed by any Governmental Authority to be subject to financial, organizational or rate regulation as (A) a "public utility" within the meaning of Section 201(e) of the Federal Power Act, (B) an "electric utility company", a "public utility company", or a "holding company" under PUHCA or (C) a "public utility" within the meaning of Section 3-105 of the Public Utilities Act of the State of Illinois, 220 ILCS 5/3-105 (1997). Section 4.15. Sufficient Rights. The services to be performed and the materials to be supplied pursuant to the Project Documents and the land use and other rights granted to the Borrower in the Project will provide the Borrower with all rights and property interests necessary for the development, construction, operation and maintenance of the Project, other than those services, materials or rights which the Borrower can obtain in the ordinary course of business without material expense or material delay. Section 4.16. Property Rights, Utilities, Etc. The Borrower has secured all utility services, means of transportation, facilities and other materials necessary for the construction and operation of the Project (including as necessary, gas, electrical, water and sewage services and facilities), and any utility services which will be required at a later date for the operation of the Project will be available in the ordinary course of business. Section 4.17. No Defaults. No default, event of default, breach or event of Force Majeure has occurred or is continuing under any Transaction Document. Neither the Borrower, or to the best of the Borrower's knowledge, any Project Party is in breach of, or in default under, any Transaction Document, nor is the Borrower in breach of or in default under any other agreement or instrument to which it is a party or by which it or its properties or assets may be bound. 70 Section 4.18. Payment of Taxes. The Borrower has filed or caused to be filed all federal, state and other tax returns which are required to be filed by it and has paid or has caused to be paid (prior to their delinquency dates) all taxes, fees, charges and assessments ("Taxes") which have become due pursuant to such returns or pursuant to any assessment received by it, other than Taxes the payment of which is subject to a Contest. Section 4.19. ERISA. With respect to each Plan, the Borrower and each other member of the Controlled Group has fulfilled its obligations under the minimum funding standards of and is in compliance in all material respects with ERISA and with the Code the extent applicable to it and has not incurred any liability to the PBGC or a Plan under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. The Borrower does not have any contingent liabilities for any post- retirement benefits under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. Section 4.20. Transaction Documents. (a) Set forth on Schedule 4.20 is a list of all material contracts, agreements, letters of intent, understandings and instruments to which the Borrower is currently a party or by which it or any of its properties is bound or to which it is (or was as of the Closing Date) contemplated to become a party or by which it or any of its properties is (or was as of the Closing Date) contemplated to become bound (including, without limitation, all amendments, supplements, waivers, letter agreements, interpretations and other documents amending, supplementing or otherwise modifying or clarifying such agreements and instruments), true, correct and complete copies of all of which have been delivered to the Agent Bank on the Closing Date. (b) Each of the Transaction Documents (other than any Transaction Document which has terminated in accordance with its terms) is in full force and effect and all representations, warranties and other factual statements of the Borrower and, to the best of the Borrower's knowledge, each other Project Party in the Transaction Documents are true and correct in all material respects. Section 4.21. True and Complete Disclosure; Assumptions. (a) All representations, warranties and other factual statements (excluding projections) furnished by or on behalf of the Borrower in this Agreement, in any other Transaction Document or otherwise in writing to the Agent Bank, any Secured Party, the Independent Engineer, the Fuel Consultant, the Insurance Consultant, the Petrochemical Industry Consultant or any appraiser on or prior to the Closing Date, are, and all other representations, warranties and other factual statements hereafter furnished by or on behalf of the Borrower in writing to the Agent Bank, any Secured Party, the Independent Engineer, the Fuel Consultant, the Insurance Consultant, the Petrochemical Industry 71 Consultant or any appraiser will be true and correct in all material respects on the date as of which such information is or was dated or furnished and not incomplete by the omission of any material fact necessary to make such information (taken as a whole) not misleading at such time. (b) The assumptions constituting the basis on which the Borrower prepared the Construction Budget, the Construction Schedule, the Progress Payment Schedule and the Base Case Forecasts and developed the numbers set forth therein were developed and consistently utilized in good faith and are reasonable in all respects and fairly present the Borrower's expectations as to the matters covered thereby. The Borrower has no reason to believe that the Project will not be completed in accordance with the Construction Budget, the Construction Schedule and the Progress Payment Schedule. Section 4.22. Ownership and Related Matters. (a) As of the Closing Date, the equity of the Borrower is one hundred percent (100%) owned, directly or indirectly, by NRG Energy. (b) Other than the rights of the Energy Purchaser set forth in Section 19.5 of the Energy Services Agreement, the Borrower does not have outstanding any securities convertible into or exchangeable for any of its equity or any rights to subscribe for or to purchase, or any warrants or options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any such equity. Section 4.23. Environmental Matters. (a) Except as described in Schedule 4.23, the Borrower (i) is in compliance with all applicable Environmental Laws in all material respects, (ii) has obtained all Environmental Approvals (other than any Deferred Approvals not required to be obtained as of the date this representation is made or deemed made) required to operate its business as presently conducted or as reasonably anticipated to be conducted and is in compliance with the terms and conditions thereof, and (iii) to the Borrower's best knowledge after due inquiry, there are no circumstances that may prevent or interfere with such full compliance in the future, except in each case where such noncompliance could not reasonably be expected to result in a Material Adverse Effect. (b) Except as described in Schedule 4.23, the Borrower has not received any communication (written or oral), whether from a Governmental Authority, citizens group, employee or otherwise, that alleges that the Borrower is not in full compliance with all Environmental Laws and Environmental Approvals. 72 (c) Except as described in Schedule 4.23, there are no Environmental Claims pending or, to the best of the Borrower's knowledge, threatened against the Borrower in connection with the Project, except where such Environmental Claims could not reasonably be expected to result in a Material Adverse Effect. (d) Except as described in Schedule 4.23, there have been no releases or discharges of any Material of Environmental Concern in excess of permitted levels at the Project, except where such releases or discharges could not reasonably be expected to result in a Material Adverse Effect. Section 4.24. Other Filings. Except as set forth in the Title Insurance Policy and the Lien searches completed pursuant to Section 3.1(g)(i)(B), no mortgage, financing statement or other instrument or recordation has been filed or authorized by the Borrower or, to the best of its knowledge, any other Person, covering all or any part of the Borrower's property or assets, except with respect to Permitted Liens. Section 4.25. Qualifying Facility Status. The Project is, or prior to the Commercial Operation Date will be, a Qualifying Facility, or the Borrower is, or prior to the Commercial Operation Date will be, otherwise able to sell electricity and steam to the Energy Purchaser and to wholesale purchasers without being regulated as an "electric utility" or an "electric utility holding company" under applicable federal or state Law. Section 4.26. Subsidiaries, Etc. The Borrower has no Subsidiaries and owns no equity interest in any other corporation, partnership, joint venture or other entity. ARTICLE V. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that on and after the Closing Date and until the Loan Agreement Termination Date, unless otherwise agreed by the Required Banks: Section 5.1. Information Covenants. The Borrower shall furnish to the Agent Bank: (a) Quarterly Unaudited Financial Statements of the Borrower. Within forty-five (45) days after the close of each fiscal quarter in each fiscal year of the Borrower, the balance sheet of the Borrower as at the end of such quarterly period and the related statements of income, cash flows and changes in financial position for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative figures for the related periods in the prior fiscal year. 73 (b) Annual Audited Financial Statements of the Borrower. Within one hundred twenty (120) days after the close of each fiscal year of the Borrower, the balance sheet of the Borrower as at the end of such fiscal year and the related statements of income, cash flows and changes in financial position for such fiscal year, setting forth comparative figures for the preceding fiscal year and certified without qualification by the Auditors, together with a report of the Auditors stating that in the course of their regular audit of the financial statements of the Borrower, which audit was conducted in accordance with GAAP, the Auditors have obtained no knowledge of any Default or Event of Default, or if in the opinion of the Auditors a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof. (c) Officer's Certificates. At the time of the delivery of the financial statements under clauses (a) and (b) above, a certificate of an Authorized Officer of the Borrower which certifies (i) that such financial statements fairly present the financial condition and the results of operations of the Borrower on the dates and for the periods indicated in accordance with GAAP, subject, in the case of interim financial statements, to the absence of notes and normally recurring year- end adjustments, and (ii) that such Authorized Officer has reviewed the terms of the Financing Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the business and financial condition of the Borrower during the accounting period covered by such financial statements, and that as a result of such review such Authorized Officer has concluded that no Default or Event of Default has occurred during the period commencing at the beginning of the accounting period covered by the financial statements accompanied by such certificate and ending on the date of such certificate or, if any Default or Event of Default has occurred, specifying the nature and extent thereof and, if continuing, the action the Borrower proposes to take in respect thereof. Such certificate shall set forth the calculations required to establish the Debt Service Coverage Ratio and Excess Cash Flow for the fiscal period covered by such financial statements. (d) Management Letters. Promptly after the Borrower's receipt thereof, a copy of any "management letter" or other material report received by the Borrower from the Auditors. (e) Annual Audited Financial Statements of other Project Parties. Within one hundred twenty (120) days after the close of the respective fiscal years of each of the Energy Purchaser, the Operator, the O&M Guarantor (so long as the O&M Guarantee is in effect) and the Maintenance Contractor, the balance sheet of such Project Party as at the end of such fiscal year and the related statements of income, cash flows and changes in financial position for such fiscal year, setting forth comparative figures for the preceding fiscal year and certified (with customary qualifications and exceptions) by independent certified public accountants of recognized national standing acceptable to the Agent Bank. 74 (f) Amendments to Construction Budget and Construction Schedule; Change Orders. (i) Written notice of any proposed amendments to the Construction Schedule, the Construction Budget or the Progress Payment Schedule and (ii) a copy of any proposed Change Order (which shall be provided to the Independent Engineer simultaneously with delivery thereof to the Agent Bank pursuant to this clause (f)); provided, however, that any such amendment or Change Order shall not become effective (and, if applicable, the then effective budget or schedule, as the case may be, shall continue to remain in effect) unless and until it has been approved in accordance with the terms hereof. (g) Notice of Default, Litigation, Etc. Promptly and in any event within two (2) Business Days after an Authorized Officer of the Borrower obtains actual knowledge thereof, notice of: (i) any Default or Event of Default, specifying the nature thereof and the action which the Borrower is taking and proposes to take with respect to the same; (ii) any breach or default under any Project Document (if such breach could reasonably be expected to result in a Material Adverse Effect), specifying the nature thereof and the action which the Borrower is taking and proposes to take with respect to the same; (iii) any event of Force Majeure or similar event under any Project Document; (iv) any pending or threatened litigation, arbitration or proceeding against the Borrower, the Operator or the O&M Guarantor, or, to the best knowledge of the Borrower, any other Project Party related to the Project, which could reasonably be expected to result in a Material Adverse Effect; (v) any loss or threat to any Necessary Project Approval that could reasonably be expected to result in a Material Adverse Effect; (vi) any Environmental Claim or any event relating to the environment or any Environmental Law which could reasonably be expected to result in a Material Adverse Effect; (vii) any notice from any Governmental Authority with respect to the acquisition by condemnation, seizure or otherwise of all 75 or any portion of the Project if such acquisition could reasonably be expected to result in a Material Adverse Effect; and (viii) any other event or condition which could reasonably be expected to result in a Material Adverse Effect; (h) Monthly Progress Invoices. Promptly and in any event within five (5) Business Days after the Borrower's receipt thereof, all Monthly Progress Invoices delivered to the Borrower pursuant to the EPC Contract; (i) O&M Deliverables. Promptly and in any event within five (5) Business Days after the Borrower's receipt thereof, copies of all O&M Deliverables (which shall be provided to the Independent Engineer simultaneously with delivery thereof to the Agent Bank pursuant to this clause (i)); (j) Scheduled Major Maintenance. Written notice of any scheduled major maintenance to be performed in accordance with Section 4.2.14 of the Operation and Maintenance Agreement (which shall be provided to the Independent Engineer simultaneously with delivery thereof to the Agent Bank pursuant to this clause (j)); (k) Amendments to Operating Budget and Major Maintenance Budget; O&M Change Orders. (i) Written notice of any proposed amendments to any Operating Budget or Major Maintenance Budget and (ii) copies of any proposed O&M Change Orders (each of which shall be provided to the Independent Engineer simultaneously with delivery thereof to the Agent Bank pursuant to this clause (k)); provided, however, that any such amendment or O&M Change Order shall not become effective unless and until it has been approved in accordance with the terms hereof; and (l) Other Information. From time to time, such other information or documents (financial or otherwise) as the Agent Bank or any Bank through the Agent Bank may reasonably request. Section 5.2. Maintenance of Existence. The Borrower shall at all times preserve and maintain in full force and effect (a) its existence as a limited liability company in good standing in the State of Delaware, (b) its qualification to do business in each other jurisdiction where such qualification is necessary and (c) all of its powers, rights, privileges and franchises necessary for the construction, ownership, maintenance and operation of the Project. Section 5.3. Books, Records and Inspections. The Borrower shall (a) keep proper books of record and accounts in which full, true and correct entries in conformity with GAAP and all requirements of Law shall be made of all dealings and transactions in 76 relation to its business and activities, (b) provide the officers and designated representatives of the Agent Bank, the Collateral Agent and the Independent Engineer reasonable rights to visit and inspect any of the properties of the Borrower (subject to all safety standards and procedures of the Borrower, the Operator and the Energy Purchaser), and to examine the books of record and accounts of the Borrower, and discuss the affairs, finances and accounts of the Borrower with, and be advised as to the same by, it and its officers, and (c) authorize the Auditors to communicate directly with the Agent Bank and the Collateral Agent. Section 5.4. Taxes and Claims. The Borrower shall file all tax returns required to be filed by it and pay or cause to be paid when due all Taxes and all charges, betterments or other assessments relating to the Mortgaged Property, and all other lawful claims required to be paid by it, except to the extent any of the same are subject to a Contest. Section 5.5. Governmental Approvals. The Borrower shall (i) obtain and maintain in full force and effect all Necessary Project Approvals (including all Environmental Approvals) and (ii) use its best efforts to obtain all Deferred Approvals (all of which shall be satisfactory to the Required Banks (in consultation with the Independent Engineer)) as promptly as practicable but in any event no later than the date required to be obtained under applicable Law, except in each case where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Any Necessary Project Approvals and Deferred Approvals relating to the supply or transportation of natural gas to or on behalf of any supplier of gas under any Gas Contract shall name the Borrower as permitted. Section 5.6. Compliance with Law. The Borrower shall comply with all applicable Laws (including all applicable Environmental Laws) and all Necessary Project Approvals, except where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect. Section 5.7. Insurance. The Borrower shall obtain and maintain, or cause to be obtained and maintained, the types and amounts of insurance listed and described on Schedule 5.7 in accordance with the terms and provisions set forth in such Schedule. The Borrower shall obtain and maintain such other insurance policies reasonably required by, and in form and substance reasonably satisfactory to, the Agent Bank (i) insuring the Collateral against loss by fire, explosion, theft and other casualties and (ii) insuring the Borrower, and the Secured Parties as additional loss payees, against liability for personal injury and property damage relating to the Collateral. In the event the Borrower fails to take out or maintain the full insurance coverage required by this Section 5.7, the Agent Bank, upon ten (10) days prior notice (unless the aforementioned insurance would lapse within such period, in which event notice shall not be required) to the Borrower of any such failure, may (but shall not be obligated to) take out the required policies of insurance 77 and pay the premiums on the same. All amounts so advanced by the Agent Bank shall become an additional Obligation of the Borrower under this Agreement and the Borrower shall forthwith pay such amounts to the Agent Bank, together with interest from the date of payment by the Agent Bank at the Default Rate. Section 5.8. Mobilization Budget; Operating Budget; Major Maintenance Budget; Spare Parts List; Heat Rate. (a) (i) The Borrower shall provide a copy of any proposed budget (the "Mobilization Budget") prepared in accordance with Section 4.1.20 of the Operation and Maintenance Agreement to the Agent Bank and the Independent Engineer promptly upon, and in any event within five (5) Business Days after, receipt by the Borrower of any proposed Mobilization Budget from the Operator. The Agent Bank (in consultation with the Independent Engineer) shall have fifteen (15) days from receipt thereof by the Agent Bank to approve or reject any proposed Mobilization Budget delivered to the Agent Bank pursuant to the preceding sentence. If the Agent Bank (in consultation with the Independent Engineer) approves or fails to reject any proposed Mobilization Budget within fifteen (15) days of receipt thereof by the Agent Bank, such Mobilization Budget shall become effective. If the Agent Bank (in consultation with the Independent Engineer) rejects any proposed Mobilization Budget within fifteen (15) days of receipt thereof by the Agent Bank, such Mobilization Budget shall not be effective and the Borrower shall submit a revised version of such Mobilization Budget to the Agent Bank and the Independent Engineer for approval in accordance with this clause (a). (ii) The Borrower shall, not later than thirty (30) days before the Conversion Date, adopt an operating plan and budget with respect to the Project for the period from such date to the conclusion of the then current calendar year and provide a copy of such operating plan and budget at such time to the Agent Bank and the Independent Engineer. No less than forty-five (45) days in advance of the beginning of each calendar year thereafter, the Borrower shall similarly adopt an operating plan and budget for the ensuing calendar year and provide a copy of such operating plan and budget at such time to the Agent Bank and the Independent Engineer. (Each such operating plan and budget is herein called an "Operating Budget".) Each Operating Budget shall become effective if it shall have not been rejected by the Required Banks (in consultation with the Independent Engineer) within fifteen (15) days of receipt thereof by the Agent Bank. If the Borrower shall not have adopted an annual Operating Budget before the beginning of any calendar year or any Operating Budget adopted by the Borrower shall not have been accepted by the Required Banks (in consultation with the Independent Engineer) before the beginning of any upcoming calendar year, the Operating Budget for the preceding calendar year (as increased or decreased in accordance with Section 6.2.4 of the Operation and Maintenance Agreement) shall, until the adoption of an annual Operating Budget by the Borrower and acceptance of such Operating Budget by the Required Banks (in consultation with the Independent Engineer), as the case may be, be deemed to be in force and 78 effective as the annual Operating Budget for such upcoming calendar year; provided that if the initial Operating Budget is not approved by the Required Banks (in consultation with the Independent Engineer), the Borrower may use a budget that is consistent with the Base Case Forecasts until an initial Operating Budget is approved, and shall work diligently to prepare an initial Operating Budget that is acceptable to the Required Banks (in consultation with the Independent Engineer). (b) No less than forty-five (45) days in advance of the beginning of each calendar year following the Conversion Date, the Borrower shall adopt a plan and budget for major maintenance tasks for the five (5) year period commencing with the subsequent calendar year and provide a copy of such plan and budget at such time to the Agent Bank and the Independent Engineer. (Each such plan and budget is herein called a "Major Maintenance Budget".) Each Major Maintenance Budget shall become effective if it shall not have been rejected by the Required Banks (in consultation with the Independent Engineer) within fifteen (15) days of receipt thereof by the Agent Bank. If the Borrower shall not have adopted an annual Major Maintenance Budget before the beginning of any calendar year or any Major Maintenance Budget adopted by the Borrower shall not have been accepted by the Required Banks (in consultation with the Independent Engineer) before the beginning of any upcoming calendar year, the Major Maintenance Budget for the preceding calendar year shall, until the adoption of an annual Major Maintenance Budget by the Borrower and acceptance of such Major Maintenance Budget by the Required Banks (in consultation with the Independent Engineer), as the case may be, be deemed to be in force and effective as the annual Major Maintenance Budget for such upcoming calendar year; provided that if the initial Major Maintenance Budget is not approved by the Required Banks (in consultation with the Independent Engineer), the Borrower may use a budget that is consistent with the Base Case Forecasts until an initial Major Maintenance Budget is approved, and shall work diligently to prepare an initial Major Maintenance Budget that is acceptable to the Required Banks (in consultation with the Independent Engineer). (c) Each Operating Budget and each Major Maintenance Budget delivered to the Agent Bank and the Independent Engineer pursuant to this Section 5.8 shall be accompanied by a memorandum detailing all material assumptions used in the preparation of such Operating Budget or Major Maintenance Budget, as the case may be, shall contain a line item for each budget category (which budget categories shall be acceptable to the Required Banks (in consultation with the Independent Engineer)), and shall specify for each month and for each such budget category, the amount budgeted for such category for such month. 79 (d) The Borrower shall provide a copy of any list of spare parts and related items (each a "Spare Parts List") developed pursuant to Section 4.1.5 of the Operation and Maintenance Agreement to the Agent Bank and the Independent Engineer. The Agent Bank (in consultation with the Independent Engineer) shall have fifteen (15) days from receipt thereof by the Agent Bank to approve or reject any Spare Parts List delivered to the Agent Bank pursuant to the preceding sentence. If the Agent Bank (in consultation with the Independent Engineer) approves or fails to reject any Spare Parts List within fifteen (15) days of receipt thereof by the Agent Bank, such Spare Parts List shall become effective. If the Agent Bank (in consultation with the Independent Engineer) rejects any Spare Parts List within fifteen (15) days of receipt thereof by the Agent Bank, such Spare Parts List shall not be effective and the Borrower shall submit a revised version of such Spare Parts List to the Agent Bank and the Independent Engineer for approval in accordance with this clause (d). (e) The Borrower shall present in writing any proposed Guaranteed Heat Rate curve to the Agent Bank and the Independent Engineer promptly and in any event within five (5) Business Days of receipt thereof by the Borrower pursuant to the Operation and Maintenance Agreement. The Agent Bank (in consultation with the Independent Engineer) shall have fifteen (15) days from receipt thereof by the Agent Bank to approve or reject any Guaranteed Heat Rate curve presented to the Agent Bank pursuant to the preceding sentence. If the Agent Bank (in consultation with the Independent Engineer) approves or fails to reject any Guaranteed Heat Rate curve within fifteen (15) days of receipt thereof by the Agent Bank, such Guaranteed Heat Rate curve shall become effective. If the Agent Bank (in consultation with the Independent Engineer) rejects any Guaranteed Heat Rate curve within fifteen (15) days of receipt thereof by the Agent Bank, such Guaranteed Heat Rate curve shall not be effective and the Borrower shall submit a revised version of such Guaranteed Heat Rate curve to the Agent Bank and the Independent Engineer for approval in accordance with this clause (e). (f) The Borrower shall present in writing any formula (each a "Heat Rate Formula") for determination of the heat rate of the Project to the Agent Bank and the Independent Engineer promptly and in any event within five (5) Business Days of completion thereof pursuant to Section 6.6 of the Operation and Maintenance Agreement. The Agent Bank (in consultation with the Independent Engineer) shall have fifteen (15) days from receipt thereof by the Agent Bank to approve or reject any Heat Rate Formula presented to the Agent Bank pursuant to the preceding sentence. If the Agent Bank (in consultation with the Independent Engineer) approves or fails to reject any Heat Rate Formula within fifteen (15) days of receipt thereof by the Agent Bank, such Heat Rate Formula shall become effective. If the Agent Bank (in consultation with the Independent Engineer) rejects any Heat Rate Formula within fifteen (15) days of receipt thereof by the Agent Bank, such Heat Rate Formula shall not be effective and the Borrower shall submit a revised version of such Guaranteed Heat Rate curve to the Agent Bank and the Independent Engineer for approval in accordance with this clause (f). 80 Section 5.9. Project Implementation. (a) The Borrower shall duly construct and complete, or cause the construction and completion of, the Project in accordance with the Construction Budget, the Construction Schedule and the Technical Specifications, use reasonable efforts to cause the Conversion Date to occur on or before the date which is seventeen (17) months from the Closing Date, and in any case shall cause the Conversion Date to occur on or before the Date Certain, and shall cause Final Completion (as defined in the EPC Contract) to occur as promptly as practicable after the Acceptance Date. (b) The Borrower shall keep, or cause to be kept, in good working order and condition, ordinary wear and tear excepted, the Project and all of its other properties necessary or useful in the proper conduct of its business. (c) The Borrower shall, or shall cause the Operator to, as applicable, carry out and operate and maintain the Project in accordance with (i) the terms of this Agreement and the other Transaction Documents, (ii) all Necessary Project Approvals and Deferred Approvals and (iii) industry standards and good utility practice. Section 5.10. Further Assurances. ( (a) The Borrower shall (i) execute and deliver all documents as shall be necessary and advisable or that the Agent Bank or the Collateral Agent shall reasonably request in connection with the rights and remedies of the Banks, the Agent Bank and the Collateral Agent under the Transaction Documents and (b) take all reasonable actions requested by the Agent Bank or the Collateral Agent or that the Borrower knows are necessary to establish, maintain, protect and perfect the Liens of the Collateral Agent on the Collateral. (b) The Borrower shall take all action reasonably required to cause each Additional Project Document to be or become subject to the Lien of the Security Documents (whether by amendment to the applicable Security Document or otherwise) and shall deliver or cause to be delivered to the Agent Bank such legal opinions, certificates or other documents with respect to such Additional Project Document as the Agent Bank, the Collateral Agent or the Required Banks may reasonably request. The Borrower will execute and deliver, and will use commercially reasonable efforts to cause each Person (other than the Borrower) to execute and deliver, a Consent in writing, which Consent shall be in a form and substance satisfactory to the Agent Bank, to the Liens created by the Security Documents (or otherwise) on each Additional Project Document entered into by the Borrower with the prior consent of the Agent Bank (as contemplated by Section 6.13) and such legal opinions relating to such Additional Project Document and such consents as the Agent Bank or the Required Banks may reasonably request. (c) To the extent and at such time as the Borrower acquires additional property, easements and rights-of- way, the Borrower shall promptly cause such 81 property, easements and rights-of-way to be subjected to the Lien of the Security Documents. At the request of the Collateral Agent, the Borrower will execute and deliver all necessary amendments to the Security Documents in respect thereto and file and record all Governmental Approvals necessary or advisable to enable the Collateral Agent to obtain a first priority perfected Lien on such additional property, easements and rights-of-way. Section 5.11. Use of Proceeds. The Borrower shall use all proceeds of Loans made hereunder, all Letters of Credit issued hereunder and all Equity Contributions received pursuant to any Equity Commitment Agreement only in accordance with this Agreement and the other Financing Documents. Section 5.12. Title. The Borrower shall maintain good, legal and valid title to its assets and properties, subject to no Liens other than Permitted Liens. Section 5.13. Project Documents. The Borrower shall maintain in full force and effect, perform its obligations under, protect, defend and enforce its rights under and take all action necessary to prevent the termination of each of the Project Documents (other than in accordance with the terms of such Project Documents). Section 5.14. Qualifying Facility Status. Following the Commercial Operation Date, the Borrower shall (a) maintain the Project as a Qualifying Facility or (b) otherwise be able to sell electricity and steam to the Energy Purchaser and to wholesale purchasers without being regulated as an "electric utility" or an "electric utility holding company" under applicable federal or state Law. Section 5.15. Application of Revenues. The Borrower shall deposit and apply, or cause to be deposited and applied, all revenues received by or on behalf of it in accordance with the terms set forth in Article VII. Section 5.16. Interest Rate Protection Agreements. The Borrower shall enter into Interest Rate Protection Agreements satisfactory to the Agent Bank which, (a) if the average LIBOR over any thirty (30) day period equals or exceeds a level of 6.35% at any time prior to the Conversion Date, fix or cap the rate of interest payable on at least fifty percent (50%) of outstanding Construction Loans through the Construction Loan Maturity Date, and (b) if the average LIBOR over any thirty (30) day period equals or exceeds a level of 6.85% at any time after the Conversion Date, fix or cap the rate of interest payable on at least fifty percent (50%) of outstanding Term Loans through the Final Maturity Date. Section 5.17. Long Term Service Agreement. On or prior to December 31, 1997, the Borrower shall enter into the Long Term Service Agreement and shall deliver to the Agent Bank an executed version of the Long Term Service Agreement and 82 each Ancillary Document in respect thereof, all of which shall be in form and substance satisfactory to the Agent Bank. Section 5.18. RO EPC Contract. On or prior to December 31, 1997, the Borrower shall enter into the RO EPC Contract and shall deliver to the Agent Bank an executed version of RO EPC Contract and each Ancillary Document in respect thereof, all of which shall be in form and substance satisfactory to the Agent Bank. Section 5.19. Payment. The Borrower shall promptly pay or cause to be paid when due all principal of and interest on the Loans and all Fees and other amounts due hereunder in accordance with the terms hereof. Section 5.20. ERISA. The Borrower shall promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed might result in the imposition of a Lien against any of its properties or assets and shall promptly notify the Agent Bank of (i) the occurrence of any reportable event (as defined in ERISA) affecting a Plan, other than any such event of which the PBGC has waived notice by regulation, (ii) receipt of any notice from the PBGC of its intention to seek termination of any Plan or appointment of a trustee therefor, (iii) its intention to terminate or withdraw from any Plan, and (iv) the occurrence of any event affecting any Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower under any post-retirement Welfare Plan benefit. Section 5.21. Punch List. The Borrower shall provide a copy of any proposed Punch List prepared in accordance with Section 10.3 of the EPC Contract (or in accordance with any similar provision in the RO EPC Contract, if applicable) to the Agent Bank and the Independent Engineer promptly upon, and in any event within five (5) Business Days after, receipt by the Borrower of any proposed Punch List from the EPC Contractor (or the RO EPC Contractor, if applicable). The Agent Bank (in consultation with the Independent Engineer) shall have fifteen (15) days from receipt thereof by the Agent Bank to approve or reject any proposed Punch List delivered to the Agent Bank pursuant to the preceding sentence. If the Agent Bank (in consultation with the Independent Engineer) approves or fails to reject any proposed Punch List within fifteen (15) days of receipt thereof by the Agent Bank, such Punch List shall become effective. If the Agent Bank (in consultation with the Independent Engineer) rejects any proposed Punch List within fifteen (15) days of receipt thereof by the Agent Bank, such Punch List shall not be effective and the Borrower shall submit a revised version of such Punch List to the Agent Bank and the Independent Engineer for approval in accordance with this Section 5.21. Section 5.22. Operator Termination. The Borrower shall terminate the Operator pursuant to Section 12.4 of the Operation and Maintenance Agreement if the 83 Borrower is required to pay more than $1,900,000 in Operator Standby Power Costs (as defined in the Operation and Maintenance Agreement) in any Operating Year. Section 5.23. Minor Punch List Items. The Borrower shall cause all Minor Punch List Items to be completed on or prior to the date which is twelve (12) months after the Provisional Acceptance Date (as defined in the EPC Contract). Section 5.24. Gas Agreement. Within four (4) years of the Commercial Operation Date, the Borrower shall either (i) enter into one or more contracts which shall be in form and substance satisfactory to the Required Banks and which in the aggregate (a) have a term of not less than twenty (20) years and (b) provide the Borrower with natural gas transportation and storage services substantially equivalent in quality and quantity to the natural gas transportation and storage services required to be provided by NIGAS under the NIGAS Agreement, or (ii) provide other arrangements which shall be in form and substance satisfactory to the Required Banks. Section 5.25. Millennium Letter of Credit. At any time the Borrower is required under Section 32.1 of the Energy Services Agreement to cause the letter of credit described in such Section to be in full force and effect, the Borrower, pursuant to such Section, shall deliver an extension of such letter of credit or a replacement letter of credit no later than three hundred sixty-five (365) days prior to the termination of the existing letter of credit. ARTICLE VI. NEGATIVE COVENANTS. The Borrower covenants and agrees that on and after the Closing Date until the Loan Agreement Termination Date, unless otherwise agreed by the Required Banks: Section 6.1. Distributions. The Borrower shall not make, pay or declare any distributions or return any capital to its members or authorize or make any other distribution, payment or delivery of property or cash to its members as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, any membership interests, units or other equity interests of the Borrower now or hereafter outstanding (or any options or rights issued with respect thereto), or set aside any funds for any of the foregoing purposes (all the foregoing "Distributions"), except upon satisfaction of the Distribution Conditions and otherwise in accordance with the Section 7.9. Section 6.2. Indebtedness. The Borrower shall not create, incur, assume, suffer to exist or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, other than the following (such Indebtedness, "Permitted Debt"): 84 (a) Indebtedness incurred hereunder and under the other Financing Documents; (b) Indebtedness incurred under any Debt Service Reserve Letter of Credit; (c) Indebtedness incurred to finance the making of capital improvements to the Project to the extent such capital improvements are reasonably required by applicable Law; provided that (i) the Independent Engineer shall confirm that such capital improvements are required to comply with applicable Law and (ii) after giving effect to the incurrence of such Indebtedness, the average projected Debt Service Coverage Ratio shall not be less than 1.4 to 1 and the minimum projected Debt Service Coverage Ratio shall not be less than 1.2 to 1, each through the Final Maturity Date, as certified by an Authorized Officer of the Borrower and confirmed as reasonable by the Independent Engineer; (d) Indebtedness incurred to finance the making of capital improvements to the Project which are not required by applicable Law; provided that (i) no Default or Event of Default shall have occurred and be continuing or shall result from the incurrence of such Indebtedness and (ii) after giving effect to the incurrence of such Indebtedness, the average projected Debt Service Coverage Ratio shall not be less than 1.5 to 1 and the minimum projected Debt Service Coverage Ratio shall not be less than 1.3 to 1, each through the Final Maturity Date, as certified by an Authorized Officer of the Borrower and confirmed as reasonable by the Independent Engineer; (e) Indebtedness incurred for working capital purposes in an amount not to exceed $5,000,000; (f) Indebtedness incurred in connection with Interest Rate Protection Agreements entered into to provide for a hedge against interest payable on other Permitted Debt; (g) Trade Indebtedness, (other than for borrowed money), arising in the ordinary course of business; provided that such Indebtedness shall not be more than ninety (90) days past due, unless such Indebtedness is subject to a Contest; (h) To the extent deemed Indebtedness (other than for borrowed money), obligations under the Project Documents; and (i) Purchase money debt in an amount not to exceed $1,000,000. 85 Section 6.3. Liens. The Borrower shall not create, incur, assume or suffer or permit to exist, directly or indirectly, any Lien on any of its property now owned or hereafter acquired, other than the following (such Liens, "Permitted Liens"): (a) Liens granted to the Collateral Agent for the benefit of the Secured Parties pursuant to the Security Documents; (b) Liens to secure Permitted Debt; provided that (i) no Liens shall secure Indebtedness pursuant to clause (e), (f) (except with respect to Secured Interest Rate Protection Agreements entered into by the Borrower with a Bank), (g), or (h) of Section 6.2, (ii) Indebtedness incurred pursuant to clause (i) of Section 6.2 shall be secured only by Liens on the assets financed with such Indebtedness and (iii) any creditor providing Indebtedness pursuant to clause (b), (c) or (d) of Section 6.2 shall enter into an intercreditor agreement in form and substance satisfactory to the Agent Bank; (c) Liens (other than any Lien imposed by ERISA) in connection with workmen's compensation, unemployment insurance or other social security or pension obligations; (d) Mechanics', workmen's, materialmen's, suppliers', construction or like Liens, in each case (i) for amounts not yet due and payable or (ii) for amounts due and payable with respect to ordinary course claims which are subject to a Contest, unless the existence of such Liens could reasonably be expected to result in a Material Adverse Effect; (e) Servitudes, easements, rights-of-way, restrictions or minor defects or irregularities in title and such other encumbrances or charges against real property or interests therein referred to in the Title Insurance Policy as are of a nature generally existing with respect to properties of a similar character and which do not in any way materially interfere with the use thereof; (f) Liens for Taxes not yet delinquent or, if delinquent, which are subject to a Contest; and (g) Attachment or judgment Liens; provided that (i) the existence of such Liens could not reasonably be expected to result in a Material Adverse Effect and (ii) such Liens are discharged within thirty (30) days of the creation thereof. Section 6.4. Restriction on Fundamental Changes. The Borrower shall not enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution of) itself or discontinue its business. 86 Section 6.5. Subsidiaries; Advances, Investments and Loans. The Borrower shall not form or have any Subsidiaries, make investments, loans or advances or otherwise acquire any stock, obligations or securities of any Person, except that the Borrower may maintain the Project Accounts and invest amounts on deposit therein in Permitted Investments in accordance with Section 7.2. Section 6.6. Arm's Length Transactions. The Borrower shall not enter into any transaction or series of related transactions with any person (including any Affiliate of the Borrower) other than on an arm's-length basis. Section 6.7. Sole Purpose Nature. The Borrower shall not enter into or engage in any business other than the ownership, development, financing, construction, operation and maintenance of the Project and the activities related thereto. Section 6.8. Certain Restrictions. Except in connection with Permitted Debt and Permitted Liens, the Borrower shall not enter into any agreement (other than the Transaction Documents as in effect on the Closing Date) which restricts the ability of the Borrower to amend any Transaction Document, sell any of its assets, create Liens, incur Indebtedness or make Distributions. Section 6.9. Sale of Assets. The Borrower shall not sell, assign, dispose of or abandon the Project or any of its other assets (other than electricity, steam and any by-products produced by the Project) or assign any rights other than (so long as no Default or Event of Default has occurred and is continuing) (a) those in the ordinary course of its business for cash equal to the fair market value of such assets at the time of sale, (b) sales of equipment which is uneconomic or obsolete or sales of assets that are no longer used or useful to the Borrower, (c) any sale, assignment or transfer by the Borrower to any Affiliate of the Borrower, provided that the assets so sold, assigned, or transferred are (i) not integral to the proper and efficient operation and maintenance of the Project, (ii) sold for fair market value and (iii) sold for consideration consisting of cash, cash equivalents (other than notes or other obligations of the Person to whom such assets are transferred or such Person's Affiliates) or other assets useful to the operation and maintenance of the Project, or (d) any assignment of rights constituting a Permitted Lien. Section 6.10. Amendment of Project Documents. The Borrower shall not terminate, assign, modify or waive any provision of, or consent to the termination, assignment, modification or waiver of any provision of, any Project Document without the prior written consent of the Agent Bank. Section 6.11. Change Orders; Budgets. (a) The Borrower shall not(x) enter into any Change Order or (y) modify or permit any modification of the Construction Budget; provided that the Borrower may enter into Change Orders or any such modifications which do not exceed $1,000,000 individually or $3,000,000 in the 87 aggregate and which have been reviewed and approved by the Independent Engineer, if, after giving effect to such Change Orders or modifications, (a) the Project when completed will have at least 117 MW installed capacity and at least a 114 MW net capacity and will have boiler capacity to produce 1,080,000 pounds per hour of steam, (b) the Project will achieve Acceptance and Commercial Operation and all Punch List items (other than Minor Punch List Items) will be completed on or before the Date Certain and (c) total Project Costs will not exceed the sum of the Project Equity Amount and the Total Construction Loan Commitment. (b) The Borrower shall not (x) enter into any O&M Change Order or (y) modify or permit any modification of any Operating Budget or Major Maintenance Budget; provided that the Borrower may enter into O&M Change Orders or any such modifications (i) which do not exceed $250,000 individually or $500,000 in the aggregate in any one Operating Year, if, after giving effect to such O&M Change Orders or modifications, the projected Debt Service Coverage Ratio for such Operating Year shall be equal to or greater than 1.2 to 1, or (ii) which are required pursuant to Section 6.3.1, 6.3.2, 6.3.3 or 6.4 of the Operation and Maintenance Agreement. Section 6.12. Margin Regulations. No part of the proceeds of any Loan shall be used by the Borrower to purchase or carry any Margin Stock (as defined in Regulation U) or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. The Borrower shall not use the proceeds of any Loan in a manner that will violate or be inconsistent with the provisions of Regulations G, T, U or X. Section 6.13. Additional Project Agreements. The Borrower shall not enter into any material agreement relating to the construction, operation, maintenance or use of the Project, except as contemplated on the Closing Date or as approved in writing by the Agent Bank. Section 6.14. Expenditures. The Borrower shall not make any expenditures for operation and maintenance or any capital expenditures except (a) in accordance with the Construction Budget or the current annual Operating Budget, as the case may be, (b) for the payment of Fuel Expenses or (c) as approved in writing by the Agent Bank. Section 6.15. Amendments to Construction Schedule or Progress Payment Schedule; Test Procedures. (a) The Borrower shall not change or permit any change to be made to the Construction Schedule or the Progress Payment Schedule, except changes which have been reviewed and approved by the Independent Engineer and which do not impair the ability of the Project to achieve Acceptance and Commercial Operation, or the ability of the EPC Contractor or the RO EPC Contractor, as the case may be, to complete all Punch List items (other than Minor Punch List Items), on or prior to the Date Certain; provided that the Borrower shall not change or permit any change to be made to Schedule 88 O to the EPC Contract without the prior written consent of the Agent Bank, (in consultation with the Independent Engineer). (b) The Borrower shall not approve the Performance Tests unless such Performance Tests have been reviewed and approved by the Independent Engineer, which approval shall not be unreasonably withheld. Section 6.16. Restricted Uses. The Borrower shall not use, maintain, operate or occupy or allow the use, maintenance or occupancy of any portion of the Project or the Site for any purpose: (a) which is reasonably likely to create a significant hazard, unless safeguarded as required by applicable Law; provided, however, that this clause (a) shall not be deemed to prohibit the Borrower from carrying out the Project in accordance with the terms of the Project Documents in a reasonable and prudent manner; (b) which may constitute a public or private nuisance that could reasonably be expected to result in a Material Adverse Effect; (c) which may make void, voidable or cancelable, or increase the premium of, any insurance then in force with respect to the Site or the Project or any part thereof unless, in the case of an increase in premium, the Borrower gives proof of payment of such increase; or (d) other than for the intended purpose thereof in connection with the development, construction, operation and maintenance of the Project. Section 6.17. NGC Agreement. The Borrower shall not reject any proposed Commodity Price (as defined in the NGC Agreement) and/or any proposed Reservation Charge (as defined in the NGC Agreement) except as approved in writing by the Agent Bank. ARTICLE VII. ACCOUNTS AND CASH FLOWS. Section 7.1. Establishment and Maintenance of Project Accounts. (a) The Borrower hereby establishes with the Collateral Agent each of the Construction Account, the Revenue Account, the Operation and Maintenance Account, the Debt Payment Account, the Debt Service Reserve Account, the Maintenance Reserve Account, the NGC Reserve Account, the Distribution Retention Account, the Letter of Credit Account and the Proceeds Account (collectively, the "Project Accounts") in the name of the Collateral Agent. All Project Accounts shall be in the exclusive possession of, and under the exclusive dominion and control of, the Collateral Agent. The Borrower hereby irrevocably di- 89 rects and authorizes the Collateral Agent to deposit into and withdraw funds from such Project Accounts in accordance with the terms and conditions of this Agreement. The Borrower shall have no right of withdrawal in respect of any of the Project Accounts except in accordance with this Article VII. Each transfer of funds to be made hereunder shall be made only to the extent that funds are on deposit in the affected Project Account, and the Collateral Agent shall have no responsibility to make additional funds available in the event that funds on deposit are insufficient. All instructions regarding the Project Accounts, monies on deposit therein and Permitted Investments credited thereto shall be delivered to the Collateral Agent at its address specified below its signature hereto (x) in writing or (y) by facsimile with an original writing to be delivered within five (5) Business Days thereof; provided that the Collateral Agent may discontinue the ability to provide such instructions by facsimile at any time by delivery of written notice of such discontinuation to each other party hereto in accordance with Section 11.3. Upon the occurrence and during the continuance of any Default or Event of Default, the Collateral Agent shall accept instructions with respect to the Project Accounts solely from the Agent Bank and shall not accept such instructions from the Borrower or any representative thereof. On or before the fifteenth (15th) Business Day of each month, the Collateral Agent shall provide to the Borrower statements reflecting all deposits to, withdrawals from and other activities in respect of each of the Project Accounts during the preceding month. Section 7.2 Permitted Investments. (a) Upon the written request of the Borrower, the Collateral Agent shall invest and reinvest any balances in any Project Account from time to time in Permitted Investments as instructed by the Borrower in such written request; provided that (i) if the Borrower fails to so instruct the Collateral Agent with respect to any amounts on deposit in any of the Project Accounts, such amounts shall be invested in accordance with standing instructions set forth in a side letter between the Borrower and the Collateral Agent, (ii) upon the occurrence and during the continuance of a Default or an Event of Default, the Collateral Agent shall invest and reinvest such balances in Permitted Investments as instructed by the Agent Bank, (iii) all such Permitted Investments shall be held in the name of the Collateral Agent, (iv) no Permitted Investment shall be made unless the Collateral Agent shall retain a perfected first priority Lien on such Permitted Investment securing the Obligations and all filings and other actions necessary to ensure the validity, perfection and priority of such Lien have been taken, and (v) no more than ten (10) Permitted Investments may be maintained at any time. All funds in any Project Account that are invested in a Permitted Investment are deemed to be held in such Project Account for all purposes of this Agreement and the Security Documents. All investments and reinvestments shall be held in the name and be under the sole dominion and control of the Collateral Agent. The Collateral Agent shall have no liability for any loss in investments of funds in any Project Account that are invested in Permitted Investments. (b) The Collateral Agent agrees that the interest paid or other earnings on the Permitted Investments made hereunder shall be credited to the Project 90 Account from which the monies used to make such Permitted Investment were drawn on the date received by the Collateral Agent and held therein. Section 7.3. Funding of the Construction Account. The proceeds of all Construction Loans and all Equity Contributions (other than Default Equity Contributions) shall be deposited in the Construction Account. So long as no Default or Event of Default shall have occurred and be continuing, the Collateral Agent shall make any payment out of the Construction Account in accordance with the instructions set forth in any Disbursement Certificate delivered to the Collateral Agent by the Borrower at least three (3) Business Days prior to the day on which such payment is to be made. Section 7.4. Funding of the Revenue Account and Payment of Operation and Maintenance Expenses. (a) The Borrower agrees and confirms (i) that it has irrevocably instructed each of the other parties to each Project Document in effect as of the Closing Date pursuant to which payments may be made to or received by the Borrower, and that it will so instruct all parties to any Additional Project Document, that all payments due or to become due to the Borrower under each such Project Document (other than payments the proceeds of which are required to be deposited into the Proceeds Account pursuant to Section 7.10) shall be made directly to the Collateral Agent for deposit in the Revenue Account and (ii) that each of such other parties to such Project Document has agreed (or will be caused by the Borrower to agree) to make all such payments (other than payments the proceeds of which are required to be deposited into the Proceeds Account pursuant to Section 7.10) directly to the Collateral Agent for deposit in the Revenue Ac count. If, notwithstanding the foregoing, any payments due to the Borrower are remitted directly to the Borrower (or any Affiliate of the Borrower), the Borrower shall (or shall cause any such Affiliate to) hold such payments in trust for the Collateral Agent and shall promptly remit such payments (other than payments the proceeds of which are required to be deposited into the Proceeds Account pursuant to Section 7.10) to the Collateral Agent for deposit in the Revenue Account, in the form received, with any necessary endorsements. All business interruption insurance proceeds shall also be deposited into the Revenue Account. (b) Between the Commercial Operation Date and the Conversion Date, if no Event of Default shall have occurred and be continuing, the Collateral Agent shall, on one Business Day of each month specified by the Borrower in a writing delivered to the Collateral Agent in accordance with Section 7.1, transfer from the Revenue Account to the Operation and Maintenance Account the amount required to bring the balance of the Operation and Maintenance Account to the amount specified in the Preliminary Operating Budget in respect of budgeted Operation and Maintenance Expenses for the Project for the next month. If no Event of Default shall have occurred and be continuing, then the Collateral Agent shall on the Conversion Date and on each Payment Date thereafter (i) transfer to the Operation and Maintenance Account from the Revenue Account the amount required to bring the balance of the Operation and Maintenance Account to an amount 91 equal to the sum of (A) the estimated Fuel Expenses incurred during the current month (or with respect to the transfer occurring on the Conversion Date, any Fuel Expenses not paid with the proceeds of the Construction Loans made pursuant to the final Notice of Borrowing delivered hereunder), as notified to the Collateral Agent by the Borrower in a writing delivered to the Collateral Agent in accordance with Section 7.1, plus (B) the amount specified in the current Operating Budget in respect of other budgeted Operation and Maintenance Expenses for the Project for the next month, and (ii) transfer to the Operation and Maintenance Account from the Maintenance Reserve Account such amounts as are necessary to pay any Major Maintenance Expenses to be paid in the next month as notified to the Collateral Agent by the Borrower in a writing delivered to the Collateral Agent in accordance with Section 7.1 and approved by the Agent Bank and the Independent Engineer in the Major Maintenance Budget for that year or otherwise approved by the Agent Bank and the Independent Engineer in writing. The Operation and Maintenance Account shall be maintained as a revolving fund, from which the Borrower may draw and pay from time to time such amounts as shall be required to pay Operation and Maintenance Expenses upon delivery to the Collateral Agent of a Disbursement Certificate at least three (3) Business Days prior to the day upon which any of such payments are to be made. (c) If the Borrower determines reasonably and in good faith that the amount available in the Operation and Maintenance Account is insufficient to pay the reasonable and necessary Operation and Maintenance Expenses for the Project for the current calendar month, an Authorized Officer of the Borrower shall deliver a certificate to the Collateral Agent and the Banks setting forth the amount of such insufficiency and the cause therefor. The Collateral Agent shall transfer into the Operations and Maintenance Account such amounts as shall be necessary to fund such insufficiency, first, from the Revenue Account, then from the Distribution Retention Account, then from the Proceeds Account, then from the Maintenance Reserve Account, then from the NGC Reserve Account and finally from the Debt Service Reserve Account (in each case to the extent funds are available in each such Project Account). Section 7.5. Debt Payment Account. The Collateral Agent shall, on each Payment Date occurring after the Conversion Date, transfer from the Revenue Account to the Debt Payment Account, to the extent of funds remaining on deposit in the Revenue Account after the application of funds provided for in Section 7.4 on such Payment Date: () first, an amount equal to one-third (1/3) of the next quarterly payment of Mandatory Secured Debt Service, and () second, an amount equal to one- third (1/3) of the next quarterly payment of Mandatory Unsecured Debt Service. If at any time amounts on deposit in the Debt Payment Account are insufficient to make all payments of Mandatory Secured Debt Service and Mandatory Unsecured Debt Service, then the Collateral Agent shall transfer to the Debt Payment Account such amounts as shall be necessary to fund such insufficiency, first from the Revenue Account, then from the Distribution Retention Account, then from the Debt Service Reserve Account, then from the NGC Reserve 92 Account, then from the Proceeds Account and finally from the Maintenance Reserve Account; provided that the Collateral Agent shall transfer from the Debt Service Reserve Account only the portion of such insufficiency which is attributable to the principal of, interest on and Fees and other amounts due in respect of the Loans. Amounts on deposit in the Debt Payment Account shall be applied to make payments on Mandatory Secured Debt Service and Mandatory Unsecured Debt Service () with respect to amounts due on the Loans, when due and payable in accordance with the terms hereof, and () with respect to amounts due on other Mandatory Secured Debt Service and Mandatory Unsecured Debt Service, as requested in a Disbursement Certificate delivered by the Borrower to the Collateral Agent at least three (3) Business Days prior to the day on which any of such payments are to be made; provided that no payments on Mandatory Unsecured Debt Service shall be made while any amounts remain due and unpaid on any Mandatory Secured Debt Service. Section 7.6. Funding of the Maintenance Reserve Account. The Collateral Agent shall, on each Payment Date occurring after the Conversion Date, transfer from the Revenue Account to the Maintenance Reserve Account, to the extent of funds remaining on deposit in the Revenue Account after the application of funds provided for in Sections 7.4 and 7.5 on such Payment Date, an amount equal to the sum of (a) one twelfth (1/12th) of the Maintenance Reserve Amount applicable to the calendar year in which such Payment Date occurs plus (b) the shortfall (if any) in the amount transferred pursuant to this Section 7.6 in the immediately preceding calendar months. In each month in which a Major Maintenance Expense is to be paid, the Collateral Agent shall transfer funds from the Maintenance Reserve Account to the Operation and Maintenance Account as provided in Section 7.4(b). Section 7.7. Funding of the Debt Service Reserve Account. The Borrower shall initially fund the Debt Service Reserve Fund up to the Debt Service Reserve Required Balance on or before the Conversion Date with the making of a cash deposit and/or the delivery of a Debt Service Reserve Letter of Credit to the Collateral Agent. The Collateral Agent shall, on each Payment Date occurring after the Conversion Date, transfer an amount from the Revenue Account to the Debt Service Reserve Account, to the extent of funds remaining on deposit in the Revenue Account after the application of funds provided for in Sections 7.4, 7.5 and 7.6 on such Payment Date, the sum of which amount and the amounts then on deposit therein and the amount available for drawing under any Debt Service Reserve Letter of Credit shall equal the Debt Service Reserve Required Balance. Funds on deposit in the Debt Service Reserve Account shall be transferred to the Debt Payment Account as and when needed pursuant to Section 7.5. If at any time amounts on deposit in the Debt Service Reserve Account, together with the amount available for drawing under any Debt Service Reserve Letter of Credit, shall exceed the then current Debt Service Reserve Required Balance, such excess shall be transferred to the Revenue Account. 93 Section 7.8. Funding of the NGC Reserve Account. The Collateral Agent shall, on each Payment Date occurring after the Conversion Date, transfer an amount from the Revenue Account to the NGC Reserve Account, to the extent of funds remaining on deposit in the Revenue Account after the application of funds provided for in Sections 7.4, 7.5, 7.6 and 7.7 on such Payment Date, such that the sum of such amount and the amounts then on deposit in the NGC Reserve Account shall be at least equal to the greater of: (a) (i) the average of the Forward Market Price in effect on the days that the Forward Market Price is published during the period beginning on the Payment Date immediately preceding such Payment Date and ending on such Payment Date multiplied by sixty (60) multiplied by fourteen thousand five hundred (14,500) less (ii) $3,000,000; or (b) the amount by which the face amount of the letter of credit required to be maintained by the Borrower pursuant to Section 6.1(b) of the NGC Agreement exceeds $3,000,000 (the greater of the amounts described in clauses (a) and (b), the "NGC Reserve Required Balance"). If at any time the Forward Market Price is greater than one hundred thirty-three percent (133%) of the Forward Market Price in effect as of the date of the NGC Agreement, then the Collateral Agent, upon receipt of written notice thereof from the Agent Bank, shall use all amounts then on deposit in the NGC Reserve Account to cash collateralize the letter of credit required to be maintained by the Borrower pursuant to Section 6.1(b) of the NGC Agreement. If at any time the amounts on deposit in the NGC Reserve Account shall exceed the then current NGC Reserve Required Balance, such excess shall be transferred to the Revenue Account. Section 7.9. Funding of the Distribution Retention Account; Distributions. The Collateral Agent shall, on each Payment Date occurring after the Conversion Date, transfer from the Revenue Account to the Distribution Retention Account all amounts remaining on deposit in the Revenue Account after the application of funds provided for in Sections 7.4, 7.5, 7.6, 7.7 and 7.8 on such Payment Date. On each Quarterly Date following the Conversion Date, the Collateral Agent shall disburse all or any portion of funds on deposit in the Distribution Retention Account to or as directed by the Borrower upon receipt by the Collateral Agent of a certificate of an Authorized Officer of the Borrower correctly stating that the following conditions (the "Distribution Conditions") have been satisfied and will continue to be satisfied as of such Quarterly Date, which certificate shall be delivered to the Collateral Agent at least three (3) Business Days prior to such Quarterly Date: (i) the Conversion Date has occurred; (ii) no default or event of default under any Transaction Document has occurred and is continuing or will result from such disbursement; (iii) all Project Accounts have been funded to their then current required levels; and 94 (iv) (A) the Debt Service Coverage Ratio for the previous four (4) fiscal quarters was at least 1.2 to 1 or (B) with respect to any Quarterly Date occurring during the period ending twelve (12) months after the Conversion Date, the Debt Service Coverage Ratio for the period from the Conversion Date through the end of the most recent fiscal quarter was at least 1.2 to 1. Section 7.10. Funding of the Proceeds Account; Application of Proceeds. (a) Deposit of Proceeds. The Borrower shall deposit or cause to be deposited each of the following into the Proceeds Account: (i) all proceeds in respect of any property insurance policy (other than proceeds of business interruption insurance or delayed opening insurance) received by or on behalf of the Borrower in connection with partial or total damage to or destruction of the Project (such proceeds, "Loss Proceeds" and such event, an "Event of Loss"); (ii) all proceeds received by or on behalf of the Borrower in connection with any action to condemn, seize or appropriate all or any portion of the Project (such proceeds, "Condemnation Proceeds" and such event, an "Event of Condemnation"); (iii) all Liquidated Performance Damages received by or on behalf of the Borrower (except Liquidated Performance Damages received pursuant to the Operation and Maintenance Agreement or the O&M Guarantee, which shall be deposited in the Revenue Account); (iv) all Liquidated Delay Damages received by or on behalf of the Borrower; (v) all proceeds received by or on behalf of the Borrower in connection with any sales of assets (other than electricity and steam produced by the Project and sold pursuant to the Energy Services Agreement or otherwise) of the Borrower (such proceeds, "Asset Sale Proceeds"); (vi) all proceeds received by or on behalf of the Borrower (A) as indemnification or contribution payments, (B) pursuant to warranties contained in the Project Documents, (C) as a judgment, decree or arbitral award or (D) as a result of any similar provision or circumstance (such proceeds, "Other Proceeds"); and (vii) all Default Equity Proceeds received by or on behalf of the Borrower. 95 (b) Application of Loss Proceeds. (i) The Collateral Agent shall transfer any Loss Proceeds in an amount less than or equal to $5,000,000 which are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(i) of this Section 7.10 to (x) prior to the Conversion Date, the Construction Ac count, and (y) after the Conversion Date, the Revenue Account, each for application in accordance with the other provisions of this Article VII. (ii) If (A) Loss Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(i) of this Section 7.10 and (B) no Approved Restoration Plan with respect to the relevant Event of Loss shall have been developed within ninety (90) days after the date such Loss Proceeds were received, the Collateral Agent shall apply such Loss Proceeds to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(c). (iii) If (A) Loss Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(i) of this Section 7.10 and (B) an Approved Restoration Plan with respect to the relevant Event of Loss shall have been developed within ninety (90) days after the date such Loss Proceeds were received, the Collateral Agent shall, upon satisfaction of the conditions set forth in clause (i) of this Section 7.10 and provided no Event of Default (other than an Event of Default under Section 8.1(c) resulting from a breach of the covenants set forth in Section 5.9) shall have occurred and be continuing, withdraw and pay to the Borrower portions of such Loss Proceeds from time to time in installments sufficient to effect such Approved Restoration Plan. After completion of such Approved Restoration Plan, the Collateral Agent shall apply any of such Loss Proceeds in excess of the amount needed to effect such Approved Restoration Plan to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(c). (c) Application of Condemnation Proceeds. (i) The Collateral Agent shall transfer any Condemnation Proceeds in an amount less than or equal to $5,000,000 which are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(ii) of this Section 7.10 to (x) prior to the Conversion Date, the Construction Account, and (y) after the Conversion Date, the Revenue Account, each for application in accordance with the other provisions of this Article VII. (ii) If (A) Condemnation Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the 96 Proceeds Account in accordance with clause (a)(ii) of this Section 7.10 and (B) no Approved Restoration Plan with respect to the relevant Event of Condemnation shall have been developed within ninety (90) days after the date such Condemnation Proceeds were received, the Collateral Agent shall apply such Condemnation Proceeds to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(d). (iii) If (A) Condemnation Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(ii) of this Section 7.10 and (B) an Approved Restoration Plan with respect to the relevant Event of Condemnation shall have been developed within ninety (90) days after the date such Condemnation Proceeds were received, the Collateral Agent shall, upon satisfaction of the conditions set forth in clause (i) of this Section 7.10 and provided no Event of Default (other than an Event of Default under Section 8.1(c) resulting from a breach of the covenants set forth in Section 5.9) shall have occurred and be continuing, withdraw and pay to the Borrower portions of such Condemnation Proceeds from time to time in installments sufficient to implement such Approved Restoration Plan. After completion of such Approved Restoration Plan, the Collateral Agent shall apply any of such Condemnation Proceeds in excess of the amount needed to effect such Approved Restoration Plan to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(d). (d) Liquidated Performance Damages. (i) Upon deposit of any Liquidated Performance Damages in the Proceeds Account, the Collateral Agent shall transfer an amount of such Liquidated Performance Damages to the Construction Account that is needed to pay any Project Costs due or which are projected to become due in accordance with the Construction Budget, the Construction Schedule and the Progress Payment Schedule, as set forth in a certificate of an Authorized Officer of the Borrower; provided, however, that none of such Liquidated Performance Damages shall be applied to the payment of Energy Adjustment Payments without the prior written consent of the Required Banks, which consent shall not be unreasonably withheld or delayed. (ii) The Collateral Agent shall apply any Liquidated Performance Damages remaining on deposit in the Proceeds Account after application of clause (i) immediately above to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(e). (e) Liquidated Delay Damages. 97 (i) Upon deposit of any Liquidated Delay Damages in the Proceeds Account, the Collateral Agent shall transfer an amount of such Liquidated Delay Damages to the Construction Account that is needed to pay any Project Costs due or which are projected to become due in accordance with the Construction Budget, the Construction Schedule and the Progress Payment Schedule, as set forth in a certificate of an Authorized Officer of the Borrower. (ii) The Collateral Agent shall apply any Liquidated Delay Damages remaining on deposit in the Proceeds Account after application of clause (i) immediately above to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(f). (f) Asset Sale Proceeds. (i) The Collateral Agent shall transfer any Asset Sale Proceeds in an amount less than or equal to $5,000,000 which are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(v) of this Section 7.10 to (x) prior to the Conversion Date, the Construction Account, and (y) after the Conversion Date, the Revenue Account, each for application in accordance with the other provisions of this Article VII. (ii) If (A) Asset Sale Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(v) of this Section 7.10 and (B) the Collateral Agent shall not receive within ninety (90) days from the receipt of such Asset Sale Proceeds a certificate of an Authorized Officer of the Borrower stating that such proceeds shall be used to purchase assets for use in the Project and setting forth all relevant information regarding such assets, including, without limitation, the price and proposed use thereof, the Collateral Agent shall apply the first $5,000,000 of such Asset Sale Proceeds in accordance with clause (i) immediately above and the excess of such Asset Sale Proceeds to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(g). (iii) If (A) Asset Sale Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(v) of this Section 7.10 and (B) the Collateral Agent shall have received within ninety (90) days from the receipt of such Asset Sale Proceeds a certificate of an Authorized Officer of the Borrower stating that such proceeds shall be used to purchase assets for use in the Project and setting forth all relevant information regarding such assets, including, without limitation, the price and proposed use thereof, the Collateral Agent shall, provided no Event of Default shall have occurred and be continuing, withdraw from the Proceeds Account and pay to the Borrower an amount (as specified in such certificate) 98 necessary to purchase such assets. The Collateral Agent shall apply any of such Asset Sale Proceeds in excess of such amount to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(g). (g) Application of Other Proceeds. (i) The Collateral Agent shall transfer any Other Proceeds in an amount less than or equal to $5,000,000 which are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(vi) of this Section 7.10 to (x) prior to the Conversion Date, the Construction Account, and (y) after the Conversion Date, the Revenue Account, each for application in accordance with the other provisions of this Article VII. (ii) If (A) Other Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(vi) of this Section 7.10 and (B) the Collateral Agent shall not receive within ninety (90) days from the receipt of such Other Proceeds a certificate of an Authorized Officer of the Borrower stating that such proceeds shall be used to pay costs associated with the development, construction, operation or maintenance of the Project, the Collateral Agent shall apply the first $5,000,000 of such Other Proceeds in accordance with clause (i) immediately above and the excess of such Other Proceeds to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(h). (iii) If (A) Other Proceeds in excess of $5,000,000 are received by or on behalf of the Borrower and deposited in the Proceeds Account in accordance with clause (a)(vi) of this Section 7.10 and (B) the Collateral Agent shall have received within ninety (90) from the receipt of such Other Proceeds a certificate of an Authorized Officer of the Borrower stating that such proceeds shall be used to pay costs associated with the development, construction, operation or maintenance of the Project, the Collateral Agent shall, provided no Event of Default shall have occurred and be continuing, withdraw from the Proceeds Account and pay to the Borrower an amount (as specified in such certificate) necessary to pay such costs. The Collateral Agent shall apply any of such Other Proceeds in excess of such amount to the prepayment of outstanding Loans and accrued interest thereon in accordance with Section 2.13(h). (h) Application of Default Equity Contributions. Any Default Equity Contributions deposited into the Proceeds Account pursuant to any Equity Commitment Agreement shall be applied by the Collateral Agent, at the direction of the Required Banks, to (i) the payment of Project Costs and/or (ii) the prepayment of outstanding Loans and accrued interest thereon, in such proportions as the Required Banks shall specify. The Collateral Agent shall transfer any amounts specified by the Required Banks for applica- 99 tion to the payment of Project Costs to the Construction Account upon receipt by the Collateral Agent of a certificate of an Authorized Officer of the Borrower that such amounts will be used toward the payment of Project Costs. The Collateral Agent shall apply any amounts specified by the Required Banks for application to the prepayment of outstanding Loans and accrued interest thereon to such prepayment in accordance with Section 2.13(j). (i) Application of Funds to an Approved Restoration Plan. Prior to the withdrawal of monies on deposit in the Proceeds Account for use in the implementation of an Approved Restoration Plan in accordance with clause (b) or (c) of this Section 7.10, the Collateral Agent shall have received (i) for the initial release of monies in respect of an Approved Restoration Plan, a copy of such Approved Restoration Plan approved by all Persons required to approve the same as provided in the definition of "Approved Restoration Plan" set forth in Section 1.1 and (ii) for the initial and each subsequent release of monies in respect of such Approved Restoration Plan, an executed Restoration Requisition substantially in the form of Exhibit G, which Restoration Requisition shall be delivered to the Collateral Agent at least three (3) Business Days prior to the day on which such release is to occur. (j) Excess Proceeds. Any amounts which remain on deposit in the Proceeds Account after all transfers and payments required by this Section 7.10 have been made shall be transferred to (x) prior to the Conversion Date, the Construction Account, and (y) after the Conversion Date, the Revenue Account and, in each case, applied in accordance with the other Sections of this Article VII. Section 7.11. Letter of Credit Account. (a) Upon the occurrence of the circumstances described in Section 2.2(l), the Borrower shall deposit with the Collateral Agent an amount in cash equal to the aggregate Stated Amount of all outstanding Letters of Credit. In the event that the Borrower shall fail to make or fully fund such payment, the Collateral Agent shall transfer into the Letter of Credit Account such amounts as shall be necessary to fund such insufficiency, first, from the Revenue Account, then from the Distribution Retention Account, then from the Proceeds Account, then from the Maintenance Reserve Account, then from the Debt Service Reserve Account and finally from the NGC Reserve Account (in each case to the extent funds are available in each such Project Account). (b) Amounts on deposit in the Letter of Credit Account shall be held by the Collateral Agent for the benefit of the Issuing Bank and the other Banks to be used to repay any Reimbursement Obligation or other Obligation of the Borrower, or until all Letters of Credit have terminated and all Reimbursement Obligations and other Obligations have been paid in full. 100 Section 7.12. Event of Default. Notwithstanding any provision of this Agreement to the contrary, if an Event of Default shall have occurred and be continuing, all amounts on deposit in the Project Accounts shall be applied by the Collateral Agent toward payment of the Obligations or as otherwise directed by the Agent Bank (acting upon the instructions of the Required Banks). ARTICLE VIII. EVENTS OF DEFAULT; REMEDIES. Section 8.1. Events of Default. Each of the following events, acts, occurrences or conditions shall constitute an Event of Default under this Agreement, regardless of whether such event, act, occurrence or condition is voluntary or involuntary or results from the operation of Law or pursuant to or as a result of compliance by any Person with any judgment, decree, order, rule or regulation of any Governmental Authority: (a) Failure to Make Payments. The Borrower shall default in the payment when due of any principal of or interest on the Loans (including any mandatory prepayments required hereunder or any Fees or other Obligations) and such default shall continue uncured for five (5) or more days. (b) Breach of Representation or Warranty. Any representation or warranty made by the Borrower in this Agreement or any other Transaction Document to which it is a party or any representation, warranty or statement in any certificate, financial statement or other document furnished to the Agent Bank or the Collateral Agent by or on behalf of the Borrower hereunder or thereunder, shall prove to have been untrue or misleading in any material respect as of the time made, confirmed or furnished, and such misrepresentation shall continue uncured for thirty (30) or more days after the earlier of (i) the date upon which an Authorized Officer of the Borrower obtains actual knowledge of such misrepresentation or (ii) the date upon which the Borrower receives notice of such misrepresentation from the Agent Bank; provided that, if any Event of Bankruptcy occurs with respect to the Borrower, the notice referred to in clause (ii) immediately above shall not be required and shall be deemed to have been received upon the occurrence of the event giving rise to such misrepresentation. (c) Breach of Covenants. (i) The Borrower shall fail to perform or observe any covenant or obligation arising under Article VI or under Section 5.1(g), 5.2(a), 5.7, 5.11 or 5.13 and any applicable grace period expressly provided therein shall have expired, or (ii) the Borrower shall fail to perform or observe any covenant, term or agreement arising under this Agreement or any other Financing Document (except those described in clauses (a) and (b) and subsection (c)(i) above) and such failure shall continue uncured for thirty (30) or more days after an Authorized Officer of the Borrower obtains actual knowledge thereof; provided that if such failure cannot reasonably be cured in such 101 thirty (30) day period but is susceptible to cure within a longer period, the Borrower may have an additional sixty (60) days to cure such failure if the Borrower is diligently pursuing such cure and such extension of the cure period does not result in a Material Adverse Effect. (d) Default Under Other Financing Documents. An event of default under any Financing Document other than this Agreement shall occur and be continuing beyond the applicable grace period expressly provided therefor in such Financing Document. (e) Nonperformance Under Financing Documents. Any Project Party (other than the Borrower) shall fail to perform or observe any covenant, term or agreement contained in any Financing Document to which it is a party and such failure shall (i) continue uncured after the expiration of the applicable grace period expressly provided therefor in such Financing Document and (ii) result in a Material Adverse Effect. (f) Event of Bankruptcy. Any Event of Bankruptcy shall occur with respect to the Borrower or any Equity Contributor which has continuing obligations under any Equity Commitment Agreement. (g) Judgments. One or more final judgments or decrees shall be entered by a court or courts of competent jurisdiction against the Borrower involving in the aggregate a liability of $5,000,000 or more and none of such judgments or decrees shall have been bonded, stayed, discharged or vacated within thirty (30) days after entry thereof. (h) Environmental Matters. (i) Any Environmental Claim shall have been asserted against the Borrower which (after a consideration of (x) reasonably available and reasonably feasible plans of mitigation or remediation and (y) the indemnification provisions set forth in Section 21 of the Ground Lease) could reasonably be expected to result in a Material Adverse Effect or (ii) any release, emission, discharge or disposal of any Material of Environmental Concern in violation of any applicable Environmental Laws shall have been caused by the Borrower or the Project and such event could reasonably be expected to result in a Material Adverse Effect. (i) Eminent Domain. There shall have occurred an Event of Condemnation involving a material portion of the assets or operations of the Project and receipt by or on behalf of the Borrower of Condemnation Proceeds in excess of $5,000,000, and the Borrower shall not deliver an Approved Restoration Plan in respect thereof within sixty (60) days after the occurrence thereof. (j) Event of Loss. There shall have occurred an Event of Loss involving a material portion of the assets or operations of the Project and receipt by or on 102 behalf of the Borrower of Loss Proceeds in excess of $5,000,000, and the Borrower shall not deliver an Approved Restoration Plan in respect of such damage or destruction within sixty (60) days after the occurrence thereof. (k) Governmental Approvals. Any Necessary Project Approval or Deferred Approval required to have been obtained shall not have been obtained, or shall be revoked, terminated, withdrawn, suspended, modified in any material adverse respect, withheld or shall otherwise cease to be in full force and effect for a period of thirty (30) or more days after the date on which an Authorized Officer of the Borrower obtains actual knowledge thereof and such event shall result in a Material Adverse Effect. (l) Invalidity of Project Documents. Any of the Project Documents shall cease to be valid and binding and in full force and effect (other than any Project Document which expires in accordance with the terms thereof) and the Borrower shall not replace such Project Document with another contract acceptable to the Agent Bank (i) immediately if such event relates to the Energy Services Agreement and (ii) within sixty (60) days if such event relates to any other Project Document. (m) Security Interest. Any Security Document shall cease to be in full force and effect or any Lien purported to be granted thereby shall cease to be a perfected, first priority Lien in favor of the Collateral Agent for the benefit of the Secured Parties and such cessation shall continue uncured for thirty (30) or more days after the date on which an Authorized Officer of the Borrower obtains actual knowledge thereof. (n) Nonperformance Under Project Documents. Except to the extent waived or consented to in writing by the Required Banks, any Project Party (other than the Borrower) shall fail to perform its obligations or shall assign any of its rights or obligations under any Project Document, which failure or assignment shall result in a Material Adverse Effect and the Borrower shall not cause such Project Party to resume performance or replace such Project Party with another project party acceptable to the Agent Bank (i) immediately if such event relates to the Energy Services Agreement and (ii) within sixty (60) days if such event relates to any other Project Document. (o) Obligations under Equity Commitment Agreements. Any Equity Contributor shall fail to satisfy its obligations under its Equity Commitment Agreement. (p) Acceleration of Debt. Indebtedness of the Borrower (other than Indebtedness incurred under this Agreement) in excess of $5,000,000 shall be required to be prepaid, or shall be declared to be due and payable, other than by regular scheduled required repayment, prior to the stated maturity thereof, as the result of the acceleration of the stated maturity thereof following an event of default thereunder. 103 (q) Ownership of the Borrower. NRG Energy shall cease to beneficially own, directly or indirectly, at least thirty percent (30%) of the membership interests in the Borrower or NRG Energy and/or NRG Generating shall cease to be the managing member of the Borrower; provided, however, that such event shall not be an Event of Default if upon the occurrence of such event, NRG Generating shall (i) directly own at least fifty percent (50%) of the membership interests in the Borrower, (ii) have an Investment Grade Rating and (iii) be the managing member of the Borrower. (r) Federal Regulation. The Borrower shall become subject to regulation as (i) an "investment company" or a company "controlled by" an "investment company" under the ICA, or (ii) a "holding company," a "public utility company" or a "subsidiary company" of a "registered holding company" under PUHCA. (s) Qualifying Facility. At any time after the Commercial Operation Date, the Project shall cease to be a Qualifying Facility and the Borrower shall not otherwise be able to sell electricity and steam to the Energy Purchaser and to wholesale purchasers without being regulated as an "electric utility" or an "electric utility holding company" under applicable federal or state Law. (t) Material Adverse Effect. An event or condition shall occur that could reasonably be expected to result in a Material Adverse Effect; provided, however, that if the occurrence of any such event or condition also results in an Event of Default as specified in any of clauses (a) through (s) of this Section 8.1, any grace period expressly set forth in such clause for such event or condition shall apply notwithstanding that such event or condition could reasonably be expected to result in a Material Adverse Effect. Section 8.2. Rights and Remedies. (a) Notwithstanding any provision of this Agreement to the contrary, upon the occurrence of any Event of Default described in Section 8.1(f) and without declaration or notice of any kind, the Commitments shall automatically and immediately terminate and the unpaid principal amount of and any and all accrued interest on the Loans and any and all accrued Fees and other Obligations shall automatically become immediately due and payable, with all additional interest from time to time accrued thereon and without presentation, demand or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, and the obligation of each Bank to make any Loan hereunder shall thereupon terminate. (b) Notwithstanding any provision of this Agreement to the contrary, upon the occurrence and during the continuance of any Event of Default (other 104 than an Event of Default described in Section 8.1(f)), the Agent Bank shall at the request, or may with the consent, of the Required Banks, by written notice to the Borrower (i) declare that the Commitments are terminated, whereupon the Commitments and the obligation of each Bank to make any Loan hereunder shall immediately terminate, and (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and any and all accrued and unpaid Fees and other Obligations to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentation, demand or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by the Borrower. (c) In addition to the foregoing, upon the occurrence and during the continuance of any Event of Default, the Agent Bank shall at the request, or may with the consent, of the Required Banks, (i) exercise, or direct the Collateral Agent to exercise, all of its rights as a secured party under the Security Documents or under applicable Law or otherwise (and all remedial provisions in the Security Documents are hereby incorporated by reference), and (ii) apply, or direct the Collateral Agent to apply, all amounts on deposit in the Project Accounts to the Obligations in such order as it shall select in its sole discretion. Section 8.3. Application of Proceeds. (a) Except as otherwise expressly provided herein (including, without limitation, the terms and conditions of Article VII), following an Event of Default and the acceleration of the maturity date of the Obligations (whether automatically, by declaration or otherwise), the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant to the Security Documents, and any other cash at the time of such collection, sale or other realization held by the Collateral Agent under the Security Documents or this Agreement, shall be applied by the Collateral Agent in the following order of priority: (i) first, to the payment of (A) all costs and expenses relating to the sale of the Collateral and the collection of all amounts owing hereunder, including reasonable attorneys' fees and disbursements and the just compensation of the Collateral Agent for services rendered in connection therewith or in connection with any proceeding to sell if a sale is not completed, and (B) all charges, expenses and advances incurred or made by the Collateral Agent in order to protect the Liens of the Security Documents or the security afforded thereby, together with interest at the rate per annum equal to the Base Rate then in effect plus the Applicable Margin plus two percent (2%), computed on the basis of the actual number of days elapsed and a year of three hundred sixty- five (365) or three hundred sixty-six (366) days, as appropriate; 105 (ii) second, to the payment in full of all Obligations (to be paid to the Secured Parties pro rata in accordance with the aggregate outstanding amounts of the Obligations owed to each Secured Party), each such payment to be applied by each Secured Party as follows: first against indemnities, charges, fees, costs and expenses with respect to the Obligations; then against interest on interest which became overdue with respect to the Obligations; then against interest on principal of the Obligations which became overdue; then against interest due on the Obligations; and finally to the principal of the Obligations; and (iii) finally, to the payment to the Borrower, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. (b) As used in this Section 8.3, "proceeds" of Collateral shall mean cash, securities or other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under a reorganization, liquidation or adjustment of Indebtedness of the Borrower or any issuer of or obligor on any of the Collateral. ARTICLE IX. THE AGENT BANK. Section 9.1. Appointment. Each Bank hereby irrevocably designates and appoints the Agent Bank (subject to the first sentence of Section 9.9) as the agent of such Bank under this Agreement and each other Financing Document, and each such Bank irrevocably authorizes the Agent Bank to take such actions on its behalf under the provisions of this Agreement and each other Financing Document and to exercise such powers and perform such duties as are expressly delegated to the Agent Bank by the terms of this Agreement and each other Financing Document, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent Bank shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent Bank shall be read into this Agreement or otherwise exist against the Agent Bank. The provisions of this Article IX are solely for the benefit of the Agent Bank and the Banks and the Borrower shall not have any rights as a third party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder and under the other Financing Documents, the Agent Bank shall act solely as the agent of the Banks and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. Section 9.2. Delegation of Duties. The Agent Bank may execute any of its duties under this Agreement or the other Financing Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties so long as such counsel is selected with reasonable due care. The Agent 106 Bank shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 9.3. Exculpatory Provisions. The Agent Bank shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 9.2 under or in connection with this Agreement or any other Financing Document (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by any Project Party contained in this Agreement or any other Transaction Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Transaction Document or for any failure of any Project Party to perform its obligations hereunder or thereunder. The Agent Bank shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of any Project Party. This Section 9.3 is intended solely to govern the relationship between the Agent Bank, on the one hand, and the Banks, on the other. Section 9.4. Reliance by Agent Bank. The Agent Bank shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any Project Party), independent accountants and other experts selected by the Agent Bank with reasonable due care. The Agent Bank may deem and treat the payee of any Note as the owner thereof for all purposes unless the Agent Bank shall have received an executed Transfer Supplement in respect thereof. The Agent Bank shall have no liability for failing or refusing to take any action under this Agreement or any other Financing Document if it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent Bank shall in all cases have no liability in acting, or in refraining from acting, under this Agreement and the other Financing Documents in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks and all future holders of the Notes. This Section 9.4 does not govern the relationship of the Borrower and the Banks. Section 9.5. Notice of Default. The Agent Bank shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the 107 Agent Bank has received written notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent Bank receives such a notice, the Agent Bank shall promptly deliver copies thereof to the Banks. The Agent Bank shall take such action with respect to such Default or Event of Default as shall be directed by the Required Banks; provided that unless and until the Agent Bank shall have received such directions, the Agent Bank may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as the Agent Bank shall deem advisable and in the best interests of the Banks. Section 9.6. Non-Reliance on Agent Bank and Other Banks. Each Bank expressly acknowledges that neither the Agent Bank, nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent Bank hereafter taken, including, without limitation, any review of the affairs of any Project Party, shall be deemed to constitute any representation or warranty by the Agent Bank. Each Bank represents and warrants to the Agent Bank that it has, independently and without reliance upon the Agent Bank or any other Bank and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Project Parties and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent Bank or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Project Parties. Except for notices, reports and other documents expressly required under the Financing Documents to be furnished to the Banks by the Agent Bank, the Agent Bank shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Project Parties which may come into the possession of the Agent Bank or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. Section 9.7. Bank Indemnification. The Banks agree to indemnify the Agent Bank and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Agent Bank or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Agent Bank or such Person shall be designated a party thereto) that may at any time 108 (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Agent Bank or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the transactions contemplated hereby or the execution, delivery or performance of any Transaction Document (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the gross negligence or willful misconduct of the Agent Bank or such Person as finally determined by a court of competent jurisdiction). Section 9.8. Agent Bank in its Individual Capacity. The Agent Bank and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Project Parties as though the Agent Bank were not the Agent Bank hereunder. With respect to Loans made or renewed by it and any Note issued to it, the Agent Bank shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Agent Bank, and the terms "Bank" and "Banks" shall include the Agent Bank in its individual capacity. Section 9.9. Successor Agent Bank. The Agent Bank may resign as Agent Bank upon thirty (30) days notice to the Borrower and the Banks and the Agent Bank may be removed from its position as Agent Bank at any time by the vote of the Required Banks. If the Agent Bank shall resign as Agent Bank under this Agreement or be removed pursuant to the preceding sentence, then the Required Banks during such 30-day period shall appoint from among the Banks a successor agent, and upon the acceptance by such successor Agent Bank and its execution of a Confidentiality Agreement, the successor agent shall succeed to the rights, powers and duties of the Agent Bank and the term "Agent Bank" shall mean such successor agent, effective upon its appointment and acceptance, and the former Agent Bank's rights, powers and duties as Agent Bank shall then be terminated, without any other or further act or deed on the part of such former Agent Bank or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent Bank's resignation hereunder as Agent Bank, the provisions of this Article IX and Section 11.1 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent Bank under this Agreement. ARTICLE X. THE COLLATERAL AGENT. Section 10.1. Appointment. Each Bank hereby irrevocably designates and appoints the Collateral Agent (subject to the first sentence of Section 10.9) as the collateral agent of such Bank under this Agreement and each other Financing Document, and each such Bank irrevocably authorizes the Collateral Agent to take such actions on its behalf under the provisions of this Agreement and each other Financing Document and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms of this Agreement and each other Financing Document, together with 109 such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Collateral Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Collateral Agent shall be read into this Agreement or otherwise exist against the Collateral Agent. The provisions of this Article X are solely for the benefit of the Collateral Agent and the Banks and the Borrower shall not have any rights as a third party beneficiary or otherwise under any of the provisions hereof. In performing its functions and duties hereunder and under the other Financing Documents, the Collateral Agent shall act solely as the collateral agent of the Banks and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower or any of its successors and assigns. Section 10.2. Delegation of Duties. The Collateral Agent may execute any of its duties under this Agreement or the other Financing Documents by or through agents or attorneys-in- fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties so long as such counsel was selected with reasonable due care. The Collateral Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in- fact selected by it with reasonable care. Section 10.3. Exculpatory Provisions. The Collateral Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 10.2 under or in connection with this Agreement or any other Financing Document (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by any Project Party contained in this Agreement or any other Transaction Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Transaction Document or for any failure of any Project Party to perform their obligations hereunder or thereunder. The Collateral Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of any Project Party. This Section 10.3 is intended solely to govern the relation ship between the Collateral Agent, on the one hand, and the Banks, on the other. Section 10.4. Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, 110 counsel to any Project Party), independent accountants and other experts selected by the Collateral Agent with reasonable due care. The Collateral Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless the Collateral Agent shall have received an executed Transfer Supplement in respect thereof. The Collateral Agent shall have no liability for failing or refusing to take any action under this Agreement or any other Financing Document if it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Collateral Agent shall in all cases have no liability in acting, or in refraining from acting, under this Agreement and the other Financing Documents in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks and all future holders of the Notes. This Section 10.4 does not govern the relationship of the Borrower and the Banks. Section 10.5. Notice of Default. The Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Collateral Agent has received written notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Collateral Agent receives such a notice, the Collateral Agent shall promptly deliver copies thereof to the Agent Bank, which shall promptly deliver copies thereof to the Banks. The Collateral Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Agent Bank (acting upon the instructions of the Required Banks); provided that unless and until the Collateral Agent shall have received such directions, the Collateral Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as the Collateral Agent shall deem advisable and in the best interests of the Banks. Section 10.6. Non-Reliance on Collateral Agent and Other Banks. Each Bank expressly acknowledges that neither the Collateral Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Collateral Agent hereafter taken, including, without limitation, any review of the affairs of any Project Party, shall be deemed to constitute any representation or warranty by the Collateral Agent. Each Bank represents and warrants to the Collateral Agent that it has, independently and without reliance upon the Collateral Agent or any other Bank and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Project Parties and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Collateral Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, 111 appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other conditions and creditworthiness of the Project Parties. Except for notices, reports and other documents expressly required under the Financing Documents to be furnished to the Banks by the Collateral Agent, the Collateral Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, prospects, financial and other conditions or creditworthiness of the Project Parties which may come into the possession of the Collateral Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. Section 10.7. Bank Indemnification. The Banks agree to indemnify the Collateral Agent and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Collateral Agent or such Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Collateral Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Collateral Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the transactions contemplated hereby or the execution, delivery or performance of any Transaction Document (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the gross negligence or willful misconduct of the Collateral Agent or such Person as finally determined by a court of competent jurisdiction). Section 10.8. Collateral Agent in its Individual Capacity. The Collateral Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Project Parties as though the Collateral Agent were not the Collateral Agent hereunder. With respect to Loans made or renewed by it and any Note issued to it, the Collateral Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Collateral Agent, and the terms "Bank" and "Banks" shall include the Collateral Agent in its individual capacity. Section 10.9. Successor Collateral Agent. The Collateral Agent may resign as Collateral Agent upon thirty (30) days notice to the Borrower and the Banks and the Collateral Agent may be removed from its position as Collateral Agent at any time by the vote of the Required Banks. If the Collateral Agent shall resign as Collateral Agent under this Agreement or be removed pursuant to the preceding sentence, then the Re- 112 quired Banks during such 30-day period shall appoint from among the Banks a successor collateral agent with an office in the State of New York, and upon the acceptance by such successor Collateral Agent and its execution of a Confidentiality Agreement, the successor collateral agent shall succeed to the rights, powers and duties of the Collateral Agent and the term "Collateral Agent" shall mean such successor collateral agent, effective upon its appointment and acceptance, and the former Collateral Agent's rights, powers and duties as Collateral Agent shall then be terminated, without any other or further act or deed on the part of such former Collateral Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Collateral Agent's resignation hereunder as Collateral Agent, the provisions of this Article X and Section 11.1 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent under this Agreement. Section 10.10. Administration of the Collateral. The Collateral Agent shall hold the Collateral and any Lien thereon for the benefit of the Secured Parties pursuant to the terms of this Agreement, the Security Documents and the other Financing Documents. The Collateral Agent shall administer the Collateral in the manner contemplated by this Agreement, the Security Documents and the other Financing Documents and shall apply the balances from time to time held in the Project Accounts in the manner provided in Article VII. The Collateral Agent shall exercise such rights and remedies with respect to the Collateral (subject to applicable notice and cure period provisions) as are granted to it under this Agreement, the Security Documents and the other Financing Documents, except as otherwise expressly provided in this Agreement, the Security Documents and the other Financing Agreements, as shall be directed by the Agent Bank (acting upon the instructions of the Required Banks). Except as otherwise expressly provided in this Agreement, the Security Documents and the other Financing Documents, no Bank or group of Banks (other than the Required Banks) shall have any right to direct the Collateral Agent to take any action in respect of the Collateral, and no Bank shall have any right to sell, exchange or otherwise deal with any property at any time pledged, assigned or mortgaged to secure the Obligations, or to take action with respect to the Collateral independently of the Collateral Agent, other than to direct the Collateral Agent to take action as provided herein. ARTICLE XI. MISCELLANEOUS Section 11.1. Payment of Expenses and Indemnity. (a) The Borrower shall, whether or not the transactions hereby contemplated are consummated, pay all out- of-pocket costs and expenses of the Agent Bank, the Collateral Agent and each Bank in connection with (i) the negotiation, preparation, execution and delivery of the Financing Documents and the documents and instruments referred to therein, (ii) the syndication, management and agenting of the Loans (in- 113 cluding fees and expenses of the Independent Engineer, the Fuel Consultant, the Petrochemical Industry Consultant and the Insurance Consultant in the performance of services contemplated by the terms of this Agreement, or otherwise in providing expertise reasonably deemed necessary by the Agent Bank in connection with any consent or approval by the Banks, the Required Banks or the Agent Bank, or in connection with the reasonably deemed necessary review of any circumstance or condition affecting the Project), (iii) the creation, perfection or protection of the Collateral Agent's Liens on the Collateral (including, without limitation, fees and expenses for title and lien searches and filing and recording fees), (iv) the Agent Bank's review and due diligence (including, without limitation, the review of the other Transaction Documents and the fees and expenses of the Independent Engineer, the Fuel Consultant, the Petrochemical Industry Consultant and the Insurance Consultant), and (v) any amendment, waiver or consent relating to any of the Financing Documents (including, without limitation, as to each of the foregoing, the fees and disbursements of counsel to the Agent Bank and the Collateral Agent and any other attorneys retained by the Agent Bank and the Collateral Agent and allocated costs of internal counsel). (b) The Borrower shall pay all out-of-pocket costs and expenses of the Agent Bank, the Collateral Agent and each Bank in connection with the preservation of rights under, and enforcement of, the Financing Documents and the documents and instruments referred to therein or in connection with any restructuring or rescheduling of the Obligations (including, without limitation, the fees and disbursements of counsel for the Agent Bank, the Collateral Agent and the Banks and allocated costs of internal counsel). (c) The Borrower shall pay, and hold the Agent Bank, the Collateral Agent and each of the Banks harmless from and against, any and all present and future stamp, excise, mortgage recording and other similar taxes and fees with respect to the foregoing matters and hold the Agent Bank, the Collateral Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes. (d) The Borrower shall indemnify the Agent Bank, the Collateral Agent and each Bank and their respective officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) (each a "Claim") that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in any way related to or by reason of, (i) any of the transactions 114 contemplated hereby or the execution, delivery or performance of any other Financing Document or Transaction Document, (ii) any violation by the Borrower of any applicable Environmental Law or Environmental Approval, (iii) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by the Borrower, including, without limitation, all on-site and off-site activities involving Materials of Environmental Concern, (iv) the breach of any environmental representation or warranty set forth in Section 4.23, (v) the grant to the Collateral Agent and the Secured Parties of any Lien on any property or assets of the Borrower or any equity interest in the Borrower, and (vi) the exercise by the Collateral Agent and the Secured Parties of their rights and remedies (including, without limitation, foreclosure) under any agreements creating any such Lien (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent caused by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction). If the Borrower shall obtain actual knowledge of any Claim indemnified against under this clause (d), the Borrower shall give prompt notice thereof to the appropriate Indemnitee or Indemnitees, and if any Indemnitee shall obtain actual knowledge of any Claim indemnified under this clause (d), such Indemnitee shall give prompt notice thereof to the Borrower; provided that failure to so notify the Borrower shall not release the Borrower from its obligations to indemnify hereunder. With respect to any amount that the Borrower is requested by an Indemnitee to pay by reason of this clause (d), such Indemnitee shall, if so requested by the Borrower and prior to any payment, submit such additional information to the Borrower as the Borrower may reasonably request and which is reasonably available to such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee for which the Indemnitee is indemnified under this clause (d), such Indemnitee shall notify the Borrower of the commencement thereof, and the Borrower shall be entitled, at its expense, acting through counsel reasonably acceptable to such Indemnitee, to participate in, and, to the extent that the Borrower desires to, assume and control the defense thereof; provided, however, that the Borrower shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding; and provided, further, that the Borrower shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) (i) such action, suit or proceeding involves any risk of imposition of criminal liability or (ii) such action, suit or proceeding involves any material risk of material civil liability on such Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Collateral or any part thereof, unless, in the case of this clause (x) (ii), the Borrower shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve a bona fide conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Borrower which the Borrower and the Indemnitee have been unable to sever from the indemnified Claim(s), (C) a Default or an Event of Default has occurred and is continuing or (D) such action, suit or 115 proceeding involves matters which extend beyond or are unrelated to the transactions contemplated by the Transaction Documents and if determined adversely could be materially detrimental to the interests of such Indemnitee notwithstanding indemnification by the Borrower. The Indemnitee, on the one hand, and the Borrower, on the other hand, may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the other in accordance with the foregoing. Each Indemnitee shall at the Borrower's expense supply the Borrower with such information and documents reasonably requested by the Borrower as are necessary or advisable for the Borrower to participate in any action, suit or proceeding to the extent permitted by this clause (d). Unless an Event of Default shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under this clause (d) without the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed, unless such Indemnitee waives its right to be indemnified under this clause (d) with respect to such Claim. In addition, if an Indemnitee, in violation of the Borrower's right to assume and control the defense of any Claim, refuses to permit the Borrower to control the defense after written demand by the Borrower for such control, such Indemnitee waives its right to be indemnified under this clause (d) with respect to such Claim. Upon payment in full of any Claim by the Borrower pursuant to this clause (d) to or on behalf of an Indemnitee, the Borrower without any further action shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Borrower and give such further assurances as are necessary or advisable to enable the Borrower vigorously to pursue such claims. The Borrower's obligations and rights under this Section 11.1 shall survive the repayment of all Obligations and the termination of this Agreement. Section 11.2. Right of Set-off. In addition to any rights now or hereafter granted under applicable Law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special, time or demand, provisional or final) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to such Bank under this Agreement or under any of the other Financing Documents, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 2.22, and all other claims of any nature or description arising out of or connected with this Agreement or any other Financing Document, irrespective of whether or not such Bank shall have made any 116 demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. Section 11.3. Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telex or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or upon actual receipt if deposited in the United States mail, postage prepaid, or, in the case of telex notice, when answerback is received, or, in the case of telecopy notice, when confirmation is received, or, in the case of a nationally recognized overnight courier service, one Business Day after delivery to such courier service, addressed, in the case of each party hereto, at its address specified opposite its signature below or on the appropriate Transfer Supplement, or to such other address as may be designated by any party in a written notice to the other parties hereto; provided that notices and communications to the Agent Bank, the Collateral Agent or the Banks by the Borrower shall not be effective until received by the Agent Bank, the Collateral Agent or the Banks, as the case may be. Section 11.4. Successors and Assigns; Participation; Assignments. (a) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Banks, the Agent Bank, the Collateral Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. No Bank may participate, assign or sell any of its Credit Exposure (as defined in clause (b) below) except as required by operation of Law, in connection with the merger, consolidation or dissolution of any Bank or as provided in this Section 11.4. (b) Participation. Subject to the terms of the Financing Documents, the Banks may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank and/or any other interest of such Bank hereunder (in respect of any such Bank, its "Credit Exposure"); provided, however, that Chase shall at all times retain the leadership position among all Participants in the aggregate Credit Exposures of all Banks. No sale of a participating interest of less than $2,500,000 shall be permitted. Notwithstanding any such sale by a Bank of participating interests to a Participant, such Bank's rights and obligations under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Agreement (except as expressly provided below), and the Borrower, the Agent Bank and the Collateral Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. The Borrower agrees that if any Obligations are due and unpaid, or shall have been declared or shall have become due and payable upon 117 the occurrence and during the continuance of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or any Note; provided that such right of set-off shall be subject to the obligations of such Participant to share with the Banks, and the Banks agree to share with such Participant, as provided in Section 2.22. The Borrower acknowledges that each Participant shall be entitled to the benefits of Sections 2.15, 2.16, 2.17, 2.18, 2.19 and 2.22; provided that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Bank would have been entitled to receive in respect of the amount of the participating interest transferred by such transferor Bank to such Participant had no such transfer occurred. Each Bank agrees that any agreement between such Bank and any such Participant in respect of such participating interest shall not restrict such Bank's right to agree to any amendment, supplement, waiver or modification to this Agreement or any other Transaction Document, except where the result of any of the foregoing would be to extend the final maturity of any Obligation or any regularly scheduled installment thereof, reduce the rate of interest or Fees, extend the time of payment of interest thereon, reduce the principal amount thereof or release all or substantially all of the Collateral. (c) Assignments. Subject to the terms of the Financing Documents, each of the Banks may, in the ordinary course of its business and in accordance with applicable Law, at any time assign to any Person (each an "Assignee") with the consent of the Agent Bank all or any part of its Credit Exposure. No assignment of Credit Exposure in an amount less than $2,500,000 shall be permitted. The Borrower, the Agent Bank, the Collateral Agent and the Banks agree that to the extent of any such assignment the Assignee shall be deemed to have the same rights and benefits under the Financing Documents and the same rights of set-off and obligation to share pursuant to Section 2.22 as it would have had if it were a Bank hereunder; provided that the Borrower, the Agent Bank and the Collateral Agent shall be entitled to continue to deal solely and directly with the assignor Bank in connection with the interests so assigned to the Assignee and the assignor Bank shall continue to be responsible for the performance of its obligations under this Agreement unless and until such Assignee becomes a Purchasing Bank pursuant to clause (d) below. (d) Assignments to Purchasing Banks. Any Bank may at any time and from time to time assign to one or more Persons ("Purchasing Banks") all or any part of its Credit Exposure pursuant to a supplement to this Agreement substantially in the form of Exhibit K (a "Transfer Supplement"), executed by such Purchasing Bank, such transferor Bank, the Agent Bank and the Collateral Agent. Any Purchasing Bank must be rated at least "A" by S&P and "A2" by Moody's. No assignment of Credit Exposure in an amount less than $2,500,000 shall be permitted. Any such partial assignment shall be an assignment of an identical percentage of the transferor Bank's Loans and Commitments. Upon (i) such execution of such Transfer Supplement, (ii) delivery of an executed copy 118 thereof to the Borrower and the Agent Bank and (iii) payment by such Purchasing Bank to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Purchasing Bank, such transferor Bank shall be released from its obligations hereunder to the extent of such assignment and such Purchasing Bank shall for all purposes be a Bank party to this Agreement and shall have all of the rights and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Banks, the Collateral Agent or the Agent Bank shall be required. Such Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank as a Bank and the resulting adjustment of the Commitments, if any, arising from the purchase by such Purchasing Bank of all or a portion of the Credit Exposure of such transferor Bank. Promptly after the consummation of any transfer to a Purchasing Bank pursuant hereto, the transferor Bank, the Agent Bank and the Borrower shall make appropriate arrangements so that a replacement Note is issued to such transferor Bank and a new Note is issued to such Purchasing Bank, in each case in principal amounts reflecting such transfer. (e) Additional Provisions for Letters of Credit. In connection with any acquisition of Credit Exposure in respect of Letters of Credit, each Transferee further agrees as follows: (i) The Issuing Bank is hereby appointed as agent by each Transferee for the limited purpose of making and receiving payments, and examining, accepting or rejecting drafts in respect of any Letters of Credit and, in this connection, shall have such additional powers as are reasonably incidental thereto; (ii) Any Fee paid or payable to the Issuing Bank (including, without limitation, commitment fees and issuance fees) in respect of any Letter of Credit shall, to the extent that such Fee relates to the time after a Transferee has acquired Credit Exposure in respect of such Letter of Credit, be payable to such Transferee in accordance with the terms hereof so that each such Transferee shall share in such Fee to the extent paid or payable for (or in the case of issuance fees to the extent allocable to) the period commencing on the date its respective Credit Exposure was acquired; and (iii) Upon the issuance by the Issuing Bank of any Letter of Credit on or after the Closing Date, each Transferee having Credit Exposure in respect of Letters of Credit shall automatically acquire a participation in the liability under such Letter of Credit in an amount equal to its applicable percentage of the Stated Amount of such Letter of Credit. 119 (f) Disclosure of Information; Cooperation. The Borrower authorizes each Bank to disclose to any Participant, Assignee or Purchasing Bank (each, a "Transferee") and any prospective Transferee (provided that such Transferee has agreed to be bound by and complies with the confidentiality requirements set forth in Section 11.18) any and all financial and other information in such Bank's possession concerning the Borrower which has been delivered to such Bank by the Borrower pursuant to this Agreement or which has been delivered to such Bank by the Borrower or the Agent Bank in connection with such Bank's credit evaluation of the Borrower prior to entering into this Agreement. The Borrower shall cooperate with the Agent Bank and the Banks in connection with any sale of a participation in, or assignment of, Credit Exposure in accordance with this Section 11.4. (g) Regulation A. Notwithstanding any other language in this Agreement, any Bank may at any time assign all or any portion of its rights under this Agreement and the Notes to a Federal Reserve Bank as collateral in accordance with Regulation A of the Board of Governors of the Federal Reserve System and the applicable operating circular of such Federal Reserve Bank. (h) Notice to Borrower. So long as no Default or Event of Default has occurred and is continuing, the Agent Bank shall notify the Borrower of the occurrence of any sale or assignment pursuant to this Section 11.4. (i) Violation of Law. No Bank shall sell or assign all or any portion of its Credit Exposure if such sale or assignment would result in a violation of Law by the Borrower or any Bank. Section 11.5. Amendments and Waivers. Neither this Agreement, any Note, any other Financing Document to which the Borrower is a party nor any terms hereof or thereof may be amended, supplemented, modified or waived except in accordance with the provisions of this Section 11.5. The Required Banks and the Borrower may, from time to time, enter into written amendments or waivers of this Agreement, the Notes or the other Financing Documents to which the Borrower is a party; provided that no such amendment or waiver shall (i) extend either the Final Maturity Date or any installment or required payment or prepayment of any Obligations or reduce the rate or extend the time of payment of interest on any Obligations, or reduce the principal amount of any Obligations or reduce any fee payable to the Banks hereunder, or release all or substantially all of the Collateral (except as expressly permitted by the Security Documents) or change the amount of any Commitment of any Bank, or amend, modify or waive any provision of this Section 11.5 or the definition of Required Banks, or consent to or permit the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or any other Financing Document, or release any Equity Contributor from its obligation to make Equity Contributions under the Equity Commitment Agreement, or change the number or percentage of Banks who must approve the satisfaction of any 120 condition precedent, or eliminate or reduce any requirement set forth in Article IV in each case without the written consent of all of the Banks, or (ii) amend, modify or waive any provision of Article IX or any other provision of any Financing Document if the effect thereof is to affect the rights or duties of the Agent Bank, without the written consent of the then Agent Bank, or (iii) amend, modify or waive any provision of Article X or any other provision of any Financing Document if the effect thereof is to affect the rights or duties of the Collateral Agent, without the written consent of the then Collateral Agent. Any such amendment, supplement, modification or waiver shall apply to each of the Banks equally and shall be binding upon the Borrower, the Banks, the Agent Bank, the Collateral Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the Banks, the Agent Bank and the Collateral Agent shall be restored to their former positions and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Section 11.6. No Waiver; Remedies Cumulative. No failure or delay on the part of the Agent Bank, the Collateral Agent or any Bank or any holder of a Note in exercising any right, power or privilege hereunder or under any other Financing Document and no course of dealing between the Borrower and the Agent Bank, the Collateral Agent or any Bank or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Financing Document preclude any other or further exercise thereof of the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Agent Bank, the Collateral Agent or any Bank or the holder of any Note would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent Bank, the Collateral Agent or any Bank or the holder of any Note to any other or further action in any circumstances without notice or demand. Section 11.7. No Third Party Beneficiaries. The agreement of the Banks to make the Loans on the terms and conditions set forth in this Agreement are solely for the benefit of the Borrower, and no other Person (including any other Project Party, obligor, contractor, subcontractor, supplier or materialman furnishing supplies, goods or services to or for the benefit of the Project) shall have any rights hereunder, as against the Agent Bank, the Collateral Agent or any Bank, under any other Transaction Document or with respect to the Loans or the proceeds thereof. Section 11.8. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each 121 of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 11.9. Effectiveness. This Agreement shall become effective on the date on which all of the parties hereto shall have signed a counterpart hereof and shall have delivered the same to the Agent Bank, which delivery, in the case of the Banks and the Collateral Agent, may be given to the Agent Bank by telecopy (with the originals delivered promptly to the Agent Bank via overnight courier service). Section 11.10. Headings Descriptive. The headings of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 11.11. Marshalling; Recapture. None of the Agent Bank, the Collateral Agent nor any Bank shall be under any obligation to marshall any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent any Bank receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or its estate, trustee, receiver, custodian or any other party under any bankruptcy Law, state or federal Law, common Law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of the Borrower to such Bank as of the date such initial payment, reduction or satisfaction occurred. Section 11.12. Severability. In case any provision in or obligation under this Agreement, the Notes or the other Financing Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 11.13. Survival. All representations, warranties and indemnities set forth herein including, without limitation, in Sections 2.15, 2.16, 2.17, 2.18, 2.19, 2.22 and 11.1 shall survive the execution and delivery of this Agreement and the Notes and the making and repayment of the Loans. Section 11.14. Domicile of Loans. Each Bank may transfer and carry its Loans to or for the account of any branch office, subsidiary or Affiliate of such Bank. Section 11.15. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be 122 otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. Section 11.16. Limitation of Liability. No Equity Holder or any other Person shall be personally liable (whether by operation of Law or otherwise) for payments due hereunder or under any other Financing Document for the performance of any Obligations except as expressly provided in such Financing Document. The sole recourse of the Secured Parties for satisfaction of the Obligations shall be against the Borrower and its assets and not against any other Person; provided, however, that (i) nothing in this Section 11.16 shall limit or otherwise prejudice in any way the right of the Secured Parties to proceed against any Person with respect to the enforcement of such Person's obligations (or the enforcement of the Secured Parties' rights) under any Transaction Document to which it is a party, and (ii) recourse against a Person for such Person's fraud or intentional misrepresentation shall not be limited by this Section 11.16. Section 11.17. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. (a) THIS AGREEMENT, EACH OTHER FINANCING DOCUMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY 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). (b) ANY LEGAL ACTION OR PROCEEDING AGAINST ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF. THE BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE AND ACCEPT FOR AND ON ITS BEHALF SERVICE OR ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, 123 APPOINTEE AND AGENT IN NEW YORK CITY ON TERMS AND FOR PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT BANK. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS REFERRED TO IN SECTION 11.3. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED IN ANY OTHER JURISDICTION. (c) EACH OF THE BORROWER AND THE SECURED PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER. Section 11.18. Confidentiality. Each of the Agent Bank, the Collateral Agent and the Banks agrees (on behalf of itself and each of its Affiliates, directors, officers, employees and representatives) to execute and deliver a confidentiality agreement substantially in the form of Exhibit L (each a "Confidentiality Agreement") and in accordance therewith to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling Confidential Information and in accordance with safe and sound banking practices, any Confidential Information received by such Person; provided that nothing herein shall limit the disclosure of information to the extent that such information (i) is in the public domain at the time of disclosure, (ii) following disclosure, becomes generally known or available through no act or omission of the Agent Bank, the Collateral Agent or any Bank, as the case may be, (iii) is known, or becomes known, to the Agent Bank, the Collateral Agent or any Bank, as the case may be, from a source other than the Borrower (provided that disclosure by such source is not in breach of a confidentiality agreement with the Borrower), (iv) is independently required to be disclosed by the Agent Bank, the Collateral Agent or any Bank, as the case may be, without violating any of such Person's obligations under the Confidentiality Agreement to which such Person is a party or (v) is legally required to be disclosed by Law or judicial 124 or other governmental action; provided that prompt notice of such legal requirement or such judicial or other governmental action shall have been given to the Disclosing Party (as defined in each Confidentiality Agreement) and that the Disclosing Party shall be afforded the opportunity (consistent with the legal obligations of the Receiving Party (as defined in each Confidentiality Agreement)) to exhaust all reasonable legal remedies to maintain the Confidential Information in confidence; provided, further that nothing herein shall limit the disclosure of Confidential Information to (i) the Agent Bank's, the Collateral Agent's or any Bank's, as the case may be, Affiliates, directors, officers, employees, attorneys, accountants, consultants, advisors or agents or (ii) any Transferee (or prospective Transferee) so long as such Transferee (or prospective Transferee) first executes and delivers to the respective Bank a Confidentiality Agreement; provided, further that, unless specifically prohibited by applicable Law or court order, the Agent Bank, the Collateral Agent or the affected Bank shall, prior to disclosure thereof, notify the Borrower of any request for disclosure of any Confidential Information (x) by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of the Agent Bank or the Collateral Agent or effected by such governmental agency) or (y) pursuant to legal process; and provided finally that in no event shall the Agent Bank, the Collateral Agent or any Bank be obligated or required to return any materials furnished by the Borrower (except as may be required under any Confidentiality Agreement). The obligations of the Agent Bank, the Collateral Agent or any Bank under this Section 11.18 shall supersede and replace the obligations of the Agent Bank, the Collateral Agent or any Bank under any other confidentiality agreement in respect of this financing signed and delivered by Agent Bank, the Collateral Agent or any Bank to the Borrower prior to the date hereof or prior to the date on which any Person becomes a Transferee. Section 11.19. Removal by Assignment of Banks. If any Bank shall (i) make any demand for payment under Section 2.16(a)(B), 2.18 or 2.19, (ii) give notice to the Borrower pursuant to Section 2.16(a)(iii), or (iii) fails to make available to the Agent Bank its Pro Rata Share of Loans to be made on the date specified in any Notice of Borrowing in accordance with Section 2.5(a), the Borrower may demand and the affected Bank or the Defaulting Bank, as the case may be, shall assign in accordance with Section 11.4(c) to one or more other Banks designated by the Borrower all (but not less than all) of such Bank's Commitment. If any such Bank designated by the Borrower shall fail to consummate such assignment on terms acceptable to the affected Bank, or if the Borrower shall fail to designate any such other Bank for all of the affected Bank's commitment, then such demand by the Borrower shall become ineffective; it being understood for purposes of this Section 11.19 that such assignment shall be conclusively deemed to be on terms acceptable to the affected Bank, and the affected Bank shall be compelled to consummate such assignment to such other Bank designated by the Borrower, if such other Bank (1) shall agree to such assignment and (2) shall offer compensation to the affected Bank in an amount equal to all amounts then owing by the Borrower to the affected Bank hereunder 125 and under the Notes made by the Borrower to the affected Bank, whether for principal, interest, Fees, costs or expenses. Section 11.20. Change of Lending Office. If an event occurs with respect to a lending office of any Bank that obligates the Borrower to pay any amount under Section 2.7(d), 2.17, 2.18 or 2.19, makes operable Section 2.16(a)(iii) or entitles the Bank to make a claim under Section 2.16(a)(B), such Bank shall, if requested by the Borrower, use reasonable efforts to designate another lending office or offices the designation of which will reduce the amount the Borrower is so obligated to pay, eliminate such operability or reduce the amount the Bank is so entitled to claim; provided that such designation would not, in the sole discretion of the Bank, be disadvantageous to such Bank in any manner or contrary to such Bank's policy. Any Bank may at any time and from time to time change any lending office and shall give notice of any such change to the Agent Bank, the Collateral Agent and the Borrower. 126 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Credit Agreement as of the date first above written. NRG (MORRIS) COGEN, LLC, as the Borrower By: /s/ James J. Bender Name: James J. Bender Title: Member Representative Address for Notices: 1221 Nicollet Mall Suite 700 Minneapolis, Minnesota 55403-2445 Attention: President Telephone: (612) 373-5400 Facsimile: (612) 373-5430 THE CHASE MANHATTAN BANK, as a Bank By: /s/ Thomas Case Name: Thomas L. Case Title: Vice President Address for Notices: One Chase Manhattan Plaza New York, New York 10081 Attention: Global Power and Environmental Group Telephone: Facsimile: THE CHASE MANHATTAN BANK, as the Agent Bank By: /s/ Thomas Case Name: Thomas L. Case Title: Vice President Address for Notices: One Chase Manhattan Plaza New York, New York 10081 Attention: Global Power and Environmental Group Telephone: Facsimile: THE CHASE MANHATTAN BANK, as the Collateral Agent By: /s/ Annette M. Marsula Name: Annette M. Marsula Title: Assistant Vice President Address for Notices: 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: Annette Marsula Telephone: (212) 946-7557 Facsimile: (212) 946-8177/8178 EX-10.27.9 26 EXHIBIT 10.27.9 CONSENT AND AMENDMENT, DATED AS OF DECEMBER 10, 1997, AMONG COGEN, LLC, THE BANKS AND CHASE. Exhibit 10.27.9 CONSENT AND AMENDMENT CONSENT AND AMENDMENT, dated as of December 10, 1997 (this "Consent and Amendment"), among NRG (MORRIS) COGEN, LLC (the "Borrower"), the banks party to the Credit Agreement (as defined below) (the "Banks"), and THE CHASE MANHATTAN BANK, in its capacity as Agent Bank (as defined below) under the Credit Agreement (as defined below). RECITALS WHEREAS, the Borrower entered into that certain Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Credit Agreement"), with the Banks, The Chase Manhattan Bank, as agent for the Banks (in such capacity, the "Agent Bank"), and The Chase Manhattan Bank, as collateral agent for the Banks (in such capacity, the "Collateral Agent"), to obtain funds to finance the ownership, development, engineering, construction, start-up, testing, operation and maintenance of an approximately 117 MW gas fired cogeneration plant in Morris, Illinois (the "Project"). Capitalized terms used but not defined in this Consent and Amendment shall have the meanings given to such terms in the Credit Agreement; WHEREAS, the Borrower entered into that certain Operation and Maintenance Agreement, dated September 19, 1997 (the "Operation and Maintenance Agreement"), with NRG Morris Operations Inc. (the "Operator") to provide for the operation and maintenance of the Project; WHEREAS, NRG Energy, Inc. ("NRG Energy") issued that certain Limited Guaranty, dated September 19, 1997 (the "O&M Guarantee"), in favor of the Borrower, pursuant to which NRG Energy guarantees, to a limited extent, payment by the Operator of liquidated damages under the Operation and Maintenance Agreement; WHEREAS, (i) the Borrower and the Operator would like to modify certain provisions of the Operation and Maintenance Agreement in accordance with the terms thereof and (ii) the Borrower would like to consent to the modification of certain provisions of the O&M Guarantee; WHEREAS, pursuant to the Credit Agreement, the Borrower must obtain the prior written consent of the Agent Bank to modify, or consent to the modification of, any provision of the Operation and Maintenance Agreement or the O&M Guarantee; WHEREAS, the Borrower is requesting that the Agent Bank consent to the proposed modifications of the Operation and Maintenance Agreement and the O&M Guarantee and the Agent Bank is willing to grant such consent; WHEREAS, the Borrower has also requested that Schedule 5.7 to the Credit Agreement be amended as set forth herein and the Banks are willing to enter into such amendment; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Borrower, the Banks and the Agent Bank hereby agree as follows: 1. Acknowledgment and Consent. The Agent Bank, in its capacity as such under the Credit Agreement, hereby (a) acknowledges that it has reviewed the form and substance of (i) the proposed First Amendment to Operation and Maintenance Agreement to be entered into between the Borrower and the Operator (the "O&M Amendment"), a copy of which is attached hereto as Exhibit A, and (ii) the proposed First Amendment to Limited Guaranty to be executed by the O&M Guarantor (the "O&M Guarantee Amendment"), a copy of which is attached hereto as Exhibit B, and (b) consents to (i) the execution by the Borrower of the O&M Amendment and the performance by the Borrower of the terms thereof in accordance with the Credit Agreement and (ii) the consent by the Borrower to the execution of the O&M Guarantee Amendment. 2. Amendment to Credit Agreement. Section (C) of Schedule 5.7 to the Credit Agreement is hereby amended by deleting the phrase "at its own expense" from the first and second lines thereof. 3. Consent and Amendment Limited Precisely as Written; Ratification; References. Each of the consents set forth in Section 1 hereof is limited precisely as written and shall not be deemed to be a consent to any modification of any other term of the Operation and Maintenance Agreement or the O&M Guarantee, or any of the documents referred to herein or therein or a consent to any modification of any other Transaction Document. The amendment set forth in Section 2 hereof is limited precisely as written and shall not be deemed to be a consent or waiver to, or modification of, any other term or condition in the Credit Agreement or any of the documents referred to herein or therein. Except as expressly amended hereby, the Credit Agreement is ratified and confirmed in all respects. On and after the date hereof, whenever the Credit Agreement is referred to in any of the Transaction Documents or in any of the other documents or papers to be executed and delivered in connection therewith or with the Credit Agreement, such term shall be deemed to mean the Credit Agreement as amended hereby. 4. Governing Law. This Consent and Amendment shall be construed in accordance with and shall be governed by 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). 2 5. Waiver of Jury Trial. EACH OF THE BORROWER, THE BANKS AND THE AGENT BANK HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS CONSENT AND AMENDMENT OR ANY MATTER ARISING HEREUNDER. 6. Counterparts. This Consent and Amendment may be executed in one or more counterparts and when signed by all parties listed below shall constitute a single binding agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the parties have caused this Consent and Amendment to be duly executed by their officers thereunto duly authorized as of the day and year first written above. NRG (MORRIS) COGEN, LLC By: /s/ Craig Mataczynski Name: Craig Mataczynski Title: President THE CHASE MANHATTAN BANK, as a Bank By: /s/ Kevin P. O'Neill Name: Kevin P. O'Neill Title: Vice President THE CHASE MANHATTAN BANK, as Agent Bank By: /s/ Kevin P. O'Neill Name: Kevin P. O'Neill Title: Vice President THE BANK OF NEW YORK By: /s/ John N. Watt Name: John N. Watt Title: Vice President NATEXIS BANQUE By: /s/ D.J.R. Osten Name: D.J.R. Osten Title: First V.P. THE SUMITOMO TRUST AND BANKING COMPANY, LTD. By: /s/ Suraj P. Bhatia Name: Suraj P. Bhatia Title: Senior Vice President EX-10.27.10 27 EXHIBIT 10.27.10 PLEDGE AND SECURITY AGREEMENT DATED AS OF DECEMBER 10, 1997 BY NRGG FUNDING AND MORRIS IN FAVOR OF CHASE. Exhibit 10.27.10 Execution Version PLEDGE AND SECURITY AGREEMENT dated as of December 10, 1997 among NRGG FUNDING INC., as a Pledgor NRG MORRIS INC., as a Pledgor and THE CHASE MANHATTAN BANK, as Collateral Agent TABLE OF CONTENTS Page ARTICLE 1 DEFINED TERMS; PRINCIPLES OF CONSTRUCTION Section 1.1 Defined Terms 2 Section 1.2 Principles of Construction 2 ARTICLE 2 PLEDGE Section 2.1 Pledged Collateral 3 Section 2.2 Pledgors' Rights 4 Section 2.3 Secured Parties Not Liable 5 Section 2.4 Attorney-in-Fact 5 Section 2.5 Collateral Agent May Perform 6 Section 2.6 Reasonable Care 6 Section 2.7 Security Interest Absolute 6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PLEDGORS Section 3.1 Ownership of Pledged Collateral; Other Financing Statements 7 Section 3.2 Due Incorporation; Qualification 7 Section 3.3 Authority; Authorization, Execution and Delivery; Enforceability 7 Section 3.4 Consents; Governmental Approvals 8 Section 3.5 No Conflicts 8 Section 3.6 Litigation 8 Section 3.7 Necessary Filings 8 Section 3.8 Compliance with Laws 9 Section 3.9 No Defaults 9 Section 3.10 Chief Executive Office 9 ARTICLE 4 COVENANTS OF THE PLEDGORS Section 4.1 Transfer of Interests 9 Section 4.2 No Other Liens 10 Section 4.3 Maintenance of Existence 10 Section 4.4 Compliance with Laws; Governmental Approvals 10 Section 4.5 Payment of Taxes 10 i Section 4.6 Amendment of LLC Agreement 11 Section 4.7 Chief Executive Office 11 Section 4.8 Supplements; Further Assurances 11 Section 4.9 Certificated Interests 11 Section 4.10 Records; Statements and Schedules 12 Section 4.11 Improper Distributions 12 Section 4.12 Bankruptcy 12 ARTICLE 5 EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT Section 5.1 Remedies Generally 12 Section 5.2 Sale of Pledged Collateral 12 Section 5.3 Purchase of Pledged Collateral 13 Section 5.4 Application of Proceeds 14 Section 5.5 Expenses 14 ARTICLE 6 MISCELLANEOUS PROVISIONS Section 6.1 Notices 14 Section 6.2 Continuing Security Interest 15 Section 6.3 Release 15 Section 6.4 Reinstatement 15 Section 6.5 Independent Security 15 Section 6.6 Amendments 16 Section 6.7 Successors and Assigns 16 Section 6.8 Third Party Beneficiaries 16 Section 6.9 Survival 16 Section 6.10 No Waiver; Remedies Cumulative 16 Section 6.11 Counterparts 16 Section 6.12 Headings Descriptive 17 Section 6.13 Severability 17 Section 6.14 Governing Law; Submission to Jurisdiction and Venue; Waiver of Jury Trial 17 Section 6.15 Entire Agreement 18 Section 6.16 Indemnity 18 Section 6.17 Independent Obligations 20 Section 6.18 Waiver of Defenses 20 Section 6.19 Subrogation, Etc. 21 Section 6.20 Joint and Several Liability 21 Section 6.21 Recourse Limited to Collateral 21 ii PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of December 10, 1997, among NRGG FUNDING INC., a Delaware corporation ("NRGG FUNDING"), NRG MORRIS INC., a Delaware corporation ("NRGMI"), and THE CHASE MANHATTAN BANK, as Collateral Agent (as defined below) and grantee hereunder for the benefit of the Secured Parties (as defined below). NRGG Funding and NRGMI are sometimes referred to herein collectively as the "Pledgors" and each individually as a "Pledgor." W I T N E S S E T H : WHEREAS, NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Borrower") entered into the Construction and Term Loan Agreement, dated as of September 15, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), with the banks party thereto (the "Banks"), The Chase Manhattan Bank, as agent for the Banks (in such capacity, the "Agent Bank"), and The Chase Manhattan Bank, as collateral agent for the Banks and the Agent Bank (in such capacity, the "Collateral Agent" and, collectively with the Banks and the Agent Bank, the "Secured Parties"), pursuant to which the Banks make construction and term loans and other extensions of credit to the Borrower; WHEREAS, NRG Energy, Inc. ("NRG Energy"), NRGMI and the Collateral Agent entered into the Pledge and Security Agreement, dated as of September 15, 1997 (the "Original Pledge Agreement"), pursuant to which NRG Energy and NRGMI granted a security interest in the Pledged Collateral (as defined therein) to the Collateral Agent to secure the Borrower's obligations under the Credit Agreement; WHEREAS, pursuant to the Membership Interest Purchase Agreement, dated as of December 10, 1997 (the "Purchase Agreement"), between NRGG Funding and NRG Energy, NRGG Funding will purchase all of NRG Energy's membership interests in the Borrower; WHEREAS, upon execution and delivery of the Purchase Agreement, the Pledgors together will own one hundred percent (100%) of the membership interests in the Borrower and, accordingly, will benefit from the extensions of credit made by the Banks to the Borrower under the Credit Agreement; WHEREAS, it is a condition precedent to (i) obtaining the consent of the Collateral Agent and the Agent Bank to the form and substance of the Purchase Agreement and (ii) to the Banks continuing to extend credit to the Borrower under the Credit Agreement that the Pledgors execute and deliver this Agreement; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Pledgors hereby agree with the Collateral Agent as follows: ARTICLE 1 DEFINED TERMS; PRINCIPLES OF CONSTRUCTION Section 1.1 Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement shall have such defined meanings when used herein. (b) The following terms shall have the following respective meanings: "Expenses" shall have the meaning ascribed thereto in Section 6.16(a). "Financing Statement" shall mean all financing statements, recordings, filings or other instruments of registration necessary and appropriate to perfect a security interest or Lien by filing in any appropriate filing or recording office in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant applicable Law. "Indemnitee" shall have the meaning ascribed thereto in Section 6.16(a). "LLC Agreement" shall mean the Amended and Restated Limited Liability Company Agreement of NRG (Morris) Cogen, LLC, dated December 10, 1997, between the Pledgors, and all amendments, modifications and supplements thereto and restatements thereof made in accordance with Section 4.6. "LLC Interests" shall have the meaning ascribed thereto in Section 2.1(a)(i). "NRG Energy Lien" shall have the meaning ascribed thereto in Section 3.1. "Permitted Liens" shall mean: (a) Liens granted pursuant to this Agree ment; (b) Liens granted pursuant to the Subordinated Pledge Agreement; (c) Liens (other than any Lien imposed by ERISA) in connection with workmen's compensation, unemployment insurance or other social security or pension obligations; (d) Liens for taxes not yet delinquent or, if delinquent, which are subject to a Contest; and (e) attachment or judgment Liens, provided that (i) the existence of such Liens could not reasonably be expected to result in a Material Adverse Effect (as defined in Section 3.2) and (ii) such Liens are discharged within thirty (30) days of the creation thereof. 2 "Pledged Collateral" shall have the meaning ascribed thereto in Section 2.1(a). "Secured Obligations" shall mean (i) the Obligations and (ii) the Pledgors' obligations hereunder. "Securities Act" shall have the meaning ascribed thereto in Section 5.2(b). "Subordinated Pledge Agreement" shall mean the Subordinated Pledge and Security Agreement, dated as of the date hereof, among the Pledgors and NRG Energy. Section 1.2 Principles of Construction. Unless otherwise expressly provided herein, the principles of construction set forth in Section 1.4 of the Credit Agreement shall apply to this Agreement. ARTICLE 2 PLEDGE Section 2.1 Pledged Collateral. (a) As collateral security for the prompt and complete payment and performance when due, whether at stated maturity, by acceleration or otherwise (including the payment of amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. 362(a)), of all of the Secured Obligations, whether now existing or hereafter arising and howsoever evidenced, each Pledgor hereby pledges, grants, assigns, hypothecates, transfers and delivers to the Collateral Agent, for its benefit and the benefit of the other Secured Parties, a first priority security interest in the following, whether now existing or hereafter from time to time acquired (collectively, the "Pledged Collateral"): (i) all of such Pledgor's membership interests in the Borrower (such Pledgor's "LLC Interests") and all of such Pledgor's rights to acquire membership interests in the Borrower in addition to or in exchange or substitution for such Pledgor's LLC Interests; (ii) all of such Pledgor's rights, privileges, authority and powers as a member of the Borrower under the LLC Agreement; (iii) all certificates or other documents (if any) representing any and all of the foregoing in clauses (i) and (ii); (iv) all dividends, distributions, cash, securities, instruments and other property of any kind to which such Pledgor may be entitled in its capacity as a member of the Borrower by way of distribution, return of capital or otherwise; 3 (v) any other claim which such Pledgor now has or may in the future acquire in its capacity as a member of the Borrower against the Borrower and its property; and (vi) all proceeds, products and accessions of and to any of the property described in the preceding clauses (i) through (v). (b) As used herein, the term "proceeds" shall be construed in its broadest sense and shall include whatever is received or receivable when any of the Pledged Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise disposed of, whether voluntarily or involuntarily, and shall include, without limitation, all rights to payment, including interest and premiums, with respect to any of the Pledged Collateral or any proceeds thereof. Section 2.2 Pledgors' Rights. (a) Distributions. Unless an Event of Default shall have occurred and be continuing, the Pledgors shall be entitled to receive and retain any and all distributions paid in respect of the Pledged Collateral in compliance with the terms of the Credit Agreement; provided, however, that any and all (i) distributions paid or payable in respect of any Pledged Collateral (whether paid in cash, securities or other property) in connection with (A) any partial or total liquidation or dissolution of the Borrower, (B) any distribution of capital of the Borrower, (C) any recapitalization or reclassification of the capital of the Borrower or (D) any reorganization of the Borrower, and (ii) all property (whether cash, securities or other property) paid, payable or otherwise distributed in redemption of, or in exchange for, the property described in clause (i) immediately above, shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Pledged Collateral and shall, if received by either of the Pledgors, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of such Pledgor, and be forthwith delivered to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). All cash and cash equivalents received by the Collateral Agent pursuant to the preceding sentence shall be deposited in the appropriate Project Account in accordance with the Credit Agreement. Upon the occurrence and during the continuance of an Event of Default, all rights of the Pledgors to receive the distributions which they would otherwise be authorized to receive and retain pursuant to this clause (a) shall cease, and all such rights shall thereupon become vested in the Collateral Agent which shall thereupon have the sole right to receive and hold as Pledged Collateral such distributions; provided that, notwithstanding anything 4 herein to the contrary, if such Event of Default is cured or waived in accordance with the terms of the Credit Agreement, any such distribution previously paid to the Collateral Agent shall, upon request of the relevant Pledgor, be returned to such Pledgor. (b) Other Rights. Unless an Event of Default shall have occurred and be continuing, each Pledgor shall be entitled to exercise all voting and other rights with respect to such Pledgor's LLC Interests; provided, however, that no vote shall be cast, right exercised or other action taken which could impair the Pledged Collateral or which would be inconsistent with or result in any violation of any provision of this Agreement or any other Transaction Document. Upon the occurrence and during the continuance of an Event of Default, all voting and other rights of each Pledgor with respect to such Pledgor's LLC Interests which such Pledgor would otherwise be entitled to exercise pursuant to the terms of this Agreement shall cease, and all such rights shall be vested in the Collateral Agent which shall thereupon have the sole right to exercise such rights. (c) Turnover. All distributions and other amounts which are received by any Pledgor contrary to the provisions of this Agreement shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Pledgor and shall be forthwith paid over to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). Section 2.3 Secured Parties Not Liable. Notwithstanding any other provision contained in this Agreement, the Pledgors shall remain liable under the LLC Agreement to observe and perform all of the conditions and obligations to be observed and performed by the Pledgors thereunder. None of the Collateral Agent, any other Secured Party or any of their respective directors, officers, employees or agents shall have any obligations or liability under or with respect to any Pledged Collateral by reason of or arising out of this Agreement or the receipt by the Collateral Agent of any payment relating to any Pledged Collateral, nor shall any of the Collateral Agent, any other Secured Party or any of their respective directors, officers, employees or agents be obligated in any manner to (a) perform any of the obligations of either Pledgor under or pursuant to the LLC Agreement or any other agreement to which either Pledgor is a party, (b) make any payment or to inquire as to the nature or sufficiency of any payment or performance with respect to any Pledged Collateral, (c) present or file any claim or collect the payment of any amounts or take any action to enforce any performance with respect to the Pledged Collateral or (d) take any other action whatsoever with respect to the Pledged Collateral. Section 2.4 Attorney-in-Fact. (a) Each Pledgor hereby appoints the Collateral Agent, on behalf of the Secured Parties, or any Person, officer or agent whom the Collateral Agent may designate, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Pledgor and in the name of such Pledgor or in its own name, at such Pledgor's cost and expense, from time to time in the Collateral Agent's reasonable discretion (as directed by the Agent Bank, acting in 5 accordance with the Credit Agreement) to take any action and to execute any instrument which the Collateral Agent may reasonably deem necessary or advisable to enforce its rights under this Agreement, including, without limitation, authority to receive, endorse and collect all instruments made payable to such Pledgor representing any distribution, interest payment or other payment in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; provided, however, that the Collateral Agent will not exercise its powers under this Section 2.4 unless an Event of Default has occurred and is continuing (except that the Collateral Agent may at any time, in the name of either Pledgor or in its own name, prepare, sign and file any Financing Statement for the purpose of perfecting the security interest granted hereunder). (b) Each Pledgor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof, in each case pursuant to the powers granted hereunder. Each Pledgor hereby acknowledges and agrees that in acting pursuant to the power-of-attorney granted in clause (a) immediately above, the Collateral Agent shall be acting in its own interest and on behalf of the Secured Parties, and each Pledgor acknowledges and agrees that the Collateral Agent and the other Secured Parties shall have no fiduciary duties to such Pledgor and such Pledgor hereby waives any claims or rights of a beneficiary of a fiduciary relationship hereunder. Section 2.5 Collateral Agent May Perform. If either Pledgor fails to perform any agreement contained herein after receipt of a written request to do so from the Collateral Agent, the Collateral Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Collateral Agent, including the reasonable fees and expenses of its counsel, incurred in connection therewith shall be payable by such Pledgor under Section 6.16; provided that if an Event of Bankruptcy shall have occurred with respect to such Pledgor, the notice described in this Section 2.5 shall not be required and shall be deemed to have been delivered upon the failure of such Pledgor to perform such agreement. Section 2.6 Reasonable Care. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equivalent to that which the Collateral Agent accords its own property of the type of which the Pledged Collateral consists, it being understood that the Collateral Agent shall have no responsibility for () ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, or () taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. 6 Section 2.7 Security Interest Absolute. All rights of the Collateral Agent and security interests hereunder, and all obligations of the Pledgors hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any of the Transaction Documents or any other agreement or instrument relating thereto (other than against the Collateral Agent); (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Transaction Documents or any other agreement or instrument relating thereto; (c) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations; or (d) any other circumstance (other than the indefeasible payment in full of the Secured Obligations in cash or cash equivalents and/or application of the purchase price of any or all of the Pledged Collateral purchased by the Collateral Agent pursuant to Section 5.3) which might otherwise constitute a defense avail able to, or a discharge of, the Pledgors. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PLEDGORS Each Pledgor represents and warrants as follows, which representations and warranties shall survive the execution and delivery of this Agreement and the making and repayment of the Secured Obligations; provided that (i) prior to the effective date of this Agreement, such representations and warranties shall be made by the Pledgors on a several basis, and (ii) on and after the effective date of this Agreement, such representations and warranties shall be made by the Pledgors on a joint and several basis: Section 3.1 Ownership of Pledged Collateral; Other Financing Statements. Such Pledgor is the sole legal and beneficial owner of the Pledged Collateral pledged by it hereunder free and clear of any Lien other than (a) the Lien created pursuant to this Agreement and (b) the subordinated Lien (the "NRG Energy Lien") created in favor of NRG Energy pursuant to the Subordinated Pledge Agreement. No security agreement, Financing Statement or other public notice with respect to all or any part of the Pledged Collateral is on file or of record in any public office, except such as may have been filed (x) in favor of the Collateral Agent pursuant to this Agreement or (y) in favor of NRG Energy pursuant to the Subordinated Pledge Agreement. 7 Section 3.2 Due Incorporation; Qualification. Such Pledgor is a corporation duly organized and validly existing under the Laws of the State of Delaware, and is qualified to own property and transact business in every jurisdiction where the ownership of its property and the nature of its business as currently conducted and as contemplated to be conducted requires it to be qualified, except where the failure to so qualify could not reasonably be expected to result in a Material Adverse Effect (as herein defined). For purposes of this Section 3.2, "Material Adverse Effect" shall mean a material adverse effect on any of (i) the operations, business, financial condition or property of NRGG Funding and its subsidiaries on a consolidated basis, (ii) the ability of either Pledgor to perform in a timely manner its material obligations under this Agreement or any other Transaction Document to which it is a party, (iii) the rights and interests of the Banks, the Agent Bank and the Collateral Agent under the Transaction Documents or (iv) the value of the Pledged Collateral or the validity or priority of the security interests therein granted to the Collateral Agent. Section 3.3 Authority; Authorization, Execution and Delivery; Enforceability. Such Pledgor has full power, authority and legal right to enter into this Agreement and to perform its obligations hereunder and to pledge all of the Pledged Collateral pledged by it pursuant to this Agreement. The pledge of such Pledged Collateral pursuant to this Agreement has been duly authorized by such Pledgor. This Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable against such Pledgor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar Laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). Section 3.4 Consents; Governmental Approvals. No consent of any other party (including, without limitation, stockholders or creditors of such Pledgor) and no Governmental Approval is required which has not been obtained either (a) for the execution, delivery and performance by such Pledgor of this Agreement, (b) for the pledge by such Pledgor of the Pledged Collateral pledged by it pursuant to this Agreement, or (c) for the exercise by the Collateral Agent of the rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement. Section 3.5 No Conflicts. The execution, delivery and performance of this Agreement and each other Transaction Document to which such Pledgor is a party will not (i) require any consent or approval of the Board of Directors of such Pledgor which has not been obtained, (ii) violate the provisions of such Pledgor's Certificate of Incorporation or By- laws, (iii) violate the provisions of any Law (including, without limitation, any usury Laws), regulation or order of any Governmental Authority applicable to such Pledgor, (iv) result in a breach of or constitute a default under any material agreement relating to the management or affairs of such Pledgor, or any indenture or loan or credit 8 agreement or any other material agreement, lease or instrument to which such Pledgor is a party or by which such Pledgor or any of its material properties may be bound or (v) result in or create any Lien (other than Permitted Liens) under, or require any consent which has not been obtained under, any indenture or loan or credit agreement or any other material agreement, instrument or document, or the provisions of any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority binding upon such Pledgor or the Borrower or any of their respective properties. Section 3.6 Litigation. No Event of Bankruptcy has occurred with respect to such Pledgor and there is no action, suit or proceeding at Law or in equity or by or before any Governmental Authority, arbitral tribunal or other body now pending against such Pledgor or, to the best knowledge of such Pledgor, threatened against such Pledgor which questions the validity or legality of or seeks damages in connection with this Agreement or any other Transaction Document to which such Pledgor is a party. Section 3.7 Necessary Filings. Upon the filing with the Minnesota Secretary of State of all necessary Financing Statements executed by the Pledgors in favor of the Collateral Agent with respect to the Pledged Collateral, all filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interest granted by such Pledgor to the Collateral Agent hereby in respect of the Pledged Collateral shall have been accomplished and the security interest granted by such Pledgor to the Collateral Agent pursuant to this Agreement in the Pledged Collateral constitutes a valid and enforceable perfected security interest therein superior and prior to the rights of all other Persons therein and, in each case, subject to no other Liens, sales, assignments, conveyances, settings over or transfers. Section 3.8 Compliance with Laws. Such Pledgor has been in the past and is in current compliance with all applicable Laws () in respect of the conduct of its business and the ownership of its property, () in connection with the procurement of any Transaction Document to which it is a party and () in connection with the execution, delivery and performance of any Transaction Document to which it is a party, except in each case where such Pledgor's failure to comply could not reasonably be expected to result in a Material Adverse Effect. Section 3.9 No Defaults. Such Pledgor is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions applicable to such Pledgor contained in any Transaction Document to which it is a party. Section 3.10 Chief Executive Office. (a) The chief executive office of NRGG Funding and the office where NRGG Funding keeps its records concerning the Borrower and the Project and all contracts relating thereto is located at: 1221 Nicollet Mall, Suite 610 9 Minneapolis, MN 55403. (b) The chief executive office of NRGMI and the office where NRGMI keeps its records concerning the Borrower and the Project and all contracts relating thereto is located at: 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403. ARTICLE 4 COVENANTS OF THE PLEDGORS Each Pledgor hereby covenants and agrees from and after the date of this Agreement until the termination of this Agreement in accordance with the provisions of Section 6.3: Section 4.1 Transfer of Interests. (a) Such Pledgor shall not sell or otherwise dispose of the Pledged Collateral or any interest therein without the prior written consent of the Collateral Agent (as directed by the Agent Bank, acting upon the instructions of the Required Banks); provided, however, that such Pledgor may, without the prior written consent of the Collateral Agent (as directed by the Agent Bank, acting upon the instructions of the Required Banks), sell, together with any sale of LLC Interests made by the other Pledgor pursuant to this provisio, less than or equal to ten percent (10%) of its LLC Interests to the Energy Purchaser within one hundred twenty (120) days after the Closing Date pursuant to Section 19.5 of the Energy Services Agreement if (i) such sale does not cause a Default or an Event of Default under the Credit Agreement and (ii) such sale is consummated under documentation that is acceptable in form and substance satisfactory to the Collateral Agent and the Agent Bank and which causes the Energy Purchaser to pledge its membership interests in the Borrower so purchased to the Collateral Agent for the benefit of the Secured Parties as security for the Secured Obligations; provided that no sale of LLC Interests shall be permitted under this clause (a) unless NRGG Funding remains obligated under the Equity Commitment Agreement, dated as of September 15, 1997, among NRG Energy, the Borrower and the Collateral Agent, as assumed by NRGG Funding pursuant to the Assignment and Assumption Agreement, dated as of the date hereof, between NRG Energy and NRGG Funding. (b) If either Pledgor transfers all of its LLC Interests pursuant to any transfer permitted under clause (a) of this Section 4.1, then the Secured Parties, upon the request and at the expense of such Pledgor, shall execute and deliver all such documentation reasonably necessary to release such Pledgor from the terms of this Agreement. 10 Section 4.2 No Other Liens. Such Pledgor shall not create, incur or permit to exist, shall defend the Pledged Collateral against and shall take such other action as is necessary to remove, any Lien or claim on or to the Pledged Collateral (other than Permitted Liens), and shall defend the right, title and interest of the Collateral Agent in and to any of the Pledged Collateral against the claims and demands of all Persons whomsoever. Section 4.3 Maintenance of Existence. Such Pledgor shall preserve and maintain its legal existence as a corporation in good standing under the Laws of the State of Delaware; provided that NRGMI shall be permitted to merge into NRGG Funding if, in connection with such merger, NRGG Funding and NRGMI execute such documentation as is reasonably necessary to continue the Lien of the Collateral Agent on the Pledged Collateral. Section 4.4 Compliance with Laws; Governmental Approvals. Such Pledgor (i) shall comply with all Laws and (ii) shall obtain, maintain and comply with all Governmental Approvals as shall now or hereafter be necessary under applicable Law, rule or regulation, in each case in connection with the making and performance by such Pledgor of any material provision of the Transaction Documents to which it is a party, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect (as defined in Section 3.2). Section 4.5 Payment of Taxes. Such Pledgor shall pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, could reasonably be expected to become a Lien (other than a Permitted Lien) upon the Pledged Collateral, unless such matters are subject to a Contest. Such Pledgor will promptly pay or cause to be paid any valid, final judgment enforcing any such tax, assessment, charge, levy or claim and cause the same to be satisfied of record. Section 4.6 Amendment of LLC Agreement. Such Pledgor shall not, without the prior written consent of the Collateral Agent (as directed by the Agent Bank, acting upon the instructions of the Required Banks), agree to or permit (a) the cancellation or termination of the LLC Agreement, except upon the expiration of the stated term thereof or (b) any amendment, supplement, or modification of, or waiver with respect to any of the provisions of, the LLC Agreement (except with respect to (x) any sale of LLC Interests in accordance with Section 4.1 or (y) with the prior written consent of the Collateral Agent and the Agent Bank (which consent shall not be unreasonably withheld), any amendment that could not reasonably be expected to have an adverse effect on any of the rights of any of the Secured Parties under this Agreement). 11 Section 4.7 Chief Executive Office. Such Pledgor shall not establish a new location for its chief executive office or change its name until (i) it has given to the Collateral Agent not less than thirty (30) days prior written notice of its intention so to do, clearly describing such new location or specifying such new name, as the case may be, and (ii) with respect to such new location or such new name, as the case may be, it shall have taken all action, satisfactory to the Collateral Agent, to maintain the security interest of the Collateral Agent in the Pledged Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Section 4.8 Supplements; Further Assurances. Such Pledgor shall at any time and from time to time, at the expense of such Pledgor, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Section 4.9 Certificated Interests. If such Pledgor shall become entitled to receive or shall receive any certificate, instrument, option or rights, whether as an addition to, in substitution of or in exchange for the Pledged Collateral or any part thereof, or otherwise, such Pledgor shall accept any such certificate, instrument, option or rights as the Collateral Agent's agent, shall hold them in trust for the Collateral Agent and shall deliver them forthwith to the Collateral Agent in the exact form received, with such Pledgor's endorsement when necessary or accompanied by duly executed instruments of transfer or assignment in blank or, if requested by the Collateral Agent, an additional pledge agreement or security agreement executed and delivered by such Pledgor, all in form and substance satisfactory to the Collateral Agent, to be held by the Collateral Agent, subject to the terms hereof, as further collateral security for the Secured Obligations. Section 4.10 Records; Statements and Schedules. Such Pledgor shall keep and maintain, at its own cost and expense, records of the Pledged Collateral, including, but not limited to, records of all payments received with respect thereto, and such Pledgor shall make the same available to the Collateral Agent and the other Secured Parties for inspection at such Pledgor's chief executive office, at such Pledgor's own cost and expense, at any and all times upon demand. Such Pledgor shall furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Pledged Collateral and such other reports in connection with the Pledged Collateral as the Collateral Agent may reasonably request, all in reasonable detail. Section 4.11 Improper Distributions. Notwithstanding any other provision contained in this Agreement, such Pledgor shall not accept any distributions, dividends or other payments (or any collateral in lieu thereof) in respect of the Pledged Collateral, 12 except to the extent the same are expressly permitted by the terms of this Agreement and the Credit Agreement. Section 4.12 Bankruptcy. Such Pledgor shall not authorize or permit the Borrower to make a general assignment for the benefit of the Borrower's creditors. Such Pledgor shall not commence or join with any other Person (other than the Collateral Agent) in commencing any proceeding against the Borrower under any bankruptcy, reorganization, liquidation or insolvency law or statute now or hereafter in effect in any jurisdiction. ARTICLE 5 EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT Section 5.1 Remedies Generally. If an Event of Default shall have occurred and be continuing, the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement) may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Uniform Commercial Code in effect from time to time in any relevant jurisdiction and all other rights and remedies available at Law or in equity. Section 5.2 Sale of Pledged Collateral. (a) Without limiting the generality of Section 5.1, the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement) may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale or at any of the Collateral Agent's Office or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Collateral Agent may reasonably deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral at any such sale. Each purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of the Pledgors, and the Pledgors hereby waive (to the extent permitted by Law) all rights of redemption, stay and/or appraisal which they now have or may at any time in the future have under any rule of Law or statute now existing or hereafter enacted. The Pledgors agree that, to the extent notice of sale shall be required by Law, at least ten (10) days' notice to the Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent 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. Assuming that such sales are made in compliance with federal and state securities Laws, the Collateral Agent shall incur no liability as a result of the sale of the Pledged Collateral, 13 or any part thereof, at any public or private sale. The Pledgors hereby waive any claims against the Collateral Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale, if commercially reasonable, was less than the price which might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) The Pledgors recognize that the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement) may elect to sell all or a part of the Pledged Collateral to one or more purchasers in privately negotiated transactions in which the purchasers will be obligated to agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgors acknowledge that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act")), and the Pledgors and the Collateral Agent agree that such private sales shall be made in a commercially reasonable manner and that the Collateral Agent has no obligation to engage in public sales and no obligation to delay sale of any Pledged Collateral to permit the issuer thereof to register the Pledged Collateral for a form of public sale requiring registration under the Securities Act. Section 5.3 Purchase of Pledged Collateral. The Collateral Agent may be a purchaser of the Pledged Collateral or any part thereof or any right or interest therein at any sale thereof, whether pursuant to foreclosure, power of sale or otherwise hereunder and the Collateral Agent may apply the purchase price to the payment of the Secured Obligations. Any purchaser of all or any part of the Pledged Collateral shall, upon any such purchase, acquire good title to the Pledged Collateral so purchased, free of the security interests created by this Agreement. Section 5.4 Application of Proceeds. The Collateral Agent shall apply any proceeds from time to time held by it and the net proceeds of any collection, recovery, receipt, appropriation, realization or sale with respect to the Pledged Collateral in accordance with the relevant provisions of the Credit Agreement. For avoidance of doubt, it is understood that the Borrower shall remain liable to the extent of any deficiency between the amount of proceeds of the Pledged Collateral and the aggregated amount of the Secured Obligations. Section 5.5 Expenses. The Pledgors shall upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, and any transfer taxes, in each case payable upon sale of the Pledged Collateral, which the Collateral Agent may incur in connection with () the custody or preservation of, or the sale of, collection from or other 14 realization upon, any of the Pledged Collateral pursuant to the exercise or enforcement of any of the rights of the Collateral Agent hereunder or (b) the failure by the Pledgors to perform or observe any of the provisions hereof, together with interest thereon from the date of demand at the rate per annum equal to the Base Rate plus the Applicable Margin plus two percent (2%). Any amount payable by the Pledgors pursuant to this Section 5.5 shall be payable on demand and shall constitute Secured Obligations secured hereby. ARTICLE 6 MISCELLANEOUS PROVISIONS Section 6.1 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telex or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or upon actual receipt if deposited in the United States mail, postage prepaid, or, in the case of telex notice, when answerback is received, or, in the case of telecopy notice, when confirmation is received, or, in the case of a nationally recognized overnight courier service, one Business Day after delivery to such courier service, addressed, in the case of each party hereto, at its address specified below its signature hereto or to such other address as may be designated by any party in a written notice to the other parties hereto; provided that notices and communications to the Collateral Agent shall not be effective until received by the Collateral Agent. Section 6.2 Continuing Security Interest. This Agreement shall create a continuing security interest in the Pledged Collateral until the release thereof pursuant to Section 6.3. Section 6.3 Release. Upon the indefeasible payment in full of the Secured Obligations in cash or cash equivalents and/or application of the purchase price of any or all of the Pledged Collateral purchased by the Collateral Agent pursuant to Section 5.3, the Collateral Agent, upon the request, and at the expense, of the Pledgors, shall execute and deliver all such documentation necessary to release the security interest created pursuant to this Agreement. Section 6.4 Reinstatement. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Collateral Agent or any other Secured Party hereunder or pursuant hereto is rescinded or must otherwise be restored or returned by the Collateral Agent or such Secured Party, as the case may be, upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either of the Pledgors or the Borrower or upon the appointment of any intervenor or conservator of, or trustee or similar official for, either of the Pledgors or the Borrower or any substantial part of either of the Pledgors' or the Borrower's assets, or upon the entry of an order by any 15 court avoiding the payment of such amount, or otherwise, all as though such payments had not been made. Section 6.5 Independent Security. The security provided for in this Agreement shall be in addition to and shall be independent of every other security which the Secured Parties may at any time hold for any of the Secured Obligations hereby secured, whether or not under the Security Documents. The execution of any other Security Document shall not modify or supersede the security interest or any rights or obligations contained in this Agreement and shall not in any way affect, impair or invalidate the effectiveness and validity of this Agreement or any term or condition hereof. The Pledgors hereby waive their rights to plead or claim in any court that the execution of any other Security Document is a cause for extinguishing, invalidating, impairing or modifying the effectiveness and validity of this Agreement or any term or condition contained herein. The Collateral Agent shall be at liberty to accept further security from the Pledgors or from any third party and/or release such security without notifying the Pledgors and without affecting in any way the obligations of the Pledgors under the Security Documents or the other Transaction Documents. The Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement) shall determine if any security conferred upon the Secured Parties under the Security Documents shall be enforced by the Collateral Agent, as well as the sequence of securities to be so enforced. Section 6.6 Amendments. No waiver, amendment, modification or termination of any provision of this Agreement, or consent to any departure by the Pledgors therefrom, shall in any event be effective without the prior written consent of the Collateral Agent and none of the Pledged Collateral shall be released without the written consent of the Collateral Agent. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 6.7 Successors and Assigns. This Agreement shall be binding upon the Pledgors and their respective successors and assigns and shall inure to the benefit of the Collateral Agent and the other Secured Parties and their respective successors and assigns (subject to Section 11.4 of the Credit Agreement). Subject to Section 4.1, the Pledgors may not assign or otherwise transfer any of their respective rights or obligations under this Agreement without the written consent of the Collateral Agent. Section 6.8 Third Party Beneficiaries. The agreements of the parties hereto are intended to benefit the Banks and the Agent Bank and their respective successors and assigns. 16 Section 6.9 Survival. All agreements, statements, representations and warranties made by the Pledgors herein or in any certificate or other instrument delivered by the Pledgors or on their behalf under this Agreement shall be considered to have been relied upon by the Collateral Agent and the Secured Parties and shall survive the execution and delivery of this Agreement and the other Transaction Documents until termination thereof or the indefeasible payment in full in cash or cash equivalents of all of the Secured Obligations regardless of any investigation made by the Collateral Agent or the Secured Parties, or made on their behalf. Section 6.10 No Waiver; Remedies Cumulative. No failure or delay on the part of the Collateral Agent in exercising any right, power or privilege hereunder and no course of dealing between the Pledgors and the Collateral Agent shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Collateral Agent would otherwise have. Section 6.11 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 6.12 Headings Descriptive. The headings of the several Sections and sub sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 6.13 Severability. In case any provision contained in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 6.14 Governing Law; Submission to Jurisdiction and Venue; Waiver of Jury Trial. (a) This Agreement is a contract made under the Laws of the State of New York of the United States and shall for all purposes be governed by and construed in accordance with the Laws of such State without regard to the conflict of Law rules thereof (other than Section 5-1401 of the New York General Obligations Law). (b) Any legal action or proceeding against the Pledgors with respect to this Agreement may be brought in the courts of the State of New York in the County of New York or of the United States for the Southern District of New York and, by execution and delivery of this Agreement, each Pledgor hereby irrevocably accepts for itself and in 17 respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Pledgors agree that a judgment, after exhaustion of all available appeals, in any such action or proceeding shall be conclusive and binding upon the Pledgors and may be enforced in any other jurisdiction by a suit upon such judgment, a certified copy of which shall be conclusive evidence of the judgment. Each Pledgor hereby irrevocably designates, appoints and empowers CT Corporation System, with its offices as of the date hereof at 1633 Broadway, New York, New York 10019, as its designee, appointee and agent to receive and accept for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, each Pledgor agrees to designate a new designee, appointee and agent in New York City on the terms and for the purposes of this provision satisfactory to the Collateral Agent. The Pledgors further irrevocably consent to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each Pledgor at its address referred to in Section 6.1, such service to become effective thirty (30) days after such mailing. Nothing herein shall affect the right of the Collateral Agent to serve process in any other manner permitted by Law or to commence legal proceedings or otherwise proceed against the Pledgors in any other jurisdiction. (c) The Pledgors hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Transaction Document brought in the courts referred to in clause (b) above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (d) WITH REGARD TO THIS AGREEMENT, THE PLEDGORS AND THE COLLATERAL AGENT HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. Section 6.15 Entire Agreement. This Agreement, together with any other agree ment executed in connection herewith, is intended by the parties as a final expression of their agreement as to the matters covered hereby and is intended as a complete and exclusive statement of the terms and conditions thereof. Section 6.16 Indemnity. (a) Each Pledgor agrees to indemnify, reimburse and hold the Collateral Agent and the other Secured Parties and their respective officers, directors, employees, and agents (each individually, an "Indemnitee," and collectively, "Indemnitees") harmless from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs and expenses (including reasonable attorneys' fees and disbursements) (such expenses, for purposes of this Section 6.16, hereinafter "Expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to this Agree- 18 ment or the Pledged Collateral and arising out of (i) this Agreement or the documents executed in connection herewith or in any other way connected with the administration of the transactions contemplated hereby, or the enforcement of any of the terms hereof, or the preservation of any rights hereunder, (ii) the ownership, purchase, delivery, control, acceptance, financing, possession, condition, sale, return or other disposition, or use of, the Pledged Collateral (including, without limitation, latent or other defects, whether or not discoverable), (iii) the violation of any Laws, (iv) any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person including any Indemnitee) or property damage, or (v) any contract claim, excluding in all cases those Expenses, claims and liabilities finally judicially determined to have arisen solely from the gross negligence or willful misconduct of any Indemnitee. Each Indemnitee agrees to use its best efforts to promptly notify such Pledgor of any assertion of any such liability, damage, injury, penalty, claim, demand, action, judgment or suit of which such Indemnitee has knowledge. In case any action, suit or proceeding shall be brought against any Indemnitee for which the Indemnitee is indemnified under this clause (a), such Indemnitee shall notify the relevant Pledgor of the commencement thereof, and such Pledgor shall be entitled, at its expense, acting through counsel reasonably acceptable to such Indemnitee, to participate in, and, to the extent that such Pledgor desires to, assume and control the defense thereof; provided, however, that such Pledgor shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding; and provided, further, that such Pledgor shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) (i) such action, suit or proceeding involves any risk of imposition of criminal liability or (ii) such action, suit or proceeding involves any material risk of material civil liability on such Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Pledged Collateral or any part thereof, unless, in the case of this clause (x) (ii), such Pledgor shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve a bona fide conflict of interest, (B) such proceeding involves Expenses not fully indemnified by such Pledgor which such Pledgor and the Indemnitee have been unable to sever from the indemnified Expense(s), (C) a Default or an Event of Default has occurred and is continuing or (D) such action, suit or proceeding involves matters which extend beyond or are unrelated to the transactions contemplated by the Transaction Documents and if determined adversely could be materially detrimental to the interests of such Indemnitee notwithstanding indemnification by such Pledgor. The Indemnitee, on the one hand, and such Pledgor, on the other hand, may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the other in accordance with the foregoing. Each Indemnitee shall at such Pledgor's expense supply such Pledgor with such information and documents reasonably requested by such Pledgor as are necessary or advisable for such Pledgor to participate in any action, suit or proceeding to the extent permitted by this clause (a). Unless an Event of Default shall have occurred and be continuing, no Indemnitee shall 19 enter into any settlement or other compromise with respect to any Expense which is entitled to be indemnified under this clause (a) without the prior written consent of the relevant Pledgor, which consent shall not be unreasonably withheld or delayed, unless such Indemnitee waives its right to be indemnified under this clause (a) with respect to such Expense. In addition, if an Indemnitee, in violation of either Pledgor's right to assume and control the defense of any Expense, refuses to permit such Pledgor to control the defense after written demand by such Pledgor for such control, such Indemnitee waives its right to be indemnified under this clause (a) with respect to such Expense. Upon payment in full of any Expense by either Pledgor pursuant to this clause (a) to or on behalf of an Indemnitee, such Pledgor without any further action shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with such Pledgor and give such further assurances as are necessary or advisable to enable such Pledgor vigorously to pursue such claims. The obligations and rights of each Pledgor under this Section 6.16 shall survive the repayment of all Secured Obligations and the termination of this Agreement. (b) Without limiting the application of clause (a) immediately above, each Pledgor agrees to pay, or reimburse the Collateral Agent for, any and all fees, costs and Expenses of whatever kind or nature incurred in connection with the creation, preservation, protection or validation of the Collateral Agent's Liens on, and security interest in, the Pledged Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Lien upon or in respect of the Pledged Collateral, premiums for insurance with respect to the Pledged Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Pledged Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Pledged Collateral. (c) Without limiting the application of clause (a) immediately above, each Pledgor agrees to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and Expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any failure of such Pledgor to comply with its obligations under this Agreement, or any misrepresentation by such Pledgor in this Agreement, or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Agreement. (d) If and to the extent that the obligations of the Pledgors under this Section 6.16 are unenforceable for any reason, each Pledgor hereby agrees to make the 20 maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable Law. (e) Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement, together with interest on such amounts from the date paid until reimbursement in full at a rate per annum equal at all times to the Base Rate plus the Applicable Margin plus two percent (2%), shall constitute Secured Obligations secured by the Pledged Collateral. Section 6.17 Independent Obligations. The Pledgors' obligations under this Agreement are independent of those of the Borrower. The Collateral Agent may bring a separate action against the Pledgors without first proceeding against the Borrower or any other Person or any other security held by the Collateral Agent and without pursuing any other remedy. Section 6.18 Waiver of Defenses. The Pledgors hereby waive: (a) any defense of a statute of limitations; (b) any defense based on the legal disability of the Borrower or any discharge or limitation of the liability of the Borrower to the Collateral Agent or the Secured Parties, whether consensual or arising by operation of law; (c) presentment, demand, protest and notice of any kind; and (d) any defense based upon or arising out of any defense (other than the indefeasible payment in full in cash or cash equivalents of the Secured Obligations) which the Borrower may have to the payment or performance of any part of the Secured Obligations. Section 6.19 Subrogation, Etc. Notwithstanding any payment or payments made by the Pledgors or the exercise by the Collateral Agent of any of the remedies provided under this Agreement or any other Financing Document, until the Secured Obligations have been indefeasibly paid in full in cash or cash equivalents, the Pledgors shall have no claim (as defined in 11 U.S.C. 101(5)) of subrogation to any of the rights of the Collateral Agent against the Borrower, the Pledged Collateral or any guaranty held by the Collateral Agent for the satisfaction of any of the Secured Obligations, nor shall the Pledgors have any claims (as defined in 11 U.S.C. 101(5)) for reimbursement, indemnity, exoneration or contribution from the Borrower in respect of payments made by the Pledgors hereunder. Notwithstanding the foregoing, if any amount shall be paid to the Pledgors on account of such subrogation, reimbursement, indemnity, exoneration or contribution rights at any time, such amount shall be held by the Pledgors in trust for the Collateral Agent segregated from other funds of the Pledgors, and shall be turned over to the Collateral Agent in the exact form received by the Pledgors (duly endorsed by the Pledgors to the Collateral Agent if required) to be applied against the Secured Obligations in such amounts and in such order as the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement) may elect. 21 Section 6.20 Joint and Several Liability. Prior to the effective date of this Agreement, the obligations of the Pledgors hereunder shall be several and not joint. On and after the effective date of this Agreement, the obligations of the Pledgors under this Agreement shall be joint and several. Section 6.21 Recourse Limited to Collateral. Notwithstanding anything herein to the contrary, including, without limitation, Section 6.16, the Collateral Agent acknowledges and agrees on behalf of itself and each Secured Party, that neither of the Pledgors, nor any past or present shareholder, officer, employee, servant, controlling Person, executive, director, agent or authorized representative or Affiliate (other than the Borrower) of either of the Pledgors, shall be personally liable for any deficiency in the payment or satisfaction of the Secured Obligations and that the sole recourse of the Collateral Agent and each Secured Party for payment and performance of the obligations of the Pledgors hereunder shall be to the Pledged Collateral. This provision shall not be deemed to waive any cause of action the Collateral Agent or any Secured Party may have against the Pledgors for their nonperformance or against any Person for fraud or willful misconduct by such Person. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. NRGG FUNDING INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: VP-CFO Address for Notices: 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403 NRG MORRIS INC. By: /s/ Craig Mataczynski Name: Craig Mataczynski Title: President Address for Notices: 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403 THE CHASE MANHATTAN BANK, as Collateral Agent By: /s/ Annette M. Marsula Name: Annette M. Marsula Title: Assistant Vice President Address for Notices: 450 West 33rd Street, 15th Floor New York, NY 10001 EX-10.27.11 28 EXHIBIT 10.27.11 SUPPLEMENTAL LOAN AGREEMENT, DATED AS OF DECEMBER 10, 1997 BETWEEN NRG ENERGY, THE COMPANY AND NRGG FUNDING. Exhibit 10.27.11 SUPPLEMENTAL LOAN AGREEMENT dated as of December 10, 1997 between NRG ENERGY, INC., as Lender, and NRG GENERATING (U.S.) INC. and NRGG Funding Inc. as Borrowers THIS SUPPLEMENTAL LOAN AGREEMENT, dated as of December 10, 1997, is between NRG GENERATING (U.S.) INC., a Delaware corporation ("NRGG"), NRGG Funding, Inc., a Delaware corporation ("Funding") and NRG Energy, Inc., a Delaware corporation (the "Lender"). W I T N E S S E T H: WHEREAS, NRGG and Funding (each, a "Borrower" and collectively, the "Borrowers") wish to borrow up to $22,000,000 to meet their joint and several obligation to fund equity commitments to NRG (Morris) Cogen, LLC, a Delaware limited liability company ("Morris Cogen"), and the Lender agrees to lend such amount to the Borrowers on the terms and conditions set forth below; NOW, THEREFORE, the Borrowers 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: "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. "Agreement" means this Supplemental Loan Agreement, as amended, supplemented or modified from time to time. "Amortization Schedule" shall have the meaning assigned thereto in Section 2.05(b). "Assignment and Assumption Agreement" shall have the meaning assigned thereto in Section 2.02. "Bankruptcy Law" shall mean any applicable liquidation, dissolution, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization, readjustment of debt or similar laws affecting the rights and remedies of creditors generally, as in effect from time to time. "Base Rate" means, for any date, a rate per annum equal to the prime rate for that date plus one and one-half percent (1.5%). "Borrower" and "Borrowers" mean the parties named as such in this Agreement until one or more successors replace the Borrowers, and thereafter such successor(s). "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York or Minneapolis, Minnesota are authorized or required by law to close. "Chase Pledge Agreement" shall have the meaning assigned thereto in Section 8.01. "Closing Date" means the date this Agreement is executed and delivered by each party hereto. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral" shall mean all assets of Funding and NRG Morris Inc. in which the Lender is granted a security interest under the Pledge Agreement. "Credit Documents" means the collective reference to this Agreement, the Note and the Security Documents. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Distributions" shall mean dividends or other payments of any kind, whether in cash, in kind, or in securities or other property. "Dollars" and "$" means dollars in lawful currency of the United States of America. "Environmental Approval" shall have the meaning assigned thereto in Section 5(u)(ii). 2 "Environmental Claim" shall have the meaning assigned thereto in Section 5(u). "Environmental Laws" shall have the meaning assigned thereto in Section 5(u). "Equity Commitment Agreement" shall have the meaning assigned thereto in Section 2.02. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means a trade or business (whether or not incorporated) which is under common control with either of the Borrowers within the meaning of Sections 414(b), (c), (m) or (o) of the Code. "Event of Default" shall have the meaning assigned thereto in Section 7.01. "Funding Date" means the date not later than the date equity must be infused into Morris Cogen pursuant to the Equity Commitment Agreement, upon which the Borrowers shall request that the Loan be made available. "GAAP" means generally accepted accounting principles in the Unites States of America as in effect from time to time. "Good Faith Contest" means the contest of an item if the item is diligently contested in good faith by appropriate proceedings timely instituted and (i) adequate cash reserves (or at the applicable entity's option, bonds or other security reasonably satisfactory to the Lender) are established with respect to the contested item, and (ii) during the period of such contest, the enforcement of any contested item is effectively stayed. "Governmental Authority" means the United States Federal Government, any state or other political subdivision thereof, including any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to such government. "Highest Lawful Rate" shall have the meaning assigned thereto in Section 9.09. 3 "Indemnified Liabilities" shall have the meaning assigned thereto in Section 9.04. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all 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, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) 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 that the amount of such indebtedness 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, and (vii) all indebtedness of other Persons guaranteed by such Person to the extent such indebtedness is guaranteed by 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, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamoritized portion of the original issue discount of such indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables; provided, however, in the case of the Borrowers, "Indebtedness" shall not include (i) any Lien granted by the Borrowers on any equity interest of Borrowers in any Subsidiary of a Borrower (other than Funding, NRG Morris, Inc. or Morris Cogen) as security for any debt of such Subsidiary in respect of any energy project acquired or developed after the date hereof or any debt with respect to such Subsidiary's project or project owner in respect of any such project, or (ii) subject to the limitations set forth herein, any equity funding commitment made or guaranteed by either of the Borrowers, regardless of whether such equity funding commitment is assigned or otherwise pledged as security for any debt of any Subsidiary in respect of any energy project acquired or developed after the date hereof or any debt with respect to such Subsidiary's project or project owner in respect of any energy project acquired or developed after the date hereof. For purposes of calculating the amount of any Indebtedness hereunder, there shall be no double-counting of direct obligations, guarantees and reimbursement obligations for letter of credit. 4 "Interest Payment Date" means each principal reduction date set forth on Schedule B hereto, and, for periods after the last date reflected thereon, the last day of each fiscal quarter of the Borrowers. "Investments" in any Person means (i) any loan, extension of credit or advance to such Person, (ii) any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of such Person, or (iii) any capital contribution to such Person. "Lender" means the party named in this Agreement until one or more successors replace it, and thereafter means the successor or successors. "Loan" shall have the meaning assigned thereto in Section 2.01. "Material Adverse Effect" means a material adverse effect on (i) the ability of either Borrower or NRG Morris Inc. to perform its obligations to the Lender under this Agreement, the Note or any of the Security Documents or (ii) the business, property, assets, liabilities, operations or condition (financial or otherwise) of the Borrowers and their respective Subsidiaries, taken as a whole. "Material Governmental Approvals" means all Governmental Approvals which are required under applicable law in connection with the operation, maintenance, ownership or leasing of the facility other than such Governmental Approvals as are immaterial in nature. "Maturity Date" shall have the meaning assigned thereto in Section 2.04. "Maximum Amount" shall have the meaning assigned thereto in Section 2.05(c). "Membership Interest Purchase Agreement" shall have the meaning assigned thereto in Section 3.01(d). "Morris Cogen" shall have the meaning assigned thereto in the first recital hereto. "Notes" means the joint and several Note of the Borrowers substantially in the form attached hereto as Exhibit A. "NRG Equity Guaranty" shall have the meaning assigned thereto in Section 2.02. 5 "NRGG Equity Guaranty" shall have the meaning assigned thereto in Section 2.03. "Permitted Liens" means any Liens that are: (a) Liens for taxes, or other governmental levies and assessments that (i) do not arise under ERISA or Environmental Laws and (ii) are not yet due or which are subject to a Good Faith Contest; (b) carriers,' warehousemen's, mechanics,' materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not past due for a period of more than 90 days or which are subject to a Good Faith Contest; (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, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions (including landmarking and zoning restrictions), royalties, leasehold and fee interest covenants and other similar encumbrances incurred or imposed in the ordinary course of business which are not of the nature of a Lien for security purposes and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of either Borrower, NRG Morris Inc. or Morris Cogen; (f) liens in favor of MeesPierson Capital Corporation in connection with a certain Credit Agreement for NRGG to be arranged by MeesPierson Capital Corporation, (the "Proposed MeesPierson Credit Agreement); (g) liens for purchase money obligations, provided that any such lien encumbers only the asset so purchased; (h) liens arising from legal proceedings, as long as such proceedings are being contested in a Good Faith Contest and so long as execution is stayed on all judgments resulting from any such proceedings; (i) liens arising on the title insurance policies to be delivered in connection with the Proposed MeesPierson Credit Agreement; (j) liens securing indebtedness of NRGG permitted under this Agreement, including without limitation pledges by NRGG of its equity interest in any electrical cogeneration project(s) hereafter owned and operated, in whole or in part, by NRGG or any Subsidiary of NRGG (other than Funding) as security for such indebtedness; and (k) the Lien in favor of the Lender on the shares of stock of O'Brien Schuykill owned by NRGG pursuant to that certain NRG Subordinated Stock Pledge Agreement dated as of March 1, 1996 among the Lender, NRGG, O'Brien Schuykill and The Chase Manhattan Bank. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agent or political subdivision thereof or any other entity. "Plan" means any employee benefit plan covered by Title IV of ERISA. 6 "Pledge Agreement" shall have the meaning assigned thereto in Section 3.01(b). "Pledged Interests" means the membership interests pledged to the Lender by Funding and NRG Morris Inc. pursuant to the Pledge Agreement. "Project Agreement" means any agreements, contracts or leases of any kind whatsoever pursuant to which, NRG Morris Inc. or Morris Cogen is entitled directly, indirectly, by assignment or otherwise to receive payments in respect the Morris Cogen facility. "PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended from time to time, and all rules and regulations adopted thereunder . "Register" shall have the meaning assigned thereto in Section 2.11(b). "Security Documents" shall have the meaning assigned in Section 3.01(b). "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. "Uniform Commercial Code" means the Minnesota Uniform Commercial Code as in effect from time to time. SECTION 1.02. Rules of Construction. Unless the context otherwise requires: 1. a term has the meaning assigned to it; 2. "or" is not exclusive; 3. "including" means including without limitation; 4. words in the singular include the plural and words in the plural include the singular; 7 5. 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; and 6. 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. ARTICLE 2 Loan SECTION 2.01. Loan. Subject to the terms and conditions hereof, the Lender agrees to make a loan in Dollars to the Company on the Funding Date, in an aggregate principal amount of up to $22,000,000, (if drawn upon, the "Loan"). SECTION 2.02. Use of Proceeds; Manner of Funding. The proceeds of the Loan shall be used exclusively to make equity contributions to Morris Cogen in accordance with and in satisfaction of the obligations of Funding under the Equity Commitment Agreement among the Lender, Morris Cogen and The Chase Manhattan Bank, as Agent Bank and as Collateral Agent, dated as of September 15, 1997 which have been assumed by Funding (as so assumed, the "Equity Commitment Agreement") pursuant to that certain Assignment and Assumption Agreement dated as of December 10, 1997 between the Lender and Funding (the "Assignment and Assumption Agreement") or to satisfy the obligations of NRGG under the Equity Commitment Guaranty executed by NRGG in favor of the Lender dated as of December 10, 1997 (the "NRGG Equity Guaranty"). The proceeds of the Loan shall be transferred by wire in immediately available funds directly to an account of Morris Cogen as directed by the Borrowers pursuant to Section 2.07 or to such other account as the Lender may specify in accordance with Section 2.03. SECTION 2.03. Deemed Borrowing. If any amount becomes due and owing under the Equity Commitment Agreement or the Equity Commitment Guaranty dated December 10, 1997 by the Lender in favor of Morris Cogen and The Chase Manhattan Bank, as Collateral Agent, (the "NRG Equity Guaranty"), the Lender may elect, in its sole discretion, to fund the Loan in the manner contemplated by Section 2.02, without receiving a notice of borrowing pursuant to Section 2.07. In such cases, notice of borrowing shall be deemed to have been given upon the Lender receiving notice that amounts are due under the Equity Commitment Agreement or the NRG Equity Guaranty. The Lender may, in its sole discretion, elect to direct that all or a portion of the proceeds 8 of the Loan be deposited in its own account to repay amounts under the NRG Equity Guaranty Such elections shall be in addition to and shall not affect the remedies of the Lender hereunder, or under the other Credit Documents, the Equity Commitment Guaranty or the NRG Equity Guaranty. SECTION 2.04. Maturity. The Loan will mature on the date that is six years following the Funding Date (the "Maturity Date"). SECTION 2.05. Optional and Mandatory Prepayments; Repayments of Loan. (a) The Borrowers 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 Borrowers shall make such prepayment, and the payment amount specified in such notice shall be due and payable, on the date specified therein. (b) The Borrowers shall pay, in reduction of the principal amount of the Loan then outstanding, the principal amounts set forth on the amortization schedule attached hereto as Exhibit B (the "Amortization Schedule") on the dates specified on the Amortization Schedule. (c) In the event that, on any date, the outstanding principal of the Loan outstanding exceeds the maximum permitted amount of the Loan set forth on the Amortization Schedule for such date (the "Maximum Amount"), then Funding shall pay in reduction of the principal and interest then outstanding, promptly after receipt, an amount equal to the amount of any Distributions thereafter received by Funding in respect of the Pledged Interests until the outstanding principal does not exceed such Maximum Amount. The Borrowers shall give the Lender at least one Business Day's notice of each mandatory prepayment pursuant to this Section 2.05(c) setting forth the date and amount thereof. (d) 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 the period from and including the date the Loan is made to, but excluding, the maturity date thereof on the unpaid principal thereof at a rate per annum equal to the Base Rate. 9 (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 (including, without limitation, amortization payments as required by Section 2.05(b)), by acceleration or otherwise, the Loan shall, without limiting the rights of the Lender under Article 7, 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. Notice of Loan. The Loan shall be made upon written notice, by way of a notice of borrowing executed by an officer of each of the Borrowers, given by telecopy, mail, or personal service, delivered to the Lender at its office at 1221 Nicollet Mall, Minneapolis, Minnesota (Attn: Treasurer) at least three Business Days prior to the day on which the Loan to be made and such notice shall specify that the Loan is requested and state the amount thereof (subject to the provisions of this Article 2) and shall specify the account of Morris Cogen to which the proceeds of the Loan shall be deposited, with wire transfer instructions. SECTION 2.08. 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 2.09. 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, including, without limitation, any amount outstanding in excess of the Maximum Amount, 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 9.04; 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 Borrowers 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 its office located at 1221 Nicollet Mall, Minneapolis, Minnesota (or by wire transfer to: LaSalle National Bank, Chicago, Illinois; ABA No.: 071-000-505; Account No.: 5800-07-6852; Recipient: NRG Energy, Inc.), 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 10 than a Business Day, such payment shall become due and payable 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 2.10. Indemnity. The Borrowers agree jointly and severally 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 and excluding lost profits; provided, for the avoidance of doubt that interest and/or default interest accruing prior to payment in full of the Loan shall not be deemed to be `lost profits') which the Lender may sustain or incur as a consequence of default by the Borrowers in making any prepayment after Borrowers have given a notice in accordance with Section 2.05. Any amounts payable hereunder shall be due within thirty (30) days following receipt by the Borrowers of a certificate signed by an officer of the Lender showing in reasonable detail the calculation of such costs and expenses, which certificate shall constitute prima facie evidence of such amounts. This covenant shall survive termination of this Agreement and repayment of the Loan; provided, that the Borrowers shall not be liable to the Lender for any costs or expense incurred more than ninety (90) days prior to the delivery of the applicable certificate pursuant to this Section 2.10. SECTION 2.11. Repayment of the Loan; Evidence of Debt. (a) Each Borrower hereby jointly, severally, and unconditionally promises to pay to the Lender the then unpaid principal amount of the Loan in accordance with the terms hereof and the Note. Each Borrower hereby further agrees, jointly, severally and unconditionally, 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 Borrowers to the Lender hereunder and (iii) the amount of any sum received by the Lender hereunder from Borrowers. (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 Borrowers 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 Borrowers to repay (with applicable interest) the Loan made to Borrowers by the Lender in accordance with the terms of this Agreement. 11 ARTICLE 3 Conditions Precedent SECTION 3.01. Conditions to Loan. The obligation of the Lender to make the Loan on the Funding 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 each Borrower. (b) Security Documents. The Lender shall have received the Subordinated Pledge and Security Agreement dated as of December 10, 1997 by Funding and NRG Morris Inc. in favor of the Lender (the "Pledge Agreement") and the other documents and instruments referenced therein or to be delivered in connection therewith (the "Security Documents") conforming to the requirements hereof and executed by a duly authorized officer of each of Funding and NRG Morris Inc. (c) Opinion of Counsel. The Lender shall have received the opinion of counsel to the Borrowers in form and substance satisfactory to the Lender. (d) Purchase. Funding shall have consummated the purchase of the membership interests in Morris Cogen in accordance with that certain Membership Interest Purchase Agreement dated December 10, 1997 among the Lender, Funding and NRGG (the "Membership Interest Purchase Agreement"), and an equity contribution by Funding to Morris Cogen shall be payable pursuant to the Equity Commitment Agreement. (d) Representations True; No Default. Each representation and warranty of the Borrowers hereunder and under the Pledge Agreement and the other Credit Documents shall be accurate and complete in all material respects as of the Funding Date and no Default or Event of Default shall have occurred hereunder. (e) Fees and Expenses. The Borrowers shall have paid to the Lender the fees and expenses set forth in Section 9.04. 12 ARTICLE 4 Security Interest To secure the obligations of the Borrowers hereunder and the other obligations described therein, Funding and NRG Morris Inc. have executed the Pledge Agreement and the other Security Documents. ARTICLE 5 Representations and Warranties In order to induce the Lender to enter into this Agreement and to make the Loan available, each Borrower hereby represents and warrants to the Lender (which representations and warranties shall survive the execution and delivery of this Agreement and the Note and the drawdown of the Loan hereunder) that, as of the Funding Date: (a) Due Organization and Power. Each Borrower is duly organized and is validly existing in good standing under the laws of its jurisdiction of organization and is properly qualified to do business and in good standing in every jurisdiction where the failure to maintain such qualification or good standing could reasonably be expected to result in a Material Adverse Effect. Each Borrower has full power to carry on its business as now being conducted and has complied with all statutory, regulatory and other requirements relative to such business and such agreements, except where non-compliance could not reasonably be expected to result in a Material Adverse Effect. Each of the Borrowers and NRG Morris Inc. has full power and authority to enter into and perform its obligations under the Credit Documents to which it is a party. (b) Capitalization. The authorized capital stock or other equity interests of Funding, NRG Morris Inc. and Morris Cogen are held as set forth on Schedule 5(b) and except as set forth thereon. No other shares of the capital stock or other equity interests of Funding, NRG Morris Inc. or Morris Cogen are issued and outstanding. All of the issued and outstanding shares of capital stock of Funding, NRG Morris Inc. and Morris Cogen are duly authorized and validly issued, fully paid, nonassessable, and free and clear of all Liens (other than Permitted Liens), and such shares were issued in compliance with all applicable state, federal and foreign laws concerning the issuance of securities. Except as set forth in the Energy Services Agreement between Morris Cogen and Millennium Petrochemicals Inc. dated June 6, 1997, there are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the 13 purchase or acquisition of shares of capital stock or other securities or equity interests of Funding, NRG Morris Inc. or Morris Cogen. (c) Authorization and Consents. All necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each of the Borrowers and NRG Morris Inc. to enter into and perform obligations under the Credit Documents to which it is a party and, in the case of the Borrowers, to borrow and repay the Loan. No further consents or authorities are necessary for the repayment of the Loan or any part thereof, including, without limitation, any consent or approval of, or notice to, or other action with or by, any Governmental Authority, regulatory body or any other Person which has not been made or obtained and is in full force and effect. (d) Binding Obligations. Each Credit Document constitutes or when executed and delivered, will constitute the legal, valid and binding obligations of each of the Borrowers and NRG Morris Inc. as is a party thereto, enforceable against such parties in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights. (e) No Violation. The execution and delivery of, and the performance of the provisions of, each Credit Document to which it is or will be a party by each of the Borrowers and NRG Morris Inc. do not contravene any applicable law or regulation existing at the date hereof, any Governmental Approval or any contractual restriction binding on such party or the certificate of incorporation or by-laws (or equivalent instruments) thereof. (f) Litigation. Except as set forth on Schedule 5(f), no action, suit or proceeding is pending or, to the Borrowers' knowledge, threatened against either Borrower, NRG Morris Inc. or Morris Cogen before any court, board of arbitration or administrative agency which could reasonably be expected to result in any Material Adverse Effect. There is no injunction, writ, preliminary restraining order or any order of any nature issued by an arbitrator or other Governmental Authority directing that any material aspect of the transactions provided for in this Agreement not be consummated as herein or therein provided. (g) No Default. None of the Borrowers, NRG Morris Inc. and Morris Cogen are in default under any material agreement by which it is bound, or is in default in respect of any financial commitment or obligation, in either case the default of which could reasonably be expected to result in a Material Adverse Effect. 14 (h) Project Agreements. Upon the Funding Date: (i) Each Material Governmental Approval required in connection with the Morris Cogen facility has been obtained, is validly issued, is in full force and effect, is not subject to appeal by any Person, and, to the knowledge of the Borrowers, is free from conditions or requirements compliance with which could reasonably be expected to result in a Material Adverse Effect. There is no proceeding pending or, to the knowledge of the Borrowers, threatened which is reasonably likely to result in the rescission, revocation, material modification, suspension, determination of invalidity or limitation of effectiveness of any Material Governmental Approval. To the knowledge of the Borrowers, the information set forth in each application and other written material submitted by or on behalf of the Borrowers, NRG Morris Inc. and Morris Cogen to the applicable Governmental Authority in connection with such Material Governmental Approval was accurate and complete in all material respects at the time such application or other written material was submitted. Each of the Borrowers, NRG Morris Inc. and Morris Cogen complies in all material respects with all covenants, conditions, restrictions and reservations in the Material Governmental Approvals relating to the facilities of Morris Cogen and the Project Agreements applicable thereto and all laws applicable thereto, except to the extent any non- compliance could not reasonably be expected to result in a Material Adverse Effect; (ii) Each Project Agreement to which the Borrowers, NRG Morris Inc. or Morris Cogen is a party is a legal, valid and binding agreement of such party enforceable against such party in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights and subject to general equitable principles; (iii) All representations and warranties set forth in each Project Agreement by any of the Borrowers, NRG Morris Inc. or Morris Cogen which is a party thereto are true and correct in all material 15 respects (the determination of such material truth and correctness to be made by the Lender in good faith) as though made as of the date hereof, except to the extent any such representation or warranty relates to a prior date; (iv) The facilities of Morris Cogen will be able to be operated on a safe and commercially sound basis in compliance with all Governmental Approvals and applicable Project Agreements and laws, so that the performance and facility guarantees and specifications provided for in the applicable Project Agreements and Governmental Approvals can be substantially met during the term of this Agreement and each of NRG Morris Inc. and Morris Cogen can duly and punctually meet its obligations under the applicable Project Agreements and Governmental Approvals in accordance with the terms thereof, except to the extent any inadvertent non-compliance with such Governmental Approvals and Project Agreements could not reasonably be expected to have a Material Adverse Effect; provided, however, that such inadvertent noncompliance must be remedied or cured within 30 days of NRG Morris Inc. or Morris Cogen obtaining knowledge thereof. Morris Cogen has adequate inventories and spare parts to operate its facility in accordance with the Project Agreements, Governmental Approvals and applicable law; (v) Morris Cogen has facilities for the storage of alternative fuel sufficient to meet its obligations under the Project Agreements, Governmental Approvals and laws applicable thereto; and (i) Funding is the sole owner of 99% of the outstanding equity of Morris Cogen, free and clear of all Liens (other than Permitted Liens and except as set forth in the Energy Services Agreement between Morris Cogen and Millennium Petrochemicals Inc. dated June 6, 1997), and NRG Morris Inc. is the sole owner of 1% of the outstanding equity of Morris Cogen, free and clear of all liens (other than Permitted Liens). Insurance. Schedule 5(i) (which shall be updated by the Borrowers and provided to the Lender not less often than annually) sets forth a complete and accurate description of all material policies of insurance that will be in effect as of the Funding Date. To the knowledge of the Borrowers, such policies are with companies rated "A-" or better by Best's Insurance Guide and Key Rating or other insurance companies of recognized responsibility satisfactory to the Lender and the coverages provided by such policies are in amounts and cover such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which Morris Cogen operates and, 16 in any event, other than to account for amortization of loan repayments, the insurance coverages shall not be less than the insurance coverages set forth in Schedule 5(i). (j) Financial Information. Except as otherwise disclosed in writing to the Lender on or prior to the date hereof, all financial statements, information and other data furnished by the Borrowers to the Lender are complete and correct, such financial statements have been prepared in accordance with GAAP (except, in the case of interim financial statements, for the absence of footnotes) and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements and since such date or dates, there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data. (k) Tax Returns. Each Borrower, NRG Morris Inc. and Morris Cogen, has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect on such party and except for those taxes the amount or validity of which is currently being contested in a Good Faith Contest. (l) ERISA. The execution and delivery of the Credit Documents and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by a Borrower, NRG Morris Inc. or Morris Cogen or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA insofar as ERISA applies hereto which is reasonably likely to result in such party or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate would have a Material Adverse Effect. Prior to the Funding Date, the Borrowers have delivered to the Lender a list of all Plans to which a Borrower, NRG Morris Inc. or Morris Cogen or any ERISA Affiliate is a "party in interest" (within the meaning of Section 2(14) of ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of the Code). (m) Margin Regulations. Neither Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G, T, U, or X of the Board of Governors of the Federal Reserve System) and no proceeds of any Loan will be used in a manner which would violate or result in a violation of, such Regulation, G, T, U, or X. 17 (n) Investment Company Act. Neither Borrower is an "investment company" nor a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (o) Security Interests. Except for the consents set forth on Schedule 5(o), no consents are required to create a second priority perfected security interest in the Collateral under and as that term is defined in the Pledge Agreement, and the security interests created in favor of the Lender under the Security Documents are valid and perfected, second priority security interests (subject only to Permitted Liens) superior and prior to the rights of all Persons (except those rights of the holders of Permitted Liens), whether the property subject to the security interests is now owned by the party granting such security interest or is hereafter acquired. The Security Documents (including Uniform Commercial Code financing statements) have been filed, recorded and/or registered in each office and in each jurisdiction where required to create and perfect the lien and security interest described above. The chief executive office and chief place of business of Funding and NRG Morris Inc. and the office in which the records relating to the earnings and other receivables of each such party are kept is located, as of the date hereof, at the locations set forth on Schedule 5(o) for such party. Such locations are the sole offices or places of business maintained by each such party as of the date hereof. To the knowledge of the Borrowers, no such party has transacted any business during the five year period prior to the date of this Agreement under any name other than those set forth on Schedule 5(o). (p) Business of Project Entities. None of Funding, NRG Morris Inc. and Morris Cogen have engaged in any business other than the operation of the Morris Cogen facilities nor is any such party a party to any contract, operating lease, agreement or commitment which, either individually, or in the aggregate is material to the operation of the Morris Cogen project other than the Project Agreements applicable thereto. (q) Qualifying Cogeneration Facility Status. All necessary filings have been made to establish and maintain "qualifying facility" status under PURPA for the Morris Cogen project, provided that Morris Cogen will promptly file a recertification certificate with the Federal Energy Regulatory Commission. The Morris Cogen project is owned and will be operated in the manner contemplated by the certificate conferring upon it "qualifying facility" status. (r) Title to and Sufficiency of Assets. Except as set forth on Schedule 5(r)), each of the Borrowers, NRG Morris Inc. and Morris Cogen has good, valid and sufficient title to (or a leasehold interest in) its assets and properties. Each of the Borrowers, NRG Morris Inc. and Morris Cogen has good, marketable, indefeasible and insurable title in fee simple (or its equivalent under applicable law) to the real property owned by it. None of 18 the real property owned or leased by either Borrowers, NRG Morris Inc. or Morris Cogen is located within any federal, state or municipal flood plain. All leases necessary for the conduct of the business of each Borrower, NRG Morris Inc. and Morris Cogen as presently conducted and as proposed to be conducted are valid and subsisting and are in full force and effect. Each of the Borrowers, NRG Morris Inc. and Morris Cogen enjoy peaceful and undisturbed possession under all material leases to which they are parties. The services to be performed, the materials to be supplied and the easements, licenses and other rights granted or to be granted to Funding, NRG Morris Inc. and Morris Cogen, pursuant to the Project Agreements and Governmental Approvals applicable thereto provide or will provide such party with all rights and property interests required to enable such party to obtain all services, materials or rights (including access) required for the operation and maintenance of the Morris Cogen project, including such party's full and prompt performance of its obligations, and full and timely satisfaction of all conditions precedent to the performance by others of their obligations under such Project Agreements and Governmental Approvals. (s) Labor Matters. There are no strikes or other material labor disputes or grievances, charges or complaints with respect to any employee or group of employees pending or, to the knowledge of the Borrowers, threatened against Funding, NRG Morris Inc. or Morris Cogen. (t) Transactions with Affiliates. Set forth on Schedule 5(t) is a true, accurate and complete description of all transactions between Funding, NRG Morris Inc. or Morris Cogen and any Affiliate of any such party (other than the Lender or Power Operations, Inc. or any subsidiary of Power Operations, Inc.) which required or which will require in the case of Funding, NRG Morris Inc. or Morris Cogen the payment by such party of an aggregate amount equal to or greater than $100,000 during any twelve-month period. (u) Environmental Matters and Claims. (i) Each of NRG Morris Inc. and Morris Cogen is in compliance with all applicable United States federal, state and local laws, regulations, rules and orders relating to pollution prevention or protection of the environment or exposure to Materials of Environ- mental Concern (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, rules and orders ("Environmental Laws") relating to (A) emissions, discharges, releases or threatened releases of substances defined as 19 "hazardous substances," "hazardous materials," "contaminants," "pollutants," "hazardous wastes" or "toxic substances" in (1) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. 9601 et seq., (2) the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., (3) the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., (4) the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., (5) the Clean Air Act, 33 U.S.C. 7401 et seq., (6) the Toxic Substances Control Act, 15 U.S.C. 2601 et seq. or (7) the Safe Drinking Water Act, 42 U.S.C. 300f et seq. (collectively, "Materials of Environmental Concern"), or (B) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, all except to the extent the failure to comply with Environmental Laws could not reasonably be expected to have a Material Adverse Effect; (ii) each of NRG Morris Inc. and Morris Cogen has all permits, licenses, approvals , consents or other authorizations required under applicable Environmental Laws ("Environmental Approvals") and is in compliance with all Environmental Approvals required to operate its respective business as then being conducted, all except to the extent the failure to maintain or comply with an Environmental Approval could not reasonably be expected to have a Material Adverse Effect; (iii) none of NRG Morris Inc. or Morris Cogen has received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigatory costs, cleanup costs, response and/or remedial costs (whether incurred by governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (A) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (B) circumstances forming the basis of any violation, or 20 alleged violation, of any Environmental Law or Environmental Approval, and in each case which could reasonably be expected to have Material Adverse Effect ("Environmental Claim") (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines, penalties and other costs, if any, payable by NRG Morris Inc. or Morris Cogen in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); (iv) there are no circumstances that may prevent or interfere with such compliance in the future, except to the extent the same could not reasonably be expected to have a Material Adverse Effect; (v) no Materials of Environmental Concern are currently located at, in, or under or about or are being released from any of the properties on which the Morris Cogen project is located (or any other property with respect to which any of Funding, NRG Morris Inc. or Morris Cogen has or may have liability either contractually or by operation of law) in a manner which violates any applicable Environmental Law, or for which cleanup or corrective action of any kind is required under any applicable Environmental Law where such violation, cleanup or corrective action could reasonably be expected to have a Material Adverse Effect; (vi) no notice of violation, Lien, complaint, suit, order or other notice with respect to the environmental condition of any of the properties on which the NRG Morris facility is located (or any other property with respect to which either NRG Morris Inc. or Morris Cogen has or may have liability either contractually or by operation of law) is outstanding or, to either such Person's knowledge, threatened against any such party which could reasonably be expected to result in a Material Adverse Effect. To the extent the representations and warranties in this Article 5 specifically relating to (i) NRG Morris Inc. or Morris Cogen, including, without limitation those concerning the Project Agreements of NRG Morris Inc. or Morris Cogen, or Environmental Approvals, Environmental Claims or Environmental Laws specifically relating to NRG Morris Inc. or Morris Cogen or (ii) the representations and warranties concerning the assets and properties of NRG Morris Inc. and Morris Cogen are untrue or 21 incorrect on the Funding Date due to facts, circumstances, conditions or events that exist on or occurred prior to the date hereof, the same shall not be considered to be, and shall not be, a breach of representation or warranty or of the Agreement. ARTICLE 6 Covenants The Borrowers hereby covenant and undertake with the Lender that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents: SECTION 6.01. The Borrowers will, and will procure that NRG Morris Inc. and Morris Cogen will: (a) Performance of Credit Documents. Duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Lender) of, the terms of the Credit Documents; (b) Notice of Default, Etc. Promptly upon obtaining knowledge thereof (and in any event within ten (10) days thereof), inform the Lender of the occurrence of (i) any Event of Default or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (ii) any litigation or governmental proceeding pending or threatened against it or against any Affiliate of a Borrower which could reasonably be expected to have a Material Adverse Effect, and (iii) any other event or condition which is reasonably likely to have a Material Adverse Effect on its ability, or the ability of NRG Morris Inc. to perform its obligations under the Credit Documents; (c) Obtain Consents. Obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all obligations of each Borrower and NRG Morris Inc. under the Credit Documents; (d) Financial Information. At the expense of the Borrowers, deliver to the Lender: (i) as soon as available but not later than 105 days after the end of each fiscal year of the Borrowers complete copies of the consolidated financial reports of the Borrowers, all in reasonable detail, which shall include at least the consolidated balance sheet of such entity and its Subsidiaries as of the end of such year and 22 the related consolidated statements of income and sources and uses of funds for such year, which shall be audited reports prepared by an accounting firm reasonably acceptable to the Lender; (ii) as soon as available but not less than 60 days after the end of each of the first three quarters of each fiscal year of the Borrowers a quarterly interim consolidated balance sheet of the Borrowers and their Subsidiaries and the related consolidated profit and loss statements and sources and uses of funds, all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of NRGG; (iii) within 30 days of the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which either Borrower shall have filed with the Securities and Exchange Commission or any similar governmental authority; (iv) promptly upon the mailing thereof to the shareholders of the Borrowers, copies of all financial statements, reports, proxy statements and other communications provided to the Borrowers' shareholders; and (v) such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), operating logs for the Morris Cogen facilities, lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to the business of the Borrowers as the Lender may from time to time reasonably request, certified to be true and complete by the chief financial officer of NRGG; (e) Corporate Existence. Do or cause to be done, and procure that NRG Morris Inc. and Morris Cogen shall do or cause to be done, all things necessary to: (a) preserve and keep in full force and effect its corporate or limited liability company existence; and (b) preserve and keep in full force and effect all licenses, franchises, permits and assets necessary to the conduct of its business, except, in the case of clause (b) only, where the failure to do so could not reasonably be expected to result in a Material Adverse Effect; 23 (f) Books and Records. Keep, and cause NRG Morris Inc. and Morris Cogen to keep, proper and accurate books of record and account in accordance with GAAP; (g) Taxes and Assessments. Pay and discharge, and cause NRG Morris Inc. and Morris Cogen to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto; (h) Inspection. Allow, and cause NRG Morris Inc. and Morris Cogen to allow, any representative or representatives designated by the Lender, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on the reasonable request thereof, to examine (at a location where normally kept) its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, at reasonable times and upon reasonable prior notice; (i) Compliance with Statutes, Etc. Do or cause to be done, and cause NRG Morris Inc. and Morris Cogen to do and cause to be done, all things necessary to comply in all material respects with all material laws, and the rules and regulations thereunder, applicable to either Borrower, NRG Morris Inc. or Morris Cogen, including, without limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters; (j) Environmental Matters. Promptly upon the occurrence of any of the following conditions, provide to the Lender a certificate of an officer thereof, specifying in detail the nature of such condition and its proposed response or the response of its Affiliates: (i) its receipt or the receipt by NRG Morris Inc. or Morris Cogen of any written communication whatsoever that alleges that such person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (ii) knowledge by it, or by NRG Morris Inc. or Morris Cogen that there exists any Environmental Claim pending or threatened against any such person, which could reasonably be expected to have a Material Adverse Effect, or 24 (iii) any release, emission, discharge or disposal of any Material of Environmental Concern that could form the basis of any Environmental Claim against it, NRG Morris Inc. or Morris Cogen under applicable Environmental Law, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect. Upon the written request by the Lender, it will submit to the Lender at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection; (k) ERISA. Forthwith upon learning of the occurrence of any material liability of the Borrower, NRG Morris Inc. or Morris Cogen or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which the Borrower, NRG Morris Inc. or Morris Cogen or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Lender written notice thereof; (l) Maintenance of Properties, Etc. Preserve and maintain good and marketable title to all of its properties and assets which are necessary in the conduct of its business in good working order and condition, ordinary wear and tear excepted, subject to no Liens other than Permitted Liens; (m) Distributions. Cause Morris Cogen to make all permissible Distributions and cause all such Distributions to be paid by Funding when funds are needed to reduce the Loan hereunder to the extent required by Section 2.05(c). (n) Performance of Project Agreements. Cause Morris Cogen to (i) perform and observe all of its covenants and agreements contained in the Governmental Approvals and any of the Project Agreements to which it is a party, unless the failure to perform or observe such covenants and agreements could not reasonably be expected to result in a Material Adverse Effect, (ii) preserve, protect and defend its rights contained in the Governmental Approvals and any of the Project Agreements to which it is a party, unless the failure to preserve, protect or defend such rights could not reasonably be expected to result in a Material Adverse Effect and (iii) maintain in full force and effect each of the Project Agreements to which it is a party and all contracts, permits and Governmental Approvals relating thereto which are necessary for the maintenance and operation of its facilities. 25 (o) Operating Logs. Cause Morris Cogen at its sole cost and expense to (i) maintain daily operating logs showing, among other things, the electrical output of its facilities, (ii) keep maintenance and repair reports in sufficient detail to indicate the nature and date of all work done, (iii) maintain a current operating manual and complete set of plans, accounting records and specifications reflecting all alterations and (iv) maintain all other records, logs and other materials required by the relevant Project Agreements or any Governmental Approval; (p) Maintenance of Insurance. Maintain or cause to be maintained with insurance companies rated "A-" or better by Best's Insurance Guide and Key Ratings or other insurance companies of recognized responsibility reasonably satisfactory to the Lender, insurance in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which Morris Cogen operates, and in any event the insurance coverages shall not be less than the insurance coverages set forth on Schedule 5(i). The Borrowers shall, upon the request of the Lender, promptly provide a schedule indicating the policies maintained by each of the Borrowers, NRG Morris Inc. and Morris Cogen, coverage limits of liability, effective dates of coverage, insurance carrier names and policy numbers. Prior to the Funding Date, the Borrowers shall cause the Lender to be named as an insured party in respect of the Morris Cogen project, for the account of the Lender. Evidence of payment of premiums for such insurance policies shall be delivered to the Lender at least thirty (30) days prior to the expiration thereof and such insurance policies shall be delivered to the Lender promptly upon its request therefor; (q) Use of Proceeds. Use the proceeds of the Loan only as set forth in Section 2.02. (r) Additional Documents; Filings and Recordings. Execute and deliver from time to time as reasonably requested by the Lender, at the Borrowers' expense, such other documents in connection with the rights and remedies provided for by the Security Documents, as applicable, which are necessary to consummate the transactions contemplated therein. Each Borrower and NRG Morris Inc. shall, at its own expense, take all reasonable actions that have been or shall be requested by the Lender to establish, maintain, protect, perfect and continue the perfection of the security interests of the Lender created by the Security Documents including the execution of such instruments, and providing such other information as may be required to enable the Lender to effect any such action. Without limiting the generality of the foregoing, each Borrower and NRG Morris Inc. shall execute or cause to be executed and shall file or cause to be filed such financing statements, continuation statements, fixture filings, assignments, mortgages or deed of trust in all places necessary or advisable (in the opinion of counsel for the 26 Lender) to establish, maintain and perfect such security interests and in all other places that the Lender shall reasonably request. SECTION 6.02. Each Borrower will not, and will procure that NRG Morris Inc. and Morris Cogen will not, without the prior written consent of the Lender: (a) Liens. Create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral or the assets of Funding, NRG Morris Inc. or Morris Cogen except Permitted Liens; (b) Capital Expenditures. Make any capital expenditures (excluding ordinary or scheduled maintenance) in any calendar year, exceeding $1,000,000 other than those contemplated by the Project Agreements relating to the Morris Cogen facility; (c) Indebtedness. Incur any Indebtedness except (i) Indebtedness existing as of the Closing Date, or (ii) so long as no Event of Default occurs and is continuing: (A) if non-recourse to the Borrowers, Indebtedness of any Subsidiary of the Borrowers which is formed after the Funding Date; (B) Indebtedness of Subsidiaries of the Borrowers of up to $1,000,000 during each calendar year; (C) unsecured Indebtedness of a Borrower, if subordinated, pursuant to a subordination agreement, to the Borrower's obligations under the Credit Documents, the terms of any such Indebtedness to be acceptable to the Lender; (D) Indebtedness of any Subsidiary of the Borrowers (other than Funding and Morris Cogen) if non-recourse to the Borrowers, under interest rate swap agreements to hedge interest rate exposure for permitted non-recourse financings; and (E) Indebtedness owing by NRGG under a certain Credit Agreement expected to be arranged by MeesPierson Capital Corporation (d) Change in Business. Materially change the nature of its business or commence any business materially different from its current business; (e) Sale or Pledge of Shares. Sell, assign, transfer, pledge or otherwise convey or dispose of any of the shares or direct or indirect interest (including by way of spin-off, installment sale or otherwise) of the capital stock of or other equity interests in Funding, NRG Morris Inc. or Morris Cogen, other than in respect of Permitted Liens; (f) Sale of Assets. Sell, or otherwise dispose of, the assets of Morris Cogen or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole, except for sales and dispositions of obsolete, worn or replaced property not used or useful in a Borrower's or any Subsidiary's business; (g) Changes in Offices or Names. Change the location of the chief executive office of the Borrowers, NRG Morris Inc. or Morris Cogen, the office of the 27 chief place of business any such parties, the office of such parties in which the records relating to the earnings or insurances of or relating to Morris Cogen are kept unless the Lender shall have received thirty (30) days prior written notice of such change; (h) Consolidation and Merger. Consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into either Borrower, NRG Morris Inc. or Morris Cogen; (i) Limitation on Dividends. Directly or indirectly declare or pay any dividend or make any Distribution on its capital stock or to members, as the case may be; provided, however, that (A) Morris Cogen shall make Distributions when permissible to Funding; and (B) Distributions may be paid by Funding to NRGG and by NRGG to its shareholders if; not less than thirty (30) days prior to the proposed date of payment of such Distribution the Borrowers shall have delivered to the Lender a certificate signed by the chief financial officer of each Borrower stating that principal and interest outstanding on the Loan does not exceed the Maximum Amount and is not reasonably projected to exceed the Maximum Amount of the next two Interest Payment Dates and that after giving effect to such proposed Distribution, no Default or Event of Default would occur or reasonably be anticipated to occur and/or be continuing. Distributions may be made to NRGG if the Certificate contemplated by clause (B) above is delivered; (j) Amendment, Termination, Etc. of Project Agreements. Terminate, cancel or suspend, or permit or consent to any termination, cancellation or suspension of, or enter into or consent to or permit the assignment of the rights or obligations of any party to, any of the Project Agreements or Governmental Approvals (other than assignment thereof to the Collateral Agent). The Borrowers shall not permit Funding, NRG Morris Inc. or Morris Cogen to, directly or indirectly, amend, modify, supplement or waive, or permit or consent to the amendment, modification, supplement or waiver of, any of the provisions of, or give any consent under, any of the Project Agreements without (i) first submitting to the Lender a copy of such proposed amendment, modification, supplement, waiver or consent and (ii) if in the reasonable judgment of the Lender, such proposed amendment, modification, supplement, waiver or consent could reasonably be expected to result in a Material Adverse Effect, the express prior written consent of the Lender; (k) Fiscal Year. Change its fiscal year; (l) Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate except for (A) transactions contemplated by existing operations and maintenance agreements and/or management agreements in respect of the Morris Cogen facility; (B) transactions contemplated by the April 30, 1996 Management Services 28 Agreement between NRGG and the Lender, and (C) other transactions in the ordinary course of business and pursuant to the reasonable requirements of business and upon fair and reasonable terms no less favorable than would be obtained in an comparable arm's length transaction with a Person not an Affiliate; and (m) Investments. Make any Investments, other than Investments made by NRGG when no Default or Event of Default exists hereunder. ARTICLE 7 Defaults and Remedies SECTION 7.01. Events of Default. An "Event of Default" occurs if: 1. Borrowers default in any payment of interest of any other amount (other than those specified in (2) below) with respect to the Loan when the same becomes dues and payable and such default continues for a period of 30 days; 2. Borrowers default in the payment of the principal of the Loan when the same become due and payable on the Maturity Date, upon mandatory prepayment, or otherwise; provided, however, that so long as Borrowers comply with Section 2.05(c) hereof, no failure to make a scheduled amortization payment pursuant to Section 2.05(b) shall constitute a default. 3. Any representation or warranty made by a Borrower, herein, in the Credit Documents, the Membership Interest Purchase Agreement, the Assignment and Assumption Agreement or the NRGG Equity Guaranty fails to be accurate or complete in any material respect or a Borrower fails to comply with any of its respective agreements contained herein, the Credit Documents (other than those referred to in (1) or (2) above), the Membership Interest Purchase Agreement, the Equity Commitment Agreement or the NRGG Equity Guaranty and such failure continues for 30 days after the notice specified below; 4. An event occurs which entitles the holders of Indebtedness aggregating in excess of $2,000,000 of a Borrower or any Subsidiary of a Borrower to accelerate such Indebtedness; 5. A Borrower or any Subsidiary of a Borrower pursuant to or within the meaning of any Bankruptcy Law; (a) commences a voluntary case; 29 (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; 6. A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against a Borrower or any Subsidiary of a Borrower in an involuntary case; (b) appoints a custodian of a Borrower of any Subsidiary of a Borrower or for any substantial part of its property; or (c) orders the winding up or liquidation of a Borrower or any Subsidiary of a Borrower; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; 7. Any judgment or decree for payment of money in excess of $2,000,000 or its foreign currency equivalent at the time is entered against a Borrower or any Subsidiary of a Borrower and is not discharged and either (a) an enforcement proceeding has been commenced by any creditor upon such judgment or decree of (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; or 8. This Agreement, any Credit Document, the Membership Interest Purchase Agreement, the Equity Commitment Agreement or the NRGG Equity Guaranty shall cease, for any reason, to be in full force and effect or a Borrower or any Subsidiary of a Borrower 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. 30 A Default under clause (3) is not an Event of Default until the Lender notifies a Borrower of the Default and the Borrowers do 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 7.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 7.01(5) or (6) with respect to a Borrower) occurs and is continuing, the Lender by notice to a Borrower 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 7.01(5) or (6) with respect to a Borrower occurs, the principal of and interest on the Loans 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 a Borrower may rescind an acceleration and its consequences. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 7.03. Default and Remedies. (a) If, following the Funding Date, and so long as there shall remain outstanding any Indebtedness hereunder, 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 Morris Cogen to pay directly to the Lender any amount payable to either Borrower in respect of the Pledged Interests. 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 the Funding Date and such an Event of Default, so long as there shall remain any outstanding Indebtedness hereunder, 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, each Borrower 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 a Borrower may be entitled by applicable law to any notice of sale or other disposition of such Collateral, each Borrower agrees that if such notice is mailed, postage prepaid, to a Borrower at such Borrower'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 31 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 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 7.06. (d) The remedies of the Lender hereunder are cumulative and the exercise of any one or more of the remedies provided 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 indebtedness evidenced by the Note 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 indebtedness evidenced by the Note, 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 be deemed proper. SECTION 7.04. Other Remedies. If, following the Funding Date, and so long as there shall remain outstanding any indebtedness hereunder, 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 7.05. Waiver of Past Defaults. The Lender by notice to Borrowers 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 7.06. Priorities. If the Lender collects any money or property pursuant to this Article 7, it shall pay out the money or property in the following order: FIRST: to itself in accordance with the priority set forth in Section 2.09; and SECOND: to the extent of any excess, to NRGG. 32 SECTION 7.07. Undertaking for Costs. In any suit for the enforcement of any right of 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 7.08. Waiver of Stay or Extension Laws. The Borrowers (to the extent permitted by applicable law) 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 each Borrower (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 8 Subordination; Waivers SECTION 8.01. Subordination. The Indebtedness evidenced by the Note is subordinate in certain respects to (a) the Secured Obligations under and as that term is defined in the Pledge and Security Agreement by Funding and NRG Morris Inc. in favor of the Collateral Agent under and as that term is defined in the Construction and Term Loan Agreement dated as of September 15, 1997 by and between Morris Cogen, The Chase Manhattan Bank, as Collateral Agent and as Agent Bank, and the other Banks party thereto, to the extent and in the manner provided in that certain Subordination Agreement dated as of December 10, 1997 by and between The Chase Manhattan Bank as Collateral Agent and the Lender, and (b) the Indebtedness (the "MeesPierson Obligations") under and as that term is defined in that certain Credit Agreement expected to be entered into by and between NRGG, MeesPierson Capital Corporation and the other Lenders party thereto (collectively the "MeesPierson Lenders"), to the extent and in the manner provided in that certain Subordination Agreement by and between those parties and the Lender dated as of December 10, 1997. Each Borrower shall cause all other Indebtedness incurred by it to be subordinated on terms and conditions satisfactory to the Lender, to the prior payment in full of the Note and that the subordination is for the benefit of and enforceable by the holders of the Note. Each Borrower acknowledges and agrees that the terms of the subordination agreements contemplated in this paragraph define the relative rights of its creditors between such creditors and in no way affect the obligations of the Borrowers to the Lender. 33 SECTION 8.02. Waiver of Contribution, Subrogation, Other Rights. Each Borrower hereby agrees that, from the date of this Agreement until the MeesPierson Obligations have each been indefeasibly paid in full, or this Agreement has been earlier terminated, it will not exercise any rights which it may have or acquire, at law or in equity, by way of contribution, subrogation, indemnity or similar principles as a result of payments made by either Borrower to the Lender hereunder. Each Borrower expressly acknowledges that it will benefit directly from the Loan hereunder and that the obligations hereunder are intended to be direct obligations and not a guarantee or in the nature of a guarantee. If, notwithstanding the express intention of the parties to the contrary, all or any portion of the obligations of either Borrower hereunder are deemed a guarantee or in the nature of a guarantee, then each Borrower hereby agrees that, from the date of this Agreement until the MeesPierson Obligations have each been indefeasibly paid in full, or this Agreement has been earlier terminated it will not exercise any suretyship and similar defenses and rights arising as a result of the Loan hereunder. This Section 8.02 shall inure to the benefit of the Lender and to the benefit of the MeesPierson Lenders. 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 writing signed by the Lender and the Borrowers. 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, answer back received, address as follows, or to such other address as may be hereafter notified by the respective parties hereto and any further holders of the Note: If to NRGG: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403 Attention: President and Chief Executive Officer Telephone: (612) 373-5300 Telecopier:(612) 373-5430 34 With a copy to: Troutman Sanders NationsBank Plaza, Suite 5200 600 Peachtree Street N.E. Atlanta, Georgia 30308 Attention: M. Stuart Sutherland Telephone: (404) 885-3000 Telecopier:(404) 885-3900 If to NRGG Funding: NRG Generating (U.S.) Inc. 1221 Nicollet Mall, Suite 610 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 600 Peachtree Street N.E. Atlanta, Georgia 30308 Attention: M. Stuart Sutherland Telephone: (404) 885-3000 Telecopier:(404) 885-3900 If to Lender: NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403 Attention: Treasurer Telephone: (612) 373-5300 Telecopier:(612) 373-5430 With a copy 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. 35 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 or 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. Payment of Expenses and Taxes. The Borrowers jointly and severally agree (a) to pay the Lender on the Funding Date a fee in the amount of $100,000; (b) to pay the Lender on the Funding Date and on each anniversary of the Funding Date the amount of $50,000 in respect of expenses incurred in connection with the development, preparation and the execution and general administration of the Credit Documents and in addition, to pay or reimburse the Lender for all its reasonable costs and expenses incurred in connection with any amendment, supplement or modification to the Credit Documents, including the reasonable fees and disbursements of counsel to the Lender, (c) 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, including reasonable fees and disbursements of counsel to the Lender incurred in connection with the foregoing, (d) to pay, 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 (e) 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 or regulation applicable to the operations of a Borrower or any Subsidiary of a Borrower or any of the facilities and properties owned, 36 leased or operated by a Borrower or any Subsidiary of a Borrower (all the foregoing, collectively, the "Indemnified Liabilities"); provided that the Borrowers 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 directors or officers or (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. The agreements in this Section 9.04 shall survive repayment of the Note and all other documents payable hereunder. SECTION 9.05. Successors and Assigns; Participations and Assignments. This Agreement shall be binding upon and insure to the benefit of the Borrowers, the Lender, all future holders of the Note and the Loan, and their respective successors and assigns, except that no party hereto may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the other parties hereto. SECTION 9.06. Counterparts. This Agreements 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 9.07. 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 Minnesota 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 expressly provided in Section 8.02, no other Person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. SECTION 9.08. Submission to Jurisdiction; Waivers. 9 (a) Each party to this Agreement hereby irrevocably and unconditionally; (i) submits for itself and its property in any legal action or proceedings 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 Minnesota, the courts of the United States of America for Minnesota and appellate courts from any thereof; 37 (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 et 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 9.09. 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 Borrowers 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 Borrowers or in any other event, earned interest on the Loan and such other obligations of the Borrowers may never exceed the Highest Lawful Rate, and any unearned interests 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 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 38 of the Loan or such other obligations, be either refunded to the Borrowers 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 Borrowers 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. 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. NRG GENERATING (U.S.) INC. /s/ Robert t. Sherman, Jr. Robert T. Sherman, Jr. President and Chief Executive Officer NRGG FUNDING INC. /s/ Robert t. Sherman, Jr. Robert T. Sherman, Jr. President and Chief Executive Officer NRG ENERGY, INC. David H. Peterson David H. Peterson Chairman, President and Chief Executive Officer 40 EXHIBIT A December 10, 1997 NOTE FOR VALUE RECEIVED, the undersigned, NRG GENERATING (U.S.) INC., a Delaware corporation ("NRGG") and NRGG Funding Inc., a Delaware corporation ("Funding"), hereby jointly, severally and unconditionally promise 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 or by wire transfer in accordance with such instructions as the Lender may require, in lawful money of the United States of America and in immediately available funds, the principal amount of up to $22,000,000 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 Supplemental Loan Agreement, dated as of December 10, 1997among NRGG and Funding (each a "Borrower" and collectively the "Borrowers") 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 or to such account, in like money, from the date hereof on the unpaid principal 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 of 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 Minnesota and any applicable laws of the United States of America. THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE 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. THIS NOTE IS SUBJECT TO THE SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 10, 1997, AMONG NRGG, THE LENDER AND MEESPIERSON CAPITAL CORPORATION UNDER WHICH THIS NOTE AND NRGG'S OBLIGATIONS HEREUNDER ARE, SUBORDINATED IN THE MANNER SET FORTH THEREIN TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS TO THE HOLDERS OF SENIOR INDEBTEDNESS AS DEFINED THEREIN. THIS NOTE IS FURTHER SUJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 10, 1997, BETWEEN THE LENDER AND THE CHASE MANHATTAN BANK IN ITS CAPACITY AS COLLATERAL AGENT. A COPY OF THAT SUBORDINATION AGREEMENT IS ON FILE WITH NRGG, FUNDING AND NRG MORRIS INC. AND IS AVAILABLE FOR INSPECTION AT THEIR RESPECTIVE OFFICES. NRG GENERATING (U.S.) INC. ______________________________ Robert T. Sherman, Jr. President and Chief Executive Officer NRGG FUNDING INC. ______________________________ Robert T. Sherman, Jr. President and Chief Executive Officer 2 EXHIBIT B AMORTIZATION SCHEDULE Principal Reduction Date Reduction Amount Maximum Amount 3/31/99 $927,190.45 $21,070,441.55 6/30/99 $950,370.21 $20,120,071.34 9/30/99 $974,129.47 $19,145,941.87 12/31/99 $998,482.70 $18,147,459.17 3/31/00 $1,226,559.77 $16,920,899.40 6/30/00 $1,257,223.77 $15,663,675.63 9/30/00 $1,288,654.36 $14,375,021.27 12/31/00 $1,320,870.72 $13,054,150.56 3/31/01 $666,826.74 $12,387,323.82 6/30/01 $683,497.40 $11,703,826.42 9/30/01 $700,584.84 $11,003,241.58 12/31/01 $718,099.46 $10,285,142.12 3/31/02 $623,366.45 $9,661,775.67 6/30/02 $638,950.61 $9,022,825.06 9/30/02 $654,924.37 $8,367,900.69 12/31/02 $671,297.48 $7,696,603.20 3/31/03 $570,433.67 $7,126,169.53 6/30/03 $584,694.51 $6,541,475.02 9/30/03 $599,311.87 $5,942,163.15 12/31/03 $614,294.67 $5,327,868.48 3/31/04 $626,391.54 $4,701,476.94 6/30/04 $642,051.33 $4,059,425.61 9/30/04 $658,102.61 $3,401,323.00 12/31/04 $3,401,323.00 $0.00 Schedule 5(b) Capitalization NRG Generating (U.S.) Inc. 20,000,000 shares of $.01 par value preferred stock are authorized None of these shares of preferred stock are issued or outstanding 50,000,000 shares of $.01 par value common stock are authorized 6,871,069 shares of $.01 par value common stock are issued 6,836,769 shares of $.01 par value common stock are outstanding 34,300 shares of $.01 par value common stock held as treasury stock NRGG Funding Inc. 1000 shares of common stock without par value are authorized 1000 shares are issued and outstanding to NRG Generating (U.S.) Inc. As of the date of the consummation of the transactions contemplated by the Membership Interest Purchase Agreement: NRG Morris Inc. 1,000 shares of common stock with $1.00 par value are authorized 1,000 shares are issued are issued and outstanding to NRGG Funding Inc. NRG (Morris) Cogen, LLC Indeterminate number of membership interests 99% of such interests are owned by NRGG Funding Inc. 1% of such interests are owned by NRG Morris Inc. Schedule 5(f) Litigation NRG Generating (U.S.) Inc. 1. Stevens, et al. v. O'Brien Environmental Energy, Inc., et al., United States District Court for the Eastern District of Pennsylvania, Civil Action No. 94-cv-4577, filed July 27, 1997. This action was filed by certain purchaser's of NRG Generating (U.S.) Inc.'s (the "Company") Class A Common Stock (the "Common Stock") during the class period who allege various violations of the Federal securities laws. The plaintiffs claim that certain material misrepresentations and nondisclosures concerning the Company's financial conditions and prospects allegedly caused the price of the Common Stock to be artificially inflated during the class period. Plaintiff's counsel has been engaging in discovery. Troutman Sanders LLP entered an appearance on behalf of the Company. Motions to dismiss by the director defendants remain pending. 2. Blackman and Frantz v. O'Brien, United States District Court, Eastern District of Pennsylvania, Civil Action No. 94-CV-5686, filed October 25, 1995. This action was filed by purchasers of O'Brien debentures during the class period. The plaintiffs object to treatment of the class under the bankruptcy plan. This matter has been consolidate with the Stevens class action case described in paragraph number 1 above. Plaintiff's counsel has been engaging in discovery. Troutman Sanders LLP entered an appearance on behalf of the Company. Motions to dismiss by the director defendants remain pending. 3. Mazzaro Coal & Disposal, Inc. v. Robert O. Lampl, Esq., O'Brien Energy Systems, Inc., and Manus Corporation, Court of Common Pleas of Allegheny County, Pennsylvania, Civil action No. GD96-2005, filed February 2, 1996. This action arises out of a permanent consent decree in Manus Corporation v. O'Brien Energy Services, Inc. and Mazzaro Coal & Disposal, Inc., Court of Common Pleas of Allegheny County, Pennsylvania, Civil Action No. GD94-5785 in which the parties agreed to a certain payment schedule for the extraction of gas from a landfill site. The decree contemplated an escrow/lockbox arrangement (the "Arrangement") whereby the Company made payments to the escrow/lockbox instead of to Manus for collection by the landfill owner, Mazzaro. The Arrangement was not implemented due to O'Brien's 2 bankruptcy; however, the Company advises that all payments due were paid to Manus. The plaintiff and co-defendants are in agreement as to this fact and the Company appears to be named simply as a party to the prior consent decree. Plaintiff's counsel's staff reports that this matter has been resolved, and the Company is awaiting confirmation of the final order. 4. Stewart & Stevenson Operations, Inc. v. NRG Generating (U.S.) Inc.; NRG Generating (Newark) Cogeneration Inc.; NRG Generating (Parlin) Cogeneration Inc.; NRG Energy, Inc., Superior Court of New Jersey, Middlesex County, No. L-5071-97 The suit alleges a claim based on contract and tort seeking to recover for allegedly wrongful termination of the operations and maintenance contracts of the Newark and Parlin facilities. Stewart & Stevenson Operations, Inc.. ("SSOI") is seeking $300,000 in special damages and an unspecified amount in general and punitive damages. NRG Generating (U.S.) Inc. ("NRGG") has counterclaim for damages due to permit violations and the Newark and Parlin facilities while SSOI was the operator in those facilities. 5. In re: O'Brien Environmental Energy, Case No. 94-26723, U.S. Bankruptcy Court The confirmation plan in the O'Brien Environmental Energy, Inc. bankruptcy was consummated on April 30, 1996. Subsequent to consummation, the reorganized debtor and the unsecured creditors' committee have been working to conclude certain matters still pending before the bankruptcy court. Such matters include objections to claims and the payment of professional fees. Presently, there are still a few claims and objections which have to be litigated. In addition, several orders of the bankruptcy court are under appeal including the order confirming the reorganization plan and an order denying compensation to the unsuccessful bidder at the January 1996 auction. 6. Juanita Tustin v. NRG Generating (U.S.) Inc., NRG Energy, Inc., and Michael J. Brady, Superior Court of New Jersey, Camden County, Docket No. L-4283-97, filed on or about May 20, 1997. Plaintiff alleges sexual harassment in violation of the New Jersey Law Against Discrimination, intentional infliction of emotional distress, negligent infliction of emotional distress, invasion of privacy, negligent supervision, and negligent retention. Defendant Michael J. Brady was Plaintiff's supervisor and is her alleged harasser. An Answer was filed on behalf of NRG Generating (U.S.) Inc. on or about July 18, 1997, and a Motion to Dismiss was filed on behalf on NRG Energy, Inc. on that same date. The Motion to Dismiss was denied, and NRG Energy, Inc. subsequently filed its answer in early October. 7. Additional Potential Litigation 3 NRG Generating (U.S.) Inc. has been contacted by a lawyer in Philadelphia regarding a possible slip and fall claim from Patricia McGinty, a former O'Brien employee, based upon an accident which occurred in front of the former O'Brien headquarters in January 1996 while she was on her way to work. 8. Litigation Defended by Insurer NRG Generating (U.S.) Inc. has other litigation that is being defended by its insurer. NRGG Funding Inc. None. NRG Morris Inc. and NRG (Morris) Cogen, LLC To the Borrowers' knowledge, except as set forth on Schedule 4.5 to the Membership Interest Purchase Agreement, there is no pending litigation against either NRG Morris Inc. or NRG (Morris) Cogen, LLC. 4 Schedule 5(i) Insurance A list of NRG Generating (U.S.) Inc.'s material insurance policies is attached. NRGG Funding has no material insurance policies. As wholly-owned subsidiaries of NRG Energy, Inc., NRG Morris Inc. and NRG (Morris) Cogen, LLC have the following insurance policies: 1. Commercial General Liability for $1 million/$2 million is with Federal Insurance Company; 2. Excess Liability for $25 million is with Associated Electric & Gas Insurance Services Limited; 3. Auto is with Federal Insurance Company; and 4. Workers Compensation is with Lumberman's Underwriting Alliance. 5 Schedule 5(o) Security Interests 1. Required Consents (a) Consent of The Chase Manhattan Bank and such other banks as required by the Construction and Term Loan Agreement dated as of September 15, 1997 among NRG (Morris) Cogen, LLC, the Banks (as defined by that agreement), The Chase Manhattan Bank, as Agent Bank and The Chase Manhattan Bank, as Collateral Agent. (b) Expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Act, consent of The Chase Manhattan Bank and such other banks as are necessary to effectuate the arrangements contemplated in Sections 2.2(a) through 2.2(d) of the Membership Interest Purchase Agreement, completion of the arrangement contemplated in Section 2.2(b) of the Membership Interest Purchase Agreement regarding the ESA Obligations, and completion of the arrangement contemplated in Section 2.2(d) of the Membership Purchase Agreement regarding the Supplemental Loan Agreement. (c) Execution of one or more Subordination Agreements in connection with a certain Credit Agreement to be entered into among NRGG, MeesPiersen Capital Corporation and the other Lenders party thereto. 2. Principal Place of Business (a) NRGG Funding Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 (b) As of the date of the consummation of the transactions contemplated by the Membership Interest Purchase Agreement: NRG Morris Inc. 1221 Nicollet Mall, Suite 610 Minneapolis, Minnesota 55403 3. Corporate and Trade Names (a) NRGG Funding Inc. None 6 (b) NRG Morris Inc. To the Borrowers' knowledge, NRG Morris Inc. has not transacted any business during the five year period prior to the date of this Agreement under any other name than NRG Morris Inc. 7 Schedule 5(r) Assets 1. Exemptions to valid and sufficient title: (a) Permitted Liens (b) The option in favor of Millennium Petrochemicals Inc. under the Energy Services Agreement between it and NRG (Morris) Cogen, LLC dated June 6, 1997. (c) Exceptions to valid and sufficient title on real property leased or owned by the Borrowers include all encumbrances listed on this schedule, all matters of public record as of the date hereof, and all taxes for 1997 and subsequent years. 2. Other security interests in the collateral : (a) Security Interests granted in connection with Permitted Liens. 8 Schedule 5(t) Transactions None. 9 EX-10.27.12 29 EXHIBIT 10.27.12 SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 10, 1997 BETWEEN CHASE AND NRG ENERGY. Exhibit 10.27.12 SUBORDINATION AGREEMENT SUBORDINATION AGREEMENT (this "Agreement"), dated as of December 12, 1997, between NRG ENERGY, INC., a Delaware corporation ("NRG Energy"), and THE CHASE MANHATTAN BANK as Collateral Agent (as defined below) for the Secured Parties (as defined below) under the Credit Agreement (as defined below). RECITALS WHEREAS, NRG (Morris) Cogen, LLC (the "Borrower") entered into the Construction and Term Loan Agreement, dated as of September 15, 1997 (the "Credit Agreement") with the banks party thereto (the "Banks"), The Chase Manhattan Bank as agent for the Banks (in such capacity, the "Agent Bank"), and The Chase Manhattan Bank as collateral agent for the Banks (in such capacity, the "Collateral Agent" and, together with the Banks and the Agent Bank, the "Secured Parties"), pursuant to which the Banks will make construction and term loans and extend other credit to the Borrower for the purpose of financing the cost of developing, constructing, starting-up and operating an approximately 117 megawatt gas-fired cogeneration facility in Morris, Illinois (the "Project"); WHEREAS, as conditions precedent to the Banks, the Agent Bank and the Collateral Agent entering into the Credit Agreement and the Banks extending credit to the Borrower thereunder, (i) NRG Energy executed and delivered the Equity Commitment Agreement, dated as of September 15, 1997 (the "Equity Commitment Agreement"), in favor of the Borrower and the Collateral Agent, pursuant to which NRG Energy agreed to make equity contributions to the Borrower from time to time, and (ii) NRG Energy executed and delivered the Pledge and Security Agreement, dated as of September 15, 1997, in favor of the Collateral Agent, pursuant to which NRG Energy granted a security interest in its membership interests in the Borrower (and related assets) to the Collateral Agent; WHEREAS, pursuant to the Membership Interest Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), NRG Energy is transferring all of its equity interests in the Borrower to NRGG Funding Inc. ("NRGG Funding"); WHEREAS, in connection with the execution and delivery of the Purchase Agreement, and as conditions precedent to the Banks continuing to extend credit to the Borrower under the Credit Agreement, (i) NRGG Funding is assuming all of NRG Energy's obligations under the Equity Commitment Agreement pursuant to an Assignment and Assumption Agreement, dated as of the date hereof (the "Assignment Agreement"), between NRG Energy and NRGG Funding, and (ii) NRGG Funding and NRG Morris Inc. ("NRGMI") are executing and delivering a Pledge and Security Agreement, dated as of the date hereof (the "Senior Pledge Agreement"), pursuant to which NRGG Funding and NRGMI are granting a security interest in their membership interests in the Borrower (and related assets) to the Collateral Agent; WHEREAS, pursuant to the Supplemental Loan Agreement, dated as of the date hereof (the "NRGG Loan Agreement"), between NRG Energy, NRGG Funding and NRG Generating (U.S.) Inc. ("NRG Generating"), NRG Energy is making a loan to NRGG Funding to permit NRGG Funding to make its required equity contribution under the Equity Commitment Agreement; WHEREAS, to secure NRGG Funding's obligations under the NRGG Loan Agreement, NRGG Funding and NRGMI are granting a security interest in their membership interests in the Borrower (and related assets) to NRG Energy pursuant to the Subordinated Pledge and Security Agreement, dated as of the date hereof (the "Subordinated Pledge Agreement"), between NRGG Funding, NRGMI and NRG Energy; WHEREAS, NRG Energy has agreed to subordinate its claims under the NRGG Loan Agreement and the Subordinated Pledge Agreement to the claims of the Secured Parties under the Credit Agreement, the Senior Pledge Agreement and the other Financing Documents with respect to the Shared Collateral (as defined herein); AGREEMENT NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. (a) Capitalized terms used but not defined herein shall have the meanings given to such terms in the Credit Agreement. (b) All terms defined in the foregoing Recitals shall have the meanings given to such terms therein. (c) The following terms shall have the following meanings: "NRGG Loan Note" shall mean the Note, dated December 10, 1997, executed by NRGG Funding and NRG Generating in favor of NRG Energy evidencing the indebtedness incurred under the NRGG Loan Agreement. "Proceeding" shall mean any (a) insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to NRGG Funding or NRGMI, its property or its creditors as such, (b) proceeding for any liquidation, dissolution or other winding-up of NRGG Funding or NRGMI, voluntary or 2 involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) assignment for the benefit of creditors of NRGG Funding or NRGMI or (d) other marshalling of the assets of NRGG Funding or NRGMI, in each case, under the law of the United States or any other jurisdiction. "Senior Agreements" shall mean, collectively, the Senior Pledge Agree ment, the other Financing Documents, all Secured Interest Rate Protection Agreements and all other agreements or instruments evidencing any Senior Claim. "Senior Claims" shall mean all Secured Obligations (as defined in the Senior Pledge Agreement). "Shared Collateral" shall mean all collateral in which (i) a security interest was granted or purported to be granted to the Collateral Agent under the Senior Pledge Agreement and (ii) a security interest was granted or purported to be granted to NRG Energy under the Subordinated Pledge Agreement. "Subordinated Agreements" shall mean, collectively, the NRGG Loan Agreement, the NRGG Loan Note, the Subordinated Pledge Agreement and all other agreements or instruments evidencing any Subordinated Claim. "Subordinated Claims" shall mean all Secured Obligations (as defined in the Subordinated Pledge Agreement). 2. Subordination Generally. (a) With respect to the Shared Collateral, the Senior Claims shall be and at all times remain senior, paramount and prior in right of payment and enforcement to the Subordinated Claims and, notwithstanding (i) any other agreement or instrument, (b) the actual time, order or method of creation, attachment or perfection of the respective Liens on and security interests in the Shared Collateral granted to NRG Energy or the Collateral Agent, as the case may be, (ii) the date or manner of the filing of financing statements with respect thereto, (iii) the time or order of taking possession of any Shared Collateral or (iv) the giving or failure to give notice of the acquisition or expected acquisition of purchase money or other security interests in the Shared Collateral. Notwithstanding any provision of the Uniform Commercial Code governing perfection thereof, or any other applicable Law or decision, as between NRG Energy and the Collateral Agent the Lien on and security interest in the Shared Collateral held at any time by NRG Energy, and any other rights NRG Energy may have with respect to the Shared Collateral, shall be fully subject and subordinate to the Collateral Agent's Lien on and security interest in the Shared Collateral to the full extent of the Senior Claims and to all of the rights of the Secured Parties in the Shared Collateral with respect to the Senior Claims as set forth in the Credit Agreement and the other Financing Documents and otherwise available to the Secured Parties at law or in equity. 3 (b) In furtherance of the foregoing, NRG Energy shall not take or cause to be taken any action, the purpose or effect of which would give NRG Energy a preference or priority over the Secured Parties with respect to any Shared Collateral. In accordance with the terms of the Financing Documents, the Secured Parties shall have the right (but not the obligation) hereunder at all times and from time to time to apply all or any part of the Shared Collateral, including the proceeds thereof and all collections and remittances thereof (including, without limitation, insurance proceeds), to the repayment of Senior Claims and NRG Energy shall not have any right, as against any of the Secured Parties or any other Person, to receive all or any portion of the Shared Collateral until the Senior Claims are indefeasibly paid and satisfied in full in cash or cash equivalents and all Commitments have been terminated. 3. Payments on Subordinated Claims. So long as no Default or Event of Default shall have occurred and be continuing or would occur as a result of such payments, a holder of a Subordinated Claim may receive payments on such Subordinated Claim with amounts received by the obligor on such Subordinated Claim as Distributions from the Borrower. 4. Subordination in a Bankruptcy Proceeding. In the event of any Proceeding: (a) All Senior Claims shall first be indefeasibly paid and satisfied in full in cash or cash equivalents before any payment (including any payment which may be payable to the holder of any Subordinated Claim by reason of the subordination of any indebtedness or other obligation to or guarantee of such Subordinated Claim) or distribution, whether in cash, securities or other property, shall be made to any holder of any Subordinated Claim on account of such Subordinated Claim; (b) Any payment (including any payment which may be payable to the holder of any Subordinated Claim by reason of the subordination of any indebtedness or other obligation to or guarantee of such Subordinated Claim) or distribution of any kind or character, whether in cash, securities or other property which would otherwise (but for this Agreement) be payable or deliverable in respect of any Subordinated Claim shall be paid or delivered directly to the holders of Senior Claims for application in payment of the Senior Claims in accordance with the priorities then existing among such holders until all Senior Claims have been indefeasibly paid and satisfied in full in cash or cash equivalents; (c) The holders of Senior Claims shall be authorized and empowered (but shall not be obligated) (i) to demand, sue for, collect and receive any payment or distribution made in respect of Subordinated Claims in such Proceeding and give acquittance therefor, (ii) to file claims and proofs of claims on behalf of holders of Subordinated Claims in such Proceeding, (iii) to vote all amounts owing with respect to the Subordinated Claims in their sole discretion in connection with any resolution, ar- 4 rangement, plan of reorganization, compromise, settlement or extension and to take all such other action (including, without limitation, the right to participate in any composition of creditors and the right to vote at creditors' meetings for the election of trustees, acceptance of plans and otherwise), in their own names or in the names of the holders of Subordinated Claims or otherwise, as the holders of Senior Claims may deem necessary or advisable for the enforcement of this Agreement; and (d) Each holder of Subordinated Claims shall duly and promptly take such action as may be requested at any time and from time to time by any of the holders of Senior Claims to collect hereunder and to file appropriate proofs of claim in respect thereof and to execute and deliver such powers of attorney, assignments or other instruments as may be requested by any of the holders of Senior Claims in order to enable the holders of Senior Claims to enforce any and all claims upon or in respect of the Subordinated Agreements and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or in respect of any Subordinated Claim. 5. Subordination Upon an Event of Default. Upon the occurrence of a Default or an Event of Default, or any event that constitutes a "default" or an "event of default" under any Financing Document (other than in circumstances when the provisions of Section 4 of this Agreement are applicable), then, unless and until such Default, Event of Default or other event, as the case may be, shall have been remedied or waived or shall have ceased to exist, no direct or indirect payment (in cash, property or securities or by set-off or otherwise), including any payment to the holder of any Subordinated Claim by reason of the subordination of any indebtedness or other obligation to or any guarantee of such Subordinated Claim, shall be made or agreed to be made on account of any Subordinated Claim, or as a sinking fund for any Subordinated Claim, or in respect of any redemption, retirement, purchase or other acquisition of any Subordinated Claim. 6. Turnover of Improper Payments. If any payment or distribution of any character, whether in cash, securities or other property, or any security, shall be received by any holder of any Subordinated Claim in contravention of any of the terms hereof and before all Senior Claims have been indefeasibly paid in full in cash or cash equivalents and all Commitments have been terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall forthwith be paid over or delivered and transferred to, the holders of Senior Claims at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Claims remaining unpaid, to the extent necessary to pay all such Senior Claims in full. In the event of the failure of any holder of any Subordinated Claim to endorse or assign any such payment, distribution or security, each holder of any Senior Claim is hereby irrevocably authorized to endorse or assign the same. 5 7. Limitation on Actions. (a) Each holder of a Subordinated Claim (or any instrument evidencing the same) by acceptance thereof agrees and undertakes that, without the prior written consent of the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement), prior to the date on which all Senior Claims shall have been indefeasibly paid in full in cash or cash equivalents and all Commitments shall have been terminated: (i) such holder will not take, obtain or hold (or permit anyone acting on its behalf to take, obtain or hold) any assets of NRGG Funding or NRGMI, whether as a result of any administrative, legal or equitable action, or otherwise, in violation of this Agreement; (ii) such holder will not accelerate payment of such Subordinated Claim or otherwise require such Subordinated Claim to be paid prior to its stated or scheduled maturity date; (iii) such holder will not commence, prosecute or participate in (A) any administrative, legal or equitable action against NRGG Funding or NRGMI relating to any Subordinated Claim, including, without limitation, any Proceeding, (B) any other administrative, legal or equitable action relating to any Subordinated Claim or (C) any action to enforce or collect any judgment obtained in respect of, or to enforce or exercise remedies arising under or pursuant to any Lien or other security interest securing, any Subordinated Claim; and (iv) such holder shall not in any manner foreclose upon, take possession of or attempt to realize on any of the Shared Collateral. (b) If any holder of a Subordinated Claim, in violation of the provisions herein set forth, shall commence, prosecute or participate in any suit, action, case or Proceeding referred to in clause (a) above, NRGG Funding or NRGMI, as the case may be, may interpose as a defense or plea the provisions set forth herein, and any holder of any Senior Claim may intervene and interpose such defense or plea in its own name or in the name of NRGG Funding or NRGMI, as the case may be, and shall, in any event, be entitled to restrain the enforcement of the provisions of the Subordinated Claims in its own name or in the name of NRGG Funding or NRGMI, as the case may be, in the same suit, action, case or Proceeding or in any independent suit, action, case or Proceeding. 8. Disposition or Release of Collateral. If at any time or from time to time after the occurrence of an Event of Default, the Shared Collateral, or any portion thereof, is in any manner sold or otherwise transferred, each holder of a Subordinated Claim shall be deemed to have given irrevocable consent to such disposition if the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit 6 Agreement) for any reason consents to such disposition, and in any event no holder of a Subordinated Claim shall be entitled to receive any proceeds (cash or non-cash) of such disposition unless and until all of the Senior Claims have been indefeasibly paid in full in cash or cash equivalents and all Commitments have been terminated. In the event of such disposition of all or any portion of the Shared Collateral, each holder of a Subordinated Claim shall, without further consideration, execute any and all instruments of release as the Collateral Agent shall require, failing which the Collateral Agent shall have the right to execute any such release on behalf of and as attorney-in-fact for such holder, which power of attorney shall be irrevocable. 9. Breach of Agreement. If NRG Energy or any other holder of a Subordinated Claim breaches any of the provisions of this Agreement, or if any payment is made on any Subordinated Claim that is not permitted by the provisions of this Agreement, the holders of Senior Claims shall have the right to declare any or all of such Senior Claims due and payable and pursue all of their rights and remedies under applicable state or federal Law. Nothing herein contained, however, is intended to compel NRG Energy or the Secured Parties at any time to declare NRGG Funding, NRGMI or the Borrower, as the case may be, to be in default under their respective agreements with NRGG Funding, NRGMI or the Borrower, as the case may be. All rights and remedies of NRG Energy and the Secured Parties, respectively, with respect to the Shared Collateral, the Borrower, NRGG Funding, or NRGMI and any other obligor concerning the Senior Claims or the Subordinated Claims, respectively, are cumulative and not alternative. 10. No Prejudice or Impairment. (a) The rights under these subordination provisions of the holders of any of the Senior Claims as against the holders of any of the Subordinated Claims shall remain in full force and effect without regard to, and shall not be impaired or affected by: (i) any act or failure to act on the part of the Borrower, NRGG Funding or NRGMI; (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Claim or any part thereof or in respect of any other amount payable to any holder of any Senior Claim; (iii) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Claim, any Senior Agreement or any other agreement which may be made relating to any Senior Claim; (iv) any exercise or non-exercise by the holder of any Senior Claim of any right, power, privilege or remedy under or in respect of such Senior Claim, the Senior Agreements or this Agreement or any waiver of any such right, 7 power, privilege or remedy or of any default in respect of such Senior Claim, the Senior Agreements or this Agreement, or any receipt by the holder of any Senior Claim of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Claim; (v) any merger or consolidation of the Borrower, NRGG Funding or NRGMI or any of their respective subsidiaries into or with any other Person, or any sale, lease or transfer of any or all of the assets of the Borrower, NRGG Funding or NRGMI or any of their respective subsidiaries to any other Person; (vi) absence of any notice to, or knowledge by, any holder of any Subordinated Claim of the existence or occurrence of any of the matters or events set forth in the foregoing subdivisions (i) through (v); or (vii) any other circumstance. (b) Each holder of a Subordinated Claim unconditionally waives (i) notice of any of the matters referred to in clause (a) of this Section 10, (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Claim against the Borrower, NRGG Funding or NRGMI, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Claim or the Senior Agreements, and notice of any failure on the part of the Borrower, NRGG Funding or NRGMI to perform and comply with any covenant, agreement, term or condition of the Senior Claims or the Senior Agreements, (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Claim of any right, power, privilege or remedy conferred in such Senior Claim or the Senior Agreements, or otherwise, (iv) any requirement of diligence on the part of any holder of any Senior Claim, (v) any requirement on the part of any holder of any Senior Claim to mitigate damages resulting from any default under such Senior Claim or the Senior Agreements, and (vi) any notice of any sale, transfer or other disposition of any Senior Claim by any holder thereof. (c) The obligations of the holders of Subordinated Claims under this Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Claim, or any other payment to any holder of any Senior Claim in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Claim upon the occurrence of any Proceeding, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar official for, the Borrower, NRGG Funding, NRGMI or any substantial part of their respective properties, or otherwise, all of though such payment had not been made. 8 11. Subrogation. No holder of any Subordinated Claim shall have any subrogation or other rights as the holder of a Senior Claim, and each holder of any Subordinated Claim hereby waives all such rights of subrogation and all rights of reimbursement or indemnity whatsoever and all rights of recourse to any security for any Senior Claim, until such time as all of the Senior Claims have been indefeasibly paid in full in cash or cash equivalents and all Commitments have been terminated. 12. Legend on Subordinated Claims. Each instrument evidencing a Subordinated Claim including, without limitation, the NRGG Loan Note, shall contain the following legend conspicuously noted on the face thereof: "THIS [NAME OF INSTRUMENT] IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 10, 1997, BETWEEN NRG ENERGY, INC. AND THE CHASE MANHATTAN BANK IN ITS CAPACITY AS COLLATERAL AGENT"; and shall specifically state that a copy of this Agreement is on file with the Borrower, NRGG Funding and NRGMI and is available for inspection at their respective offices. 13. Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telex or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or upon actual receipt if deposited in the United States mail, postage prepaid, or, in the case of telex notice, when answerback is received, or, in the case of telecopy notice, when confirmation is received, or, in the case of a nationally recognized overnight courier service, one Business Day after delivery to such courier service, addressed, in the case of each party hereto, at its address specified below, or to such other address as may be designated by any party in a written notice to the other parties hereto; provided that notices and communications to the Collateral Agent shall not be effective until received by the Collateral Agent: If to NRG Energy: NRG Energy, Inc. 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403-2445 Attention: President Telephone: (612) 373-5400 Facsimile: (612) 373-5430 If to the Collateral Agent: The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, NY 10001 Attention: Annette M. Marsula, Assistant Vice President Telephone: (212) 946-7557 9 Facsimile: (212) 946-8177/8178 14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and each of their respective successors and assigns; provided that prior to any transfer by NRG Energy of any of its interests under any Subordinated Agreement, whether now existing or hereafter arising, the transferee of such interests shall acknowledge this Agreement and agree, in writing, to be bound by the terms and conditions hereof. 15. Third Party Beneficiaries. The agreements of the parties hereto are intended to benefit the Banks and the Agent Bank and their respective successors and assigns. 16. No Waiver; Remedies Cumulative. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement and in any agreement relating to any of the Senior Claims and all other agreements, instruments and documents referred to in any of the foregoing are cumulative and shall not be exclusive of any rights or remedies provided by law. 17. Severability. In case any provision contained in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 18. Governing Law; Submission to Jurisdiction and Venue; Waiver of Jury Trial. (a) This Agreement is a contract made under the Laws of the State of New York of the United States and shall for all purposes be governed by and construed in accordance with the Laws of such State without regard to the conflict of Law rules thereof (other than Section 5-1401 of the New York General Obligations Law). (b) Any legal action or proceeding against NRG Energy with respect to this Agreement may be brought in the courts of the State of New York in the County of New York or of the United States for the Southern District of New York and, by execution and delivery of this Agreement, NRG Energy hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. NRG Energy agrees that a judgment, after exhaustion of all available appeals, in any such action or proceeding shall be conclusive and binding upon NRG Energy and may be enforced in any other jurisdiction by a suit upon such judgment, a certified copy of which shall be conclusive evidence of the judgment. NRG Energy irre- 10 vocably consents for itself and its property to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to NRG Energy at its address referred to in Section 13, such service to become effective thirty (30) days after such mailing. Nothing herein shall affect the right of the Collateral Agent to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against NRG Energy in any other jurisdiction. (c) NRG Energy hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to in clause (b) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (D) WITH REGARD TO THIS AGREEMENT, NRG ENERGY AND THE COLLATERAL AGENT HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. 19. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 20. Further Assurances. NRG Energy shall execute and deliver to the Collateral Agent such further instruments, agreements, certificates and documents as the Collateral Agent shall reasonably request and shall take such further action as the Collateral Agent may at any time or times reasonably request in order to carry out the provisions or intent of this Agreement. 21. Amendments. Neither this Agreement nor any Subordinated Agreement shall be amended, waived, terminated or modified without the prior written consent of the Collateral Agent (as directed by the Agent Bank, acting in accordance with the Credit Agreement). 22. Headings Descriptive. The headings of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 23. Entire Agreement. This Agreement, together with any other agreement executed in connection herewith, is intended by the parties as a final expression of their agreement as to the matters covered hereby and is intended as a complete and exclusive statement of the terms and conditions thereof. 11 IN WITNESS WHEREOF, the parties hereto have caused this Subordination Agreement to be duly executed and delivered by their officers thereunder duly authorized as of the date first above written. NRG ENERGY, INC. By: David H. Peterson Name: David H. Peterson Title: President & CEO THE CHASE MANHATTAN BANK, as Collateral Agent By: Annette M. Marsula Name: Annette M. Marsula Title: Assistant Vice President EX-10.27.13 30 EXHIBIT 10.27.13 SUBORDINATION PLEDGE AND SECURITY AGREEMENT, DATED AS OF DECEMBER 10, 1997 BY NRGG FUNDING AND MORRIS TO NRG ENERGY. Exhibit 10.27.12 SUBORDINATED PLEDGE AND SECURITY AGREEMENT dated as of December 10, 1997 among NRGG FUNDING INC., as a Pledgor NRG MORRIS INC., as a Pledgor and NRG ENERGY, INC. SUBORDINATED PLEDGE AND SECURITY AGREEMENT This SUBORDINATED PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of December 10, 1997, among NRGG Funding Inc., a Delaware corporation ("NRGG Funding"), NRG MORRIS INC., a Delaware corporation ("NRGMI", and NRG ENERGY, INC., a Delaware corporation ("NRG Energy"). NRGG Funding and NRGMI are sometimes referred to herein collectively as the "Pledgors" and each individually as a "Pledgor." W I T N E S S E T H : WHEREAS, NRG Energy entered into an Equity Commitment Agreement dated as of September 15, 1997 (the "Equity Commitment Agreement") for the benefit of NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Company") and The Chase Manhattan Bank, as collateral agent (in such capacity, the "Collateral Agent") for the banks (the "Banks") party to that certain Construction and Term Loan Agreement dated as of September 15, 1997 (the "Credit Agreement"), by and between the Company, the Banks, the Collateral Agent and The Chase Manhattan Bank, as agent for the Banks (in such capacity, the "Agent"); WHEREAS, NRG Energy has agreed to sell, and NRGG Funding has agreed to purchase, all of NRG Energy's beneficial interest in the Company (the "Membership Interests"), pursuant to the terms of that certain Membership Interest Purchase Agreement, dated as of December 10, 1997 (the "Purchase Agreement") by and between NRG Energy and NRGG (such sale and purchase is hereinafter referred to as the "Transaction"); WHEREAS, in connection with the Transaction, NRG Energy has assigned, and NRGG Funding has assumed, all of the rights and obligations of NRG Energy under the Equity Commitment Agreement, pursuant to the terms of that certain Assignment and Assumption Agreement dated as of December 10, 1997 (the "Assignment and Assumption Agreement") by and between NRG Energy and NRGG Funding; WHEREAS, NRG Energy has guaranteed, pursuant to that certain Equity Commitment Guaranty (the "Equity Guaranty") in favor of The Chase Manhattan Bank, in its capacity as Collateral Agent for the banks party to the Credit Agreement, certain equity funding and related obligations of NRGG Funding under the Equity Commitment Agreement assumed by NRGG Funding pursuant to the Assignment and Assumption Agreement; 1 WHEREAS, NRGG has guaranteed the obligations of NRGG Funding under the Equity Commitment Agreement for the benefit of NRG Energy, pursuant to an Equity Commitment Guaranty dated as of December 10, 1997 (the "NRGG Equity Guaranty"); WHEREAS, NRGG and NRGG Funding have entered into a Supplemental Loan Agreement, (as amended, supplemented or otherwise modified from time to time, the "NRG Loan Agreement") with NRG Energy pursuant to which NRG Energy shall commit to make loans to NRGG and NRGG Funding to enable NRGG and NRGG Funding to meet their respective obligations under the Equity Commitment Agreement and the NRGG Equity Guaranty; WHEREAS, upon execution and delivery of the Purchase Agreement, the Pledgors together will own one hundred percent (100%) of the membership interests in the Company (the "Membership Interests"), and the Pledgors will benefit from the (i) loan under the NRG Loan Agreement, as the proceeds thereof may be used to meet the equity commitments of NRGG Funding to the Company and the Collateral Agent, and (ii) the Equity Guaranty and the NRGG Equity Guaranty, as the Collateral Agent and the Banks would not consent to the transfer of the Membership Interests without delivery by NRG Energy of the Equity Guaranty; WHEREAS, it is a condition precedent to (i) NRG Energy's execution of the Equity Guaranty and (ii) the funding of the Loan under the NRG Loan Agreement that the Pledgors execute this Subordinated Pledge and Security Agreement. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Pledgors hereby agree with NRG Energy as follows: ARTICLE 1 DEFINED TERMS; PRINCIPLES OF CONSTRUCTION Section 1.1 Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement shall have such defined meanings when used herein. (b) The following terms shall have the following respective meanings: "Agent" shall have the meaning ascribed thereto in the first recital hereto. "Agreement" shall have the meaning ascribed thereto in the introduction paragraph hereto. 2 "Assignment and Assumption Agreement" shall have the meaning ascribed thereto in the third recital hereto. "Bank Closing Date" shall have the meaning ascribed to the term "Closing Date" in the Credit Agreement. "Bank Pledge Agreement" shall mean the Pledge and Security Agreement dated as of December 10, 1997 by and between NRGG Funding, NRGMI and the Collateral Agent. "Banks" shall have the meaning ascribed thereto in the first recital hereto. "Collateral Agent" shall have the meaning ascribed thereto in the first recital hereto. "Company" shall have the meaning ascribed thereto in the first recital hereto. "Contest" shall mean, with respect to any tax, Lien or claim, a contest pursued in good faith and by appropriate proceedings diligently conducted, so long as (i) adequate reserves have been established with respect thereto in accordance with GAAP, (ii) any Lien filed in connection therewith shall have been removed from the record by the bonding of such Lien by a reputable surety company satisfactory to NRG Energy, or security satisfactory to NRG Energy is otherwise provided to assure the discharge of the obligation thereunder and of any additional charge, penalty or expense arising from or incurred as a result of such contest, (iii) if it becomes necessary to prevent the delivery of a tax deed or other similar instrument conveying the Pledged Collateral or any portion thereof because of non-payment of any such tax, Lien or claim being contested, then the Pledgors shall pay the same in sufficient time to prevent the delivery of such tax deed or other similar instrument, (iv) the failure to pay any such tax, Lien or claim during the pendency of such contest would not otherwise result in a material adverse effect on the Person subject to any such tax, Lien or claim and (v) the Person subject to any such tax, Lien or claim has no knowledge of any actual or proposed additional deficiency or additional assessment in connection therewith that is not provided for in any of clauses (i) through (iv) of this definition. "Credit Agreement" shall have the meaning ascribed thereto in the first recital hereto. "Expenses" shall have the meaning ascribed thereto in Section 6.15(a). "Equity Commitment Agreement" shall have the meaning ascribed thereto in the first recital hereto. 3 "Financing Statement" shall mean all financing statements, recordings, filings or other instruments of registration necessary and appropriate to perfect a security interest or Lien by filing in any appropriate filing or recording office in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant applicable Law. "Indemnitee" shall have the meaning ascribed thereto in Section 6.15(a). "Lien" shall mean any mortgage, pledge, hypothecation, assignment, mandatory deposit arrangement with any party owning indebtedness of either Pledgor, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law. "LLC Agreement" shall mean the Amended and Restated Limited Liability Company Agreement of NRG (Morris) Cogen, LLC, dated December 10, 1997, between the Pledgors, and all amendments, modifications and supplements thereto and restatements thereof made in accordance with Section 4.6. "LLC Interests" shall have the meaning ascribed thereto in Section 2.1(a)(i). "Material Adverse Effect" shall mean a material adverse effect on any of (i) the operations, business, financial condition or property of NRGG Funding and its subsidiaries on a consolidated basis, (ii) the ability of either Pledgor to perform in a timely manner its material obligations under this Agreement or any other Transaction Document to which it is a party, (iii) the rights and interests of NRG Energy under the NRGG Equity Guaranty or the Credit Documents (as that term is defined in the NRG Loan Agreement) or (iv) the value of the Pledged Collateral or the validity or priority of the security interests therein granted to NRG Energy. "NRG Energy" shall have the meaning ascribed thereto in the introductory paragraph hereto. "NRG Loan Agreement" shall have the meaning ascribed thereto in the fourth recital hereto. "NRGG" shall mean NRG Generating (U.S.) Inc., a Delaware corporation. 4 "NRGG Equity Guaranty" shall have the meaning ascribed thereto in the fifth recital hereto. "NRGMI" shall have the meaning ascribed thereto in the introductory paragraph hereto. "Permitted Liens" shall mean: (a) Liens granted to NRG Energy pursuant to this Agreement; (b) Liens granted to the Collateral Agent; (c) Liens (other than any Lien imposed by ERISA) in connection with workmen's compensation, unemployment insurance or other social security or pension obligations; (d) Liens for taxes not yet delinquent or, if delinquent, which are subject to a Contest; and (e) Attachment or judgment Liens; provided that (i) the existence of such Liens could not reasonably be expected to result in a Material Adverse Effect and (ii) such Liens are discharged within thirty (30) days of the creation thereof. "Pledged Collateral" shall have the meaning ascribed thereto in Section 2.1(a). "Pledgor" and "Pledgors" shall have the meaning ascribed thereto in the introductory paragraph hereto. "Purchase Agreement shall have the meaning ascribed thereto in the second recital hereto. "Secured Obligations" shall mean (i) the obligations of NRGG Funding and NRGG under the NRG Loan Agreement and the other Credit Documents (as that term is defined in the NRG Loan Agreement), (ii) the obligations of NRGG Funding to pay subrogation and related claims of NRG Energy relating to and arising under the Equity Commitment Agreement, as assumed by NRGG Funding pursuant to the Assignment and Assumption Agreement, (iii) the obligations of NRGG under the Equity Commitment Guaranty by NRGG in favor of NRG Energy of even date herewith and (iv) the Pledgors' obligations hereunder. "Securities Act" shall have the meaning ascribed thereto in Section 5.2(b). 5 "Transactions" shall have the meaning ascribed thereto in the second recital hereto. Section 1.2 Principles of Construction. Unless otherwise expressly provided herein, the principles of construction set forth in Section 1.4 of the Credit Agreement shall apply to this Agreement. ARTICLE 2 PLEDGE Section 2.1 Pledged Collateral. (a) As collateral security for the prompt and complete payment and performance when due, whether at stated maturity, by acceleration or otherwise (including the payment of amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ? 362(a)), of all of the Secured Obligations, whether now existing or hereafter arising and howsoever evidenced, each Pledgor hereby pledges, grants, assigns, hypothecates, transfers and delivers to NRG Energy a second priority security interest in the following, whether now existing or hereafter from time to time acquired (collectively, the "Pledged Collateral"): (i) all of such Pledgor's membership interests in the Company (such Pledgor's "LLC Interests") and all of such Pledgor's rights to acquire membership interests in the Company in addition to or in exchange or substitution for such Pledgor's LLC Interests; (ii) all of such Pledgor's rights, privileges, authority and powers as a member of the Company under the LLC Agreement; (iii) all certificates or other documents (if any) representing any and all of the foregoing in clauses (i) and (ii); (iv) all dividends, distributions, cash, securities, instruments and other property of any kind to which such Pledgor may be entitled in its capacity as a member of the Company by way of distribution, return of capital or otherwise; (v) any other claim which such Pledgor now has or may in the future acquire in its capacity as a member of the Company against the Company and its property; and 6 (vi) all proceeds, products and accessions of and to any of the property described in the preceding clauses (i) through (v). (b) As used herein, the term "proceeds" shall be construed in its broadest sense and shall include whatever is received or receivable when any of the Pledged Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise disposed of, whether voluntarily or involuntarily, and shall include, without limitation, all rights to payment, including interest and premiums, with respect to any of the Pledged Collateral or any proceeds thereof. Section 2.2 Distributions. At any time when an Event of Default has occurred and is continuing or distributions are otherwise restricted pursuant to the Loan Agreement, any and all (i) distributions paid or payable in respect of any Pledged Collateral (whether paid in cash, securities or other property), and (ii) property (whether cash, securities or other property) paid, payable or otherwise distributed in redemption of, or in exchange for, the property described in clause (i) immediately above, shall be, and shall be forthwith delivered to NRG Energy to hold as, Pledged Collateral and shall be applied to reduce the Loan in accordance with the Loan Agreement and shall, if received by either of the Pledgors, be received in trust for the benefit of NRG Energy, be segregated from the other property or funds of such Pledgor, and be forthwith delivered to NRG Energy (to the extent and in the manner set forth in the NRG Loan Agreement) as Pledged Collateral in the same form as so received (with any necessary endorsement); provided, however, that at all other times the Pledgors shall be entitled to receive and retain any and all distributions paid in respect of the Pledged Collateral in compliance with the terms of the Credit Agreement. All cash and cash equivalents received by NRG Energy pursuant to the preceding sentence shall be applied to the Secured Obligations as provided in Section 5.4. All other property received by NRG Energy pursuant to this Section 2.2 may be sold by NRG Energy and the proceeds applied to the Secured Obligations, all as provided in Article V. Section 2.3 Voting Rights. Unless an Event of Default shall have occurred and be continuing, each Pledgor shall be entitled to exercise all voting with respect to such Pledgor's LLC Interests; provided, however, that no vote shall be cast, right exercised or other action taken which could impair the Pledged Collateral or which would be inconsistent with or result in any violation of any provision of this Agreement or any other Credit Document. Upon the occurrence and during the continuance of an Event of Default, all voting and other rights of each Pledgor with respect to such Pledgor's LLC Interests 7 which such Pledgor would otherwise be entitled to exercise pursuant to the terms of this Agreement shall cease, and all such rights shall be vested in NRG Energy which shall thereupon have the sole right to exercise such rights. Section 2.4 Secured Party Not Liable. Notwithstanding any other provision contained in this Agreement, the Pledgors shall remain liable under the LLC Agreement to observe and perform all of the conditions and obligations to be observed and performed by the Pledgors thereunder. Neither NRG Energy nor any of its directors, officers, employees or agents shall have any obligations or liability under or with respect to any Pledged Collateral by reason of or arising out of this Agreement or the receipt by NRG Energy of any payment relating to any Pledged Collateral, nor shall any of NRG Energy or any of its directors, officers, employees or agents be obligated in any manner to (a) perform any of the obligations of either Pledgor under or pursuant to the LLC Agreement or any other agreement to which either Pledgor is a party, (b) make any payment or to inquire as to the nature or sufficiency of any payment or performance with respect to any Pledged Collateral, (c) present or file any claim or collect the payment of any amounts or take any action to enforce any performance with respect to the Pledged Collateral or (d) take any other action whatsoever with respect to the Pledged Collateral. Section 2.5 Attorney-in-Fact. (a) Each Pledgor hereby appoints NRG Energy, or any Person, officer or agent whom NRG Energy may designate, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Pledgor and in the name of such Pledgor or in its own name, at such Pledgor's cost and expense, from time to time in NRG Energy's reasonable discretion to take any action and to execute any instrument which NRG Energy may reasonably deem necessary or advisable to enforce its rights under this Agreement, including, without limitation, authority to receive, endorse and collect all instruments made payable to such Pledgor representing any distribution, interest payment or other payment in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; provided, however, that NRG Energy will not exercise its powers under this Section 2.5 unless an Event of Default has occurred and is continuing (except that NRG Energy may at any time, in the name of either Pledgor or in its own name, prepare, sign and file any Financing Statement for the purpose of perfecting the security interest granted hereunder). (b) Each Pledgor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof, in each case pursuant to the powers granted hereunder. Each Pledgor hereby acknowledges and agrees that in acting pursuant to the power-of-attorney granted in clause (a) immediately above, NRG Energy shall be acting in its own interest, and each Pledgor acknowledges and agrees that NRG Energy shall have no fiduciary duties to such Pledgor and such Pledgor hereby waives any claims or rights of a beneficiary of a fiduciary relationship hereunder. 8 Section 2.6 NRG Energy May Perform. If either Pledgor fails to perform any agreement contained herein after receipt of a written request to do so from NRG Energy, NRG Energy may itself perform, or cause performance of, such agreement, and the reasonable expenses of NRG Energy, including the reasonable fees and expenses of its counsel, incurred in connection therewith shall be payable by such Pledgor under Section 6.15; provided that if an Event of Bankruptcy shall have occurred with respect to such Pledgor, the notice described in this Section 2.5 shall not be required and shall be deemed to have been delivered upon the failure of such Pledgor to perform such agreement. Section 2.7 Reasonable Care. NRG Energy shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equivalent to that which NRG Energy accords its own property of the type of which the Pledged Collateral consists, it being understood that NRG Energy shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not NRG Energy has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. Section 2.8 Security Interest Absolute. All rights of NRG Energy and security interests hereunder, and all obligations of the Pledgors hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any of the Credit Documents or any other agreement or instrument relating thereto (other than against NRG Energy); (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Documents or any other agreement or instrument relating thereto; (c) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations; or (d) any other circumstance (other than the indefeasible payment in full of the Secured Obligations in cash or cash equivalents and/or application of the purchase price of any or all of the Pledged Collateral purchased by NRG Energy pursuant to Section 5.3) which might otherwise constitute a defense available to, or a discharge of, the Pledgors. 9 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE PLEDGORS Each Pledgor represents and warrants as follows, which representations and warranties shall survive the execution and delivery of this Agreement and the making and repayment of the Secured Obligations; provided that (i) prior to the effective date of this Agreement, such representations and warranties shall be made by the Pledgors on a several basis, and (ii) on and after the effective date of this Agreement, such representations and warranties shall be made by the Pledgors on a joint and several basis: Section 3.1 Ownership of Pledged Collateral; Other Financing Statements. Such Pledgor is the sole legal and beneficial owner of the Pledged Collateral pledged by it hereunder free and clear of any Lien other than the Lien created pursuant to this Agreement, other than the Lien of the Collateral Agent under the Bank Pledge Agreement. No security agreement, Financing Statement or other public notice with respect to all or any part of the Pledged Collateral is on file or of record in any public office, except such as may have been filed in favor of NRG Energy pursuant to this Agreement or the Collateral Agent pursuant to the Bank Pledge Agreement. Section 3.2 Due Incorporation; Qualification. Such Pledgor is a corporation duly organized and validly existing under the Laws of the State of Delaware, and is qualified to own property and transact business in every jurisdiction where the ownership of its property and the nature of its business as currently conducted and as contemplated to be conducted requires it to be qualified, except where the failure to so qualify could not reasonably be expected to result in a Material Adverse Effect. Section 3.3 Authority; Authorization, Execution and Delivery; Enforceability. Such Pledgor has full power, authority and legal right to enter into this Agreement and to perform its obligations hereunder and to pledge all of the Pledged Collateral pledged by it pursuant to this Agreement. The pledge of such Pledged Collateral pursuant to this Agreement has been duly authorized by such Pledgor. This Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable against such Pledgor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar Laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). Section 3.4 Consents; Governmental Approvals. No consent of any other party (including, without limitation, stockholders or creditors of such Pledgor) and no Governmental Approval is required which has not been obtained either (a) for the execution, delivery and performance by such Pledgor of this Agreement, (b) for the pledge by such 10 Pledgor of the Pledged Collateral pledged by it pursuant to this Agreement, or (c) for the exercise by NRG Energy of the rights provided for in this Agreement (except to the extent that a consent of another party or a Governmental Approval may be required for NRG Energy to so act) or the remedies in respect of the Pledged Collateral pursuant to this Agreement. Section 3.5 No Conflicts. The execution, delivery and performance of this Agreement and each other Transaction Document to which such Pledgor is a party will not (i) require any consent or approval of the Board of Directors of such Pledgor which has not been obtained, (ii) violate the provisions of such Pledgor's Certificate of Incorporation or By-laws, (iii) violate the provisions of any Law (including, without limitation, any usury Laws), regulation or order of any Governmental Authority applicable to such Pledgor, (iv) result in a breach of or constitute a default under any material agreement relating to the management or affairs of such Pledgor, or any indenture or loan or credit agreement or any other material agreement, lease or instrument to which such Pledgor is a party or by which such Pledgor or any of its material properties may be bound or (v) result in or create any Lien (other than Permitted Liens) under, or require any consent which has not been obtained under, any indenture or loan or credit agreement or any other material agreement, instrument or document, or the provisions of any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority binding upon such Pledgor or the Company or any of their respective properties. Section 3.6 Litigation. No Event of Bankruptcy has occurred with respect to such Pledgor and there is no action, suit or proceeding at Law or in equity or by or before any Governmental Authority, arbitral tribunal or other body now pending against such Pledgor or, to the best knowledge of such Pledgor, threatened against such Pledgor which questions the validity or legality of or seeks damages in connection with this Agreement or any other Transaction Document to which such Pledgor is a party. Section 3.7 Necessary Filings. Upon the filing with the Minnesota Secretary of State of all necessary Financing Statements executed by the Pledgors in favor of NRG Energy with respect to the Pledged Collateral, all filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interest granted by such Pledgor to NRG Energy hereby in respect of the Pledged Collateral shall have been accomplished and the security interest granted by such Pledgor to NRG Energy pursuant to this Agreement in the Pledged Collateral constitutes a valid and enforceable perfected security interest therein superior and prior to the rights of all other Persons therein (other than the rights of the Collateral Agent and the Banks pursuant to the Bank Pledge Agreement) and, in each case, subject to no other Liens, sales, assignments, conveyances, settings over or transfers, other than the Lien of the Collateral Agent under the Bank Pledge Agreement. 11 Section 3.8 Compliance with Laws. Such Pledgor has been in the past and is in current compliance with all applicable Laws in respect of the conduct of its business and the ownership of its property. Section 3.9 No Defaults. Such Pledgor is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions applicable to such Pledgor contained in any Transaction Document to which it is a party. Section 3.10 Chief Executive Office. (a) The chief executive office of NRGG Funding and the office where NRGG Funding keeps its records concerning the Company and the Project and all contracts relating thereto is located at: 1221 Nicollet Mall Suite 610 Minneapolis, MN 55403 (b) The chief executive office of NRGMI and the office where NRGMI keeps its records concerning the Company and the Project and all contracts relating thereto is located at: 1221 Nicollet Mall Suite 610 Minneapolis, MN 55403. ARTICLE 4 COVENANTS OF THE PLEDGORS Each Pledgor hereby covenants and agrees from and after the date of this Agreement until the termination of this Agreement in accordance with the provisions of Section 6.3: Section 4.1 Transfer of Interests. (a) Such Pledgor shall not sell or otherwise dispose of the Pledged Collateral or any interest therein without the prior written consent of NRG Energy; provided, however, that such Pledgor may, without the prior written consent of NRG Energy, sell, together with any sale of LLC Interests made by the other Pledgor pursuant to this proviso, less than or equal to ten percent (10%) of the total LLC Interests to the Energy Purchaser within one hundred twenty (120) days after the Bank Closing Date pursuant to Section 19.5 of the Energy Services Agreement if (i) such sale does not cause a Default or an Event of Default under the NRG Loan Agreement or the Credit Agreement and (ii) such sale is consummated under documentation that is 12 acceptable in form and substance satisfactory to NRG Energy; provided that no sale of LLC Interests shall be permitted under this clause (a) unless NRGG Funding remains obligated under the Equity Commitment Agreement, dated as of September 15, 1997, among NRG Energy, the Borrower and the Collateral Agent, as assumed by NRGG Funding pursuant to the Assignment and Assumption Agreement, and NRGG remains obligated under the NRGG Equity Guaranty. (b) If either Pledgor transfers all of its LLC Interests pursuant to any transfer permitted under clause (a) of this Section 4.1, then NRG Energy, upon the request and at the expense of such Pledgor, shall execute and deliver all such documentation reasonably necessary to release such Pledgor from the terms of this Agreement. Section 4.2 No Other Liens. Such Pledgor shall not create, incur or permit to exist, shall defend the Pledged Collateral against and shall take such other action as is necessary to remove, any Lien or claim on or to the Pledged Collateral (other than Permitted Liens), and shall defend the right, title and interest of NRG Energy in and to any of the Pledged Collateral against the claims and demands of all Persons whomsoever (other that the Collateral Agent). Section 4.3 Maintenance of Existence. Such Pledgor shall preserve and maintain its legal existence as a corporation in good standing under the laws of the State of Delaware; provided that NRGMI shall be permitted to merge into NRGG Funding if, in connection with such merger, NRGG Funding and NRGMI execute such documentation as is reasonably necessary to continue the Lien of NRG Energy on the Pledged Collateral. Section 4.4 Compliance with Laws; Governmental Approvals. Such Pledgor (i) shall comply with all Laws and (ii) shall obtain, maintain and comply with all Governmental Approvals as shall now or hereafter be necessary under applicable Law, rule or regulation, in each case in connection with the making and performance by such Pledgor of any material provision of the Transaction Documents to which it is a party, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 4.5 Payment of Taxes. Such Pledgor shall pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, could reasonably be expected to become a Lien upon the Pledged Collateral, unless such matters are subject to a Contest. Such Pledgor will promptly pay or cause to be paid any valid, final judgment enforcing any such tax, assessment, charge, levy or claim and cause the same to be satisfied of record. Section 4.6 Amendment of LLC Agreement. Such Pledgor shall not, without the prior written consent of NRG Energy, agree to or permit (a) the cancellation or termina- 13 tion of the LLC Agreement, except upon the expiration of the stated term thereof or (b) any amendment, supplement, or modification of, or waiver with respect to any of the provisions of, the LLC Agreement (except with respect to (x) any sale of LLC Interests in accordance with Section 4.1 or (y) with the prior written consent of NRG Energy (which consent shall not be unreasonably withheld), any amendment that could not reasonably be expected to have an adverse effect on any of the rights of any of the Secured Parties under this Agreement). Section 4.7 Chief Executive Office. Such Pledgor shall not establish a new location for its chief executive office or change its name until (i) it has given to NRG Energy not less than thirty (30) days prior written notice of its intention so to do, clearly describing such new location or specifying such new name, as the case may be, and (ii) with respect to such new location or such new name, as the case may be, it shall have taken all action, satisfactory to NRG Energy, to maintain the security interest of NRG Energy in the Pledged Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Section 4.8 Supplements; Further Assurances. Such Pledgor shall at any time and from time to time, at the expense of such Pledgor, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that NRG Energy may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable NRG Energy to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Section 4.9 Certificated Interests. If such Pledgor shall become entitled to receive or shall receive any certificate, instrument, option or rights, whether as an addition to, in substitution of or in exchange for the Pledged Collateral or any part thereof, or otherwise, such Pledgor shall accept any such certificate, instrument, option or rights as NRG Energy's agent, shall hold them in trust for NRG Energy and shall deliver them forthwith to NRG Energy in the exact form received, with such Pledgor's endorsement when necessary or accompanied by duly executed instruments of transfer or assignment in blank or, if requested by NRG Energy, an additional pledge agreement or security agreement executed and delivered by such Pledgor, all in form and substance satisfactory to NRG Energy, to be held by NRG Energy, subject to the terms hereof, as further collateral security for the Secured Obligations. Section 4.10 Records; Statements and Schedules. Such Pledgor shall keep and maintain, at its own cost and expense, records of the Pledged Collateral, including, but not limited to, records of all payments received with respect thereto, and such Pledgor shall make the same available to NRG Energy for inspection at such Pledgor's chief executive office, at such Pledgor's own cost and expense, at any and all times upon demand. Such Pledgor shall furnish to NRG Energy from time to time statements and 14 schedules further identifying and describing the Pledged Collateral and such other reports in connection with the Pledged Collateral as NRG Energy may reasonably request, all in reasonable detail. Section 4.11 Improper Distributions. Notwithstanding any other provision contained in this Agreement, such Pledgor shall not accept any distributions, dividends or other payments (or any collateral in lieu thereof) in respect of the Pledged Collateral, except to the extent the same are expressly permitted by the terms of this Agreement and the NRG Loan Agreement. Section 4.12 Bankruptcy. Such Pledgor shall not authorize or permit the Company to make a general assignment for the benefit of the Company's creditors. Such Pledgor shall not commence or join with any other Person (other than the Collateral Agent) in commencing any proceeding against the Company under any bankruptcy, reorganization, liquidation or insolvency law or statute now or hereafter in effect in any jurisdiction. ARTICLE 5 EXERCISE OF REMEDIES UPON AN EVENT OF DEFAULT Section 5.1 Remedies Generally. If an Event of Default shall have occurred and be continuing, NRG Energy may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Uniform Commercial Code in effect from time to time in any relevant jurisdiction and all other rights and remedies available at Law or in equity. Section 5.2 Sale of Pledged Collateral. (a) Without limiting the generality of Section 5.1, NRG Energy may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale or at any of NRG Energy's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as NRG Energy may reasonably deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral at any such sale. Each purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of the Pledgors, and the Pledgors hereby waive (to the extent permitted by Law) all rights of redemption, stay and/or appraisal which they now have or may at any time in the future have under any rule of Law or statute now existing or hereafter enacted. The Pledgors agree that, to the extent notice of sale shall be required by Law, ten (10) days' or more notice to the Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be 15 obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent 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. Assuming that such sales are made in compliance with federal and state securities Laws, NRG Energy shall incur no liability as a result of the sale of the Pledged Collateral, or any part thereof, at any public or private sale. The Pledgors hereby waive any claims against NRG Energy arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale, if commercially reasonable, was less than the price which might have been obtained at a public sale, even if NRG Energy accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) The Pledgors recognize that NRG Energy may elect to sell all or a part of the Pledged Collateral to one or more purchasers in privately negotiated transactions in which the purchasers will be obligated to agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgors acknowledge that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act")), and the Pledgors and NRG Energy agree that such private sales shall be made in a commercially reasonable manner and that NRG Energy has no obligation to engage in public sales and no obligation to delay sale of any Pledged Collateral to permit the issuer thereof to register the Pledged Collateral for a form of public sale requiring registration under the Securities Act. Section 5.3 Purchase of Pledged Collateral. NRG Energy may be a purchaser of the Pledged Collateral or any part thereof or any right or interest therein at any sale thereof, whether pursuant to foreclosure, power of sale or otherwise hereunder and NRG Energy may apply the purchase price to the payment of the Secured Obligations. Any purchaser of all or any part of the Pledged Collateral shall, upon any such purchase, acquire good title to the Pledged Collateral so purchased, free of the security interests created by this Agreement. Section 5.4 Application of Proceeds. NRG Energy shall apply any proceeds from time to time held by it and the net proceeds of any collection, recovery, receipt, appropriation, realization or sale with respect to the Pledged Collateral in accordance with the relevant provisions of the Credit Agreement. For avoidance of doubt, it is understood that the NRGG shall remain liable to the extent of any deficiency between the amount of proceeds of the Pledged Collateral and the aggregated amount of the Secured Obligations. 16 Section 5.5 Expenses. The Pledgors shall upon demand pay to NRG Energy the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, and any transfer taxes, in each case payable upon sale of the Pledged Collateral, which NRG Energy may incur in connection with (a) the custody or preservation of, or the sale of, collection from or other realization upon, any of the Pledged Collateral pursuant to the exercise or enforcement of any of the rights of NRG Energy hereunder or (b) the failure by the Pledgors to perform or observe any of the provisions hereof, together with interest thereon from the date of demand at the rate per annum equal to the Base Rate plus the Applicable Margin plus two percent (2%). Any amount payable by the Pledgors pursuant to this Section 5.5 shall be payable on demand and shall constitute Secured Obligations secured hereby. ARTICLE 6 MISCELLANEOUS PROVISIONS Section 6.1 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and shall be deemed to have been duly given or made when delivered by hand, or upon actual receipt if deposited in the United States mail, postage prepaid, or, in the case of telecopy notice, when confirmation is received, or, in the case of a nationally recognized overnight courier service, one Business Day after delivery to such courier service, addressed, in the case of each party hereto, at its address specified below its signature hereto or to such other address as may be designated by any party in a written notice to the other parties hereto; provided that notices and communications to NRG Energy shall not be effective until received by NRG Energy. Section 6.2 Continuing Security Interest. This Agreement shall create a continuing security interest in the Pledged Collateral until the release thereof pursuant to Section 6.3. Section 6.3 Release. Upon (a) termination of the Equity Commitment Guaranty and (b) the indefeasible payment in full of the Secured Obligations in cash or cash equivalents and termination of NRG Energy's commitments under the NRG Loan Agreement, NRG Energy's security interest hereunder shall be deemed automatically to be and to have been extinguished and NRG Energy, upon the request of the Pledgors, shall execute and deliver all such documentation necessary to release, and to evidence the release of, the security interest created pursuant to this Agreement. Section 6.4 Reinstatement. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by NRG Energy hereunder or pursuant hereto is rescinded or must otherwise be restored or returned by NRG 17 Energy, upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either of the Pledgors or upon the appointment of any intervenor or conservator of, or trustee or similar official for, either of the Pledgors or any substantial part of either of the Pledgors' assets, or upon the entry of an order by any court avoiding the payment of such amount, or otherwise, all as though such payments had not been made. Section 6.5 Independent Security. The security provided for in this Agreement shall be in addition to and shall be independent of every other security which NRG Energy may at any time hold for any of the Secured Obligations hereby secured. The execution of any other security agreement or other document by a Pledgor or any other party shall not modify or supersede the security interest or any rights or obligations contained in this Agreement and shall not in any way affect, impair or invalidate the effectiveness and validity of this Agreement or any term or condition hereof. The Pledgors hereby waive their rights to plead or claim in any court that the execution of any other security agreement or other document is a cause for extinguishing, invalidating, impairing or modifying the effectiveness and validity of this Agreement or any term or condition contained herein. NRG Energy shall be at liberty to accept further security from the Pledgors or from any third party and/or release such security without notifying the Pledgors and without affecting in any way the obligations of the Pledgors hereunder, under the other Credit Documents, under the Equity Commitment Agreement or under the NRGG Equity Guaranty. NRG Energy shall determine, in its sole discretion, if any security conferred upon NRG Energy hereunder or otherwise shall be enforced by NRG Energy, as well as the sequence of security interests to be so enforced. Section 6.6 Amendments. No waiver, amendment, modification or termination of any provision of this Agreement, or consent to any departure by the Pledgors therefrom, shall in any event be effective without the prior written consent of NRG Energy and none of the Pledged Collateral shall be released without the written consent of NRG Energy, except as provided in Section 6.3. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 6.7 Successors and Assigns. This Agreement shall be binding upon the Pledgors and their respective successors and assigns and shall inure to the benefit of NRG Energy and its successors and assigns. Subject to Section 4.1 hereof, the Pledgors may not assign or otherwise transfer any of their respective rights or obligations under this Agreement without the written consent of NRG Energy. Section 6.8 Survival. All agreements, statements, representations and warranties made by the Pledgors herein or in any certificate or other instrument delivered by the Pledgors or on their behalf under this Agreement shall be considered to have been relied upon by NRG Energy and shall survive the execution and delivery of this Agreement and the other Credit Documents until termination thereof or the indefeasible payment in full 18 in cash or cash equivalents of all of the Secured Obligations regardless of any investigation made by NRG Energy or made on its behalf. Section 6.9 No Waiver; Remedies Cumulative. No failure or delay on the part of NRG Energy in exercising any right, power or privilege hereunder and no course of dealing between the Pledgors and NRG Energy shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which NRG Energy would otherwise have. Section 6.10 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 6.11 Headings Descriptive. The headings of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 6.12 Severability. In case any provision contained in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 6.13 Governing Law; Submission to Jurisdiction and Venue; Waiver of Jury Trial. (a) This Agreement is a contract made under the Laws of the State of Minnesota of the United States and shall for all purposes be governed by and construed in accordance with the laws of such State without regard to the conflict of law rules thereof. (b) 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, any of the other Credit Documents, the Equity Commitment Agreement and the NRGG Equity Guaranty, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of 19 Minnesota, the courts of the United States of America for Minnesota 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 below its signature hereto; (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. (c) The Pledgors hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement, any other Credit Document, the Equity Commitment Agreement and the NRGG Equity Guaranty brought in the courts referred to in clause (b) above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (d) WITH REGARD TO THIS AGREEMENT, THE PLEDGORS AND NRG ENERGY HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. Section 6.14 Entire Agreement. This Agreement, together with any other agreement executed in connection herewith, is intended by the parties as a final expression of their agreement as to the matters covered hereby and is intended as a complete and exclusive statement of the terms and conditions thereof. Section 6.15 Indemnity. (a) Each Pledgor agrees to indemnify, reimburse and hold NRG Energy and its officers, directors, employees, and agents (each individually, an "Indemnitee," and collectively, "Indemnitees") harmless from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs and expenses (including reasonable attorneys' fees and disbursements) (such expenses, for purposes of this Section 6.15, hereinafter "Expenses") of whatsoever 20 kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to this Agreement or the Pledged Collateral and arising out of (i) this Agreement or the documents executed in connection herewith or in any other way connected with the administration of the transactions contemplated hereby, or the enforcement of any of the terms hereof, or the preservation of any rights hereunder, (ii) the ownership, purchase, delivery, control, acceptance, financing, possession, condition, sale, return or other disposition, or use of, the Pledged Collateral (including, without limitation, latent or other defects, whether or not discoverable), (iii) the violation of any laws, (iv) any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person including any Indemnitee) or property damage, or (v) any contract claim, excluding in all cases those Expenses, claims and liabilities finally judicially determined to have arisen solely from the gross negligence or willful misconduct of any Indemnitee. Each Indemnitee agrees to use its best efforts to promptly notify such Pledgor of any assertion of any such liability, damage, injury, penalty, claim, demand, action, judgment or suit of which such Indemnitee has knowledge. In case any action, suit or proceeding shall be brought against any Indemnitee for which the Indemnitee is indemnified under this clause (a), such Indemnitee shall notify the relevant Pledgor of the commencement thereof, and such Pledgor shall be entitled, at its expense, acting through counsel reasonably acceptable to such Indemnitee, to participate in, and, to the extent that such Pledgor desires to, assume and control the defense thereof; provided, however, that such Pledgor shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding; and provided, further, that such Pledgor shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) (i) such action, suit or proceeding involves any risk of imposition of criminal liability or (ii) such action, suit or proceeding involves any material risk of material civil liability on such Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on, the Pledged Collateral or any part thereof, unless, in the case of this clause (x) (ii), such Pledgor shall have posted a bond or other security agreement or satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve a bona fide conflict of interest, (B) such proceeding involves Expenses not fully indemnified by such Pledgor which such Pledgor and the Indemnitee have been unable to sever from the indemnified Expense(s), (C) a Default or an Event of Default has occurred and is continuing or (D) such action, suit or proceeding involves matters which extend beyond or are unrelated to the transactions contemplated hereunder and if determined adversely could be materially detrimental to the interests of such Indemnitee notwithstanding indemnification by such Pledgor. The Indemnitee, on the one hand, and such Pledgor, on the other hand, may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the other in accordance with the foregoing. Each Indemnitee shall at such Pledgor's expense supply such Pledgor with such information and documents reasonably requested by such Pledgor as are necessary or advisable for such Pledgor to participate in any action, suit or 21 proceeding to the extent permitted by this Section 6.15(a). Unless an Event of Default shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Expense which is entitled to be indemnified under this Section 6.15(a) without the prior written consent of the relevant Pledgor, which consent shall not be unreasonably withheld or delayed, unless such Indemnitee waives its right to be indemnified under this Section 6.15(a) with respect to such Expense. In addition, if an Indemnitee, in violation of either Pledgor's right to assume and control the defense of any Expense, refuses to permit such Pledgor to control the defense after written demand by such Pledgor for such control, such Indemnitee waives its right to be indemnified under this Section 6.15(a) with respect to such Expense. Upon payment in full of any Expense by either Pledgor pursuant to this Section 6.15(a) to or on behalf of an Indemnitee, such Pledgor without any further action shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with such Pledgor and give such further assurances as are necessary or advisable to enable such Pledgor vigorously to pursue such claims. The obligations and rights of each Pledgor under this Section 6.15 shall survive the repayment of all Secured Obligations and the termination of this Agreement. (b) Without limiting the application of Section 6.15(a) immediately above, each Pledgor agrees to pay, or reimburse NRG Energy, any and all fees, costs and Expenses of whatever kind or nature incurred in connection with the creation, preservation, protection or validation of NRG Energy's Liens on, and security interest in, the Pledged Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Lien upon or in respect of the Pledged Collateral, premiums for insurance with respect to the Pledged Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Pledged Collateral and NRG Energy's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Pledged Collateral. (c) Without limiting the application of Section 6.15(a), each Pledgor agrees to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and Expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any failure of such Pledgor to comply with its obligations under this Agreement, or any misrepresentation by such Pledgor in this Agreement, or in any statement or writing contemplated by or made or delivered pursuant to or in connection with this Agreement. 22 (d) If and to the extent that the obligations of the Pledgors under this Section 6.15 are unenforceable for any reason, each Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable Law. (e) Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement, together with interest on such amounts from the date paid until reimbursement in full at a rate per annum equal at all times to the Base Rate plus two percent (2%), shall constitute Secured Obligations secured by the Pledged Collateral. Section 6.16 Independent Obligations. Each Pledgor's obligations under this Agreement are independent of those of the other Pledgor. NRG Energy may bring a separate action against either Pledgor without first proceeding against the other Pledgor, the Company or any other Person or any other security held by NRG Energy and without pursuing any other remedy. Section 6.17 Waiver of Defenses. The Pledgors hereby waive: (a) any defense of a statute of limitations; (b) any defense based on the legal disability of the other Pledgor or the Company or any discharge or limitation of the liability of the other Pledgor or the Company to NRG Energy, whether consensual or arising by operation of law; (c) presentment, demand, protest and notice of any kind; and (d) any defense based upon or arising out of any defense (other than the indefeasible payment in full in cash or cash equivalents of the Secured Obligations) which NRGG Funding or NRGG may have to the payment or performance of any part of the Secured Obligations. Section 6.18 Subrogation, Etc. Notwithstanding any payment or payments made by the Pledgors or the exercise by NRG Energy of any of the remedies provided under this Agreement or any other Financing Document, until the Secured Obligations have been indefeasibly paid in full in cash or cash equivalents, neither Pledgor shall have any claim (as defined in 11 U.S.C. ? 101(5)) of subrogation to any of the rights of NRG Energy against the Company or the other Pledgor, the Pledged Collateral or any guaranty held by for the satisfaction of any of the Secured Obligations, nor shall either Pledgor have any claims (as defined in 11 U.S.C. ? 101(5)) for reimbursement, indemnity, exoneration or contribution from the Company or the other Pledgor in respect of payments made by the Pledgors hereunder. Notwithstanding the foregoing, if any amount shall be paid to the Pledgors on account of such subrogation, reimbursement, indemnity, exoneration or contribution rights at any time, such amount shall be held by the Pledgors in trust for NRG Energy segregated from other funds of the Pledgors, and shall be turned over to NRG Energy in the exact form received by the Pledgors (duly endorsed by the Pledgors to NRG Energy if required) to be applied against the Secured Obligations in such amounts and in such order as NRG Energy may elect. 23 Section 6.19 Joint and Several Liability. Prior to the effective date of this Agreement, the obligations of the Pledgors hereunder shall be several and not joint. On and after the effective date of this Agreement, the obligations of the Pledgors under this Agreement shall be joint and several. Section 6.20 Subordination. Notwithstanding anything contained herein to the contrary, all of the Pledgors' obligations hereunder, and all of NRG Energy's rights hereunder, are subject to the terms of that certain Subordination Agreement dated as of December 10, 1997 between NRG Energy and the Collateral Agent. 24 IN WITNESS WHEREOF, the parties hereto have caused this Subordinated Pledge and Security Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. NRGG FUNDING, INC. By: /s/ Timothy P. Hunstad Name: Timothy P. Hunstad Title: VP-CFO Address for Notices: 1221 Nicollet Mall Suite 610 Minneapolis, MN 55403 NRG MORRIS INC. By: /s/ Craig Mataczynski Name: Craig Mataczynski Title: President Address for Notices: 1221 Nicollet Mall, Suite 610 Minneapolis, MN 55403 NRG ENERGY, INC. By: /s/ David H. Peterson Name: David H. Peterson Title: President & CEO Address for Notices: 1221 Nicollet Mall, Suite 700 Minneapolis, MN 55403 25 EX-10.27.14 31 EXHIBIT 10.27.14 OPERATION AND MAINTENANCE AGREEMENT DATED SEPTEMBER 19, 1997 BETWEEN COGEN, LLC AND NRG MORRIS OPERATIONS INC. Exhibit 10.27.14 OPERATION AND MAINTENANCE AGREEMENT This Operation and Maintenance Agreement (hereinafter this "Agreement") is entered into this 19th day of September, 1997, by and between NRG (Morris) Cogen, LLC, a Delaware limited liability company with its principal offices located at 1221 Nicollet Mall, Minneapolis, Minnesota (hereinafter "Owner"), and NRG Morris Operations Inc., a Delaware corporation with its principal offices located at 1221 Nicollet Mall, Minneapolis, Minnesota (hereinafter "Operator"). Owner and Operator are sometimes collectively referred to as the "Parties," and individually as a "Party." R E C I T A L S Whereas, Owner is in the process of developing a nominal 117 megawatt gas fired cogeneration project at the Morris, Illinois, chemical facility owned by Millennium Petrochemicals Inc. (hereinafter "Millennium"); and Whereas, Owner desires to contract to Operator the operation and maintenance of the cogeneration facility and certain related steam production and water treatment equipment leased by Millennium to Owner; and Whereas, Operator possesses the required skills, personnel, and technical experience to operate and maintain the cogeneration project and associated leased equipment; and Whereas, certain of Operator's obligations hereunder will be backed by a limited guarantee furnished by NRG Energy, Inc., an affiliate of Operator; and Whereas, the Parties desire to reduce their agreement to writing; Now, therefore, in consideration of the mutual covenants set out herein, the sufficiency of which is acknowledged by both Parties, the Parties hereby agree as follows: I. DEFINITIONS "Acceptance Date" shall have the meaning applied to such term in the EPC Contract and RO Contract, provided that each Punch List item shall have been completed. "Acceptance Schedule" means the schedule indicating any defects in the Project and setting out the achieved levels of performance under the applicable performance tests set out in the EPC Contract and the RO Contract. "Affiliate" means, with reference to a specified Person, any other Person or entity, which, directly or indirectly through one or more intermediaries, 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. "Agent" means the agent for the Lender(s) under the Financing Agreements. "Annual Operator's Fee" has the meaning set forth in Section 7.2 hereof. "Annual Operating Plan and Budget" means a plan and budget substantially in the form of the initial Annual Operating Plan and Budget attached hereto as Exhibit A-1 and setting out, among other things, the projected Steam and electric requirements of Millennium for the applicable year, and the operations and maintenance plan (including scheduled maintenance periods and operating procedures) and the budget necessary to provide such requirements. "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 and/or the Leased Equipment. "Boilers 1-3" means Millennium's Boilers 1 through 3 as defined in Exhibit A to the Equipment Lease. "Boilers 5 and 6" means Millennium's Boilers 5 and 6 as defined in Exhibit A to the Equipment Lease. "Btu" means one British thermal unit. "Business Day" means any day other than a Saturday or Sunday or a legal holiday observed in the states of Illinois or Minnesota. "Change" means any of the following: (a) a change in the then current Annual Operating Plan and Budget; (b) a change in connection with the services to be provided by Operator hereunder; (c) 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 (d) a change enabling Operator to accomplish or contract for a Major Project Repair. "Change in Law" means (a) any modification, amendment, or other change in the laws affecting the operation or maintenance of the Project and/or the Leased Equipment which becomes effective after the execution date of this Agreement and includes any material change in interpretation of existing laws, or any modifications of enforcement policies with respect to such existing laws; and (b) the imposition by a Governmental Authority of any material conditions after the execution date of this Agreement in connection with any Approval and Permit which, as reasonably determined by Owner, establishes requirements materially more burdensome or stringent than (i) those in effect prior to the execution date of this Agreement, or (ii) the requirements set out in any approval or permit previously obtained by Owner for the design, construction, operation or maintenance of the Project. "Change in Project Agreements" means any amendment after the execution date of this Agreement to the Project Agreements which establishes requirements affecting the operation and/or maintenance of the Project and/or Leased Equipment materially more burdensome to the Operator than the requirements contained in the Project Agreements as of the execution date. "Change Order" means the written approval of a proposed Change and the related Change Order Budget Statement by Operator and Owner as further provided for in Section 6.3. "Change Order Budget Statement" means the statement prepared by Operator 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 Project; and (v) any other material effect on the operation, maintenance, efficiency or profitability of the Project or the provision of the services hereunder. 3 "ComEd" means the interconnecting utility, formerly known as Commonwealth Edison Company. "Commercial Operation" means the ability of the Project to deliver the Reserved Quantities of Steam and electricity meeting the requirements of the ESA to Millennium on a continuing basis. "Commercial Operation Date" means the date on which Owner shall have achieved Commercial Operation of the Project, based on a written notice from Owner to Millennium. "Construction Contractors" means Kiewit Industrial Company, the contractor for the RO System, any successor to any such person, or any other contractor selected by Owner. "Effective Date" means the date first set forth above. "Electric Capacity" means a nominal generating capacity of the Project equal to approximately 117 megawatts. "Emergency" means 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, lawful or environmentally sound operation of the Project. "Environmental Laws" means all applicable codes, laws, rules, and regulations issued by any Governmental Authority relating to actual or potential affects on the environment. "EPC Contract" means the EPC Contract entered into between Owner and Kiewit Industrial Company dated July 7, 1997, for the engineering, procurement, and construction of the Project. "E/P Mix Gas" means the mixture of ethane and propane gas meeting the specifications set out in Exhibit C-2 of the ESA provided by Millennium for use in Boilers 5 and 6 at such times as natural gas or Methane Off Gas is unavailable in sufficient quantities to meet the fuel requirements of such boilers. 4 "Equipment Lease" means the lease entered into by Owner and Millennium dated June 3, 1997, and any amendments thereto, with respect to Millennium's Boilers 1-3, Boilers 5 and 6, Millennium's water treatment equipment, boiler feedwater system and certain other property described in Exhibit A to such lease. "ESA" means the Energy Services Agreement entered into by Owner and Millennium dated June 3, 1997, together with the attached Schedules and Exhibits, as the same may be amended from time-to-time. "Event of Default" means each of the events set forth in Sections 12.1 and 12.2. "Excess Sales" means sales of electricity by the Project in excess of the amounts required by Millennium. "Excused Event(s)" shall mean Force Majeure events, the failure of Owner and/or Millennium to furnish sufficient fuel, makeup water, waste disposal services, and other services required to be provided to Operator hereunder, events arising out of latent defects, or the failure to perform maintenance recommended by Operator but excluded from any Major Maintenance Budget or any Annual Operating Plan and Budget by Owner, or any event occurring prior to the Acceptance Date. "Excused Standby Power Costs" means Standby Power Costs incurred as a result of an Excused Event. "Expenses" has the meaning set forth in Section 6.2 "Financing Agreements" means any loan, lease financing, security or related agreements entered into at any time by and among Owner and the lending institutions providing financing for the Project. "Firm Gas" means Natural Gas purchased by Owner on behalf of the Project (with the consent of Millennium) under contracts where the supply and delivery of Natural Gas is on an uninterruptible basis. 5 "Firm Gas Supply Agreement" means any agreement or agreements between Owner and third party suppliers under which Firm Gas meeting the Project's requirement is supplied to the Project. "Firm Gas Transportation Agreement" means any agreement or agreement between Owner and a third party transporter under which Firm Gas is transported to the Project Site. "Force Majeure" means any act, event or condition that effectively prevents either Party to this Agreement from performing its obligations under this Agreement, if such act, event, or condition and its effects could not be prevented by the exercise of due diligence, and are beyond the reasonable control of the Party relying thereon (or any third party for whom the Party relying thereon is directly responsible), including, but not limited to, the following: (a) any act of God; (b) any of the following, whether or not an act of God: landslide, lightning, fire, earthquake, explosion, hurricane, tornado, drought, flood (but not including customary weather conditions for the geographic area of the Project which should have been reasonably anticipated) and perils of the sea and air; (c) extortion, sabotage, theft or similar occurrence, acts of a public enemy, war (whether declared or undeclared) or governmental intervention resulting therefrom, blockade, embargo, insurrection, riot, or civil disturbance; (d) strikes or labor disputes (but solely to the extent such strikes or disputes are of a general nature, and not limited to the Project or Project Site); (e) after the date hereof, any order and/or judgment of any federal, state, or local court, administrative agency or governmental body, if such order and/or judgment is not the result of actions of Owner or Operator; (f) after the date hereof, any delay in, or the failure by a regulatory agency to issue or renew, or the suspension, termination, interruption or denial of, any permit, license, consent, authorization or approval essential to the operation and maintenance of the Project, where such action is not due to the fault or negligence of the Party claiming Force Majeure. "Governmental Authority" means any federal, state, or local agency or any court having jurisdiction over any aspect of the Project or the Leased Equipment. 6 "Guaranteed Heat Rate" means the heat rate curve provided to the Owner by Kiewit Industrial Company not later than the date which is twelve months after the date hereof and approved by Operator and Owner, plus or minus a band of one percent (1%). "Guarantor" means NRG Energy, Inc., and any successor thereto. "Hazardous Substance or Substances" shall mean hazardous waste as defined in the Resource Conservation Recovery Act of 1976, or Hazardous Substances as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as each may be amended from time-to-time. "HRSG" means heat recovery steam generator. "Inflation Escalation Index" means the U.S. Producer Price Index for Finished Goods, published by the U.S. Department of Labor, Bureau of Labor Statistics, or any successor thereto. "Interconnection Facilities" means the equipment and related devices required to interconnect the Project outputs and inputs to the Morris Plant including interconnections for electricity, steam, fuel, raw water, fire water, feed water, wastewater discharges, and condensate return, and to interconnect Project electrical output and standby power access to ComEd, all as further described in Exhibit D to the ESA. "Leased Equipment" means all that steam production and water treatment equipment leased to Owner by Millennium, more particularly described in Exhibit A to the Equipment Lease. "Leased Equipment Mobilization Date" means the date on which Operator shall commence its mobilization responsibilities relating to the Leased Equipment as set out herein. Owner shall notify Operator of the Leased Equipment Mobilization Date, which shall occur at least four (4) months prior to the Leased Equipment Operations Date and at least six (6) months prior to the Project Operations Date. "Leased Equipment Operations Date" means the date on which the Owner turns over care, custody and control of the Leased Equipment to Operator, pursuant to a written notice of such event from Owner to Operator. 7 "Legal and Contractual Requirements" shall mean all (a) laws, permits, approvals, regulations or orders of any Governmental Authority applicable to the ESA, the Project, the Leased Equipment, Owner's obligations under this Agreement as Owner of the Project and Operator's scope of work hereunder; (b) the Project Agreements; (c) the Consent and Agreement between Operator and the Agent, (d) agreements, warranties and specifications of Operator's or Owner's suppliers or vendors; and (e) operating and maintenance manuals and procedures furnished by Owner applicable to the Project or the components thereof (such operating manuals to reflect Prudent Engineering and Operating Practices). "Lenders" means the financing institution(s) providing construction and/or term financing for the Project. "Major Electric Loads" means electric loads greater than three (3) megawatts. "Major Maintenance Budget" means a five year budget for the major maintenance requirements of the Project. "Major Maintenance Contractor" means the party with which Owner has entered into a long term service agreement to provide for major maintenance of the combustion turbines. "Major Subcontractors" means those subcontractors who provide services to Operator in connection with the fulfillment of its responsibilities hereunder with a total value in excess of two hundred fifty thousand dollars ($250,000) over the term of the subcontract. Major Subcontractors specifically do not include equipment suppliers. "Maximum Liquidated Damages" means with respect to (i) the liquidated damages payable by Operator as a result of excess Operator Standby Power Costs pursuant to Section 8.1, an amount equal to eighty percent (80%) of the Annual Operator's Fee set out in Section 7.2 and (ii) with respect to liquidated damages payable for failure to meet the Heat Rate Guarantee set out in Section 8.2, an amount equal to twenty percent (20%) of the Annual Operator's Fee. "Methane Off Gas" means the commercial gas provided by Millennium to the Project meeting the specifications set out in Exhibit C-1 of the ESA. "Millennium" means Millennium Petrochemicals Inc., the owner of the Morris Plant. 8 "Minor Leased Equipment Repairs" means all maintenance and repairs of the Leased Equipment up to an aggregate of $120,000 in any Agreement Year, adjusted at the beginning of the second Agreement Year and each Agreement Year thereafter by the change in the Inflation Escalation Index. "Mobilization Period" means the period commencing on the earlier of the Leased Equipment Mobilization Date or the Project Mobilization Date and extending through the Project Operations Date. "Monomer Start Up Steam" has the meaning set out in Section 5.5 of the ESA. "Morris Plant" means the Millennium chemical plant located in Grundy County, Illinois. "Morris Plant Site" means the site occupied by the Morris Plant on property owned by Millennium. "Natural Gas" means pipeline quality gas with a minimum Btu content of 1000 Btu's per standard cubic foot. "NIGAS Agreement" means the gas distribution agreement between Owner and Northern Illinois Gas Company covering the transmission of gas to the Project Site. "NRG Guaranty" means the guaranty of certain of the obligations of Operator by NRG Energy, Inc., substantially in the form of Exhibit B. "Operating Year" means the period commencing each January 1 and ending on the subsequent December 31; provided that the first Operating Year shall commence on the Project Operations Date and, if applicable, shall end on the last day of the extension period provided for in Section 6.2.1, and the last Operating Year during the term shall end on the last day of the term. "Operator Standby Power Costs" means (a) Standby Power Costs incurred other than as a result of Excused Events and (b) Standby Power Costs which would have been incurred but for the prior incurrence of Excused Standby Power Costs. "Person" means any corporation, trust, partnership, limited liability company or other entity or natural person. 9 "Process Safety Management Standards" means those safety standards set out in 29 C.F.R. 1910.119 dealing with chemical process safety standards. "Producer Price Index" means the U. S. Producer Price Index for All Items, as currently published in the United States Department of Labor, Bureau of Labor Statistics monthly publication, PPI Detailed Report, or any successor publication of such information. If such Index is no longer published or the method of computation thereof is substantially modified, "Producer Price Index" shall mean a mutually agreeable alternative index. "Project" means the electrical and steam generating facility of Owner capable of producing the Project Capacity (and such additional equipment as may be added by Owner on the Project Site pursuant to the provisions of Section 6.3 of the ESA), located principally on the Project Site at the Morris Plant, including the Interconnection Facilities, the RO System, the Step Up Substation Equipment and the Step Down Substation Equipment, all as more fully described in Section 2.1 of the ESA. "Project Agreements" shall mean the ESA, the Ground Lease, the Equipment Lease, the EPC Contract, the RO Contract, the Firm Gas Supply Agreement, the Firm Gas Transportation Agreement, the NIGAS Agreement, and this Operation and Maintenance Agreement, as each of the foregoing may be amended or supplemented from time-to- time; provided, that if any such amendment or supplement could reasonably be expected to affect Operator's performance of its obligations hereunder, such amendment or supplement shall not be effective with respect to Operator without Operator's consent thereto. "Project Capacity" means the "Electric Capacity" and the "Steam Capacity." "Project Mobilization Date" means the date on which Operator shall commence its mobilization responsibilities relating to the Project as set out herein. Owner shall notify Operator of the Project Mobilization Date, which shall in no event be later than six (6) months prior to the Project Operations Date. "Project Operations Date" means the date immediately following the Provisional Acceptance Date on which Operator assumes care, custody and control of the Project, or if Provisional Acceptance is not achieved, the date the Owner turns over care, custody and control of the Project to Operator, pursuant to a written notice of such event from Owner to Operator. 10 "Project Site" means the plot of land owned by Millennium and leased to Owner pursuant to the Ground Lease on which most of the Project is located, approximately 3.6 acres in area, and located on a portion of the Morris Plant Site, as such plot is more fully described in Exhibit A to the ESA. "Provisional Acceptance" shall have the meaning which applies to such term in the EPC Contract and RO Contract. "Prudent Utility Practices" mean those procedures, methods, techniques, and acts which are in accordance with prudent professional standards adopted by the independent power generation industry of the United States for the operation and maintenance of similar power generation facilities. Prudent Utility Practices are intended to result in the safe, reliable, lawful, economic and prudent operation and maintenance of the Project and the Leased Equipment, in a manner consistent with long-term, reliable operation of all Project equipment and the Leased Equipment. Operating procedures and maintenance and preventative maintenance programs will be consistent with this objective. Prudent Utility Practices are not intended to be limited to optimum practices or methods to the exclusion of all others, but rather to be a spectrum of reasonable and prudent practices and methods that must take into consideration the conditions specific to any given facility. "PURPA" has the meaning set out in Section 2.7 of the ESA. "Rate 18" means that certain Rate 18 Standby Service tariff filed by ComEd with the Illinois Commerce Commission on January 10, 1995 and issued pursuant to Order of the Illinois Commerce Commission entered January 9, 1995, in Docket No. 94-0065. "Reserved Quantities" means the full electric output of two of the three combustion turbines installed by Owner and the full steam output of the two associated HRSG's installed by Owner. The nominal electric output of two of the three combustion turbines is 78 MW (based on an average of 68 MW during the summer and 82 MW during the winter), and the maximum steam output of the two HRSG's is 720,000 pounds of steam per hour. "RO Contract" means the Engineering, Procurement and Construction Agreement for the engineering, procurement and construction of the RO System. 11 "RO System" means the reverse osmosis water treatment facility of Owner capable of producing 750 gpm, located on the Morris Plant Site, all as more fully described in Section 2.1 of the ESA. "Standby Power Costs" shall mean the cost of standby power paid by Owner to ComEd pursuant to Rate 18 (or other source of standby electricity) to provide a supply of backup power to Millennium, or the amount paid by Owner to Millennium to reimburse it for all standby costs paid by Millennium to ComEd pursuant to Rate 18 (or other source of standby electricity). "Steam" means steam meeting the requirements set out in Exhibit C-3 of the ESA. "Steam Capacity" means the ability of the Project to produce a nominal 1,080,000 pounds per hour of 600 psig Steam. "Step Down Substation Equipment" means the four Step Down Transformers designed to serve the loads of the existing monomer and polymer substations, plus future monomer substation expansion and the associated protective relays and switch gear, as more fully described in Schedule 1 of the ESA. "Step Up Substation Equipment" means the two Step Up Transformers, each sized to handle the output of two combustion turbine generators and the associated protective relays and switch gear, as more fully described in Schedule 1 of the ESA. "Suspension Events" shall have the meaning provided in Section 12.6.1. II. ENGAGEMENT OF OPERATOR 2.1 Engagement. Commencing with the Effective Date, Owner hereby engages Operator to operate and maintain the Project and the Leased Equipment and perform certain duties, all as hereinafter set forth in this Agreement, and Operator accepts such engagement to operate and maintain the Project and Leased Equipment and perform the duties specified in this Agreement in accordance with its terms and conditions. 2.2 Employment of Personnel. All operating and management personnel involved in the performance of Operator's duties hereunder shall be employees of Operator or its Affiliates and shall not, for any purpose, be deemed employees of Owner. 12 III. TERM The initial term of this Agreement shall extend for a period of fifteen (15) years from the Project Operations Date, unless terminated earlier in accordance with Section 12.4 of this Agreement. Thereafter, the term of this Agreement shall be automatically extended for two (2) additional terms of five (5) years each, on the same terms and conditions; provided, that this Agreement may be terminated by Operator for its convenience at the end of the original fifteen (15) year term or the first five (5) year extension period, in either case upon written notice by Operator to Owner no later than six (6) months prior to the end of either such period; provided further, that if Millennium shall exercise its purchase option as set forth in Section 4.1 of the ESA, Millennium shall, at the time that it takes possession of the Project, have the right, subject to Section 7.4, to terminate this Agreement. IV. SCOPE OF SERVICES TO BE PROVIDED BY OPERATOR 4.1 Mobilization Period. During the Mobilization Period (and with respect to those matters set forth in Exhibit C hereto, by no later than the respective dates set forth in such Exhibit C with respect to such matters), Operator shall, subject to Owner's review, take all actions necessary or desirable to prepare the Project for operation on the Project Operations Date and to prepare the Leased Equipment for operation on the Leased Equipment Operations Date, including, but not limited to, the following services: 4.1.1 Staffing. Operator shall develop a plan and schedule to staff the operation and maintenance of the Project and the Leased Equipment and submit such plan for Owner's approval. Upon approval, Operator shall recruit, hire, and train the permanent staff and specialists required for operation and maintenance of the Project and the Leased Equipment in accordance with the terms of this Agreement. All full-time personnel provided by Operator for the operation and maintenance of the Project and the Leased Equipment shall be fully qualified and available to perform services to support Project operation and maintenance as required by the staffing plan to be developed by Operator and approved by Owner. 4.1.2 Safety Plan. Operator shall develop a safety plan governing the operation and maintenance of the Project and the Leased Equipment which shall comply with the published safety policies of Millennium with respect to any operation and maintenance work performed on the Morris Plant Site. In addition, the plan shall comply with Millennium's work permitting, 13 emergency response procedures, lock-out/tag-out procedures and applicable OSHA requirements (including 29 CFR 1910.119 dealing with the Process Safety Management Standards (including a process hazard review)); provided, that the fees and expenses of any third party consultants retained by Operator in connection with the preparation of such plans shall be for the account of Owner. The plan shall also set out Emergency response procedures, including responses to Emergencies caused by Hazardous Substances, and such procedures shall be consistent with Millennium's emergency response procedures. All Operator personnel, as well as the personnel of any subcontractors, shall undergo the Three Rivers Training Program. All personnel, contractors, guests and any other person who enters the Project will review Millennium's safety video. All such plans shall be submitted to Owner for approval. 4.1.3 Procedures for Handling of Hazardous Substances: Operator shall develop chemical handling and disposal procedures, including procedures for the handling of Hazardous Substances; provided, however, that Owner shall retain title to all Hazardous Substances used in connection with the services provided by Operator, and Operator shall act solely as a custodian for Owner with respect to such Hazardous Substances. All such procedures shall be submitted to Owner for approval. Operator further acknowledges that removal of Hazardous Substances may only be appropriate in certain circumstances, and Operator will ensure that its personnel do not disturb asbestos or other Hazardous Substances which are part of the Leased Equipment. 4.1.4 Administration; Reporting Procedures. Operator shall develop administrative procedures, incident reporting and management procedures, security procedures, performance monitoring and reporting procedures, planned maintenance schedules, environmental monitoring and reporting procedures, fire fighting procedures, inventory storage and monitoring procedures, all in compliance with the Project Agreements. All such procedures shall be submitted to Owner for approval. 4.1.5 Spare Parts List. Operator shall submit to Owner for its approval a proposed list of spare parts, a budget and a plan for acquiring the required initial spare parts for the Project (incorporating the list of initial spare parts provided by the Construction Contractors under the EPC Contract and the RO Contract), as well as a list of supplies, consumables, tools and other 14 items required for the operation and maintenance of the Project and the Leased Equipment. 4.1.6 Procurement of Spare Parts, Supplies, Etc. Operator shall procure on behalf of, and with the approval of Owner, the initial inventory of all spare parts (other than the initial spare parts provided by Construction Contractors under the EPC Contract and RO Contract), supplies, consumables, furniture, laboratory equipment, office equipment, vehicles, tools and other items set out in paragraph 4.1.5 above. Operator shall establish a computerized inventory of such items and provide a copy to Owner. 4.1.7 Personnel Training by Construction Contractors. Operator shall make its personnel available for training by the Construction Contractors as contemplated by the EPC Contract and RO Contract, and in accordance with Schedule K to the EPC Contract and the RO Contract. 4.1.8 Participation in Start-up and Related Activities. Operator shall participate in the start-up, performance testing, and commissioning of the Project under the direction of the Owner, and Owner shall coordinate such participation with the Construction Contractors. 4.1.9 Performance Test Monitoring. Operator shall assist Owner in the monitoring of the performance testing of the Project. At Owner's request, Operator shall obtain staff who are not the normal compliment of operators operating the equipment for the Construction Contractors. 4.1.10 Punch List. Operator shall assist Owner in the preparation of the punch list to be prepared under the EPC Contract and the RO Contract. 4.1.11 Review of Manuals, Drawings, Etc. Operator shall assist Owner in its review, comment and approval of operation and maintenance manuals, turnover packages, drawings, specifications, diagrams, the spare parts list, and other information with respect to the Project obtained by Owner from the Construction Contractors under the EPC Contract and the RO Contract and from Millennium with respect to the Leased Equipment. 4.1.12 Acceptance Schedule. Under the direction of Owner, Operator shall help prepare the Acceptance Schedule setting out any deficiencies in the work 15 performed by Construction Contractors, as well as any warranty claims under the EPC Contract and RO Contract. 4.1.13 Personnel Training by Millennium. Operator shall make its personnel available for training on the Leased Equipment to be conducted by personnel of Millennium, and shall train its personnel to identify and work around without disturbing asbestos and other Hazardous Substances which may be associated with such Leased Equipment. Such personnel shall be instructed not to disturb any such asbestos or other Hazardous Substances, and to report the presence of such materials (or in the case of asbestos, the disturbance thereof) to Owner as soon as possible. 4.1.14 Major Electric and Steam Loads Procedures. Operator shall establish procedures with Millennium for prior notice of engagement of Major Electric Loads or major changes in steam flow or condensate return within the Morris Plant. 4.1.15 Inspection of Leased Equipment. In conjunction with Owner, Operator shall conduct a complete inspection of the Leased Equipment to identify any safety hazards, environmental hazards, or operating problems in advance of assumption of care, custody and control of such Leased Equipment. Operator shall provide a report identifying such issues to Owner. To the extent that remediation of asbestos or other Hazardous Substances is required, Operator shall not undertake any such remediation itself, but rather shall report such remediation requirements to Owner. 4.1.16 Appointment of Plant Manager. Operator shall appoint a Plant Manager (subject to Owner's approval) who shall supervise the performance of Operator's employees at the Project Site and who shall have authority to bind Operator, except as such authority may be specifically limited in writing. The Plant Manager shall coordinate operation of the Project with Millennium, as directed by Owner. 4.1.17 Development of Final Initial Annual Operating Plan and Budget and Major Maintenance Plan. Attached hereto as Exhibit A-1 is the base case pro forma Annual Operating Plan and Budget for the twelve (12) month period commencing on the Project Operations Date. In conjunction with Owner and representatives of Millennium, Operator shall develop a final Annual Operating Plan and Budget for such twelve (12) month period setting out, 16 among other things, the projected Steam and electric requirements of Millennium Petrochemicals for such period. Such Annual Operating Plan and Budget shall also set out all scheduled maintenance periods and Project operating procedures. If Owner and Operator are unable to agree on such final initial Annual Operating Plan and Budget, Operator may use an Annual Operating Plan and Budget consistent with the base case pro forma Annual Operating Plan and Budget attached hereto as Exhibit A-1. Attached hereto as Exhibit A-2 is the base case pro forma Major Maintenance Budget for the five (5) year period commencing on the Project Operations Date. In conjunction with Owner, Operator shall develop a final Major Maintenance Budget for such five (5) year period including, among other things, any long term service agreements entered into by Owner and the Major Maintenance Contractor with respect to the combustion turbines. If Owner and Operator are unable to agree on such final initial Major Maintenance Budget, Operator may use a Major Maintenance Budget consistent with the base case pro forma Major Maintenance Budget attached hereto as Exhibit A-2. 4.1.18 Management Plan. Operator shall develop a written management plan for approval by Owner to ensure optimal performance, responsiveness and cost effectiveness in the operation and maintenance of the Project and the Leased Equipment. The program shall include provisions regarding: (a) budget tracking, analysis and adjustments; (b) monthly environmental reports and annual tracking; (c) QF analysis monthly report; (d) personnel policies, including policies regarding payroll, compensation, pensions and other benefits; (e) training; (f) purchasing and inventory control; (g) a project safety and health program which will include procedures and a manual; 17 (h) an employee job site handbook for Operator's employees who will be involved in operation and maintenance with the Project and the Leased Equipment, including as-built operating procedures; (i) a maintenance planning and scheduling system including a detailed schedule of all preventative maintenance to be performed on the Project and the Leased Equipment; and (j) a system for maintaining a computerized inventory of consumables, spare parts, tools and supplies. 4.1.19 Office and Work Shop. Operator shall establish, on behalf of and with the approval of Owner, an office on the Project Site as well as a work shop for performing minor maintenance. 4.1.20 Development of Mobilization Budgets. Operator shall develop and deliver to Owner for approval, budgets for the mobilization periods commencing on the earlier of the Leased Equipment Mobilization Date and the Project Mobilization Date, respectively, and ending on the Project Operations Date. 4.2 Operations. On and after the Leased Equipment Operations Date with respect to the Leased Equipment and the Project Operations Date with respect to the Project, Operator shall provide all operation and maintenance services (other than major maintenance separately contracted by the Owner) necessary to efficiently operate and maintain the Project and the Leased Equipment, as the case may be, including, but not limited to, performing the following services. 4.2.1 Compliance with Legal and Contractual Requirements. Operator shall operate and maintain the Project and the Leased Equipment in compliance with all Legal and Contractual Requirements, Prudent Engineering and Operating Practices, equipment supplier's recommendations and the Annual Operating Plan and Budget. 4.2.2 Approvals and Permits. Operator shall obtain and maintain in effect all Approvals and Permits which may be obtained and maintained in Operator's name, and assist Owner in obtaining and renewing all Approvals and Permits which must be maintained in Owner's name. 18 4.2.3 Payment of Employees and Subcontractors. Operator shall ensure that all of its employees, agents, and subcontractors are paid in accordance with their agreed terms and conditions, and comply with all filing and payment requirements under applicable statutes in a timely manner. 4.2.4 Subcontracts. Operator shall enter into such subcontracts with Major Subcontractors as Operator may elect following the approval of Owner and Millennium, and retain such other subcontractors as may be acceptable to Owner in the exercise of Owner's reasonable discretion. 4.2.5 Employment and Training of Employees. Operator shall employ, and ensure adequate training of, Operator's employees and the employees of any of its Affiliates (duly licensed where required by statute or regulation) for the operation and maintenance of the Project and the Leased Equipment consistent with the equipment suppliers' recommendations and Prudent Engineering and Operating Practices, and plan and administer all matters pertaining to employee relations, salaries, wages, working conditions, hours of work, termination of employees, employee benefits, employee staffing, safety and related matters pertaining to such employees, and maintain records with respect to all such matters. 4.2.6 Maintenance of Records. Operator shall monitor, prepare and maintain records of the operations and maintenance of the Project and the Leased Equipment in such form and covering such matters as Owner may reasonably request, consistent with Prudent Engineering and Operating Practices, generally accepted accounting principles, and applicable records retention requirements, and make such records available for inspection and/or audit by Owner, the Lenders and their respective designees. Such records shall, at a minimum, include all interconnections, including Steam and electricity deliveries, fuel consumption, feed water, boiler feed water, condensate return, wastewater discharges, and such other information as may be reasonably requested by Owner. Equipment operating and maintenance records shall be maintained for the life of the equipment. Other records shall be maintained for such periods as Owner shall reasonably require. 4.2.7 Computerized Inventory of Spare Parts. Operator shall implement a computerized inventory control system to identify, catalog, and disburse spare parts for the maintenance of the Project and the Leased Equipment, 19 procuring, as agent for Owner, replacement spare parts and refurbishing, where practical or economical, spare parts to permit their re-use. 4.2.8 Operation and Maintenance of Project. Operate and maintain the Project and the Leased Equipment in accordance with the operation and maintenance programs prepared by Operator, and, if necessary, update such programs and create new programs as required for operation and maintenance of the Project and the Leased Equipment. 4.2.9 Maximization of Energy Production; Minimization of Unscheduled Outages. Operator shall operate and maintain the Project and the Leased Equipment to maximize the continuous, reliable, safe and efficient generation of electrical and thermal energy by the Project and Millennium so as to conserve fuel and financial resources and to minimize unscheduled outages, and provide maintenance for the Project and the Leased Equipment in a cost effective manner, subject to any limitations imposed by Legal and Contractual Requirements. 4.2.10 Cleanliness. Operator shall use all reasonable care necessary to keep the Project, the Project Site and the Leased Equipment in a clean and orderly condition and free from debris, rubbish or waste. 4.2.11 Emergency. Operator shall take all necessary precautions and appropriate corrective actions in the event of an Emergency to prevent injury to personnel, to prevent or mitigate noncompliance with Environmental Laws and to safeguard the security of the Project and the Leased Equipment. 4.2.12 Freedom from Liens and Encumbrances. Operator shall keep the Project and the Leased Equipment free and clear of any 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 lien holder, 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). 20 4.2.13 Preparation of Subsequent Annual Operating and Budget Plans. In the event the Project Operations Date occurs on any day other than the first day of a calendar year, Operator shall prepare a modification to the initial Annual Operating Plan and Budget to cover the period from the first anniversary of the Project Operations Date to the end of the calendar year in which such first anniversary occurs, all as more fully described in Section 6.2. Thereafter, Operator shall prepare subsequent Annual Operating Plans and Budgets which shall include all anticipated Expenses of the Project to be paid by Owner for each succeeding calendar year, all as more fully described in Section 6.2. All such Annual Operating Plans and Budgets shall be prepared only after consultations with Owner and Millennium. 4.2.14 Scheduled Major Maintenance. Operator shall coordinate with Owner (and, in the case of scheduled major maintenance on the combustion turbines, Major Maintenance Contractor) for the performance of all scheduled major maintenance on the combustion turbines, the heat recovery steam generators and the main transformers and switch gear. To the extent possible, all such scheduled major maintenance shall be performed during periods when the Morris Plant will also be out of operation in order to minimize the need for standby electricity and auxiliary steam production and during non-peak seasons in order to minimize the cost of any required standby electricity. 4.2.15 Fuel Management Procedures. Operator shall develop and implement fuel management procedures in cooperation with Millennium. Operator acknowledges that Millennium shall have primary responsibility for fuel management, and Operator shall furnish Millennium with information regarding the fuel requirements of the Project and Boilers 5 and 6 based on the Annual Operating Plan and Budget, Millennium's then current projected demand for electricity and Steam, and Owner's Excess Sales requirements. Operator shall also monitor the quality of Methane Off Gas being provided by Millennium to ensure that it meets the specifications set out in Exhibit C-1 to the ESA. In addition, Operator shall ensure that quantities of Methane Off Gas delivered to the combustion turbines shall not exceed 280 million Btu's per hour, unless agreed otherwise between Owner and Millennium, and shall coordinate with Millennium to optimize its delivery of Methane Off Gas. To the extent that Millennium provides Methane Off Gas which fails to meet the specifications set out in Exhibit C-1 to the ESA, or to the extent Operator determines that Methane Off Gas meeting the specifications set out such Exhibit may jeopardize operation of the Project, 21 Operator shall promptly notify Owner thereof. Operator shall follow any instructions given to it by Owner regarding substitution of pipeline quality natural gas for Methane Off Gas. 4.2.16 Monthly Reports of Delivered Fuel. Operator shall provide to Owner monthly reports setting out the total delivered amount of fuel to the Project, separately setting forth the delivered amounts of pipeline natural gas, Methane Off Gas and E/P Mix Gas. These reports will be accompanied by appropriate supporting documentation sufficient (other than with respect to pricing information) to permit Owner to provide a fully substantiated fuel cost report to Millennium. 4.2.17 Raw Water. Operator shall monitor the quantity and quality of raw water delivered to the Project by Millennium. Operator shall provide to Owner each month a report of the quantity and quality of raw water utilized by the Project. 4.2.18 Boiler Feedwater. Pursuant to Section 10.2 of the ESA, Operator shall provide boiler feedwater to Millennium up to a maximum of 1300 gallons per minute, meeting the minimum requirements set out in Exhibit F-2 of the ESA. Operator shall monitor the quality and quantity of boiler feed water delivered to both Millennium and the Project. Meter results showing the quality and quantity of boiler feed water delivered to Millennium shall be furnished to Owner and Millennium at the end of each month. 4.2.19 Condensate Return. Operator shall monitor the quality and quantity of condensate returned to the Project by Millennium, and ensure that such condensate meets the minimum requirements set out in Exhibit F-3 of the ESA, and that such condensate is not contaminated with oil, excess rust, or other foreign substances that would render the condensate unsuitable for boiler makeup water. Any condensate not meeting these standards shall be rejected by Operator. 4.2.20 Waste Water Discharges. Operator shall ensure that cooling tower blow down discharges, oily water discharges, RO System discharges, boiler blow down discharges, effluent from the demineralized water system, storm water runoff, wash water from internal combustion turbine or other equipment cleaning and other waste discharges meet the criteria set out in Exhibits F-4 through F-9 respectively of the ESA and shall be in 22 compliance with the Millennium NPDES permit. Operator shall maintain the metering equipment on each waste water discharge from the Project. The meter data shall be furnished to Owner at the end of each month, or as otherwise required by the Millennium NPDES permit. 4.2.21 Energy Services Billing Information. Operator shall provide Owner with all information required to bill Millennium for energy services each month. Without limiting the generality of the foregoing, such information shall include data covering steam and electricity deliveries to Millennium, average condensate return levels, steam required to return the Millennium ethylene plant to service which is produced by existing Boilers 5 and 6, third party electricity sales, quantities of Methane Off Gas and E/P Mix Gas provided by Millennium, all data needed to calculate waste water discharge fees due Millennium, and the quantities of demineralized and boiler feed water furnished to the Morris Plant, as well as the quantity of raw water taken by the Project from Millennium. 4.2.22 Consultations with Owner. Operator shall report to, and consult with, Owner regarding the operation of the Project on a regularly scheduled basis, as reasonably requested by Owner. 4.2.23 Indemnities, Warranties and Guarantees. Operator shall use reasonable commercial efforts to secure from vendors, suppliers and subcontractors the best indemnitees, warranties and guarantees as may be commercially available regarding supplies, equipment, and services purchased for the Project, all of which shall be assigned to Owner (Operator shall render reasonable assistance to Owner for the purpose of enforcing such indemnitees, warranties or guarantees of which Owner is a beneficiary regarding the Project and/or the Leased Equipment). 4.2.24 Performance of Other Services. Operator shall perform for Owner such other services as may from time- to-time be reasonably requested or necessary or appropriate in connection with the operation and maintenance of the Project and the Leased Equipment. 4.2.25 Notification of Deficiency in Revenues; Excessive Costs; Failure to Comply with Legal and Contractual Requirements. Operator shall promptly notify Owner of (i) any condition, event, or act which is likely to result in a material deficiency in budgeted revenues, or an excess in budgeted costs, 23 (ii) any forced outages or significant malfunction of the Project and/or the Leased Equipment immediately, and (iii) any material failure to comply with any Legal and Contractual Requirements or any event which is reasonably expected to cause such material failure. 4.2.26 Information Requested by Owner. Operator shall promptly provide Owner with such information relative to the Project and the Leased Equipment as Owner may reasonably request. 4.2.27 Warranty Inspections. In addition to routine inspections during the warranty period, Operator shall perform an "end of warranty period" inspection of all major components of the Project, and prepare a report to Owner of all breaches of the warranties provided by the Construction Contractors (and any of its vendors) under the EPC Contract and the RO Contract. 4.2.28 Repair or Replacement. Following damage or other loss to the Project and/or the Leased Equipment, Operator shall, on behalf of and with the approval of Owner, repair or replace damaged components as required as promptly as feasible. 4.2.29 Integrated Energy Management Plan. Operator shall work with Owner and Millennium to develop and implement an integrated energy management plan. This plan will include the sharing between the Project and the Morris Plant of distributed control system data for monitoring purposes only, system operating capabilities, and design criteria in order to optimize the Morris Plant's and the Project's energy systems. Sources to be monitored shall include the 600 pound, 150 pound, 50 pound and 25 pound steam systems, deaerators, fuel and water systems. To the greatest extent possible, Owner shall integrate the Project's distributed control system data with that of Millennium. 4.2.30 PURPA Compliance. Operator shall monitor Project compliance with the PURPA efficiency and operating standards and notify Owner of any potential violation of such standards in sufficient time to permit Owner take appropriate corrective action. Operator shall prepare a monthly report to Owner regarding PURPA compliance and an end of year final report with supporting documentation. 24 4.2.31 Emissions Compliance. Operator shall monitor emissions from the Project and the Leased Equipment and compliance with emissions standards set forth in the air permit (including tracking of the 365 day rolling emission limits) and notify Owner of any potential violation of such standards in sufficient time to permit owner to take corrective action. 4.2.32 Cooperation with Lenders. Operator shall, as and to the extent requested by Owner cooperate with the Lender's independent engineer. 4.2.33 Restoration Plans. In the event of any damage to or destruction of, or upon condemnation or appropriation or any similar event with respect to, all or a portion of the Project, Operator shall, at Owner's request, prepare, or assist in the preparation of a plan relating to the rebuilding, repairing or restoring of the Project. V. RESPONSIBLITIES OF OWNER 5.1 Responsibilities of Owner. Owner shall be responsible for delivering the Project to Operator and providing Operator with general strategic guidance, as well as specific operational instructions, including, without limitation, the following: 5.1.1 Delivery of Care, Custody and Control of the Project and the Leased Equipment to Operator. The responsibility for the continuous operation of the Project, as well as care, custody and control of the Project, shall be delivered to Operator by Owner on the Project Operations Date. The responsibility for the continuous operation of the Leased Equipment, as well as care, custody and control of the Leased Equipment, shall be delivered to Operator by Owner on the Leased Equipment Operations Date. The Owner's obligation under this Section 5.1.1 is to deliver a complete plant as contemplated in the EPC Contract, the ESA and the RO Contract. 5.1.2 Provision of Spare Parts Inventory. Owner will provide Operator with those spare parts for which Construction Contractors are responsible under the EPC Contract and RO Contract and a budget for acquiring the additional spares approved by Owner pursuant to Section 4.1.5. 5.1.3 Provision of Project Facilities. Owner shall provide Operator with a Project Site office, work shop, laboratories, locker rooms, storage and associated 25 facilities. Furnishing and equipping of these facilities shall be the responsibility of Operator, but for Owner's account. 5.1.4 Project Site Services. Owner shall provide, or cause Millennium to provide, the following Project Site services as necessary for the operation and maintenance of the Project and/or the Leased Equipment, at no cost to Operator: ingress and egress to the Project Site; fuel, raw make-up water, waste water disposal services, standby power, and telephone services. 5.1.5 Owner's Representative. Owner shall provide an Owner's representative who shall represent and have the authority to bind Owner in all matters regarding this Agreement, except as specifically limited in writing by Owner. 5.1.6 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 and required to be obtained in Owner's name. Operator shall provide full and reasonable continuing cooperation in obtaining and maintaining all such Approvals and Permits, and shall review Owner's applications for accuracy and completeness. 5.1.7 Provision of Operating and Maintenance Manuals. Owner shall turn over to Operator those operation and maintenance manuals (including as-built drawings of process and instrument diagrams, electrical one-lines and general arrangements) which it receives from Construction Contractors or equipment manufacturers. Owner shall also provide manuals furnished by Millennium regarding the operation and maintenance of the Leased Equipment. Operator shall be responsible for the periodic updating of such manuals following receipt. 5.1.8 Hazardous Substances Disposal. Owner shall be responsible for arranging for the lawful and proper disposal of Hazardous Substances generated by the Project, and will also be responsible for making appropriate arrangements with Millennium for the removal of Hazardous Substances which are discovered by Operator with respect to the Leased Equipment. 5.1.9 Copies of Project Agreements. Owner will give Operator copies of all Project Agreements and Permits and Approvals required for the 26 performance of Operator's responsibilities hereunder. These shall be maintained in confidence by Operator. 5.1.10 Administration of Contracts and Financing. Owner shall administer the Project Agreements including the EPC Contract, the RO Contract and any financing for the Project, including preparation of any required reports to the Lenders. 5.1.11 Fuel Supply. Owner shall ensure that fuel is supplied to the Project and the Leased Equipment, including all natural gas necessary for Operator to satisfy Excess Sales requirements. Owner shall monitor and provide periodic reports to Operator regarding the natural gas reserve inventory levels to be maintained under the NIGAS Agreement. 5.1.12 Provision of Business Strategy and Guidance with Respect to Excess Electricity Sales. Owner shall also provide to Operator periodic written guidance with respect to Excess Sales to ensure that such sales do not conflict with Owner's responsibilities to Millennium under the ESA. To the extent that Owner arranges for the sale of interruptible or firm electric capacity, Owner shall also provide copies of such agreements to Operator and instructions regarding their implementation. Owner shall be responsible for making all such arrangements for Excess Sales. VI. OPERATION OF THE PROJECT AND THE LEASED EQUIPMENT 6.1 Visits and Reviews by Owner. Owner, the Lenders and their respective representatives shall have the right, during both normal working hours and all other hours, to visit the Project Site in order to monitor Operator's performance of its obligations under this Agreement and to inspect the Project Site and any part thereof. Owner and its representatives shall also have the right to take visitors, after reasonable notice to Operator, onto the Project Site, into the Project and to the Leased Equipment to observe the various services which Operator performs; provided, however, that such visits shall be conducted in a manner so as to minimize interference with Operator's obligations hereunder, and all such visitors (including without limitation Owner, the Lenders and their respective representatives) shall comply with the safety rules and procedures established by Operator and Millennium. 27 6.2 Development of Annual Operating Plan and Budget and Major Maintenance Budget. Operator and Owner shall develop an Annual Operating Plan and Budget for each Operating Year in accordance with the following provisions: 6.2.1 Extension to Initial Annual Operating Plan and Budget. In the event the Project Operations Date occurs on any day other than the first day of a calendar year, Operator shall prepare and deliver to Owner within four (4) months of the Project Operations Date an extension to the initial Annual Operating Plan and Budget to cover the period from the first anniversary of the Project Operations Date to the end of the calendar year in which such first anniversary occurs. Such Annual Operating Plan and Budget shall include all expenses which Operator expects to incur for the operation and maintenance of the Project and the Leased Equipment during such extension period. 6.2.2 Annual Operating Plan and Budget. In all other instances, Operator shall prepare and deliver to Owner by no later than October 1 of each Operating Year a proposed Operating Plan and Budget for the subsequent Operating Year. Each such Operating Plan and Budget shall include all expenses which Operator expects to incur for the operation and maintenance of the Project and the Leased Equipment during such subsequent Operating Year. Such Annual Operating Plan and Budget shall also set forth the anticipated operation and maintenance plan including projected electrical and steam production levels for the Project broken out on a monthly basis, and a complete schedule (to the extent feasible) of routine maintenance to be accomplished during such Operating Year. 6.2.3 Major Maintenance Budget. Operator shall also prepare and deliver to Owner by October 1 of each Operating Year a proposed Major Maintenance Budget that shall include a plan and budget for major maintenance tasks (including major Project and Leased Equipment repairs) for the five-year period commencing with the subsequent Operating Year. 6.2.4 Consent of Owner. Neither any Annual Operating Plan and Budget, nor any Major Maintenance Budget shall be effective without the consent and agreement of Owner. Owner and Operator shall meet and exchange information as is necessary in connection with Owners review and consent. If Owner and Operator cannot agree on a Major Maintenance Budget by the start of the first year of such Major Maintenance Budget, the Major Maintenance Budget shall be as determined by Owner. If Owner and 28 Operator cannot reach agreement on the Annual Operating Plan and Budget by the start of any Operating Year (or by the end of the fourth (4th) month after the Project Operations Date, in the case of an extension contemplated in Section 6.1), either Party may request that the relevant Annual Operating Plan and Budget be submitted to dispute resolution in accordance with Article XIII. Until such time as agreement is reached or the dispute is resolved, the Annual Operating Plan and Budget (the "Default Budget") for such Operating Year (or with respect to the extension to the Annual Operating Plan and Budget contemplated in Section 6.2.1, for such extension period) shall be as follows: (a) For all labor costs, the budget shall be the budget for the preceding Operating Year, adjusted by the change in the cost of hourly labor at the Morris Plant from January 1 of such preceding Operating Year to January 1 of the Operating Year for which such Default Budget applies. (b) For operating consumables, tools, parts, and other supplies and materials, the budget shall be the actual cost of such items. (c) For all other items the budget shall be the same as the budget for the preceding Operating Year. (d) The Default Budget shall be modified (i) to delete any non- recurring expense from the Annual Operating Plan and Budget from the preceding Operating Year, if such non-recurring expense is not reasonably expected to occur during the Operating Year for which the Default Budget is applicable, and (ii) to include provision of any non-recurring expense which was not included in the Annual Operating Plan and Budget for the preceding Operating Year, if such non-recurring expense is reasonably expected to occur during the Operating Year for which the Default Budget is applicable. Once Owner and Operator have reached agreement on the Annual Operating Plan and Budget, Operator shall be bound by such budget, and shall have no authority to incur expenses in excess of such budget without the prior approval of Owner. 29 6.3 Change Orders to Annual Operating Plan and Budget or Major Maintenance Budget. The Parties acknowledge that Changes may be required during the term of this Agreement to an Annual Operating Plan and Budget or a Major Maintenance Budget. Either Owner or Operator may, by written notice to the other Party, propose a Change. The written notice shall describe the proposed Change in reasonable detail and the reasons therefor. No Change to an Annual Operating Plan and Budget or a Major Maintenance Budget shall be undertaken by Operator prior to the execution by Owner of a written Change Order approving such change; 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. 6.3.1 Emergencies. If Operator implements a Change without the prior approval of Owner due to an Emergency, Operator shall promptly notify Owner of the nature and extent of such Change. 6.3.2 Change in Law or Changes in Project Agreements. If a Change in an Annual Operating Plan and Budget or a Major Maintenance Budget is required as a direct consequence of either a Change in Law or a Change in Project Agreements, Operator shall promptly notify Owner in detail of the nature and extent of such Change. 6.3.3 Certain Other Events. If a Change in an Annual Operating Plan and Budget or a Major Maintenance Budget is required as a direct consequence of (i) the replacement of Millennium's existing Boilers 5 and 6, or (ii) a breaking of or accident to equipment, Operator shall promptly notify Owner in detail of the nature and extent of such Change. 6.3.4 Excess Sales. If a Change in an Annual Operating Plan and Budget or a Major Maintenance Budget is required as a direct consequence of Excess Sales, Operator shall promptly notify Owner in detail of the nature and extent of such Change. 6.4 Modifications to Annual Operating Plan and Budget Due to Changes in Requirements of Millennium. Owner and Operator each acknowledges that the requirements of Millennium for steam and electricity may change during the course of an Operating Year, and that the projected levels of steam and electrical production set out in the Annual Operating Plan and Budget are estimates, based on information provided by Millennium. Operator shall utilize its best efforts to meet the actual steam and electrical requirements of Millennium, including any requirements for Monomer Start-up Steam, 30 regardless of whether such requirements are accurately reflected in the Annual Operating Plan and Budget. Operator also acknowledges that the quantities of Methane Off Gas which may be available to the Project will vary over time, and that Operator will be required to utilize fuel mixtures which involve varying amounts of natural gas and Methane Off Gas, up to the limits set out in the ESA. To the extent that Operator incurs additional costs due to steam and electrical requirements of Millennium which exceed those set out in the Annual Operating Plan and Budget, Operator shall promptly notify Owner of the nature and extent of such Change. 6.5 Standby Power Guaranty. During each Operating Year commencing on the Acceptance Date, Operator shall guaranty that Owner incurs no greater than five hundred thousand dollars ($500,000) (pro-rated for any Agreement Year which contains less than 12 months) of Operator Standby Power Costs. Operator acknowledges that included within such five hundred thousand dollars ($500,000) are all Standby Power Costs incurred due to routine or scheduled maintenance of the Project.. 6.6 Plant Heat Rate Guarantee. Operator acknowledges that maintenance of the projected plant heat rate is important to Owner, and agrees to maintain the plant heat rate for the plant within the Guaranteed Heat Rate. Operator acknowledges that the Guaranteed Heat Rate curve is based on the use of up to 280 MMBtu per hour of Methane Off Gas as part of the fuel mix, fuel heating, and inlet heating when at partial load, and also incorporate adjustments for (a) gas turbine degradation between major overhauls and (b) adjustments for load variations based on the demand placed on each gas turbine generator set. Excessive heat rate which is incurred due to Force Majeure events, the failure of Owner and/or Millennium to furnish sufficient fuel, makeup water, waste disposal services, and other services required to be provided to Operator hereunder, latent defects, or the failure to perform maintenance recommended by Operator in accordance with Prudent Engineering and Operating Practices but excluded from any Major Maintenance Budget or any Annual Operating Plan and Budget by Owner, shall in each case be excluded from the calculation of heat rate for the purposes of this guaranty. For all purposes of this Agreement, the heat rate of the Project shall be determined in a manner to be agreed between Operator and Owner no later than the date which is twelve months after the date hereof. 6.7 Leased Equipment. 6.7.1 Operator Responsibilities. Operator shall perform all maintenance on the Leased Equipment, all Minor Leased Equipment Repairs and all repairs or replacement of Boilers 5 and 6. Subject to Section 6.8, Operator shall 31 coordinate with Millennium and Owner the scheduling of all other repairs on the Leased Equipment, which repairs are the responsibility of Owner. 6.7.2 Owner Responsibilities. Operator shall not be responsible for the following repairs and/or replacements involving the Leased Equipment, which repairs and/or replacements are acknowledged by Owner to be its responsibility: (a) reconstruction costs arising from a failure of a major component of the boiler feedwater pumps, including their respective drivers; (b) the failure of a demineralizer vessel, including its internals or its lined interconnecting piping; (c) the failure of a boiler feedwater storage tank; (d) the failure of the neutralization pit and accessories; (e) the repair and maintenance of electrical switch gear, breakers, starters, relays, controls, and wiring which is part of the Leased Equipment, unless specifically damaged by Operator due to improper operation; and (f) one replacement of each of the four remaining resin trains (out of the five original trains); provided, that Owner shall also be responsible, at its cost, for any further replacements if such replacements are caused by a lateral or other infrastructure failure. To the extent that Operator determines that any of the foregoing repairs, maintenance or replacements are required, it shall notify Owner. To the extent possible, Operator shall identify any problems with such systems in advance of equipment failure in order to maximize availability and minimize Standby Power Costs. 6.7.3 Steam and Electricity. All electricity and steam required for operation of the Leased Equipment shall be provided by Millennium through purchases made from Owner. 6.8 Unscheduled Maintenance. Operator shall perform all maintenance, repair and replacement requirements of the Project notwithstanding that the same were not 32 anticipated or included in the approved Annual Operating Plan and Budget. Operator will not commence any work under this Section without the approval of Owner, except that, in the event that such work is required by an Emergency, Operator shall undertake such work and notify Owner as soon as possible. 6.9 Gas Turbine Maintenance Agreement. Operator and Owner shall work together to pursue an economic long-term gas turbine maintenance agreement with a recognized provider of gas turbine maintenance services acceptable to Owner and Lender. Such long- term gas turbine maintenance agreement shall be entered into by Owner and shall be administered by Operator. 6.10 Capital Improvement Budget. Operator shall, from time to time, make recommendations for such capital improvements to the Project as may improve the operating efficiency thereof and shall, if requested by Owner, assist Owner in preparing a budget for any such capital improvements Owner may elect to implement. ARTICLE VII. FEES AND EXPENSES PAYABLE TO OPERATOR 7.1 Mobilization Fee. As compensation for the services provided by Operator during the Mobilization Period, Operator shall be entitled to a one time fee equal to two hundred fifty thousand dollars ($250,000), payable within thirty (30) days after the earlier of the Leased Equipment Mobilization Date or the Project Mobilization Date. 7.2 Annual Operator's Fee. As compensation to Operator for its performance of its obligations hereunder, Owner shall pay Operator an annual fee (the "Annual Fee") commencing with the first Operating Year after the Project Operations Date, and every Operating Year thereafter. Operator's Fee for the first Operating Year shall be five hundred thousand dollars ($500,000) and shall be prorated for the number of months in the first Operating Year. Thereafter, Operator's Fee shall be adjusted annually by the percentage change in the Inflation Escalation Index utilizing the value of the Inflation Escalation Index at January 1, 1998, as the base year value. Operator's Fee shall be payable in equal monthly installments in arrears, subject to Owner's right to set off against such installments any liquidated damages owed by Operator to Owner pursuant to Sections 8.1 and/or 8.2 hereof. Operator acknowledges that Owner may set off as much as one hundred percent (100%) of the annual Operator's Fee to cover any such liquidated damages, pursuant to the provisions contained herein. 33 7.3 Reimbursement for Operator's Costs for Operation. Operator shall be reimbursed for the actual costs of Project and Leased Equipment operation, including, without limitation: 7.3.1 Labor Costs. Operator shall be reimbursed for the actual costs of recruitment and employment of permanent and temporary staff and specialists from and after the Leased Equipment Mobilization Date with respect to such costs incurred in connection with the operation of the Leased Equipment and from and after the Project Mobilization Date with respect to such costs incurred in connection with the operation of the Project, such costs to include employment related benefits applicable to such staff and specialists. 7.3.2 Project Maintenance and Repair Costs. Operator shall be reimbursed for the actual cost of Project and Leased Equipment consumables, spare parts, and repairs and/or replacement components supplied by Operator in accordance with the provisions of this Agreement. 7.3.3 Certain Other Expenses. Operator shall also be reimbursed for all direct costs incurred by Operator and not otherwise covered by Sections 7.3.1 and 7.3.2 hereof, which are directly related to the operation and maintenance of the Project, such as any federal, state or other sales, use, value added, gross receipts, or similar tax, any insurance premiums paid by Operator to obtain the insurance required of Operator hereunder, and the costs of any permits or licenses required of Operator. Operator shall furnish Owner with reasonable documentation of such costs. 7.4 Demobilization. Upon demobilization, Owner shall reimburse Operator all reasonable costs and expenses associated with such demobilization, including reasonable severance, out- placement, relocation, continuation of benefits, unemployment premiums and other similar costs; provided, that Operator shall take all reasonable efforts to minimize such costs. In the event that Millennium terminates this Agreement pursuant to the second proviso of Article III, Operator shall be paid a demobilization fee equal to twice the Annual Fee at the time of such termination. 7.5 Invoices. Operator shall prepare and submit to Owner on a monthly basis invoices covering the costs and fees to which Operator is entitled under this Article VII. Such invoices shall be accompanied by expense statements, vouchers, or other supporting 34 information as Owner may reasonably require. Owner shall pay, or request its Lender to pay on Owner's behalf, all undisputed amounts due Operator no later than thirty (30) days after receipt of the invoice. All payments to Operator shall be made by wire transfer in immediately available funds to the account set forth in such invoice. Any payment not made within thirty (30) days after receipt of Operator's invoice will bear interest from the date on which payment was due at the rate of one percent (1%) per month. To the extent that Owner disputes any charges included in an invoice submitted by Operator, Owner shall be entitled to withhold such amounts pending the resolution of the dispute, pursuant to the provisions of Article XIII. Should the arbitration panel established pursuant to Section 13.2 subsequently determine that some or all of the disputed amount was due Operator, Owner shall pay such amount plus interest at the rate of one and a half percent (1 1/2%) per month from the date such payment was originally due until the date of payment. ARTICLE VIII. LIQUIDATED DAMAGES AND INCENTIVES 8.1 Liquidated Damages for Excess Standby Power Costs. In the event that Owner is required to pay five hundred thousand dollars ($500,000) or more in Operator Standby Power Costs in any Operating Year (prorated for any Operating Year which is less than twelve months), then Operator shall pay to Owner, as liquidated damages, and not as a penalty, an amount equal to fifty percent (50%) of the difference between such Operator Standby Power Costs incurred during such Operating Year and five hundred thousand dollars ($500,000), subject to a ceiling equal to the Maximum Liquidated Damages applicable to Operator Standby Power Costs. Payment of liquidated damages under this Section 8.1 shall, subject to Section 12.4, constitute Owner's exclusive remedy hereunder for reduced availability of electricity from the Project. 8.2 Liquidated Damages for Operator's Failure to Maintain Guaranteed Heat Rate. In the event that Operator fails to maintain in any Operating Year, the Guaranteed Heat Rate, Operator shall pay as liquidated damages, and not as a penalty, an amount equal to fifty thousand dollars ($50,000) for each one percent (1%) (or part thereof) by which the average heat rate for the Project for the Operating Year exceeded the Guaranteed Heat Rate, subject to a ceiling equal to the Maximum Liquidated Damages and prorated for any Operating Year which is less than twelve months. Payment of such liquidated damages shall, subject to Section 12.4, be Owner's sole and exclusive remedy for the failure of Operator to achieve the Guaranteed Heat Rate. 8.3 Billing and Collection of Liquidated Damages. Not later than twenty (20) days after the end of each Operating Year, Operator shall render a statement to Owner, with all necessary and appropriate supporting documentation, calculating the amount of 35 liquidated damages (if any) due Owner in accordance with Sections 8.1 and 8.2 for the period from the beginning of the Operating Year through the end of such Operating Year. Any amounts due to Owner on account of such liquidated damages, together with all amounts, if any, being paid by Operator to cure defaults under Section 12.4(d), (provided that Operator may set off from such amount any past due amounts owed to Operator by Owner) shall be paid by Operator within thirty (30) days of the delivery of a statement therefor, but Owner's acceptance of such amounts shall not preclude Owner from disputing under Article XIII the accuracy of the amount of liquidated damages owed as set forth on the statement. Should Operator fail to provide such statement, or fail to pay the applicable liquidated damages, Owner shall have the right to calculate such damages independently, and to set off such damages from amounts otherwise due Operator for the Operations Fee. In no event shall the liquidated damages payable under Sections 8.1 and 8.2 exceed one hundred percent (100%) of Operator's Fee in the applicable Operating Year. 8.4 Bonuses for Improved Availability and/or Superior Heat Rate. To the extent that Operator is able to keep Operator's Standby Power Costs below the five hundred thousand dollars ($500,000) guaranteed by Operator in accordance with Section 6.5 with respect to any Operating Year (prorated for any Operating Year which is less than twelve months) Operator shall be entitled to a bonus in an amount equal to fifty percent (50%) of the difference between five hundred thousand dollars ($500,000) and the Operator Standby Power Costs incurred during such Operating Year, up to a maximum of eighty percent (80%) of the Annual Operator's Fee set out in Section 6.2. If Operator is able to achieve a Project heat rate superior to that of the Guaranteed Heat Rate and guaranteed in accordance with Section 6.6 for the applicable Operating Year, Operator shall be entitled to a bonus equal to fifty thousand dollars ($50,000) for each one percent (1%) (or part thereof) by which the Project heat rate is better than the applicable guaranteed value, subject to a ceiling equal to twenty percent (20%) of the Annual Operator's Fee set out in Section 6.2 and prorated for any Operating Year which is less than twelve months. Operator shall render a statement to Owner at the end of each Agreement Year setting out any bonuses which it has earned pursuant to this section, along with reasonable documentation thereof. Any bonus payments due Operator shall be made by Owner within thirty (30) days of receipt and acceptance of such statement. In the event of any dispute, either Owner or Operator may refer the dispute to arbitration pursuant to the provisions of Article XIII. 8.5 Adjustment of Performance Standards. In the event that Acceptance (as defined in the EPC Contract) is achieved by payment of liquidated damages pursuant to Article 12 of the EPC Contract, Operator and Owner shall negotiate in good faith to 36 adjust the performance standards set forth in this Article VIII to reflect the reduced performance capabilities of the Project. In the event that Operator and Owner are not able to reach agreement on such adjusted performance standards within sixty (60) days of the Acceptance Date, Owner and Operator shall commence dispute resolution proceedings pursuant to Article XIII to resolve such dispute. ARTICLE IX. INDEMNIFICATION RESPONSIBILITIES OF THE PARTIES 9.1 Indemnification Responsibilities of Operator. Operator shall indemnify and hold harmless Owner, Owner's Affiliates, and Lender(s), and their respective directors, officers, employees, agents and representatives (hereinafter the "Owner Indemnified Parties") from and against any and all claims (including, without limitation, all environmental claims) arising out of, incident to, or related to Operator's willful misconduct or gross negligence in connection with its performance of this Agreement, 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 claims arise out of, are incident to or related to the negligence of, or the breach of this Agreement by, any Owner Indemnified Parties, in which event the claims shall be borne by the Parties in proportion to the respective fault of each Party). The indemnification obligations under this Section 9.1 shall not be limited by any limitation on the amount or type of damages, compensation or other employee benefit payable under any worker's compensation or other employee benefit acts or insurance policies. The indemnity provisions contained in this Section 9.1 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 with respect to liquidated damages. 9.2 Owner Indemnification Obligations. Owner shall indemnify and hold harmless Operator and its directors, officers, employees, agents and representatives (hereinafter the "Operator Indemnified Parties") from and against any and all claims arising out of, incident to, or related to Owner's willful misconduct or gross negligence in connection with its performance of this Agreement, made by any Person (other than Operator and the Operator Indemnified Parties), whether based on contract (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 Operator Indemnified Parties, in which event the claims shall be borne by the Parties in proportion to the respective fault of each Party). The indemnification obligations under this Article 9.2 shall not be limited by any limitation on 37 the amount or type of damages, compensation or other employee benefit payable under any worker's compensation or other employee benefit acts or insurance policies. The indemnity provisions contained in this Article 9.2 shall in no manner amend or otherwise modify or limit any other of Owner's obligations expressed elsewhere in this Agreement. 9.3 Survival. 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 occur prior to such termination or expiration. 9.4 Cooperation Regarding Claims. If any Indemnified Party intends to seek indemnification under this Article from an 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. Failure to provide such notice shall not relieve the Indemnifying Party of its obligations hereunder so long as the Indemnifying Party is not materially harmed by the Indemnified Party's failure to give timely notice of the claim or action. 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. ARTICLE X. INSURANCE REQUIREMENTS 10.1 Insurance Requirements of Operator. Unless Owner shall advise Operator that Owner has satisfied the following requirements in whole or in part by naming Operator as a named insured on Owner's insurance policies, Operator shall procure and maintain in full force and effect at all times that the Project is being operated (and, in any event, no later than the date on which Operator has employees at the Project), insurance policies with limits and coverage provisions in no event less than the limits and coverage provisions set forth below. 10.1.1 General Liability Insurance: Liability insurance on an occurrence basis against claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide coverage for products-completed operations, blanket contractual, explosion, collapse and underground coverage, broad form property damage, personal injury 38 insurance, independent contractors and the hostile fire exception to the pollution liability exclusion with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage provided that policy aggregates, if any, shall apply separately to the Project. A maximum deductible or self-insured retention of $25,000 per occurrence shall be allowed. 10.1.2 Automobile Liability Insurance: Automobile liability insurance against claims for personal injury (including bodily injury and death) or property damage arising out of the use of all owned, leased, non-owned and hired motor vehicles including loading and unloading with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage and containing appropriate no-fault insurance provisions where applicable. A maximum deductible or self-insurance retention of $25,000 per occurrence shall be allowed. 10.1.3 Workers' Compensation Insurance: Workers' compensation insurance as required by applicable Legal and Contractual Requirements. A maximum deductible or self-insured retention of $25,000 per occurrence shall be allowed. 10.1.4 Employer's Liability Insurance: Employer's liability insurance for all employees of the Operator with a $1,000,000 minimum limit per accident. A maximum deductible or self-insured retention of $25,000 shall be allowed. 10.1.5 Excess Insurance: Excess liability insurance on an occurrence basis covering claims in excess of the underlying insurance described in the foregoing subsections (1), (2) and (4) with a $10,000,000 minimum limit per occurrence; provided, that aggregate limits of liability, if any, shall apply separately to the Project. 10.1.6 Aircraft Insurance: If the performance of Operators obligations under this Agreement requires the use of any aircraft that is owned, leased or chartered by the Operator, aircraft liability insurance with a $25,000,000 minimum limit per occurrence for property damage and bodily injury, including passengers and crew. All policies of liability insurance to be maintained by Operator shall be endorsed (a) to 39 provide a severability of interest or cross liability clause; (b) to name Owner, the Agent and their respective directors, officers, employees and agents as additional insureds; and (c) that the insurance shall be primary and not excess to or contributing with any insurance or self-insurance maintained by Owner or the Banks. 10.2 Insurance Requirements of Owner. Owner shall maintain insurance required to be maintained by it pursuant to the terms of the ESA. In the event that the ESA is terminated, Owner shall, for the remaining term of this Agreement, maintain insurance of the types and in the amounts required to be maintained by it pursuant to the ESA as of the date hereof. 10.3 Primary and Excess Insurance. The amounts of insurance required in the Sections 10.1.1, 10.1.2, 10.1.3, 10.1.4 and 10.1.5 may be satisfied by the Operator purchasing coverage in the amounts specified or by any combination of primary and excess insurance, so long as the total amount of insurance meets the requirements specified above. 10.4 Evidence of Insurance. On or prior to the earlier of the Project Mobilization Date or the Leased Equipment Mobilization Date, each Party shall provide to the other pursuant to the notice provisions of Article XVI, properly executed certificates of insurance, signed by an authorized representative of the insurance carrier. Such insurance certificates shall provide the following information: (i) name of insurance company, policy number and expiration date, (ii) coverage required and the limits on each, including the amount of deductibles and self- insured retentions, (iii) a statement indicating that sixty (60) days notice of cancellation, nonrenewal, or material change in coverage with respect to any of the policies shall be given to each named insured and any additional insured, and (iv) named and additional insureds. 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, upon reasonable prior written notice. 10.5 Additional Insurance Requirements. As respects all insurance required hereunder, the policies will provide for mutual waivers of subrogation in favor of each Party to this Agreement and the Agent and their respective directors, officers, employees and agents. Each Party shall be responsible for the deductible portion of any claim filed under the insurance required hereunder. As respects all insurance required hereunder, such insurance shall be maintained with insurance companies authorized to do business in the State of Illinois and rated "A-" or better with a minimum size rating of "VIII" as rated by Best Insurance Guide and Key Ratings (or an equivalent rating by another widely 40 recognized insurance rating agency of similar standing) or other insurance companies of recognized financial responsibility satisfactory to both Owner and Operator. 10.6 Changes in Insurance Requirements. In the event the Agent, pursuant to the Financing Agreements, amends the requirements or approved insurance companies applicable to this Section 10, this Section 10 shall be likewise amended. In the event any insurance (including the limits or deductibles thereof) hereby required to be maintained shall not be reasonably available and commercially feasible in the commercial insurance market, Operator shall notify Owner of such fact and shall provide Owner evidence thereof ARTICLE XI. REPRESENTATIONS AND WARRANTIES OF THE PARTIES 11.1 Owner Representations and Warranties. Owner represents and warrants to Operator as follows: 11.1.1 Owner is a limited liability company duly formed, validly existing, and in good standing under the laws of Delaware, and is properly qualified to do business in Illinois; 11.1.2 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 the Owner; 11.1.3 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 11.1.4 This Agreement, as executed, constitutes a binding legal obligation of Owner that is enforceable in accordance with its terms and conditions. 11.2 Operator Representations and Warranties. Operator represents and warrants to Owner as follows: 11.2.1 Operator is a corporation duly incorporated, validly existing, and in good standing under the laws of Delaware, and is properly qualified to do business in Illinois; 41 11.2.2 The execution of this Agreement by Operator has been duly authorized and approved by Operator, and no other authorizations, approvals or consents are required in order for this Agreement to constitute a binding and enforceable legal obligation of Operator; 11.2.3 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 11.2.4 This Agreement, as executed, constitutes a binding legal obligation of Operator that is enforceable in accordance with its terms and conditions. ARTICLE XII. EVENTS OF DEFAULTS; REMEDIES 12.1 Owner Default. Each of the following events shall constitute a default by Owner hereunder except, if and to the extent excused by, a Force Majeure event, or the fault, action or inaction of Operator: 12.1.1 The failure by Owner to fulfill any of its material obligations hereunder following receipt of written notice thereof from Operator, unless Owner shall have cured the same within thirty (30) days from the date of receipt of such notice or within such longer period as may be reasonably required to cure such failure given the nature thereof, provided that Owner proceeds and continues with diligence to correct such failure. 12.1.2 Owner (i) commences any insolvency proceedings with respect to itself, or (ii) makes any general assignment for the benefit of its creditors, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due or takes any action to effectuate or authorize any of the foregoing actions. 12.1.3 Any involuntary insolvency proceedings are commenced or filed against Owner or any writ, judgment, warrant, or attachment, execution or similar process is issued or levied against all or a substantial part of Owner's properties, and any such involuntary insolvency proceedings shall not be dismissed, or such writ, judgment, warrant of attachment, execution or 42 similar process shall not have been released, vacated or fully bonded within sixty (60) days after commencement, filing or levy, or (i) any court of competent jurisdiction shall issue a decree for relief in any such case; (ii) Owner admits the material allegations of the petition against it in any insolvency proceeding or an order for relief is ordered in such insolvency proceedings; or (iii) Owner acquiesces to the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent thereof) or other similar person for itself or a substantial portion of its properties or business. 12.1.4 The failure of Owner to make any undisputed payment due Operator herein within thirty (30) days of the due date. Failure to make any such payment shall not be excused by Force Majeure events. 12.2 Operator Default. Each of the following events shall constitute default by Operator hereunder except, if and to the extent excused by, a Force Majeure event, or the fault, action, or inaction of Owner: 12.2.1 The failure to make any undisputed payment due Owner hereunder within thirty (30) days of the date such payment is due. Failure to make any such payment shall not be excused by a Force Majeure event. 12.2.2 The failure by Operator to fulfill its material responsibilities hereunder after receipt of written notice thereof from Owner, unless Operator shall have cured the same within thirty (30) days after the date of receipt of such notice, or within such longer period as may be reasonably required to cure such failure given the nature thereof, provided that Operator proceeds and continues with diligence to correct such failure. 12.2.3 The payment by Operator of the Maximum Liquidated Damages (or the obligation to pay) pursuant to Section 8.1 and 8.2 in any two consecutive Operating Years during the term hereof, or the payment of such damages in any four (4) Operating Years by Operator; provided, that no default shall arise under this Section 12.2.3 if the payment of such Maximum Liquidated Damages arises from a single event. 12.2.4 Operator (i) commences any insolvency proceedings with respect to itself, or (ii) makes any general assignment for the benefit of its creditors, or generally fails to pay, or admits in writing its inability to pay, its debts as 43 they become due or takes any action to effectuate or authorize any of the foregoing actions. 12.2.5 Any involuntary insolvency proceedings are commenced or filed against Operator or any writ, judgment, warrant, or attachment, execution or similar process is issued or levied against all or a substantial part of Operator's properties, and any such involuntary insolvency proceedings shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not have been released, vacated or fully bonded within sixty (60) days after commencement, filing or levy, or (i) any court of competent jurisdiction shall issue a decree for relief in any such case; (ii) Owner admits the material allegations of the petition against it in any insolvency proceeding or an order for relief is ordered in such insolvency proceedings; or (iii) Operator acquiesces to the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent thereof) or other similar person for itself or a substantial portion of its properties or business. 12.2.6 The occurrence of an event of default under the NRG Guaranty. 12.2.7 The failure of Operator on two separate occasions during the term hereof to deliver Steam to Millennium meeting the requirements of the ESA; provided, that no such event shall be considered as such an occasion if (a) such event arises from defective design or equipment, (b) the failure to discover such defect was not the result of Operator negligence, (c) Operator identifies and repairs such defect and (d) no subsequent failure to deliver Steam to Millennium shall have arisen from the same defect. 12.2.8 Operator's performance shall cause Owner to incur operation and maintenance expenses in any Operating Year that exceed the amounts provided therefor in the Annual Operating Plan and Budget, as amended by any Change Order, by more than five percent (5%). 12.3 Remedies. In the case of a default by a Party, the non- defaulting Party shall have the right to seek any and all available remedies from the arbitration panel established pursuant to Article XIII for any default hereunder. All rights and remedies of the Parties shall be cumulative, and may, to the extent permitted by law, be exercised concurrently or separately, and the exercise of one right or remedy shall not be deemed to be an election of such right or remedy or to preclude or waive the exercise of any other right or remedy. 44 12.4 Certain Remedies of Owner and Millennium for Selected Operator Defaults. In addition to the remedies set out in Section 12.3, Owner shall have the right to terminate this Agreement, without resort to the arbitration procedures set out in Article XIII, if (a) Operator is in default under Section 12.2.3 or Section 12.2.7 hereof, (b) Operator is in default a second time under Section 12.2.8 hereof, (c) the heat rate of the Project for any Operating Year is greater than three percent (3%) above the Guaranteed Heat Rate for such Operating Year, or (d) the Owner is required to pay more than one million five hundred thousand dollars ($1,500,000) in Operator Standby Power Costs in any Operating Year; provided, that Operator may cure a default under this Section 12.4(d) by paying to Owner an amount equal to the entire amount of the excess of such Operator Standby Power Costs over one million five hundred thousand dollars ($1,500,000); provided further, that Operator may not cure any such default if the amount of such Operator Standby Power Costs exceeds one million nine hundred thousand dollars ($1,900,000). Upon such termination, Operator shall turn over to Owner care, custody and control of the Project and the Leased Equipment, and shall assign such subcontracts for services provided hereunder as Owner may request. Operator shall also turn over all spare parts and other consumables in the inventory. Operator shall cooperate with Owner and any replacement operator in a transition of operation and maintenance responsibilities. In addition, in the event that Operator fails to deliver Steam to Millennium pursuant to the requirements of the ESA, Millennium shall have the right to immediately re-assume operating control of the Leased Equipment without affording Operator a cure period, pending the outcome of any arbitration proceedings under Article 27 of the ESA. Operator will cooperate with Millennium during any such period, and shall only be entitled to re-assume operating control of the Leased Equipment once Owner and Millennium are satisfied that Operator can meet its responsibilities under this Agreement. During any period in which Millennium has assumed operating control of the Leased Equipment, the Annual Fee to be paid to Operator shall be reduced by twenty-five percent (25%) and Operator shall not be entitled to any bonus under Section 8.4. 12.5 Consequential Damages. Except for any liquidated damages payable by Operator under Sections 8.1 and 8.2 hereof, neither Party shall be liable to the other for incidental, indirect, punitive, exemplary, special or consequential losses or damages, including, but not limited to, loss of profits or loss of revenue by reason of, or arising out of, such Party's performance or non-performance of its obligations hereunder. 12.6 Operator's Right to Suspend and Terminate. 45 12.6.1 Suspension Events. Each of the following events shall constitute "Suspension Events": (a) Any Emergency shall, in the reasonable judgement of Operator, pose a threat to the health or safety of Operator's employees or others, expose Operator or its officers, directors or employees to criminal liability or to civil liability for which Operator will not be compensated pursuant to this Agreement, or pose a threat to the safety and security of the Project, the Leased Equipment or the Morris Plant, and such Emergency cannot, in the reasonable judgement of Operator, be resolved without suspending operations. (b) Thirty (30) days shall have elapsed without payment of undisputed portions of an Operator invoice, after Operator shall have given written notice to Owner that such invoice is thirty (30) days past due. 12.6.2 Suspension of Operations. Upon the occurrence and during the continuation of a Suspension Event, Operator shall have the right to suspend performance of services pursuant to this Agreement; provided, that if such Suspension Event shall have arisen under (a) Section 12.6.1(a), such suspension shall be of no greater scope nor of any longer duration than is necessary in order to mitigate or avoid the threat to health or safety or of civil or criminal liability, and (b) Section 12.6.1(b), such suspension shall terminate immediately upon payment of the undisputed portion of such invoice. 12.6.3 Termination of Agreement. In the event that (a) Operator shall have exercised its right to suspend operations pursuant to Section 12.6.2, and (b) sixty (60) or more days have elapsed since such suspension without the re-commencement of operations, Operator shall have the right to terminate this Agreement upon written notice to Owner. 12.7 Owner's Right to Terminate for Convenience. Owner shall have the right to terminate at any time for its own convenience upon (a) delivery of one hundred twenty (120) days prior written notice to Operator, and (b) payment to Owner of a demobilization fee in an amount equal to three (3) times the Annual Operator's Fee as of 46 the date of such notice of termination. Owner shall also pay all demobilization expenses as contemplated in Section 7.4. ARTICLE XIII. DISPUTE RESOLUTION 13.1 Initial Dispute Resolution Procedure. In the event a dispute arises between the Operator and the Owner regarding the application or interpretation of any provision of this Agreement, the aggrieved Party shall promptly, and in any event within ten (10) Business Days, after such dispute arises, notify the other Party to this Agreement of the dispute in writing. If the Parties 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 Millennium Project Site, or at any other mutually agreeable location, to resolve the dispute. 13.2 Binding Arbitration. Should the Parties be unable to resolve the dispute to their mutual satisfaction within thirty (30) Business Days after such nomination of its senior officers, either Party may refer the dispute to binding arbitration pursuant to the arbitration rules of the American Arbitration Association. All arbitration proceedings shall be held in Chicago, Illinois, unless the Parties agree otherwise. The expenses of the arbitration panel shall be borne equally by the Parties. The decision of the arbitration panel shall be in writing, shall set forth the reasons for the decision, and shall be binding on the Parties as to any matter or matters submitted to arbitration, and, to the extent permitted by applicable law, there shall be no appeal from any award made thereunder. Each Party shall continue to perform its respective obligations under this Agreement pending the decision of the arbitration panel. 13.3 Enforcement. In the event either Party refuses or otherwise fails to abide by the decision rendered by the arbitration panel, judgment may be entered against such Party pursuant to such decision in accordance with applicable law in any court having jurisdiction thereof. ARTICLE XIV. FORCE MAJEURE 14.1 Effect on Performance of Obligations. 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: 47 (a) The non-performing Party, as promptly as practicable after the occurrence of the Force Majeure, but in no event later than fourteen (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 the 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. ARTICLE XV. PROVISION OF GUARANTEE OF NRG ENERGY, INC. Concurrently with the execution of this Agreement, Operator shall deliver to Owner the NRG Guaranty. ARTICLE XVI. NOTICES 16.1 General Requirements. All notices and other communications required or permitted by this Agreement shall become effective when delivered (including by messenger or courier) or when received by facsimile, telex, telegram or such other method of telecommunication as is capable of creating a writing. 16.2 Addresses of the Parties. All notices and other communications shall be forwarded to the Parties at the following addresses, or facsimile numbers, or at such substitute addresses or substitute facsimile numbers as a Party may designate by written notice to the other Party in the manner specified herein: If to Owner: NRG (Morris) Cogen, LLC 1221 Nicollet Mall Minneapolis, Minnesota Facsimile: 612-373-5430 Attention: President 48 With a copy to: NRG Energy, Inc. 1221 Nicollet Mall Minneapolis, Minnesota Facsimile: 612-373-5392 Attention: General Counsel If to Operator:NRG Morris Operations Inc. 1221 Nicollet Mall Minneapolis, MN Facsimile: ______________________ Attention: ______________________ With a copy to: NRG Energy, Inc. 1221 Nicollet Mall Minneapolis, Minnesota Facsimile: 612-373-5392 Attention: General Counsel ARTICLE XVII. LENDER CURE RIGHTS Operator acknowledges that Owner intends to finance the Project through non-recourse, project financing. As a consequence, Operator agrees that it will provide Agent with an opportunity to cure any alleged default of Owner hereunder, prior to exercising its remedies hereunder. In such circumstances, Agent shall be provided a minimum thirty (30) additional days in which to cure any default of Owner. Operator will also agree to such other reasonable provisions as Agent may request as part of the consent to assignment of this Agreement to the Lenders. In addition, Operator acknowledges that any consent or approval by Owner hereunder may require the consent or approval of Millennium, the Agent or the Lenders. 49 ARTICLE XVIII. APPLICABLE LAW This Agreement shall be governed by, and construed and interpreted in accordance with the laws of Illinois, exclusive of conflicts of laws provisions. ARTICLE XIX. SEVERABILITY In the event that any provision of this Agreement is held to be unenforceable or invalid by any arbitrator appointed pursuant to Article XIII, or by any court of competent jurisdiction, Operator and the Owner shall negotiate an equitable adjustment in the provisions of this Agreement with a view toward effecting the purposes of this Agreement, and the validity and enforceability of the remaining provisions shall not be affected thereby. ARTICLE XX. AMENDMENTS AND WAIVERS This Agreement may not be amended or otherwise changed orally, and any waiver, amendment, modification or supplement hereof must be in writing and executed by both Parties. ARTICLE XXI. ENTIRE AGREEMENT This Agreement constitutes the entire Agreement between the Parties with respect to the subject matter hereof, and supersedes the terms and conditions of any previous agreements or understandings. ARTICLE XXII. EFFECTIVE WAIVERS Either Party's waiver of any breach or failure to enforce any of the terms, covenants, conditions or other provisions of this Agreement at any time shall not, in any way, affect, limit, modify or waive that Party's right thereafter to enforce or compel strict compliance with every term, covenant, condition or other provisions, notwithstanding any course of dealing, course of performance, or custom of trade. ARTICLE XXIII. ASSIGNMENT; SUCCESSORS AND PERMITTED ASSIGNS 23.1 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 the Operator hereunder. Any assignment 50 by Operator in violation hereof shall be null and void. Owner may, without the consent of Operator, assign this Agreement as collateral to Agent. 23.2 This Agreement shall be binding upon, and inure to the benefit of, the Parties hereto and their respective successors and permitted assigns. ARTICE XXIV. EXECUTION IN COUNTERPARTS; ACCEPTABILITY OF COPIES TRANSMITTED BY FACSIMILE This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same Agreement. 51 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement effective as of the date and year first set forth above. NRG (MORRIS) COGEN, LLC NRG MORRIS OPERATIONS INC. By: /s/ Craig Mataczynski By: /s/ Ronald J. Will Its: President Its: President EXHIBIT A-1 Initial Annual Operating Plan and Budget EXHIBIT A-2 Initial Major Maintenance Budget EXHIBIT B Form of Limited Guaranty EXHIBIT C Mobilization Schedule of Deliverables EX-10.27.15 32 EXHIBIT 10.27.15 FIRST AMENDMENT TO OPERATION AND MAINTENANCE AGREEMENT DATED DECEMBER 10, 1997 BETWEEN COGEN, LLC AND NRG MORRIS OPERATIONS INC. Exhibit 10.27.15 FIRST AMENDMENT to OPERATION AND MAINTENANCE AGREEMENT This FIRST AMENDMENT to OPERATION AND MAINTENANCE AGREEMENT is entered into as of December 10, 1997 by and between NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Owner") and NRG Morris Operations Inc. (the "Operator"). WHEREAS, Owner and Operator are parties to that certain Operation and Maintenance Agreement dated as of September 19, 1997 (the "O&M Agreement"); WHEREAS, Owner and Operator wish to amend the O&M Agreement as herein provided; NOW, THEREFORE, Owner and Operator hereby agree as follows: 1. The definition of the term "Agent" in Article I of the O&M Agreement shall be deleted in its entirety and the following shall be substituted therefor: "Agent" means any agent appointed by the Lender(s) under the Financing Agreements. 2. Section 4.1.16 of the O&M Agreement shall be amended by adding the following sentences to the end thereof: Owner shall have the right upon 30 days' written notice documenting the basis for such action, to require Operator to remove for cause the person selected as the Plant Manager, subject to an Operator's 30-day cure period (but absent such a cure, Operator will remove such person from such position following such a request by Owner). As soon as practicable after any such removal, Operator shall appoint a new Plant Manager after first obtaining Owner's consent to such new appointment. Owner will not exercise its right to require such removal in any manner that causes Operator to violate applicable labor laws, based on a written opinion of outside counsel of the Operator. 3. Section 4.2.9 of the O&M Agreement shall be amended by adding the following to the end thereof: Operator and Owner shall cooperate to maximize excess energy sales and manage plant operating margins. Owner and Operator shall work to agree to a detailed plan to accomplish such objectives prior to Commercial Operation. 4. Section 10.1 of the O&M Agreement shall be deleted in its entirety and the following shall be substituted therefor: 10.1 Insurance Requirements of Operator. Unless Owner shall advise Operator that Owner has satisfied the following requirements in whole or in part by naming Operator as a named insured on Owner's insurance policies, Operator shall procure and maintain in full force and effect at all times that the Project is being operated (and, in any event, no later than the date on which Operator has employees at the Project), insurance policies with limits and coverage provisions in no event less than the limits and coverage provisions set forth below. 10.1.1 General Liability Insurance: Liability insurance on an occurrence basis against claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide coverage for products-completed operations, blanket contractual, explosion, collapse and underground coverage, broad form property damage, personal injury insurance, independent contractors and the hostile fire exception to the pollution liability exclusion with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage; provided that the policy general aggregate, if any, shall apply separately to the Project. A maximum deductible or self-insured retention of $500,000 per occurrence shall be allowed. 10.1.2 Automobile Liability Insurance: Automobile liability insurance against claims for personal injury (including bodily injury and death) or property damage arising out of the use of all owned, leased, non-owned and hired motor vehicles including loading and unloading with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage and containing appropriate no-fault insurance provisions where applicable. A maximum deductible or self-insured retention of $500,000 per occurrence shall be allowed. 10.1.3 Workers' Compensation Insurance: Workers' compensation insurance as required by applicable Legal and Contractual Requirements. A maximum deductible or self-insured retention of $500,000 per occurrence shall be allowed. 10.1.4 Employer's Liability Insurance: Employer's liability insurance for all employees of the Operator with a $1,000,000 minimum limit per accident. A maximum deductible or self-insured retention of $500,000 shall be allowed. 10.1.5 Excess Insurance: Excess liability insurance on an occurrence basis (or modified AEGIS claims made form) covering claims in excess of the underlying insurance described in Sections 10.1.1, 10.1.2 and 10.1.4 hereof with a $10,000,000 minimum limit per occurrence; provided, that the general aggregate limit of liability, if any, shall apply separately to the Project. 10.1.6 Aircraft Insurance: If the performance of Operator's obligations under this Agreement requires the use of any aircraft that is owned, leased or chartered by Operator, aircraft liability insurance with a $25,000,000 minimum limit per occurrence for property damage and bodily injury, including passengers and crew. All policies of liability insurance to be maintained by Operator shall be endorsed (a) to provide a severability of interests or cross liability clause; (b) to name Owner, the Agent and their respective directors, officers, employees and agents as additional insureds; and (c) to provide that the insurance shall be primary and not excess to or contributing with any insurance or self-insurance maintained by Owner or the Lenders. 5. Section 12.4 of the O&M Agreement shall be deleted in its entirety and the following shall be substituted therefor: 12.4 Certain Remedies of Owner and Millennium for Selected Operator Defaults. In addition to the remedies set out in Section12.3, Owner shall have the right to terminate this Agreement, without resort to the arbitration procedures set out in Article XIII, if (a) Operator is in default under Section12.2.3 or Section 12.2.7 hereof, (b) Operator is in default a second time under Section 12.2.8 hereof, (c) the heat rate of the Project for any Operating Year is greater than three percent (3%) above the Guaranteed Heat Rate for such Operating Year, (d) the Owner is required to pay more than one million five hundred thousand dollars ($1,500,000) in Operator Standby Power Costs in any Operating Year; provided, that Operator may cure a default under Section 12.4(d) by paying to Owner an amount equal to the entire amount of the excess of such Operator Standby Power Costs over one million five hundred thousand dollars ($1,500,000); provided further, that Operator may not cure any such default if the amount of such Operator Standby Power Costs exceeds one million nine hundred thousand dollars ($1,900,000) , or (e) NRG Energy, Inc. ("NRG Energy") directly or indirectly owns less than ten percent (10%) of the outstanding common stock (the "Stock") of NRG Generating (U.S.), Inc. ("NRGG") as a result of a sale of Stock by NRG; provided, that, if it has not been previously exercised, Owner's right to exercise its termination rights under this Section 12.4(e) shall be suspended for no more than 180 days during any period in which NRG Energy is, directly or indirectly, reaquiring an aggregate amount of Stock equal to or in excess of ten percent (10%) of the Stock. Upon any such termination, Operator shall turn over to Owner care, custody and control of the Project and the Leased Equipment, and shall assign such subcontracts for services provided hereunder as Owner may request. Operator shall also turn over all spare parts and other consumables in the inventory. Operator shall cooperate with Owner and any replacement operator in a transition of operation and maintenance responsibilities. In addition, in the event that Operator fails to deliver Steam to Millennium pursuant to the requirements of the ESA, Millennium shall have the right to immediately re-assume operating control of the Leased Equipment without affording Operator a cure period, pending the outcome of any arbitration proceedings under Article27 of the ESA. Operator will cooperate with Millennium during any such period, and shall only be entitled to re-assume operating control of the Leased Equipment once Owner and Millennium are satisfied that Operator can meet its responsibilities under this Agreement. During any period in which Millennium has assumed operating control of the Leased Equipment, the Annual Fee to be paid to Operator shall be reduced by twenty-five percent (25%) and Operator shall not be entitled to any bonus under Section 8.4. 6. To the extent Operator had in effect insurances meeting the requirements set forth above in Section 4 of this Amendment, Owner hereby waives any failure by Operator to meet the requirements of Section 10.1 of the O&M Agreement prior to the date hereof. 7. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the O&M Agreement or any other agreement referred to therein, or prejudice any right or rights which Owner or Operator may now have or may have in the future under or in connection with the O&M Agreement. Except as expressly modified hereby, the terms and provisions of the O&M Agreement shall continue in full force and effect. All references to the O&M Agreement shall hereafter be deemed to refer to the O&M Agreement as modified hereby. 8. This Amendment may be executed in separate counterparts by Owner and Operator, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. A complete set of counterparts shall be delivered to each of Owner and Operator. 9. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF ILLINOIS, BUT WITHOUT GIVING EFFECT TO.CONFLICTS OF LAW PROVISIONS. 10. This Amendment shall become effective on the date when the Agent has consented in writing to the execution hereof by Owner pursuant to the terms of the Financing Agreements. IN WITNESS WHEREOF, Owner and Operator have caused their duly authorized representatives to execute and deliver this Amendment as of the date first above written. NRG (MORRIS) COGEN, LLC By /s/ Craig Mataczynski Name: Craig Mataczynski Title: President NRG MORRIS OPERATIONS INC. By Ronald J. Will Name: Ronald J. Will Title: President EX-10.27.16 33 EXHIBIT 10.27.16 ASSIGNMENT, ASSUMPTION AND Consent, dated as of December 30, 1997 among NRG Energy, NRGG Funding, the Company and Equistar Chemicals, LP a successor in interest to Millennium Petrochemicals, Inc. Exhibit 10.27.16 ASSIGNMENT, ASSUMPTION AND CONSENT This Assignment, Assumption and Consent is made on this 30th day of December, 1997, by and between NRG Energy, Inc., a Delaware corporation (the Assignor), NRG Generating (U.S.) Inc., a Delaware corporation ("NRGG"), NRGG Funding Inc., a Delaware corporation and wholly-owned subsidiary of NRGG (the "Assignee") and Equistar Chemicals LP, a Delaware limited partnership, as successor in interest to Millennium Petrochemicals Inc. ("Millennium Petrochemicals"). RECITALS A. That certain Energy Services Agreement dated as of June 3, 1997, as amended by letter agreements dated August 28, 1997 and September 19,1997 (as so amended, the "ESA") by and between NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Company") and Millennium Petrochemicals Inc., sets forth certain obligations of Assignor to Equistar pursuant to Sections 19.1, 19.3 and 19.5 thereof. Assignor acknowledged such obligations with respect to Section 19.3 of the ESA in a letter dated June 6, 1997. Assignor has also subsequently orally acknowledged its obligations to Equistar under Sections 19.1 and 19.5 of the ESA. B. Pursuant to that certain Membership Interest Purchase Agreement dated December 10, 1997 (the "PSA"), Assignor, is transferring all of its membership interests in the Company to Assignee. C. Assignor and Assignee desire to assign to Assignee all of Assignor's obligations under Sections 19.1, 19.3 and 19.5 of the ESA. NOW, THEREFORE, in consideration of these recitals which are hereby incorporated herein and of the mutual covenants herein set forth and other good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed: 1. Assignment By Assignor. Assignor hereby assigns and transfers to Assignee any and all of Assignor's obligations under Sections 19.1, 19.3 and 19.5 of the ESA (all such obligations, the "Obligations"). 2. Acceptance, Assumption and Indemnification by Assignee. Assignee hereby accepts the foregoing assignment and promises and agrees to assume all of the Obligations and to comply with the Obligations. Assignee shall indemnify and hold Assignor harmless from any and all claims, demands, actions, causes of action, suits, proceedings, damages, liabilities, costs and expenses of every nature whatsoever, including reasonable attorneys' fees, relating to the Obligations arising from or after the date hereof. 3. Consent. Equistar hereby consents to the assignment herein of the Obligations from Assignor to Assignee. 4. NRGG Commitment. NRGG agrees and covenants with Equistar to cause Assignee to comply with the assumed Obligations and further agrees not to sell, assign or otherwise dispose of any of the stock of Assignee, without the prior written consent of Equistar under Section 19.3 of the ESA, unless NRGG, after giving effect to such sale, assignment or other disposition, directly or indirectly owns 100% of the membership interests of the Company, and if any subsidiary of NRGG other than Assignee owns any portion of the membership interests of the Company, NRGG will cause such subsidiary to undertake the obligations in Sections 19.1, 19.3 and 19.5 of the ESA assumed by Assignee herein and will agree and covenant to cause such subsidiary to comply with such obligations. 5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6. Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, excluding conflicts of law provisions. 7. Agreement Binding. This Agreement shall be binding upon the successors and assigns of the parties hereto. The parties shall execute and deliver such further and additional instruments, agreements and other documents as may be necessary to evidence or carry out the provisions of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representative to execute this Amendment as of the day and year first above written. "Assignor" NRG ENERGY, INC. By:/s/ Craig Mataczynski Name: Craig Mataczynski Title: Vice President U.S. Business Development "Assignee" NRGG FUNDING INC. By:/s/ Robert T. Sherman Name: Robert T. Sherman Title: President & CEO "NRGG" NRG GENERATING (U.S.) INC. By:/s/ Robert T. Sherman Name: Robert T. Sherman Title: President "Equistar" EQUISTAR CHEMICALS LP By:/s/ Eugene R. Allspach Name: Eugene R. Allspach Title: President EX-10.27.17 34 EXHIBIT 10.27.17 LIMITED GUARANTY DATED SEPTEMBER 19, 1997 by NRG Energy for the benefit of Cogen, LLC. Exhibit 10.27.17 Limited Guaranty This Limited Guaranty (this "Guaranty") is made on this 19th day of September, 1997, by NRG Energy, Inc., a Delaware corporation, with its principal offices located at 1221 Nicollet Mall, Minneapolis, Minnesota (the "Guarantor") for the benefit of NRG (Morris) Cogen, LLC, a Delaware limited liability company with its principal offices located at 1221 Nicollet Mall, Minneapolis, Minnesota (the "Principal"). Guarantor and Principal are sometimes collectively referred to as the "Parties" and individually as a "Party." R E C I T A L S WHEREAS, Principal is in the process of developing a nominal 117 megawatt gas-fired cogeneration project (the "Project") at the Morris, Illinois, chemical production facility owned by Millennium Petrochemicals Inc.; and WHEREAS, Principal intends to contract with NRG Morris Operations Inc. (the "Operator"), an affiliate of Guarantor, pursuant to that certain Operation and Maintenance Agreement dated as of September 19, 1997 (the "O&M Agreement") for the operation and maintenance of the Project; and WHEREAS, in order to induce Principal to enter into the Operation and Maintenance Agreement with Operator, Guarantor is prepared to provide a limited guaranty of certain of Operator's obligations thereunder; and WHEREAS, Principal acknowledges that this is a limited guaranty of Operator's obligations based on the terms set out herein; and WHEREAS, unless otherwise defined, capitalized terms used herein shall have the meanings ascribed to such terms in the O&M Agreement; NOW, THEREFORE, in consideration of the O&M Agreement between Principal and Operator and the covenants of the Parties contained herein, Guarantor hereby covenants with Principal as follows: 1. Scope and Effective Date of Guaranty. Guarantor hereby guaranties to Principal the payment by Operator when due of up to a maximum of one million two hundred thousand dollars ($1,200,000) in liquidated damages potentially owed by Operator to Principal under Sections 8.1 and/or 8.2 of the O&M Agreement (the "Guarantied Obligations"). No more than four hundred thousand dollars ($400,000) of such damages shall be guarantied by Guarantor in any Operating Year. No other obligations of Operator under the O&M Agreement are covered by this Guaranty. This Guaranty shall become effective and enforceable upon the Effective Date under the O&M Agreement. 2. Failure of Operator to pay Liquidated Damages. If Operator (unless relieved from its obligation to pay liquidated damages under Sections 8.1 and/or 8.2 of the O&M Agreement by statute or by the decision of an arbitration panel or tribunal of competent jurisdiction) shall in any respect fail to pay liquidated damages owed to Principal under Sections 8.1 and/or 8.2 of the O&M Agreement, then Guarantor will, upon receipt of notice that such damages are due and of Operator's failure to pay same, pay such amounts, up to a maximum of four hundred thousand dollars ($400,000) in any Operating Year, and up to a maximum of one million two hundred thousand dollars ($1,200,000) during the term of the O&M Agreement. Payment shall be by wire transfer in immediately available funds to an account designated by Principal, or Principal's Lender. Payment will be made within ten (10) Business Days of receipt of notice by Guarantor or in the event that Operator disputes such damages, within ten (10) Business Days of a final decision of the arbitration panel established pursuant to Article XIII of the O&M Agreement. In the event Operator disputes such damages, and pursues dispute resolution proceedings pursuant to such Article XIII with due diligence, Guarantor shall have no obligation to Principal until the final decision of the arbitration panel is issued. 3. Modifications to the O&M Agreement. The Guarantor shall not be discharged or released from, and its liability shall not be affected under this Guaranty, by any arrangement which may be made between Operator and the Principal or by any forbearance by the Principal whether as to payment, time of performance or by anything else which might otherwise have any such effect at law or in equity. Operator is expressly authorized to amend, supplement, or otherwise modify the O&M Agreement, waive compliance by the Principal with the terms thereof, and settle or compromise any of the Guarantied Obligations without notice to the Guarantor, and without in any manner affecting the absolute liabilities of the Guarantor hereunder. 4. Nature of Guaranty. This Guaranty is an absolute, unconditional, irrevocable and continuing guaranty of payment of the Guarantied Obligations, and the obligations of the Guarantor hereunder shall not be released, in whole or in part, by any action or thing which might, but for this provision of this Guaranty, be deemed a legal or equitable discharge of a surety or guarantor, other than irrevocable payment in full of the Guarantied Obligations. No notice of the Guarantied Obligations to which this Guaranty may apply, or any renewal or extension thereof, need be given to the Guarantor, and none of the foregoing acts shall release the Guarantor from liability hereunder. The Guarantor hereby expressly waives (a) demand of payment, presentment, protest, or notice of dishonor for non-payment of the Guarantied Obligations; (b) notice of acceptance of this Guaranty and notice of any liability to which it may apply; and (c) all other notices and demands of any kind and description relating to the Guarantied Obligations now or hereafter provided for by any agreement, statute, law, rule, or regulation. The Guarantor shall not be exonerated with respect to the Guarantor's liabilities under this Guaranty by any act or thing except irrevocable payment of the Guarantied Obligations, it being the purpose and intent of this Guaranty that covenants, agreements, and all obligations of the Guarantor hereunder be absolute, unconditional, and irrevocable. No invalidity, irregularity, or unenforceability of all or any part of the Guarantied Obligations shall affect, impair, or be a defense of this Guaranty. The liabilities of the Guarantor herein shall not be affected or impaired by any failure, delay, neglect or omission on the part of Principal to realize upon any of the Guarantied Obligations of Operator to the Principal nor by the taking by Principal of (or the failure to take) any other guaranty or guaranties to secure the Guarantied Obligations, nor by the taking by the Principal (or the failure to take or the failure to perfect any security interest in or other lien on) of collateral or security of any kind. No act or omission of the Principal, whether or not such action or failure to act varies or increases the risk, or affects the rights or remedies, of the Guarantor, shall affect or impair the obligations of the Guarantor hereunder. The Guarantor acknowledges that this Guaranty is in effect and binding as of the Effective Date without reference to whether this Guaranty is signed by any other person, that possession of this Guaranty by Principal shall be conclusive evidence of due delivery hereof by the Guarantor and that this Guaranty shall continue in full force and effect notwithstanding the release of or extension of time provided to any other guarantor of the Guarantied Obligations or any part thereof. 5. Waiver of Subrogation and Contribution Rights. Prior to the irrevocable payment in full of the Guarantied Obligations hereunder, the Guarantor waives all rights of subrogation to any of the rights of Principal against Operator, and the Guarantor waives all rights to seek any recourse against, or contribution or reimbursement from, Operator in respect of payments made by the Guarantor hereunder. 6. Set Aside of Payments made by Operator to Principal. If any payment received by the Principal and applied to the Guarantied Obligations is subsequently set aside, recovered, rescinded, or required to be returned for any reason (including without limitation, the bankruptcy, insolvency or reorganization of Operator), the Guarantied Obligations to which such payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence, notwithstanding such application, and this Guaranty shall be enforceable as to such Guarantied Obligations as fully as if such application had never been made. References in this Guaranty to amounts "irrevocably paid" or to "irrevocable payment" refer to payments that cannot be set aside, recovered, rescinded, or required to be returned for any reason. 7. Effect of Bankruptcy Proceedings involving Operator. The Guarantor expressly agrees that the liabilities and Guarantied Obligations of the Guarantor under this Guaranty shall not in any way be impaired or otherwise affected by the institution by or against Operator of any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings, or any other similar proceedings for relief under any bankruptcy law or similar law for the relief of debtors and that any discharge of any of the Guarantied Obligations pursuant to any such bankruptcy or similar law or other law shall not diminish, discharge, or otherwise affect in any way the obligations of the Guarantor under this Guaranty, and that upon the institution of any of the above actions, such obligations shall be enforceable against the Guarantor. 8. Reimbursement of Certain Expenses of Principal. The Guarantor will pay or reimburse the Principal on demand for all out-of-pocket expenses (including in each case all reasonable fees and expenses of counsel) incurred by the Principal arising out of or in connection with the enforcement of this Guaranty against the Guarantor or arising out of or in connection with any failure of the Guarantor to fully and timely perform the obligations of the Guarantor hereunder. 9. Representations and Warranties of Guarantor. Guarantor represents and warrants to Principal as follows: (a) Guarantor is a corporation duly formed, validly existing, and in good standing under the laws of Delaware; (b) Guarantor has the requisite power and authority to execute, deliver and perform the terms and provisions of this Guaranty, (c) the execution, delivery, and performance of this Guaranty have been duly authorized and approved by Guarantor, and no other authorizations, approvals, or consents are required in order for this Guaranty to constitute a binding and enforceable legal obligation of the Guarantor; (d) the execution of this Guaranty by Guarantor and the performance of Guarantor's obligations under this Guaranty will not conflict with, or result in a breach of or default under any agreement, contract, or covenant to which Guarantor is a party or by which Guarantor is bound; and (e) this Guaranty, as executed, constitutes the binding legal obligation of Guarantor that is enforceable in accordance with its terms and conditions, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of rights of creditors generally and except to the extent that enforcement of rights and remedies set forth therein may be limited by equitable principles (regardless of whether enforcement is considered in a court of law or a proceeding in equity). 10. Assignment. This Guaranty may not be assigned by Guarantor without the express prior written approval of Principal. This Guaranty may not be assigned by Principal without the express prior written consent of Guarantor; provided, however, that Principal may assign this Guaranty, without the consent of Guarantor, as collateral for financing for the cogeneration Project which is the subject of the O&M Agreement. Guarantor agrees to execute any consent to assignment which may be reasonably requested by Principal's Lenders. 11. Successors and Permitted Assigns. This Guaranty shall be binding upon, and inure to the benefit of, the successors and permitted assigns of the Parties. 12. Waivers and Amendments. This Guaranty may be waived, modified or amended only by a writing signed by the Principal and Guarantor. A waiver so signed shall be effective only in the specific instance and for the specific purpose given. 13. Expiration of Guarantee. This Guaranty shall expire upon the earliest of (a) the payment by the Guarantor of the maximum amount of Guarantied Obligations set forth in Section 1 above; (b) expiration of the term of the O&M Agreement if no claim has been made by Principal against Guarantor prior to such expiration; or (c) delivery by Operator to Principal of a letter of credit or substitute guaranty, in each case in form and substance satisfactory to Principal, in an amount equal to the remaining obligation of Guarantor hereunder. No extension of this Guaranty shall be effective unless evidenced by written amendment signed by Guarantor. 14. Governing Law. This Guaranty shall in all respects be governed by the laws in force in the state of Minnesota except with regard to such state's choice of law provisions, and the Guarantor hereby submits to the personal jurisdiction of the state and federal courts of the state of Minnesota, and waives any defense based on improper venue or forum non-conveniens. Guarantor agrees to accept service of process by certified mail in any enforcement proceedings. 15. Notices. All notices and other communications required or permitted by this Guaranty shall become effective when delivered (including by messenger or courier) or when received by facsimile or such other method of telecommunication as is capable of creating a writing. All notices and other communication shall be forwarded to the Parties at the following addresses, or facsimile numbers, or at such substitute addresses, or substitute facsimile numbers as the Party may designate by written notice to the other Party in the manner specified herein: If to Principal: NRG (Morris) Cogen, LLC 1221 Nicollet Mall Minneapolis, Minnesota Facsimile: 612-373-5430 Attention: President If to Guarantor: NRG Energy, Inc. 1221 Nicollet Mall Minneapolis, Minnesota Facsimile: 612-373-5392 Attention: General Counsel 16. Severability. In the event that any provision of this Guaranty is held to be unenforceable or invalid by any court of competent jurisdiction, the validity and enforcibility of the remaining provisions shall not be affected thereby. IN WITNESS WHEREOF, the Guarantor has duly signed this Limited Guaranty as of the date and year first above written. NRG Energy, Inc. By:/s/ Craig Mataczynski Name: Craig Mataczynski Title: Vice President EX-10.27.18 35 EXHIBIT 10.27.18 FIRST AMENDMENT TO LIMITED Guaranty, dated as of the 10th day of December, 1997 that amends the Limited Guaranty made by NRG Energy for the benefit of Cogen, LLC dated September 19, 1997. Exhibit 10.27.18 FIRST AMENDMENT TO LIMITED GUARANTY THIS FIRST AMENDMENT to the Limited Guaranty (the "Amendment") is made as of the 10th day of December, 1997 and amends the Limited Guaranty made by NRG Energy, Inc., a Delaware corporation (the "Guarantor") for the benefit of NRG (Morris) Cogen, LLC, a Delaware limited liability company (the "Principal") dated September 19, 1997 (the "Limited Guaranty"). Terms not defined herein shall have the meaning ascribed to them in the Limited Guaranty. W I T N E S S E T H: WHEREAS, the Guarantor has made the Limited Guaranty for the benefit of the Principal; WHEREAS, the Guarantor and Principal have agreed to amend the Limited Guaranty as set forth below; NOW, THEREFORE, the parties hereto hereby agree as follows: Section 1. Amendment to Section 13 1. Section 13 of the Limited Guaranty is hereby amended to read as follows: "13. Expiration of Guaranty. This Guaranty shall expire upon the earliest of (a) the payment by the Guarantor of the maximum amount of Guaranteed Obligations set forth in Section 1 above; (b) expiration of the term of the O&M Agreement if no claim has been made by Principal against Guarantor prior to such expiration; provided, however, that Principal may make claims against Guarantor under this Guaranty that arose prior to the expiration of the O&M Agreement for a period of one hundred twenty (120) days after the expiration of the O&M Agreement; or (c) delivery by Operator to Principal of a letter of credit or substitute guaranty, in each case in form and substance satisfactory to Principal, in an amount equal to the remaining obligation of Guarantor hereunder. No extension of the Guaranty shall be effective unless evidenced by written amendment signed by the Guarantor." Section 2. Miscellaneous 2. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Amendment shall be governed by and construed in accordance with the laws of Minnesota, without giving effect to its provisions regarding conflict of laws. Except as specifically amended hereby the provisions of the Limited Guaranty shall continue in full force and effect. This Amendment contains the entire agreement between the parties hereto as to amendment of the Limited Guaranty, and any representations, endorsements, promises or arrangements, including those contained in any prior drafts of this Amendment, if not embodied herein, shall not be of any force or effect. 3. This Amendment is effective upon the later of (i) the date on which written consent to this Amendment is given by The Chase Manhattan Bank, as agent for Principal's Lenders, and (ii) the date of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representative to execute this Amendment as of the day and year first written above. NRG Energy, Inc. By:/s/ Craig Mataczynski Name: Craig A. Mataczynski Title: Vice President EX-10.31.2 36 EXHIBIT 10.31.2 FORM OF 1997 PLAN INCENTIVE STOCK OPTION AGREEMENT. Exhibit 10.31.2 NRG GENERATING (U.S.) INC. 1997 STOCK OPTION PLAN GRANT OF INCENTIVE STOCK OPTION Date of Grant: ______________________ THIS GRANT, dated as of the date of grant first stated above (the "Date of Grant"), is delivered by NRG Generating (U.S.) Inc. (the "Company") to _____________________ ("Grantee"), who is an Employee of the Company or a Subsidiary. WHEREAS, the Board of Directors of the Company (the "Board") on March 27, 1997 adopted the NRG Generating (U.S.) Inc. 1997 Stock Option Plan (the "Plan") to be effective as of May 1, 1997, and the shareholders of the Company approved the Plan on , 1997; WHEREAS, the Plan provides for the granting of Incentive Stock Options by the Committee to directors, officers and key employees of the Company (excluding officers and directors who are not employees) to purchase shares of the Common Stock of the Company (the "Stock"), in accordance with the terms and provisions thereof; and WHEREAS, the Committee considers Grantee to be a person who is eligible for a grant of Incentive Stock Options under the Plan, and has determined that it would be in the best interest of the Company to grant the Incentive Stock Options documented herein. NOW THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Grant of Option. Subject to the terms and conditions hereinafter set forth, the Company, with the approval and at the direction of the Committee, hereby grants to Grantee, as of the Date of Grant, an option to purchase up to __________ shares of Stock at a price of $___________ per share, its Fair Market Value as of the Date of Grant. The shares of stock purchasable upon exercise of the Option are hereinafter sometimes referred to as the "Option Shares." The Option is intended by the parties hereto to be, and shall be treated as, an Incentive Stock Option under Code Section 422. 2. Installment Exercise. Subject to such further limitations as are provided herein, the Option shall become exercisable in three (3) installments, Grantee having the right hereunder to purchase from the Company the following number of Option Shares upon exercise of the Option, on and after the following dates, in cumulative fashion: (i) on and after the first anniversary of the Date of Grant up to one-third (ignoring fractional shares) of the total number of Option Shares; (ii) on and after the second anniversary of the Date of Grant, up to an additional one-third (ignoring fractional shares) of the total number of Option Shares; and (iii) on and after the third anniversary of the Date of Grant, the remaining Option Shares. 3. Termination of Option. (a) The Option and all rights hereunder with respect thereto, to the extent such rights shall not have been exercised, shall terminate and become null and void after the expiration of ten (10) years from the Date of Grant (the "Option Term"). (b) Upon the occurrence of Grantee's ceasing for any reason to be employed by the Company, the Option, to the extent not previously exercised, shall terminate and become null and void immediately upon the Separation Date, except in a case where the termination of Grantee's employment is by reason of retirement, Disability or death or otherwise as follows. Upon a termination of Grantee's employment by reason of Disability or death, all unexercised portions of the Option shall become immediately exercisable and the Option may be exercised during the period beginning upon such termination and ending one year after such date. In the event of any other termination, the Option may be exercised within the three-month period following the date of retirement, but only to the extent that the Option was outstanding and exercisable upon the date of such retirement. In no event, however, shall any such period extend beyond the Option Term. (c) In the event of Grantee's death, the Option may be exercised by Grantee's legal representative(s) as and to the extent that the Option would otherwise have been exercisable by Grantee, subject to the provisions of Section 3(b) hereof. (d) A transfer of Grantee's employment between the Company and its Parents or Subsidiaries shall not be deemed to be a termination of Grantee's employment. (e) Notwithstanding any other provisions set forth herein or in the Plan, if Grantee shall: (i) commit any act of malfeasance or wrongdoing affecting the Company, its Parents or Subsidiaries, (ii) breach any covenant not to compete, or employment contract, with the Company, its Parents or Subsidiaries), or (iii) engage in conduct that would warrant Grantee's discharge for cause (excluding general dissatisfaction with the performance of Grantee's duties, but including any act of disloyalty or any conduct clearly tending to bring discredit upon the Company, its Parents or Subsidiaries), any unexercised portion of the Option shall immediately terminate and be void. 4. Exercise of Options. (a) Grantee may exercise the Option with respect to all or any part of the number of Option Shares that are exercisable hereunder by giving the Secretary of the Company written notice of intent to exercise. The notice of exercise shall specify the number of Option Shares as to which the Option is to be exercised and date of exercise thereof, which date shall be at least five (5) days after the signing of such notice unless an earlier time shall have been mutually agreed upon. (b) Full payment (in U.S. dollars) by Grantee of the Option Price for Option Shares purchased shall be made on or before the exercise date specified in the notice of exercise in cash, or as the Company may otherwise permit as further set forth in the Plan. On the exercise date specified in Grantee's notice or as soon thereafter as is practicable, the Company shall cause to be delivered to Grantee, a certificate or certificates for the Option Shares then being purchased (out of theretofore unissued Stock or reacquired Stock, as the Company may elect) upon full payment for such Option Shares. The obligation of the Company to deliver Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Option or the Option Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Option or the issuance or purchase of Stock thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 2 (c) If Grantee fails to pay for any of the Option Shares specified in such notice or fails to accept delivery thereof, Grantee's right to purchase such Option Shares may be terminated by the Company or the exercise of the Option may be ignored, as the Committee in its sole discretion may determine. The date specified in Grantee's notice as the date of exercise shall be deemed the date of exercise of the Option, provided that payment in full for the Option Shares to be purchased upon such exercise shall have been received by such date. 5. Adjustment of and Changes in Stock. In the event of a reorganization, recapitalization, change of shares, stock split, spin-off, stock dividend, reclassification, subdivision, or combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure of shares of capital stock of the Company, the Committee shall make such adjustment as it deems appropriate in the number and kind of shares of Stock subject to the Option or in such option price; provided, however, that no such adjustment shall give Grantee any additional benefits under the Option. [Optional Change of Control Provisions In the event of any Corporate Transaction or an event giving rise to a Change in Control, the Option shall be fully vested, nonforfeitable and become exercisable as of the date of the Change in Control or Corporate Transaction or as otherwise determined in accordance with Section 5.5(c) of the Plan. However, in the case of a Corporate Transaction, the Committee may determine that the Option will not be so accelerated if and to the extent (i) such Option is either to be assumed by the successor or parent thereof or to be replaced with a comparable Option to purchase shares of the capital stock of the successor corporation or parent thereof, or (ii) such Option is to be replaced with a cash incentive program of the successor corporation that preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payment in accordance with the same vesting schedule applicable to such Option. In the event of a Corporate Transaction described in clauses (i) or (ii) of Section 5.5(b) of the Plan, the Committee may, upon no less than 60 days notice to the optionee (an "Acceleration Notice") determine that such optionee's Options will terminate as of the effective date of such Corporate Transaction, in which event such Options shall be fully vested, nonforfeitable and become exercisable immediately as of the date of such Acceleration Notice. In the event of a Change in Control or Corporate Transaction described in clauses (a)(i), (a)(ii) and (b)(iii) of Section 5.5 of the Plan or in the event the Acceleration Notice is not timely given, the Option shall remain exercisable for the remaining term of the Option notwithstanding the provisions of Article V of the Plan, subject to any limitations thereto which may be applicable to Incentive Stock Options. In the event of a Corporate Transaction described in clauses (a)(iii), (b)(i) or (b)(ii) of Section 5.5 of the Plan, which is preceded by a timely Acceleration Notice, the Option shall terminate as of the effective date of the Corporate Transaction described therein. In no event shall the Option be exercised after the expiration of the Option Term.] 6. Fair Market Value. As used herein, the term "Fair Market Value" shall mean: (a) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq National Market, its fair market value shall be the average, over the twenty (20) trading days preceding the date of the grant of an option, of the closing selling price for such stock on the principal securities exchange or national market system on 3 which the Common Stock is at the time listed for trading. If there are no sales of Common Stock on that date, then the closing selling price for the Common Stock on the next preceding day for which such closing selling price is quoted shall be determinative of fair market value; or, (b) If the Common Stock is not traded on an exchange or a national market system, its fair market value shall be determined in good faith by the Committee, and such determination shall be conclusive and binding on all persons. In no event shall the Fair Market Value equal less than the par value of the Common Stock. 7. No Rights as Shareholders. Grantee shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him or her. 8. Non-Transferability of Option. During Grantee's lifetime, this Option shall be exercisable only by Grantee or his or her guardian or legal representative. 9. Employment Not Affected. The grant of the Option hereunder shall not be construed as conferring on Grantee any right to continued employment, and Grantee's employment may be terminated without regard to the effect which such action might have upon him as a holder of this Option. 10. Amendment of Option. The Option may be amended by the Committee at any time (i) if the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in the Code or in the regulations issued thereunder, or any federal or state securities law or other law of regulation, which change occurs after the Date of Grant and by its terms applies to the Option; or (ii) other than in the circumstances described in clause (i), with the consent of Grantee. 11. Notice. Any notice to the Company provided for in this instrument shall be addressed to it in care of its Secretary at its executive offices and any notice to Grantee shall be addressed to Grantee at the current address shown on the payroll records of the Employer. Any notice shall be deemed to be duly given if and when properly addressed and posted by registered or certified mail, postage prepaid. 12. Incorporation of Plan by Reference. The Option is granted pursuant to the Plan, the terms and definitions of which are incorporated herein by reference, and the Option shall in all respects by interpreted in accordance with the Plan. 13. Governing Law. To the extent that federal law shall not be held to have preempted local law, this Option shall be governed by the laws of the State of Delaware. If any provision of the Option shall be held invalid or unenforceable, the remaining provisions hereof shall continue in full force and effect. 4 IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Grant of Incentive Stock Option, and Grantee has placed his or her signature hereon, effective as of the Date of Grant. NRG Generating (U.S.) Inc. By:________________________________ Member of the Committee By:________________________________ Member of the Committee By:________________________________ Timothy P. Hunstad Vice President and Chief Financial Officer GRANTEE Signature__________________________ Name:______________________________ (Print) Address: _____________________________ _____________________________ EX-10.31.3 37 EXHIBIT 10.31.3 FORM OF 1997 PLAN EMPLOYEE NONQUALIFIED STOCK OPTION AGREEMENT. Exhibit 10.31.3 NRG GENERATING (U.S.) INC. 1997 STOCK OPTION PLAN GRANT OF EMPLOYEE NONQUALIFIED STOCK OPTION Date of Grant: ______________________ THIS GRANT, dated as of the date of grant first stated above (the "Date of Grant"), is delivered by NRG Generating (U.S.) Inc. (the "Company") to _____________________ (the "Grantee"), who is an Employee of the Company or a Subsidiary. WHEREAS, the Board of Directors of the Company (the "Board") on March 27, 1997, adopted the NRG Generating (U.S.) Inc. 1997 Stock Option Plan (the "Plan") effective as of May 1, 1997; WHEREAS, the Plan provides for the granting of Nonqualified Stock Options by the Committee to directors of the Company and to officers and key employees of the Company and its Subsidiaries to purchase shares of the Common Stock of the Company (the "Stock"), in accordance with the terms and provisions thereof; and WHEREAS, the Committee considers Grantee to be a person who is eligible for a grant of Nonqualified Stock Options under the Plan, and has determined that it would be in the best interest of the Company to grant the Nonqualified Stock Options documented herein. NOW THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Grant of Option. Subject to the terms and conditions hereinafter set forth, the Company, with the approval and at the direction of the Committee, hereby grants to Grantee, as of the Date of Grant, an option to purchase up to __________ shares of Stock at a price of $___________ per share. The shares of stock purchasable upon exercise of the Option are hereinafter sometimes referred to as the "Option Shares." The Option is intended by the parties hereto to be, and shall be treated as, a Nonqualified Stock Option which is not subject to the provisions of Code Section 422. 2. Installment Exercise. Subject to such further limitations as are provided herein, the Option shall become exercisable in three (3) installments, Grantee having the right hereunder to purchase from the Company the following number of Option Shares upon exercise of the Option, on and after the following dates, in cumulative fashion: (i) on and after the first anniversary of the Date of Grant up to one-third (ignoring fractional shares) of the total number of Option Shares; (ii) on and after the second anniversary of the Date of Grant, up to an additional one-third (ignoring fractional shares) of the total number of Option Shares; and (iii) on and after the third anniversary of the Date of Grant, the remaining Option Shares. 3. Termination of Option. (a) The Option and all rights hereunder with respect thereto, to the extent such rights shall not have been exercised, shall terminate and become null and void after the expiration of ten (10) years from the Date of Grant (the "Option Term"). (b) Upon the occurrence of Grantee's ceasing for any reason to be employed by the Company, the Option, to the extent not previously exercised, shall terminate and become null and void immediately upon the Separation Date, except in a case where the termination of Grantee's employment is by reason of retirement, Disability or death or otherwise as follows. Upon a termination of Grantee's employment by reason of Disability or death, all unexercised portions of the Option shall become immediately exercisable and the Option may be exercised during the period beginning upon such termination and ending one year after such date. Upon termination of Grantee's employment, the Option may be exercised during the three-month period following the date of retirement, but only to the extent that the Option was outstanding and exercisable on the date of such retirement. In no event, however, shall any such period extend beyond the Option Term. (c) In the event of Grantee's death, the Option may be exercised by Grantee's legal representative(s) as and to the extent that the Option would otherwise have been exercisable by Grantee, subject to the provisions of Section 3(b) hereof. (d) A transfer of Grantee's employment between the Company, its parents, subsidiaries or affiliates, shall not be deemed to be a termination of Grantee's employment. (e) Notwithstanding any other provisions set forth herein or in the Plan, if Grantee shall: (i) commit any act of malfeasance or wrongdoing affecting the Company, its Parents or Subsidiaries, (ii) breach any covenant not to compete, or employment contract, with the Company, its Parents or Subsidiaries, or (iii) engage in conduct that would warrant Grantee's discharge for cause (excluding general dissatisfaction with the performance of Grantee's duties, but including any act of disloyalty or any conduct clearly tending to bring discredit upon the Company, its Parents or Subsidiaries), any unexercised portion of the Option shall immediately terminate and be void. 4. Exercise of Options. (a) Grantee may exercise the Option with respect to all or any part of the number of Option Shares that are exercisable hereunder by giving the Secretary of the Company written notice of intent to exercise. The notice of exercise shall specify the number of Option Shares as to which the Option is to be exercised and date of exercise thereof, which date shall be at least five (5) days after the signing of such notice unless an earlier time shall have been mutually agreed upon. (b) Full payment (in U.S. dollars) by Grantee of the Option Price for Option Shares purchased shall be made on or before the exercise date specified in the notice of exercise in cash or as the Company may otherwise permit as further set forth in the Plan. On the exercise date specified in Grantee's notice or as soon thereafter as is practicable, the Company shall cause to be delivered to Grantee, a certificate or certificates for the Option Shares then being purchased (out of theretofore unissued Stock or reacquired Stock, as the Company may elect) upon full payment for such Option Shares. The obligation of the Company to deliver Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Option or the Option Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Option or the issuance or purchase of Stock thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. (c) If Grantee fails to pay for any of the Option Shares specified in such notice or fails to accept delivery thereof, Grantee's right to purchase such Option Shares may be terminated by the Company 2 or the exercise of the Option may be ignored, as the Committee in its sole discretion may determine. The date specified in Grantee's notice as the date of exercise shall be deemed the date of exercise of the Option, provided that payment in full for the Option Shares to be purchased upon such exercise shall have been received by such date. 5. Adjustment of and Changes in Stock. In the event of a reorganization, recapitalization, change of shares, stock split, spin-off, stock dividend, reclassification, subdivision, or combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure of shares of capital stock of the Company, the Committee shall make such adjustment as it deems appropriate in the number and kind of shares of Stock subject to the Option or in such option price; provided, however, that no such adjustment shall give Grantee any additional benefits under the Option. [Optional Change of Control Provision In the event of any Corporate Transaction or an event giving rise to a Change in Control, the Option shall be fully vested, nonforfeitable and become exercisable as of the date of the Change in Control or Corporate Transaction or as otherwise determined in accordance with Section 5.5(c) of the Plan. However, in the case of a Corporate Transaction, the Committee may determine that the Option will not be so accelerated if and to the extent (i) such Option is either to be assumed by the successor or parent thereof or to be replaced with a comparable Option to purchase shares of the capital stock of the successor corporation or parent thereof, or (ii) such Option is to be replaced with a cash incentive program of the successor corporation that preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payment in accordance with the same vesting schedule applicable to such Option. In the event of a Corporate Transaction described in clauses (i) or (ii) of Section 5.5(b) of the Plan, the Committee may, upon no less than 60 days notice to the optionee (an "Acceleration Notice") determine that such optionee's Options will terminate as of the effective date of such Corporate Transaction, in which event such Options shall be fully vested, nonforfeitable and become exercisable immediately as of the date of such Acceleration Notice. In the event of a Change in Control or Corporate Transaction described in clauses (a)(i), (a)(ii) and (b)(iii) of Section 5.5 of the Plan or in the event the Acceleration Notice is not timely given, the Option shall remain exercisable for the remaining term of the Option notwithstanding the provisions of Article V of the Plan, subject to any limitations thereto which may be applicable to Incentive Stock Options. In the event of a Corporate Transaction described in clauses (a)(iii), (b)(i) or (b)(ii) of Section 5.5 of the Plan, which is preceded by a timely Acceleration Notice, the Option shall terminate as of the effective date of the Corporate Transaction described therein. In no event shall the Option be exercised after the expiration of the Option Term.] 6. No Rights as Shareholders. Grantee shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him or her. 7. Non-Transferability of Option. During Grantee's lifetime, this Option shall be exercisable only by Grantee or his or her guardian or legal representative. 8. Employment Not Affected. The grant of the Option hereunder shall not be construed as conferring on Grantee any right to continued employment, and Grantee's employment may be terminated without regard to the effect which such action might have upon him as a holder of this Option. 9. Amendment of Option. The Option may be amended by the Committee at any time (i) if the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in the Code or in the regulations issued thereunder, or any federal or state securities law or other law of regulation, which change occurs after the Date of Grant and by its terms applies to the Option; or (ii) other than in 3 the circumstances described in clause (i), with the consent of Grantee. 10. Notice. Any notice to the Company provided for in this instrument shall be addressed to it in care of its Secretary at its executive offices and any notice to Grantee shall be addressed to Grantee at the current address shown on the payroll records of the Employer. Any notice shall be deemed to be duly given if and when properly addressed and posted by registered or certified mail, postage prepaid. 11. Incorporation of Plan by Reference. The Option is granted pursuant to the Plan, the terms and definitions of which are incorporated herein by reference, and the Option shall in all respects by interpreted in accordance with the Plan. 12. Governing Law. To the extent that federal law shall not be held to have preempted local law, this Option shall be governed by the laws of the State of Delaware. If any provision of the Option shall be held invalid or unenforceable, the remaining provisions hereof shall continue in full force and effect. 4 IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Grant of Nonqualified Stock Option, and Grantee has placed his or her signature hereon, effective as of the Date of Grant. NRG Generating (U.S.) Inc. By: Member of the Committee By: Member of the Committee By: Timothy P. Hunstad Vice President and Chief Financial Officer GRANTEE Signature___________________________ Name: (Print) Address: _____________________________ _____________________________ 5 EX-10.31.4 38 EXHIBIT 10.31.4 FORM OF 1997 PLAN NONEMPLOYEE DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT. Exhibit 10.31.4 NRG GENERATING (U.S.) INC. 1997 STOCK OPTION PLAN GRANT OF NONEMPLOYEE DIRECTOR NONQUALIFIED STOCK OPTION Date of Grant: ______________________ THIS GRANT, dated as of the date of grant first stated above (the "Date of Grant"), is delivered by NRG Generating (U.S.) Inc. (the "Company") to _____________________ (the "Grantee"), who is a director of the Company who is not an Employee of the Company or a Subsidiary. WHEREAS, the Board of Directors of the Company (the "Board") on March 27, 1997 adopted the NRG Generating (U.S.) Inc. 1997 Stock Option Plan (the "Plan") effective as of May 1, 1997; WHEREAS, the Plan provides for the granting of Nonqualified Stock Options by the Committee to directors of the Company to purchase shares of the Common Stock of the Company (the "Stock"), in accordance with the terms and provisions thereof; and WHEREAS, the Committee considers Grantee to be a person who is eligible for a grant of Nonqualified Stock Options under the Plan, and has determined that it would be in the best interest of the Company to grant the Nonqualified Stock Options documented herein. NOW THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Grant of Option. Subject to the terms and conditions hereinafter set forth, the Company, with the approval and at the direction of the Committee, hereby grants to Grantee, as of the Date of Grant, an option to purchase up to __________ shares of Stock at a price of $___________ per share. The shares of stock purchasable upon exercise of the Option are hereinafter sometimes referred to as the "Option Shares." The Option is intended by the parties hereto to be, and shall be treated as, a Nonqualified Stock Option which is not subject to the provisions of Code Section 422. 2. Installment Exercise. Subject to such further limitations as are provided herein, the Option shall become exercisable in three (3) installments, Grantee having the right hereunder to purchase from the Company the following number of Option Shares upon exercise of the Option, on and after the following dates, in cumulative fashion: (i) on and after the first anniversary of the Date of Grant up to one-third (ignoring fractional shares) of the total number of Option Shares; (ii) on and after the second anniversary of the Date of Grant, up to an additional one-third (ignoring fractional shares) of the total number of Option Shares; and (iii) on and after the third anniversary of the Date of Grant, the remaining Option Shares. 3. Termination of Option. (a) The Option and all rights hereunder with respect thereto, to the extent such rights shall not have been exercised, shall terminate and become null and void after the expiration of ten (10) years from the Date of Grant (the "Option Term"). (b) When the Grantee ceases to be a director of the Company, the Option, to the extent not previously exercised, shall terminate and become null and void immediately upon the Separation Date, except in a case where the Grantee's service as a director of the Company ceases by reason of Disability or death or otherwise as follows. If the Grantee ceases to be a director of the Company by reason of Disability or death, all unexercised portions of the Option shall become immediately exercisable and the Option may be exercised during the period beginning upon such termination and ending one year after such date. In no event, however, shall any such period extend beyond the Option Term. If the Participant's service as a director of the Company terminates for any other reason prior to the exercise of all portions of the Option, the Participant shall have the right within three (3) months of his Separation Date, but not beyond the expiration date of the Option, to exercise such unexercised portions of the Option. (c) In the event of Grantee's death, the Option may be exercised by Grantee's legal representative(s) as and to the extent that the Option would otherwise have been exercisable by Grantee, subject to the provisions of Section 3(b) hereof. (d) Notwithstanding any other provisions set forth herein or in the Plan, if Grantee shall: (i) commit any act of malfeasance or wrongdoing affecting the Company, its Parents or Subsidiaries, or (ii) engage in conduct that would warrant Grantee's removal for cause (excluding general dissatisfaction with the performance of Grantee's duties, but including any act of disloyalty or any conduct clearly tending to bring discredit upon the Company, its Parents or Subsidiaries), any unexercised portion of the Option shall immediately terminate and be void. 4. Exercise of Options. (a) Grantee may exercise the Option with respect to all or any part of the number of Option Shares that are exercisable hereunder by giving the Secretary of the Company written notice of intent to exercise. The notice of exercise shall specify the number of Option Shares as to which the Option is to be exercised and date of exercise thereof, which date shall be at least five (5) days after the signing of such notice unless an earlier time shall have been mutually agreed upon. (b) Full payment (in U.S. dollars) by Grantee of the Option Price for Option Shares purchased shall be made on or before the exercise date specified in the notice of exercise in cash or as the Company may otherwise permit as further set forth in the Plan. On the exercise date specified in Grantee's notice or as soon thereafter as is practicable, the Company shall cause to be delivered to Grantee, a certificate or certificates for the Option Shares then being purchased (out of theretofore unissued Stock or reacquired Stock, as the Company may elect) upon full payment for such Option Shares. The obligation of the Company to deliver Stock shall, however, be subject to the condition that if at any time the Committee shall determine in its discretion that the listing, registration or qualification of the Option or the Option Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Option or the issuance or purchase of Stock thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. (c) If Grantee fails to pay for any of the Option Shares specified in such notice or fails to accept delivery thereof, Grantee's right to purchase such 2 Option Shares may be terminated by the Company or the exercise of the Option may be ignored, as the Committee in its sole discretion may determine. The date specified in Grantee's notice as the date of exercise shall be deemed the date of exercise of the Option, provided that payment in full for the Option Shares to be purchased upon such exercise shall have been received by such date. 5. Adjustment of and Changes in Stock. In the event of a reorganization, recapitalization, change of shares, stock split, spin-off, stock dividend, reclassification, subdivision, or combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure of shares of capital stock of the Company, the Committee shall make such adjustment as it deems appropriate in the number and kind of shares of Stock subject to the Option or in such option price; provided, however, that no such adjustment shall give Grantee any additional benefits under the Option. [Optional Changes of Control Provision In the event of any Corporate Transaction or an event giving rise to a Change in Control, the Option shall be fully vested, nonforfeitable and become exercisable as of the date of the Change in Control or Corporate Transaction or as otherwise determined in accordance with Section 5.5(c) of the Plan. However, in the case of a Corporate Transaction, the Committee may determine that the Option will not be so accelerated if and to the extent (i) such Option is either to be assumed by the successor or parent thereof or to be replaced with a comparable Option to purchase shares of the capital stock of the successor corporation or parent thereof, or (ii) such Option is to be replaced with a cash incentive program of the successor corporation that preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payment in accordance with the same vesting schedule applicable to such Option. In the event of a Corporate Transaction described in clauses (i) or (ii) of Section 5.5(b) of the Plan, the Committee may, upon no less than 60 days notice to the optionee (an "Acceleration Notice") determine that such optionee's Options will terminate as of the effective date of such Corporate Transaction, in which event such Options shall be fully vested, nonforfeitable and become exercisable immediately as of the date of such Acceleration Notice. In the event of a Change in Control or Corporate Transaction described in clauses (a)(i), (a)(ii) and (b)(iii) of Section 5.5 of the Plan or in the event the Acceleration Notice is not timely given, the Option shall remain exercisable for the remaining term of the Option notwithstanding the provisions of Article V of the Plan, subject to any limitations thereto which may be applicable to Incentive Stock Options. In the event of a Corporate Transaction described in clauses (a)(i)(iii), b(i) or (b)(ii) of Section 5.5 of the Plan, which is preceded by a timely Acceleration Notice, the Option shall terminate as of the effective date of the Corporate Transaction described therein. In no event shall the Option be exercised after the expiration of the Option Term.] 6. No Rights as Shareholders. Grantee shall have no rights as a shareholder with respect thereto unless and until certificates for shares of Common Stock are issued to him or her. 7. Non-Transferability of Option. During Grantee's lifetime, this Option shall be exercisable only by Grantee or his or her guardian or legal representative. 8. Amendment of Option. The Option may be amended by the Committee at any time (i) if the Committee determines, in its sole discretion, that amendment is necessary or advisable in light of any addition to or change in the Code or in the regulations issued thereunder, or any federal or state securities law or other law of regulation, which change occurs after the Date of Grant and by its terms applies to the Option; or (ii) other than in the circumstances described in clause (i), with the consent of Grantee. 9. Notice. Any notice to the Company provided for in this instrument shall be addressed to it in care of its Secretary at its executive offices and any notice to 3 Grantee shall be addressed to Grantee at the address below. Any notice shall be deemed to be duly given if and when properly addressed and posted by registered or certified mail, postage prepaid. 10. Incorporation of Plan by Reference. The Option is granted pursuant to the Plan, the terms and definitions of which are incorporated herein by reference, and the Option shall in all respects by interpreted in accordance with the Plan. 11. Governing Law. To the extent that federal law shall not be held to have preempted local law, this Option shall be governed by the laws of the State of Delaware. If any provision of the Option shall be held invalid or unenforceable, the remaining provisions hereof shall continue in full force and effect. 4 IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Grant of Nonqualified Stock Option, and Grantee has placed his or her signature hereon, effective as of the Date of Grant. NRG Generating (U.S.) Inc. By: Member of the Committee By: Member of the Committee By: Timothy P. Hunstad Vice President and Chief Financial Officer GRANTEE Signature___________________________ Name: (Print) Address: _____________________________ _____________________________ 5 EX-10.33 39 EXHIBIT 10.33 EMPLOYMENT AGREEMENT DATED AUGUST 28, 1997 BETWEEN THE COMPANY AND RICHARD STONE. Exhibit 10.33 August 5, 1997 Mr. Richard C. Stone 4 Ashbrook Road Exeter, NH 03833 Dear Dick: I am pleased to extend to you the following offer of employment: Position: Vice President NRG Generating (U.S.) Inc. ("NRGG") You will report to the President and CEO of NRGG Duties: Head of Business Development and Marketing, with duties as assigned by the President and CEO Base Salary: $12,917/month Hire Date: As soon as possible, but not later than 1 September 1997 Hiring Bonus: $15,000 payable within seven (7) days of Hire Date Annual Bonus: Up to 50% of Base Salary, according to an annual plan recommended by the President and CEO and approved by NRGG's Board of Directors determined under such annual plan. For calendar year 1997, the annual 1 bonus will be prorated based on actual days worked in 1997. Stock Options: Subject to approval of the NRGG Board of Directors, you will receive the following stock options: (1) An option to purchase up to 50,000 shares of NRGG common stock pursuant to the 1996 or 1997 NRGG Stock Option Plan ("the Plan"); strike price to be the weighted average of the common stock price within the 20 day period prior to the Hire Date, as determined in good faith by NRGG's Chief Financial Officer. (2) An option to purchase up to an additional 25,000 shares of options on NRGG common stock, pursuant to the Plan; strike price to be the weighted average of the common stock price within the 20 day period prior to the Hire Date, as determined in good faith by NRGG's Chief Financial Officer. The incentive shares will begin vesting on the day following the twenty-day period during which the common stock shall have traded at a price of $25/share. (3) An additional 25,000 options on NRGG common stock, pursuant to the Plan; strike price will be the weighted average of the common stock price within the 20 day period prior to the Hire Date, as determined in good faith by NRGG's Chief Financial Officer. The incentive shares will begin vesting on the day following the twenty-day period during 2 which the common stock shall have traded at a price of $35/share. Benefits: You will receive health, dental, life insurance and the employee benefits available to officers of NRGG, as such benefits are available from time to time. You acknowledge receipt of a copy of NRGG's current employee benefit program. Relocation: Moving and relocation expenses will be paid or reimbursed pursuant to NRGG's Relocation Policy, copy attached. Parking: NRGG will pay expenses of covered parking at the Company's headquarters. Vacation: Four (4) weeks per year This offer is subject to the following: Completion of reference checks (please provide three professional references); Completion of a security evaluation by NRGG. When the conditions have been satisfied, the provisions of this letter will function as the terms and conditions of a binding agreement between you and NRGG. Dick, I want to welcome you to NRGG. Please acknowledge acceptance of these terms by signing in the space below. You may retain one original of this letter for your file. Best regards /s/ Robert T. Sherman, Jr. 3 Terms accepted this 28th day of August, 1997. By:/s/ Richard Stone Richard C. Stone Enclosures: NRGG Employee Benefit Program as of August 1, 1997 NRGG Relocation Policy 4 EX-10.35 40 EXHIBIT 10.35 CONFIDENTIALITY AGREEMENT DATED OCTOBER 3, 1997 BETWEEN THE COMPANY AND NRG ENERGY. Exhibit 10.35 CONFIDENTIALITY AGREEMENT This Confidentiality Agreement, entered into as of October 3, 1997, is executed by NRG Generating (U.S.) Inc. ("NRGG"), a corporation organized under the laws of the State of Delaware, the address of which is set forth at the end of this Agreement, and NRG Energy, Inc. ("Energy"), a corporation organized under the laws of the State of Delaware, the address of which is set forth at the end of this Agreement. NRGG and Energy are referred to individually as a "Party" and collectively as the "Parties." RECITALS A. The Parties are both party to that certain Co-Investment Agreement, dated as of April 30, 1996 (the "Co-Investment Agreement"), pursuant to which they will be potentially investing together in projects. B. The Parties, for their mutual benefit and in furtherance of these projects, may exchange Confidential Information (as defined below) in the course of their relationship. C. The Parties which to define their respective rights and obligations with respect to such Confidential Information. AGREEMENT NOW THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows: 19. As used herein, the term "Confidential Information" means information which is of a non-public, proprietary or confidential nature to the disclosing Party, including all reports and analyses, technical and economic data, studies, forecasts, trade secrets, research or business strategies, financial or contractual proposals or information or other written or oral information. Confidential Information may be in any form whatsoever, including writings, computer programs, logic diagrams, component specifications, drawings or other media. All information disclosed by either Party to the other, whether orally (provided, however, that information disclosed orally must be reduced to written form and marked confidential within five business days), in writing, by inspection or otherwise, shall be deemed to be Confidential Information unless otherwise expressly agreed in writing by the Party disclosing such information, or unless excluded pursuant to paragraph 2 below. 20. Notwithstanding the provisions of paragraph 1, the term "Confidential Information" shall not include, and neither Party shall be under any obligation to maintain in confidence or not use, any information (or any portion thereof) disclosed to it by the other Party to the extent that such information: (i) is in the public domain at the time of disclosure; or (ii) following disclosure, becomes generally known or available through no fault or omission on the part of the receiving Party; or (iii) is known, or becomes known, to the receiving Party from persons not known by the receiving Party to be under an obligation of secrecy (whether legal or contractual) to the disclosing Party; or (iv) is independently developed by the receiving Party without violating any of its obligations under this Agreement; or (v) is legally required to be disclosed by judicial or other governmental action; provided, however, that prompt notice of such judicial or other governmental action shall have been given to the disclosing Party and that the disclosing Party shall be afforded the opportunity (consistent with the legal obligations of the receiving Party) to exhaust all reasonable legal remedies to maintain the Confidential Information in confidence; or (vi) which the disclosing Party approved for release by written authorization to the receiving Party; or (vii) which is already in the receiving Party's possession at the time of disclosure and which was not acquired by the receiving Party directly or indirectly from the disclosing Party on a confidential basis. Specific information shall not be deemed to be within the exceptions of subparts (i) or (iv) above merely because it is included in a document which contains information within such exceptions. 21. The Confidential Information (i) may be used by the receiving Party solely in connection with business between the Parties, as a result of which the Parties have caused this Agreement to be executed, and (ii) will be kept confidential and not disclosed by the receiving Party to any other person, except that Confidential Information may be disclosed to any of the receiving Party's affiliates, directors, officers, employees, attorneys, accountants, consultants, potential lenders or underwriters, advisors and agents (collectively, its "Representatives") who require access to such information in connection with the evaluation of potential business transactions between the Parties. Each of the Parties agrees that any of its Representatives to whom Confidential Information is disclosed will be informed of the confidential or proprietary nature thereof and of the receiving Party's obligations under this Agreement, and that each Party shall be responsible for any use or disclosure of Confidential Information by any of its Representatives. 22. NRGG shall not: (i) directly or indirectly solicit business from the principal host project energy customer, or any affiliate thereof, of any project that has been presented to the NRGG Board or NRGG Management as an opportunity in which NRGG may acquire an 2 ownership interest or been offered to NRGG in writing (any such project "an offered project"); (ii) solicit business from any project energy customer of an offered project which business is in competition and inconsistent with an offered project; (iii) during the period in which NRGG is evaluating whether it intends to purchase an interest in an offered project, contact any project participant without the prior notification, consent and coordination of the contact with the designated representatives of Energy; or (iv) after the period in which NRGG is evaluating whether it intends to purchase an interest in an offered project, contact any project participant concerning such project without the prior notification, consent and coordination of the contact with the designated representatives of Energy, unless NRGG has acquired an ownership interest in such project. During the period in which NRGG is evaluating purchasing an interest in an offered project, Energy shall promptly and completely disclose information reasonably required by NRGG related to such project, and Energy shall use reasonable efforts to facilitate such meetings with project participants as are reasonably necessary to obtain such information once a good faith indication of interest has been made by NRGG. Energy shall have no obligation to facilitate meetings with project participants prior to the time that Energy has made an Offer of a project as defined in section 2.2(a) of the Co-investment Agreement. For the purposes of this Agreement- "principal host project energy customer" shall not include (x) an electric utility company, (y) a power marketer, or (z) an existing purchaser of energy from a project in which any NRGG subsidiary has an ownership interest as of the date of this Agreement. "affiliate" of a principal host project energy customer shall mean any partnership, joint venture, or corporation (any of which, including the principal project host energy customer, being a "person") controlling, controlled by, or under common control with, such customer, provided that control shall mean the ownership of fifty percent (50%) or more of the outstanding voting or ownership shares or ownership interests of the person in question. 23. The Parties agree that: (i) all rights to Confidential Information disclosed pursuant to this Agreement are reserved to the disclosing Party, (ii) nothing in this Agreement shall diminish or restrict in any way the rights that each Party has to conduct its business or to disclose its own Confidential Information to third parties; and (iii) no license or conveyance of any rights relating to the Confidential Information is granted or implied by either Party to the other. 24. This Agreement shall continue in effect until the earlier of (i) one year from the date hereof, or (ii) termination of the Parties' business relationship. The obligations of confidentiality contained herein and the obligations set forth in Section 4 herein shall survive and continue for a period of two years after expiration or termination the Co- Investment Agreement. 25. Nothing in this Agreement shall obligate either Party to disclose any Confidential Information about itself to the other Party, and any disclosure of Confidential Information 3 shall be at the disclosing Party's sole discretion. This Agreement does not constitute a commitment or promise by either Party to proceed with any transaction. All agreements, representations, warranties, covenants and conditions with respect thereto will be set forth in a separate written agreement to be negotiated, and if agreement can be reached, executed by the Parties. 26. Upon a disclosing Party's request, the receiving Party shall return to the disclosing Party as promptly as practicable, but in any event within thirty (30) days, all Confidential Information received from the disclosing Party in the possession of the receiving Party or its Representatives, but may retain one copy of such Confidential Information, all notes and documents compiled using the Confidential Information and such records as are necessary for securities disclosure and tax positions. 27. This Agreement embodies all of the understandings between the Parties hereto concerning the subject matter hereof, and merges all prior discussions and writings between them as to confidentiality of information other than as expressly provided in this Agreement, or as duly set forth subsequent to the date hereof in writing and signed by both Parties. This Agreement may not be assigned by either Party without the prior written consent of the other Party except in connection with the sale of all or substantially all of the business or assets of the assigning Party. 28. Without prejudice to the rights and remedies otherwise available to the disclosing Party, the disclosing Party will be entitled to equitable relief by way of injunction if there is a breach or threat of a breach of any of the provisions of this Agreement by the receiving Party. The Parties agree and acknowledge that damages would not be an adequate remedy in the event of a breach of this Agreement. 29. In no event shall either Party have liability for any consequential, indirect, punitive or other extraordinary damages. 30. This Agreement shall not be governed by the laws of the State of Minnesota, excluding its conflict of law rules. 31. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same document. 32. The provisions of this Agreement are severable, and if any one or more of such provisions is determined to be judicially unenforceable, the remaining provisions shall nevertheless be binding and enforceable. 33. No third party shall become a Party or beneficiary to this Agreement, except with the prior written consent of all then- existing Parties to this Agreement. 34. The prevailing party in any dispute or litigation arising in connection with this Agreement shall be entitled to recover its reasonable attorneys' fees and costs. 4 IN WITNESS WHEREOF the Parties have signed this Agreement as of the date first set forth above. Addresses: NRG Generating (U.S.) Inc. NRG GENERATING (U.S.) INC. 1221 Nicollet Mall Suite 610 By: /s/ Robert T. Sherman, Jr. Minneapolis, MN 55403-2445 Title: President NRG Energy, Inc. NRG ENERGY, INC. 1221 Nicollet Mall Suite 700 By: /s/ David H. Peterson Minneapolis, MN 55403-2445 Title: Chairman, President & CEO 5 EX-21 41 EXHIBIT 21 LIST OF SUBSIDIARIESS OF REGISTRANT. Exhibit 21 Exhibit 21 List of Subsidiaries of Registrant (Majority or Wholly Owned Unless Otherwise Indicated) Name of Subsidiary State of Incorporation NRG Generating (Newark) Cogeneration, Inc. Delaware NRG Generating (Parlin) Cogeneration, Inc. Delaware O'Brien (Philadelphia) Cogeneration, Inc. Delaware NRG Generating Ltd. United Kingdom PoweRent* United Kingdom Puma Manufacturing Ltd. United Kingdom Puma Export Finance Ltd. United Kingdom Puma Freight Forwarding Ltd. United Kingdom Puma Far East Ltd. United Kingdom Enercol Energy Systems, Ltd. United Kingdom O'Brien Energy Europe United Kingdom Philadelphia Biogas Supply, Inc. Delaware NRGG Parlin Supply Corporation Delaware NRGG Newark Supply Corporation Delaware Grays Ferry Cogeneration Partnership* Pennsylvania NRGG (Schuylkill) Cogeneration Inc. Delaware Grays Ferry Services Partnership Pennsylvania NRGG Funding, Inc. Delaware NRG Morris, Inc. Delaware NRG (Morris) Cogen, LLC Delaware O'Brien Energy Services Company Delaware O'Brien Power Equipment, Inc. Texas O'Brien Mobile Power Rental Company Delaware NRGG (Asia), Inc. Delaware Power Service Company Delaware O'Brien Fuels, Inc. Delaware SDN Power, Inc. Delaware * The Company owns 50% or less of the equity interest in these subsidiaries. 52 EX-23.1 42 EXHIBIT 23.1 CONSENTOF INDEPENDENT ACCOUNTANTS Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-38603) of NRG Generating (U.S.) Inc. of our report dated March 30, 1998 appearing in this Form 10-K. Price Waterhouse LLP Minneapolis, Minnesota March 30, 1998 53 EX-27 43 ARTICLE 5 - FINANCIAL DATA SCHEDULE FOR YEAR ENDED DECEMBER 31, 1997 OF NRG ENERATING (U.S.) INC.
5 This schedule contains summary financial information extracted from the registrant's financial statements for its year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 12-Mos Dec-31-1997 Dec-31-1997 11,971 0 11,099 0 2,134 26,340 127,574 0 227,894 37,637 0 68 0 0 (4,270) 227,894 64,804 64,804 33,695 33,695 13,443 0 14,768 2,898 (20,454) 23,352 0 0 0 23,352 3.59 3.48
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