-----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, A14Dh83MaZvd1b1wAFyFqvv6SVajG+wre6v+j2ipUUl7b+ICDuwSUU4YHPEyQ+0K V8oxlhFk4dYJPKyBokw83Q== 0000912057-01-528766.txt : 20010815 0000912057-01-528766.hdr.sgml : 20010815 ACCESSION NUMBER: 0000912057-01-528766 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SITHE INDEPENDENCE FUNDING CORP CENTRAL INDEX KEY: 0000899281 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 133677475 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-59960 FILM NUMBER: 1713697 BUSINESS ADDRESS: STREET 1: 450 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2124509000 MAIL ADDRESS: STREET 1: 450 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SITHE INDEPENDENCE POWER PARTNERS LP CENTRAL INDEX KEY: 0000899322 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 330468704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-59960-01 FILM NUMBER: 1713698 BUSINESS ADDRESS: STREET 1: 450 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2124509000 MAIL ADDRESS: STREET 1: 450 LEXINGTON AVENUE STREET 2: 450 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 a2056240z10-q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Quarterly Period Ended June 30, 2001 [ ] 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 33-59960 SITHE/INDEPENDENCE FUNDING CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3677475 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 335 MADISON AVENUE, NEW YORK, NY 10017 -------------------------------- ----- (Address of principal executive offices) (Zip code) (212)-351-0000 (Registrant's telephone number, including area code) SITHE/INDEPENDENCE POWER PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 33-0468704 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 335 MADISON AVENUE, NEW YORK, NY 10017 -------------------------------- ----- (Address of principal executive offices) (Zip code) (212)-351-0000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No SITHE/INDEPENDENCE POWER PARTNERS, L.P. SITHE/INDEPENDENCE FUNDING CORPORATION
PAGE NO. PART I FINANCIAL INFORMATION SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware Limited Partnership) Financial Statements: Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000....................................................................... 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000 (Unaudited).................................................... 4 Condensed Consolidated Statement of Partners' Capital Deficiency for the Six Months Ended June 30, 2001 (Unaudited)............................................................. 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (Unaudited).................................................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited)............................... 7 Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 13 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......................................................... 17 Signatures.......................................................................................... 20
-2- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2001 2000 --------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 738 $ 2,116 Restricted cash and cash equivalents 92,545 52,287 Restricted investments 24,222 24,173 Accounts receivable - trade 35,582 52,463 Fuel inventory and other current assets 21,740 7,079 Current portion of transmission constraint contract derivative asset 19,553 0 --------- --------- TOTAL CURRENT ASSETS 194,380 138,118 PROPERTY, PLANT AND EQUIPMENT, AT COST: Land 5,010 5,010 Electric and steam generating facilities 744,453 777,444 --------- --------- 749,463 782,454 Accumulated depreciation (121,118) (116,680) --------- --------- 628,345 665,774 DEBT ISSUANCE COSTS 5,859 6,297 OTHER ASSETS 5,744 14,070 TRANSMISSION CONSTRAINT CONTRACT DERIVATIVE ASSET 148,576 0 --------- --------- TOTAL ASSETS $ 982,904 $ 824,259 ========= ========= LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) CURRENT LIABILITIES: Trade payables $ 32,158 $ 30,461 Accrued interest 27,609 154 Current portion of long-term debt 47,811 32,431 Current portion of transmission constraint contract derivative obligation 17,684 0 --------- --------- TOTAL CURRENT LIABILITIES 125,262 63,046 LONG-TERM DEBT: 7.90% secured notes due 2002 15,379 30,759 8.50% secured bonds due 2007 150,839 150,839 9.00% secured bonds due 2013 408,609 408,609 Subordinated debt 419,282 0 --------- --------- 994,109 590,207 OTHER LIABILITIES 5,057 7,512 TRANSMISSION CONSTRAINT CONTRACT DERIVATIVE OBLIGATION 148,061 0 COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL (DEFICIENCY) (289,585) 163,494 --------- --------- TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) $ 982,904 $ 824,259 ========= =========
See notes to condensed consolidated financial statements -3- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- REVENUE $ 104,175 $ 96,080 $ 229,151 $ 193,186 COST OF SALES: Fuel 55,630 51,688 120,124 100,811 Operations and maintenance 13,298 11,718 24,988 22,746 Depreciation 4,923 5,000 9,910 9,999 Loss on project restructuring 428,675 0 428,675 0 --------- --------- --------- --------- 502,526 68,406 583,697 133,556 OPERATING INCOME (LOSS) (398,351) 27,674 (354,546) 59,630 NON-OPERATING INCOME (EXPENSE): Interest expense (14,484) (14,803) (28,588) (29,194) Interest and other income (expense), net (491) 1,921 3,305 2,344 --------- --------- --------- --------- NET INCOME (LOSS) ($413,326) $ 14,792 ($379,829) $ 32,780 ========= ========= ========= =========
See notes to condensed consolidated financial statements -4- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIENCY) (UNAUDITED) (IN THOUSANDS)
TOTAL GENERAL LIMITED PARTNERS' PARTNER PARTNERS CAPITAL --------- --------- --------- BALANCE, JANUARY 1, 2001 $ 1,435 $ 162,059 $ 163,494 Net income (loss) and total comprehensive income (loss) (418,887) 39,058 (379,829) Capital contribution 35 3,504 3,539 Distributions to partners (768) (76,021) (76,789) --------- --------- --------- BALANCE, JUNE 30, 2001 $(418,185) $ 128,600 $(289,585) ========= ========= =========
See notes to condensed consolidated financial statements -5- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------ 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ($379,829) $ 32,780 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 9,910 9,999 Loss on project restructuring 428,675 0 Unrealized gain on transmission constraint contract derivative (2,384) 0 Gain on sale of property, plant and equipment (173) 0 Unrealized (gain) loss on marketable securities (112) 607 Amortization of deferred financing costs 438 464 Changes in operating assets and liabilities: Accounts receivable - trade 16,881 (11,837) Fuel inventory and other current assets (1,623) 517 Other assets (1,067) (2,357) Trade payables 1,697 61 Accrued interest payable 27,455 (17) Other liabilities (2,455) 359 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 97,413 30,576 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of fixed assets 15,075 0 Capital expenditures (421) (73) Restricted funds (40,195) 7,686 --------- --------- NET CASH PROVIDED BY (USED IN) USED IN INVESTING ACTIVITIES (25,541) 7,613 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (76,789) (31,635) Principal payments on secured notes 0 (9,648) Capital contribution 3,539 0 --------- --------- NET CASH USED IN FINANCING ACTIVITIES (73,250) (41,283) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,378) (3,094) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,116 6,076 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 738 $ 2,982 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash payments: Interest $ 1,133 $ 28,747
See notes to condensed consolidated financial statements -6- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. THE PARTNERSHIP Sithe/Independence Power Partners, L.P. (the "Partnership") was formed in November 1990 for a term of 50 years to develop, construct and own a natural gas-fired cogeneration facility having capacity of approximately 1,000 megawatts ("MW") located in the Town of Scriba, County of Oswego, New York (the "Project"). The Project began commercial operation for financial reporting purposes on December 29, 1994. The Partnership is a Delaware limited partnership formed by Sithe/Independence, Inc. (the "General Partner"), its sole general partner. The General Partner is an indirect wholly-owned subsidiary of Sithe Energies, Inc. ("Sithe Energies"). Prior to June 29, 2001, the limited partners of the Partnership were Sithe Energies and certain of its direct and indirect wholly-owned subsidiaries (the "Limited Partners"). On June 29, 2001 one of the Limited Partners sold its 40% ownership interest in the Partnership to Oswego Cogen Company, LLC ("Oswego Cogen"), an indirect, wholly-owned subsidiary of Enron Corp. Accordingly, as of June 30, 2001, the Partnership is owned 60% by Sithe Energies (directly and indirectly through its wholly-owned subsidiaries) and 40% by Oswego Cogen. Through June 30, 2001, the majority of the Project's capacity was sold to Consolidated Edison Company of New York, Inc. ("Con Edison") with the remainder of the capacity sold to Alcan Aluminum Corporation ("Alcan") and into the electric energy market administered by the New York Independent System Operator, Inc. (the "NYISO" or "ISO Administered Market"). The majority of the electric energy generated by the Project was sold into the ISO Administered Market, with the remainder of the generation sold to Niagara Mohawk Power Corporation ("Niagara Mohawk") and Alcan. Effective July 1, 2001, while the majority of the Project's capacity will continue to be sold to Con Edison, and up to 44 MW of the Project's capacity and associated energy will continue to be sold to Alcan, as discussed in Note 4, the Partnership has entered into tolling arrangements with Dynegy Power Marketing, Inc. ("DPM"), under which DPM will pay the Partnership tolling fees for the right to supply natural gas to the Project to be converted to electric energy. 2. BASIS OF PRESENTATION The accompanying condensed consolidated balance sheets at June 30, 2001 and December 31, 2000 and the condensed consolidated statements of operations for the three and six months ended June 30, 2001 and 2000 and cash flows for the six months ended June 30, 2001 and 2000 should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2000 for the Partnership and its wholly-owned subsidiary, Sithe/Independence Funding Corporation ("Sithe Funding"). The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. The unaudited financial information at June 30, 2001 and for the three and six months ended June 30, 2001 and 2000 contains all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the financial position and operating results for such periods. -7- 3. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in the Financial Statements" ("SAB 101"). The bulletin addresses the SEC staff's views in applying accounting principles generally accepted in the United States of America to selected revenue recognition issues. The Partnership adopted SAB 101 during the fourth quarter of fiscal 2000. The adoption of SAB 101 did not have any impact on the results of operations or financial position of the Partnership. In June 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 prohibits the use of the pooling-of-interest method for business combinations initiated after June 30, 2001 and also applies to all business combinations accounted for by the purchase method that are completed after June 30, 2001. There are also transition provisions that apply to business combinations completed before July 1, 2001, that were accounted for by the purchase method. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 as to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. The Partnership is currently evaluating the provisions of SFAS No. 141 and SFAS No. 142, which it has not yet adopted. Effective January 1, 2001, the Partnership adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards requiring that all derivatives, including certain derivative instruments embedded in other contracts be recorded in the balance sheet as either an asset or liability measured at their fair value. When specific hedge accounting criteria are not met, SFAS No. 133 requires that changes in a derivative's fair value be recognized currently in earnings. If a derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash-flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income and will be recognized in the income statement when the hedged item affects earnings. SFAS No. 133 requires that an entity formally document, designate and perform ongoing assessments of the effectiveness of transactions that receive hedge accounting. The impact of the Partnership's adoption of SFAS No. 133 as of January 1, 2001 was not material. As of June 30, 2001, the Partnership had one derivative, a Transmission Congestion Contract ("TCC"), which is not designated as a hedge under SFAS No. 133. Effective with the September 1, 2000 consummation of the Amended and Restated Energy Purchase Agreement between the Partnership and Con Edison (the "Amended EPA"), all the electric energy generated by the Project is sold at the point where the Project delivers energy to the NYISO (the "Independence Bus"). The Partnership has a 20 year Transmission Services Agreement through November 14, 2014 with Niagara Mohawk (the "TSA"), under which Niagara Mohawk is obligated to transmit 853 MW from the Independence Bus to the point of interconnection between Niagara Mohawk's transmission system and Con Edison's transmission system (the "Pleasant Valley Bus"). As a result of the Amended EPA, the Partnership no longer transmits power under the TSA, and effective September 1, 2000, the Partnership converted its grandfathered physical transmission rights under the TSA to a financial TCC under the NYISO's open access transmission tariff. Under the TCC, the Partnership receives from, or pays to the NYISO, the product of (i) the positive or negative difference, respectively, between the locational based marginal price ("LBMP") per MWH at the Pleasant Valley Bus and the Independence Bus for each hour that is due to congestion, and (ii) 853 MW. The Partnership continues to pay Niagara Mohawk under the TSA, which must remain in place as part of the TCC. -8- Recent interpretations and deliberations of the FASB's Derivatives Implementation Group due to uncertainties as to whether contracts of this type are derivatives caused the Partnership to reevaluate the TCC and conclude that it is a derivative. As of and for the six months ended June 30, 2001, the Partnership recognized assets of $168.1 million, liabilities of $165.7 million and revenues of $2.4 million for the estimated fair value of amounts expected to be received and paid under the TCC. As discussed in Note 4, two of the agreements comprising the tolling arrangements that the Partnership entered into with DPM effective July 1, 2001 will be accounted for as derivatives which are not designated as hedges under SFAS No. 133, as amended and interpreted. 4. PROJECT RESTRUCTURING On June 29, 2001, the Partnership (i) amended its long-term gas supply agreement with Enron North America Corp., as successor in interest by merger to Enron Power Services, Inc. ("Enron"); (ii) transferred its obligations under five of its seven gas transportation arrangements to Enron, which has agreed to assume such obligations; and (iii) entered into a tolling arrangement with DPM that commenced on July 1, 2001. Also on June 29, 2001, Sithe Energies, through an indirect, wholly owned subsidiary, sold a forty percent limited partnership interest in the Partnership to Oswego Cogen. GAS SUPPLY AGREEMENT AMENDMENT Prior to the June 29, 2001 amendment to the Partnership's long-term gas supply agreement, the Partnership recognized fuel expense for gas consumed at its plant based on pricing provided for in the Project's 20-year gas supply agreement with Enron. Pursuant to such agreement, the price for the first 116,000 MMBtu's of natural gas per day ("Tier I gas") was fixed for the first five years of the agreement and thereafter fluctuated with pricing based on a pre-determined multiple of Con Edison's actual avoided energy price (which, effective January 17, 2000, was determined by reference to the LBMP in the ISO Administered Market for energy at the Pleasant Valley Bus) as well as certain other payments made by Con Edison to the project. Up to an additional 76,291 MMBtu's of gas consumed per day by the Project ("Tier II gas") was priced based on the pre-determined multiple applied to Niagara Mohawk's "energy only" rate which was determined by the real time price at the Independence Bus in the ISO Administered Market. Enron maintained a notional tracking account to account for differences between the contract price and spot gas prices, except that there was no such tracking with respect to the Tier I gas during the first five years of the contract. The tracking account was increased if the then current spot gas price was greater than the contract price and was decreased if the then current spot gas price was lower that the contract price. Interest was accrued on the tracking account at 1% over prime. As a result of the amendment to the gas supply agreement, the Partnership and Enron agreed to terminate the Partnership's obligation to purchase natural gas from Enron and the tracking account balance of $419.3 million was fixed and converted to a secured subordinated loan (the "Tracking Account Loan") resulting in a $419.3 million charge, recorded as a loss on project restructuring on the Partnership's condensed consolidated statement of operations. The Tracking Account Loan is subordinate to the Partnership's secured notes and bonds (the "Securities") and to certain payments due to Con Edison under the Amended EPA. -9- The Tracking Account Loan bears interest at an annual rate of 7%, which is payable semi-annually, beginning December 31, 2001 from cash distributable to the partners under the indenture pursuant to which the Securities were issued. The Tracking Account Loan will be repaid in 40 semi-annual principal payments commencing June 30, 2015. GAS TRANSPORTATION AGREEMENTS The Partnership had previously entered into long-term gas transportation agreements with seven pipeline companies in order to transport, on a firm basis, the natural gas purchased pursuant to the Partnership's then existing obligations under the gas supply agreement. In connection with the cancellation of the Partnership's fuel purchase obligations, Enron has assumed and agreed to perform all of the Partnership's future obligations for all but two of these gas transportation arrangements. The Partnership will continue to pay fixed demand charges under contracts with Niagara Mohawk and Empire State Pipeline. TOLLING ARRANGEMENTS The Partnership has entered into tolling arrangements for the Project with DPM and its affiliates which commenced on July 1, 2001 and run through 2014. Under the tolling arrangement (the "Tolling Agreement"), DPM will pay the Partnership a monthly tolling fee for the right (1) to supply natural gas to the Project, (2) to request the Partnership to run the Project as needed to convert such natural gas to electrical energy within certain efficiency parameters and (3) to receive such electrical energy at an electrical transmission delivery point at the Project. Approximately sixty percent of the output of the Project is covered by the Tolling Agreement. DPM is responsible for payment of all natural gas commodity and transportation costs associated with the natural gas necessary to generate electric energy under the Tolling Agreement, except for demand charges due Niagara Mohawk and Empire State Pipeline, which remain the obligation of the Partnership. In addition to the monthly tolling fee, DPM will be required to pay the Partnership variable payments designed to reimburse the Partnership for its costs of operating and maintaining the Project. If the Project is not available, the Partnership will have the right to meet its contractual obligations under the Tolling Agreement by supplying electric energy from other sources. If the Project is not available and the Partnership does not supply replacement energy, the monthly tolling fee will be subject to an availability adjustment. However, the Project will not be responsible to DPM for any damages resulting from the Project's failure to deliver electric energy under the Tolling Agreement. DPM does not have a direct right to terminate the Tolling Agreement due to the unavailability of the Project. In addition, the Partnership has entered into a multi-agreement financial swap (collectively, the "Financial Swap Agreement") with respect to 375 MW. To hedge its exposure under the Financial Swap Agreement, using natural gas supplied by Dynegy Canada Marketing and Trade ("DCMT"), the Partnership will generate electricity from forty percent of the Project and sell such electricity to the NYISO. DPM will pay the Partnership (i) a monthly fixed payment under the financial swap and (ii) a payment designed to cover the Partnership's costs of generating electric energy (including amounts paid under the gas supply agreement described below) from the Project's reserved capability. The Partnership will pay to DPM amounts equal to amounts received from the NYISO for the sales of energy associated with the reserved forty percent of the Project. In connection with the Financial Swap Agreement, affiliates of the General and Limited Partners will be obligated to provide a credit support reserve in the form of cash, letters of credit or corporate guarantees. The monthly fixed payments are subject to reduction if the Project is not available at a time DPM calls on the Financial Swap Agreement. However, the Partnership's exposure to damages under the Financial Swap Agreement (beyond the reductions in the monthly fixed payments) resulting from market energy prices at times that the Project is not available is limited over the life of the Financial Swap Agreement to the amount of the credit support reserve. If the credit support reserve is called upon, the Partnership is not obligated to -10- replenish the reserve. The Financial Swap Agreement contains restrictions on the start and stop times and durations of the individual financial swaps designed to mirror the operational requirements of the Project. The Financial Swap Agreement will be in place through 2014. Pursuant to a gas supply agreement between the Partnership and DCMT (the "Gas Supply Agreement"), the Partnership will purchase from DCMT at a defined index price, all natural gas required to operate forty percent of the Project. The pricing under the Gas Supply Agreement is structured so that payments for natural gas associated with operation of the reserved capability are covered by the payments from DPM under the Financial Swap Agreement. In addition, if DCMT fails to deliver natural gas to the Project at any time that the Partnership is intending to operate the Project to sell electric energy to the NYISO to cover its exposure under the Financial Swap Agreement, DCMT is obligated to reimburse the Partnership at the NYISO market price for the amount of such electric energy. Under SFAS No. 133, as amended and interpreted, the Partnership will account for the Financial Swap Agreement and the Gas Supply Agreement as derivatives which are not designated as hedges. However, the Partnership believes that together, the Tolling Agreement, the Financial Swap Agreement and the Gas Supply Agreement eliminate the financial risks associated with the purchase of natural gas to operate the Project on a full-time, base load basis as well as eliminating the variable market prices associated with the marketing of power into the NYISO. The Partnership estimates that the Financial Swap Agreement and Gas Supply Agreement derivatives each had a zero fair value as of July 1, 2001. The Partnership, DPM, and Dynegy Marketing and Trade ("DMT") have entered into an energy management agreement (the "Energy Management Agreement"), whereby DMT is responsible for all bidding and scheduling of gas under the Gas Supply Agreement and the Tolling Agreement, and DPM is responsible for all bidding and scheduling of electric purchases and sales under the Tolling Agreement and resulting from the Financial Swap Agreement. Dynegy Holdings Inc., the parent of DPM, DCMT and DMT, guarantees certain obligations of DPM, DCMT and DMT under the Tolling Agreement, the Financial Swap Agreement, the Gas Supply Agreement and the Energy Management Agreement pursuant to four separate Guaranty Agreements. OTHER The Partnership recognized an additional $9.4 million loss on project restructuring to write-off prepaid equalization fees that were included in other assets. The $9.4 million balance of prepaid equalization fees represented the difference between the six annual $3.0 million equalization payments made to Niagara Mohawk between December 31, 1995 and December 31, 2000 and the amortization of such fees over the 22 year term of the Alcan Energy Sales Contract. The Partnership is no longer obligated to make the four remaining annual equalization fee payments to Niagara Mohawk. 5. COMMITMENTS AND CONTINGENCIES LITIGATION AND CLAIMS On March 29, 1995, the Partnership filed a petition with the Federal Energy Regulatory Commission (the "FERC") alleging Niagara Mohawk has been overcharging for the transmission of electricity in violation of the FERC policy by calculating transmission losses on an incremental basis. The Partnership believes that transmission losses should be calculated on an average basis. The Partnership had been recording its transmission expense at the disputed, higher rate. The Partnership requested that the FERC order Niagara Mohawk to recalculate the transmission losses beginning in October 1994, -11- when it began wheeling power from the Project. In September 1996, the FERC issued an order dismissing the Partnership's complaint and requiring Niagara Mohawk to provide the Partnership with information regarding the calculation of transmission losses. In October 1996, the Partnership filed a request for rehearing of the FERC's order which was denied by the FERC. In December 1997, the Partnership filed a petition for review of the FERC orders in the United States Court of Appeals. On January 29, 1999, the Court of Appeals found the FERC had not engaged in reasoned decision-making or reached conclusions supported by the record in the underlying proceeding, and therefore remanded the case to the FERC for further proceedings. On June 28, 2001, the Partnership entered into a settlement agreement (the "Settlement") with Niagara Mohawk which superceded a previous, partial settlement agreement (the "PSA") dated February 23, 2001. Under the terms of the Settlement, $2.3 million paid by Niagara Mohawk to the Partnership under the PSA on March 2, 2001 now represents full settlement of all claims for transmission loss overcharges. The terms of the Settlement also stipulate that the TSA between Niagara Mohawk and the Partnership be amended to provide that the currently effective firm transmission rate be fixed at $1.76 per kw/month and the currently effective contract demand of 853 MW be fixed for the period commencing on July 2, 1999 and ending December 31, 2005. The $2.3 million was recognized as revenue in the first quarter of 2001. The Settlement also supercedes the PSA and fully settles a previous complaint filed with the FERC by the Partnership seeking reimbursement of approximately $63.0 million for overcharges by Niagara Mohawk for the construction and upgrade of Niagara Mohawk's transmission system (the "Interconnection Facilities") for the purpose of connecting the Project to the Interconnection Facilities. Under the PSA, on March 2, 2001 Niagara Mohawk paid the Partnership $15.1 million to purchase the assets defined as the Interconnection Facilities under the PSA with a book value of $13.0 million, resulting in a $2.1 million gain which was included in interest and other income for the first quarter of 2001. The Settlement changed the purchase price and the definition of the assets included in the Interconnection Facilities, and on August 1, 2001 Niagara Mohawk paid an additional $13.0 million to the Partnership for the Interconnection Facilities. As a result, during the second quarter of 2001, the Partnership reversed $1.9 of the $2.1 million gain recognized in the first quarter resulting in a net $.2 million gain from the sale of the Interconnection Facilities for the six months ended June 30, 2001, representing the difference between the $28.1 million proceeds received from Niagara Mohawk under the Settlement, and the net book value of the Interconnection Facility assets of $27.9 million. The Settlement, together with the related amendments to the TSA and the Interconnection Agreement, have been submitted to the FERC for approval. Although FERC approval of the Settlement is still pending as of the date hereof, the Partnership anticipates that the FERC will ultimately approve the Settlement. -12- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue for the second quarter of 2001 of $104.2 million was $8.1 million (8%) higher than in the corresponding period of last year. $5.7 million of this increase was due to higher net generation and sales of installed capacity and ancillary services offset by the effect of lower energy rates received during the period, and the remaining $2.4 million increase was due to the change in estimated fair value of the TCC. Cost of sales, exclusive of the loss on project restructuring discussed below, for the second quarter of 2001 of $73.9 million was $5.4 million (8%) higher than in the corresponding period of last year due largely to higher fuel expense resulting from higher net generation and the price risk management fee under the Partnership's long-term gas supply agreement as well as higher operations and maintenance expense due largely to higher maintenance costs associated with scheduled equipment maintenance which took place in April and May of 2001 and a contractual price increase under the Partnership's long-term equipment maintenance contract. On June 29, 2001, the Partnership entered into a series of transactions which included (i) an amendment to the Partnership's long-term gas supply agreement with Enron which effectively terminated the Partnership's obligation to purchase natural gas from Enron, (ii) the transfer of its obligations under five of its seven gas transportation arrangements to Enron, (iii) a tolling arrangement with Dynegy Power Marketing, Inc. which commenced on July 1, 2001 and (iv) the sale of a 40% limited partnership interest in the Partnership to Oswego Cogen Company, LLC, an indirect wholly-owned subsidiary of Enron Corp. As a result of the amendment to the gas supply agreement, the Partnership and Enron agreed to terminate the Partnership's obligation to purchase natural gas from Enron and the tracking account balance of $419.3 million was fixed and converted to a secured subordinated loan (the "Tracking Account Loan") resulting in a $419.3 million charge, recorded as a loss on project restructuring on the Partnership's condensed consolidated statement of operations. The Tracking Account Loan is subordinate to the Securities and to certain payments due to Con Edison under the Amended EPA. The Partnership recognized an additional $9.4 million loss on project restructuring to write-off prepaid equalization fees that were included in other assets. The $9.4 million balance of prepaid equalization fees represented the difference between the six annual $3.0 million equalization payments made to Niagara Mohawk between December 31, 1995 and December 31, 2000 and the amortization of such fees over the 22 year term of the Alcan Energy Sales Contract. The Partnership is no longer obligated to make the four remaining annual equalization fee payments to Niagara Mohawk. Interest expense for the second quarter of 2001 of $14.5 million was $.3 million (2%) lower than the corresponding period of last year due to lower outstanding amounts of long-term debt. Interest and other expense for the second quarter of 2001 of $.5 million consists of $1.4 million of interest income offset by the reversal of a portion of the gain on sale of the Interconnection Facilities of $1.9 million that was recorded during the first quarter of 2001 under the terms of a partial settlement agreement and later superceded by a revised settlement agreement discussed below. -13- At June 30, 2001, the current portion of long-term debt and accrued interest payable were $15.4 million and $27.5 million higher than the end of December 31, 2000 due to the fact that the principal and interest payment scheduled for June 30, 2001, which was a weekend, was not made until the next business day which was July 2, 2001. Revenue for the six months ended June 30, 2001 of $229.2 million was $36.0 million (19%) higher than in the corresponding period of last year. $33.6 million of this increase was due to higher net generation, higher average energy rates received during the period, sales of installed capacity and ancillary services, incremental revenue from selling gas instead of generating electricity and final settlement of a dispute with Niagara Mohawk regarding transmission loss overcharges discussed below. The remaining $2.4 million increase was due to the change in estimated fair value of the TCC. On June 28, 2001, the Partnership entered into a settlement agreement (the "Settlement") with Niagara Mohawk which superceded a previous, partial settlement agreement (the "PSA") dated February 23, 2001. Under the terms of the Settlement, $2.3 million paid by Niagara Mohawk to the Partnership under the PSA on March 2, 2001 now represents full settlement of all claims for transmission loss overcharges. The terms of the Settlement also stipulate that the TSA between Niagara Mohawk and the Partnership be amended to provide that the currently effective firm transmission rate be fixed at $1.76 per kw/month and the currently effective contract demand of 853 MW be fixed for the period commencing on July 2, 1999 and ending December 31, 2005. Cost of sales, exclusive of the loss on project restructuring, for the six months ended June 30, 2001 of $155.0 million was $21.5 million (16%) higher than in the corresponding period of last year due largely to higher fuel expense resulting from higher net generation, increased fuel costs due to higher average energy rates during the period and the price risk management fee, which commenced January 1, 2001 under the Partnership's long-term gas supply agreement, as well as higher operations and maintenance expense due largely to higher maintenance costs associated with scheduled equipment maintenance during the second quarter of 2001 and a contractual price increase under the Partnership's long-term equipment maintenance contract. Interest expense for the six months ended June 30, 2001 of $28.6 million was $.6 million (2%) lower than in the corresponding period of last year due to lower outstanding amounts of long-term debt. Interest and other income, net for the six months ended June 30, 2001 of $3.3 million consisted of interest income ($2.8 million), unrealized gains on the Partnership's restricted investments ($.3 million) and a net gain on the sale of the Interconnection Facilities to Niagara Mohawk in accordance with the terms of the Settlement ($.2 million) discussed below. The Settlement also supercedes the PSA and fully settles a previous complaint filed with the FERC by the Partnership seeking reimbursement of approximately $63.0 million for overcharges by Niagara Mohawk for the construction and upgrade of Niagara Mohawk's transmission system (the "Interconnection Facilities") for the purpose of connecting the Project to the Interconnection Facilities. Under the PSA, on March 2, 2001 Niagara Mohawk paid the Partnership $15.1 million to purchase the assets defined as the Interconnection Facilities under the PSA with a book value of $13.0 million, resulting in a $2.1 million gain which was included in interest and other income for the first quarter of 2001. The Settlement changed the purchase price and the definition of the assets included in the Interconnection Facilities, and on August 1, 2001 Niagara Mohawk paid an additional $13.0 million to the Partnership for the Interconnection Facilities. As a result, during the second quarter of 2001, the Partnership reversed $1.9 of the $2.1 million gain recognized in the first quarter resulting in a net $.2 million gain from the sale of the Interconnection Facilities for the six months ended June 30, 2001, representing the difference between the $28.1 million proceeds received from Niagara Mohawk under the -14- Settlement, and the net book value of the Interconnection Facility assets of $27.9 million. At June 30, 2001, the $13.0 million due from Niagara Mohawk was included in other current assets. LIQUIDITY AND CAPITAL RESOURCES Financing for the Project consisted of a loan to the Partnership by Sithe Funding of the proceeds of its issuance of $717.2 million of the Securities and $60 million of capital contributions by the Partners. In addition, under a credit facility obtained by the Partners, one or more letters of credit may be issued in connection with their obligations pursuant to certain Project contracts, and, as of June 30, 2001, letters of credit aggregating $7.3 million were outstanding in connection with such obligations. Also, the Partnership has secured the Project's debt service reserve obligations with a letter of credit in the amount of $50 million. As of June 30, 2001, the Partnership had restricted funds and investments aggregating $116.8 million, including the Project's cumulative cash debt service reserve and major overhaul reserve of $33.0 million and $6.0 million, respectively. In addition, these restricted funds included $33.0 million that was utilized for July 2001 operating expenses, $43.5 million used for the June 2001 debt service payment made on July 2, 2001 and the balance reserved for the December 2001 debt service payment. Funds in the Partnership distribution account are available as additional operating and debt service reserves until such time as certain coverage ratios are achieved. To secure the Partnership's obligation to pay any amounts drawn under the debt service letter of credit, the letter of credit provider has been assigned a security interest and lien on all of the collateral in which the holders of the Securities have been assigned a security interest and lien. The Tracking Account Loan bears interest at 7%, which is payable semi-annually, beginning December 31, 2001 from cash distributable to the partners in accordance with the terms of the Securities. The Tracking Account Loan will be repaid in 40 semi-annual principal payments commencing on June 30, 2015. The Partnership is precluded from making distributions to Partners unless project reserve accounts are funded to specified levels and unless the required debt service coverage ratio is met. During the first six months of 2001, the Partnership made distributions to its Partners in the amount of $76.8 million. The Partnership believes that funds available from cash on hand, restricted funds, operations and the debt service letter of credit will be more than sufficient to liquidate Partnership obligations as they come due and pay scheduled debt service. FORWARD-LOOKING STATEMENTS Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934. The words "anticipate", "believe", "expect", "estimated" and similar expressions generally identify forward-looking statements. While the Partnership believes in the veracity of all statements made herein, forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Partnership, are inherently subject to significant business, economic and competitive uncertainties and contingencies, the price of natural gas and the demand for and price of electricity. These uncertainties and contingencies could cause the Partnership's actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Partnership. -15- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership uses the sensitivity analysis methodology to disclose the quantitative information for interest rate and commodity price risks. The sensitivity analysis estimates the potential loss of fair value from market risk sensitive instruments due to a 10% unfavorable change in interest rates and commodity prices. INTEREST RATE RISK The Partnership has investments in financial instruments subject to interest rate risk consisting of $92.5 million of restricted cash and cash equivalents and $24.2 million of restricted investments. In the case of restricted cash and cash equivalents, due to the short duration of these financial instruments, a 10% immediate change in interest rates would not have a material effect on the Partnership's financial condition. In the case of restricted investments, the resulting potential decrease in fair value from a 10% immediate change in interest rates would be approximately $.3 million. The Partnership's outstanding long-term debt at June 30, 2001 bears interest at fixed rates and therefore the Partnership's results of operations would not be affected by changes in interest rates as they apply to borrowings. COMMODITY PRICE RISK The Partnership is subject to commodity price risk on the fair value of the TCC from changes in the differential between the LBMP at the Pleasant Valley Bus and the Independence Bus due to congestion. The Partnership estimates that a 10% decrease in this differential would decrease the estimate fair value of the TCC assets by $16.8 million. -16- PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
Exhibit No. Description of Exhibit ----------- ---------------------- 3.9 Amended and Restated Agreement of Limited Partnership of Sithe/Independence Power Partners, L.P. (the "Partnership") dated as of June 29, 2001 among Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc., Mitex, Inc. and Cogeneration National Corporation. 3.10 Second Amended and Restated Agreement of Limited Partnership of the Partnership dated as of June 29, 2001 among Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc., Mitex, Inc. and Oswego Cogen Company, LLC. 10.3 Power Purchase Agreements 10.3.15* Tolling Agreement dated as of July 1, 2001 between the Partnership and Dynegy Power Marketing, Inc. 10.3.16 ISDA Master Agreement dated as of July 1, 2001 between the Partnership and Dynegy Power Marketing, Inc. 10.3.17* Schedule to the Master Agreement dated as of July 1, 2001 between Dynegy Power Marketing, Inc. and the Partnership. 10.3.18* Confirmation #1A, regarding the Master Agreement, between Dynegy Power Marketing, Inc. and the Partnership, dated July 1, 2001. 10.3.19* Energy Management Agreement dated as of July 1, 2001 by and among Dynegy Marketing and Trade, Dynegy Power Marketing, Inc. and the Partnership.
-17-
Exhibit No. Description of Exhibit ----------- ---------------------- 10.3.20 Second Amendment to Energy Purchase Agreement dated as of June 28, 2001 between the Partnership and Niagara Mohawk Power Corporation. 10.5 Transmission Agreements 10.5.3 Amended and Restated Transmission Services Agreement dated as of June 29, 2001 between the Partnership and Niagara Mohawk Power Corporation. 10.5.4 Settlement Agreement dated June 28, 2001 between the Partnership and Niagara Mohawk Power Corporation and relating to Docket Nos. EL99-65-000 and EL-95-38-000. 10.6 Interconnection Agreements 10.6.5 Amended and Restated Inter- connection Agreement dated as of June 29, 2001 between the Partnership and Niagara Mohawk Power Corporation. 10.7 Gas Supply Agreements 10.7.10 Tenth Amendment to Amended and Restated Base Gas Sales Agreement dated as of June 29, 2001 by and between Enron North America Corp. and the Partnership. 10.7.11* Gas Supply Agreement dated as of July 1, 2001 between the Partnership and Dynegy Canada Marketing and Trade (a division of Dynegy Canada Inc.). 10.8 Gas Transportation Agreements 10.8.30 Assignment and Assumption Agreement dated as of June 29, 2001 by and between the Partnership and Enron North America Corp.
-18-
Exhibit No. Description of Exhibit ----------- ---------------------- 10.8.31 Capacity Release Transfer Agreement dated as of June 29, 2001 by and between the Partnership and Enron North America Corp. 10.12.5* Financial Swap Credit Support Contribution Agreement dated as of June 30, 2001 among Enron Corp., Exelon Generation Company, L.L.C. and the Partnership.
* Certain confidential portions of this exhibit were omitted by means of redacting a portion of the text. This exhibit has been filed separately with the Secretary of the SEC without such text pursuant to an Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act. (b) Reports on Form 8-K: No report on Form 8-K was filed during the quarter covered by this report. -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sithe/Independence Funding Corporation -------------------------------------- (REGISTRANT) August 14, 2001 /s/ Thomas M. Boehlert ------------------------------ THOMAS M. BOEHLERT CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, the co-registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sithe/Independence Power Partners, L.P. --------------------------------------- (REGISTRANT) By: Sithe/Independence, Inc. ------------------------ GENERAL PARTNER August 14, 2001 /s/ Thomas M. Boehlert ----------------------------------- THOMAS M. BOEHLERT CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) -20- EX-3.9 3 a2056240zex-3_9.txt EXHIBIT 3.9 EXECUTION COPY EXHIBIT 3.9 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP SITHE/INDEPENDENCE POWER PARTNERS, L.P. DATED AS OF JUNE 29, 2001 TABLE OF CONTENTS PAGE 1. Definitions.............................................................1 2. Formation of Partnership...............................................10 3. Name...................................................................10 4. Business...............................................................10 5. Certificate of Limited Partnership.....................................11 6. Fictitious Business Name Statement.....................................11 7. Executive Offices......................................................11 8. Term of Partnership....................................................11 9. Contributions and Status...............................................11 9.1 Percentage Interests of General Partner............................11 9.2 Percentage Interest of the Limited Partners........................11 9.3 Limited Liability of the Limited Partners..........................12 9.4 Role of Limited Partner............................................12 9.5 Withdrawal and Return of Capital...................................12 9.6 Salaries, Drawings and Interest on Capital Accounts................12 10. Distributions..........................................................12 10.1 Distributable Cash..........................................12 10.2 Amounts Withheld............................................13 11. Allocation of Profits and Losses.......................................13 11.1 Capital Account.............................................13 11.2 Allocation of Losses........................................14 11.3 Allocation of Profits.......................................14 11.4 Deficit Restoration.........................................14 11.5 Regulatory Allocations and Related Provisions...............14 11.6 Curative Allocations........................................16 11.7 Tax Allocations.............................................16 11.8 Special Allocations of Profit and Loss and Distributable Cash While Tracking Account Loan is Outstanding.......................................16 11.9 Certain Special Allocations of Deduction and Income Related to Project Tracking Account Deduction .....18 11.10 Cost Recovery Recapture; Allocation of Cost Recovery........18 11.11 Distributions and Allocations in Respect of Transferred Interests.................................................18 11.12 Special Allocation of Income, Loss and Distributable Cash For Proceeds of Certain Litigation and the Casualty Insurance Claim Receivable ......................19 i TABLE OF CONTENTS (Cont'd) PAGE 12. Rights, Powers and Duties of the General Partner; Charges, Expenses and Fees of the General Partner....................19 12.1 Management and Control of the Partnership...................19 12.2 Authority of the General Partner............................20 12.3 Expenses of the General Partner.............................22 12.4 Restrictions on Authority of the General Partner............22 12.5 Duties and Obligations of the General Partner...............25 12.6 Power of Attorney...........................................26 12.7 Independent Activities......................................26 12.8 Exempt Wholesale Generator Status...........................27 12.9 Amended and Restated Operations and Maintenance Agreement; Restrictions on Change of Control of Operator; Administrative Services Agreement ..............27 12.10 Certain Actions Upon the Occurrence of an Event of Loss; Technical Disputes..................................28 13. Investment and Operating Restrictions..................................29 13.1 Transfers of Property.......................................29 13.2 Receipt of Funds............................................29 14. Additional General Partner; Removal of a General Partner...............29 14.1 Additional General Partner..................................29 14.2 Removal of a General Partner................................29 15. Assignability of Interests.............................................30 15.1 Transfer of Limited Partners' Interest......................30 15.2 Right of First Negotiation..................................30 15.3 Limitations on Transfer.....................................31 15.4 Expenses....................................................32 16. Reserved...............................................................32 17. Substituted Limited Partner............................................32 17.1 Conditions..................................................32 17.2 Effect of Assignment without Substitution...................32 17.3 Discretion of General Partner...............................32 17.4 Consent Not Required........................................32 17.5 Amendment of Certificate....................................33 17.6 Miscellaneous...............................................33 18. Withdrawal.............................................................33 19. Dissolution and Liquidation of the Partnership.........................33 19.1 Events Causing Dissolution..................................33 ii TABLE OF CONTENTS (Cont'd) PAGE 19.2 Liquidation.................................................34 20. Books and Records; Reports; Other Information..........................35 20.1 Books and Records...........................................35 20.2 Annual Reports..............................................35 20.3 Reports to Project Lenders..................................36 20.4 Annual Budget...............................................36 20.5 Tax Information.............................................36 21. Amendments.............................................................36 21.1 Additional Partners.........................................36 21.2 Amendments with Consent of Limited Partners.................36 21.3 Execution of Amendments.....................................37 21.4 Recording of Amendments.....................................37 22. Liability of the General Partner.......................................37 22.1 In General..................................................37 22.2 Agents of the General Partner...............................37 23. Indemnification of General Partner.....................................38 23.1 In General..................................................38 23.2 Against Claims by Limited Partner...........................38 23.3 Exceptions..................................................38 24. Miscellaneous..........................................................38 24.1 Agreements in Counterparts..................................38 24.2 Survival of Rights..........................................38 24.3 Section Headings............................................38 24.4 Additional Documents........................................38 24.5 Waiver of Partition.........................................39 24.6 Validity....................................................39 24.7 Interpretation..............................................39 24.8 Governing Law...............................................39 24.9 Limitation on Damages.......................................39 24.10 Notices.....................................................39 Exhibit A Percentage Interests Exhibit B Term Sheet for Second Amended and Restated Operations and Maintenance Agreement Exhibit C Term Sheet for Administrative Services Agreement iii AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SITHE/INDEPENDENCE POWER PARTNERS, L.P. This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") is entered into as of June 29, 2001, and shall be effective as of the date hereof among Sithe/Independence, Inc., a Delaware corporation, as general partner ("General Partner") and Sithe Energies, Inc., a Delaware corporation, as a limited partner, Sithe Energies U.S.A., Inc., a Delaware corporation, as a limited partner, Mitex, Inc., a Massachusetts corporation, as a limited partner, and Cogeneration National Corporation, a California corporation, as a limited partner (together, the "Limited Partners"), pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act, as amended. WHEREAS, on January 1, 1991, the General Partner, Sithe Energies U.S.A., Inc., Mitex, Inc. and Sithe Energies, Inc. entered into an Agreement of Limited Partnership of Sithe/Independence Power Partners, L.P. (the "Original Agreement"); WHEREAS, pursuant to a Contribution Agreement dated the date hereof, Sithe Energies, Inc. has transferred and assigned a portion of its Interest (as defined herein) in the Partnership to Energy Factors, Incorporated with the consent of the General Partner; WHEREAS, pursuant to a Contribution Agreement dated the date hereof, Energy Factors, Incorporated has transferred and assigned all of its Interest in the Partnership to Cogeneration National Corporation with the consent of the General Partner; WHEREAS, the General Partner and the Limited Partners desire to amend and restate the Original Agreement in its entirety as set forth herein. NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the General Partner and the Limited Partners, intending to be legally bound, hereby covenant and agree as follows: 1. DEFINITIONS. In addition to the terms defined elsewhere in this Agreement, when used with initial capitalization, whether singular or plural, the following terms shall have the meanings set forth below. All references in this Agreement to any governmental or non-governmental entity, including, without limitation, the Federal Energy Regulatory Commission, shall include any and all successors to such entities. Unless the context otherwise requires, any reference herein to any contract, agreement and any schedule, attachment or exhibit thereto shall mean such contract, agreement, schedule, attachment or exhibit as amended, supplemented and modified and in effect from time to time 1.1 "Act" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time. 1.2 "Adjusted Basis" means the basis for determining gain or loss for federal income tax purposes from the sale or other disposition of property, as defined in Section 1011 of the Code. 1.3 "Adjusted Capital Account Balance" means the balance in any Partner's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (a) Credit to such Capital Account any amounts that such Partner is obligated to restore pursuant to any provision of this Agreement, is otherwise treated as being obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, or is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations (determined after taking into account any changes during such year in Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain); and (b) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations. 1.4 "Adjusted Capital Account Deficit" means a deficit Adjusted Capital Account Balance with respect to any Limited Partner. 1.5 "Administrative Services Agreement" shall have the meaning set forth in Section 12.9 hereof. 1.6 "Administrative Services Provider" means the Administrative Services Provider pursuant to the Administrative Services Agreement. 1.7 "Affiliate" with respect to any Person means any other Person directly or indirectly controlling, controlled by, or under common control with such first Person whether through ownership, by contract, or otherwise; provided that any Person with direct or indirect ownership of five percent (5%) or more of the voting power for the election of directors or other governing body of a corporation or five percent (5%) or more of the economic interest of any other Person will be deemed to control such corporation or other Person. 1.8 "Agreement" means this Amended and Restated Agreement of Limited Partnership, as originally executed and as amended from time to time, as the context requires. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder," when used with 2 reference to this Agreement, refer to this Agreement as a whole, unless the context otherwise specifically requires. 1.9 "Allocation Share" shall have the meaning set forth in Section 11.8(a) hereof. 1.10 "Annual Period" shall have the meaning set forth in the Operations and Maintenance Agreement. 1.11 "Applicable Laws" means laws, rules, regulations, statutes, acts (including the Act), codes (including the Code), ordinances, decrees, rulings, directives, judgments, declarations and requirements of all federal, state and local governmental authorities applicable to the Partnership, the Business, the Project, the Partners and the performance of the obligations of a Partner hereunder. 1.12 "Available Cash" means the sum derived by deducting the total annual "Costs" of the Partnership from the total annual gross cash receipts of the Partnership from all sources (other than from Capital Contributions or from loans from any Partner). Such Costs, for the purposes hereof, mean all cash expenditures in connection with the Business of the Partnership, including, without limitation, lease payments, advertising and promotion, salaries, accounting, computer time-sharing, statistical or bookkeeping service and computing or accounting equipment use, accounting, tax preparation, legal, travel, transportation and telephone expenses, operating and maintenance expenses and Debt Service. There shall be included in Costs the direct out-of-pocket expenses incurred by the General Partner or any of its Affiliates (including payments to salaried employees and payments for services and supplies) and a reasonable proportion of the overhead or indirect expenses of the General Partner or any of its Affiliates incurred in performing bookkeeping, accounting, tax preparation, legal, general management, computer and public relations services for the Partnership necessary for the operation of the Partnership, which services, but for their performance by the General Partner or any such Affiliates, would be required to be performed for the Partnership by another Person; PROVIDED that the expenses so included in Costs shall not exceed the amount that the Partnership would be required to pay to Persons not Affiliates of the General Partner for comparable services that would have been obtainable in a bona fide arm's-length transaction. "Costs" do not include: (i) any overhead expenses of the General Partner or an Affiliate thereof not reasonably incurred in connection with the Business as provided in the third sentence of this Section 1.12, (ii) cost recovery, depreciation or amortization deductions; or (iii) expenditures of funds from Reserves or from Capital Contributions. Notwithstanding the foregoing, the "Available Cash" shall not exceed the amounts which may be distributed to the Partners under the terms of any Mortgage. 1.13 "Base Gas Sales Agreement" means the Amended and Restated Base Gas Sales Agreement dated October 26, 1992 between Enron North America Corp. (as successor in interest to Enron Power Services, Inc.) and the Partnership, as amended. 1.14 "Budget" shall have the meaning set forth in the Operations and Maintenance Agreement. 1.15 "Business" shall have the meaning set forth in Section 4 hereof. 3 1.16 "Capital Account" shall have the meaning set forth in Section 11.1 hereof. 1.17 "Capital Contribution" or "Contribution" means any cash, property, services rendered or a promissory note or other obligation to contribute cash or property or to perform services, which a Partner contributes from time to time to the Partnership in its capacity as a Partner. 1.18 "Casualty Insurance Claim Receivable" means that certain receivable in the amount of approximately $6,330,291, currently reflected on the books of the Partnership (as may be adjusted in the future to reflect the actual insurance settlement), in respect of the Partnership's aggregate insurance reimbursement claims (relating to both property and business interruption coverage) arising from the occurrence of a casualty event at the Project on or about May 31, 2000. 1.19 "CNC" means Cogeneration National Corporation, a California corporation. 1.20 "Code" means the Internal Revenue Code of 1986, as amended. 1.21 "Costs" means those items designated as such in the definition of Available Cash. 1.22 "Debt Service" means all payments required to be made in connection with a loan to the Partnership or any other loan or debt obligation secured by a lien on any Partnership assets (including any Tracking Account Payments) and all payments required to be made pursuant to any lease to which the Partnership is a party as the lessee and which is treated as a capital lease under generally accepted accounting principles. 1.23 "Depreciation" means for each taxable year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such taxable year, except that if the Gross Asset Value of an asset differs from its Adjusted Basis for federal income tax purposes at the beginning of such taxable year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such taxable year bears to such beginning adjusted tax basis; provided, however, that if the Adjusted Basis for federal income tax purposes of an asset at the beginning of such taxable year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner. 1.24 "Distributable Cash" means, with respect to any taxable year or other period, Available Cash, reduced by any amounts set aside from Available Cash for the restoration or creation of Reserves and increased by any amounts available as a result of the reduction or elimination of Reserves. 1.25 "Event of Loss" shall have the meaning set forth in the Indenture. 1.26 "Exempt Wholesale Generator" means an exempt wholesale generator as defined under PUHCA, Section 32 (15 U.S.C. Section 79z-5a) and Part 365 of the rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 365). 4 1.27 "Federal Power Act" means the Federal Power Act of 1920, as amended from time to time. 1.28 "General Partner" means Sithe/Independence, Inc., or any successors in interest, and any additional General Partner, in its capacity as general partner of the Partnership. 1.29 "Gross Asset Value" means with respect to any asset, the asset's Adjusted Basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the General Partner; (b) The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner, as of the following times: (i) the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Partnership to a General Partner or Limited Partner of more than a de minimis amount of Property as consideration for an interest in the Partnership; and (iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g). This provision is intended to comply with Regulations Section 1.704-1(b)(2)(iv)(f) and shall be interpreted and applied accordingly. (c) The Gross Asset Value of any Partnership asset distributed to the General Partner or Limited Partner shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner; and (d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the Adjusted Basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and Section 1.52 and Section 11.5(g) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section 1.29(d) to the extent the General Partner determines that an adjustment pursuant to Section 1.29(b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 1.29(d). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subsections (a), (b), or (d) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 1.30 "Indenture" means that certain Trust Indenture, dated as of January 1, 1993, among Sithe/Independence Funding Corporation, Sithe/Independence Power Partners, L.P. and IBJ Schroder Bank & Trust Company, as Trustee, as amended and supplemented from time to time. 1.31 "Intercreditor Agreement" means the Collateral Agency and Intercreditor Agreement dated January 1, 1993 among the Partnership, Enron North America Corp. (as 5 successor in interest in Enron Power Services, Inc.), The Sumitomo Bank Limited (as successor in interest to Union Bank), Bank of New York (as successor in interest to IBJ Schroder Bank & Trust Company), Sithe/Independence Funding Corporation, the County of Oswego Industrial Development Agency and Manufacturers and Traders Trust Company. 1.32 "Interest" means the entire ownership interest of any Person which is a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which such Partner may be entitled as provided in this Agreement, together with the obligations of such Partner to comply with all of the terms and provisions of this Agreement. 1.33 "Limited Partners" means Sithe Energies, Inc., Sithe Energies U.S.A., Inc., CNC, Mitex, Inc., and such other Persons who are admitted to the Partnership as Substituted Limited Partners, and who are then owners of an Interest. References to a "Limited Partner" shall mean any one of the Limited Partners. 1.34 "Liquidating Trustee" shall have the meaning set forth in Section 19.2(a) hereof. 1.35 "Mortgage" means any mortgage, deed of trust, or other encumbrance on any asset of the Partnership or any promissory note, lease, loan agreement, or any other similar document, agreement or instrument binding on the Partnership. 1.36 "Niagara Mohawk Proceeding" means any legal proceeding, suit or action involving the Partnership and Niagara Mohawk Power Corporation before the Federal Energy Regulatory Commission pending or outstanding as of the date hereof, including, without limitation, those proceedings under Docket Nos. EL95-38, EL 99-65, ER97-1523, OA97-470 and ER97-4234 of the Federal Energy Regulatory Commission. 1.37 "Nonrecourse Deductions" shall have the meaning set forth in Section 1.704-2(b)(1) of the Regulations. 1.38 "Nonrecourse Liability" shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations. 1.39 "Offeree" shall have the meaning set forth in Section 15.2 hereof. 1.40 "Operations and Maintenance Agreement" means the Amended and Restated Operations and Maintenance Agreement, dated as of August 25, 1992, between the Partnership and Sithe Energies Power Services, Inc., as amended, supplemented or replaced from time to time. 1.41 "Operator" shall mean the Operator pursuant to the Operations and Maintenance Agreement, or any other Person as may direct the day to day operations of the Project. 1.42 "Original Agreement" shall have the meaning set forth in the recitals hereto. 6 1.43 "Partner" means the General Partner and each of the Limited Partners, where no distinction is required by the context in which the term is used herein. Reference to a "Partner" means any one of the Partners. 1.44 "Partner Nonrecourse Debt" shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations. 1.45 "Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. 1.46 "Partner Nonrecourse Deductions" shall have the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. 1.47 "Partnership" means Sithe/Independence Power Partners, L.P., a Delaware limited partnership. 1.48 "Partnership Minimum Gain" shall have the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. 1.49 "Percentage Interest" means, with respect to each Partner, such Partner's Interest in the Partnership expressed as a percentage of the aggregate of all of the Interests in the Partnership, as reflected on Exhibit A hereto. 1.50 "Permitted Investment" shall have the meaning set forth in the Indenture. 1.51 "Person" means any individual, partnership, limited liability company, corporation, trust or other entity. 1.52 "Profits and Losses" means for each taxable year, an amount equal to the Partnership's taxable income or loss for such taxable year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.52 shall be added to such taxable income or loss; (b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.52 shall be subtracted from such taxable income or loss; (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to Section 1.29(b) or Section 1.29(c) hereof, the amount of such adjustment shall be 7 taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (d) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such taxable year, computed in accordance with Section 1.23 hereof; (f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4) to be taken into account in determining Capital Accounts as a result of a distribution other than in complete liquidation of a Partner's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and (g) Notwithstanding any other provision of this Section 1.52, any items which are specially allocated pursuant to Section 11 hereof shall not be taken into account in computing Profits or Losses. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 11 hereof shall be determined by applying rules analogous to those set forth in subsections (a) through (f) of this Section 1.52. 1.53 "Project" means an approximately 1,032 megawatt net capacity gas fired cogeneration facility located in the Town of Scriba, County of Oswego, New York, including all related equipment, real and personal property, associated contract rights and other intangible property. 1.54 "Project Document" shall have the meaning set forth in the Indenture. 1.55 "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. 1.56 "Qualifying Facility" means a qualifying cogeneration facility or a qualifying small power production facility as defined in the Federal Power Act, as amended, Section 3 (16 U.S.C. Section 796) and Part 292 of the rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 292). 1.57 "Regulations" means the income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 8 1.58 "Regulatory Allocations" shall have the meaning set forth in Section 11.6 hereof. 1.59 "Reserves" means, with respect to any 12-month period, payments made or amounts allocated during such period to reserves, which the General Partner shall in its reasonable, good faith judgment estimate to be required to meet, operating costs (exclusive of depreciation and other cost recovery deductions), capital expenditures, Debt Service and any other obligations of the Partnership known or anticipated to be payable within such 12-month period, as well as a reasonable reserve for contingencies, including anticipated capital expenditures in excess of revenues and payments to be received subsequent to such 12-month period. 1.60 "Second Amended and Restated Operations and Maintenance Agreement" shall have the meaning set forth in Section 12.9 hereof. 1.61 "Security Agreement and Assignment of Contracts" means that certain Security Agreement and Assignment of Contracts, dated as of January 1, 1993, made by the Partnership in favor of Manufacturers and Traders Trust Company. 1.62 "Selling Partner" shall have the meaning set forth in Section 15.2 hereof. 1.63 "Sithe Energies, Inc." means Sithe Energies, Inc., a Delaware corporation. 1.64 "Sithe Limited Partners" means Mitex, Inc., Sithe Energies, Inc. and Sithe Energies U.S.A., Inc. 1.65 "Sithe Partners" means Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc. and Mitex, Inc. 1.66 "Special Distribution Account" means the notional account established and maintained by the Partnership pursuant to Section 11.8(b) of this Agreement that reflects the outstanding balance on and after June 29, 2001, from time to time, of the aggregate amount of the accrued and unpaid special cash distributions owed by the Partnership to CNC in respect of the payment by the Partnership of principal on the Tracking Account Loan from time to time, as provided in Sections 11.8(b)(i) and 11.8(b)(ii), which account may never be less than zero. 1.67 "Special Distribution Account Determination Date" means any date on or after the date hereof on which the General Partner makes a distribution of Distributable Cash pursuant to Section 10.1. 1.68 "Substituted Limited Partner" means any Person admitted to the Partnership as a Limited Partner pursuant to the provisions of Section 17 hereof. 1.69 "Technical Dispute" shall have the meaning set forth in Section 12.10 hereof. 1.70 "Technical Expert" means an individual selected in accordance with the procedure set forth in Section 12.10(c) and who (i) has at least eight years experience in the electric generation industry, (ii) has no interest, financial or otherwise, or duty which conflicts or 9 may conflict with his or her functions as a Technical Expert (such individual being required to fully disclose any such interest or duty prior to his or her appointment) and (iii) is not and has not been during the five (5) years prior to the date of appointment an employee of any of the Partners or any of their Affiliates. 1.71 "Tracking Account Allocation Percentage" shall have the meaning set forth in Section 11.8(a) hereof. 1.72 "Tracking Account Loan" means the Tracking Account Loan described in the Base Gas Sales Agreement. 1.73 "Tracking Account Payment" shall mean any payments due and owing under the Tracking Account Loan in accordance with the Base Gas Sales Agreement. 1.74 "Trustee" shall mean the trustee under the Indenture. 2. FORMATION OF PARTNERSHIP. The Partnership was formed upon the filing of a Certificate of Limited Partnership with the Delaware Secretary of State on November 16, 1990. The names of all Partners are as set forth on the signature page hereof. Without the need for any additional action on the part of any Person, (i) Cogeneration National Corporation is hereby admitted to the Partnership as a limited partner of the Partnership, (ii) Sithe/Independence, Inc. shall continue to be a general partner of the Partnership, and (iii) Sithe Energies U.S.A., Inc. Sithe Energies, Inc. and Mitex, Inc. shall continue to be limited partners of the Partnership. 3. NAME. The name of the Partnership is "SITHE/INDEPENDENCE POWER PARTNERS, L.P." 4. BUSINESS. The business and purposes of the Partnership shall be to develop, finance and commercially exploit the Project, whether the foregoing is accomplished by owning, operating, managing, leasing or disposing of the Project (or any part thereof or any interest therein), including any and all things necessary or appropriate in connection therewith (the "Business"). 5. CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner has caused the Certificate of Limited Partnership to be recorded as required by the Act on November 16, 1990. All of the Partners do hereby appoint the General Partner to act as their attorney-in-fact for the purpose of executing and recording any other certificate or document or amendment thereto evidencing the existence and terms of the Partnership, whether in the State of Delaware or any other state; and the General Partner is hereby expressly granted the right to subscribe the name of any and all of the Partners hereto on any such certificate or document or amendment thereto. 10 6. FICTITIOUS BUSINESS NAME STATEMENT. Upon the execution of this Agreement or subsequent change in the Partners of the Partnership, the General Partner shall, if the Partnership is required, sign and cause to be filed and published in the county in which the principal place of business is situated, a fictitious business name statement or similar document in accordance with the provisions of Applicable Laws. The Partnership may do business under any other fictitious business names deemed desirable by the General Partner in its reasonable judgment. In such case, and if required, the General Partner may sign and cause to be filed and published a fictitious business name statement or similar document as attorney-in-fact for all of the Partners. 7. EXECUTIVE OFFICES. The executive offices of the Partnership shall be 335 Madison Avenue, 28th Floor, New York, New York 10017. The General Partner may from time to time change the location of the executive offices of the Partnership and in such event shall notify the Partners in writing at least ten days prior to the date hereof of such change. The General Partner may establish additional offices or places of business of the Partnership. 8. TERM OF PARTNERSHIP. The Partnership commenced on the date of filing of the Partnership's Certificate of Limited Partnership with the Delaware Secretary of State. The term of the Partnership shall continue until December 31, 2040, unless terminated pursuant to the Act or dissolved pursuant to the terms of Section 19.1 hereof. 9. CONTRIBUTIONS AND STATUS. 9.1 PERCENTAGE INTERESTS OF GENERAL PARTNER. The Percentage Interest of the General Partner is one percent (1%). 9.2 PERCENTAGE INTEREST OF THE LIMITED PARTNERS. The Percentage Interest of Sithe Energies U.S.A., Inc. is forty-four percent (44%). The Percentage Interest of Sithe Energies, Inc. is five percent (5%). The Percentage Interest of CNC is forty percent (40%). The Percentage Interest of Mitex, Inc. is ten percent (10%). 9.3 LIMITED LIABILITY OF THE LIMITED PARTNERS. No Limited Partner shall be liable for the debts, liabilities, contracts or any other obligations of the Partnership. Except as otherwise provided by Applicable Laws, no Limited Partner shall be liable to make additional Capital Contributions and shall not be required to lend any funds to the Partnership. 9.4 ROLE OF LIMITED PARTNER. Except as otherwise provided in this Agreement, or as approved by the General Partner and as will not under Applicable Laws result in a Limited Partner being subject to general liability for Partnership obligations, the Limited Partners shall not take part in, or interfere in any manner with, the conduct or control of the business of the Partnership and shall have no rights or authority to act for or bind the Partnership. 11 9.5 WITHDRAWAL AND RETURN OF CAPITAL. No Limited Partner shall withdraw any of its capital without the consent of the General Partner and the other Limited Partners, except upon dissolution or liquidation of the Partnership. Under circumstances requiring a return of any Capital Contribution, no Limited Partner shall have the right to receive property other than cash except as may be specifically provided herein. 9.6 SALARIES, DRAWINGS AND INTEREST ON CAPITAL ACCOUNTS. No Limited Partner shall receive any interest, salary or drawing with respect to its Capital Contribution or for services rendered on behalf of the Partnership or otherwise in its capacity as Limited Partner, except as provided herein. 10. DISTRIBUTIONS. 10.1 DISTRIBUTABLE CASH. The Partnership intends from time to time to make distributions of Distributable Cash, as available and as determined by the General Partner, subject to the following: (i) the General Partner shall use commercially reasonable efforts to distribute Distributable Cash to the Partners on at least a quarterly basis, subject to any applicable limitations in the Project Documents, (ii) distributions may be restricted or suspended when the General Partner determines in its reasonable judgment that it is in the best interest of the Partnership to do so, (iii) all distributions are subject to the payment of Costs and to the maintenance of reasonable Reserves and (iv) no distribution shall be made if such distribution is prohibited by any of the Project Documents. A Partner receiving a distribution in violation of the foregoing Section 10.1(iv) shall be liable to the Partnership for return of the amount of the distribution without regard to the date of the distribution or the date of the discovery of the violation, whether or not such Partner remains a Partner and without regard to any other facts or circumstances. Subject to the foregoing, except as provided in Section 19.2(d) hereof (relating to distributions upon the dissolution of the Partnership), Section 11.8(b) (relating to special allocations of Distributable Cash while the Tracking Account Loan is outstanding), Section 11.12(b) (relating to special allocations of Distributable Cash received in connection with any Niagara Mohawk Proceeding) and Section 11.12(d) (relating to special allocations of Distributable Cash received in connection with the recovery of all or a portion of the Casualty Insurance Claim Receivable), Distributable Cash, if any, shall be distributed to the Partners in proportion to their then existing Percentage Interests. 10.2 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any state or local tax laws with respect to any payment to the Partnership or to any Partner shall be treated as amounts distributed pursuant to Sections 10.1 or 19.2(d) hereof for all purposes of this Agreement. Amounts treated as distributed to any Person pursuant to such Sections shall reduce the amount otherwise distributed or distributable to such Person pursuant to such Sections. 12 11. ALLOCATION OF PROFITS AND LOSSES. 11.1 CAPITAL ACCOUNT. With respect to any Partner, a "Capital Account" shall be maintained for such Partner in accordance with the following provisions: (a) To each Partner's Capital Account there shall be credited such Partner's Capital Contributions, such Partner's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Sections 11.5, 11.6, 11.8(a), 11.9(b) and 11.12 hereof, and the amount of any Partnership liabilities assumed by such Partner or which are secured by any property distributed to such Partner as provided in Section 1.704-1(b)(2)(iv)(c) of the Regulations. (b) To each Partner's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Sections 11.5, 11.6, 11.9(a) and 11.12 hereof, and the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership as provided in Section 1.704-1(b)(2)(iv)(c) of the Regulations. (c) In the event all or a portion of an interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. (d) In determining the amount of any Partnership liabilities for purposes of this Section 11.1, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is necessary to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributions or distributed property or which are assumed by the Partnership, General Partner, or Limited Partners), are computed in order to comply with such Regulations, the General Partner may make such modification; PROVIDED, that (i) it is not likely to have a material effect on the amounts distributed to any Person pursuant to Section 19 hereof upon the dissolution of the Partnership and (ii) prior to making any such modification (A) the General Partner obtains the written consent of all Partners that may be reasonably likely to be adversely affected by such modification or (B) if such consent or consents cannot be obtained, the General Partner obtains a tax opinion from a nationally recognized tax counsel with expertise in partnership tax matters, which counsel is reasonably acceptable to the Partners holding a majority in interest of the Percentage Interests, to the effect that the proposed modifications of the General Partner are necessary to comply with the Regulations. The General Partner also shall be entitled to make, subject to the foregoing proviso, (i) any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the General Partner and 13 Limited Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) any appropriate modifications in the event unanticipated events (for example, the acquisition by the Partnership of oil or gas properties) might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). 11.2 ALLOCATION OF LOSSES. Except as provided in Sections 11.5, 11.6, 11.8, 11.9 and 11.12 hereof, Losses of the Partnership for any taxable year shall be allocated to the Partners in proportion to their then existing Percentage Interests. To the extent that the allocation of a Loss to a Limited Partner would create or increase an Adjusted Capital Account Deficit with respect to such Limited Partner, however, such Loss shall instead be allocated to the General Partner. 11.3 ALLOCATION OF PROFITS. Except as provided in Sections 11.5, 11.6, 11.8, 11.9 and 11.12 hereof, Profits of the Partnership for any taxable year shall be allocated to the Partners in proportion to their then existing Percentage Interests. 11.4 DEFICIT RESTORATION. Except as otherwise required by Applicable Laws or Sections 14.2(c) or 19.2(e) of this Agreement, no Partner shall be required to contribute to any deficit of the Partnership or to restore any debit Capital Account balance. 11.5 REGULATORY ALLOCATIONS AND RELATED PROVISIONS. The following special allocations shall be made in the following order: (a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 11, if there is a net decrease in Partnership Minimum Gain during any taxable year, each Partner shall be specially allocated items of Partnership income and gain for such taxable year (and, if necessary, subsequent taxable years) in an amount equal to such Person's share of the net decrease in Partnership Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 11.5(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. (b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 11.5, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership taxable year, each Person who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Partnership income and gain for such Taxable year (and, if necessary, subsequent taxable years) in an amount equal to such Person's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the 14 previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 11.5(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. (c) QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly receives any adjustments, allocations, or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5) or Section 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain shall be specially allocated to each such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to this Section shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 11 have been tentatively made as if this Section 11.5(c) were not in the Agreement. (d) GROSS INCOME ALLOCATION. In the event any Partner has a deficit Capital Account at the end of any Partnership taxable year which is in excess of the sum of (i) the amount such Partner is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Partner is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 11.5(d) shall be made only if and to the extent that such Partner would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 11 have been made as if Section 11.5(c) hereof and this Section 11.5(d) were not in the Agreement. (e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any taxable year shall be allocated to the Partners in the same manner as Losses are allocated pursuant to Section 11.2 above. (f) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions for any taxable year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1). (g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of his interest in the Partnership, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in accordance with their interests in the Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the 15 Partner to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. 11.6 CURATIVE ALLOCATIONS. The allocations set forth in Sections 11.5(a), 11.5(b), 11.5(c), 11.5(d), 11.5(e), 11.5(f), and 11.5(g) hereof (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 11.6. Therefore, notwithstanding any other provision of this Article 11 (other than the Regulatory Allocations), the General Partner shall make such offsetting special allocations of Partnership income, gain, loss or deduction in whatever manner it determines to be appropriate so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of the Agreement and all Partnership items were allocated pursuant to Sections 11.2, 11.3, 11.8, 11.9 and 11.12. In exercising its discretion under this Section 11.6, the General Partner shall take into account future Regulatory Allocations under Sections 11.5(a) and 11.5(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 11.5(e) and 11.5(f). 11.7 TAX ALLOCATIONS. In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the Adjusted Basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value. In the event the Gross Asset Value of any Partnership asset is subject to adjustment, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the Adjusted Basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 11.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Person's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 11.8 SPECIAL ALLOCATIONS OF PROFIT AND LOSS AND DISTRIBUTABLE CASH WHILE TRACKING ACCOUNT LOAN IS OUTSTANDING. (a) For each taxable year commencing with the first taxable year in which principal payments on the Tracking Account Loan are paid by the Partnership, there will be a special allocation of gross income otherwise allocable to the Sithe Limited Partners away from such Sithe Limited Partners and to Sithe/Independence, Inc. Such special allocation from each of the Sithe Limited Partners to the General Partner will equal the lesser of: (i) the gross income otherwise allocable to such Sithe Limited Partner for such taxable year without regard to such special allocation; and 16 (ii) the excess of (y) the sum of the Allocation Share of such Sithe Limited Partner for the current taxable year and each prior taxable year to which this Section 11.8(a) applies over (z) the cumulative amount of gross income specially allocated from such Sithe Limited Partner to the General Partner pursuant to this Section 11.8(a) for all prior taxable years. The "Allocation Share" of a Sithe Limited Partner for each taxable year to which this Section 11.8(a) applies shall be the product of its "Tracking Account Allocation Percentage" for such taxable year multiplied by the amount of principal payments made in such taxable year with respect to the Tracking Account Loan. The "Tracking Account Allocation Percentage" of a Sithe Partner for any taxable year shall be equal to the ratio of the Percentage Interest of such Sithe Partner to the sum of the Percentage Interests of the General Partner and the Sithe Limited Partners for such taxable year. (b) (i) (i) Throughout the period the Tracking Account Loan is outstanding, any Distributable Cash that would be distributed, but for this Section 11.8(b), to a Sithe Partner pursuant to Section 10.1 of this Agreement shall be distributed instead to CNC pursuant to this Section 11.8(b)(i) if and to the extent that there shall exist a positive balance in the Special Distribution Account on such date. Such distributions shall be made to CNC prior to, and with a priority over, the distribution of Distributable Cash to any of the Sithe Partners pursuant to Section 10.1, provided that any remaining Distributable Cash allocable to the Sithe Partners (after reflecting the special distribution described in the first sentence of this Section 11.8(b)(i)) shall be distributed among the Sithe Partners as provided in Section 10.1 of this Agreement. (ii) The Special Distribution Account on the date hereof shall have a balance of zero. On each Special Distribution Account Determination Date, prior to the distribution of any Distributable Cash to the Sithe Partners, the Special Distribution Account shall be increased by an amount equal to the product of (A) the Percentage Interest of CNC on such date and (B) the total amount of principal paid by the Partnership on or with respect to the Tracking Account Loan since the immediately preceding Special Distribution Account Determination Date, including any such principal paid on the Special Distribution Account Determination Date. The Special Distribution Account shall be reduced (without duplication) by any amounts distributed to CNC from time to time pursuant to Section 11.8(b)(i) of this Agreement. The Partnership shall furnish CNC and each of the Sithe Partners a statement reflecting the outstanding balance of the Special Distribution Account, including all debits and credits thereto, from time to time but in all events as of each Special Distribution Account Determination Date. (iii) The amount of Distributable Cash distributed to CNC pursuant to Section 10.1 of this Agreement shall not be reduced to any extent as a result of the payment or distribution of any amount pursuant to this Section 11.8(b) and the determination of the amount that is distributable to CNC pursuant to Section 10.1 shall made without regard to the additional amount of Distributable Cash, if any, that is distributed to CNC pursuant to this Section 11.8(b). 17 11.9 CERTAIN SPECIAL ALLOCATIONS OF DEDUCTION AND INCOME RELATED TO PROJECT TRACKING ACCOUNT DEDUCTION. (a) One hundred percent (100%) of the deduction resulting from fixing the amount of the Tracking Account Loan shall be allocated specially to the General Partner for the year in which the liability for such amount is fixed. If, pursuant to a determination by the Internal Revenue Service or a court, the Tracking Account Loan liability is reallocated from the General Partner in whole or in part to any or all of the Sithe Limited Partners, then a portion or portions of the aforementioned deduction corresponding to (and equal to) the reallocated portion or portions of the Tracking Account Loan liability shall likewise be reallocated to the Sithe Limited Partners, as the case may be. In the event that part or all of said deduction is reallocated in the manner set forth in the preceding sentence, the General Partner shall make corresponding adjustments to the manner in which income is specially allocated under the provisions of Section 11.8(a). (b) Any income realized by the Partnership pursuant to Section 61(a)(12) of the Code in connection with the satisfaction, reduction of principal amount or other compromise of the Tracking Account Loan shall be allocated one hundred percent (100%) to the General Partner; PROVIDED, HOWEVER, that in the event the second sentence of Section 11.9(a) is applicable, any such income shall be allocable to and among the Sithe Partners in proportion to the manner in which the deduction described in Section 11.9(a) was allocable among the Sithe Partners. 11.10 COST RECOVERY RECAPTURE; ALLOCATION OF COST RECOVERY. Notwithstanding the provisions of Sections 11.2 and 11.3, if taxable gain to be allocated pursuant to Section 11.3 includes gain treated as ordinary income for income tax purposes because it is attributable to cost recovery recapture, such gain so treated as ordinary income for federal income tax purposes shall be allocated to and reported by the Partners in proportion to the aggregate of all of their respective shares of cost recovery allocations, and the Partnership shall keep records of such allocations. Such allocations of recapture shall be merely a characterization of the net gains allocated pursuant to Section 11.3 hereof, and shall not affect the amount of net gain allocated to a Partner. 11.11 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED INTERESTS. If all or any portion of any Interest is transferred during any accounting period, Profits, Losses, each item thereof and all other items attributable to such Interest for such period shall be divided and allocated between the transferor and the transferee by accounting for their varying interests during such period in accordance with the interim closing of the books method as provided in Code Section 706(d). For this purpose, any deduction relating to the establishment of the Tracking Account Loan has been allocated to the portion of the taxable year of the Partnership ending immediately prior to the effective time of the acquisition by CNC of its Interest in the Partnership. All distributions on or before the date of transfer of such Interest in compliance with the provisions of this Agreement shall be made to the transferor, and all distributions thereafter shall be made to the transferee. 18 11.12 SPECIAL ALLOCATION OF INCOME, LOSS AND DISTRIBUTABLE CASH FOR PROCEEDS OF CERTAIN LITIGATION AND THE CASUALTY INSURANCE CLAIM RECEIVABLE. (a) During any taxable year in which the Partnership realizes any gross income (or net gain) attributable to any Niagara Mohawk Proceeding, such gross income (or net gain) shall be specially allocated to and among the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. No portion of such gross income (or net gain) shall be allocated to CNC. (b) Any amount received by the Partnership that is attributable to any Niagara Mohawk Proceeding shall be distributed to the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages (subject to refund if and to the extent the Partnership is required, pursuant to the terms of any settlement or judgment of any Niagara Mohawk Proceeding, to refund any such amounts so distributed to such Partners). In the event the Partnership is required, pursuant to the terms and conditions of any settlement or judgment of any Niagara Mohawk Proceeding, to refund any amounts, then any expense, loss or reduction in gross income attributable to such refund shall be specially allocated to and among the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. (c) During any taxable year in which the Partnership realizes gross income, loss or deduction, if any, attributable to the Casualty Insurance Claim Receivable, including the settlement or compromise thereof, such gross income, loss or deduction shall be specially allocated to and among the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. No portion of such gross income, loss or deduction shall be allocated to CNC. (d) Any amount received by the Partnership that is attributable to the proceeds of the recovery of all or a portion of the Casualty Insurance Claim Receivable shall be distributed to the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. The General Partner has informed CNC that the Partnership's accrual or receipt of the proceeds of the Casualty Insurance Claim Receivable shall not result in a reduction in the depreciable basis of the Partnership's properties to any material extent. 12. RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER; CHARGES, EXPENSES AND FEES OF THE GENERAL PARTNER. 12.1 MANAGEMENT AND CONTROL OF THE PARTNERSHIP. (a) Except as otherwise provided for herein, the General Partner, within the authority granted to it under this Agreement, shall have the exclusive right to manage the Business of the Partnership, and hereby is authorized to take any action of any kind and to do anything and everything it deems necessary in accordance with the provisions of this Agreement. The General Partner shall have the exclusive right to manage the day-to-day activities of the Partnership. 19 (b) No Person who owns an Interest (except one who also is a General Partner, and then only in its capacity as a General Partner within the scope of its authority hereunder) shall participate in or have any control over the Partnership Business or shall have any authority or rights to act for or bind the Partnership. The Limited Partners hereby consent to the exercise by the General Partner of the powers conferred on it by this Agreement. (c) Any contract or agreement between the Partnership and any Partner or any Affiliate of any Partner shall be on terms no more favorable to such Partner or Affiliate than would have been obtainable in a bona fide arm's-length transaction and shall be in writing, describing the services to be rendered and the compensation to be paid. If reasonably requested by a Partner, the General Partner shall furnish such requesting Partner with information reasonably necessary to determine the arm's-length nature of the terms of any such contract or agreement. Notwithstanding anything herein to the contrary, the Operation and Maintenance Agreement, as in effect on the date hereof, is hereby ratified and approved by the Partners. 12.2 AUTHORITY OF THE GENERAL PARTNER. (a) Except as otherwise provided for herein, the General Partner for, in the name and on behalf of, the Partnership, is hereby authorized to take any action of any kind and to do any and all things necessary or convenient to the conduct of the Business of the Partnership, including, without limitation: (i) to acquire by purchase, lease or otherwise, any property which may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; (ii) to operate, maintain, finance, improve, own, grant options with respect to, sell, convey, assign, mortgage, lease or cause to have constructed any property necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; (iii) to execute any and all agreements, contracts, documents, certifications, and instruments necessary, convenient or incidental in connection with the acquisition, disposition, management, maintenance and operation of the Partnership or any Partnership property and to employ such Persons as are necessary to perform the duties required hereby; (iv) to borrow money and issue evidences of indebtedness necessary, convenient or incidental to the accomplishment of the purposes of the Partnership, and to secure the same by mortgage, pledge or other lien on any property of the Partnership; (v) to execute, in furtherance of any or all of the purposes of the Partnership, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract or other instrument binding on the Partnership or purporting to convey or encumber property of the Partnership; 20 (vi) to prepay in whole or in part, refinance, recast, increase, modify or extend any mortgages affecting the Partnership property and in connection therewith to execute any extensions or renewals of mortgages on any such property; (vii) to care for and distribute at such time or times as it may determine all funds by way of cash, income, return of capital or otherwise, to establish Reserves in accordance with this Agreement and to perform all matters in furtherance of the objectives of the Partnership; (viii) to engage in any kind of activity and to enter into, perform or carry out contracts of any kind (including contracts of insurance covering risks to Partnership property and General Partner liability) and to do all things necessary or incidental to, or in connection with, the accomplishment of the purposes of the Partnership, as may lawfully be carried on or performed by a partnership under the Applicable Laws of each state in which the Partnership then is formed or qualified; and (ix) to make any and all elections for federal, state and local tax purposes as the General Partner deems, in reasonable judgment, to be desirable or appropriate, including, without limitation, any election, if permitted by Applicable Laws: (a) to adjust the basis of Partnership assets pursuant to Code Sections 754, 734(b) and 743(b), or comparable provisions of state or local law, in connection with transfers of Interests and Partnership distributions of Partnership property other than cash; (b) to extend the statute of limitations for assessment of tax deficiencies against Partners with respect to adjustments to the Partnership's federal, state or local tax returns; and (c) to represent the Partnership and the Partners from time to time before tax authorities or courts of competent jurisdiction in tax matters affecting the Partnership and such Persons in their capacity as Partners, and to execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind such Persons with respect to such tax matters or otherwise affect the rights of the Partnership or such Persons. The General Partner is specifically authorized to act as the "Tax Matters Partner" for the Partnership and such Persons under the Code or in any similar capacity under state or local law. (b) Any Person dealing with the Partnership or the General Partner may rely upon a certificate signed by the General Partner, thereunto duly authorized, as to: (i) the identity of the General Partner or the Partners; (ii) the existence or nonexistence of any fact or facts which constitute a condition or conditions precedent to acts by the General Partner or which are in any other manner germane to the affairs of the Partnership; (iii) the Persons authorized to execute and deliver any instrument or document of the Partnership; or 21 (iv) any act or failure to act by the Partnership or as to any other matter whatsoever involving the Partnership or any Partner. 12.3 EXPENSES OF THE GENERAL PARTNER. The General Partner may charge the Partnership for any reasonable direct expenses actually incurred by it, its employees or agents, and for a reasonable proportion of the overhead or indirect expenses of the General Partner or of any of its Affiliates incurred in performing services for the Partnership in connection with the Partnership's Business, which services, but for their performance by the General Partner or any such Affiliates, would be required to be performed for the Partnership by another Person; provided that the expenses so chargeable shall not exceed the amount that the Partnership would be required to pay to Persons not Affiliates of the General Partner for comparable services made available to the Partnership, in a bona fide arm's-length transaction. All Partnership expenses will be billed directly to the Partnership. 12.4 RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER. (a) Notwithstanding anything contained in this Agreement to the contrary, but subject to Section 12.4(d) hereof, without the written consent of each of the Limited Partners, the General Partner shall not have the authority to: (i) do any act in contravention of this Agreement; (ii) do any act which would make it impossible to achieve the purposes of the Partnership; (iii) possess Partnership assets, or assign rights in specific Partnership assets, for other than a Partnership purpose; (iv) admit a Person as a General Partner; (v) sell, whether through one or a series of transactions, all or substantially all of the assets or property of the Partnership; or (vi) issue new Interests in the Partnership. (b) Notwithstanding anything contained in this Agreement to the contrary, but subject to Section 12.4(d) hereof, without the consent of the Partners holding at least sixty-six and two-thirds percent (66 2/3%) of the Interests, the General Partner shall not have the authority to: (i) in any 12 month period, and except as may be specifically authorized by Sections 12.4(b)(ii) through (xi) in respect of intangible assets of the Partnership, sell or cause to be sold any asset or real property of the Partnership, whether through one or a series of transactions, having a fair market value in excess of $10,000,000 in the aggregate; 22 (ii) permit or cause the Partnership to make any loans, advances or contributions to any Person or guarantee the obligations of any Person; (iii) change or reorganize the Partnership into any other legal form, enter into any joint venture or partnership, or consolidate, convert or merge with or acquire any other entity; (iv) engage in any business other than the Business, except as described in subsection (vi) hereof; (v) incur any indebtedness, including any: (1) indebtedness (other than trade liabilities incurred in the ordinary course of Business) for money borrowed or for the deferred purchase price of money or services in excess of an aggregate of $10,000,000 outstanding at any one time; (2) reimbursement obligation under any letter of credit or banker's acceptance; (3) obligation under any capital lease; (4) obligation with respect to interest rate or currency swap or similar hedging agreement, in excess of an aggregate of $10,000,000 outstanding at any one time; or (5) indebtedness pursuant to any refinancing of all or a portion of the Senior Obligations; (vi) make any equity or debt investment in any other entity other than Permitted Investments or create or permit to exist any subsidiary other than Sithe/Independence Funding Corporation; (vii) make any material expansion of or modification to the Project involving (A) an increase in capital cost in an amount greater than $10,000,000 in the aggregate, or (B) any unreimbursed material increase in annual operation and maintenance expenses; PROVIDED that the planned modifications to convert the Project to cycling operations following the date hereof, and the associated capital expenditures (estimated by the Partners as of the date hereof to be approximately $6,000,000) to be made by the Partnership in connection therewith, are hereby approved by the Partners and such expenditures shall not be applied in any manner against the $10,000,000 aggregate threshold in this subsection (vii); (viii) enter into, or suspend, cancel or terminate, or amend, supplement or modify any contract, or engage in any series of transactions, on behalf of the Partnership if (A) such action could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business or 23 properties or prospects of the Partnership or (B) such contract or series of transactions involves annual expenditures by, or annual revenues to, the Partnership in excess of $10,000,000 in the aggregate outstanding at any one time; (ix) subject to Section 12.8, take any action that could reasonably be expected to result in a loss by the Partnership of the Project's status as a Qualifying Facility, or, in the absence of Qualifying Facility status, the Partnership's status as an Exempt Wholesale Generator; (x) commence, terminate, withdraw or settle, or consent to, any claim or lawsuit, or confess any judgment against the Partnership, which could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business, properties or prospects of the Partnership; (xi) make any material press release or communication with the general public relating to the Project, unless the failure to promptly make such release would be a violation of Applicable Law or could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business, properties or prospects of the Partnership; (xii) except as contemplated by Section 12.9 hereof, change the Operator, amend the Operations and Maintenance Agreement in any material respect, or enter into a new operations and maintenance agreement for the Project; or (xiii) except as contemplated by Section 12.9 hereof, change the Administrative Services Provider, amend the Administrative Services Agreement in any material respect, or enter into a new administrative services agreement for the Project. (c) For the purpose of obtaining consent to approve or disapprove of a proposed action under Section 12.4 of this Agreement, the General Partner may, in its notice to the other Partners, require written responses from such Partners within a specified time period (not less than fifteen (15) nor more than thirty (30) days from the date that the receipt of such notice of a proposed action is acknowledged by such Partner pursuant to Section 24.10 hereof) and provide that the failure to respond within such time period shall constitute consent for the proposed action. (d) Notwithstanding anything contained in Section 12.1 or this Section 12.4 to the contrary: (i) all contracts and agreements entered into by the Partnership on or prior to the date of this Agreement, including, without limitation, the Project Documents, shall be deemed to be approved and are hereby ratified by the Partners; (ii) the Partners hereby expressly pre-approve and ratify any action taken or to be taken by the General Partner, without the consent of any other Partner, for the purpose of: 24 (1) seeking to amend the Indenture in order to permit Sithe Energies, Inc. to own, directly or indirectly, less than fifty-one percent (51%) of the Partnership and less than one hundred percent (100%) of the outstanding voting securities of Sithe/Independence, Inc.; (2) converting Sithe/Independence, Inc. from a Delaware corporation to a Delaware limited liability company in accordance with Applicable Laws; (3) creating or permitting to exist any subsidiary established by the Partnership and authorized by the Federal Energy Regulatory Commission to engage in resales of electrical energy and/or capacity at market-based rates; PROVIDED, HOWEVER, that if a subsidiary is so established, any acts, activities, transactions, the entering into of contracts or agreements and events of similar import that are to be taken, or proposed to be taken, by such subsidiary (or any of its subsidiaries) shall be subject to the provisions of Section 12.4(b) as if such subsidiary (or, if applicable, its subsidiary) were the Partnership; and (iii) nothing herein shall prohibit the General Partner from taking any action on behalf of the Partnership in order for the Partnership to perform any obligation under any contracts and agreements to which the Partnership is a party and which have been entered into by the Partnership prior to the date hereof or in compliance with the provisions of Section 12.4, or if such action is required for the Partnership to comply with Applicable Laws. 12.5 DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER. (a) The General Partner shall take all actions which may be necessary or appropriate (i) for the continuation of the Partnership's valid existence as a limited partnership under the laws of the State of Delaware (and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Limited Partners or to enable the Partnership to conduct its Business) and (ii) for the achievement of the Partnership's purposes in accordance with the provisions of this Agreement and Applicable Laws. (b) The General Partner shall be responsible for the safekeeping and use of all of the funds and assets of the Partnership, whether or not in its immediate possession, or control, and shall not employ or permit another to employ such funds or assets in any manner except for the benefit of the Partnership. (c) The General Partner shall devote to the Partnership such time as may be necessary for the proper performance of its duties hereunder. (d) The General Partner shall conduct the affairs of the Partnership in the best interests of the Partnership and of the Partners, including the safekeeping and use of all Partnership funds and assets for the benefit of the Partnership. 25 12.6 POWER OF ATTORNEY. (a) Each Limited Partner by its execution of this Agreement irrevocably constitutes and appoints the General Partner as such Limited Partner's true and lawful attorney and agent, with full power and authority in such Limited Partner's name, place and stead, to execute, acknowledge, deliver, file and record in the appropriate public offices: (i) all certificates or other instruments (including, without limitation, counterparts of this Agreement) and amendments thereto which the General Partner deems appropriate to qualify or continue the Partnership as a limited partnership (or a partnership in which special partners have limited liability) in the jurisdictions in which the Partnership conducts its Business; (ii) all instruments and amendments thereto which the General Partner deems appropriate to reflect any change or modification of the Partnership or the admission of additional or substituted Partners; (iii) all documents of conveyance and other instruments which the General Partner deems appropriate to evidence and reflect any sales or transfer by or the dissolution and termination of the Partnership; (iv) all consents to transfers of Interests, to the admission of additional or Substituted Limited Partners or to the withdrawal or reduction of any Person's invested capital; in each case to the extent that such actions are authorized by the terms of this Agreement; and (v) the execution of any or all of the documents reasonably necessary to the conduct of the Business of the Partnership. (b) The foregoing grant of authority (i) is a special power of attorney coupled with an interest in favor of the General Partner and as such shall be irrevocable and shall survive the death or insanity (or, in the case of a Limited Partner that is a corporation, association, partnership, joint venture or trust, shall survive the merger, dissolution or other termination of its existence) of a Limited Partner; (ii) may be exercised for a Limited Partner by a facsimile signature of the General Partner or by listing the Limited Partner, executing any instrument with a single signature of the General Partner acting as attorney-in-fact for all of them, and (iii) shall survive the assignment by a Limited Partner of the whole or any portion of its Interest, except that where the assignee of the whole thereof has furnished a power of attorney and has been approved by the General Partner for admission to the Partnership as a Substituted Limited Partner, this special power of attorney shall survive such assignment for the sole purpose of enabling the General Partner to execute, acknowledge and file any instrument necessary to effect such substitution and shall thereafter terminate. 12.7 INDEPENDENT ACTIVITIES. The Limited Partners and their respective Affiliates (other than the General Partner), and any Affiliate of the General Partner, may, notwithstanding the existence of this Agreement, engage in whatever activities they choose, whether the same shall be competitive with the Partnership or otherwise, without having or incurring any obligation to offer or disclose any interest in such activities to the Partnership or any Partner. Neither this Agreement nor any activity undertaken pursuant hereto shall prevent such Persons from engaging in any activity, or require the General Partner to permit the Partnership or any Partner to participate therein, and, as a material part of the consideration for the General Partner's execution hereof and admission of the Limited Partners, each of the Partners hereby waives, relinquishes and renounces any such right or claim of participation in any other venture or activity engaged or participated in by such Person(s), except pursuant to a written agreement signed by the General Partner. It is specifically understood and agreed that Affiliates of the General Partner may 26 organize and participate as general partner in partnerships which may engage in activities substantially identical to the activity engaged in by this Partnership. 12.8 EXEMPT WHOLESALE GENERATOR STATUS. Each of the Partners shall exercise their good faith efforts to cooperate and take such actions as may be reasonably necessary to cause the Partnership to obtain the status of an Exempt Wholesale Generator pursuant to the rules and regulations of the Federal Energy Regulatory Commission; provided that no Partner shall be obligated to take any action to cause the Partnership to obtain Exempt Wholesale Generator status pursuant to this Section 12.8 if, in the reasonable judgment of such Partner, such action could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business, properties or prospects of the Partnership. 12.9 AMENDED AND RESTATED OPERATIONS AND MAINTENANCE AGREEMENT; RESTRICTIONS ON CHANGE OF CONTROL OF OPERATOR; ADMINISTRATIVE SERVICES AGREEMENT. (a) The General Partner and the Limited Partners acknowledge and agree that the General Partner currently is in negotiations, on behalf of the Partnership, with the Operator to amend and restate the Operations and Maintenance Agreement (such new agreement, the "Second Amended and Restated Operations and Maintenance Agreement"). The General Partner shall use commercially reasonable efforts to promptly conclude the negotiations of such agreement containing terms substantially in accordance with the proposed terms set forth in Exhibit B hereto. If, following the execution and delivery of the Second Amended and Restated Operations and Maintenance Agreement, a "Change of Control" shall have occurred (as such term is described in the proposed terms set forth in Exhibit B, which provisions shall be reflected in the Second Amended and Restated Operations and Maintenance Agreement), the General Partner shall furnish to the Operator a notice that the Partnership desires the Second Amended and Restated Operations and Maintenance Agreement to continue in effect despite the occurrence of such Change of Control if, and only if, directed to do so in writing by CNC. The General Partner shall promptly notify CNC of the occurrence of any such Change of Control. The Partners acknowledge that the exercise of the Partnership's and the Operator's respective rights and obligations under the Second Amended and Restated Operations and Maintenance Agreement shall be subject to the Indenture, Security Agreement and the consent previously executed by the Operator with the Collateral Agent. (b) The General Partner and the Limited Partners acknowledge and agree that the General Partner currently is in negotiations, on behalf of the Partnership, with Sithe Energies Power Services, Inc. to conclude an agreement (the "Administrative Services Agreement") for the provision by Sithe Energies Power Services, Inc., as the Administrative Services Provider, of certain administrative services to the Partnership. The General Partner shall use commercially reasonable efforts to promptly conclude the negotiations of such agreement containing terms substantially in accordance with the proposed terms set forth in Exhibit C hereto. 12.10 CERTAIN ACTIONS UPON THE OCCURRENCE OF AN EVENT OF LOSS; TECHNICAL DISPUTES. (a) EVENTS OF LOSS. Notwithstanding Section 12.4, the Partners hereby expressly pre-approve any action taken or to be taken by the General Partner for the purpose of making any 27 determination and certification pursuant to Section 6.10(c) of the Indenture following an Event of Loss; PROVIDED, that the execution and delivery of any material contracts or agreements proposed by the General Partner on behalf of the Partnership in connection with the reconstruction or repair of the Project following an Event of Loss shall require the General Partner to demonstrate, subject to confirmation by the Technical Expert if requested by CNC as provided in Section 12.10(b) below, that the reconstruction or repair of the Project in accordance with such contracts or agreements is commercially reasonable, taking into account the impact, if any, on the Project's revenues and expenses and general market conditions at such time. (b) TECHNICAL DISPUTES. In the event CNC disputes any determination of the General Partner pursuant to Section 12.10(a), such dispute shall be deemed a "Technical Dispute" hereunder and CNC shall be entitled to notify the General Partner that it desires to refer such Technical Dispute to a Technical Expert for resolution in accordance with the provisions of Section 12.9(c) and (d). Notwithstanding the foregoing or Section 12.4(b) to the contrary, in the event the Partnership receives Casualty Proceeds (as defined in the Indenture) from any Event of Loss that do not exceed, in the aggregate, $10,000,000, the Partners hereby expressly pre-approve any action taken or to be taken by the General Partner for the purpose of reconstructing, repairing or otherwise restoring any portion of the electric or steam generation facilities at the Project following the occurrence of such Event of Loss and the Technical Dispute provisions of Section 12.10(c) and (d) below shall not be available to CNC. (c) DESIGNATION OF TECHNICAL EXPERT. Within ten (10) days following receipt of a notice referring a Technical Dispute to a Technical Expert, the representatives of the General Partner and CNC shall confer in an effort to agree upon a Technical Expert to hear the dispute. If such parties are unable to agree upon the appointment of a Technical Expert then, at the end of such ten (10) day period, each party shall, within five (5) days, notify the other party in writing of its designation of three proposed Technical Experts. Each party shall promptly strike two of the proposed Technical Experts designated by the other party. The remaining two proposed Technical Experts shall, within two (2) days, select one of them to hear the dispute; PROVIDED, that if one of the parties still objects to the dispute being heard by such selected Technical Expert, then, within two (2) days, such two proposed Technical Experts shall select a third Technical Expert and such third Technical Expert shall hear the dispute. (d) TECHNICAL DISPUTE PROCEDURES. The Technical Expert shall render a decision resolving the matter within sixty (60) days of the date of his or her selection as the Technical Expert. The decision of the Technical Expert shall be in writing and shall be final and binding upon the parties and not subject to appeal or review. The Partnership shall bear all costs and expenses of the Technical Expert procedure and the Technical Expert shall not have the authority to award costs or attorneys' fees to either party. The Technical Expert shall resolve the Technical Dispute in accordance with the procedures set forth in the Commercial Arbitration Rules of the American Arbitration Association, and such decision may be confirmed and enforced in, and judgment upon the award entered by, any federal or state court having jurisdiction over the parties. 28 13. INVESTMENT AND OPERATING RESTRICTIONS. 13.1 TRANSFERS OF PROPERTY. The signature of the General Partner shall be sufficient to pass title to any property owned by the Partnership or to execute any promissory notes, trust deeds, mortgages or other instruments of hypothecation, and each of the Limited Partners agrees that a copy of this Agreement, subject to appropriate confidentiality protections, may be shown to the appropriate parties in order to confirm the same, and further agrees that the signature of the General Partner shall be sufficient to execute any documents necessary to effectuate this or any other provision of this Agreement. 13.2 RECEIPT OF FUNDS. If, at any time during the continuance of this Agreement, cash, bills or other securities or evidence of indebtedness arising out of or in any manner connected to this Partnership shall be received by a Limited Partner (except for distributions by the Partnership to a Limited Partner as permitted by this Agreement), the same shall be brought to the attention of the General Partner and shall be deposited promptly in a banking institution or wherever the funds and profits of this Partnership are held or shall be turned over to the General Partner. 14. ADDITIONAL GENERAL PARTNER; REMOVAL OF A GENERAL PARTNER. 14.1 ADDITIONAL GENERAL PARTNER. Persons may be admitted to the Partnership as additional General Partners with the consent of the General Partner and all of the Limited Partners. The addition of one or more General Partners shall not increase the total distributions or allocations to the General Partners as a group. 14.2 REMOVAL OF A GENERAL PARTNER. (a) Any General Partner may be removed as general partner, but not as a Partner, upon a vote of the Limited Partners holding seventy-five percent (75%) of the Interests in the Partnership that are not owned by Affiliates of the General Partner, in the event that, pursuant to a final, non-appealable judgment, it shall have been determined that the General Partner has committed fraud or engaged in willful misconduct in connection with the Business of the Partnership; PROVIDED, HOWEVER, that no removal shall be effective until a replacement general partner is appointed pursuant to Section 14.2(b). Upon such removal, the Interest of the General Partner as removed shall be converted into an Interest as a Limited Partner. For purposes of this Section 14.2(a) and Section 14.2(b) hereof, CNC shall be deemed to be a non-Affiliate of the General Partner. (b) Unless the General Partner and the Limited Partners otherwise agree, if the last General Partner is removed as general partner pursuant to Section 14.2(a), a replacement general partner shall be appointed with the written approval of all of the Limited Partners which are not Affiliates of the removed General Partner, such replacement general partner shall be deemed admitted to the Partnership immediately prior to the removal of the predecessor General Partner and such replacement general partner hereby is authorized to and shall continue the Business of the Partnership. Any replacement general partner appointed pursuant to this Section 14.2(b) shall either purchase a one percent (1%) Percentage Interest in the Partnership for the fair market value thereof or be assigned all or part of the Percentage Interest of one or more of the 29 consenting Limited Partners. No General Partner shall be admitted as such pursuant to this Section 14.2(b) if the admission of such General Partner would violate any of the limitations on transfer set forth in Sections 15.3(b) through (d). (c) Any General Partner which is removed as a general partner of the Partnership shall continue to remain liable as a general partner for all debts and obligations of the Partnership incurred prior to or as a result of such removal, but shall not have any liability for any debts and liabilities of the Partnership incurred after such removal. Notwithstanding the foregoing, following the removal of any General Partner, such General Partner shall remain obligated, pursuant to Section 19.2(e) hereof, to restore any negative balance existing in such General Partner's Capital Account upon the liquidation of the Partnership or of such General Partner's interest in the Partnership; PROVIDED, HOWEVER, that such obligation shall not exceed the deficit balance existing on the date of the conversion of such General Partner's Interest as General Partner into an Interest as a Limited Partner. 15. ASSIGNABILITY OF INTERESTS. 15.1 TRANSFER OF LIMITED PARTNERS' INTEREST. Except as provided in this Section 15, the only restrictions on the assignment or hypothecation of the Interests of the Limited Partners shall be that the assignor shall first have obtained the written consent of all of the Partners; PROVIDED, HOWEVER, that such consent shall not be unreasonably withheld, conditioned or delayed. Any Limited Partner, however, shall be entitled, without receiving the consent of the other Partners but subject to the provisions of Sections 15.3 and 15.4, to transfer or hypothecate its Interest, without relieving itself of liability hereunder, (i) as security for any financing, (ii) to any of its Affiliates or (iii) in the case of the Sithe Partners, to Exelon Corporation, a Pennsylvania corporation, or any Affiliates of Exelon Corporation; PROVIDED, HOWEVER, that any such transfer does not have the consequence described in clause (i) of the immediately following sentence. Without limiting the rights of the Partners whose consent is required for a proposed transfer by another Partner of its Interest, it shall not be unreasonable for a Partner to withhold its consent if (i) such transfer would result in a termination of the Partnership for federal income tax purposes pursuant to Code Section 708 or (ii) such transfer is proposed to be made to a Person (or an Affiliate thereof) that is an adverse litigant of the Partnership, of any Partner or of any Affiliate of a Partner in any material litigation. 15.2 RIGHT OF FIRST NEGOTIATION. In the event that a Limited Partner (hereafter, the "Selling Partner") desires to make an assignment of all or a portion of its Interest to a Person other than an Affiliate of the Selling Partner, the Selling Partner agrees to first negotiate exclusively for a period of not less than thirty days with the Offeree for the purchase by the Offeree or its designee of such Interest. For purposes hereof, "Offeree" means either (1) CNC, in the event the Selling Partner is one of the Sithe Partners, or (2) Sithe Energies, Inc., in the event the Selling Partner is CNC. In the event that after such time period an agreement cannot be reached between the Selling Partner and the Offeree, the Selling Partner may proceed to assign its Interest to any other Person, subject to the consent requirements of Section 15.1; PROVIDED, HOWEVER, that in the event the Selling Partner fails to so assign its Interest within six months of the date on which the Selling Partner and the Offeree fail to reach agreement, the Selling Partner may not assign its Interest without once again complying with the provisions of this Section 15.2. 30 No Limited Partner shall transfer its Interest to an Affiliate and then transfer ownership in such Affiliate to another Person to avoid compliance with this Section 15.2. Notwithstanding the foregoing, the right of first negotiation set forth in this Section 15.2 shall not apply to the transfer or assignment of all or a portion of the Interests of Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc., Mitex, Inc. or CNC to the extent necessary (and only to the extent necessary) to prevent the Partnership from becoming 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), as defined in 18 C.F.R. Section 292.206. 15.3 LIMITATIONS ON TRANSFER. Notwithstanding any provision of this Section 15 to the contrary, any otherwise permitted transfer shall be deemed void AB INITIO and shall have no force or effect, to the fullest extent permitted by law, if: (a) such transfer would, in the written opinion of a qualified tax advisor or counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for federal or state income tax purposes; (b) such transfer would require the registration of such transferred Interest pursuant to any applicable federal or state securities laws or would subject the Partnership to regulation under the Investment Company Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (c) such transfer would result in a material adverse effect on the Partnership with respect to any Applicable Law, or is proposed to be made to any Person who lacks the legal right, power, or capacity to own such Interest; (d) such transfer is proposed to be made to any Person who is, or whose Affiliate is, an "electric utility company", "electric utility holding company", "public utility company" or "public utility holding company" under PUHCA (other than any such Person that is exempt pursuant to Sections 3(a)(3) or 3(a)(5) of PUHCA); PROVIDED, HOWEVER, that the foregoing transfer limitation shall cease to apply if and to the extent that the Project has ceased to qualify as a Qualifying Facility and the Partnership is not pursuing actions reasonably intended to reestablish Qualifying Facility status for the Project; or (e) such transfer would result in a breach of any material obligation under any material contract or agreement to which the Partnership is a party. 15.4 EXPENSES. No transfer described in Sections 15 shall be effective unless the transferor or transferee pays to the Partnership all direct out-of-pocket costs reasonably incurred by the Partnership as a result of such transfer and indemnifies the Partnership (in a manner which is reasonably satisfactory to the General Partner) for any such costs that may be reasonably incurred by the Partnership thereafter as a result of such transfer. 16. RESERVED. 31 17. SUBSTITUTED LIMITED PARTNER. 17.1 CONDITIONS. No assignee of the whole or any portion of the Interest of any Person who is not a General Partner shall have the right to become a Substituted Limited Partner in place of his assignor, unless all of the following conditions are satisfied: (a) a written instrument of assignment, fully executed and acknowledged by the assignor, has been filed with the Partnership setting forth the intention of the assignor that the assignee become a Substituted Limited Partner in its place; (b) the assignor and assignee have executed and acknowledged such other instruments as the General Partner may deem necessary or desirable to effect such admission, including the written acceptance and adoption by the assignee of the provisions of this Agreement; and (c) the General Partner has consented in writing to the substitution, which consent will not be unreasonably withheld. The General Partner acknowledges that it has consented to (1) the substitution of Energy Factors, Incorporated for Sithe Energies, Inc. as a Substituted Limited Partner to the extent of the Interest acquired by Energy Factors, Incorporated from Sithe Energies, Inc. and (2) the substitution of CNC for Energy Factors, Incorporated as a Substituted Limited Partner. 17.2 EFFECT OF ASSIGNMENT WITHOUT SUBSTITUTION. In the case of assignments where the assignee does not become a Substituted Limited Partner, the Partnership shall recognize the assignment not later than the last day of the calendar month following receipt of notice of assignment and required documentation for the limited purposes of allocating Profits and Losses and making distributions pursuant to the terms of this Agreement. 17.3 DISCRETION OF GENERAL PARTNER. The General Partner may elect to treat an assignee which has not become a Substituted Limited Partner as a Substituted Limited Partner in the place of its assignor should it deem, in its reasonable judgment, that such treatment is in the best interest of the Partnership for any of its purposes or for any of the purposes of this Agreement. 17.4 CONSENT NOT REQUIRED. No consent of the Limited Partners is required to effect the substitution of a Limited Partner, except that a Limited Partner assigning its Interest must evidence its intention that its assignee be admitted as a Substituted Limited Partner in its place and execute any instruments required in connection therewith. 17.5 AMENDMENT OF CERTIFICATE. The General Partner will amend the Certificate of Limited Partnership if, as and when required to reflect the substitution of the Limited Partner. 17.6 MISCELLANEOUS. Upon the bankruptcy or insolvency of a Limited Partner or upon the dissolution or other cessation of a non-individual Limited Partner's existence as a legal entity, the authorized representative of such entity shall have all the rights of the Limited Partner for the purpose of effecting the orderly winding up and dissolution of the business of such entity, and shall have such power as such entity possessed to constitute a successor as an assignee of its 32 Interest in the Partnership and to join, if necessary, with such assignee in making application to substitute such assignee as the Limited Partner. 18. WITHDRAWAL. The General Partner shall not withdraw from the Partnership without the express written consent of all of the Partners. The withdrawal of any Limited Partner shall not cause a dissolution of the Partnership, and the Business shall continue without interruption. In the event of the withdrawal, for any reason, of the General Partner, the Partnership shall dissolve, unless the Business is continued by any remaining General Partner. In the event of the withdrawal of the last remaining General Partner, the Partnership shall dissolve, unless within 90 days after the occurrence of such withdrawal, each of the remaining Partners agrees in writing to continue the Business of the Partnership and to the appointment, effective as of the date of withdrawal of the last General Partner, of one or more additional General Partners, who are hereby authorized to and shall continue the Business of the Partnership. 19. DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP. 19.1 EVENTS CAUSING DISSOLUTION. The Partnership shall terminate upon the happening of any of the following events: (a) the removal or withdrawal of the General Partner, except as provided in Sections 14 and 18 hereof; (b) the sale or other disposition of all or substantially all of the assets of the Partnership; (c) the election by the General Partner and the approval of each of the Limited Partners to dissolve the Partnership; or (d) the entry of a decree of judicial dissolution of the Partnership. Dissolution of the Partnership shall be effective on the day on which the event occurs giving rise to the dissolution, but the Partnership shall not terminate until the Partnership's Certificate of Limited Partnership shall have been cancelled, and the assets of the Partnership shall have been distributed as provided in Section 19.2(d) hereof. Notwithstanding the dissolution of the Partnership, prior to the termination of the Partnership, as aforesaid, the Business of the Partnership shall continue to be governed by this Agreement. 19.2 LIQUIDATION. (a) Upon dissolution of the Partnership, the General Partner, or, if none, a Person approved in accordance with Applicable Laws by the Limited Partners (a "Liquidating Trustee"), shall liquidate the assets of the Partnership, apply and distribute the proceeds thereof as contemplated by this Agreement and cause the cancellation of the Partnership's Certificate of Limited Partnership. 33 (b) Notwithstanding the foregoing, in the event that the General Partner or the Liquidating Trustee, as the case may be, shall determine that an immediate sale of part or all of the Partnership assets would cause undue loss to the Partners, the General Partner or the Liquidating Trustee, as the case may be, in order to avoid such loss, may, after having given notice to all the Partners, to the extent not then prohibited by Applicable Laws, either defer liquidation of and withhold from distribution for a reasonable time any assets of the Partnership except those necessary to satisfy the Partnership's then current debts and obligations, or distribute the assets in kind. (c) If any assets of the Partnership are to be distributed in kind, such assets shall be distributed on the basis of the fair market value thereof, and any Person entitled to any interest in such assets shall receive such interest therein as a tenant-in-common with all other Persons so entitled. The fair market value of such assets shall be determined by an independent appraiser to be selected by the General Partner or the Liquidating Trustee, as the case may be. (d) The proceeds from the liquidation of the assets of the Partnership shall be distributed, after all allocations of Profit or Loss have been made in accordance with Section 11 hereof, in the following order: (i) First, to pay the expenses of liquidation of, and the claims and obligations of the Partnership, including any obligations under the Project Documents, other than the debts or obligations owing to the Partners whether matured or contingent, or to establish reasonable reserves therefor, all in accordance with Applicable Laws; (ii) Second, to such debts or obligations as are owing to the Partners; (iii) Third, to CNC, in an amount equal to the lesser of (i) the balance of its Special Distributions Account and (ii) its positive Capital Account balance; (iv) Fourth, to the Partners in proportion to, and up to the amounts of, their respective positive Capital Account balances (determined after reducing the balance of CNC to take into account any distribution made pursuant to the provisions of Section 19.2(d)(iii) hereof); and (v) Fifth, to the Partners in proportion to their Percentage Interests. (e) In the event that any current or former General Partner's Capital Account is negative upon liquidation of the Partnership (or of the General Partner's interest in the Partnership), and after giving effect to all contributions (including any amount considered contributed by such General Partner to the Partnership under Section 1.704-1(b)(2)(iv)(c) of the Regulations), distributions and allocations for all taxable years, including the taxable year during which the final liquidating distribution occurs, such General Partner shall contribute to the capital of the Partnership the amount necessary to restore its Capital Account to zero (or, if applicable, the amount determined pursuant to Section 14.2(c) hereof), and the amount so contributed shall be treated as additional proceeds from the liquidation of the assets of the Partnership and shall be distributed in accordance with and pursuant to Section 19.2(d) hereof. The General Partner shall 34 make such contribution by no later than the end of the taxable year during which such liquidation occurs (or, if later, within 90 days after the date of such liquidation). This Section 19.2(e) is intended to impose an unconditional obligation on the General Partner to restore any deficit balance in its Capital Account in accordance with the requirements of Section 1.704-1(b)(2)(ii)(b)(3) of the Regulations, and it shall be interpreted and applied accordingly. (f) The General Partner may, upon the liquidation of the Partnership or of the General Partner's Interest, expressly assume any liability of the Partnership. Any such assumption of liability by the General Partner is intended to be treated as an assumption of such liability for purposes of Section 1.704-1(b)(2)(iv)(c) of the Regulations, and this Section 19.2(f) shall be interpreted and applied accordingly. 20. BOOKS AND RECORDS; REPORTS; OTHER INFORMATION. 20.1 BOOKS AND RECORDS. The Partnership shall keep adequate books and records at its principal place of business or at such other location selected by the General Partner, setting forth a true and accurate account of all business transactions arising out of and in connection with the conduct of the Business of the Partnership. Subject to Applicable Laws, any Partner or its designated representative shall have the right, at any reasonable time, to have access to and inspect the contents of such books and records. The books shall be kept pursuant to the method of accounting selected by the General Partner. The General Partner may, upon recommendation of the Partnership's independent certified public accountants, change the accounting method pursuant to which the books are kept. 20.2 ANNUAL REPORTS. Within one hundred and twenty (120) days after the end of each tax year, each Partner shall be furnished with an annual report containing (i) a balance sheet of the Partnership as of the end of the tax year and statements of income, Partners' equity, and changes in financial position of the Partnership and a cash flow statement of the Partnership, for the year then ended, all of which, except the cash flow statement, shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an opinion of an independent certified public accountant; (ii) a report of the activities of the Partnership during the period covered by the report; (iii) if applicable, a statement of fees paid by the Partnership to the General Partner and Affiliates thereof; and (iv) where projections have previously been provided to the Partners, a table comparing the projections previously provided with the actual results during the period covered by the report. Such report shall set forth distributions to Persons owning Interests for the period covered thereby and shall separately identify distributions from (i) Available Cash during the period, (ii) Available Cash during a prior period which has been held as Reserves, (iii) proceeds from disposition of properties, and (iv) Reserves from the gross proceeds originally obtained from the Partners. 20.3 REPORTS TO PROJECT LENDERS. The General Partner shall deliver or cause to be delivered to CNC a copy of each report, notice or piece of correspondence required by Section 6.1 of the Indenture, at the same time as such reports are (or if no bonds remain outstanding under the Indenture, at the time such reports would have been) required to be delivered to the Trustee under the Indenture or any agent acting on such Person's behalf. 35 20.4 ANNUAL BUDGET. The General Partner shall (i) provide each Limited Partner with a copy of the annual Budget not later than five (5) days following the General Partner's receipt of same from the Operator, (ii) at least thirty (30) days prior to the first day of the second half of each Annual Period, provide each Limited Partner with a semi-annual Budget for the next following six month period, and (iii) reasonably consider such comments as such Limited Partner may provide to the General Partner in the process of the General Partner's approval or rejection of any Budget as contemplated in the Operations and Maintenance Agreement. Each annual and semi-annual Budget shall, among other information, set out the amount and expected timing of all material expenses, including, without limitation, the amount to be expended for and the expected timing of capital expenditures, scheduled maintenance and other material non-operating expense categories. If and to the extent that the amount or expected timing of all material expenses, including, without limitation, the amount to be expended for and the expected timing of capital expenditures, scheduled maintenance and other material non-operating expense categories is materially revised, the General Partner shall promptly provide each Limited Partner with the revised schedule of such items. 20.5 TAX INFORMATION. Necessary tax information (including Schedule K-1) shall be delivered by the General Partner to the Partners as soon as practicable after the end of each tax year of the Partnership, taking into account the due dates of the tax returns of the Partners, and the Partners shall, upon request of the General Partner, provide such information as may reasonably be requested to permit the Partnership to comply with all Applicable Laws. 21. AMENDMENTS. 21.1 ADDITIONAL PARTNERS. Each Substituted Limited Partner, additional General Partner and successor General Partner shall become a party hereto by signing such number of counterpart signature pages to this Agreement and such other instrument or instruments, as the General Partner shall determine, or in such other manner permissible by law. Each Substituted Limited Partner, additional General Partner or successor General Partner, as the case may be, shall be deemed to have adopted, and to have agreed to be bound by, all the provisions of this Agreement, as amended from time to time in accordance with the provisions of this Agreement. 21.2 AMENDMENTS WITH CONSENT OF LIMITED PARTNERS. This Agreement may be amended from time to time by the General Partner with the consent of the Partners holding at least sixty-six and two-thirds percent (66 2/3%) of the Interests; PROVIDED, HOWEVER, that no amendment to Sections 10.1, 10.2, 19.2(e), 19.2(f) or 20.4 shall be effective without the consent of all of the Partners; and PROVIDED, FURTHER, that without the consent of the Limited Partners to be adversely affected by any such amendment, this Agreement may not be amended to (i) convert a Limited Partner's Interest into a General Partner's Interest; (ii) modify the limited liability of a Limited Partner; (iii) alter the interest of a Limited Partner in Profits or Losses or in distributions; or (iv) alter the fees or other compensation payable to a Limited Partner. For the purpose of obtaining a written vote to approve or disapprove of a proposed amendment under this Section 21.2 of this Agreement, the General Partner may require written responses within a specified time period (not less than fifteen (15) nor more than sixty (60) days from the date of any notice of a proposed amendment) and provide that the failure to respond within such time period shall, at 36 the General Partner's designation, constitute a favorable or unfavorable vote for the proposed amendment. 21.3 EXECUTION OF AMENDMENTS. If this Agreement shall be amended as a result of substituting a Limited Partner, such amendment to this Agreement shall be signed, at a minimum, by the General Partner and by the Person to be substituted. If this Agreement shall be amended to reflect the designation of an additional General Partner, or the cessation of the General Partner as the General Partner and the continuation of the Business of the Partnership, such amendment shall be signed by such additional General Partner and by the remaining or successor General Partner or General Partners. 21.4 RECORDING OF AMENDMENTS. In making any amendments to this Agreement, the General Partner shall prepare and file for recording such documents and certificates as are required to be prepared and filed pursuant to the Act and under the laws of any other jurisdiction in which the Partnership owns property or is required to file any such documents or certificates, not less frequently than once each calendar quarter. 22. LIABILITY OF THE GENERAL PARTNER. 22.1 IN GENERAL. Except as expressly provided in this Agreement, neither the General Partner nor its Affiliates and their respective officers, directors, employees and agents shall be liable to the Partnership or any Persons who have acquired any interests in the Partnership, whether as Limited Partners or otherwise, or any other Persons, for losses sustained or liabilities incurred as a result of any act or omission of the General Partner or such Person, if the General Partner or such Person acted in good faith and in a manner it reasonably believed to be in, or not opposed to, the best interests of the Partnership. The duties and liabilities of the General Partner to the Partnership or to any other Partner shall be only as specifically provided in this Agreement, and no Partner shall have any liability to the Partnership or any other Partner for any act or omission taken or done in good faith reliance on the provisions of this Agreement. 22.2 AGENTS OF THE GENERAL PARTNER. The General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or through its agents, and the General Partner shall not be responsible for any act or omission on the part of any such agent appointed by the General Partner in good faith and in a manner it reasonably believed to be in, or not opposed to, the best interests of the Partnership. 23. INDEMNIFICATION OF GENERAL PARTNER. 23.1 IN GENERAL. To the fullest extent permitted by law, the Partnership, its receiver or its trustee, shall indemnify, hold harmless and pay in full all judgments and claims against or liabilities of the General Partner incurred by reason of any act performed or omitted to be performed or alleged to have been performed or omitted to be performed by or in connection with the Business of the Partnership, including attorneys' fees incurred by the General Partner in connection with the defense of any action or threatened action based on any act or omission, which attorneys' fees shall be paid as incurred, including, except as specifically provided in 37 Section 23.3 hereof, all such liabilities under federal and state securities laws (including the United States Securities Act of 1933, as amended) as permitted by law. 23.2 AGAINST CLAIMS BY LIMITED PARTNER. In the event of any action by a Limited Partner or Partners against any General Partner, including a Partnership derivative suit, the Partnership shall indemnify, hold harmless and pay in full all expenses of such General Partner, including attorneys' fees, incurred in the defense of such action, if (i) such General Partner is successful in the defense of such action, or (ii) in the opinion of the Partnership's counsel, the matter has been settled by controlling precedent, or (iii) if the matter has not been settled by controlling precedent, the issue will be submitted to a court of competent jurisdiction as to whether such indemnification by the Partnership is against public policy, and all parties will be governed by the final adjudication of such court of such issue. 23.3 EXCEPTIONS. Notwithstanding the provisions of Sections 23.1 and 23.2 hereof, a General Partner shall not be indemnified from any liability for fraud, bad faith, willful misconduct or gross negligence. 24. MISCELLANEOUS. 24.1 AGREEMENTS IN COUNTERPARTS. This Agreement may be executed in several counterparts or with multiple signature pages, and as executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the original or to the same counterpart. 24.2 SURVIVAL OF RIGHTS. Except as herein otherwise provided, this Agreement shall be binding upon and inure to the benefit of each of the parties signatory hereto, its personal representatives, heirs, successors and assigns. 24.3 SECTION HEADINGS. The section headings are intended for convenience only, and in no way define, limit, extend or interpret the scope of this Agreement or of any particular section or paragraph hereof. 24.4 ADDITIONAL DOCUMENTS. Each party hereto agrees to execute by acknowledgment or affidavit, if required, any and all documents and writings which may be necessary or expedient in the creation or continuation of this Partnership and the achievement of its purposes, including the Certificate of Limited Partnership and all amendments thereto, as well as any cancellation thereof. Without limiting the generality of the foregoing, the Partners agree to use reasonable efforts to cooperate with any application of the Partnership for Exempt Wholesale Generator status unless such status could be reasonably expected to have a material adverse effect on the Partnership. 24.5 WAIVER OF PARTITION. Each of the parties hereto irrevocably waives, during the term of the Partnership, any right that it may have to maintain any action for partition with respect to the properties of the Partnership. 38 24.6 VALIDITY. In the event that any provision of this Agreement shall be held to be invalid, the same shall not affect in any respect whatsoever the validity of the remainder of this Agreement. 24.7 INTERPRETATION. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural and vice versa. Any reference to any gender shall be deemed to include all other genders unless the context otherwise requires. 24.8 GOVERNING LAW. It is the intention of the parties that the laws of the State of Delaware govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 24.9 LIMITATION ON DAMAGES. No Partner shall be entitled to any treble, special, incidental, punitive, exemplary or consequential damages of any nature, each Partner hereby waiving its right, if any, to recover such damages. 24.10 NOTICES. All notices or other communications hereunder shall be in writing and may be sent by (a) facsimile, or (b) registered, certified or regular United States mail, first-class, postage prepaid, in either case as follows: (i) if to the General Partner: Sithe/Independence, Inc. c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (ii) if to Sithe Energies U.S.A., Inc.: Sithe Energies U.S.A., Inc. c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 39 (iii) if to Sithe Energies, Inc: Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (iv) if to Mitex, Inc.: Mitex, Inc. c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (v) if to CNC: Cogeneration National Corporation c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 The date of transmission as recorded on a valid confirmation in the case of notice described in subsection (a) above, and the date of registry thereof or the date of the certified receipt therefor in the case of registered or certified mail described in subsection (b) above, shall be deemed the date of receipt of notice; PROVIDED that any notice delivered pursuant to Section 12.4(c) shall not be deemed to have been received until the intended recipient thereof shall acknowledge receipt in writing to the party providing such notice. From time to time any Partner may designate a new address for itself for purpose of notice hereunder by written notice to each of the other Partners duly given as provided herein. 40 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer as of the day and year first above written. GENERAL PARTNER: SITHE/INDEPENDENCE, INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer LIMITED PARTNER: SITHE ENERGIES U.S.A., INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer LIMITED PARTNER: SITHE ENERGIES, INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer LIMITED PARTNER: MITEX, INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Treasurer LIMITED PARTNER: COGENERATION NATIONAL CORPORATION By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Treasurer 41 EXHIBIT A PERCENTAGE INTERESTS
Percentage Partner Interest ------- -------- Sithe/Independence, Inc. 1% Sithe Energies U.S.A., Inc. 44% Sithe Energies, Inc. 5% Mitex, Inc. 10% Cogeneration National Corporation* 40%
*As indirect successor in interest of a 40% Interest formerly held by Sithe Energies, Inc. A-1 EXHIBIT B SUMMARY OF PROPOSED TERMS AND CONDITIONS OF THE SECOND AMENDED AND RESTATED OPERATIONS AND MAINTENANCE AGREEMENT BETWEEN SITHE/INDEPENDENCE POWER PARTNERS, L.P. AND SITHE ENERGIES POWER SERVICES, INC. Owner: Sithe/Independence Power Partners, L.P. Operator: Sithe Energies Power Services, Inc. Facility: Approximately 1,032 megawatt gas-fired electrical and steam generating plant and associated materials, structures and systems located in the Town of Scriba, County of Oswego, New York (the "Project"). Term: Until December 31, 2014. Services: Operator shall provide all services necessary to properly operate and maintain the Project (including without limitation all appurtenant facilities, hot water distribution piping, access roads and utility connections) in good operating condition and in compliance with, inter alia, (i) the Project Documents and all insurance policies relating to the Project, (ii) the procedures established in the operation and maintenance manuals, (iii) Prudent Engineering and Operating Practices (as defined in the Indenture), or, to the extent more stringent, standards set forth in the Project Documents, including the performance of all routine and scheduled maintenance of the Project, (iv) vendor and manufacturer requirements or conditions, as applicable, (v) the O&M Procedures established by Operator and approved by Owner and (vi) any and all environmental permits, operating permits, franchise agreements, and other governmental approvals, licenses or permits necessary for the operation of the Project. Operator shall also (1) carry out any and all activities necessary to respond appropriately to and mitigate situations of emergency that involve the safety of persons or the security of property or that interfere with the normal operation of the Project; (2) operate and maintain the Project in a manner designed to maintain the status of the Project as a qualifying cogeneration facility or a qualifying small power production facility as defined in the Federal Power Act, as amended, Section 3 (16 U.S.C. Section 796) and Part 292 of the B-1 rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 292) (a "Qualifying Facility"); PROVIDED, that if the Project is no longer required by the Project Documents to be a Qualifying Facility, if instructed to do so by Owner, Operator shall operate and maintain the Project in a manner designed to maintain the status of the Project as an "Exempt Wholesale Generator" as defined under PUHCA, Section 32 of the Public Utility Holding Company Act of 1935, as amended, (15 U.S.C. Section 79z-5a) and Part 365 of the rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 365); any and all technical and engineering (3) provide support reasonably required for operation and maintenance of the Project; and (4) recommend to Owner any necessary or dvisable improvements, modifications or alterations to the Project. Personnel: Operator shall employ qualified personnel to provide the services for the operation of the Project, including a site manager. Operator may engage any independent contractors reasonably necessary for making scheduled or unscheduled repairs to or performing maintenance on the Project in the event that Operator is not available or is otherwise unable to make or perform such repairs or maintenance. Restrictions on Authority: Operator shall not, without Owner's prior written consent: (1) sell, lease, pledge, mortgage, convey, license, exchange, or dispose of any property or assets of Owner, including, but not limited to, any property or assets acquired by Owner, except that Operator may dispose of minor items that are incidental to the operation and maintenance of the Project such as worn-out parts, used consumables, or other sundry items which are no longer of value (including, without limitation, scrap value) to the operation or maintenance of the Project; PROVIDED, HOWEVER, that any such disposition is not prohibited under any Project Document; and PROVIDED, FURTHER, that the proceeds of any such disposition shall be for the account of Owner; (2) make, enter into, execute, amend, modify, or supplement any Project Document or other contract or agreement on behalf, or in the name of, Owner; (3) engage in any other transaction on behalf of Owner in contravention of this Agreement or any Project Document; (4) amend, terminate, waive any obligation of, or extend the term of, or agree to amend, terminate, waive any obligation of, or extend the term of, any Project Document on behalf of Owner or take or agree to take any other action in material variance with any Project Document; or (5) settle, compromise, assign, pledge, transfer, release, or consent to do the same, any claim, suit, debt, demand, or judgment B-2 involving or in any way affecting Owner or the Project, the cost of which would be an expense to Owner under any Project Document, would affect the revenues of the Project, would be covered by any Project insurance policy or would otherwise become a liability of Owner. Restrictions on Expenditures: Operator shall be authorized to make such expenditures and incur such expenses on behalf of Owner as are approved by Owner in the annual Budget for the Project. In addition, Operator may incur expenses on behalf of Owner for purposes of maintenance and repairs up to [$1,000,000] per incident (if covered by Owner's insurance) or [$250,000] per incident (if not covered by Owner's insurance). Notwithstanding the foregoing, in the event of an imminent risk of personal injury, significant property or environmental damage, or significant interruption to the business of Owner (an "Emergency"), Operator is authorized to incur any necessary costs and expenses without Owner's prior approval in responding to or mitigating any damage, loss or injury threatened by such Emergency, subject to reasonable limitations customary in the electricity generation industry (to be included in the agreement). Operator shall notify Owner as soon as practicable under the circumstances of the occurrence of any Emergency and any resulting costs and expenses incurred or proposed to be incurred in connection with such Emergency. Advances for Operator Expenses: Operator shall notify Owner by the 20th calendar day of each month of the anticipated cash requirements for the next following month necessary for Operator to perform its services under this Agreement. Operator shall promptly notify Owner of the need, if any, to make advances of the estimated operating expenses. Operator shall submit to Owner by the 20th day of each calendar month a statement and reasonably detailed breakdown of actual costs for the preceding month. Reimbursement of Operator Costs: Owner shall reimburse Operator for reasonable direct and indirect costs associated with the services rendered by Operator pursuant to this Agreement, including costs of meals, lodging and travel, and telecommunications; indirect costs such as a reasonable allocation of Operator's general, administrative and overhead costs; reasonable fees and costs of attorneys, accountants or other third-party advisors incurred by Operator in carrying out its duties and B-3 obligations under this Agreement; and reasonable costs of all subcontractors hired by Operator in performance of services. Operator Fee: $500,000 per year, payable monthly in twelve installments (escalated annually by factor of 1.05 from November 1994) (the "Operator Fee"). Limitation of Liability: The total aggregate liability of Operator to Owner under this Agreement during any calendar year during the term (or portion thereof if the Agreement is not in effect for a full calendar year) for any liabilities of Operator to Owner arising hereunder during such year shall not exceed an amount equal to the Operator Fee paid or payable to Operator in such year; PROVIDED, HOWEVER, that such limitations on liability shall not apply with respect to any loss, damage or liability resulting from or arising out of the fraud, gross negligence or willful misconduct of Operator, its respective agents, employees, directors, officers, delegates or subcontractors. In no event shall either party be liable to the other by way of indemnity or by reason of any breach of contract or of statutory duty or by reason of tort (including negligence or strict liability) or otherwise for any loss of profits, loss of revenue, loss of use, loss of production, loss of contracts or for any ncidental, indirect, special or consequential damages of any other kind or nature whatsoever that may be suffered by the other. Termination by Owner: Owner shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Operator or (2) if Operator fails to perform any of its material obligations under this Agreement and such failure continues for thirty (30) days after Operator's receipt of written notice from Owner or Collateral Agent regarding such failure; PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Operator has demonstrated to Owner's reasonable satisfaction that such failure is capable of being cured and that Operator has undertaken diligent efforts to effect a cure, such period shall be extended for so long as Operator is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. Termination by Operator: Operator shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Owner or (2) if Owner fails to perform any of its material obligations under this Agreement and such failure continues for thirty (30) days after Owner's receipt of written notice from Operator or Collateral B-4 Agent regarding such failure; PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Owner has demonstrated to Operator's reasonable satisfaction that such failure is capable of being cured and that Owner has undertaken diligent efforts to effect a cure, such period shall be extended for so long as Owner is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. Special Termination Right of Owner and Operator upon a Change of Control: BY OWNER: In the event that, at any time, Sithe Energies, Inc. shall cease to own, directly or indirectly, at least 50% of the voting securities of Operator or at least a 40% percent interest in the Partnership (each, a "Change of Control"), then this Agreement shall automatically terminate on the date that is ninety (90) days after the occurrence of such Change of Control, unless Owner shall have furnished to Operator a written notice specifying that Owner desires the Agreement to continue in full force and effect notwithstanding such Change of Control. BY OPERATOR: In the event that Owner furnishes notice to Operator that it elects to continue the Agreement in full force and effect notwithstanding a Change of Control, then notwithstanding such continuation notice, Operator shall have the right, upon furnishing to Owner written notice, to terminate the Agreement, effective upon the earlier of (i) the expiration of sixty (60) days following the receipt by Owner of a notice of termination from Operator or (ii) such earlier date as may be agreed to by Operator and Owner. Any termination of this Agreement resulting from a Change of Control shall be without liability on the part of either Owner or Operator to the other as a result thereof. Each of Owner and Operator agrees to (a) promptly notify the other of the occurrence of a Change of Control affecting such person, respectively, and (b) use commercially reasonable efforts to effect an orderly transition to a new operator in the event of any termination of the Agreement. The Agreement shall contain an acknowledgement by the Parties that the exercise of their respective rights and obligations under the Agreement shall be subject to the Indenture, Security Agreement and consent previously executed by Operator with the Collateral Agent. Dispute Resolution: New York law; submission to non-exclusive jurisdiction of New York courts. B-5 Indemnification: Standard; mutual. Force Majeure: Standard. B-6 Exhibit C SUMMARY OF PROPOSED TERMS AND CONDITIONS OF THE ADMINISTRATIVE SERVICES AGREEMENT BETWEEN SITHE/INDEPENDENCE POWER PARTNERS, L.P. AND SITHE ENERGIES POWER SERVICES, INC. Owner: Sithe/Independence Power Partners, L.P. Administrative Service Provider: Sithe Energies Power Services, Inc. Term: Until December 31, 2014. Services: Administrative Service Provider shall provide services relating to (1) contract (i.e. Project Documents) management and administration, accounting, financial and tax services, which shall include bookkeeping, preparation, review and analysis of the financial results of Owner, (2) preparation and revision of Project budgets (including an annual budget of the Administrative Service Provider for approval by Owner), (3) maintenance of control procedures for the Project budgets, (4) preparation and review of all income and non-income tax filings of Owner and coordination of all tax planning for Owner, (5) cash management and treasury services, (6) maintenance of an inventory identification system, (7) all bookkeeping and record keeping matters, including payroll and personnel records, journal and ledger entries and preparation of monthly, quarterly and annual financial statements, (8) procurement services which shall include advice on sourcing of products and assistance in obtaining favorable terms of purchase/credit, and (9) consulting services which shall include advice on engagement by Owner of specialized consultants; PROVIDED, that, to the extent that such consultants are engaged to perform work for, or on behalf of, Owner, such consultants' fees shall be borne by the Trust directly. Personnel: All personnel shall be suitably qualified, trained, experienced and competent. Restrictions on Authority: Administrative Service Provider shall not, without Owner's prior written consent: (a) settle, compromise, assign, pledge, transfer, release, or consent to do the same, any claim, suit, debt, demand, or judgment involving or in any way affecting Owner or the Project, C-1 the cost of which would be an expense to Owner under any Project Document, would affect the revenues of the Project, would be covered by any Project insurance policy or would otherwise become a liability of Owner; (b) amend, modify or terminate any Project Document; (c) enter into any contract on behalf of Administrative Service Provider or Owner; (d) enter into agreements with any bank, finance or lending institution in relation to the Project; (e) make any sale, transfer, disposition or grant or purport to grant any lien or encumbrance on any property owned by Owner in relation to the Project; (f) resolve or decide any other matters deemed to be outside the ordinary course of business of Administrative Service Provider as would be determined pursuant to standards of a reasonable prudent service provider; (g) issue a consent, opinion or approval that is subject to lender consent under the Project Documents; or (h) accept service of process on behalf of Owner or the Trustee in connection with any legal proceeding, whether arising under the Project Documents or otherwise. Reimbursement of Administrative Service Provider Direct Costs: Unless otherwise paid for by Sithe Energies Power Services, Inc., Owner shall reimburse Administrative Service Provider for the following: (i) all costs reasonably incurred by Administrative Service Provider in connection with the performance of services by Administrative Service Provider personnel, including all recruitment costs, salaries, wages, payroll taxes (including social security and labor housing charges and all taxes related to personnel seconded to Administrative Service Provider), overtime pay, shift differentials, fringe benefits, pensions, holiday pay, vacation pay, bonuses, termination payments, relocation expenses, travel, training and other similar costs of Administrative Service Provider personnel; PROVIDED, that such labor costs are related to Administrative Service Provider's performance under this Agreement, (ii) reasonable costs of attorneys, accountants, and other third-party advisors directly required for the performance by Administrative Service Provider of its obligations hereunder, (iii) reasonable costs incurred by Administrative Service Provider in connection with insurance maintained by Administrative Service Provider in connection with its obligations hereunder, (iv) overhead costs allocated to any direct labor costs incurred in connection with the performance of the Services, (v) reasonable costs incurred in connection with financial controls, data processing, management, administration and other similar services required for the performance by Administrative Service Provider of its obligations hereunder, and (vi) other reasonable and similar C-2 out-of-pocket expenses directly associated with Administrative Service Provider's obligations hereunder (collectively, "Administrative Service Provider Direct Costs"); PROVIDED, HOWEVER, that Owner shall not reimburse Administrative Service Provider for any income taxes directly related to the income, including the Administrative Fee, of Administrative Service Provider. For purposes of "(iv)" above, overhead costs shall be conclusively presumed to equal 30% of the direct labor costs incurred in connection with the performance of the Services. Limitation of Liability: The total aggregate liability of Administrative Service Provider to Owner under this Agreement during any calendar year during the term (or portion thereof if the Agreement is not in effect for a full calendar year) for any liabilities of Administrative Service Provider arising hereunder during any given year shall not exceed one hundred thousand dollars ($100,000.00); PROVIDED, HOWEVER, that such limitations on liability shall not apply with respect to any loss, damage or liability resulting from or arising out of the fraud, gross negligence or willful misconduct of Administrative Service Provider, its respective agents, employees, directors, officers, delegates or subcontractors. In no event shall either party be liable to the other by way of indemnity or by reason of any breach of contract or of statutory duty or by reason of tort (including negligence or strict liability) or otherwise for any loss of profits, loss of revenue, loss of use, loss of production, loss of contracts or for any incidental, indirect, special or consequential damages of any other kind or nature whatsoever that may be suffered by the other. Termination by Owner: Owner shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Administrative Service Provider or (2) if Administrative Service Provider fails to perform any of its material obligations under this Agreement and such failure continues for a period greater than thirty (30) days after Administrative Service Provider's receipt of written notice from Owner or Collateral Agent regarding such failure, PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Administrative Service Provider has demonstrated to Owner's reasonable satisfaction that such failure is capable of being cured and that Administrative Service Provider has undertaken diligent effort to effect a cure, such period shall be extended for so long as Administrative Service Provider is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. C-3 Termination by Administrative Service Provider: Administrative Service Provider shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Owner or (2) if Owner fails to perform any of its material obligations under this Agreement and such failure continues for a period greater than thirty (30) days after Owner's receipt of written notice from Administrative Service Provider or Collateral Agent regarding such failure, PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Owner has demonstrated to Administrative Service Provider's reasonable satisfaction that such failure is capable of being cured and that Owner has undertaken diligent effort to effect a cure, such period shall be extended for so long as Owner is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. Cross-Termination: The Administrative Services Agreement shall automatically terminate upon termination of the Second Amended and Restated Operations and Maintenance Agreement. The Agreement shall contain an acknowledgement by the Parties that the exercise of their respective rights and obligations under the Agreement shall be subject to the Indenture and the Security Agreement and the parties shall enter into a consent with the Collateral Agent under the Security Agreement similar in form and substance to the consent previously executed by Operator in connection with the Amended and Restated Operations and Maintenance Agreement dated as of August 25, 1992. Dispute Resolution: New York law; submission to non-exclusive jurisdiction of New York courts. Indemnification: Standard; mutual. Force Majeure: Standard. C-4 EX-3.10 4 a2056240zex-3_10.txt EXHIBIT 3.10 Exhibit 3.10 SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP SITHE/INDEPENDENCE POWER PARTNERS, L.P. DATED AS OF JUNE 29, 2001 TABLE OF CONTENTS PAGE 1. Definitions..............................................................2 2. Formation of Partnership................................................11 3. Name....................................................................11 4. Business................................................................11 5. Certificate of Limited Partnership......................................11 6. Fictitious Business Name Statement......................................12 7. Executive Offices.......................................................12 8. Term of Partnership.....................................................12 9. Contributions and Status................................................12 9.1 Percentage Interests of General Partner..........................12 9.2 Percentage Interest of the Limited Partners......................12 9.3 Limited Liability of the Limited Partners........................13 9.4 Role of Limited Partner..........................................13 9.5 Withdrawal and Return of Capital.................................13 9.6 Salaries, Drawings and Interest on Capital Accounts..............13 9.7 Contributions in Connection with Certain Credit Support..........13 10. Distributions...........................................................14 10.1 Distributable Cash...............................................14 10.2 Amounts Withheld.................................................14 11. Allocation of Profits and Losses........................................14 11.1 Capital Account..................................................14 11.2 Allocation of Losses.............................................16 11.3 Allocation of Profits............................................16 11.4 Deficit Restoration..............................................16 11.5 Regulatory Allocations and Related Provisions....................16 11.6 Curative Allocations.............................................17 11.7 Tax Allocations..................................................18 11.8 Special Allocations of Profit and Loss and Distributable Cash While Tracking Account Loan is Outstanding ...............18 11.9 Certain Special Allocations of Deduction and Income Related to Project Tracking Account Deduction .................19 11.10 Cost Recovery Recapture; Allocation of Cost Recovery.............20 i TABLE OF CONTENTS (Cont'd) PAGE 11.11 Distributions and Allocations in Respect of Transferred Interests......................................................20 11.12 Special Allocation of Income, Loss and Distributable Cash For Proceeds of Certain Litigation and the Casualty Insurance Claim Receivable ...........................20 11.13 Disbursements in Repayment of Credit Support Loans...............21 12. Rights, Powers and Duties of the General Partner; Charges, Expenses and Fees of the General Partner..............................22 12.1 Management and Control of the Partnership........................22 12.2 Authority of the General Partner.................................22 12.3 Expenses of the General Partner..................................24 12.4 Restrictions on Authority of the General Partner.................24 12.5 Duties and Obligations of the General Partner....................28 12.6 Power of Attorney................................................28 12.7 Independent Activities...........................................29 12.8 Exempt Wholesale Generator Status................................29 12.9 Amended and Restated Operations and Maintenance Agreement; Restrictions on Change of Control of Operator; Administrative Services Agreement .............................29 12.10 Certain Actions Upon the Occurrence of an Event of Loss; Technical Disputes.............................................30 13. Investment and Operating Restrictions...................................31 13.1 Transfers of Property............................................31 13.2 Receipt of Funds.................................................31 14. Additional General Partner; Removal of a General Partner................32 14.1 Additional General Partner.......................................32 14.2 Removal of a General Partner.....................................32 15. Assignability of Interests..............................................33 15.1 Transfer of Limited Partners' Interest...........................33 15.2 Right of First Negotiation.......................................33 15.3 Limitations on Transfer..........................................34 15.4 Mandatory Sales or Restructuring.................................34 15.5 Certain Sales by the Sithe Partners..............................36 15.6 Expenses.........................................................36 16. Reserved................................................................37 17. Substituted Limited Partner.............................................37 17.1 Conditions.......................................................37 ii TABLE OF CONTENTS (Cont'd) PAGE 17.2 Effect of Assignment without Substitution........................37 17.3 Discretion of General Partner....................................37 17.4 Consent Not Required.............................................37 17.5 Amendment of Certificate.........................................37 17.6 Miscellaneous....................................................38 18. Withdrawal..............................................................38 19. Dissolution and Liquidation of the Partnership..........................38 19.1 Events Causing Dissolution.......................................38 19.2 Liquidation......................................................39 20. Books and Records; Reports; Other Information...........................40 20.1 Books and Records................................................40 20.2 Annual Reports...................................................40 20.3 Reports to Project Lenders.......................................41 20.4 Annual Budget....................................................41 20.5 Tax Information..................................................41 21. Amendments..............................................................41 21.1 Additional Partners..............................................41 21.2 Amendments with Consent of Limited Partners......................41 21.3 Execution of Amendments..........................................42 21.4 Recording of Amendments..........................................42 22. Liability of the General Partner........................................42 22.1 In General.......................................................42 22.2 Agents of the General Partner....................................42 23. Indemnification of General Partner......................................43 23.1 In General.......................................................43 23.2 Against Claims by Limited Partner................................43 23.3 Exceptions.......................................................43 24. Miscellaneous...........................................................43 24.1 Agreements in Counterparts.......................................43 24.2 Survival of Rights...............................................43 24.3 Section Headings.................................................43 24.4 Additional Documents.............................................43 24.5 Waiver of Partition..............................................44 24.6 Validity.........................................................44 iii TABLE OF CONTENTS (Cont'd) PAGE 24.7 Interpretation...................................................44 24.8 Governing Law....................................................44 24.9 Limitation on Damages............................................44 24.10 Notices..........................................................44 Exhibit A Percentage Interests and Estimated and Projected Capital Account Balances as of June 30, 2001 Exhibit B Term Sheet for Second Amended and Restated Operations and Maintenance Agreement Exhibit C Term Sheet for Administrative Services Agreement iv SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF SITHE/INDEPENDENCE POWER PARTNERS, L.P. This SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") is executed as of June 29, 2001, and shall be effective as of 12:01 a.m. (New York time) on June 30, 2001 among Sithe/Independence, Inc., a Delaware corporation, as general partner ("General Partner") and Sithe Energies, Inc., a Delaware corporation, as a limited partner, Sithe Energies U.S.A., Inc., a Delaware corporation, as a limited partner, Mitex, Inc., a Massachusetts corporation, as a limited partner, and Oswego Cogen Company, LLC, a Delaware limited liability company, as a limited partner (together, the "Limited Partners"), pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act, as amended. WHEREAS, on January 1, 1991, the General Partner, Sithe Energies U.S.A., Inc., Mitex, Inc. and Sithe Energies, Inc. entered into an Agreement of Limited Partnership of Sithe/Independence Power Partners, L.P. (the "Original Agreement"); WHEREAS, Sithe Energies, Inc. transferred and assigned a portion of its Interest (as defined herein) in the Partnership to Energy Factors, Incorporated with the consent of the General Partner; WHEREAS, Energy Factors, Incorporated transferred and assigned all of its Interest in the Partnership to Cogeneration National Corporation with the consent of the General Partner; WHEREAS, pursuant to an Amended and Restated Agreement of Limited Partnership dated June 29, 2001 (the "First Amended and Restated Partnership Agreement") between Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc., Mitex, Inc. and Cogeneration National Corporation, Cogeneration National Corporation was admitted as a limited partner to the Partnership; WHEREAS, pursuant to a Purchase and Sale Agreement dated the date hereof between Cogeneration National Corporation and Oswego Cogen Company, LLC, Cogeneration National Corporation shall transfer and assign all of its Interest in the Partnership to Oswego Cogen Company, LLC with the consent of the General Partner; and WHEREAS, the General Partner and the Limited Partners desire to amend and restate the First Amended and Restated Partnership Agreement in its entirety as set forth herein. NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the General Partner and the Limited Partners, intending to be legally bound, hereby covenant and agree as follows: 1. DEFINITIONS. In addition to the terms defined elsewhere in this Agreement, when used with initial capitalization, whether singular or plural, the following terms shall have the meanings set forth below. All references in this Agreement to any governmental or non-governmental entity, including, without limitation, the Federal Energy Regulatory Commission, shall include any and all successors to such entities. Unless the context otherwise requires, any reference herein to any contract, agreement and any schedule, attachment or exhibit thereto shall mean such contract, agreement, schedule, attachment or exhibit as amended, supplemented and modified and in effect from time to time 1.1 "Act" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time. 1.2 "Adjusted Basis" means the basis for determining gain or loss for federal income tax purposes from the sale or other disposition of property, as defined in Section 1011 of the Code. 1.3 "Adjusted Capital Account Balance" means the balance in any Partner's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (a) Credit to such Capital Account any amounts that such Partner is obligated to restore pursuant to any provision of this Agreement, is otherwise treated as being obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, or is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations (determined after taking into account any changes during such year in Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain); and (b) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations. 1.4 "Adjusted Capital Account Deficit" means a deficit Adjusted Capital Account Balance with respect to any Limited Partner. 1.5 "Administrative Services Agreement" shall have the meaning set forth in Section 12.9 hereof. 2 1.6 "Administrative Services Provider" means the Administrative Services Provider pursuant to the Administrative Services Agreement. 1.7 "Affiliate" with respect to any Person means any other Person directly or indirectly controlling, controlled by, or under common control with such first Person whether through ownership, by contract, or otherwise; provided that any Person with direct or indirect ownership of five percent (5%) or more of the voting power for the election of directors or other governing body of a corporation or five percent (5%) or more of the economic interest of any other Person will be deemed to control such corporation or other Person. 1.8 "Agreement" means this Second Amended and Restated Agreement of Limited Partnership, as originally executed and as amended from time to time, as the context requires. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder," when used with reference to this Agreement, refer to this Agreement as a whole, unless the context otherwise specifically requires. 1.9 "Allocation Share" shall have the meaning set forth in Section 11.8(a) hereof. 1.10 "Annual Period" shall have the meaning set forth in the Operations and Maintenance Agreement. 1.11 "Applicable Laws" means laws, rules, regulations, statutes, acts (including the Act), codes (including the Code), ordinances, decrees, rulings, directives, judgments, declarations and requirements of all federal, state and local governmental authorities applicable to the Partnership, the Business, the Project, the Partners and the performance of the obligations of a Partner hereunder. 1.12 "Available Cash" means the sum derived by deducting the total annual "Costs" of the Partnership from the total annual gross cash receipts of the Partnership from all sources (other than from Capital Contributions or from loans from any Partner). Such Costs, for the purposes hereof, mean all cash expenditures in connection with the Business of the Partnership, including, without limitation, lease payments, advertising and promotion, salaries, accounting, computer time-sharing, statistical or bookkeeping service and computing or accounting equipment use, accounting, tax preparation, legal, travel, transportation and telephone expenses, operating and maintenance expenses and Debt Service. There shall be included in Costs the direct out-of-pocket expenses incurred by the General Partner or any of its Affiliates (including payments to salaried employees and payments for services and supplies) and a reasonable proportion of the overhead or indirect expenses of the General Partner or any of its Affiliates incurred in performing bookkeeping, accounting, tax preparation, legal, general management, computer and public relations services for the Partnership necessary for the operation of the Partnership, which services, but for their performance by the General Partner or any such Affiliates, would be required to be performed for the Partnership by another Person; PROVIDED that the expenses so included in Costs shall not exceed the amount that the Partnership would be required to pay to Persons not Affiliates of the General Partner for comparable services that would have been obtainable in a bona fide arm's-length transaction. "Costs" do not include: (i) any overhead expenses of the General Partner or an Affiliate thereof not reasonably incurred in connection with 3 the Business as provided in the third sentence of this Section 1.12, (ii) cost recovery, depreciation or amortization deductions; or (iii) expenditures of funds from Reserves or from Capital Contributions. Notwithstanding the foregoing, the "Available Cash" shall not exceed the amounts which may be distributed to the Partners under the terms of any Mortgage. 1.13 "Base Gas Sales Agreement" means the Amended and Restated Base Gas Sales Agreement dated October 26, 1992 between Enron North America Corp. (as successor in interest to Enron Power Services, Inc.) and the Partnership, as amended. 1.14 "Budget" shall have the meaning set forth in the Operations and Maintenance Agreement. 1.15 "Business" shall have the meaning set forth in Section 4 hereof. 1.16 "Capital Account" shall have the meaning set forth in Section 11.1 hereof. 1.17 "Capital Contribution" or "Contribution" means any cash, property, services rendered or a promissory note or other obligation to contribute cash or property or to perform services, which a Partner contributes from time to time to the Partnership in its capacity as a Partner. 1.18 "Casualty Insurance Claim Receivable" means that certain receivable in the amount of approximately $6,330,291 currently reflected on the books of the Partnership (as may be adjusted in the future to reflect the actual insurance settlement), in respect of the Partnership's aggregate insurance reimbursement claims (relating to both property and business interruption coverage) arising from the occurrence of a casualty event at the Project on or about May 31, 2000. 1.19 "Code" means the Internal Revenue Code of 1986, as amended. 1.20 "Commission" means the United States Securities and Exchange Commission. 1.21 "Costs" means those items designated as such in the definition of Available Cash. 1.22 "Credit Support Agreement" means that certain Financial Swap Credit Support Contribution Agreement, dated as of June 30, 2001, among Enron Corp., Exelon and the Partnership. 1.23 "Credit Support Curing Party" means a Credit Support Party that elects to cure, in whole or in part, a default by the other Credit Support Party under the Credit Support Agreement. 1.24 "Credit Support Defaulting Party" means a Credit Support Party that fails to satisfy its contribution obligations under the Credit Support Agreement. 1.25 "Credit Support Loan" shall have the meaning set forth in the Credit Support Agreement. 4 1.26 "Credit Support Party" means, with respect to the Sithe Partners, Exelon, and with respect to Oswego Cogen, Enron Corp. 1.27 "Debt Service" means all payments required to be made in connection with a loan to the Partnership or any other loan or debt obligation secured by a lien on any Partnership assets (including any Tracking Account Payments) and all payments required to be made pursuant to any lease to which the Partnership is a party as the lessee and which is treated as a capital lease under generally accepted accounting principles. 1.28 "Depreciation" means for each taxable year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such taxable year, except that if the Gross Asset Value of an asset differs from its Adjusted Basis for federal income tax purposes at the beginning of such taxable year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such taxable year bears to such beginning adjusted tax basis; provided, however, that if the Adjusted Basis for federal income tax purposes of an asset at the beginning of such taxable year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner. 1.29 "Distributable Cash" means, with respect to any taxable year or other period, Available Cash, reduced by any amounts set aside from Available Cash for the restoration or creation of Reserves and increased by any amounts available as a result of the reduction or elimination of Reserves. 1.30 "Enron Corp." means Enron Corp., an Oregon corporation. 1.31 "Event of Loss" shall have the meaning set forth in the Indenture. 1.32 "Exelon" means Exelon Generation Company, L.L.C., a Pennsylvania limited liability company. 1.33 "Exempt Wholesale Generator" means an exempt wholesale generator as defined under PUHCA, Section 32 (15 U.S.C. Section 79z-5a) and Part 365 of the rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 365). 1.34 "Federal Power Act" means the Federal Power Act of 1920, as amended from time to time. 1.35 "Financial Swap Agreement" means, collectively, that certain Master Agreement, dated July 1, 2001, between Dynegy Power Marketing, Inc. and the Partnership, the Schedule to the Master Agreement attached thereto dated July 1, 2001 and Confirmation #1A thereof dated July 1, 2001. 1.36 "First Amended and Restated Partnership Agreement" shall have the meaning set forth in the recitals hereto. 5 1.37 "General Partner" means Sithe/Independence, Inc., or any successors in interest, and any additional General Partner, in its capacity as general partner of the Partnership. 1.38 "Gross Asset Value" means with respect to any asset, the asset's Adjusted Basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the General Partner; (b) The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner, as of the following times: (i) the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Partnership to a General Partner or Limited Partner of more than a de minimis amount of Property as consideration for an interest in the Partnership; and (iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g). This provision is intended to comply with Regulations Section 1.704-1(b)(2)(iv)(f) and shall be interpreted and applied accordingly. (c) The Gross Asset Value of any Partnership asset distributed to the General Partner or Limited Partner shall be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner; and (d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the Adjusted Basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and Section 1.62 and Section 11.5(g) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section 1.38(d) to the extent the General Partner determines that an adjustment pursuant to Section 1.38(b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 1.38(d). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subsections (a), (b), or (d) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 1.39 "Indenture" means that certain Trust Indenture, dated as of January 1, 1993, among Sithe/Independence Funding Corporation, Sithe/Independence Power Partners, L.P. and IBJ Schroder Bank & Trust Company, as Trustee, as amended and supplemented from time to time. 1.40 "Intercreditor Agreement" means the Collateral Agency and Intercreditor Agreement dated January 1, 1993 among the Partnership, Enron North America Corp. (as successor in interest in Enron Power Services, Inc.), The Sumitomo Bank Limited (as successor in interest to Union Bank), Bank of New York (as successor in interest to IBJ Schroder Bank & 6 Trust Company), Sithe/Independence Funding Corporation, the County of Oswego Industrial Development Agency and Manufacturers and Traders Trust Company. 1.41 "Interest" means the entire ownership interest of any Person which is a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which such Partner may be entitled as provided in this Agreement, together with the obligations of such Partner to comply with all of the terms and provisions of this Agreement. 1.42 "Limited Partners" means Sithe Energies, Inc., Sithe Energies U.S.A., Inc., Oswego Cogen, Mitex, Inc., and such other Persons who are admitted to the Partnership as Substituted Limited Partners, and who are then owners of an Interest. References to a "Limited Partner" shall mean any one of the Limited Partners. 1.43 "Liquidating Trustee" shall have the meaning set forth in Section 19.2(a) hereof. 1.44 "Mortgage" means any mortgage, deed of trust, or other encumbrance on any asset of the Partnership or any promissory note, lease, loan agreement, or any other similar document, agreement or instrument binding on the Partnership. 1.45 "Niagara Mohawk Proceeding" means any legal proceeding, suit or action involving the Partnership and Niagara Mohawk Power Corporation before the Federal Energy Regulatory Commission pending or outstanding as of the date hereof, including, without limitation, those proceedings under Docket Nos. EL95-38, EL 99-65, ER97-1523, OA97-470 and ER97-4234 of the Federal Energy Regulatory Commission. 1.46 "Nonrecourse Deductions" shall have the meaning set forth in Section 1.704-2(b)(1) of the Regulations. 1.47 "Nonrecourse Liability" shall have the meaning set forth in Section 1.704-2(b)(3) of the Regulations. 1.48 "Offeree" shall have the meaning set forth in Section 15.2 hereof. 1.49 "Operations and Maintenance Agreement" means the Amended and Restated Operations and Maintenance Agreement, dated as of August 25, 1992, between the Partnership and Sithe Energies Power Services, Inc., as amended, supplemented or replaced from time to time. 1.50 "Operator" shall mean the Operator pursuant to the Operations and Maintenance Agreement, or any other Person as may direct the day to day operations of the Project. 1.51 "Original Agreement" shall have the meaning set forth in the recitals hereto. 1.52 "Oswego Cogen" means Oswego Cogen Company, LLC, a Delaware limited liability company. 7 1.53 "Partner" means the General Partner and each of the Limited Partners, where no distinction is required by the context in which the term is used herein. Reference to a "Partner" means any one of the Partners. 1.54 "Partner Nonrecourse Debt" shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations. 1.55 "Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. 1.56 "Partner Nonrecourse Deductions" shall have the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. 1.57 "Partnership" means Sithe/Independence Power Partners, L.P., a Delaware limited partnership. 1.58 "Partnership Minimum Gain" shall have the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. 1.59 "Percentage Interest" means, with respect to each Partner, such Partner's Interest in the Partnership expressed as a percentage of the aggregate of all of the Interests in the Partnership, as reflected on Exhibit A hereto. 1.60 "Permitted Investment" shall have the meaning set forth in the Indenture. 1.61 "Person" means any individual, partnership, limited liability company, corporation, trust or other entity. 1.62 "Profits and Losses" means for each taxable year, an amount equal to the Partnership's taxable income or loss for such taxable year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.62 shall be added to such taxable income or loss; (b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.62 shall be subtracted from such taxable income or loss; (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to Section 1.38(b) or Section 1.38(c) hereof, the amount of such adjustment shall be 8 taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (d) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such taxable year, computed in accordance with Section 1.28 hereof; (f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4) to be taken into account in determining Capital Accounts as a result of a distribution other than in complete liquidation of a Partner's Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and (g) Notwithstanding any other provision of this Section 1.62, any items which are specially allocated pursuant to Section 11 hereof shall not be taken into account in computing Profits or Losses. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 11 hereof shall be determined by applying rules analogous to those set forth in subsections (a) through (f) of this Section 1.62. 1.63 "Project" means an approximately 1,032 megawatt net capacity gas fired cogeneration facility located in the Town of Scriba, County of Oswego, New York, including all related equipment, real and personal property, associated contract rights and other intangible property. 1.64 "Project Document" shall have the meaning set forth in the Indenture. 1.65 "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. 1.66 "Qualifying Facility" means a qualifying cogeneration facility or a qualifying small power production facility as defined in the Federal Power Act, as amended, Section 3 (16 U.S.C. Section 796) and Part 292 of the rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 292). 1.67 "Ratings Confirmation Letters" shall have the meaning set forth in Section 15.4(b) hereof. 9 1.68 "Regulations" means the income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). 1.69 "Regulatory Allocations" shall have the meaning set forth in Section 11.6 hereof. 1.70 "Reserves" means, with respect to any 12-month period, payments made or amounts allocated during such period to reserves, which the General Partner shall in its reasonable, good faith judgment estimate to be required to meet, operating costs (exclusive of depreciation and other cost recovery deductions), capital expenditures, Debt Service and any other obligations of the Partnership known or anticipated to be payable within such 12-month period, as well as a reasonable reserve for contingencies, including anticipated capital expenditures in excess of revenues and payments to be received subsequent to such 12-month period. 1.71 "Second Amended and Restated Operations and Maintenance Agreement" shall have the meaning set forth in Section 12.9 hereof. 1.72 "Security Agreement and Assignment of Contracts" means that certain Security Agreement and Assignment of Contracts, dated as of January 1, 1993, made by the Partnership in favor of Manufacturers and Traders Trust Company. 1.73 "Selling Partner" shall have the meaning set forth in Section 15.2 hereof. 1.74 "Sithe Energies, Inc." means Sithe Energies, Inc., a Delaware corporation. 1.75 "Sithe Limited Partners" means Mitex, Inc., Sithe Energies, Inc. and Sithe Energies U.S.A., Inc. 1.76 "Sithe Partners" means Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc. and Mitex, Inc. 1.77 "Special Distribution Account" means the notional account established and maintained by the Partnership pursuant to Section 11.8(b) of this Agreement that reflects the outstanding balance on and after June 30, 2001, from time to time, of the aggregate amount of the accrued and unpaid special cash distributions owed by the Partnership to Oswego Cogen in respect of the payment by the Partnership of principal on the Tracking Account Loan from time to time, as provided in Sections 11.8(b)(i) and 11.8(b)(ii), which account may never be less than zero. 1.78 "Special Distribution Account Determination Date" means any date on or after the effective date hereof on which the General Partner makes a distribution of Distributable Cash pursuant to Section 10.1. 1.79 "Substituted Limited Partner" means any Person admitted to the Partnership as a Limited Partner pursuant to the provisions of Section 17 hereof. 10 1.80 "Technical Dispute" shall have the meaning set forth in Section 12.10 hereof. 1.81 "Technical Expert" means an individual selected in accordance with the procedure set forth in Section 12.10(c) and who (i) has at least eight years experience in the electric generation industry, (ii) has no interest, financial or otherwise, or duty which conflicts or may conflict with his or her functions as a Technical Expert (such individual being required to fully disclose any such interest or duty prior to his or her appointment) and (iii) is not and has not been during the five (5) years prior to the date of appointment an employee of any of the Partners or any of their Affiliates. 1.82 "Tracking Account Allocation Percentage" shall have the meaning set forth in Section 11.8(a) hereof. 1.83 "Tracking Account Loan" means the Tracking Account Loan described in the Base Gas Sales Agreement. 1.84 "Tracking Account Payment" shall mean any payments due and owing under the Tracking Account Loan in accordance with the Base Gas Sales Agreement. 1.85 "Trustee" shall mean the trustee under the Indenture. 2. FORMATION OF PARTNERSHIP. The Partnership was formed upon the filing of a Certificate of Limited Partnership with the Delaware Secretary of State on November 16, 1990. The names of all Partners are as set forth on the signature page hereof. Without the need for any additional action on the part of any Person, (i) Oswego Cogen Company, LLC is hereby admitted to the Partnership as a limited partner of the Partnership, (ii) Sithe/Independence, Inc. shall continue to be a general partner of the Partnership, and (iii) Sithe Energies U.S.A., Inc. Sithe Energies, Inc. and Mitex, Inc. shall continue to be limited partners of the Partnership. 3. NAME. The name of the Partnership is "SITHE/INDEPENDENCE POWER PARTNERS, L.P." 4. BUSINESS. The business and purposes of the Partnership shall be to develop, finance and commercially exploit the Project, whether the foregoing is accomplished by owning, operating, managing, leasing or disposing of the Project (or any part thereof or any interest therein), including any and all things necessary or appropriate in connection therewith (the "Business"). 5. CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner has caused the Certificate of Limited Partnership to be recorded as required by the Act on November 16, 1990. All of the Partners do hereby appoint the General Partner to act as their attorney-in-fact for the purpose of executing and recording any other 11 certificate or document or amendment thereto evidencing the existence and terms of the Partnership, whether in the State of Delaware or any other state; and the General Partner is hereby expressly granted the right to subscribe the name of any and all of the Partners hereto on any such certificate or document or amendment thereto. 6. FICTITIOUS BUSINESS NAME STATEMENT. Upon the execution of this Agreement or subsequent change in the Partners of the Partnership, the General Partner shall, if the Partnership is required, sign and cause to be filed and published in the county in which the principal place of business is situated, a fictitious business name statement or similar document in accordance with the provisions of Applicable Laws. The Partnership may do business under any other fictitious business names deemed desirable by the General Partner in its reasonable judgment. In such case, and if required, the General Partner may sign and cause to be filed and published a fictitious business name statement or similar document as attorney-in-fact for all of the Partners. 7. EXECUTIVE OFFICES. The executive offices of the Partnership shall be 335 Madison Avenue, 28th Floor, New York, New York 10017. The General Partner may from time to time change the location of the executive offices of the Partnership and in such event shall notify the Partners in writing at least ten days prior to the effective date hereof of such change. The General Partner may establish additional offices or places of business of the Partnership. 8. TERM OF PARTNERSHIP. The Partnership commenced on the date of filing of the Partnership's Certificate of Limited Partnership with the Delaware Secretary of State. The term of the Partnership shall continue until December 31, 2040, unless terminated pursuant to the Act or dissolved pursuant to the terms of Section 19.1 hereof. 9. CONTRIBUTIONS AND STATUS. 9.1 PERCENTAGE INTERESTS OF GENERAL PARTNER. The Percentage Interest of the General Partner is one percent (1%). The estimated and projected Capital Account balance of the General Partner as of June 30, 2001, as determined in accordance with the Regulations, is as set forth on Exhibit A hereto. 9.2 PERCENTAGE INTEREST OF THE LIMITED PARTNERS. The Percentage Interest of Sithe Energies U.S.A., Inc. is forty-four percent (44%). The Percentage Interest of Sithe Energies, Inc. is five percent (5%). The Percentage Interest of Oswego Cogen is forty percent (40%). The Percentage Interest of Mitex, Inc. is ten percent (10%). The estimated and projected Capital Account balances of the Limited Partners as of June 30, 2001, as determined in accordance with the Regulations, are as set forth on Exhibit A hereto. 9.3 LIMITED LIABILITY OF THE LIMITED PARTNERS. No Limited Partner shall be liable for the debts, liabilities, contracts or any other obligations of the Partnership. Except as otherwise 12 provided by Applicable Laws, no Limited Partner shall be liable to make additional Capital Contributions and shall not be required to lend any funds to the Partnership. 9.4 ROLE OF LIMITED PARTNER. Except as otherwise provided in this Agreement, or as approved by the General Partner and as will not under Applicable Laws result in a Limited Partner being subject to general liability for Partnership obligations, the Limited Partners shall not take part in, or interfere in any manner with, the conduct or control of the business of the Partnership and shall have no rights or authority to act for or bind the Partnership. 9.5 WITHDRAWAL AND RETURN OF CAPITAL. No Limited Partner shall withdraw any of its capital without the consent of the General Partner and the other Limited Partners, except upon dissolution or liquidation of the Partnership. Under circumstances requiring a return of any Capital Contribution, no Limited Partner shall have the right to receive property other than cash except as may be specifically provided herein. 9.6 SALARIES, DRAWINGS AND INTEREST ON CAPITAL ACCOUNTS. No Limited Partner shall receive any interest, salary or drawing with respect to its Capital Contribution or for services rendered on behalf of the Partnership or otherwise in its capacity as Limited Partner, except as provided herein. 9.7 CONTRIBUTIONS IN CONNECTION WITH CERTAIN CREDIT SUPPORT. (a) In connection with the implementation of the Financial Swap Agreement, each Credit Support Party has agreed, pursuant to the Credit Support Agreement, to furnish for the benefit of the Partnership certain financial support in respect of the Partnership's obligations to the counterparty under the foregoing agreement. In the event and to the extent that any amounts are paid (i) out of any cash collateral posted by a Credit Support Party, (ii) pursuant to any draw under any letter of credit provided by a Credit Support Party or (iii) by a Credit Support Party under any guarantee provided by such Credit Support Party, in each case in satisfaction of the Partnership's obligations to the counterparty under the Financial Swap Agreement, such amounts shall be treated for purposes of this Agreement (including for purposes of maintaining the Capital Account balances of the Partners) as cash capital contributions by Oswego Cogen (in the case of any amounts made or deemed to have been made by Enron Corp.) and the Sithe Partners (in the case of any amounts paid or deemed to have been paid by Exelon, in this case allocated among the Sithe Partners in proportion to their respective Percentage Interests); PROVIDED, HOWEVER, that no adjustment to the Capital Accounts of the Partnership pursuant to Section 1.704-1(b)(2)(iv)(f) of the Regulations shall be made in respect of any such cash capital contributions. Each Credit Support Party shall provide prompt written notification to the Partnership upon the payment by it of any of the foregoing amounts, PROVIDED that the failure to provide such notice shall not affect in any manner the treatment of such payments as contemplated by this Section 9.7. (b) If, pursuant to the Credit Support Agreement, a Credit Support Curing Party provides, or causes to be provided, funds under the Credit Support Agreement to or on behalf of a Credit Support Defaulting Party, such funds shall be treated as having been lent by the Credit Support Curing Party to the Credit Support Defaulting Party as a Credit Support Loan, followed by a loan by the Credit Support Defaulting Party of such funds to the Partner or Partners 13 Affiliated with such party (pro rata in accordance with their respective Percentage Interests), and followed in turn by a capital contribution by such Partners of all of such funds to the Partnership. 10. DISTRIBUTIONS. 10.1 DISTRIBUTABLE CASH. The Partnership intends from time to time to make distributions of Distributable Cash, as available and as determined by the General Partner, subject to the following: (i) the General Partner shall use commercially reasonable efforts to distribute Distributable Cash to the Partners on at least a quarterly basis, subject to any applicable limitations in the Project Documents, (ii) distributions may be restricted or suspended when the General Partner determines in its reasonable judgment that it is in the best interest of the Partnership to do so, (iii) all distributions are subject to the payment of Costs and to the maintenance of reasonable Reserves and (iv) no distribution shall be made if such distribution is prohibited by any of the Project Documents. A Partner receiving a distribution in violation of the foregoing Section 10.1(iv) shall be liable to the Partnership for return of the amount of the distribution without regard to the date of the distribution or the date of the discovery of the violation, whether or not such Partner remains a Partner and without regard to any other facts or circumstances. Subject to the foregoing, except as provided in Section 19.2(d) hereof (relating to distributions upon the dissolution of the Partnership), Section 11.8(b) (relating to special allocations of Distributable Cash while the Tracking Account Loan is outstanding), Section 11.12(b) (relating to special allocations of Distributable Cash received in connection with any Niagara Mohawk Proceeding) and Section 11.12(d) (relating to special allocations of Distributable Cash received in connection with the recovery of all or a portion of the Casualty Insurance Claim Receivable), Distributable Cash, if any, shall be distributed to the Partners in proportion to their then existing Percentage Interests; PROVIDED, HOWEVER, that any Distributable Cash otherwise allocable to one or more of the Partners pursuant to this Section 10.1 but which is disbursed by the Partnership to a Curing Credit Support Party as a result of, and to the extent of, the outstanding balance of any amounts due to the Curing Credit Support Party on account of a Credit Support Loan under the Credit Support Agreement, as required by Section 11.13 hereof, shall be treated for all purposes of this Agreement, including for purposes of adjusting the respective Capital Accounts of the Partners pursuant to Section 11.1(b), as having been distributed by the Partnership to the Partner or Partners, as the case may be, that are Affiliated with the Credit Support Defaulting Party. 10.2 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any state or local tax laws with respect to any payment to the Partnership or to any Partner shall be treated as amounts distributed pursuant to Sections 10.1 or 19.2(d) hereof for all purposes of this Agreement. Amounts treated as distributed to any Person pursuant to such Sections shall reduce the amount otherwise distributed or distributable to such Person pursuant to such Sections. 11. ALLOCATION OF PROFITS AND LOSSES. 11.1 CAPITAL ACCOUNT. With respect to any Partner, a "Capital Account" shall be maintained for such Partner in accordance with the following provisions: 14 (a) To each Partner's Capital Account there shall be credited such Partner's Capital Contributions, such Partner's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Sections 11.5, 11.6, 11.8(a), 11.9(b) and 11.12 hereof, and the amount of any Partnership liabilities assumed by such Partner or which are secured by any property distributed to such Partner as provided in Section 1.704-1(b)(2)(iv)(c) of the Regulations. (b) To each Partner's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Sections 11.5, 11.6, 11.9(a) and 11.12 hereof, and the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any property contributed by such Partner to the Partnership as provided in Section 1.704-1(b)(2)(iv)(c) of the Regulations. (c) In the event all or a portion of an interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. (d) In determining the amount of any Partnership liabilities for purposes of this Section 11.1, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is necessary to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributions or distributed property or which are assumed by the Partnership, General Partner, or Limited Partners), are computed in order to comply with such Regulations, the General Partner may make such modification; PROVIDED, that (i) it is not likely to have a material effect on the amounts distributed to any Person pursuant to Section 19 hereof upon the dissolution of the Partnership and (ii) prior to making any such modification (A) the General Partner obtains the written consent of all Partners that may be reasonably likely to be adversely affected by such modification or (B) if such consent or consents cannot be obtained, the General Partner obtains a tax opinion from a nationally recognized tax counsel with expertise in partnership tax matters, which counsel is reasonably acceptable to the Partners holding a majority in interest of the Percentage Interests, to the effect that the proposed modifications of the General Partner are necessary to comply with the Regulations. The General Partner also shall be entitled to make, subject to the foregoing proviso, (i) any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the General Partner and Limited Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) any appropriate modifications in the event unanticipated events (for example, the acquisition by the Partnership of oil or gas properties) might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). 15 11.2 ALLOCATION OF LOSSES. Except as provided in Sections 11.5, 11.6, 11.8, 11.9 and 11.12 hereof, Losses of the Partnership for any taxable year shall be allocated to the Partners in proportion to their then existing Percentage Interests. To the extent that the allocation of a Loss to a Limited Partner would create or increase an Adjusted Capital Account Deficit with respect to such Limited Partner, however, such Loss shall instead be allocated to the General Partner. 11.3 ALLOCATION OF PROFITS. Except as provided in Sections 11.5, 11.6, 11.8, 11.9 and 11.12 hereof, Profits of the Partnership for any taxable year shall be allocated to the Partners in proportion to their then existing Percentage Interests. 11.4 DEFICIT RESTORATION. Except as otherwise required by Applicable Laws or Sections 14.2(c) or 19.2(e) of this Agreement, no Partner shall be required to contribute to any deficit of the Partnership or to restore any debit Capital Account balance. 11.5 REGULATORY ALLOCATIONS AND RELATED PROVISIONS. The following special allocations shall be made in the following order: (a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 11, if there is a net decrease in Partnership Minimum Gain during any taxable year, each Partner shall be specially allocated items of Partnership income and gain for such taxable year (and, if necessary, subsequent taxable years) in an amount equal to such Person's share of the net decrease in Partnership Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 11.5(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. (b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 11.5, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership taxable year, each Person who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Partnership income and gain for such Taxable year (and, if necessary, subsequent taxable years) in an amount equal to such Person's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 11.5(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. 16 (c) QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly receives any adjustments, allocations, or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5) or Section 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain shall be specially allocated to each such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to this Section shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 11 have been tentatively made as if this Section 11.5(c) were not in the Agreement. (d) GROSS INCOME ALLOCATION. In the event any Partner has a deficit Capital Account at the end of any Partnership taxable year which is in excess of the sum of (i) the amount such Partner is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Partner is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 11.5(d) shall be made only if and to the extent that such Partner would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 11 have been made as if Section 11.5(c) hereof and this Section 11.5(d) were not in the Agreement. (e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any taxable year shall be allocated to the Partners in the same manner as Losses are allocated pursuant to Section 11.2 above. (f) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions for any taxable year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1). (g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of his interest in the Partnership, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in accordance with their interests in the Partnership in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partner to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. 11.6 CURATIVE ALLOCATIONS. The allocations set forth in Sections 11.5(a), 11.5(b), 11.5(c), 11.5(d), 11.5(e), 11.5(f), and 11.5(g) hereof (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory 17 Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 11.6. Therefore, notwithstanding any other provision of this Article 11 (other than the Regulatory Allocations), the General Partner shall make such offsetting special allocations of Partnership income, gain, loss or deduction in whatever manner it determines to be appropriate so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of the Agreement and all Partnership items were allocated pursuant to Sections 11.2, 11.3, 11.8, 11.9 and 11.12. In exercising its discretion under this Section 11.6, the General Partner shall take into account future Regulatory Allocations under Sections 11.5(a) and 11.5(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Sections 11.5(e) and 11.5(f). 11.7 TAX ALLOCATIONS. In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the Adjusted Basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value. In the event the Gross Asset Value of any Partnership asset is subject to adjustment, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the Adjusted Basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 11.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Person's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 11.8 SPECIAL ALLOCATIONS OF PROFIT AND LOSS AND DISTRIBUTABLE CASH WHILE TRACKING ACCOUNT LOAN IS OUTSTANDING. (a) For each taxable year commencing with the first taxable year in which principal payments on the Tracking Account Loan are paid by the Partnership, there will be a special allocation of gross income otherwise allocable to the Sithe Limited Partners away from such Sithe Limited Partners and to Sithe/Independence, Inc. Such special allocation from each of the Sithe Limited Partners to the General Partner will equal the lesser of: (i) the gross income otherwise allocable to such Sithe Limited Partner for such taxable year without regard to such special allocation; and (ii) the excess of (y) the sum of the Allocation Share of such Sithe Limited Partner for the current taxable year and each prior taxable year to which this Section 11.8(a) applies over (z) the cumulative amount of gross income specially allocated from such Sithe Limited Partner to the General Partner pursuant to this Section 11.8(a) for all prior taxable years. 18 The "Allocation Share" of a Sithe Limited Partner for each taxable year to which this Section 11.8(a) applies shall be the product of its "Tracking Account Allocation Percentage" for such taxable year multiplied by the amount of principal payments made in such taxable year with respect to the Tracking Account Loan. The "Tracking Account Allocation Percentage" of a Sithe Partner for any taxable year shall be equal to the ratio of the Percentage Interest of such Sithe Partner to the sum of the Percentage Interests of the General Partner and the Sithe Limited Partners for such taxable year. (b) (i) (i) Throughout the period the Tracking Account Loan is outstanding, any Distributable Cash that would be distributed, but for this Section 11.8(b), to a Sithe Partner pursuant to Section 10.1 of this Agreement shall be distributed instead to Oswego Cogen pursuant to this Section 11.8(b)(i) if and to the extent that there shall exist a positive balance in the Special Distribution Account on such date. Such distributions shall be made to Oswego Cogen prior to, and with a priority over, the distribution of Distributable Cash to any of the Sithe Partners pursuant to Section 10.1, provided that any remaining Distributable Cash allocable to the Sithe Partners (after reflecting the special distribution described in the first sentence of this Section 11.8(b)(i)) shall be distributed among the Sithe Partners as provided in Section 10.1 of this Agreement. (ii) The Special Distribution Account on the effective date hereof shall have a balance of zero. On each Special Distribution Account Determination Date, prior to the distribution of any Distributable Cash to the Sithe Partners, the Special Distribution Account shall be increased by an amount equal to the product of (A) the Percentage Interest of Oswego Cogen on such date and (B) the total amount of principal paid by the Partnership on or with respect to the Tracking Account Loan since the immediately preceding Special Distribution Account Determination Date, including any such principal paid on the Special Distribution Account Determination Date. The Special Distribution Account shall be reduced (without duplication) by any amounts distributed to Oswego Cogen from time to time pursuant to Section 11.8(b)(i) of this Agreement. The Partnership shall furnish Oswego Cogen and each of the Sithe Partners a statement reflecting the outstanding balance of the Special Distribution Account, including all debits and credits thereto, from time to time but in all events as of each Special Distribution Account Determination Date. (iii) The amount of Distributable Cash distributed to Oswego Cogen pursuant to Section 10.1 of this Agreement shall not be reduced to any extent as a result of the payment or distribution of any amount pursuant to this Section 11.8(b) and the determination of the amount that is distributable to Oswego Cogen pursuant to Section 10.1 shall made without regard to the additional amount of Distributable Cash, if any, that is distributed to Oswego Cogen pursuant to this Section 11.8(b). 11.9 CERTAIN SPECIAL ALLOCATIONS OF DEDUCTION AND INCOME RELATED TO PROJECT TRACKING ACCOUNT DEDUCTION. (a) One hundred percent (100%) of the deduction resulting from fixing the amount of the Tracking Account Loan shall be allocated specially to the General Partner for the 19 year in which the liability for such amount is fixed. If, pursuant to a determination by the Internal Revenue Service or a court, the Tracking Account Loan liability is reallocated from the General Partner in whole or in part to any or all of the Sithe Limited Partners, then a portion or portions of the aforementioned deduction corresponding to (and equal to) the reallocated portion or portions of the Tracking Account Loan liability shall likewise be reallocated to the Sithe Limited Partners, as the case may be. In the event that part or all of said deduction is reallocated in the manner set forth in the preceding sentence, the General Partner shall make corresponding adjustments to the manner in which income is specially allocated under the provisions of Section 11.8(a). (b) Any income realized by the Partnership pursuant to Section 61(a)(12) of the Code in connection with the satisfaction, reduction of principal amount or other compromise of the Tracking Account Loan shall be allocated one hundred percent (100%) to the General Partner; PROVIDED, HOWEVER, that in the event the second sentence of Section 11.9(a) is applicable, any such income shall be allocable to and among the Sithe Partners in proportion to the manner in which the deduction described in Section 11.9(a) was allocable among the Sithe Partners. 11.10 COST RECOVERY RECAPTURE; ALLOCATION OF COST RECOVERY. Notwithstanding the provisions of Sections 11.2 and 11.3, if taxable gain to be allocated pursuant to Section 11.3 includes gain treated as ordinary income for income tax purposes because it is attributable to cost recovery recapture, such gain so treated as ordinary income for federal income tax purposes shall be allocated to and reported by the Partners in proportion to the aggregate of all of their respective shares of cost recovery allocations, and the Partnership shall keep records of such allocations. Such allocations of recapture shall be merely a characterization of the net gains allocated pursuant to Section 11.3 hereof, and shall not affect the amount of net gain allocated to a Partner. 11.11 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED INTERESTS. If all or any portion of any Interest is transferred during any accounting period, Profits, Losses, each item thereof and all other items attributable to such Interest for such period shall be divided and allocated between the transferor and the transferee by accounting for their varying interests during such period in accordance with the interim closing of the books method as provided in Code Section 706(d). For this purpose, any deduction relating to the establishment of the Tracking Account Loan has been allocated to the portion of the taxable year of the Partnership ending immediately prior to the effective time of the acquisition by Cogeneration National Corporation of its former Interest in the Partnership. All distributions on or before the date of transfer of such Interest in compliance with the provisions of this Agreement shall be made to the transferor, and all distributions thereafter shall be made to the transferee. 11.12 SPECIAL ALLOCATION OF INCOME, LOSS AND DISTRIBUTABLE CASH FOR PROCEEDS OF CERTAIN LITIGATION AND THE CASUALTY INSURANCE CLAIM RECEIVABLE. (a) During any taxable year in which the Partnership realizes any gross income (or net gain) attributable to any Niagara Mohawk Proceeding, such gross income (or net gain) shall be specially allocated to and among the Sithe Partners in proportion to their respective Tracking 20 Account Allocation Percentages. No portion of such gross income (or net gain) shall be allocated to Oswego Cogen. (b) Any amount received by the Partnership that is attributable to any Niagara Mohawk Proceeding shall be distributed to the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages (subject to refund if and to the extent the Partnership is required, pursuant to the terms and conditions of any settlement or judgment of any Niagara Mohawk Proceeding, to refund any such amounts so distributed to such Partners). In the event that the Partnership is required, pursuant to the terms and conditions of any settlement or judgment of any Niagara Mohawk Proceeding, to refund any amounts, then any expense, loss or reduction in gross income attributable to such refund shall be specially allocated to and among the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. (c) During any taxable year in which the Partnership realizes gross income, loss or deduction, if any, attributable to the Casualty Insurance Claim Receivable, including the settlement or compromise thereof, such gross income, loss or deduction shall be specially allocated to and among the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. No portion of such gross income, loss or deduction shall be allocated to Oswego Cogen. (d) Any amount received by the Partnership that is attributable to the proceeds of the recovery of all or a portion of the Casualty Insurance Claim Receivable shall be distributed to the Sithe Partners in proportion to their respective Tracking Account Allocation Percentages. The General Partner has informed Oswego Cogen that the Partnership's accrual or receipt of the proceeds of the Casualty Insurance Claim Receivable shall not result in a reduction in the depreciable basis of the Partnership's properties to any material extent. 11.13 DISBURSEMENTS IN REPAYMENT OF CREDIT SUPPORT LOANS. Notwithstanding any other provision of this Agreement, if on any date the General Partner proposes to make a distribution of Distributable Cash pursuant to Section 10.1 there shall exist any amount due and owing to a Curing Credit Support Party with respect to a Credit Support Loan, the General Partner shall (a) determine the aggregate amount of Distributable Cash tentatively allocable to all of the Partner or Partners Affiliated with the applicable Credit Support Defaulting Party, after reflecting any adjustment in such amount resulting from the application of Sections 11.8(b)(i) and (ii) if applicable, but before applying this Section 11.13, and (b) disburse to the Credit Support Curing Party, rather than to the Partner or Partners Affiliated with the applicable Credit Support Defaulting Party, an amount equal to the lesser of (i) one hundred percent (100%) of the amount determined in (a) above or (ii) the amount necessary to reduce the outstanding balance owed by the Credit Support Defaulting Party under such Credit Support Loan to zero. The General Partner shall cause the Partnership's books and records, including the Partners' Capital Account balances, to account for any such cash payments to the Credit Support Curing Party as having been disbursed to the Partner or Partners Affiliated with the applicable Credit Support Defaulting Party in proportion to their respective Percentage Interests, as reflected in the last proviso contained in Section 10.1, followed by the distribution or payment of funds by such Partners to the Credit Support Defaulting Party, followed, in turn, by the payment by such Credit Support Defaulting Party to the Credit Support Curing Party of an amount equal to the cash 21 disbursements received by such Credit Support Curing Party pursuant to this Section 11.13 in repayment of such Credit Support Loan. 12. RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER; CHARGES, EXPENSES AND FEES OF THE GENERAL PARTNER. 12.1 MANAGEMENT AND CONTROL OF THE PARTNERSHIP. (a) Except as otherwise provided for herein, the General Partner, within the authority granted to it under this Agreement, shall have the exclusive right to manage the Business of the Partnership, and hereby is authorized to take any action of any kind and to do anything and everything it deems necessary in accordance with the provisions of this Agreement. The General Partner shall have the exclusive right to manage the day-to-day activities of the Partnership. (b) No Person who owns an Interest (except one who also is a General Partner, and then only in its capacity as a General Partner within the scope of its authority hereunder) shall participate in or have any control over the Partnership Business or shall have any authority or rights to act for or bind the Partnership. The Limited Partners hereby consent to the exercise by the General Partner of the powers conferred on it by this Agreement. (c) Any contract or agreement between the Partnership and any Partner or any Affiliate of any Partner shall be on terms no more favorable to such Partner or Affiliate than would have been obtainable in a bona fide arm's-length transaction and shall be in writing, describing the services to be rendered and the compensation to be paid. If reasonably requested by a Partner, the General Partner shall furnish such requesting Partner with information reasonably necessary to determine the arm's-length nature of the terms of any such contract or agreement. Notwithstanding anything herein to the contrary, the Base Gas Sales Agreement and the Operation and Maintenance Agreement, as in effect on the date hereof, are each hereby ratified and approved by the Partners. 12.2 AUTHORITY OF THE GENERAL PARTNER. (a) Except as otherwise provided for herein, the General Partner for, in the name and on behalf of, the Partnership, is hereby authorized to take any action of any kind and to do any and all things necessary or convenient to the conduct of the Business of the Partnership, including, without limitation: (i) to acquire by purchase, lease or otherwise, any property which may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; (ii) to operate, maintain, finance, improve, own, grant options with respect to, sell, convey, assign, mortgage, lease or cause to have constructed any property necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; 22 (iii) to execute any and all agreements, contracts, documents, certifications, and instruments necessary, convenient or incidental in connection with the acquisition, disposition, management, maintenance and operation of the Partnership or any Partnership property and to employ such Persons as are necessary to perform the duties required hereby; (iv) to borrow money and issue evidences of indebtedness necessary, convenient or incidental to the accomplishment of the purposes of the Partnership, and to secure the same by mortgage, pledge or other lien on any property of the Partnership; (v) to execute, in furtherance of any or all of the purposes of the Partnership, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract or other instrument binding on the Partnership or purporting to convey or encumber property of the Partnership; (vi) to prepay in whole or in part, refinance, recast, increase, modify or extend any mortgages affecting the Partnership property and in connection therewith to execute any extensions or renewals of mortgages on any such property; (vii) to care for and distribute at such time or times as it may determine all funds by way of cash, income, return of capital or otherwise, to establish Reserves in accordance with this Agreement and to perform all matters in furtherance of the objectives of the Partnership; (viii) to engage in any kind of activity and to enter into, perform or carry out contracts of any kind (including contracts of insurance covering risks to Partnership property and General Partner liability) and to do all things necessary or incidental to, or in connection with, the accomplishment of the purposes of the Partnership, as may lawfully be carried on or performed by a partnership under the Applicable Laws of each state in which the Partnership then is formed or qualified; and (ix) to make any and all elections for federal, state and local tax purposes as the General Partner deems, in reasonable judgment, to be desirable or appropriate, including, without limitation, any election, if permitted by Applicable Laws: (a) to adjust the basis of Partnership assets pursuant to Code Sections 754, 734(b) and 743(b), or comparable provisions of state or local law, in connection with transfers of Interests and Partnership distributions of Partnership property other than cash; (b) to extend the statute of limitations for assessment of tax deficiencies against Partners with respect to adjustments to the Partnership's federal, state or local tax returns; and (c) to represent the Partnership and the Partners from time to time before tax authorities or courts of competent jurisdiction in tax matters affecting the Partnership and such Persons in their capacity as Partners, and to execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind such Persons with respect to such tax matters or otherwise affect the rights of the Partnership or such Persons. The General Partner is specifically authorized to act as the "Tax Matters 23 Partner" for the Partnership and such Persons under the Code or in any similar capacity under state or local law. (b) Any Person dealing with the Partnership or the General Partner may rely upon a certificate signed by the General Partner, thereunto duly authorized, as to: (i) the identity of the General Partner or the Partners; (ii) the existence or nonexistence of any fact or facts which constitute a condition or conditions precedent to acts by the General Partner or which are in any other manner germane to the affairs of the Partnership; (iii) the Persons authorized to execute and deliver any instrument or document of the Partnership; or (iv) any act or failure to act by the Partnership or as to any other matter whatsoever involving the Partnership or any Partner. 12.3 EXPENSES OF THE GENERAL PARTNER. The General Partner may charge the Partnership for any reasonable direct expenses actually incurred by it, its employees or agents, and for a reasonable proportion of the overhead or indirect expenses of the General Partner or of any of its Affiliates incurred in performing services for the Partnership in connection with the Partnership's Business, which services, but for their performance by the General Partner or any such Affiliates, would be required to be performed for the Partnership by another Person; provided that the expenses so chargeable shall not exceed the amount that the Partnership would be required to pay to Persons not Affiliates of the General Partner for comparable services made available to the Partnership, in a bona fide arm's-length transaction. All Partnership expenses will be billed directly to the Partnership. 12.4 RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER. (a) Notwithstanding anything contained in this Agreement to the contrary, but subject to Section 12.4(d) hereof, without the written consent of each of the Limited Partners, the General Partner shall not have the authority to: (i) do any act in contravention of this Agreement; (ii) do any act which would make it impossible to achieve the purposes of the Partnership; (iii) possess Partnership assets, or assign rights in specific Partnership assets, for other than a Partnership purpose; (iv) admit a Person as a General Partner; (v) sell, whether through one or a series of transactions, all or substantially all of the assets or property of the Partnership; or 24 (vi) issue new Interests in the Partnership. (b) Notwithstanding anything contained in this Agreement to the contrary, but subject to Section 12.4(d) hereof, without the consent of the Partners holding at least sixty-six and two-thirds percent (66 2/3%) of the Interests, the General Partner shall not have the authority to: (i) in any 12 month period, and except as may be specifically authorized by Sections 12.4(b)(ii) through (xi) in respect of intangible assets of the Partnership, sell or cause to be sold any asset or real property of the Partnership, whether through one or a series of transactions, having a fair market value in excess of $10,000,000 in the aggregate; (ii) permit or cause the Partnership to make any loans, advances or contributions to any Person or guarantee the obligations of any Person; (iii) change or reorganize the Partnership into any other legal form, enter into any joint venture or partnership, or consolidate, convert or merge with or acquire any other entity; (iv) engage in any business other than the Business, except as described in subsection (vi) hereof; (v) incur any indebtedness, including any: (1) indebtedness (other than trade liabilities incurred in the ordinary course of Business) for money borrowed or for the deferred purchase price of money or services in excess of an aggregate of $10,000,000 outstanding at any one time; (2) reimbursement obligation under any letter of credit or banker's acceptance; (3) obligation under any capital lease; (4) obligation with respect to interest rate or currency swap or similar hedging agreement, in excess of an aggregate of $10,000,000 outstanding at any one time; or (5) indebtedness pursuant to any refinancing of all or a portion of the Senior Obligations; (vi) make any equity or debt investment in any other entity other than Permitted Investments or create or permit to exist any subsidiary other than Sithe/Independence Funding Corporation; 25 (vii) make any material expansion of or modification to the Project involving (A) an increase in capital cost in an amount greater than $10,000,000 in the aggregate, or (B) any unreimbursed material increase in annual operation and maintenance expenses; PROVIDED that the planned modifications to convert the Project to cycling operations following the date hereof, and the associated capital expenditures (estimated by the Partners as of the date hereof to be approximately $6,000,000) to be made by the Partnership in connection therewith, are hereby approved by the Partners and such expenditures shall not be applied in any manner against the $10,000,000 aggregate threshold in this subsection (vii); (viii) enter into, or suspend, cancel or terminate, or amend, supplement or modify any contract, or engage in any series of transactions, on behalf of the Partnership if (A) such action could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business or properties or prospects of the Partnership or (B) such contract or series of transactions involves annual expenditures by, or annual revenues to, the Partnership in excess of $10,000,000 in the aggregate outstanding at any one time; (ix) subject to Section 12.8, take any action that could reasonably be expected to result in a loss by the Partnership of the Project's status as a Qualifying Facility, or, in the absence of Qualifying Facility status, the Partnership's status as an Exempt Wholesale Generator; (x) commence, terminate, withdraw or settle, or consent to, any claim or lawsuit, or confess any judgment against the Partnership, which could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business, properties or prospects of the Partnership; (xi) make any material press release or communication with the general public relating to the Project, unless the failure to promptly make such release would be a violation of Applicable Law or could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business, properties or prospects of the Partnership; (xii) except as contemplated by Section 12.9 hereof, change the Operator, amend the Operations and Maintenance Agreement in any material respect, or enter into a new operations and maintenance agreement for the Project; or (xiii) except as contemplated by Section 12.9 hereof, change the Administrative Services Provider, amend the Administrative Services Agreement in any material respect, or enter into a new administrative services agreement for the Project. (c) For the purpose of obtaining consent to approve or disapprove of a proposed action under Section 12.4 of this Agreement, the General Partner may, in its notice to the other Partners, require written responses from such Partners within a specified time period (not less than fifteen (15) nor more than thirty (30) days from the date that the receipt of such notice of a 26 proposed action is acknowledged by such Partner pursuant to Section 24.10 hereof) and provide that the failure to respond within such time period shall constitute consent for the proposed action. (d) Notwithstanding anything contained in Section 12.1 or this Section 12.4 to the contrary: (i) all contracts and agreements entered into by the Partnership on or prior to the date of this Agreement, including, without limitation, the Project Documents, shall be deemed to be approved and are hereby ratified by the Partners; (ii) the Partners hereby expressly pre-approve and ratify any action taken or to be taken by the General Partner, without the consent of any other Partner, for the purpose of: (1) seeking to amend the Indenture in order to permit Sithe Energies, Inc. to own, directly or indirectly, less than fifty-one percent (51%) of the Partnership and less than one hundred percent (100%) of the outstanding voting securities of Sithe/Independence, Inc.; (2) converting Sithe/Independence, Inc. from a Delaware corporation to a Delaware limited liability company in accordance with Applicable Laws; (3) creating or permitting to exist any subsidiary established by the Partnership and authorized by the Federal Energy Regulatory Commission to engage in resales of electrical energy and/or capacity at market-based rates; PROVIDED, HOWEVER, that if a subsidiary is so established, any acts, activities, transactions, the entering into of contracts or agreements and events of similar import that are to be taken, or proposed to be taken, by such subsidiary (or any of its subsidiaries) shall be subject to the provisions of Section 12.4(b) as if such subsidiary (or, if applicable, its subsidiary) were the Partnership; and (iii) nothing herein shall prohibit the General Partner from taking any action on behalf of the Partnership in order for the Partnership to perform any obligation under any contracts and agreements to which the Partnership is a party and which have been entered into by the Partnership prior to the date hereof or in compliance with the provisions of Section 12.4, or if such action is required for the Partnership to comply with Applicable Laws. 12.5 DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER. (a) The General Partner shall take all actions which may be necessary or appropriate (i) for the continuation of the Partnership's valid existence as a limited partnership under the laws of the State of Delaware (and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Limited Partners or to enable the Partnership to 27 conduct its Business) and (ii) for the achievement of the Partnership's purposes in accordance with the provisions of this Agreement and Applicable Laws. (b) The General Partner shall be responsible for the safekeeping and use of all of the funds and assets of the Partnership, whether or not in its immediate possession, or control, and shall not employ or permit another to employ such funds or assets in any manner except for the benefit of the Partnership. (c) The General Partner shall devote to the Partnership such time as may be necessary for the proper performance of its duties hereunder. (d) The General Partner shall conduct the affairs of the Partnership in the best interests of the Partnership and of the Partners, including the safekeeping and use of all Partnership funds and assets for the benefit of the Partnership. 12.6 POWER OF ATTORNEY. (a) Each Limited Partner by its execution of this Agreement irrevocably constitutes and appoints the General Partner as such Limited Partner's true and lawful attorney and agent, with full power and authority in such Limited Partner's name, place and stead, to execute, acknowledge, deliver, file and record in the appropriate public offices: (i) all certificates or other instruments (including, without limitation, counterparts of this Agreement) and amendments thereto which the General Partner deems appropriate to qualify or continue the Partnership as a limited partnership (or a partnership in which special partners have limited liability) in the jurisdictions in which the Partnership conducts its Business; (ii) all instruments and amendments thereto which the General Partner deems appropriate to reflect any change or modification of the Partnership or the admission of additional or substituted Partners; (iii) all documents of conveyance and other instruments which the General Partner deems appropriate to evidence and reflect any sales or transfer by or the dissolution and termination of the Partnership; (iv) all consents to transfers of Interests, to the admission of additional or Substituted Limited Partners or to the withdrawal or reduction of any Person's invested capital; in each case to the extent that such actions are authorized by the terms of this Agreement; and (v) the execution of any or all of the documents reasonably necessary to the conduct of the Business of the Partnership. (b) The foregoing grant of authority (i) is a special power of attorney coupled with an interest in favor of the General Partner and as such shall be irrevocable and shall survive the death or insanity (or, in the case of a Limited Partner that is a corporation, association, partnership, joint venture or trust, shall survive the merger, dissolution or other termination of its existence) of a Limited Partner; (ii) may be exercised for a Limited Partner by a facsimile signature of the General Partner or by listing the Limited Partner, executing any instrument with a single signature of the General Partner acting as attorney-in-fact for all of them, and (iii) shall survive the assignment by a Limited Partner of the whole or any portion of its Interest, except that where the assignee of the whole thereof has furnished a power of attorney and has been approved by the General Partner for admission to the Partnership as a Substituted Limited Partner, this special power of attorney shall survive such assignment for the sole purpose of 28 enabling the General Partner to execute, acknowledge and file any instrument necessary to effect such substitution and shall thereafter terminate. 12.7 INDEPENDENT ACTIVITIES. The Limited Partners and their respective Affiliates (other than the General Partner), and any Affiliate of the General Partner, may, notwithstanding the existence of this Agreement, engage in whatever activities they choose, whether the same shall be competitive with the Partnership or otherwise, without having or incurring any obligation to offer or disclose any interest in such activities to the Partnership or any Partner. Neither this Agreement nor any activity undertaken pursuant hereto shall prevent such Persons from engaging in any activity, or require the General Partner to permit the Partnership or any Partner to participate therein, and, as a material part of the consideration for the General Partner's execution hereof and admission of the Limited Partners, each of the Partners hereby waives, relinquishes and renounces any such right or claim of participation in any other venture or activity engaged or participated in by such Person(s), except pursuant to a written agreement signed by the General Partner. It is specifically understood and agreed that Affiliates of the General Partner may organize and participate as general partner in partnerships which may engage in activities substantially identical to the activity engaged in by this Partnership. 12.8 EXEMPT WHOLESALE GENERATOR STATUS. Each of the Partners shall exercise their good faith efforts to cooperate and take such actions as may be reasonably necessary to cause the Partnership to obtain the status of an Exempt Wholesale Generator pursuant to the rules and regulations of the Federal Energy Regulatory Commission; provided that no Partner shall be obligated to take any action to cause the Partnership to obtain Exempt Wholesale Generator status pursuant to this Section 12.8 if, in the reasonable judgment of such Partner, such action could reasonably be expected to cause a material adverse change in the condition (financial or otherwise), results of operations, Business, properties or prospects of the Partnership. 12.9 AMENDED AND RESTATED OPERATIONS AND MAINTENANCE AGREEMENT; RESTRICTIONS ON CHANGE OF CONTROL OF OPERATOR; ADMINISTRATIVE SERVICES AGREEMENT. (a) The General Partner and the Limited Partners acknowledge and agree that the General Partner currently is in negotiations, on behalf of the Partnership, with the Operator to amend and restate the Operations and Maintenance Agreement (such new agreement, the "Second Amended and Restated Operations and Maintenance Agreement"). The General Partner shall use commercially reasonable efforts to promptly conclude the negotiations of such agreement containing terms substantially in accordance with the proposed terms set forth in Exhibit B hereto. If, following the execution and delivery of the Second Amended and Restated Operations and Maintenance Agreement, a "Change of Control" shall have occurred (as such term is described in the proposed terms set forth in Exhibit B, which provisions shall be reflected in the Second Amended and Restated Operations and Maintenance Agreement), the General Partner shall furnish to the Operator a notice that the Partnership desires the Second Amended and Restated Operations and Maintenance Agreement to continue in effect despite the occurrence of such Change of Control if, and only if, directed to do so in writing by Oswego Cogen. The General Partner shall promptly notify Oswego Cogen of the occurrence of any such Change of Control. The Partners acknowledge that the exercise of the Partnership's and the Operator's respective rights and obligations under the Second Amended and Restated Operations and 29 Maintenance Agreement shall be subject to the Indenture, Security Agreement and the consent previously executed by the Operator with the Collateral Agent. (b) The General Partner and the Limited Partners acknowledge and agree that the General Partner currently is in negotiations, on behalf of the Partnership, with Sithe Energies Power Services, Inc. to conclude an agreement (the "Administrative Services Agreement") for the provision by Sithe Energies Power Services, Inc., as the Administrative Services Provider, of certain administrative services to the Partnership. The General Partner shall use commercially reasonable efforts to promptly conclude the negotiations of such agreement containing terms substantially in accordance with the proposed terms set forth in Exhibit C hereto. 12.10 CERTAIN ACTIONS UPON THE OCCURRENCE OF AN EVENT OF LOSS; TECHNICAL DISPUTES. (a) EVENTS OF LOSS. Notwithstanding Section 12.4, the Partners hereby expressly pre-approve any action taken or to be taken by the General Partner for the purpose of making any determination and certification pursuant to Section 6.10(c) of the Indenture following an Event of Loss; PROVIDED, that the execution and delivery of any material contracts or agreements proposed by the General Partner on behalf of the Partnership in connection with the reconstruction or repair of the Project following an Event of Loss shall require the General Partner to demonstrate, subject to confirmation by the Technical Expert if requested by Oswego Cogen as provided in Section 12.10(b) below, that the reconstruction or repair of the Project in accordance with such contracts or agreements is commercially reasonable, taking into account the impact, if any, on the Project's revenues and expenses and general market conditions at such time. (b) TECHNICAL DISPUTES. In the event Oswego Cogen disputes any determination of the General Partner pursuant to Section 12.10(a), such dispute shall be deemed a "Technical Dispute" hereunder and Oswego Cogen shall be entitled to notify the General Partner that it desires to refer such Technical Dispute to a Technical Expert for resolution in accordance with the provisions of Section 12.10(c) and (d). Notwithstanding the foregoing or Section 12.4(b) to the contrary, in the event the Partnership receives Casualty Proceeds (as defined in the Indenture) from any Event of Loss that do not exceed, in the aggregate, $10,000,000, the Partners hereby expressly pre-approve any action taken or to be taken by the General Partner for the purpose of reconstructing, repairing or otherwise restoring any portion of the electric or steam generation facilities at the Project following the occurrence of such Event of Loss and the Technical Dispute provisions of Section 12.10(c) and (d) below shall not be available to Oswego Cogen. (c) DESIGNATION OF TECHNICAL EXPERT. Within ten (10) days following receipt of a notice referring a Technical Dispute to a Technical Expert, the representatives of the General Partner and Oswego Cogen shall confer in an effort to agree upon a Technical Expert to hear the dispute. If such parties are unable to agree upon the appointment of a Technical Expert then, at the end of such ten (10) day period, each party shall, within five (5) days, notify the other party in writing of its designation of three proposed Technical Experts. Each party shall promptly strike two of the proposed Technical Experts designated by the other party. The remaining two proposed Technical Experts shall, within two (2) days, select one of them to hear the dispute; PROVIDED, that if one of the parties still objects to the dispute being heard by such selected 30 Technical Expert, then, within two (2) days, such two proposed Technical Experts shall select a third Technical Expert and such third Technical Expert shall hear the dispute. (d) TECHNICAL DISPUTE PROCEDURES. The Technical Expert shall render a decision resolving the matter within sixty (60) days of the date of his or her selection as the Technical Expert. The decision of the Technical Expert shall be in writing and shall be final and binding upon the parties and not subject to appeal or review. The Partnership shall bear all costs and expenses of the Technical Expert procedure and the Technical Expert shall not have the authority to award costs or attorneys' fees to either party. The Technical Expert shall resolve the Technical Dispute in accordance with the procedures set forth in the Commercial Arbitration Rules of the American Arbitration Association, and such decision may be confirmed and enforced in, and judgment upon the award entered by, any federal or state court having jurisdiction over the parties. 13. INVESTMENT AND OPERATING RESTRICTIONS. 13.1 TRANSFERS OF PROPERTY. The signature of the General Partner shall be sufficient to pass title to any property owned by the Partnership or to execute any promissory notes, trust deeds, mortgages or other instruments of hypothecation, and each of the Limited Partners agrees that a copy of this Agreement, subject to appropriate confidentiality protections, may be shown to the appropriate parties in order to confirm the same, and further agrees that the signature of the General Partner shall be sufficient to execute any documents necessary to effectuate this or any other provision of this Agreement. 13.2 RECEIPT OF FUNDS. If, at any time during the continuance of this Agreement, cash, bills or other securities or evidence of indebtedness arising out of or in any manner connected to this Partnership shall be received by a Limited Partner (except for distributions by the Partnership to a Limited Partner as permitted by this Agreement), the same shall be brought to the attention of the General Partner and shall be deposited promptly in a banking institution or wherever the funds and profits of this Partnership are held or shall be turned over to the General Partner. 14. ADDITIONAL GENERAL PARTNER; REMOVAL OF A GENERAL PARTNER. 14.1 ADDITIONAL GENERAL PARTNER. Persons may be admitted to the Partnership as additional General Partners with the consent of the General Partner and all of the Limited Partners. The addition of one or more General Partners shall not increase the total distributions or allocations to the General Partners as a group. 14.2 REMOVAL OF A GENERAL PARTNER. (a) Any General Partner may be removed as general partner, but not as a Partner, upon a vote of the Limited Partners holding seventy-five percent (75%) of the Interests in the Partnership that are not owned by Affiliates of the General Partner, in the event that, pursuant to a final, non-appealable judgment, it shall have been determined that the General Partner has committed fraud or engaged in willful misconduct in connection with the Business of the Partnership; PROVIDED, HOWEVER, that no removal shall be effective until a replacement general 31 partner is appointed pursuant to Section 14.2(b). Upon such removal, the Interest of the General Partner as removed shall be converted into an Interest as a Limited Partner. (b) Unless the General Partner and the Limited Partners otherwise agree, if the last General Partner is removed as general partner pursuant to Section 14.2(a), a replacement general partner shall be appointed with the written approval of all of the Limited Partners which are not Affiliates of the removed General Partner, such replacement general partner shall be deemed admitted to the Partnership immediately prior to the removal of the predecessor General Partner and such replacement general partner hereby is authorized to and shall continue the Business of the Partnership. Any replacement general partner appointed pursuant to this Section 14.2(b) shall either purchase a one percent (1%) Percentage Interest in the Partnership for the fair market value thereof or be assigned all or part of the Percentage Interest of one or more of the consenting Limited Partners. No General Partner shall be admitted as such pursuant to this Section 14.2(b) if the admission of such General Partner would violate any of the limitations on transfer set forth in Sections 15.3(b) through (e). (c) Any General Partner which is removed as a general partner of the Partnership shall continue to remain liable as a general partner for all debts and obligations of the Partnership incurred prior to or as a result of such removal, but shall not have any liability for any debts and liabilities of the Partnership incurred after such removal. Notwithstanding the foregoing, following the removal of any General Partner, such General Partner shall remain obligated, pursuant to Section 19.2(e) hereof, to restore any negative balance existing in such General Partner's Capital Account upon the liquidation of the Partnership or of such General Partner's interest in the Partnership; PROVIDED, HOWEVER, that such obligation shall not exceed the deficit balance existing on the date of the conversion of such General Partner's Interest as General Partner into an Interest as a Limited Partner. 15. ASSIGNABILITY OF INTERESTS. 15.1 TRANSFER OF LIMITED PARTNERS' INTEREST. Except as provided in this Section 15, the only restrictions on the assignment or hypothecation of the Interests of the Limited Partners shall be that the assignor shall first have obtained the written consent of all of the Partners; PROVIDED, HOWEVER, that such consent shall not be unreasonably withheld, conditioned or delayed. Any Limited Partner, however, shall be entitled, without receiving the consent of the other Partners but subject to the provisions of Sections 15.3 and 15.6, to transfer or hypothecate its Interest, without relieving itself of liability hereunder, (i) as security for any financing, (ii) to any of its Affiliates or (iii) in the case of the Sithe Partners, to Exelon Corporation, a Pennsylvania corporation, or any Affiliates of Exelon Corporation; PROVIDED, HOWEVER, that any such transfer does not have the consequence described in clause (i) of the immediately following sentence. Without limiting the rights of the Partners whose consent is required for a proposed transfer by another Partner of its Interest, it shall not be unreasonable for a Partner to withhold its consent if (i) such transfer would result in a termination of the Partnership for federal income tax purposes pursuant to Code Section 708 or (ii) such transfer is proposed to be made to a Person (or an Affiliate thereof) that is an adverse litigant of the Partnership, of any Partner or of any Affiliate of any Partner in any material litigation. 32 15.2 RIGHT OF FIRST NEGOTIATION. In the event that a Limited Partner (hereafter, the "Selling Partner") desires to make an assignment of all or a portion of its Interest to a Person other than an Affiliate of the Selling Partner, the Selling Partner agrees to first negotiate exclusively for a period of not less than thirty days with the Offeree for the purchase by the Offeree or its designee of such Interest. For purposes hereof, "Offeree" means either (1) Oswego Cogen, in the event the Selling Partner is one of the Sithe Partners, or (2) Sithe Energies, Inc., in the event the Selling Partner is Oswego Cogen. In the event that after such time period an agreement cannot be reached between the Selling Partner and the Offeree, the Selling Partner may proceed to assign its Interest to any other Person, subject to the consent requirements of Section 15.1; PROVIDED, HOWEVER, that in the event the Selling Partner fails to so assign its Interest within six months of the date on which the Selling Partner and the Offeree fail to reach agreement, the Selling Partner may not assign its Interest without once again complying with the provisions of this Section 15.2. No Limited Partner shall transfer its Interest to an Affiliate and then transfer ownership in such Affiliate to another Person to avoid compliance with this Section 15.2. Notwithstanding the foregoing, the right of first negotiation set forth in this Section 15.2 shall not apply (i) to the transfer or assignment of all or a portion of the Interests of Sithe/Independence, Inc., Sithe Energies, Inc., Sithe Energies U.S.A., Inc., Mitex, Inc. or Oswego Cogen to the extent necessary (and only to the extent necessary) to prevent the Partnership from becoming 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), as defined in 18 C.F.R. Section 292.206, including a sale or transfer described in Section 15.4 or (ii) to any proposed transfer by the Sithe Partners of all or a portion of their respective Interests to Exelon Corporation, a Pennsylvania corporation, or any Affiliates of Exelon Corporation. 15.3 LIMITATIONS ON TRANSFER. Notwithstanding any provision of this Section 15 to the contrary, any otherwise permitted transfer shall be deemed void AB INITIO and shall have no force or effect, to the fullest extent permitted by law, if: (a) such transfer would, in the written opinion of a qualified tax advisor or counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for federal or state income tax purposes; (b) such transfer would require the registration of such transferred Interest pursuant to any applicable federal or state securities laws or would subject the Partnership to regulation under the Investment Company Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (c) such transfer would result in a material adverse effect on the Partnership with respect to any Applicable Law, or is proposed to be made to any Person who lacks the legal right, power, or capacity to own such Interest; (d) in the case of a transfer by Oswego Cogen, such transfer is proposed to be made to any Person who is, or whose Affiliate is, an "electric utility company", "electric utility holding company", "public utility company" or "public utility holding company" under PUHCA (other than any such Person that is exempt pursuant to Sections 3(a)(3) or 3(a)(5) of PUHCA); PROVIDED, HOWEVER, that the foregoing transfer limitation shall cease to apply if and to the extent 33 that the Project has ceased to qualify as a Qualifying Facility and the Partnership is not pursuing actions reasonably intended to reestablish Qualifying Facility status for the Project; (e) in the case of a transfer by one of the Sithe Partners, such transfer is proposed to be made to any Person who is, or whose Affiliate is, an "electric utility company", "electric utility holding company", "public utility company" or "public utility holding company" under PUHCA (other than any such Person that is exempt pursuant to Sections 3(a)(3) or 3(a)(5) of PUHCA), if, taking into account the status of the existing Partners in the Partnership (and their Affiliates) such transfer would result in a loss by the Project of its status as a Qualifying Facility; provided, however, that the foregoing transfer limitation shall cease to apply if and to the extent that the Project has ceased to qualify as a Qualifying Facility and the Partnership is not pursuing actions reasonably intended to reestablish Qualifying Facility status for the Project; or (f) such transfer would result in a breach of any material obligation under any material contract or agreement to which the Partnership is a party. 15.4 MANDATORY SALES OR RESTRUCTURING. (a) In the event that the Commission determines, pursuant to an order that has not been stayed, enjoined or set aside, that Enron Corp. is not an exempt holding company under Section 3(a)(3) or Section 3(a)(5) of PUHCA, Oswego Cogen shall take such actions as may be reasonably necessary to avoid the loss by the Partnership of the Project's status as a Qualifying Facility, including, if necessary, the sale or other restructuring of its Interest. Any such sale, transfer or restructuring of the Interest of Oswego Cogen shall be subject to all restrictions on the transfer of its Interest contained in Section 15.3. A sale or transfer by Oswego Cogen of its Interest pursuant to this Section 15.4 shall not require the consent of any Partner unless its proposed transferee is described in subclause (ii) of the last sentence of Section 15.1, in which case prior consent of the other Partners shall be required. Notwithstanding the foregoing, if the sale or transfer of the Interest by Oswego Cogen would result in a termination of the Partnership for purposes of Code Section 708, Oswego Cogen shall hold harmless and pay to each of the other Partners an amount equal to (i) the net present value of any adverse net federal and state income tax consequences it will suffer as a direct result of the termination of the Partnership for tax purposes, including, without limitation, any readjustment to the depreciation periods or methods applicable to the Partnership's depreciable properties, plus (ii) an additional payment necessary to reimburse the Partners for the net federal and state income taxes owed on any payment under the foregoing subclause (i) and this subclause (ii) (such net federal and state income taxes to be conclusively presumed to be imposed at a combined effective tax rate of forty percent (40%) regardless of the actual effective tax rate or tax situation of the Partners or of any Partner); PROVIDED, HOWEVER, that Oswego Cogen shall not be required to pay any amount pursuant to the foregoing subclause (ii) in the event that Oswego Cogen obtains an opinion from a nationally recognized accounting or law firm, selected by Oswego Cogen and consented to by the Partners holding a majority in interest of the Interests of the Partnership (excluding the Interest held by Oswego Cogen), such consent not to be unreasonably withheld, to the effect that the payment by Oswego Cogen of amounts pursuant to subclause (i) should not be treated as taxable income to the Partners. For purposes of this Section 15.4, any net present value 34 calculation shall be determined using a discount rate of ten percent (10%) and an assumed effective combined income tax rate of forty percent (40%). (b) In the event that Oswego Cogen determines, in its reasonable business judgment, that a sale or other restructuring of its Interest pursuant to Section 15.4(a) would be reasonably likely to have a material adverse effect on it, Oswego Cogen may provide written notice thereof to the General Partner, and, if requested by Oswego Cogen, the General Partner shall consider in good faith any reasonable proposals of Oswego Cogen that may eliminate the (i) regulatory or contractual requirements for the Project to continue to qualify as a Qualifying Facility and (ii) the requirement hereunder for Oswego Cogen to sell or otherwise restructure its Interest; PROVIDED, HOWEVER, that the General Partner shall not be required to take any action that would not be in compliance with the Indenture; and PROVIDED, FURTHER, that if any such proposed action would not be in compliance with the Indenture, the General Partner agrees, upon the reasonable written request of Oswego Cogen, to cooperate in good faith with Oswego Cogen in seeking on behalf of the Partnership and Sithe Funding a waiver or modification to the Indenture if the General Partner reasonably determines that such proposed action would not have an adverse effect on the business, financial condition, properties or prospects of the Partnership. In making such determination, the General Partner shall consider, among other things, (x) any financial support or contributions to be provided or made by Oswego Cogen to or for the benefit of the Partnership and/or any of the other Partners in connection with or resulting from any change in the status of the Project and the Partnership proposed by Oswego Cogen pursuant to this Section 15.4(b) and (y) letters from each of Standard & Poor's Ratings Corporation, a Division of the McGraw-Hill Companies, Moody's Investors Service, Inc. and Fitch, Inc., or the rating agencies then rating the Bonds, obtained by Oswego Cogen (or, if reasonably requested by Oswego Cogen, by the Partnership or Sithe Funding, at the expense of Oswego Cogen), stating that the rating of the Bonds (as defined in the Indenture) will not be reduced as a result of any change in the status of the Project and the Partnership proposed by Oswego Cogen pursuant to this Section 15.4(b) (collectively, the "Ratings Confirmation Letters"). For the avoidance of doubt, the General Partner shall have no obligation to consider any proposed action of, or cooperate with, Oswego Cogen pursuant to this Section 15.4(b) in the event that Oswego Cogen fails to obtain, or cause to be obtained, the Ratings Confirmation Letters and provide copies thereof to the General Partner. The costs and expenses of seeking any waiver or modification to the Indenture for the purposes of this Section 15.4(b) shall be borne solely by Oswego Cogen, and Oswego Cogen hereby agrees to indemnify and hold harmless the Partnership and each of the other Partners for any costs or expenses incurred by the Partnership or such Partner, as the case may be, in furtherance of the foregoing. 15.5 CERTAIN SALES BY THE SITHE PARTNERS. In the event that a sale or transfer of a portion of any of the Interests held by the Sithe Partners is necessary to avoid the loss by the Partnership of the Project's status as a Qualifying Facility as a result of the exercise by Exelon, or any successor or assignee thereof, of any right to acquire an additional ownership interest in Sithe Energies, any such sale or transfer shall be subject to all of the restrictions on the transfer of Interests contained in Section 15.3. A sale or transfer by any of the Sithe Partners pursuant to this Section 15.5 shall not require the consent of any Partner (but only to the extent of the portion of such sale that is necessary to avoid the loss by the Partnership of the Project's status as a Qualifying Facility), unless its proposed transferee is described in subclause (ii) of the last 35 sentence of Section 15.1, in which case prior consent of the other Partners shall be required. Notwithstanding the foregoing, if the sale or transfer of the Interest by the selling Sithe Partner(s) would result in a termination of the Partnership for purposes of Code Section 708, the selling Sithe Partner(s) shall hold harmless and pay to each of the other Partners an amount equal to (i) the net present value of any adverse net federal and state income tax consequences it will suffer as a direct result of the termination of the Partnership for tax purposes, including, without limitation, any readjustment to the depreciation periods or methods applicable to the Partnership's depreciable properties, plus (ii) an additional payment necessary to reimburse the Partners for the net federal and state income taxes owed on any payment under the foregoing subclause (i) and this subclause (ii) (such net federal and state income taxes to be conclusively presumed to be imposed at a combined effective tax rate of forty percent (40%) regardless of the actual effective tax rate or tax situation of the Partners or of any Partner); PROVIDED, HOWEVER, that the selling Sithe Partner(s) shall not be required to pay any amount pursuant to the foregoing subclause (ii) in the event that such selling Sithe Partner(s) obtains an opinion from a nationally recognized accounting or law firm, selected by such selling Sithe Partner(s) and consented to by Oswego Cogen, such consent not to be unreasonably withheld, to the effect that the payment by such selling Sithe Partner(s) of amounts pursuant to subclause (i) should not be treated as taxable income to the Partners. For purposes of this Section 15.5, any net present value calculation shall be determined using a discount rate of ten percent (10%) and an assumed effective combined income tax rate of forty percent (40%). 15.6 EXPENSES. No transfer described in Sections 15 shall be effective unless the transferor or transferee pays to the Partnership all direct out-of-pocket costs reasonably incurred by the Partnership as a result of such transfer and indemnifies the Partnership (in a manner which is reasonably satisfactory to the General Partner) for any such costs that may be reasonably incurred by the Partnership thereafter as a result of such transfer. 16. RESERVED. 17. SUBSTITUTED LIMITED PARTNER. 17.1 CONDITIONS. No assignee of the whole or any portion of the Interest of any Person who is not a General Partner shall have the right to become a Substituted Limited Partner in place of his assignor, unless all of the following conditions are satisfied: (a) a written instrument of assignment, fully executed and acknowledged by the assignor, has been filed with the Partnership setting forth the intention of the assignor that the assignee become a Substituted Limited Partner in its place; (b) the assignor and assignee have executed and acknowledged such other instruments as the General Partner may deem necessary or desirable to effect such admission, including the written acceptance and adoption by the assignee of the provisions of this Agreement; and (c) the General Partner has consented in writing to the substitution, which consent will not be unreasonably withheld. The General Partner acknowledges that it has consented to 36 the substitution of Oswego Cogen for Cogeneration National Corporation as a Substituted Limited Partner. 17.2 EFFECT OF ASSIGNMENT WITHOUT SUBSTITUTION. In the case of assignments where the assignee does not become a Substituted Limited Partner, the Partnership shall recognize the assignment not later than the last day of the calendar month following receipt of notice of assignment and required documentation for the limited purposes of allocating Profits and Losses and making distributions pursuant to the terms of this Agreement. 17.3 DISCRETION OF GENERAL PARTNER. The General Partner may elect to treat an assignee which has not become a Substituted Limited Partner as a Substituted Limited Partner in the place of its assignor should it deem, in its reasonable judgment, that such treatment is in the best interest of the Partnership for any of its purposes or for any of the purposes of this Agreement. 17.4 CONSENT NOT REQUIRED. No consent of the Limited Partners is required to effect the substitution of a Limited Partner, except that a Limited Partner assigning its Interest must evidence its intention that its assignee be admitted as a Substituted Limited Partner in its place and execute any instruments required in connection therewith. 17.5 AMENDMENT OF CERTIFICATE. The General Partner will amend the Certificate of Limited Partnership if, as and when required to reflect the substitution of the Limited Partner. 17.6 MISCELLANEOUS. Upon the bankruptcy or insolvency of a Limited Partner or upon the dissolution or other cessation of a non-individual Limited Partner's existence as a legal entity, the authorized representative of such entity shall have all the rights of the Limited Partner for the purpose of effecting the orderly winding up and dissolution of the business of such entity, and shall have such power as such entity possessed to constitute a successor as an assignee of its Interest in the Partnership and to join, if necessary, with such assignee in making application to substitute such assignee as the Limited Partner. 18. WITHDRAWAL. The General Partner shall not withdraw from the Partnership without the express written consent of all of the Partners. The withdrawal of any Limited Partner shall not cause a dissolution of the Partnership, and the Business shall continue without interruption. In the event of the withdrawal, for any reason, of the General Partner, the Partnership shall dissolve, unless the Business is continued by any remaining General Partner. In the event of the withdrawal of the last remaining General Partner, the Partnership shall dissolve, unless within 90 days after the occurrence of such withdrawal, each of the Partners not Affiliated with such General Partner agree in writing to continue the Business of the Partnership and to the appointment, effective as of the date of withdrawal of the last General Partner, of one or more additional General Partners, who are hereby authorized to and shall continue the Business of the Partnership. 19. DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP. 19.1 EVENTS CAUSING DISSOLUTION. The Partnership shall terminate upon the happening of any of the following events: 37 (a) the removal or withdrawal of the General Partner, except as provided in Sections 14 and 18 hereof; (b) the sale or other disposition of all or substantially all of the assets of the Partnership; (c) the election by the General Partner and the approval of each of the Limited Partners to dissolve the Partnership; or (d) the entry of a decree of judicial dissolution of the Partnership. Dissolution of the Partnership shall be effective on the day on which the event occurs giving rise to the dissolution, but the Partnership shall not terminate until the Partnership's Certificate of Limited Partnership shall have been cancelled, and the assets of the Partnership shall have been distributed as provided in Section 19.2(d) hereof. Notwithstanding the dissolution of the Partnership, prior to the termination of the Partnership, as aforesaid, the Business of the Partnership shall continue to be governed by this Agreement. 19.2 LIQUIDATION. (a) Upon dissolution of the Partnership, the General Partner, or, if none, a Person approved in accordance with Applicable Laws by the Limited Partners (a "Liquidating Trustee"), shall liquidate the assets of the Partnership, apply and distribute the proceeds thereof as contemplated by this Agreement and cause the cancellation of the Partnership's Certificate of Limited Partnership. (b) Notwithstanding the foregoing, in the event that the General Partner or the Liquidating Trustee, as the case may be, shall determine that an immediate sale of part or all of the Partnership assets would cause undue loss to the Partners, the General Partner or the Liquidating Trustee, as the case may be, in order to avoid such loss, may, after having given notice to all the Partners, to the extent not then prohibited by Applicable Laws, either defer liquidation of and withhold from distribution for a reasonable time any assets of the Partnership except those necessary to satisfy the Partnership's then current debts and obligations, or distribute the assets in kind. (c) If any assets of the Partnership are to be distributed in kind, such assets shall be distributed on the basis of the fair market value thereof, and any Person entitled to any interest in such assets shall receive such interest therein as a tenant-in-common with all other Persons so entitled. The fair market value of such assets shall be determined by an independent appraiser to be selected by the General Partner or the Liquidating Trustee, as the case may be. (d) The proceeds from the liquidation of the assets of the Partnership shall be distributed, after all allocations of Profit or Loss have been made in accordance with Section 11 hereof, in the following order: (i) First, to pay the expenses of liquidation of, and the claims and obligations of the Partnership, including any obligations under the Project Documents, 38 other than the debts or obligations owing to the Partners whether matured or contingent, or to establish reasonable reserves therefor, all in accordance with Applicable Laws; (ii) Second, to such debts or obligations as are owing to the Partners; (iii) Third, to Oswego Cogen, in an amount equal to the lesser of (i) the balance of its Special Distributions Account and (ii) its positive Capital Account balance; (iv) Fourth, to the Partners in proportion to, and up to the amounts of, their respective positive Capital Account balances (determined after reducing the balance of Oswego Cogen to take into account any distribution made pursuant to the provisions of Section 19.2(d)(iii) hereof); and (v) Fifth, to the Partners in proportion to their Percentage Interests. (e) In the event that any current or former General Partner's Capital Account is negative upon liquidation of the Partnership (or of the General Partner's interest in the Partnership), and after giving effect to all contributions (including any amount considered contributed by such General Partner to the Partnership under Section 1.704-1(b)(2)(iv)(c) of the Regulations), distributions and allocations for all taxable years, including the taxable year during which the final liquidating distribution occurs, such General Partner shall contribute to the capital of the Partnership the amount necessary to restore its Capital Account to zero (or, if applicable, the amount determined pursuant to Section 14.2(c) hereof), and the amount so contributed shall be treated as additional proceeds from the liquidation of the assets of the Partnership and shall be distributed in accordance with and pursuant to Section 19.2(d) hereof. The General Partner shall make such contribution by no later than the end of the taxable year during which such liquidation occurs (or, if later, within 90 days after the date of such liquidation). This Section 19.2(e) is intended to impose an unconditional obligation on the General Partner to restore any deficit balance in its Capital Account in accordance with the requirements of Section 1.704-1(b)(2)(ii)(b)(3) of the Regulations, and it shall be interpreted and applied accordingly. (f) The General Partner may, upon the liquidation of the Partnership or of the General Partner's Interest, expressly assume any liability of the Partnership. Any such assumption of liability by the General Partner is intended to be treated as an assumption of such liability for purposes of Section 1.704-1(b)(2)(iv)(c) of the Regulations, and this Section 19.2(f) shall be interpreted and applied accordingly. 20. BOOKS AND RECORDS; REPORTS; OTHER INFORMATION. 20.1 BOOKS AND RECORDS. The Partnership shall keep adequate books and records at its principal place of business or at such other location selected by the General Partner, setting forth a true and accurate account of all business transactions arising out of and in connection with the conduct of the Business of the Partnership. Subject to Applicable Laws, any Partner or its designated representative shall have the right, at any reasonable time, to have access to and inspect the contents of such books and records. The books shall be kept pursuant to the method of accounting selected by the General Partner. The General Partner may, upon recommendation 39 of the Partnership's independent certified public accountants, change the accounting method pursuant to which the books are kept. 20.2 ANNUAL REPORTS. Within one hundred and twenty (120) days after the end of each tax year, each Partner shall be furnished with an annual report containing (i) a balance sheet of the Partnership as of the end of the tax year and statements of income, Partners' equity, and changes in financial position of the Partnership and a cash flow statement of the Partnership, for the year then ended, all of which, except the cash flow statement, shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an opinion of an independent certified public accountant; (ii) a report of the activities of the Partnership during the period covered by the report; (iii) if applicable, a statement of fees paid by the Partnership to the General Partner and Affiliates thereof; and (iv) where projections have previously been provided to the Partners, a table comparing the projections previously provided with the actual results during the period covered by the report. Such report shall set forth distributions to Persons owning Interests for the period covered thereby and shall separately identify distributions from (i) Available Cash during the period, (ii) Available Cash during a prior period which has been held as Reserves, (iii) proceeds from disposition of properties, and (iv) Reserves from the gross proceeds originally obtained from the Partners. 20.3 REPORTS TO PROJECT LENDERS. The General Partner shall deliver or cause to be delivered to Oswego Cogen a copy of each report, notice or piece of correspondence required by Section 6.1 of the Indenture, at the same time as such reports are (or if no bonds remain outstanding under the Indenture, at the time such reports would have been) required to be delivered to the Trustee under the Indenture or any agent acting on such Person's behalf. 20.4 ANNUAL BUDGET. The General Partner shall (i) provide each Limited Partner with a copy of the annual Budget not later than five (5) days following the General Partner's receipt of same from the Operator, (ii) at least thirty (30) days prior to the first day of the second half of each Annual Period, provide each Limited Partner with a semi-annual Budget for the next following six month period, and (iii) reasonably consider such comments as such Limited Partner may provide to the General Partner in the process of the General Partner's approval or rejection of any Budget as contemplated in the Operations and Maintenance Agreement. Each annual and semi-annual Budget shall, among other information, set out the amount and expected timing of all material expenses, including, without limitation, the amount to be expended for and the expected timing of capital expenditures, scheduled maintenance and other material non-operating expense categories. If and to the extent that the amount or expected timing of all material expenses, including, without limitation, the amount to be expended for and the expected timing of capital expenditures, scheduled maintenance and other material non-operating expense categories is materially revised, the General Partner shall promptly provide each Limited Partner with the revised schedule of such items. 20.5 TAX INFORMATION. Necessary tax information (including Schedule K-1) shall be delivered by the General Partner to the Partners as soon as practicable after the end of each tax year of the Partnership, taking into account the due dates of the tax returns of the Partners, and the Partners shall, upon request of the General Partner, provide such information as may reasonably be requested to permit the Partnership to comply with all Applicable Laws. 40 21. AMENDMENTS. 21.1 ADDITIONAL PARTNERS. Each Substituted Limited Partner, additional General Partner and successor General Partner shall become a party hereto by signing such number of counterpart signature pages to this Agreement and such other instrument or instruments, as the General Partner shall determine, or in such other manner permissible by law. Each Substituted Limited Partner, additional General Partner or successor General Partner, as the case may be, shall be deemed to have adopted, and to have agreed to be bound by, all the provisions of this Agreement, as amended from time to time in accordance with the provisions of this Agreement. 21.2 AMENDMENTS WITH CONSENT OF LIMITED PARTNERS. This Agreement may be amended from time to time by the General Partner with the consent of the Partners holding at least sixty-six and two-thirds percent (66 2/3%) of the Interests; PROVIDED, HOWEVER, that no amendment to Sections 10.1, 10.2, 19.2(e), 19.2(f) or 20.4 shall be effective without the consent of all of the Partners; and PROVIDED, FURTHER, that without the consent of the Limited Partners to be adversely affected by any such amendment, this Agreement may not be amended to (i) convert a Limited Partner's Interest into a General Partner's Interest; (ii) modify the limited liability of a Limited Partner; (iii) alter the interest of a Limited Partner in Profits or Losses or in distributions; or (iv) alter the fees or other compensation payable to a Limited Partner. For the purpose of obtaining a written vote to approve or disapprove of a proposed amendment under this Section 21.2 of this Agreement, the General Partner may require written responses within a specified time period (not less than fifteen (15) nor more than sixty (60) days from the date of any notice of a proposed amendment) and provide that the failure to respond within such time period shall, at the General Partner's designation, constitute a favorable or unfavorable vote for the proposed amendment. 21.3 EXECUTION OF AMENDMENTS. If this Agreement shall be amended as a result of substituting a Limited Partner, such amendment to this Agreement shall be signed, at a minimum, by the General Partner and by the Person to be substituted. If this Agreement shall be amended to reflect the designation of an additional General Partner, or the cessation of the General Partner as the General Partner and the continuation of the Business of the Partnership, such amendment shall be signed by such additional General Partner and by the remaining or successor General Partner or General Partners. 21.4 RECORDING OF AMENDMENTS. In making any amendments to this Agreement, the General Partner shall prepare and file for recording such documents and certificates as are required to be prepared and filed pursuant to the Act and under the laws of any other jurisdiction in which the Partnership owns property or is required to file any such documents or certificates, not less frequently than once each calendar quarter. 22. LIABILITY OF THE GENERAL PARTNER. 22.1 IN GENERAL. Except as expressly provided in this Agreement, neither the General Partner nor its Affiliates and their respective officers, directors, employees and agents shall be liable to the Partnership or any Persons who have acquired any interests in the Partnership, whether as Limited Partners or otherwise, or any other Persons, for losses sustained or liabilities 41 incurred as a result of any act or omission of the General Partner or such Person, if the General Partner or such Person acted in good faith and in a manner it reasonably believed to be in, or not opposed to, the best interests of the Partnership. The duties and liabilities of the General Partner to the Partnership or to any other Partner shall be only as specifically provided in this Agreement, and no Partner shall have any liability to the Partnership or any other Partner for any act or omission taken or done in good faith reliance on the provisions of this Agreement. 22.2 AGENTS OF THE GENERAL PARTNER. The General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or through its agents, and the General Partner shall not be responsible for any act or omission on the part of any such agent appointed by the General Partner in good faith and in a manner it reasonably believed to be in, or not opposed to, the best interests of the Partnership. 23. INDEMNIFICATION OF GENERAL PARTNER. 23.1 IN GENERAL. To the fullest extent permitted by law, the Partnership, its receiver or its trustee, shall indemnify, hold harmless and pay in full all judgments and claims against or liabilities of the General Partner incurred by reason of any act performed or omitted to be performed or alleged to have been performed or omitted to be performed by or in connection with the Business of the Partnership, including attorneys' fees incurred by the General Partner in connection with the defense of any action or threatened action based on any act or omission, which attorneys' fees shall be paid as incurred, including, except as specifically provided in Section 23.3 hereof, all such liabilities under federal and state securities laws (including the United States Securities Act of 1933, as amended) as permitted by law. 23.2 AGAINST CLAIMS BY LIMITED PARTNER. In the event of any action by a Limited Partner or Partners against any General Partner, including a Partnership derivative suit, the Partnership shall indemnify, hold harmless and pay in full all expenses of such General Partner, including attorneys' fees, incurred in the defense of such action, if (i) such General Partner is successful in the defense of such action, or (ii) in the opinion of the Partnership's counsel, the matter has been settled by controlling precedent, or (iii) if the matter has not been settled by controlling precedent, the issue will be submitted to a court of competent jurisdiction as to whether such indemnification by the Partnership is against public policy, and all parties will be governed by the final adjudication of such court of such issue. 23.3 EXCEPTIONS. Notwithstanding the provisions of Sections 23.1 and 23.2 hereof, a General Partner shall not be indemnified from any liability for fraud, bad faith, willful misconduct or gross negligence. 24. MISCELLANEOUS. 24.1 AGREEMENTS IN COUNTERPARTS. This Agreement may be executed in several counterparts or with multiple signature pages, and as executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the original or to the same counterpart. 42 24.2 SURVIVAL OF RIGHTS. Except as herein otherwise provided, this Agreement shall be binding upon and inure to the benefit of each of the parties signatory hereto, its personal representatives, heirs, successors and assigns. 24.3 SECTION HEADINGS. The section headings are intended for convenience only, and in no way define, limit, extend or interpret the scope of this Agreement or of any particular section or paragraph hereof. 24.4 ADDITIONAL DOCUMENTS. Each party hereto agrees to execute by acknowledgment or affidavit, if required, any and all documents and writings which may be necessary or expedient in the creation or continuation of this Partnership and the achievement of its purposes, including the Certificate of Limited Partnership and all amendments thereto, as well as any cancellation thereof. Without limiting the generality of the foregoing, the Partners agree to use reasonable efforts to cooperate with any application of the Partnership for Exempt Wholesale Generator status unless such status could be reasonably expected to have a material adverse effect on the Partnership. 24.5 WAIVER OF PARTITION. Each of the parties hereto irrevocably waives, during the term of the Partnership, any right that it may have to maintain any action for partition with respect to the properties of the Partnership. 24.6 VALIDITY. In the event that any provision of this Agreement shall be held to be invalid, the same shall not affect in any respect whatsoever the validity of the remainder of this Agreement. 24.7 INTERPRETATION. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural and vice versa. Any reference to any gender shall be deemed to include all other genders unless the context otherwise requires. 24.8 GOVERNING LAW. It is the intention of the parties that the laws of the State of Delaware govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 24.9 LIMITATION ON DAMAGES. No Partner shall be entitled to any treble, special, incidental, punitive, exemplary or consequential damages of any nature, each Partner hereby waiving its right, if any, to recover such damages. 24.10 NOTICES. All notices or other communications hereunder shall be in writing and may be sent by (a) facsimile, or (b) registered, certified or regular United States mail, first-class, postage prepaid, in either case as follows: (i) if to the General Partner: 43 Sithe/Independence, Inc. c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (ii) if to Sithe Energies U.S.A., Inc.: Sithe Energies U.S.A., Inc. c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (iii) if to Sithe Energies, Inc: Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (iv) if to Mitex, Inc.: Mitex, Inc. c/o Sithe Energies, Inc. 335 Madison Avenue New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 (v) if to Oswego Cogen: Oswego Cogen Company, LLC 1400 Smith Street Houston, TX 77002 Attention: Sheila Tweed Facsimile: (713) 646-3490 44 with a copy to: Enron Corp. 1400 Smith Street Houston, TX 77002 Attention: Donna Lowry Facsimile: (713) 646-4039 The date of transmission as recorded on a valid confirmation in the case of notice described in subsection (a) above, and the date of registry thereof or the date of the certified receipt therefor in the case of registered or certified mail described in subsection (b) above, shall be deemed the date of receipt of notice; PROVIDED that any notice delivered pursuant to Section 12.4(c) shall not be deemed to have been received until the intended recipient thereof shall acknowledge receipt in writing to the party providing such notice. From time to time any Partner may designate a new address for itself for purpose of notice hereunder by written notice to each of the other Partners duly given as provided herein. 45 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered by its duly authorized officer as of the day and year first above written. GENERAL PARTNER: SITHE/INDEPENDENCE, INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer LIMITED PARTNER: SITHE ENERGIES U.S.A., INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer LIMITED PARTNER: SITHE ENERGIES, INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer LIMITED PARTNER: MITEX, INC. By: /s/ Sandra J. Manilla -------------------------------------- Name: Sandra J. Manilla Title: Treasurer LIMITED PARTNER: OSWEGO COGEN COMPANY, LLC By: /s/ Jeffrey M. Donahue -------------------------------------- Name: Jeffrey M. Donahue Title: President and Chief Operating Officer 46 EXHIBIT A PERCENTAGE INTERESTS AND ESTIMATED AND PROJECTED CAPITAL ACCOUNT BALANCES
Percentage Estimated and Projected Capital Account Partner Interest Balance (As of June 30, 2001)** ------- --------- ----------------------------- Sithe/Independence, Inc. 1% -420,800,000 Sithe Energies U.S.A., Inc. 44% -33,600,000 Sithe Energies, Inc. 5% -1,600,000 Mitex, Inc. 10% -7,600,000 Oswego Cogen Company, LLC* 40% -12,700,000
*As indirect successor in interest of a 40% Interest formerly held by Sithe Energies, Inc. **Estimated and projected balances; final balances will vary. A-1 Exhibit B SUMMARY OF PROPOSED TERMS AND CONDITIONS OF THE SECOND AMENDED AND RESTATED OPERATIONS AND MAINTENANCE AGREEMENT BETWEEN SITHE/INDEPENDENCE POWER PARTNERS, L.P. AND SITHE ENERGIES POWER SERVICES, INC. Owner: Sithe/Independence Power Partners, L.P. Operator: Sithe Energies Power Services, Inc. Facility: Approximately 1,032 megawatt gas-fired electrical and steam generating plant and associated materials, structures and systems located in the Town of Scriba, County of Oswego, New York (the "Project"). Term: Until December 31, 2014. Services: Operator shall provide all services necessary to properly operate and maintain the Project (including without limitation all appurtenant facilities, hot water distribution piping, access roads and utility connections) in good operating condition and in compliance with, inter alia, (i) the Project Documents and all insurance policies relating to the Project, (ii) the procedures established in the operation and maintenance manuals, (iii) Prudent Engineering and Operating Practices (as defined in the Indenture), or, to the extent more stringent, standards set forth in the Project Documents, including the performance of all routine and scheduled maintenance of the Project, (iv) vendor and manufacturer requirements or conditions, as applicable, (v) the O&M Procedures established by Operator and approved by Owner and (vi) any and all environmental permits, operating permits, franchise agreements, and other governmental approvals, licenses or permits necessary for the operation of the Project. Operator shall also (1) carry out any and all activities necessary to respond appropriately to and mitigate situations of emergency that involve the safety of persons or the security of property or that interfere with the normal operation of the Project; (2) operate and maintain the Project in a manner designed to maintain the status of the Project as a qualifying cogeneration facility or a qualifying small power production facility as defined in the Federal Power Act, as amended, Section 3 (16 U.S.C. Section 796) and Part 292 of the B-1 rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 292) (a "Qualifying Facility"); PROVIDED, that if the Project is no longer required by the Project Documents to be a Qualifying Facility, if instructed to do so by Owner, Operator shall operate and maintain the Project in a manner designed to maintain the status of the Project as an "Exempt Wholesale Generator" as defined under PUHCA, Section 32 of the Public Utility Holding Company Act of 1935, as amended, (15 U.S.C. Section 79z-5a) and Part 365 of the rules and regulations of the Federal Energy Regulatory Commission (18 C.F.R. Part 365); (3) provide any and all technical and engineering support reasonably required for operation and maintenance of the Project; and (4) recommend to Owner any necessary or advisable improvements, modifications or alterations to the Project. Personnel: Operator shall employ qualified personnel to provide the services for the operation of the Project, including a site manager. Operator may engage any independent contractors reasonably necessary for making scheduled or unscheduled repairs to or performing maintenance on the Project in the event that Operator is not available or is otherwise unable to make or perform such repairs or maintenance. Restrictions on Authority: Operator shall not, without Owner's prior written consent: (1) sell, lease, pledge, mortgage, convey, license, exchange, or dispose of any property or assets of Owner, including, but not limited to, any property or assets acquired by Owner, except that Operator may dispose of minor items that are incidental to the operation and maintenance of the Project such as worn-out parts, used consumables, or other sundry items which are no longer of value (including, without limitation, scrap value) to the operation or maintenance of the Project; PROVIDED, HOWEVER, that any such disposition is not prohibited under any Project Document; and PROVIDED, FURTHER, that the proceeds of any such disposition shall be for the account of Owner; (2) make, enter into, execute, amend, modify, or supplement any Project Document or other contract or agreement on behalf, or in the name of, Owner; (3) engage in any other transaction on behalf of Owner in contravention of this Agreement or any Project Document; (4) amend, terminate, waive any obligation of, or extend the term of, or agree to amend, terminate, waive any obligation of, or extend the term of, any Project Document on behalf of Owner or take or agree to take any other action in material variance with any Project Document; or (5) settle, compromise, assign, pledge, transfer, release, or consent to do the same, any claim, suit, debt, demand, or judgment B-2 involving or in any way affecting Owner or the Project, the cost of which would be an expense to Owner under any Project Document, would affect the revenues of the Project, would be covered by any Project insurance policy or would otherwise become a liability of Owner. Restrictions on Expenditures: Operator shall be authorized to make such expenditures and incur such expenses on behalf of Owner as are approved by Owner in the annual Budget for the Project. In addition, Operator may incur expenses on behalf of Owner for purposes of maintenance and repairs up to [$1,000,000] per incident (if covered by Owner's insurance) or [$250,000] per incident (if not covered by Owner's insurance). Notwithstanding the foregoing, in the event of an imminent risk of personal injury, significant property or environmental damage, or significant interruption to the business of Owner (an "Emergency"), Operator is authorized to incur any necessary costs and expenses without Owner's prior approval in responding to or mitigating any damage, loss or injury threatened by such Emergency, subject to reasonable limitations customary in the electricity generation industry (to be included in the agreement). Operator shall notify Owner as soon as practicable under the circumstances of the occurrence of any Emergency and any resulting costs and expenses incurred or proposed to be incurred in connection with such Emergency. Advances for Operator Expenses: Operator shall notify Owner by the 20th calendar day of each month of the anticipated cash requirements for the next following month necessary for Operator to perform its services under this Agreement. Operator shall promptly notify Owner of the need, if any, to make advances of the estimated operating expenses. Operator shall submit to Owner by the 20th day of each calendar month a statement and reasonably detailed breakdown of actual costs for the preceding month. Reimbursement of Operator Costs: Owner shall reimburse Operator for reasonable direct and indirect costs associated with the services rendered by Operator pursuant to this Agreement, including costs of meals, lodging and travel, and telecommunications; indirect costs such as a reasonable allocation of Operator's general, administrative and overhead costs; reasonable fees and costs of attorneys, accountants or other third-party advisors incurred by Operator in carrying out its duties and B-3 obligations under this Agreement; and reasonable costs of all subcontractors hired by Operator in performance of services. Operator Fee: $500,000 per year, payable monthly in twelve installments (escalated annually by factor of 1.05 from November 1994) (the "Operator Fee"). Limitation of Liability: The total aggregate liability of Operator to Owner under this Agreement during any calendar year during the term (or portion thereof if the Agreement is not in effect for a full calendar year) for any liabilities of Operator to Owner arising hereunder during such year shall not exceed an amount equal to the Operator Fee paid or payable to Operator in such year; PROVIDED, HOWEVER, that such limitations on liability shall not apply with respect to any loss, damage or liability resulting from or arising out of the fraud, gross negligence or willful misconduct of Operator, its respective agents, employees, directors, officers, delegates or subcontractors. In no event shall either party be liable to the other by way of indemnity or by reason of any breach of contract or of statutory duty or by reason of tort (including negligence or strict liability) or otherwise for any loss of profits, loss of revenue, loss of use, loss of production, loss of contracts or for any incidental, indirect, special or consequential damages of any other kind or nature whatsoever that may be suffered by the other. Termination by Owner: Owner shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Operator or (2) if Operator fails to perform any of its material obligations under this Agreement and such failure continues for thirty (30) days after Operator's receipt of written notice from Owner or Collateral Agent regarding such failure; PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Operator has demonstrated to Owner's reasonable satisfaction that such failure is capable of being cured and that Operator has undertaken diligent efforts to effect a cure, such period shall be extended for so long as Operator is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. Termination by Operator: Operator shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Owner or (2) if Owner fails to perform any of its material obligations under this Agreement and such failure continues for thirty (30) days after Owner's receipt of written notice from Operator or Collateral B-4 Agent regarding such failure; PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Owner has demonstrated to Operator's reasonable satisfaction that such failure is capable of being cured and that Owner has undertaken diligent efforts to effect a cure, such period shall be extended for so long as Owner is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. Special Termination Right of Owner and Operator upon a Change of Control: BY OWNER: In the event that, at any time, Sithe Energies, Inc. shall cease to own, directly or indirectly, at least 50% of the voting securities of Operator or at least a 40% percent interest in the Partnership (each, a "Change of Control"), then this Agreement shall automatically terminate on the date that is ninety (90) days after the occurrence of such Change of Control, unless Owner shall have furnished to Operator a written notice specifying that Owner desires the Agreement to continue in full force and effect notwithstanding such Change of Control. BY OPERATOR: In the event that Owner furnishes notice to Operator that it elects to continue the Agreement in full force and effect notwithstanding a Change of Control, then notwithstanding such continuation notice, Operator shall have the right, upon furnishing to Owner written notice, to terminate the Agreement, effective upon the earlier of (i) the expiration of sixty (60) days following the receipt by Owner of a notice of termination from Operator or (ii) such earlier date as may be agreed to by Operator and Owner. Any termination of this Agreement resulting from a Change of Control shall be without liability on the part of either Owner or Operator to the other as a result thereof. Each of Owner and Operator agrees to (a) promptly notify the other of the occurrence of a Change of Control affecting such person, respectively, and (b) use commercially reasonable efforts to effect an orderly transition to a new operator in the event of any termination of the Agreement. The Agreement shall contain an acknowledgement by the Parties that the exercise of their respective rights and obligations under the Agreement shall be subject to the Indenture, Security Agreement and consent previously executed by Operator with the Collateral Agent. Dispute Resolution: New York law; submission to non-exclusive jurisdiction of New York courts. B-5 Indemnification: Standard; mutual. Force Majeure: Standard. B-6 Exhibit C SUMMARY OF PROPOSED TERMS AND CONDITIONS OF THE ADMINISTRATIVE SERVICES AGREEMENT BETWEEN SITHE/INDEPENDENCE POWER PARTNERS, L.P. AND SITHE ENERGIES POWER SERVICES, INC. Owner: Sithe/Independence Power Partners, L.P. Administrative Service Provider: Sithe Energies Power Services, Inc. Term: Until December 31, 2014. Services: Administrative Service Provider shall provide services relating to (1) contract (i.e. Project Documents) management and administration, accounting, financial and tax services, which shall include bookkeeping, preparation, review and analysis of the financial results of Owner, (2) preparation and revision of Project budgets (including an annual budget of the Administrative Service Provider for approval by Owner), (3) maintenance of control procedures for the Project budgets, (4) preparation and review of all income and non-income tax filings of Owner and coordination of all tax planning for Owner, (5) cash management and treasury services, (6) maintenance of an inventory identification system, (7) all bookkeeping and record keeping matters, including payroll and personnel records, journal and ledger entries and preparation of monthly, quarterly and annual financial statements, (8) procurement services which shall include advice on sourcing of products and assistance in obtaining favorable terms of purchase/credit, and (9) consulting services which shall include advice on engagement by Owner of specialized consultants; PROVIDED, that, to the extent that such consultants are engaged to perform work for, or on behalf of, Owner, such consultants' fees shall be borne by the Trust directly. Personnel: All personnel shall be suitably qualified, trained, experienced and competent. Restrictions on Authority: Administrative Service Provider shall not, without Owner's prior written consent: (a) settle, compromise, assign, pledge, transfer, release, or consent to do the same, any claim, suit, debt, demand, or judgment involving or in any way affecting Owner or the Project, C-1 the cost of which would be an expense to Owner under any Project Document, would affect the revenues of the Project, would be covered by any Project insurance policy or would otherwise become a liability of Owner; (b) amend, modify or terminate any Project Document; (c) enter into any contract on behalf of Administrative Service Provider or Owner; (d) enter into agreements with any bank, finance or lending institution in relation to the Project; (e) make any sale, transfer, disposition or grant or purport to grant any lien or encumbrance on any property owned by Owner in relation to the Project; (f) resolve or decide any other matters deemed to be outside the ordinary course of business of Administrative Service Provider as would be determined pursuant to standards of a reasonable prudent service provider; (g) issue a consent, opinion or approval that is subject to lender consent under the Project Documents; or (h) accept service of process on behalf of Owner or the Trustee in connection with any legal proceeding, whether arising under the Project Documents or otherwise. Reimbursement of Administrative Service Provider Direct Costs: Unless otherwise paid for by Sithe Energies Power Services, Inc., Owner shall reimburse Administrative Service Provider for the following: (i) all costs reasonably incurred by Administrative Service Provider in connection with the performance of services by Administrative Service Provider personnel, including all recruitment costs, salaries, wages, payroll taxes (including social security and labor housing charges and all taxes related to personnel seconded to Administrative Service Provider), overtime pay, shift differentials, fringe benefits, pensions, holiday pay, vacation pay, bonuses, termination payments, relocation expenses, travel, training and other similar costs of Administrative Service Provider personnel; PROVIDED, that such labor costs are related to Administrative Service Provider's performance under this Agreement, (ii) reasonable costs of attorneys, accountants, and other third-party advisors directly required for the performance by Administrative Service Provider of its obligations hereunder, (iii) reasonable costs incurred by Administrative Service Provider in connection with insurance maintained by Administrative Service Provider in connection with its obligations hereunder, (iv) overhead costs allocated to any direct labor costs incurred in connection with the performance of the Services, (v) reasonable costs incurred in connection with financial controls, data processing, management, administration and other similar services required for the performance by Administrative Service Provider of its obligations hereunder, and (vi) other reasonable and similar C-2 out-of-pocket expenses directly associated with Administrative Service Provider's obligations hereunder (collectively, "Administrative Service Provider Direct Costs"); PROVIDED, HOWEVER, that Owner shall not reimburse Administrative Service Provider for any income taxes directly related to the income, including the Administrative Fee, of Administrative Service Provider. For purposes of "(iv)" above, overhead costs shall be conclusively presumed to equal 30% of the direct labor costs incurred in connection with the performance of the Services. Limitation of Liability: The total aggregate liability of Administrative Service Provider to Owner under this Agreement during any calendar year during the term (or portion thereof if the Agreement is not in effect for a full calendar year) for any liabilities of Administrative Service Provider arising hereunder during any given year shall not exceed one hundred thousand dollars ($100,000.00); PROVIDED, HOWEVER, that such limitations on liability shall not apply with respect to any loss, damage or liability resulting from or arising out of the fraud, gross negligence or willful misconduct of Administrative Service Provider, its respective agents, employees, directors, officers, delegates or subcontractors. In no event shall either party be liable to the other by way of indemnity or by reason of any breach of contract or of statutory duty or by reason of tort (including negligence or strict liability) or otherwise for any loss of profits, loss of revenue, loss of use, loss of production, loss of contracts or for any incidental, indirect, special or consequential damages of any other kind or nature whatsoever that may be suffered by the other. Termination by Owner: Owner shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Administrative Service Provider or (2) if Administrative Service Provider fails to perform any of its material obligations under this Agreement and such failure continues for a period greater than thirty (30) days after Administrative Service Provider's receipt of written notice from Owner or Collateral Agent regarding such failure, PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Administrative Service Provider has demonstrated to Owner's reasonable satisfaction that such failure is capable of being cured and that Administrative Service Provider has undertaken diligent effort to effect a cure, such period shall be extended for so long as Administrative Service Provider is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. C-3 Termination by Administrative Service Provider: Administrative Service Provider shall be entitled to terminate this Agreement (1) upon the dissolution, bankruptcy, or insolvency of Owner or (2) if Owner fails to perform any of its material obligations under this Agreement and such failure continues for a period greater than thirty (30) days after Owner's receipt of written notice from Administrative Service Provider or Collateral Agent regarding such failure, PROVIDED, that if such failure is not capable of being cured within such thirty (30) day period, and Owner has demonstrated to Administrative Service Provider's reasonable satisfaction that such failure is capable of being cured and that Owner has undertaken diligent effort to effect a cure, such period shall be extended for so long as Owner is diligently pursuing such efforts, but not to exceed an additional thirty (30) days. Cross-Termination: The Administrative Services Agreement shall automatically terminate upon termination of the Second Amended and Restated Operations and Maintenance Agreement. The Agreement shall contain an acknowledgement by the Parties that the exercise of their respective rights and obligations under the Agreement shall be subject to the Indenture and the Security Agreement and the parties shall enter into a consent with the Collateral Agent under the Security Agreement similar in form and substance to the consent previously executed by Operator in connection with the Amended and Restated Operations and Maintenance Agreement dated as of August 25, 1992. Dispute Resolution: New York law; submission to non-exclusive jurisdiction of New York courts. Indemnification: Standard; mutual. Force Majeure: Standard. C-4 EX-10.3(15) 5 a2056240zex-10_315.txt EXHIBIT 10.3.15 EXHIBIT 10.3.15 ***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE INDICATED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.*** TOLLING AGREEMENT BETWEEN SITHE/INDEPENDENCE POWER PARTNERS, L.P. AND DYNEGY POWER MARKETING, INC. JULY 1, 2001 *** CONFIDENTIAL TREATMENT REQUESTED *** TABLE OF CONTENTS PAGE ---- ARTICLE I - DEFINITIONS.....................................................1 1.01 Format...........................................................1 1.02 Definitions......................................................2 ARTICLE II - TERM...........................................................11 2.01 Term.............................................................11 ARTICLE III - PRODUCTS......................................................11 3.01 Tolling Services.................................................11 3.02 Ancillary Services...............................................12 3.03 Exclusive Nature of Agreement....................................12 ARTICLE IV - PAYMENTS.......................................................13 4.01 Fixed Tolling Services Payment...................................13 4.02 Fixed Ancillary Services Payment.................................13 4.03 Contract Administration Charge...................................13 4.04 Variable Tolling Services Payment................................13 4.05 Variable O&M Payment.............................................13 4.06 Escalation.......................................................14 4.07 Replacement Energy...............................................14 4.08 Avoided Costs....................................................15 ARTICLE V - FACILITY OPERATIONS AND SCHEDULING..............................15 5.01 Start-ups........................................................15 5.02 Scheduling and Operating Procedures and Authorized Representatives..................................................17 5.03 Shutdown.........................................................17 5.04 Technical Inspection.............................................18 5.05 Reserved Capability..............................................18 5.06 Installed Capacity Testing.......................................21 5.07 Good Electrical Practices........................................21 5.08 Operating Committee..............................................21 5.08 Operating Committee..............................................21 5.07 Good Electrical Practices........................................22 ARTICLE VI - GUARANTEED HEAT RATE...........................................22 6.01 Guaranteed Heat Rate.............................................22 6.02 Heat Rate........................................................22 6.03 Payment..........................................................23 *** CONFIDENTIAL TREATMENT REQUESTED *** i 6.04 Exclusive Nature Of Compensation.................................23 ARTICLE VII - GUARANTEED EQUIVALENT AVAILABILITY............................23 7.01 Calculation of Guaranteed Tolling Capability.....................23 7.02 Exclusive Nature Of Compensation.................................26 ARTICLE VIII - GAS SUPPLY...................................................26 8.01 Purchaser's Gas Delivery Obligations.............................26 8.02 Gas Cost Responsibility..........................................26 8.03 Transportation Obligations.......................................27 8.04 Additional Transportation Obligations............................28 8.05 Pipeline Imbalance Charges.......................................28 8.06 Scheduling Responsibility........................................28 8.07 Effect Of Delivery; Indemnity....................................29 8.08 Transporter's Specifications.....................................29 8.09 Gas Supply Obligations...........................................29 ARTICLE IX - OUTAGES........................................................29 9.01 Scheduled Outages................................................29 9.02 Forced Outages...................................................30 ARTICLE X - NYISO AND REGULATORY REQUIREMENTS...............................31 10.01 Nyiso Bidding....................................................31 10.02 Purchaser Requirements...........................................33 10.03 Niagara Mohawk Power Purchase Agreement..........................34 10.04 Amendment........................................................34 10.03 Niagara Mohawk Power Purchase Agreement..........................35 ARTICLE XI - METERING.......................................................35 11.01 Power............................................................35 11.02 Gas..............................................................35 11.03 Industry Standards...............................................36 11.04 Access...........................................................36 11.05 Calibration......................................................37 11.06 Records..........................................................37 11.07 Upgraded Metering................................................37 ARTICLE XII - BILLING AND PAYMENT...........................................37 12.01 Billing..........................................................37 12.02 Payment..........................................................38 12.03 Audit............................................................38 12.04 Nyiso Reimbursement..............................................38 12.05 Offset...........................................................39 *** CONFIDENTIAL TREATMENT REQUESTED *** ii ARTICLE XIII - ELECTRIC TRANSMISSION ARRANGEMENTS...........................39 13.01 Electric Transmission Arrangements...............................39 ARTICLE XIV - COSTS.........................................................39 14.01 Cost Responsibility..............................................39 ARTICLE XV - ADDITIONAL AGREEMENTS..........................................40 15.01 Insurance........................................................40 ARTICLE XVI - REPRESENTATIONS...............................................42 16.01 Independence's Representations...................................42 16.02 Purchaser's Representations......................................43 ARTICLE XVII - CONDITIONS...................................................44 17.01 Conditions Precedent.............................................44 ARTICLE XVIII - DEFAULT AND REMEDIES........................................44 18.01 Events of Default................................................44 18.02 Notice Of Default; Cure..........................................45 18.03 Remedies.........................................................46 ARTICLE XIX - LIMITATION OF LIABILITY.......................................46 19.01 Limitation of Liability..........................................46 19.02 Duty to Mitigate.................................................47 ARTICLE XX - INDEMNIFICATION................................................47 20.01 Independence's Indemnification...................................47 20.02 Purchaser's Indemnification......................................48 20.03 Indemnification Procedures.......................................48 20.04 Survival.........................................................48 ARTICLE XXI - ASSIGNMENT AND SUCCESSION.....................................49 21.01 Assignment.......................................................49 ARTICLE XXII - FORCE MAJEURE................................................49 22.01 Force Majeure....................................................49 ARTICLE XXIII - TAXES.......................................................51 23.01 Taxes - Power....................................................51 23.02 Taxes - Gas......................................................51 23.03 Cooperation......................................................52 ARTICLE XXVI - MISCELLANEOUS................................................52 24.01 Governing Law....................................................52 *** CONFIDENTIAL TREATMENT REQUESTED *** iii 24.02 Submission To Jurisdiction.......................................52 24.03 Headings.........................................................53 24.04 Waiver...........................................................53 24.05 Severability.....................................................53 24.06 Entire Agreement.................................................53 24.07 Notices..........................................................54 24.08 Confidentiality..................................................55 24.09 Counterparts.....................................................57 24.10 No Offset........................................................57 24.11 Other Activities.................................................57 EXHIBIT 3.01(A).............................................................59 EXHIBIT 3.01(B).............................................................59 EXHIBIT 5.01................................................................60 EXHIBIT 5.02(A).............................................................61 EXHIBIT 5.02(B).............................................................72 EXHIBIT 5.03................................................................78 EXHIBIT 6.01................................................................79 EXHIBIT 17.01(A)............................................................81 EXHIBIT 17.01(B)............................................................88 *** CONFIDENTIAL TREATMENT REQUESTED *** iv TOLLING AGREEMENT TOLLING AGREEMENT ("Agreement") dated as of July 1, 2001 between Sithe/Independence Power Partners, L.P. (a Delaware limited partnership) ("Independence"), and Dynegy Power Marketing, Inc., a Texas corporation ("Purchaser"); (each of Independence and Purchaser referred to herein individually, as a "Party," and collectively, as the "Parties"), WITNESSETH: WHEREAS, Independence owns a natural gas fired electric generating plant of approximately 1,032 MW net capacity located in the Town of Scriba, New York (the "Facility"); WHEREAS, pursuant to an Amended and Restated Energy Purchase Agreement dated as of September 1, 2000 (as amended, the "ConEd Agreement"), Independence has agreed to provide 740 MW of Installed Capacity (as defined in Section 1.02) under the NYISO Services Tariff (as defined in Section 1.02) (but not the associated energy which may be generated with such capacity) to Consolidated Edison Company of New York, Inc. ("ConEd"); WHEREAS, pursuant to an Interconnection Agreement dated as of March 9, 1992 (as amended, the "Niagara Mohawk Interconnection Agreement"), Independence and the Niagara Mohawk Power Corporation ("Niagara Mohawk") have agreed upon the terms for the interconnection of the Facility with the Niagara Mohawk electric transmission system; and WHEREAS, Purchaser desires to utilize the Facility for the processing of natural gas into electric energy and to purchase Ancillary Services; NOW THEREFORE, in consideration of the mutual promises and agreements contained herein, Independence and Purchaser, intending to be legally bound, agree as follows: ARTICLE I - DEFINITIONS 1.01 FORMAT (a) References to Articles and Sections herein are cross-references to Articles and Sections, respectively, in this Agreement, unless otherwise stated. (b) All Schedules that are attached to this Agreement are incorporated by reference as if fully set forth herein. *** CONFIDENTIAL TREATMENT REQUESTED *** (c) All references to quantities of Gas are references on an HHV basis unless otherwise stated. 1.02 DEFINITIONS In addition to the terms defined elsewhere in this Agreement, when used with initial capitalization, whether singular or plural, the following terms shall have the meanings set forth below. All references in this Agreement to any governmental or non-governmental entity, including, without limitation, NYISO and FERC, shall include any and all successors to such entities. Unless the context otherwise requires, any reference herein to any contract, agreement or tariff and any schedule, attachment or exhibit thereto shall mean such contract, agreement, tariff, schedule, attachment or exhibit as amended, supplemented and modified and in effect from time to time. (1) "Affiliate" means, with respect to any entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such entity. For this purpose, "control" means the direct or indirect ownership of fifty percent (50%) or more of the outstanding capital stock or other equity interests having ordinary voting power. (2) "Ancillary Services" means Voltage Support Service, 10-Minute Spinning Reserve Service and 30-Minute Spinning Reserve Service, all as defined in the NYISO Open Access Transmission Tariff and the NYISO Services Tariff, each as in effect as of the date hereof. (3) "As Available Energy" has the meaning set forth in Section 5.05(d). (4) "As Available Period" has the meaning set forth in Section 5.05(d). (5) "Authorized Representatives" has the meaning set forth in Section 5.02. (6) "Available Tolling Capability" has the meaning set forth in Exhibit 5.02(A). (7) "Available Tolling Capability Notice" has the meaning set forth in Exhibit 5.02(A). (8) "Avoided Variable O&M Services Payment" has the meaning set forth in Section 4.08. (9) "Avoided Variable Tolling Services Payment" has the meaning set forth in Section 4.08. (10) "Btu" means British thermal unit, which is the quantity of thermal energy necessary to increase the temperature of one pound of pure water by one *** CONFIDENTIAL TREATMENT REQUESTED *** 2 degree Fahrenheit from 59 degrees Fahrenheit to 60 degrees Fahrenheit at a constant pressure of 14.73 pounds per square inch absolute. (11) "Business Day" means any Day on which Federal Reserve member banks in New York, New York are open for business. (12) "Capacity" means the capability to generate electrical power, measured in MW. (13) "Capacity Resource" has the meaning set forth in the NYISO Services Tariff. (14) "Cold Start" means each Start-up of a combustion turbine/generator set after its breaker has been open for at least 48 hours. (15) "Contract Term" has the meaning set forth in Section 2.01. (16) "Contract Tolling Capability" means the amount set forth in Exhibit 3.01(A). (17) "Contract Tolling Capability Average" means the sum of the amounts set forth opposite the twelve months in Exhibit 3.01(A), divided by 12. (18) "Contract Year" means each twelve Month (or shorter) period during the Contract Term beginning on the Effective Date or, for subsequent years, the first Day of January, and ending the following December 31, or, for the final Contract Year, ending on November 14, 2014. (19) "Day" has the meaning set forth in the NYISO Requirements. (20) "Day-Ahead Market" or "DAM" has the meaning set forth in Section 10.01. (21) "Eastern Prevailing Time" means local time in New York, New York. (22) "Effective Date" has the meaning set forth in Section 2.01. (23) "Electric Delivery Point" means the point of interconnection of the Facility and the Niagara Mohawk transmission system within the Independence switchyard owned by Niagara Mohawk and located adjacent to the Facility at the motor-operated switches commonly referred to as Switch Number 273 and Switch Number 283. (24) "Electric Metering Equipment" means electric meters and associated equipment, including, without limitation, metering transformers and meters for measuring kWh, amperes and voltage, utilized in determining the amount of Net Electric Energy delivered or provided by Independence at the Electric Delivery Point. The Electric Metering Equipment shall include the Niagara Mohawk meters and Independence's back-up meters utilized to measure *** CONFIDENTIAL TREATMENT REQUESTED *** 3 deliveries of Energy to Alcan Aluminum Corporation ("Alcan"), use of Energy at the Facility and deliveries of Energy to the NYISO system. (25) "Empire" means Empire State Pipeline. (26) "Empire Gas Transportation Contract" means the Empire Firm Transportation Agreement dated October 4, 1993 between Empire, Empire State Pipeline Company ("ESPC"), St. Clair Pipeline Company, Inc. ("SCPC") and Independence as it incorporates the terms of the Supplemental Agreement dated February 28, 1992 among Independence, Empire, SCPC and ESPC. (27) "Energy" means electricity (measured in kWh or MWh, as the case may be). (28) "Energy Management Agreement" means the Energy Management Agreement dated as of July 1, 2001 by and among the Parties and Dynegy Marketing and Trade. (29) "Event of Default" has the meaning set forth in Section 18.01. (30) "FERC" means the Federal Energy Regulatory Commission. (31) "Fixed Tolling Services Charge" means $[***]/kW-month for the period July 1, 2001 through June 30, 2002, escalating each July 1 thereafter at a rate of [***]% per annum. (32) "Fixed Tolling Services Payment" has the meaning set forth in Section 4.01. (33) "Force Majeure" has the meaning set forth in Article XXII. (34) "Forced Outage" has the meaning set forth in Section 9.02. (35) "Gas" means natural gas, including gas-well gas, casinghead gas and/or residue gas resulting from processing both casinghead gas and gas-well gas, and shall include liquefied natural gas and synthetic gas in a vaporized state, in each case meeting or exceeding the minimum quality specifications under the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Transportation Contract (and related Niagara Mohawk Gas tariffs). (36) "Gas Delivery Point" means (a) with respect to Gas delivered pursuant to Section 8.01(a), the Gas Facility Point, and (b) with respect to Gas delivered pursuant to Section 8.01(b), (i) during periods when Independence has all required regulatory authorizations under this Agreement and the Gas Supply Agreement from (A) United States Governmental Authorities to import and (B) their Canadian counterparts to export, Gas from Canada to the United *** CONFIDENTIAL TREATMENT REQUESTED *** 4 States, the Canadian side of the point of interconnection between the system of TransCanada Pipelines Limited and the Empire system located near Chippawa, New York, and (ii) during periods when Independence does not have all such regulatory authorizations from United States Governmental Authorities and their Canadian counterparts, the Gas Facility Point. (37) "Gas Facility Point" means the outlet flange of the Gas Metering Equipment at the interconnection between the Facility and Line 63 of Niagara Mohawk. (38) "Gas Index Price" for each day means the midpoint of the common range for [***] as reported in the "Daily Gas Survey" for that Day in Gas Daily (published by Financial Times Energy) (with respect to weekdays for the flow date, and with respect to weekend days and holidays for the flow date immediately following such weekend day or holiday). If such information is no longer published, the Parties shall mutually agree on an appropriate replacement index. If, at any time, the Parties mutually agree that the specified index no longer provides a reasonable proxy, the Parties shall mutually agree on an appropriate replacement index. (39) "Gas Metering Equipment" means Gas meters and associated equipment specified in the Empire Gas Transportation Contract (and related Empire Gas tariffs) and in the Niagara Mohawk Gas Transportation Contract (and related Niagara Mohawk Gas tariffs), utilized in determining the amount of Gas consumed by the Facility. (40) "Gas Supply Agreement" means the Gas Supply Agreement dated as of July 1, 2001 between Independence and Dynegy Marketing and Trade. (41) "GDP-IPD" means the Gross Domestic Product Implicit Price Deflator published in the National Income and Product Account by the U.S. Department of Commerce. (42) "Good Electrical Practices" means those practices, methods and acts engaged in or approved by a significant portion of the independent electric power generation industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time a decision is made, could have been expected to accomplish a desired result at reasonable cost consistent with good business practices, reliability, safety and expedition. Good Electrical Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of others, but rather to those practices, methods and acts generally accepted or approved by a significant portion of the power industry in the relevant region, during the relevant time period, as described in the immediately preceding sentence. *** CONFIDENTIAL TREATMENT REQUESTED *** 5 (43) "Governmental Authority" shall mean any federal, state, local or municipal governmental body; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority, jurisdiction or power; any court or governmental tribunal; or any applicable independent system operator, regional transmission organization, regional power pool, reliability council or other regional entity performing similar functions. (44) "Guaranteed Heat Rate" has the meaning set forth in Section 6.01. (45) "Guaranteed Heat Rate Gas Differential" has the meaning set forth in Section 6.02. (46) "Heat Rate" means the thermal quantity of Gas needed to generate one kilowatt hour of Energy delivered to the Electric Delivery Point, including Gas used to generate Energy consumed by the station electrical load, expressed in Btu per kWh on a HHV basis. (47) "Higher Heating Value" or "HHV" means the total heat content, expressed in Btu per cubic foot (Btu/ft3), produced by the complete combustion of 1 cubic foot of natural gas at a temperature of 60 degrees Fahrenheit with the natural gas free of water vapor and at a pressure of 14.73 pounds per square inch absolute with the products of combustion to be cooled to the initial temperature of the natural gas and the water formed by the combustion reaction condensed to the liquid state. (48) "Hot Start" means each Start-up of a combustion turbine/generator set after its breaker has been open for no more than 8 hours. (49) "Hour-Ahead Market" or "HAM" has the meaning set forth in Section 10.01. (50) "Installed Capacity" has the meaning set forth in Section 10.01. (51) "Interest Rate" means, for each Day, a rate per annum equal to the prime rate reported in The Wall Street Journal's "Money Rates" column (or any similar column published in The Wall Street Journal in replacement thereof) for the immediately preceding Business Day plus 2%. In the event The Wall Street Journal ceases to report the prime rate, the prime rate for purposes of this Agreement shall be the prevailing prime rate (or base rate) charged by major banks in the United States of America. (52) "kW" means kilowatt. (53) "kWh" means kilowatt-hour. *** CONFIDENTIAL TREATMENT REQUESTED *** 6 (54) "Law" means any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination by a Governmental Authority. (55) "Load Serving Entity" has the meaning set forth in Section 10.01. (56) "Market Price" means, for each hour during a particular period, the hourly day-ahead price (in dollars per MWh and as published by the NYISO on the last day of the Month that includes the applicable period on the NYISO's official web site currently located at: http://www.nyiso.com/oasis/index.html, or any successor thereto, under the headings "Day Ahead Market LBMP Generator; SITHE_INDEPEND") for electricity during the applicable hour; provided that, in the event that such hourly day-ahead prices are no longer published by the NYISO, the Parties shall agree upon an appropriate replacement price. (57) "Minimum Generation Dispatch" has the meaning set forth in Exhibit 5.02(A). (58) "Minimum Output Capability" has the meaning set forth in Exhibit 5.02(B). (59) "Minimum Output Requirement" has the meaning set forth in Exhibit 5.02(A). (60) "MMBtu" means one million Btu. (61) "Month" means calendar month. (62) "Monthly Gas Index Price" means the average, for each Month, of the Gas Index Price for each day of such Month that Gas is delivered by Purchaser for Tolling Services or Ancillary Services. At such time that the Gas Metering Equipment is able to record the daily quantities of Gas delivered to the Gas Facility Point, the Monthly Gas Index Price shall be calculated, for each Month, as a weighted average of the Gas Index Price for each day that Gas is delivered by Purchaser for Tolling Services or Ancillary Services, weighted by Gas delivered to the Gas Facility Point in such day for such services. (63) "MW" means megawatt. (64) "MWh" means megawatt-hour (one MWh equals 1,000 kWh). (65) "NERC" means the North American Electric Reliability Council or the North American Electric Reliability Organization. (66) "Net Electric Energy" means, for any period, the total Energy output of the Facility during such period minus the sum of (a) Energy consumed at the *** CONFIDENTIAL TREATMENT REQUESTED *** 7 Facility during such period plus (b) Energy associated with the use of the Reserved Capability during such period. (67) "New York Control Area" has the meaning set forth in Section 10.01. (68) "Niagara Mohawk Gas Transportation Contract" means the Niagara Mohawk Firm Transportation Agreement dated March 11, 1992 between Niagara Mohawk and Independence. (69) "Niagara Mohawk Power Purchase Agreement" means the Power Purchase Agreement dated July 24, 1992 between Niagara Mohawk and Independence. (70) "NYISO" means the New York Independent System Operator, Inc. (71) "NYISO Bid" means a bid, Schedule or request to operate submitted to the NYISO related to the generation of Energy or Ancillary Services from the Facility. (72) "NYISO Directed Operation" means, for any period, the operation of all or a portion of the Facility at the direction of the NYISO during such period, including the operation of the Facility in response to an NYISO Bid accepted by the NYISO or the operation of the Facility at the direction of a Transmission Provider pursuant to NYISO Requirements. (73) "NYISO Open Access Transmission Tariff" means the ISO Open Access Transmission Tariff filed with FERC by the NYISO. (74) "NYISO Operating Agreement" means the amended and restated Operating Agreement of the NYISO filed with FERC by the NYISO. (75) "NYISO Requirements" means the then applicable and valid obligations, rules and regulations as defined and set forth in the NYISO Operating Agreement, the NYISO Services Tariff, the NYISO Open Access Transmission Tariff and/or similar agreements, policies and guidelines. (76) "NYISO Services Tariff" means the NYISO Market Administration and Control Area Services Tariff filed with FERC by the NYISO. (77) "Operating Committee" has the meaning set forth in Section 5.08. (78) "Outage" means a Scheduled Outage, a Forced Outage or an event or circumstance constituting Force Majeure that prevents operation of all or part of the Facility. (79) "Person" means any individual, corporation, partnership, trust, estate, limited liability company, governmental agency or authority or other entity. *** CONFIDENTIAL TREATMENT REQUESTED *** 8 (80) "Protective Apparatus" means such equipment and apparatus, including, but not limited to, protective relays, circuit breakers and the like, necessary or appropriate to isolate the Facility from the electrical system to which it is connected consistent with Good Electrical Practices and any requirements of any Transmission Provider. (81) "Regular Business Hours" means 9:00 a.m. through 5:00 p.m. Eastern Prevailing Time on Business Days. (82) "Replacement Energy" means, for any period, the quantity of Energy sourced by Independence or its designee from any source other than the Facility, delivered under this Agreement to the Electric Delivery Point during such period, or if a Substitute Delivery Point is accepted by Purchaser, to the agreed upon Substitute Delivery Point. (83) "Replacement Capacity" has the meaning set forth in Section 10.01(c). (84) "Reserved Capability" means the sum of (a) the Reserved Tolling Capability plus (b) the Reserved Independence Capability. (85) "Reserved Independence Capability" means, for any period, 44 MW plus the excess (if any) of (a) the actual capability of the Facility to provide Tolling Services (less 44 MW of such capability) minus (b) the sum of (i) the Contract Tolling Capability plus (ii) the Reserved Tolling Capability. (86) "Reserved Tolling Capability" means the amount set forth in Exhibit 3.01(B). (87) "Reserved Tolling Capability Start-up" means, with respect to each combustion turbine/generator set, the action of bringing such combustion turbine/generator set from a non-operating mode to the level of output in combined cycle mode resulting in output associated with the Reserved Tolling Capability when Independence is operating the Reserved Tolling Capability for purposes of effectuating a physical hedge against its financial obligations associated with the Market Price. (88) "Residual Installed Capacity Agreement" means any agreement entered into by Independence from time to time for the sale of Installed Capacity from the Facility (other than the ConEd Agreement). (89) "Schedule" or "Scheduling" or "Scheduled" means communicating and confirming that a particular amount of Gas or Energy and/or Ancillary Services is to be delivered or received and providing all information as may be necessary to cause such delivery or receipt to occur. *** CONFIDENTIAL TREATMENT REQUESTED *** 9 (90) "Scheduled Outage" means any outage or unavailability, for a designated period, of all or a portion of the Contract Tolling Capability, of which Purchaser is notified in advance pursuant to Section 9.01. (91) "Scheduling and Operating Procedures" has the meaning set forth in Section 5.02. (92) "Shutdown" means, with respect to each combustion turbine/generator set, the reduction in output to zero necessary as a result of NYISO Directed Operation following the provision of Tolling Services or Ancillary Services. (93) "Shutdown Gas" has the meaning set forth in Section 5.03. (94) "Start-up Limit" means, for a designated one year or 365 Day period, [***] Start-ups minus the number of Reserved Tolling Capability Start-ups during such period. (95) "Start-up" means, with respect to each combustion turbine/generator set, the action of bringing such combustion turbine/generator set from a non-operating mode to the level of output in combined cycle mode resulting in the provision of Tolling Services or Ancillary Services. (96) "Start-up Gas" has the meaning set forth in Section 5.01. (97) "Substitute Delivery Point" means any point other than the Electric Delivery Point at which Independence or its designee may deliver Energy to Purchaser provided that such point shall be subject to the mutual agreement of the Parties. (98) "Taxes" means any and all ad valorem, property, occupation, severance, generation, first use, conversion, Btu or Energy, transmission, utility, gross receipts, privilege, sales, use, consumption, excise, lease, transaction and other taxes, governmental charges, surcharges, licenses, fees, permits and assessments or increases therein, and any interest or penalties on such taxes, charges, licenses, fees, permits and assessments, other than taxes based on net income or net worth. (99) "Tolling Services" means the process whereby Purchaser delivers Gas to the Facility at the Gas Facility Point, the Gas is converted into Energy at the Facility and the converted Gas is redelivered to Purchaser as Energy at the Electric Delivery Point. (100) "Transmission Providers" means the entity or entities transmitting Energy or Ancillary Services on behalf of Purchaser from the Electric Delivery Point. *** CONFIDENTIAL TREATMENT REQUESTED *** 10 (101) "Transporter" means any Person that transports Gas provided under this Agreement upstream of the Gas Facility Point. (102) "Variable O&M Services Payment" has the meaning set forth in Section 4.05. (103) "Variable Tolling Services Charge" means $[***] per MWh, as adjusted pursuant to Section 4.06. (104) "Variable Tolling Services Payment" has the meaning set forth in Section 4.04. (105) "Warm Start" means each Start-up of a combustion turbine/generator set after its breaker has been open for more than 8 but for less than 48 hours. (106) "Week" means calendar week. ARTICLE II - TERM 2.01 TERM This Agreement shall commence on the later of (a) the date on which all conditions specified in Article XVII are satisfied or waived or (b) July 1, 2001 ("Effective Date") and shall remain in effect through November 14, 2014 ("Contract Term"); provided, however, that Independence may terminate this Agreement in its sole discretion at any time prior to 12:01 A.M. on July 1, 2001 by providing notice of termination to Purchaser. This Agreement shall terminate automatically at the end of the Contract Term and neither Independence nor Purchaser shall have any further liability or obligation to the other hereunder, except for obligations or duties that accrued prior to such termination and for obligations that expressly survive termination of this Agreement. ARTICLE III - PRODUCTS 3.01 TOLLING SERVICES Subject to and in accordance with the terms and conditions of this Agreement, during the Contract Term, Independence shall perform for Purchaser, and Purchaser shall purchase and pay for, Tolling Services. Purchaser shall be entitled to Tolling Services associated with the Contract Tolling Capability. From time to time, if and to the extent the Facility would otherwise be subject to NYISO Directed Operations, Independence shall have the right, subject to the restrictions below, to deliver (or to cause a third party to deliver) Replacement Energy in amounts up to the amounts of Energy subject to NYISO Directed Operations for *** CONFIDENTIAL TREATMENT REQUESTED *** 11 each hour, so long as such Replacement Energy otherwise satisfies the requirements of this Agreement. Notwithstanding the foregoing, Independence may only elect to provide Replacement Energy during periods where the Facility would otherwise be subject to NYISO Directed Operations, Purchaser has requested the delivery of Energy under this Agreement and the Facility is during such period experiencing an Outage. 3.02 ANCILLARY SERVICES Subject to and in accordance with the terms and conditions of this Agreement, during the Contract Term, Purchaser shall be entitled to all Ancillary Services from the Facility; provided, however, that Independence shall have no obligation to deliver, and Purchaser shall have no right to receive, Ancillary Services to the extent that the provision of such services could have an adverse effect on Independence's ability to use, operate or maintain all or any portion of the Reserved Capability. 3.03 EXCLUSIVE NATURE OF AGREEMENT; PRIORITY The relationship between Purchaser and Independence with respect to the Tolling Services and the Ancillary Services as described in Sections 3.01 and 3.02 during the Contract Term is exclusive. As long as Purchaser is not in default of this Agreement, unless and except to the extent required by Law or NYISO Requirements, Independence shall provide Purchaser exclusive access to the Tolling Services with respect to the Contract Tolling Capability and Ancillary Services in accordance with Section 3.02, and Independence shall not offer, sell or make available any Ancillary Services provided under Section 3.02 or perform Tolling Services with respect to the Contract Tolling Capability during the Contract Term for any person other than Purchaser; provided, however, that Independence may offer, sell, make available or otherwise market the Facility, its Energy and Ancillary Services and Tolling Services for sale after the end of the Contract Term. Purchaser acknowledges that, subject to Section 10.01(c), Independence has sold or may from time to time sell the Installed Capacity of the Facility to third parties and that Purchaser is not entitled to claim any of the Installed Capacity from the Facility under this Agreement. Notwithstanding any other provision of this Agreement, but subject to the requirements of Article VII, Purchaser and Independence acknowledge and agree that at any time when the actual capability of the Facility is less than the sum of (a) the Contract Tolling Capability plus (b) the Reserved Tolling Capability plus (c) 44 MW, Independence shall have the first priority to use the actual capability of the Facility in an amount up to the sum of (a) 44 MW plus (b) the Reserved Tolling Capability, and Purchaser shall have the second priority to use the lesser of (A) the excess (if any) of the actual capability of the Facility minus the sum of (a) 44 MW plus (b) the Reserved Tolling Capability, and (B) the Contract Tolling Capability. *** CONFIDENTIAL TREATMENT REQUESTED *** 12 ARTICLE IV - PAYMENTS 4.01 FIXED TOLLING SERVICES PAYMENT Each Month during the Contract Term, Purchaser shall pay Independence, in arrears, a monthly Fixed Tolling Services Payment equal to the product of the Fixed Tolling Services Charge multiplied by the Contract Tolling Capability Average, expressed in kW. 4.02 FIXED ANCILLARY SERVICES PAYMENT Purchaser shall be entitled to receive and request Ancillary Services as provided in this Agreement; however, Purchaser shall not be obligated to pay any separate consideration for the Ancillary Services provided under this Agreement. 4.03 CONTRACT ADMINISTRATION CHARGE Each Month during the Contract Term, Purchaser shall pay Independence a Contract Administration Charge of $[***]. 4.04 VARIABLE TOLLING SERVICES PAYMENT Each Month during the Contract Term, Purchaser shall pay Independence a monthly Variable Tolling Services Payment equal to the product of the Variable Tolling Services Charge multiplied by the MWh of Energy (including Replacement Energy) delivered to Purchaser under this Agreement during such Month. 4.05 VARIABLE O&M SERVICES PAYMENT Each Month during the Contract Term, Purchaser shall pay Independence a monthly Variable O&M Services Payment equal to the sum of each of the three payments described below: (a) The product of $[***] per fired hour per combustion turbine multiplied by the aggregate number of combustion turbine fired hours of the Facility associated with the provision of Tolling Services or Ancillary Services during the Month; plus (b) The product of $[***] per fired hour per steam turbine multiplied by the aggregate number of steam turbine fired hours of the Facility associated with the provision of Tolling Services or Ancillary Services during the Month; plus (c) The greater of: *** CONFIDENTIAL TREATMENT REQUESTED *** 13 (i) The product of $[***] per fired hour per combustion turbine multiplied by the total number of combustion turbine fired hours of the Facility associated with the provision of Tolling Services or Ancillary Services during the Month; or (ii) The product of $[***] per Start-up multiplied by the total number of Start-ups during the Month. At the end of each Contract Year, Independence will reimburse Purchaser an amount equal to the aggregate amounts paid under paragraphs (c)(i) and (c)(ii) of this Section 4.05 minus the greater of (y) the total number of combustion turbine fired hours of the Facility associated with the provision of Tolling Services or Ancillary Services during the Contract Year multiplied by $[***], or (z) the total number of combustion turbine Start-ups during the Contract Year multiplied by $[***]. 4.06 ESCALATION Each year, on January 1, the rates for payments specified in Sections 4.04 and 4.05 will be multiplied by a fraction, the numerator of which is equal to the GDP-IPD for the third calendar quarter of the immediately preceding year, and the denominator of which is equal to the GDP-IPD for the third calendar quarter of 2000. 4.07 REPLACEMENT ENERGY (a) At any time that Independence or its designee delivers Replacement Energy to Purchaser, all payments specified in this Article IV shall be determined as if such Energy were provided from Tolling Services. In particular, Independence shall determine the combustion turbine fired hours, the steam turbine fired hours and the Start-ups that would have been necessary to provide such Energy from Tolling Services, and such avoided combustion turbine fired hours, steam turbine fired hours and Start-ups shall be utilized to calculate the Variable O&M Services Payment pursuant to Section 4.05; provided, however, that such avoided Start-ups shall not count as Start-ups for purposes of Section 5.01. (b) For each Day that Independence or its designee delivers Replacement Energy to Purchaser, Purchaser shall pay to Independence an amount equal to (i) the product of the quantity of Gas Purchaser would have supplied to the Facility but for the delivery of Replacement Energy (in MMBtu) multiplied by the Gas Index Price, plus (ii) the amount of the reduction in variable Gas transportation costs under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract and under firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall resulting from the delivery of Replacement Energy, plus (iii) the *** CONFIDENTIAL TREATMENT REQUESTED *** 14 product of the quantity of Gas that would have been required for losses on the Empire and Niagara Mohawk systems but for the delivery of Replacement Energy multiplied by the Gas Index Price. 4.08 AVOIDED COSTS At any time that Independence desires to operate all or any portion of the Reserved Tolling Capability in order to effectuate a physical hedge against Independence's obligations associated with the Market Price and is unable to do so as a result of the exercise by Purchaser of any right under this Agreement, Independence shall pay Purchaser (a) an Avoided Variable O&M Services Payment calculated utilizing the methodology set forth in Section 4.05, and (b) an Avoided Variable Tolling Services Payment calculated utilizing the methodology set forth in Section 4.04, in each case based on the output and operations of the Reserved Tolling Capability that would have occurred but for the election of Purchaser not to cause such Reserved Tolling Capability to run. In particular, Independence shall determine the combustion turbine fired hours, the steam turbine fired hours and the Start-ups that would have been necessary to operate the desired portion of the Reserved Tolling Capability in order to effectuate a physical hedge against Independence's obligations associated with the Market Price, and such avoided combustion turbine fired hours, steam turbine fired hours and Start-ups shall be utilized to calculate the Avoided Variable O&M Services Payment and the Avoided Variable Tolling Services Payment. ARTICLE V - FACILITY OPERATIONS AND SCHEDULING 5.01 START-UPS In accordance with the Scheduling and Operating Procedures specified in Exhibits 5.02(A) and 5.02(B), in each calendar year Purchaser is not entitled to receive Tolling Services associated with more than the Start-up Limit of each of the four combustion turbine/generator sets. For the first Contract Year (July 1, 2001 through December 31, 2001), Purchaser is not entitled to receive Tolling Services associated with more than the Start-up Limit of each of the four combustion turbine/generator sets during the 365-Day period from July 1, 2001 through June 30, 2002. For the last Contract Year (January 1, 2014 through November 14, 2014), Purchaser is not entitled to receive Tolling Services associated with more than the Start-up Limit of each of the four combustion turbine/generator sets during the 365-Day period from November 15, 2013 through November 14, 2014. Each Start-up (whether a Hot Start, a Warm Start or a Cold Start) shall be counted as one Start-up. Each Start-up that results in the provision of Tolling Services or Ancillary Services counts toward the limit on the number of Start-ups, provided that a circumstance that would otherwise constitute a Start-up following an Outage (where such Start-up was necessary to resume operations that were curtailed as a *** CONFIDENTIAL TREATMENT REQUESTED *** 15 result of the Outage) shall not be counted as a Start-up toward the foregoing limit. If, following an Outage, the time of a scheduled Shutdown passes before the next Start-up, such Start-up shall be counted as a Start-up. Except as specified in Section 5.05, the action of bringing a combustion turbine/generator set from a non-operating mode to the level of output in combined cycle mode necessary when Independence is using the Minimum Output Requirement of the Facility and not providing any Tolling Services or Ancillary Services shall not count as a Start-up. Purchaser will provide Independence with all of the Gas necessary for each Start-up and to the extent necessary for the Start-up of one or more combustion turbine/generator sets when a ramp up necessary as a result of NYISO Directed Operation requires Independence to operate an additional combustion turbine/generator set, in an amount determined in accordance with Exhibit 5.01 ("Start-up Gas"). If the actual quantity of Gas required for a Start-up is greater than the Start-up Gas specified in Exhibit 5.01, Independence shall either supply Gas to make up such difference or shall be deemed to have purchased an amount of Gas equal to such difference from Purchaser at a rate equal to the sum of the Gas Index Price plus variable Gas transportation costs (per MMBtu) under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of the firm transportation capacity under the Empire Gas Transportation Agreement and the Niagara Mohawk Gas Transportation Agreement) and variable Gas transportation costs (per MMBtu) under firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of such firm transportation capacity) and applicable Taxes (if any) in accordance with Section 23.02. If a Start-up is completed utilizing less Gas than the Start-up Gas specified in Exhibit 5.01, Purchaser shall pay Independence for such difference at a rate equal to the sum of the Gas Index Price plus variable Gas transportation costs (per MMBtu) under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of the firm transportation capacity under the Empire Gas Transportation Agreement and the Niagara Mohawk Gas Transportation Agreement) and variable Gas transportation costs (per MMBtu) under firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of such firm transportation capacity) and applicable Taxes (if any) in accordance with Section 23.02. Except as specified in Section 5.05, Purchaser will be entitled to the Net Electric Energy produced during each such Start-up. The Start-up fuel requirements and associated Energy during Start-up are set forth in Exhibit 5.01. *** CONFIDENTIAL TREATMENT REQUESTED *** 16 5.02 SCHEDULING AND OPERATING PROCEDURES AND AUTHORIZED REPRESENTATIVES Each of Independence and Purchaser agree that Tolling Services will be made available only in accordance with the Scheduling and Operating Procedures specified in Exhibits 5.02(A) and 5.02(B) and in accordance with the Energy Management Agreement. Each Party shall designate in writing to the other Party the persons authorized to make or provide notices on behalf of such Party in connection with nominations, schedules or instructions for the delivery or acceptance of Gas, Energy or Ancillary Services or make other notices on behalf of such Party and specify the scope of their individual authority and responsibilities ("Authorized Representatives"). Each Party may change its Authorized Representatives from time to time with a notice in accordance with this Agreement. Each Party consents to the recording of all telephone conversations between its Authorized Representatives and the Authorized Representatives of the other Party with respect to implementation of this Agreement. 5.03 SHUTDOWN Purchaser will provide Independence with all of the Gas necessary for each Shutdown, in an amount determined in accordance with Exhibit 5.03 ("Shutdown Gas"). If the actual quantity of Gas required for a Shutdown is greater than the Shutdown Gas specified in Exhibit 5.03, Independence shall either supply Gas to make up such difference or shall be deemed to have purchased an amount of Gas equal to such difference from Purchaser at a rate equal to the sum of the Gas Index Price plus variable Gas transportation costs (per MMBtu) under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of the firm transportation capacity under the Empire Gas Transportation Agreement and the Niagara Mohawk Gas Transportation Agreement) and variable Gas transportation costs (per MMBtu) under firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of such firm transportation capacity) and applicable Taxes (if any) in accordance with Section 23.02. If a Shutdown is completed utilizing less Gas than the Shutdown Gas specified in Exhibit 5.03, Purchaser shall pay Independence for each MMBtu of such difference at a rate equal to the sum of the Gas Index Price plus variable Gas transportation costs (per MMBtu) under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of the firm transportation capacity under the Empire Gas Transportation Agreement and the Niagara Mohawk Gas Transportation Agreement) and variable Gas transportation costs (per MMBtu) under firm transportation capacity on the system *** CONFIDENTIAL TREATMENT REQUESTED *** 17 of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall (including the variable Gas transportation charges, fuel, shrinkage and loss requirements associated with use of such firm transportation capacity) and applicable Taxes (if any) in accordance with Section 23.02. Except as specified in Section 5.05, Purchaser will be entitled to the Net Electric Energy produced during each such Shutdown. The Shutdown fuel requirements and associated Energy during Shutdown are set forth in Exhibit 5.03. 5.04 TECHNICAL INSPECTION Independence agrees to maintain and to make available to Purchaser records, including those under the control of Independence or any third party owner of the Facility and any relevant records otherwise within Independence's control or ability to obtain, necessary to verify Contract Tolling Capability, Target Tolling Capability, Force Majeure and any other rights and obligations hereunder, including, but not limited to data, engineering specifications, test results or any other information used in connection with any computation, calculation or formulae set forth in this Agreement. Further, Independence agrees that Purchaser representatives, upon three Days' prior written notice, may visit the Facility during Regular Business Hours. 5.05 RESERVED CAPABILITY (a) Subject to the terms and provisions of the Energy Management Agreement, this Section 5.05 and Exhibits 5.02(A) and 5.02(B), Independence shall have the right to operate the Facility utilizing all or any portion of the electrical output associated with the Reserved Capability. At such times, Independence shall be responsible for all costs associated with operation of the Facility utilizing all or any portion of the electrical output associated with the Reserved Capability, and Independence shall be entitled to all revenues associated with the sale of Energy from the Facility utilizing all or any portion of the electrical output associated with the Reserved Capability (including the sale of all Energy produced during Start-up and Shutdown). In the event that, absent Independence's operation of the Facility utilizing all or any portion of the electrical output associated with the Reserved Capability, NYISO Directed Operations to provide Tolling Services to Purchaser would require a Start-up, such Start-up shall be counted as a Start-up pursuant to Sections 4.05 and 5.01. (b) Notwithstanding Section 5.05(a) or any other provision of this Agreement, but subject to the requirements of Exhibit 5.02(B), the Parties acknowledge that there may be some periods during the term of this Agreement where Independence desires to deliver all or a portion of the Reserved Tolling Capability to the NYISO for purposes of effectuating a physical hedge against its financial obligations associated with the Market Price. If during such periods, there *** CONFIDENTIAL TREATMENT REQUESTED *** 18 exist contractual limitations on Independence's ability to deliver such portion of the Reserved Tolling Capability either arising under the provisions of this Agreement or the provisions of the Energy Management Agreement, such that Independence is prevented from delivering such portion of the Reserved Tolling Capability, then Purchaser shall pay to Independence an amount equal to the difference between (i) the sum of the products of, for each hour during such period (A) the Market Price multiplied by (B) such portion of the Reserved Tolling Capability minus (ii) the revenues actually received by Independence from the NYISO for sales of Energy associated with such portion of the Reserved Tolling Capability; and provided further that if Independence notifies Purchaser of its desire to operate the Facility at the Minimum Output Requirement, Purchaser must cause the Minimum Output Requirement to operate. The foregoing provisions are an acknowledgement of the obligations of Purchaser, as Energy Manager, under the Energy Management Agreement to cause the dispatch of the Reserved Tolling Capability in a manner consistent with the desires of Independence, and if such obligations are not fulfilled, the foregoing establishes a remedy under this Agreement for such circumstance. Purchaser shall make such payments at the same time any other payments are due under this Agreement. (c) The Parties acknowledge and agree that any and all references in this Agreement, the Gas Supply Agreement, the Energy Management Agreement and any other agreement between Independence and Purchaser (and any of Purchaser's Affiliates) to Independence's effectuating a physical hedge against its financial obligations associated with the Market Price (i) refer exclusively to the operation of all or a portion of the Reserved Tolling Capability and (ii) shall not be construed as implying that Independence shall have any obligation to obtain Energy from any other source or to take any other action to effectuate a physical hedge against its financial obligations associated with the Market Price. (d) From time to time during the term of this Agreement, Independence may have available certain quantities of As Available Energy (defined below) that Independence is willing to make available to Purchaser. Independence shall make As Available Energy available to Purchaser during the "As Available Periods." The "As Available Periods" shall mean those hours during which (i) Independence is not utilizing any of the Reserved Tolling Capability for purposes of effectuating a physical hedge against its financial obligations associated with the Market Price and (ii) Independence has nevertheless elected to operate a portion of the Reserved Capability at the Minimum Output Requirement. "As Available Energy" means an amount of Energy available from the Facility by virtue of Independence's election to operate a portion of the Reserved Capability at the Minimum Output Requirement, but represents a quantity equal to the difference between the hourly amount available from one combustion turbine/generator set in combined cycle mode at maximum output and the amount attributable to the Minimum Output Requirement. Aside from the determination that condition (i) of the preceding sentence has been satisfied, Independence shall advise Purchaser in *** CONFIDENTIAL TREATMENT REQUESTED *** 19 accordance with the procedures specified in Exhibit 5.02(A) of the number of hours that the Facility will operate at the Minimum Output Requirement and accordingly, the duration of the As Available Period. The As Available Period must continue for the duration of the period specified in the notice delivered by Independence in accordance with Exhibit 5.02(A). Subject to the Scheduling and Operating Procedures specified in Exhibits 5.02(A) and 5.02(B) (and, in particular, the limitation on changes in output specified as Item 6(e) to Exhibit 5.02(B), Part I), following the establishment of the As Available Period, Purchaser may, no later than ten (10) minutes prior to the top of each hour during the As Available Period, provide Independence with telephonic notice of Purchaser's desire to receive As Available Energy for the next following hour of the As Available Period. Subject to the Scheduling and Operating Procedures specified in Exhibits 5.02(A) and 5.02(B) (and, in particular, the limitation on changes in output specified as Item 6(e) to Exhibit 5.02(B), Part I), Purchaser may select all, any individual, or any combination of hours contained in an As Available Period as the hours in which Purchaser will require the delivery of As Available Energy. Purchaser may designate the hours in which Purchaser will require the delivery of As Available Energy in a single communication to Independence or in a series of individual hourly communications; provided that in any event, Purchaser may change its election for any hour as long as the change is communicated to Independence no later than ten (10) minutes prior to the upcoming hour for which the change will apply. (e) As Available Energy shall for all purposes under this Agreement, be deemed to be Energy resulting from the provision of Tolling Services. Thus, Purchaser shall arrange for delivery of Gas required for the provision of As Available Energy in the manner prescribed by Article VIII. In addition, Independence and Purchaser acknowledge that the As Available Energy does not contemplate any related Capacity component and no Capacity is being made available with respect to the As Available Energy either as Contract Tolling Capability or otherwise. The Fixed Tolling Services Payment shall be unaffected by the provision of As Available Energy. The calculation of the Variable Tolling Services Payment shall include any deliveries of As Available Energy when the monthly quantities of Energy delivered to Purchaser are multiplied times the Variable Tolling Services Charge, provided that with respect to the quantity of As Available Energy only, the monthly Variable Tolling Services Payment shall be increased by an amount equal to the product of a constant of $[***] per MWh multiplied by the MWh of As Available Energy delivered to Purchaser during such Month. The provision of As Available Energy and the applicable hours of the As Available Period during which As Available Energy is provided shall be considered circumstances during which Independence is providing Tolling Services and as a result, the calculations described in Section 4.05 shall apply to the As Available Energy; provided, however, that the applicable hours of the As Available Period during which As Available Energy is provided shall not be considered for purposes *** CONFIDENTIAL TREATMENT REQUESTED *** 20 of the annual comparison pursuant to the last sentence of Section 4.05. No Start-up shall be incurred during any As Available Period. (f) The Parties expressly acknowledge and agree that Independence shall not be responsible to Purchaser for any liabilities or costs resulting from the occurrence of an Outage that reduces the amount of As Available Energy during an As Available Period, and that nothing in these Sections 5.05(d), (e) and (f) shall have any effect on the calculation of the Annual Capability Adjustment pursuant to Section 7.01. 5.06 INSTALLED CAPACITY TESTING From time to time, Independence may perform any Installed Capacity tests required pursuant to the NYISO Requirements. The Parties shall use commercially reasonable efforts to schedule such tests during periods when the Facility is otherwise expected to operate in a manner which conforms to the requirements of any such tests. Independence may, however, elect to conduct such tests when the Facility is not otherwise expected to operate in such manner and the Parties shall cause the Facility (through the submission of bids or otherwise) to operate in such manner. Independence shall be responsible for any incremental costs and shall be entitled to any incremental revenues associated with such testing. 5.07 GOOD ELECTRICAL PRACTICES Subject to Section 10.02, Independence shall at all times operate the Facility in accordance with Good Electrical Practices. 5.08 OPERATING COMMITTEE The Parties shall each appoint a member and an alternate to an Operating Committee, and so notify the other Parties of such appointments in writing. Such appointments may be changed at any time by similar notice. The Operating Committee shall meet as necessary to carry out the duties set forth herein. The Operating Committee shall hold meetings at the request of any Party at the Facility (unless otherwise agreed upon by the members of the Operating Committee) and at a time agreed upon by the members of the Operating Committee. Each member and alternate shall be a responsible person working with his or her Party's respective day-to-day operations under this Agreement. The duties of the Operating Committee shall include, but not be limited to, (i) coordinating operation schedules, (ii) establishing and maintaining operating procedures, including those pertaining to information transfers between and among the Parties, consistent with the provisions of this Agreement, and (iii) such other duties as may be conferred upon it by mutual agreement of the Parties. *** CONFIDENTIAL TREATMENT REQUESTED *** 21 5.09 UNIT OUTAGES Each time, following completion of a Start-up and prior to commencement of the next Shutdown, a combustion turbine/generator set operating in combined cycle mode suffers an Outage, Independence shall pay Purchaser $[***]. ARTICLE VI - GUARANTEED HEAT RATE 6.01 GUARANTEED HEAT RATE The Guaranteed Heat Rate for any hour is the Heat Rate indicated in the table contained in Exhibit 6.01 for the actual output level of the Facility (including the output level associated with the provision of Tolling Services plus the output level associated with the use of the Reserved Capability) for such hour (in MW). The Guaranteed Heat Rate for part loading conditions is as set forth in Exhibit 6.01. 6.02 HEAT RATE At the conclusion of each Month, Independence shall calculate the Guaranteed Heat Rate Gas Differential (GHRGD), where: GHRGD = (Actual Gas) - (Target Gas); Actual Gas = the difference for such Month between (a) actual quantities of Gas supplied pursuant to this Agreement and the Gas Supply Agreement and used by the Facility (expressed in MMBtu and measured utilizing the Gas Metering Equipment) minus (b) the quantities of Gas purchased or deemed purchased by Independence pursuant to Section 8.01(b) of this Agreement and pursuant to the Gas Supply Agreement; and Target Gas = the sum of (a) for each Start-up during the Month, the Start-up Gas guaranteed in Exhibit 5.01, plus (b) for each Shutdown during the Month, the Shutdown Gas guaranteed in Exhibit 5.03, plus (c) the sum for all hours during the Month after the completion of Start-up and prior to Shutdown of the Facility of the product of (i) the Guaranteed Heat Rate for such hour (expressed in Btu of Gas consumed per kWh) multiplied by (ii) the actual Net Electric Energy produced during such hour. *** CONFIDENTIAL TREATMENT REQUESTED *** 22 6.03 PAYMENT If the Guaranteed Heat Rate Gas Differential is positive, Independence shall pay Purchaser the product of the Guaranteed Heat Rate Gas Differential, increased to reflect Empire, Niagara Mohawk, TransCanada Pipelines Limited (between Kirkwall and Chippawa) and Union Gas Limited (between Dawn and Kirkwall) fuel, shrinkage and loss, multiplied by a rate equal to the sum of the Monthly Gas Index Price plus variable Gas transportation costs (per MMBtu) under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract and variable Gas transportation costs (per MMBtu) under firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall and applicable Taxes (if any) in accordance with Section 23.02. If the Guaranteed Heat Rate Gas Differential is negative, Purchaser shall pay Independence the product of the Guaranteed Heat Rate Gas Differential (expressed as a positive number), increased to reflect Empire, Niagara Mohawk, TransCanada Pipelines Limited (between Kirkwall and Chippawa) and Union Gas Limited (between Dawn and Kirkwall) fuel, shrinkage and loss, multiplied by a rate equal to the sum of the Monthly Gas Index Price plus variable Gas transportation costs (per MMBtu) under the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract and variable Gas transportation costs (per MMBtu) under firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall and applicable Taxes (if any) in accordance with Section 23.02. 6.04 EXCLUSIVE NATURE OF COMPENSATION The Parties expressly acknowledge and agree that the adjustment provided in accordance with this Article VI constitutes the exclusive compensation of the Parties for variations in Heat Rate and that the failure to achieve the Guaranteed Heat Rate shall not constitute an Event of Default hereunder. ARTICLE VII - GUARANTEED TOLLING CAPABILITY 7.01 CALCULATION OF GUARANTEED TOLLING CAPABILITY An additional payment to or from Independence shall be made after the end of each Contract Year to reflect the Facility's Actual Tolling Capability as compared to the Target Tolling Capability for each portion of the Contract Year. Independence may meet the Target Tolling Capability levels either by making the Facility available for Tolling Services or by supplying Replacement Energy. *** CONFIDENTIAL TREATMENT REQUESTED *** 23 The Target Tolling Capability levels for each portion of the calendar year are shown in Table 7.1:
TABLE 7.1 TARGET TOLLING CAPABILITY --------------------------------------------------------------- SEASON ------------------------------- HOURS SUMMER WINTER SHOULDER PERIOD PERIOD PERIOD --------------------------------------------------------------- Peak Hours: Target Tolling Capability [***]% [***]% [***]% --------------------------------------------------------------- Off-Peak Hours: Target Tolling Capability [***]% [***]% [***]% ---------------------------------------------------------------
The Annual Capability Adjustment ("ACA") shall be equal to the sum of A+B+C+D, where: Actual Tolling Capability(SP) - Target Tolling Capability(SP) A=( --------------------------------------------------------- ) x 0.50 x Annual Tolling Payment; Target Tolling Capability Actual Tolling Capability(WP) - Target Tolling Capability(WP) B=( --------------------------------------------------------- ) x 0.25 x Annual Tolling Payment; Target Tolling Capability(WP) Actual Tolling Capability(SHP) - Target Tolling Capability(SHP) C=( ----------------------------------------------------------- ) x 0.15 x Annual Tolling Payment; and Target Tolling Capability(SHP) Actual Tolling Capability(WSP) - Target Tolling Capability(WSP) D=( ----------------------------------------------------------- ) x 0.10 x Annual Tolling Payment; Target Tolling Capability(WSP)
For purposes of this Section 7.01, the following terms have the following meanings: "Actual Tolling Capability," for any period, means the aggregate quantity of MWh capable of being produced during such period by the Contract Tolling Capability (plus the Replacement Energy (measured in MWh) supplied during such period); the "aggregate quantity of MWh capable of being produced during such period by the Contract Tolling Capability" will be equal to the aggregate amounts of Available Tolling Capability for each Day of such period (as identified in the Available Tolling Capability Notices), adjusted to reflect Outages which occur during the provision of Tolling Services or Ancillary Services; it being understood that if all or any portion of the Available Tolling Capability has not been Scheduled pursuant to Exhibit 5.02(A) prior to 11:45 p.m. for the following Day and Independence elects to perform discretionary maintenance which does not affect the provision of any requested Tolling Services and/or Ancillary Services and which shall be completed during such following Day, the portion of the Facility undergoing *** CONFIDENTIAL TREATMENT REQUESTED *** 24 such discretionary maintenance shall not be deemed to be unavailable for purposes of determining the Actual Tolling Capability, and it being further understood that the Actual Tolling Capability shall be determined assuming at all times the availability at the Facility of adequate Gas supplies; "Annual Tolling Payment" shall mean the sum of the monthly Fixed Tolling Services Payments for the Contract Year; "Off-Peak Hours" shall mean all hours other than Peak Hours; "Peak Hours" shall mean 7:00 a.m. to 11:00 p.m., Monday through Friday, excluding holidays recognized by the NYISO; "Shoulder Off-Peak" shall mean the Off-Peak Hours during the Shoulder Period; "Shoulder Peak" shall mean the Peak Hours during the Shoulder Period; "Shoulder Period" shall mean the Months of March, April, October and November of each year; "SHP" shall mean the combined Shoulder Peak and Summer Off-Peak; "Summer Off-Peak" shall mean the Off-Peak Hours during the Summer Period; "Summer Peak" or "SP" shall mean the Peak Hours during the Summer Period; "Summer Period" shall mean the Months of May, June, July, August and September of each year; "Target Tolling Capability," for any period, means the aggregate quantity of MWh capable of being produced during such period by the Contract Tolling Capability of the Facility multiplied by the Target Tolling Capability percentage shown on the above table for that period; "Winter Off-Peak" shall mean the Off-Peak Hours during the Winter Period; "Winter Peak" or "WP" shall mean the Peak Hours during the Winter Period; "Winter Period" shall mean the Months of December, January and February of each year; and "WSP" shall mean the combined Winter Off-Peak and Shoulder Off-Peak. *** CONFIDENTIAL TREATMENT REQUESTED *** 25 Independence shall include the ACA in the first invoice delivered to Purchaser after each anniversary of the Effective Date. The ACA shall be paid by Purchaser to Independence if positive, or by Independence to Purchaser if negative, pursuant to Section 12.02. 7.02 EXCLUSIVE NATURE OF COMPENSATION The Parties expressly acknowledge and agree that the adjustment provided in accordance with this Article VII constitutes the exclusive compensation of the Parties for exceeding or failing to achieve the Target Tolling Capability during any period and that the failure to achieve the Target Tolling Capability during any period shall not constitute an Event of Default hereunder. ARTICLE VIII - GAS SUPPLY 8.01 PURCHASER'S GAS DELIVERY OBLIGATIONS (a) Subject to the procedures specified in the Energy Management Agreement and Exhibits 5.02(A) and 5.02(B), Purchaser shall arrange for delivery to the Gas Facility Point of all quantities of Gas required to generate Energy or Ancillary Services resulting from the provision of Tolling Services, the provision of Ancillary Services, Shutdown Gas and Start-up Gas. Purchaser shall be responsible for all Gas necessary to meet the fuel, shrinkage and loss requirements of all Transporters upstream of the Gas Facility Point. (b) Subject to the procedures specified in the Energy Management Agreement and in Exhibits 5.02(A) and 5.02(B), Purchaser shall arrange for delivery to the Gas Facility Point of all of Independence's requirements for Gas at the Facility, excluding Gas delivered pursuant to Section 8.01(a), but including (i) Gas required for Independence to generate Energy utilizing the Reserved Capability, (ii) Gas required for Independence to operate auxiliary boilers, and (iii) Gas Independence is obligated to purchase pursuant to Sections 5.01, 5.03 and 5.06. (c) All quantities to be delivered by Purchaser to the Gas Facility Point shall be based on the conversion of Gas to Energy based upon the information supplied pursuant to Exhibit 5.02(A). 8.02 GAS COST RESPONSIBILITY Except as otherwise provided in the Gas Supply Agreement, Purchaser shall be responsible for all costs associated with the supply and transportation of Gas other than Gas pursuant to Section 8.01(b). Independence shall purchase all Gas provided pursuant to Section 8.01(b) from Purchaser at the price per MMBtu of Gas equal to the Gas Index Price plus the variable Gas transportation charges, fuel, *** CONFIDENTIAL TREATMENT REQUESTED *** 26 applicable Taxes (if any) in accordance with Section 23.02, shrinkage and loss requirements associated with Purchaser's use of (i) the firm transportation capacity under the Empire Gas Transportation Agreement and the Niagara Mohawk Gas Transportation Agreement, and (ii) firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall, for Gas provided pursuant to Section 8.01(b). In addition, Purchaser shall pay Independence for all Gas supply and transportation costs avoided as a result of Independence's delivery of Replacement Energy to Purchaser under this Agreement, as calculated pursuant to Section 4.07(b). The foregoing arrangements are in addition to those specified for Start-up Gas and Shutdown Gas. 8.03 TRANSPORTATION OBLIGATIONS To transport Purchaser's Gas to the Gas Facility Point, Independence will make available to Purchaser firm transportation capacity (a) on the Empire system pursuant to the Empire Gas Transportation Contract, and (b) on the Niagara Mohawk system pursuant to the Niagara Mohawk Gas Transportation Contract. Independence will pay all demand charges and all surcharges (excluding all variable charges, which include commodity charges, fuel use and shrinkage) under both firm transportation agreements. Independence will retain all rights and obligations for the transportation capacity on the Empire and Niagara Mohawk systems, except that Independence will take all actions reasonably required to appoint Purchaser as Independence's agent for purposes of nominations and scheduling under such firm transportation agreements. Except with respect to Gas delivered pursuant to Section 8.01(b), Purchaser shall pay directly (if permitted by the applicable Transporter) or reimburse Independence for all variable charges, including commodity charges, fuel use, shrinkage and imbalance charges associated with Purchaser's use of such firm transportation capacity. The Parties shall reasonably cooperate in delivering any documentation necessary to implement this Section 8.03. During the Contract Term, in addition to other indemnification obligations of Independence set forth elsewhere in this Agreement, Independence shall indemnify and hold Purchaser harmless from and against any and all liabilities, costs, claims, causes of action, judgments, lawsuits, or damages that may be incurred by Purchaser in connection with the Empire Gas Transportation Contract and the Niagara Mohawk Gas Transportation Contract for all periods prior to the Effective Date. During the Contract Term, in addition to other indemnification obligations of Purchaser set forth elsewhere in this Agreement, Purchaser shall indemnify and hold Independence harmless from and against any and all liabilities, costs, claims, causes of action, judgments, lawsuits, or damages that may be incurred by Independence in connection with Purchaser's actions as Independence's agent for purposes of nominations and scheduling under the Empire *** CONFIDENTIAL TREATMENT REQUESTED *** 27 Gas Transportation Contract and the Niagara Mohawk Gas Transportation Contract. 8.04 ADDITIONAL TRANSPORTATION OBLIGATIONS If and to the extent that NYISO Directed Operations or the provision of Tolling Services or Ancillary Services under this Agreement requires Purchaser to provide deliveries of Gas on terms not permitted under the Empire Gas Transportation Contract or the Niagara Mohawk Gas Transportation Contract (e.g., on an intraday basis, on a no-notice basis, or Gas for Ancillary Services on limited, same-day notice), Purchaser may not utilize the Empire Gas Transportation Contract or the Niagara Mohawk Gas Transportation Contract for delivery of such Gas, except in accordance with applicable tariffs or with the consent of such parties, and Purchaser shall be responsible for any additional costs associated with such services. Independence agrees to assist Purchaser in making any adjustments or modifications to the Gas transportation service; provided, however, that the failure of Empire or Niagara Mohawk to agree to any such adjustments or modifications shall not constitute an Event of Default. 8.05 PIPELINE IMBALANCE CHARGES (a) Notwithstanding any other provision contained herein Purchaser shall be responsible for and pay all pipeline imbalance charges and similar charges arising out of or relating to Gas provided under this Agreement on all Gas transportation facilities upstream of the Gas Facility Point. (b) The Parties shall use commercially reasonable efforts to minimize all such pipeline imbalance charges. 8.06 SCHEDULING RESPONSIBILITY Purchaser is responsible for all Scheduling and nomination activities with the Transporters upstream of the Gas Facility Point. *** CONFIDENTIAL TREATMENT REQUESTED *** 28 8.07 EFFECT OF DELIVERY; INDEMNITY Title to all Gas delivered pursuant to Section 8.01(b) shall pass to Independence at the Gas Delivery Point. As between the Parties, Purchaser shall be deemed to be in exclusive control and possession of the Gas delivered hereunder until the same shall have been delivered at the Gas Delivery Point, at and after which delivery Independence shall be deemed to be in exclusive control and possession thereof. Purchaser and Independence each assumes full responsibility and liability for and shall indemnify and save harmless the other Party and its officers, directors, employees, agents, and partners from all liability and expense on account of any and all damages, claims, or actions, including injury to and death of Persons, arising from any act or accident occurring when title to the Gas is vested in the indemnifying Party as herein provided. 8.08 TRANSPORTER'S SPECIFICATIONS Gas delivered by Purchaser shall meet or exceed the minimum quality specifications under the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Gas Transportation Contract (and related Niagara Mohawk Gas tariffs). If any Gas delivered by Purchaser shall fail to conform to such quality specifications, Independence's sole remedy shall be refusal to accept the tendered quantities, in which event such Gas shall be treated as if Purchaser shall have failed to deliver it; all other Gas shall be treated as meeting such specifications. Gas delivered by Purchaser shall be delivered at pressures sufficient to cause such Gas to enter Independence's facilities at the Gas Facility Point, but not below the minimum allowable or above the maximum allowable operating pressure specified in the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Gas Transportation Contract (and related Niagara Mohawk Gas tariffs). 8.09 GAS SUPPLY OBLIGATIONS For so long as the Gas Supply Agreement is in full force and effect, Purchaser's obligations to supply Gas to Independence pursuant to Section 8.01(b) and all related performance and payment obligations in this Article VIII shall be deemed satisfied by performance by Dynegy Canada Marketing and Trade in accordance with the Gas Supply Agreement. ARTICLE IX - OUTAGES 9.01 SCHEDULED OUTAGES (a) Scheduled Outages will be scheduled and permitted as follows: *** CONFIDENTIAL TREATMENT REQUESTED *** 29 (i) Within ten Days following the Effective Date, on or before September 15, 2001 and thereafter prior to September 15 of each subsequent Contract Year, Independence will provide to Purchaser a non-binding forecast schedule of Scheduled Outages of the Facility for each Month. Such non-binding forecast schedule will cover the period of time occurring (A) in the case of the notice delivered within ten days after the Effective Date, from the Effective Date through December 31, 2001, (B) in the case of the notice delivered on or before September 15, 2001, from January 1, 2002 through December 31, 2002, and (C) in the case of each subsequent notice, the following Contract Year. Within 30 Days of receipt of the forecast schedule, Purchaser may provide Independence with comments on the forecast. Independence will make commercially reasonable efforts to accommodate Purchaser's comments. No later than thirty Days following the receipt of Purchaser's comments, Independence will submit to Purchaser its schedule for Scheduled Outages for the period, which schedule will include the number of generation turbines to be included in each Scheduled Outage. In no event, without Purchaser's consent, will such schedule provide for a Scheduled Outage during the months of June, July, August, September, December, January or February. (ii) Either Party may request a change in the schedule for a Scheduled Outage by delivering a notice to the other Party at least 60 Days prior to the start of such Scheduled Outage. The Parties will use commercially reasonable efforts to accommodate such requests, provided that Independence will in no event be required to accept such request if the implementation of the requested schedule change could, in Independence's reasonable judgment, invalidate or impair Independence's equipment warranties or insurance policies or the success of any claims to be made thereunder, increase the cost to Independence of performing maintenance or affect the quality of such maintenance, cause Independence's actions or performance hereunder to deviate from Good Electrical Practices or prevent Independence from meeting its obligations under this Agreement. (b) Notwithstanding any other provision of this Section 9.01, Independence may schedule or reschedule a Scheduled Outage at any time if required, in Independence's reasonable judgment, by Good Electrical Practices or pursuant to NYISO Requirements. Independence shall provide Purchaser with as much notice of such Scheduled Outages as practicable under the circumstances. If Independence desires to schedule or reschedule a Scheduled Outage during June, July, August, September, December, January or February, Independence will, if practicable, discuss with Purchaser the timing of such a Scheduled Outage and will consider any reasonable requests by Purchaser to modify the timing for such a Scheduled Outage. 9.02 FORCED OUTAGES Any outage or unavailability of all or a portion of the Contract Tolling Capability, other than due to Force Majeure, breach by Purchaser or a Scheduled *** CONFIDENTIAL TREATMENT REQUESTED *** 30 Outage shall constitute a Forced Outage. The Parties expressly acknowledge and agree that the existence of a Forced Outage shall not constitute an Event of Default hereunder. In the event of a Forced Outage, Independence shall use commercially reasonable efforts to remedy the cause(s) and effect(s) of such Forced Outage with all reasonable dispatch, including, if necessary, the reconstruction, repair or replacement of all or a portion of the Facility utilizing the proceeds of insurance required pursuant to Article XV. ARTICLE X - NYISO AND REGULATORY REQUIREMENTS 10.01 NYISO BIDDING (a) Subject to Section 10.01(b) and the applicable Scheduling and Operating Procedures specified in Exhibits 5.02(A) and 5.02(B) and except as provided in the following sentence and in Section 10.01(c), Independence or its agent shall on Purchaser's behalf and in accordance with the directions supplied by Purchaser, bid all of the Energy associated with the Facility's Installed Capacity into the NYISO's Day-Ahead Market or sell such Energy to a Load Serving Entity in the New York Control Area at prices to be determined by Purchaser. Independence or its agent shall be entitled to bid all or any portion of the Energy associated with the Facility's Reserved Capability into the NYISO's Day-Ahead Market and/or Hour-Ahead Market at a price low enough to ensure that the NYISO will accept such bid or may make such other instructions as may be consistent with the procedures and protocols of the NYISO Day-Ahead Market and/or the NYISO Hour-Ahead Market. Independence or its agent shall be responsible for all communications with the NYISO pursuant to this Section 10.01 (including the submission of all bids). Each of the terms "Installed Capacity," "Day-Ahead Market," "Hour-Ahead Market," "Load Serving Entity," and "New York Control Area" are as defined in the NYISO Requirements. (b) The Parties hereby agree to use reasonable efforts to cause the NYISO to permit Purchaser to submit NYISO Bids directly to the NYISO during the Contract Term and in accordance with the Energy Management Agreement. At such time that the NYISO permits Purchaser to submit NYISO Bids directly, Purchaser shall submit all NYISO Bids in accordance with Section 10.01, Exhibits 5.02(A) and 5.02(B) and the Energy Management Agreement. (c) (i) On 45 Days' notice, Purchaser may request, at any time and at its own expense, to supply Installed Capacity on behalf of Independence to ConEd under the ConEd Agreement or to any purchaser under a Residual Installed Capacity Agreement (to the extent such Residual Installed Capacity Agreement permits Independence to supply Installed Capacity from sources other than the Facility) ("Replacement Capacity"). Independence shall consent to Purchaser's supply of such Replacement Capacity only if Independence determines, in its sole *** CONFIDENTIAL TREATMENT REQUESTED *** 31 discretion, that (1) such Replacement Capacity satisfies all requirements under the ConEd Agreement and any Residual Installed Capacity Agreements, (2) such Replacement Capacity meets the NYISO Requirements for Installed Capacity, and (3) the provision of such Replacement Capacity is permitted under the NYISO Requirements and will not result in any penalty, deficiency charge or price adjustment under the NYISO Services Tariff, the ConEd Agreement or any Residual Installed Capacity Agreement. (ii) For any period during which Purchaser is supplying Replacement Capacity to ConEd or to any other purchaser under a Residual Installed Capacity Agreement on Independence's behalf and with Independence's consent pursuant to Section 10.01(c)(i), Purchaser shall be entitled to the Installed Capacity from the Facility up to the level of the Replacement Capacity supplied and the requirements of Section 10.01(a) shall not apply with respect to such Installed Capacity. (iii) If at any time, the provision of Replacement Capacity to ConEd or to any other purchaser under a Residual Installed Capacity Agreement fails to satisfy any of the three conditions listed in Section 10.01(c)(i) or if Independence reasonably believes that the provision of Replacement Capacity to ConEd or to any other purchaser under a Residual Installed Capacity Agreement shall fail to satisfy any of the three conditions listed in Section 10.01(c)(i), Independence shall be entitled to immediately take the Installed Capacity from the Facility back from Purchaser and the requirements of Section 10.01(a) shall once again apply with respect to such Installed Capacity. During the Contract Term, in addition to other indemnification obligations of Purchaser set forth elsewhere in this Agreement, Purchaser shall indemnify and hold Independence harmless from and against any and all liabilities, costs, claims, causes of action, judgments, lawsuits, or damages (including any penalties, deficiency charges or price adjustments under the ConEd Agreement) that may be incurred by Independence in connection with the failure of Replacement Capacity to satisfy any of the three conditions listed in Section 10.01(c)(i). (iv) For any period during which Purchaser is supplying Replacement Capacity to ConEd or to any other purchaser under a Residual Installed Capacity Agreement on Independence's behalf and with Independence's consent pursuant to Section 10.01(c)(i), the Parties expressly acknowledge and agree that Independence shall be entitled to receive directly all amounts payable under the ConEd Agreement or such Residual Installed Capacity Agreement and Purchaser hereby waives any right, title or interest to any such amounts payable. (v) Independence agrees to incorporate provisions in all negotiated Residual Installed Capacity Agreements entered into during the Contract Term to permit Independence or its designated agent to supply Installed Capacity from sources other than the Facility. If Independence elects to sell *** CONFIDENTIAL TREATMENT REQUESTED *** 32 Installed Capacity from the Facility through an auction process, Independence shall notify Purchaser of its intent at least 15 Days prior to the deadline for participation in such auction; it being understood that the first sentence of this Section 10.01(c)(v) shall not apply to any sales of Installed Capacity through an auction process. 10.02 PURCHASER REQUIREMENTS Purchaser shall not issue any notices, instructions or schedules inconsistent with this Agreement, any applicable operating policies, criteria and/or guidelines of NERC, NYISO, any other regional or subregional operational and reliability requirements or any other applicable Laws, or that would result in NYISO Directed Operations that are inconsistent with Good Electrical Practices. If Purchaser issues a notice, instruction or schedule in contravention of the preceding sentence, Independence shall have no obligation to comply with such notice, instruction or schedule. Any NYISO Directed Operation that requires Independence to Start-up or Shutdown or otherwise affects the operation of the Facility shall be treated under this Agreement as if such direction had been issued by Purchaser, and Purchaser shall supply Gas as required for Independence to comply with such NYISO order, and Purchaser shall be entitled to all revenues from sales resulting from such NYISO order and Independence shall be entitled to payment in accordance with Article IV (except as specified in Sections 5.05 and 8.02). Independence shall comply with NYISO Directed Operations that are not consistent with Good Electrical Practices only during NYISO system emergencies. In the event that a Party receives notice of a change or proposed change to the NYISO Requirements that would require a Party to take or refrain from taking an action that would be inconsistent with such Party's rights and/or obligations hereunder, the Party receiving notice will promptly notify the other Party to the extent practicable that such NYISO Requirement conflicts with the rights and/or obligations of a Party under this Agreement and the Parties agree to promptly meet and negotiate in good faith an agreement as to how compliance shall be established and maintained, attempting in all events to restore or maintain for each Party as nearly as possible, its respective rights, obligations and benefits under this Agreement provided that such compliance shall not result in significant economic impact to the Parties. The failure of the Parties to reach any such agreement shall not result in termination of this Agreement or relieve any Party of its obligations to make payments in accordance with this Agreement. Subject to any such agreement, Independence and Purchaser shall each comply with all NYISO Requirements and shall deviate (except for the payment of money for which there shall be no deviation) from the provisions of this Agreement to the minimum extent necessary in order to comply with such NYISO Requirements. During the Contract Term, in addition to other indemnification obligations of Purchaser set forth elsewhere in this Agreement, Purchaser shall indemnify and hold Independence harmless from and against any and all liabilities, costs, claims, causes of action, judgments, lawsuits, or damages that may be incurred by Independence as a result of Purchaser's failure to meet its obligations under this Section 10.02. *** CONFIDENTIAL TREATMENT REQUESTED *** 33 10.03 NIAGARA MOHAWK POWER PURCHASE AGREEMENT Subject to the requirements and limitations of the Niagara Mohawk Power Purchase Agreement and the Scheduling and Operating Procedures set forth in Exhibits 5.02(A) and 5.02(B) and for so long as Independence remains a Qualifying Facility (as defined in the Federal Power Act) and the Niagara Mohawk Power Purchase Agreement remains in effect, Independence may submit (or, once Purchaser takes over responsibility for submission of bids, request that Purchaser submit) a transaction bid under the Niagara Mohawk Power Purchase Agreement for a portion of the Energy output of the Facility associated with the Reserved Capability. Notwithstanding any provision of this Agreement, Independence shall have the right to suspend, modify, amend or terminate the Niagara Mohawk Power Purchase Agreement in its sole discretion without any liability whatsoever. 10.04 AMENDMENT; REGULATORY ACTION (a) This Agreement shall not be amended unless such amendment is in writing and executed by the Parties. It is the intent of this Section 10.04 that, to the maximum extent permitted by law, the rates, terms and conditions in this Agreement shall not be subject to change, regardless of whether such change is sought under Section 205 or 206 of the Federal Power Act or any other applicable law or regulation (a) by the FERC acting SUA SPONTE on behalf of a Party or third party, (b) by a Party, (c) by a third party, or (d) in any other manner; and that this Agreement may be amended, modified or supplemented only by written agreement of both Parties as provided above. Either Party shall, as and if requested by the other Party, support this Agreement in filings and with testimony in any administrative or judicial proceeding relating to or in connection with this Agreement. (b) Except as provided in this Section 10.04, nothing in this Agreement shall limit the ability of the Parties to participate in regulatory proceedings. To the extent permitted by law, if a Party desires to participate in a generic rulemaking or similar regulatory proceeding, the Parties may participate in their own right or may cause Affiliates to participate in such proceedings in lieu of direct participation by the Parties; provided that if a Party determines, in its reasonable judgment, that its rights cannot be adequately protected except through direct participation by such Party, the Party may participate in such regulatory proceedings. (c) Purchaser shall be responsible for obtaining and maintaining, on behalf of Independence, all required regulatory authorizations for Independence under this Agreement and the Gas Supply Agreement from (i) United States Governmental Authorities to import and (ii) their Canadian counterparts to export Gas from Canada to the United States. *** CONFIDENTIAL TREATMENT REQUESTED *** 34 10.05 CLASSIFICATION If at any time during the term of this Agreement, the Facility ceases to qualify as a "qualifying facility" under the Public Utility Regulatory Policies Act, then subject to NYISO Requirements, Purchaser shall instruct Independence to designate the Facility as a non-utility generator with the NYISO and to make such other appropriate arrangements as may be necessary to coordinate pricing references to the Facility. Upon such instruction, and at the request of Purchaser, Independence shall make such arrangements with the NYISO as may be necessary to carry out such re-designation. The Parties expressly acknowledge and agree that Independence shall have no obligation under this Agreement or otherwise to maintain its status as a "qualifying facility." ARTICLE XI - METERING 11.01 POWER (a) To the maximum extent possible given the capabilities of the Electric Metering Equipment, Net Electric Energy delivered by Independence shall be metered at the Electric Delivery Point on a continuous real-time basis. The Electric Metering Equipment shall be used to determine conclusively, subject to Section 11.05, the amount of Net Electric Energy delivered by Independence at the Electric Delivery Point. (b) Subject to the requirements and limitations of the Niagara Mohawk Interconnection Agreement, Independence shall be responsible for performing, or causing to be performed, and shall bear all costs and expenses of the installation, maintenance, testing and initial calibration of the Electric Metering Equipment and the maintenance and testing of the electrical facilities and Protective Apparatus, including any transmission equipment and related facilities, necessary to interconnect the Facility at the Electric Delivery Point to the relevant electrical system. All Electric Metering Equipment must conform to the requirements of Niagara Mohawk. (c) Subject to the requirements and limitations of the Niagara Mohawk Interconnection Agreement and NYISO Requirements, Independence will work with Purchaser to permit Purchaser, at Purchaser's expense, either to install electronic access to the existing real-time electric meters, or to install Purchaser's own real-time meters. 11.02 GAS (a) To the maximum extent possible given the capabilities of the Gas Metering Equipment, Gas delivered by Purchaser to Independence shall be measured at the Gas Facility Point on a continuous real-time basis. Subject to *** CONFIDENTIAL TREATMENT REQUESTED *** 35 Section 11.05, the delivering pipeline revenue meter shall be used to determine the quantity of Gas delivered at the Gas Facility Point. (b) Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (and related Gas tariffs), Independence shall be responsible for performing, or causing to be performed, and shall bear all costs and expenses of the installation, maintenance, repair, testing and initial calibration of the Gas Metering Equipment (to the extent not otherwise installed, maintained, tested and calibrated by the delivery pipeline or supplier of Gas to the Facility). (c) Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), Independence will work with Purchaser to permit Purchaser, at Purchaser's expense, either to install electronic access to the existing real-time gas meters, or to install Purchaser's own real-time meters. 11.03 INDUSTRY STANDARDS Subject to the requirements and limitations of the Niagara Mohawk Interconnection Agreement and the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), all Electric Metering Equipment and Gas Metering Equipment, whether owned by Independence or by a third party, shall be operated, maintained and tested by and/or on behalf of Independence in accordance with Good Electrical Practices, in the case of the Electric Metering Equipment, and in accordance with AGA and ANSI standards in the case of the Gas Metering Equipment. 11.04 ACCESS Subject to the requirements and limitations of the Niagara Mohawk Interconnection Agreement and the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), each Party shall have the right to receive reasonable advance notice with respect to, and to be present at the time of, any installing, cleaning, changing, repairing, inspecting, testing, calibrating or adjusting of Electric Metering Equipment and Gas Metering Equipment irrespective of whether such Electric Metering Equipment or Gas Metering Equipment is owned or operated by Independence or by a third party. Upon reasonable advance notice, Independence shall make available to Purchaser all data, records and charts relating to the Electric Metering Equipment and Gas Metering Equipment, together with measurements and calculations therefrom, for inspection and verification. *** CONFIDENTIAL TREATMENT REQUESTED *** 36 11.05 CALIBRATION Subject to the requirements and limitations of the Niagara Mohawk Interconnection Agreement and the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), Independence at its sole cost and expense shall inspect and calibrate, or cause to be inspected, all Electric Metering Equipment and Gas Metering Equipment periodically, but not less frequently than as required by Niagara Mohawk and Empire. Subject to the requirements and limitations of the Niagara Mohawk Interconnection Agreement and the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), correction shall be made when any test shows a measurement error of more than (i) in the case of Gas Metering Equipment, two percent (2%) or such lower percentage as may be established by applicable tariff of the delivering pipeline, or (ii) in the case of Electric Metering Equipment, as specified by the NYISO Requirements. 11.06 RECORDS The Parties shall maintain accurate and detailed records relating to the Facility's hourly deliveries of Net Electric Energy and Gas consumption for three years or for such longer period as may be required by FERC, the NYISO, Empire or Niagara Mohawk. All records shall be available for inspection by either Party upon reasonable notice during Regular Business Hours. 11.07 UPGRADED METERING Notwithstanding any other provision of this Article XI, the Parties acknowledge that the Gas Metering Equipment may not provide the degree of precision that the Parties desire regarding the measurement and monitoring of the Gas input of the Facility, and the Parties agree to work together to develop plans for upgraded and additional meters. Such plans shall be developed by mutual agreement of the Parties, and shall be subject to the requirements of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract. Independence agrees to bear the reasonable costs of such upgraded metering. ARTICLE XII - BILLING AND PAYMENT 12.01 BILLING As soon as practicable after the end of each Month, Independence shall deliver to Purchaser an invoice detailing the Energy and Ancillary Services delivered to Purchaser and setting forth all charges and any other amount payable to Independence pursuant to this Agreement, and any amounts payable to *** CONFIDENTIAL TREATMENT REQUESTED *** 37 Purchaser pursuant to the terms of this Agreement. Monthly payments under this Agreement for any partial Month during the Contract Term will be prorated. 12.02 PAYMENT Each Party shall render payment to the other Party by wire transfer payment, or other acceptable method agreed to by the Parties, of the amount due as set forth in the invoice, by the later of (i) the twenty fifth (25th) Day of the Month, and (ii) ten Days after the other Party's receipt of the invoice. The address, account information and/or wire transfer information shall be as provided pursuant to Section 24.07. Failure to make such payment when due shall result in a late charge on the unpaid balance that shall accrue on each calendar day from the due date to the date paid at the Interest Rate. If either Party in good faith disputes any part of any invoice, it shall make payment of the undisputed amount invoiced and shall provide to the other Party on or before the payment due date a written explanation of the basis for the dispute. If any amount disputed is determined to be due, the disputing Party shall pay such disputed amount within two Days of such determination, along with interest accrued daily at the Interest Rate from the date that, but for the dispute, payment was due until the date paid. 12.03 AUDIT Each Party has the right with reasonable prior notice, at its sole expense, to examine the records of the other Party during Regular Business Hours to the extent reasonably necessary to verify the accuracy of any invoice, or calculations provided with or supporting such invoice, rendered pursuant to this Agreement. If any such examination reveals any inaccuracy in any invoice, or calculations provided with or supporting such invoice, the necessary adjustments in such invoice, or calculations provided with or supporting such invoice, and the payments made pursuant to such inaccurate invoice, or calculations provided with or supporting such invoice, shall be adjusted in the next invoice; provided, however, that the party asserting the need for such adjustment brought it to the attention of the other Party within twelve Months after the event causing the need for adjustment. This Section 12.03 shall survive any termination of this Agreement for a period of one year from the date on which the last invoice is rendered to such Party pursuant to this Agreement. 12.04 NYISO REIMBURSEMENT If and to the extent the NYISO pays Independence directly for Energy or Ancillary Services to which Purchaser is entitled in accordance with Article III, Independence shall forward such payments to Purchaser within five Days of receipt. If the NYISO subsequently adjusts any such payment, Independence shall forward such adjustment to Purchaser within five days of receipt (in the case of an additional payment from the NYISO), and Independence shall include the amount of such adjustment in the next billing statement to Purchaser (in the case of an *** CONFIDENTIAL TREATMENT REQUESTED *** 38 adjustment reducing a prior payment). If Purchaser believes that a payment calculated by the NYISO is incorrect and requests that Independence dispute such calculation, Independence shall dispute any such payment amounts pursuant to the applicable NYISO procedures, subject to the direction of Purchaser and with counsel that may be engaged by Purchaser. Purchaser shall be responsible for all costs reasonably incurred by Independence with respect to such disputes. 12.05 OFFSET The Parties hereby agree that they shall discharge mutual debts and payment obligations due and owing to each other under this Agreement through netting, in which case all amounts owed by each Party to the other Party under this Agreement during the monthly billing period, including, interest, and payments or credits, shall be netted so that only the excess amount remaining due shall be paid by the Party who owes it. ARTICLE XIII - ELECTRIC TRANSMISSION ARRANGEMENTS 13.01 ELECTRIC TRANSMISSION ARRANGEMENTS Purchaser shall arrange and be responsible for transmission service at and after the Electric Delivery Point, shall schedule or arrange for scheduling services with its Transmission Providers to accept Energy at and from the Electric Delivery Point and shall be responsible for all costs or charges imposed on or associated with the transmission service at and after the Electric Delivery Point, including control area services, and other ancillary services required by the Transmission Providers' tariff or otherwise to be provided to the transmission customer. ARTICLE XIV - COST RESPONSIBILITY 14.01 COST RESPONSIBILITY Purchaser shall be responsible for and shall reimburse Independence for all costs imposed upon Independence by any Governmental Authority or by the NYISO (other than any such costs that are currently imposed on Independence by such entities) and that Independence would not have incurred but for performance by Independence of its obligations to Purchaser under this Agreement. The Parties expressly acknowledge and agree that Purchaser shall be responsible for, and shall reimburse Independence for, all costs arising out of or relating to the performance of any of the Parties' obligations under this Agreement including, without limitation, the provision of Tolling Services or Ancillary Services, the operation of all or any portion of the Reserved Capability and the dispatch or decision not to cause the dispatch of the Facility by the NYISO that are associated with scheduling, *** CONFIDENTIAL TREATMENT REQUESTED *** 39 regulation, energy imbalances or similar occurrences, including, but not limited to, any charges assessed against Independence or Purchaser by the NYISO, either directly or indirectly, for Energy Imbalance Service (pursuant to and as defined in Schedule 4 to the NYISO Open Access Transmission Tariff) or for charges associated with Real-Time Market Settlement (pursuant to and as defined in Section 4.18 to the NYISO Services Tariff), provided further however, that Purchaser shall not be responsible for any of the foregoing costs to the extent that they arise out of the breach by Independence of a material obligation of Independence set forth in this Agreement. ARTICLE XV - ADDITIONAL AGREEMENTS 15.01 INSURANCE (a) Independence will at all times carry and maintain or cause to be carried and maintained at its expense such insurance as is customarily maintained by owners and operators of generating facilities and in all events will carry and maintain at least the minimum insurance coverage set forth in this section placed with brokers, insurers, and reinsurers of recognized responsibility. (i) ALL RISK PROPERTY INSURANCE. Throughout the Contract Term, Independence will maintain all risk property insurance covering the Facility against physical loss or damage, including, comprehensive boiler and machinery coverage (including electrical malfunction and mechanical breakdown). Deductibles will not exceed US $1,000,000.00 for a combustion turbine, $750,000.00 for a steam turbine, generator, or heat recovery steam generator, and $250,000.00 for all other losses. As an extension of All Risk Coverage Independence will maintain Business Interruption insurance in an amount equal to six (6) Months projected non-operating cash flow requirements. Such extension may be subject to deductibles not to exceed 60 Days. (ii) COMMERCIAL GENERAL LIABILITY. Independence will maintain third party liability insurance written on an occurrence basis (claims made if covered by Aegis) with a limit not less than US $1,000,000.00. Deductibles will not exceed $50,000.00 per occurrence. (iii) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY. Independence will maintain Workers' Compensation Insurance and Employer's Liability Insurance which comply with Applicable Laws statutory to New York. *** CONFIDENTIAL TREATMENT REQUESTED *** 40 (iv) BUSINESS AUTOMOBILE LIABILITY. Independence will maintain Business Automobile Liability Insurance with a limit of not less than US $1,000,000.00, including coverage for owned, not-owned and hired automobiles for both bodily injury (including death) and property damage, uninsured/underinsured motorist protection endorsements. (v) EXCESS/UMBRELLA LIABILITY. Independence will maintain Excess/Umbrella Liability insurance written on an occurrence basis (claims made if covered by Aegis) and providing coverage limits in excess of the primary limits. The limit of such excess/umbrella coverage will not be less than US $10,000,000.00 on a follow form basis. Independence will annually cause each insurer or authorized agent to provide Purchaser with two original copies of insurance certificates reasonably acceptable to Purchaser evidencing the effectiveness of the insurance coverages required to be maintained. (b) All such insurance policies maintained by Independence will: (i) name Purchaser as an additional insured (except in the case of worker's compensation insurance); (ii) provide that Purchaser will receive from each insurer 30 Days' prior written notice of non-renewal, cancellation of, or significant modification to, any of such policies (except that such notice period will be 10 Days in case of non-payment of premiums); and (iii) provide a waiver of any rights of subrogation against Purchaser, its Affiliates and their officers, directors, agents, subcontractors, and employees. The insurance certificates will indicate that the insurance policies have been endorsed as described above. (c) All policies maintained by Independence will be written by one or more nationally reputable insurance companies approved to do business in New York and be rated B+VII or higher by A.M. Best Company or Lloyds Companies or other insurers reasonably acceptable to Purchaser. (d) All policies maintained by Independence will be written on an occurrence basis unless procured from AEGIS on a claims made basis. Policies will contain an endorsement that Independence's policy will be primary as respects *** CONFIDENTIAL TREATMENT REQUESTED *** 41 construction and operations of the Facility regardless of like coverages, if any, carried by Purchaser. (e) Purchaser may request Independence to require that any insurance obtained and maintained by a third party operator of the Facility name Purchaser as an additional insured, with any cost for such coverage payable by Purchaser. (f) Independence will notify Purchaser of the insurance company (and any replacement thereof) from which Independence obtains its Commercial or Comprehensive General Liability insurance and, if Purchaser desires to obtain Commercial or Comprehensive General Liability insurance from the same insurance company (or any replacement thereof), Independence will comply with Purchaser's reasonable requests for information concerning such coverages which assist Purchaser in obtaining insurance from the same such insurance company. (g) In the event that (i) the third party liability insurance required above or (ii) the Excess/Umbrella Liability insurance required, is on a "claims made" basis and not on an occurrence basis, such insurance will provide for a retroactive date and continuing "tail" coverage not later than the Effective Date and such insurance will be maintained by Independence, with a retroactive date not later than the retroactive date required above, for a minimum of three years after the Contract Term. (h) In the event that Independence reasonably determines that any such policy of insurance is no longer available at commercially reasonable rates, Independence shall not be obligated to continue to carry such insurance, and shall obtain substitute insurance which is as nearly identical as possible to the policy of insurance which it is intended to replace. (i) Purchaser shall at all times effect, maintain and keep in force, or cause to be effected, maintained and kept in force, comprehensive general liability insurance, public liability coverage and property insurance for injuries to persons and property, automobile liability insurance and workman's compensation insurance, all in commercially reasonable amounts and terms. In the event that Purchaser reasonably determines that any such policy of insurance is no longer available at commercially reasonable rates, Purchser shall not be obligated to continue to carry such insurance, and shall obtain substitute insurance which is as nearly identical as possible to the policy of insurance which it is intended to replace. ARTICLE XVI - REPRESENTATIONS 16.01 INDEPENDENCE'S REPRESENTATIONS Independence hereby represents and warrants as follows: *** CONFIDENTIAL TREATMENT REQUESTED *** 42 (a) It is a limited partnership duly organized and validly existing and in good standing under the laws of Delaware and is duly qualified to do business and in good standing in the State of New York. (b) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (c) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any partnership approval or consent of any trustee or holder of any indebtedness of Independence. (d) This Agreement has been duly executed and delivered on behalf of Independence by the appropriate officers of the general partner of Independence and constitutes the legal, valid and binding obligation of Independence, enforceable against Independence in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). 16.02 PURCHASER'S REPRESENTATIONS Purchaser hereby represents and warrants as follows: (a) It is a corporation duly organized and validly existing and in good standing under the laws of Texas and is duly qualified to do business and in good standing in the State of New York. (b) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (c) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any shareholder approval or consent of any trustee or holder of any indebtedness of Purchaser. (d) This Agreement has been duly executed and delivered on behalf of Purchaser by the appropriate officers of Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other *** CONFIDENTIAL TREATMENT REQUESTED *** 43 similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (e) Purchaser warrants that it will, at the time of delivery, have good title to all Gas delivered by it to Independence hereunder, free and clear of all liens, encumbrances and claims whatsoever. ARTICLE XVII - CONDITIONS 17.01 CONDITIONS PRECEDENT The obligations of Independence to consummate the transactions contemplated by this Agreement shall be subject to fulfillment of the following conditions, unless waived in writing by Independence: (a) Purchaser shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit 17.01(A) or such other form as Independence may approve; (b) Dynegy Holdings Inc. ("Guarantor") shall have delivered a duly executed Guaranty Agreement in the form of Exhibit 17.01(B) or such other form as Independence may approve; and (c) Guarantor shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit 2 to Exhibit 17.01(B) or such other form as Independence may approve. ARTICLE XVIII - DEFAULT AND REMEDIES 18.01 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: (a) A material breach of any material term or condition of this Agreement, including, but not limited, to (i) any material breach of a representation, warranty or covenant made in this Agreement, and (ii) failure of either Party to make a required payment to the other Party of amounts due hereunder. (b) A failure of Guarantor to provide Performance Assurance as defined in the Guaranty Agreement dated as of the date hereof by Guarantor (as *** CONFIDENTIAL TREATMENT REQUESTED *** 44 amended, supplemented or modified and in effect from time to time, the "Guaranty Agreement") or a guaranty or other credit assurance acceptable to Independence, within the time required pursuant to Section 6 of the Guaranty Agreement. (c) A receiver or liquidator or trustee of either Party or of any of its property shall be appointed by a court of competent jurisdiction, and such receiver, liquidator or trustee shall not have been discharged within one hundred twenty (120) Days, or by decree of such a court, a Party shall be adjudicated bankrupt or insolvent or any substantial part of its property shall have been sequestered, and such decree shall have continued undischarged and unstayed for a period of one hundred twenty (120) Days after the entry thereof; or a petition to declare bankruptcy or to reorganize a Party pursuant to any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, shall be filed against a Party and shall not be dismissed within one hundred twenty (120) Days after such filing. (d) A Party shall file a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law, or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a proceeding under any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, or an answer admitting the material allegations of a petition filed against it in such a proceeding; or a Party shall make an assignment for the benefit of its creditors; or a Party shall admit in writing its inability to pay its debts generally as they become due; or a Party shall consent to the appointment of a receiver, trustee or liquidator of it or of all or part of its property. (e) The occurrence and continuation of a default, event of default or other similar condition or event in respect of such Party (or an Affiliate of such Party) under (i) the Gas Supply Agreement; or (ii) the Energy Management Agreement. 18.02 NOTICE OF DEFAULT; CURE Upon the occurrence of any such Event of Default other than those described in Section 18.01(b), (c) and (d), the Party not in default shall give written notice of the Event of Default to the defaulting Party. Such notice of default shall set forth, in reasonable detail, the nature of the default and, where known and applicable, the *** CONFIDENTIAL TREATMENT REQUESTED *** 45 steps necessary to cure such default. Following receipt of such notice, the defaulting Party shall have: (a) ten (10) Days in the case of the failure of the defaulting Party to make a required payment to the other Party of amounts due hereunder; or (b) thirty (30) Days in the case of any other Event of Default described in Sections 18.01(a) and 18.01(e): to cure such default or, in the case of an Event of Default under Section 18.02(b), to commence in good faith and continue to diligently pursue all such steps as shall be reasonably necessary and appropriate to cure such default in the event such default cannot reasonably be completely cured within such thirty (30) Day period. 18.03 REMEDIES Notwithstanding the foregoing, after the occurrence of any such Event of Default and the expiration of all applicable cure periods with respect thereto without such default being cured, the non-defaulting Party shall be entitled (i) to suspend performance under this Agreement or to terminate this Agreement, (ii) to commence an action to require the defaulting Party to remedy such default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof and (iii) to exercise such other rights and remedies as it may have at equity or at law, but subject to any limitation on damages otherwise provided for under this Agreement. ARTICLE XIX - LIMITATION OF LIABILITY 19.01 LIMITATION OF LIABILITY (a) Subject to Section 19.01(b), neither Party, nor their respective officers, directors, partners, agents, employees or Affiliates, shall be liable to the other Party or its Affiliates, officers, directors, trustees, partners, agents, employees, successors or assigns, for claims for incidental, special, indirect, consequential or punitive damages of any nature connected with or resulting from performance or breach of this Agreement, including, without limitation, claims in the nature of lost revenues, income or profits (other than payments specifically provided for and properly due under this Agreement) or losses, damages or liabilities under any financing, lending or construction contracts, agreements or other arrangements, irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. Under no circumstances shall Independence be liable to Purchaser for damages associated with the costs to Purchaser to obtain replacement Energy, Capacity or Ancillary Services to meet Purchaser's contractual obligations to third parties. The Parties *** CONFIDENTIAL TREATMENT REQUESTED *** 46 acknowledge and agree that the services to be provided hereunder are contingent on the availability of the Facility. (b) Notwithstanding the limitation of liability under Section 19.01(a), if Purchaser (i) fails for any reason (including as a result of Force Majeure) to deliver Gas to the Gas Facility Point or (ii) fails for any reason (including as a result of Force Majeure) to cause the Reserved Tolling Capability to be dispatched by the NYISO in accordance with Section 5.05(b), in each case, during all or any portion of a period in which Independence desires to operate any portion of the Reserved Tolling Capability for purposes of effectuating a physical hedge against its financial obligations associated with the Market Price (during which such portion of the Reserved Tolling Capability is otherwise available), Purchaser shall pay to Independence the Market Price for all quantities of Energy that would have been delivered to the Electric Delivery Point but for the Purchaser's failure (i) to deliver Gas for such period or (ii) to cause the Reserved Tolling Capability to be dispatched by the NYISO in accordance with Section 5.05(b). The Parties acknowledge that damages for such failure to deliver Gas or to cause the Reserved Tolling Capability to operate are difficult or impossible to determine or otherwise obtaining an adequate remedy is inconvenient and the damages calculated under this Section 19.01(b) constitute a reasonable approximation of the harm or loss. 19.02 DUTY TO MITIGATE Notwithstanding any other provision of this Agreement, each Party has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party's performance or non-performance. ARTICLE XX - INDEMNIFICATION 20.01 INDEPENDENCE'S INDEMNIFICATION Independence shall indemnify, defend and hold harmless Purchaser and its Affiliates and their officers, trustees, directors, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to the tangible property of third parties and injury to or death of persons (other than Purchaser's employees and Independence's employees) to the extent caused by, arising out of or relating to the gross negligence or willful misconduct of Independence in connection with or resulting from Independence's performance or breach of this Agreement. *** CONFIDENTIAL TREATMENT REQUESTED *** 47 20.02 PURCHASER'S INDEMNIFICATION Purchaser shall indemnify, defend and hold harmless Independence and its Affiliates and their officers, directors, trustees, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to tangible property of third parties and injury to or death of persons (other than Independence's employees or Purchaser's employees) to the extent caused by, arising out of or related to the gross negligence or willful misconduct of Purchaser in connection with or resulting from Purchaser's performance or breach of this Agreement. 20.03 INDEMNIFICATION PROCEDURES (a) A Party which becomes entitled to indemnification under this Agreement (the "Indemnified Party") shall give written notice to the other Party (the "Indemnifying Party") of the occurrence of the events which give rise to such right of indemnification within 30 Days of the Indemnified Party becoming aware of the occurrence thereof. Such notice shall describe the claim, the basis thereof and shall indicate an estimate of the amount of the claim. To the extent that the Indemnifying Party is prejudiced by any failure of the Indemnified Party to provide such notice, such notice shall be a condition precedent to the liability of the Indemnifying Party under this Article XX. (b) At the Indemnified Party's request, the Indemnifying Party shall, at its cost and expense, defend (with counsel reasonably acceptable to the Indemnified Party) any suit asserting a claim against the Indemnified Party with respect to which the Indemnified Party is entitled to indemnification hereunder, and shall pay all costs and expenses incurred by the Indemnified Party to enforce its right to indemnification. The Indemnified Party may, at its own expense, retain separate counsel and participate in the defense of any such suit. Neither Party may settle or compromise a claim or suit without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. 20.04 SURVIVAL The indemnification obligations of each party under this Article XX shall not be limited in any way by any limitation on insurance, by the amount or types of damages, or by any compensation or benefits payable by the parties under Worker's Compensation Acts, disability benefit acts or other employee acts or otherwise. The provisions of this Article XX shall survive termination, cancellation, suspension, completion or expiration of this Agreement. *** CONFIDENTIAL TREATMENT REQUESTED *** 48 ARTICLE XXI - ASSIGNMENT AND SUCCESSION 21.01 ASSIGNMENT (a) This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, except to an Affiliate or successor, by either Party hereto, whether by operation of law or otherwise, without the prior written consent of the other Party, which consent may not be unreasonably withheld or delayed. No assignment of all or any portion of the rights, interests or obligations permitted pursuant to the immediately preceding sentence shall relieve or discharge the assignor from any of its obligations under this Agreement without the prior written consent of the non-assigning Party, which consent shall not be unreasonably withheld or delayed. Any assignment of this Agreement in violation of the foregoing shall be, at the option of the non-assigning Party, void. (b) Notwithstanding the foregoing provisions of Section 21.01(a), (i) Purchaser may assign all or any portion of its rights and obligations hereunder to any of its Affiliates, (ii) Independence may assign all or any portion of its rights and obligations hereunder to any of its Affiliates (including, without limitation, Sithe Power Marketing, L.P., a Delaware limited partnership), and (iii) Independence may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof, provided, however, that no such assignment of all or any portion of the rights, interests or obligations of a party pursuant to this Section 21.01(b) shall relieve or discharge the assignor from any of its obligations under this Agreement unless the non-assigning Party consents to such release or discharge in accordance with Section 21.01(a). With respect to clause (iii) of this Section 21.01(b), Purchaser agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, so long as Purchaser's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. ARTICLE XXII - FORCE MAJEURE 22.01 FORCE MAJEURE (a) The term "Force Majeure" shall mean 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; strikes and other labor *** CONFIDENTIAL TREATMENT REQUESTED *** 49 disturbances; earthquakes; storms; fires; lightning; epidemics; wars; riots or civil disturbances; sabotage or condemnation or other similar acts. Notwithstanding the foregoing, under no circumstances shall Force Majeure include any of the following: (i) any reduction, curtailment or interruption of generation or operation of the Facility, whether in whole or in part, which reduction, curtailment or interruption is caused by or arises from the negligence or willful misconduct of the affected Party or any third party vendor or supplier to the Facility of materials, equipment, supplies or services; (ii) changes in market conditions that affect the cost of or demand for Energy, Ancillary Services or Gas; (iii) any NYISO or other grid constraint affecting the transmission of energy by Purchaser from the Electric Delivery Point; (iv) derating of the Facility, unless such derating is due to a Force Majeure event; (v) change in Law; (vi) failure of a Party to obtain and maintain any governmental approval, (vii) any failure or Outage of the Facility the cause of which cannot be determined through reasonable diligence; (viii) any failure or outage of the Facility that is due to a latent or patent defect or inadequacy in the generation equipment comprising the Facility; (ix) any failure or outage of the Facility that is due to the improper or negligent maintenance, installation, delivery, or design of the Facility; (x) the unavailability of equipment, goods, or services that could have been avoided by the observance of Good Electrical Practices or (ix) causes or events affecting the performance of third-party suppliers of goods or services to the Facility or to Independence except to the extent caused by an event that otherwise is an event of Force Majeure as specified in this Section 22.01(a). (b) If either Party because of Force Majeure is rendered wholly or partly unable to perform its obligations under this Agreement, except for a Party's obligation to make payments under this Agreement (which shall not be excused), that Party shall be excused from whatever performance is affected by the Force Majeure to the extent so affected, provided that the Party whose performance under this Agreement is affected by an event of Force Majeure (i) gives the other Party notice of the occurrence of such Force Majeure event as soon as possible, and (ii) uses all commercially reasonable efforts to remedy the cause(s) and effect(s) of such Force Majeure event with all reasonable dispatch. If an event of Force Majeure results in an Outage of the Facility, Independence shall use commercially reasonable efforts to remedy the cause(s) and effect(s) of such Force Majeure event with all reasonable dispatch, including, if necessary, the reconstruction, repair or replacement of all or a portion of the Facility utilizing the proceeds of insurance required pursuant to Article XV. The affected Party shall not be obligated to undertake unreasonable or uneconomic costs or burdens, including the settlement of strikes or labor disturbances on terms other than are acceptable to such Party in its sole discretion, in order to overcome the effects of the Force Majeure and reinstate full performance of its Agreement obligation. *** CONFIDENTIAL TREATMENT REQUESTED *** 50 ARTICLE XXIII - TAXES 23.01 TAXES - POWER (a) Purchaser is liable for and shall pay, cause to be paid, reimburse Independence if Independence has paid, or pay to Independence if Independence is required by Law to pay to a taxing or other Governmental Authority, or to any other entity, all Taxes arising out of or related to Independence's performance in providing Tolling Services or Ancillary Services under this Agreement including (i) any Taxes imposed or collected by a taxing authority with jurisdiction over Purchaser, and (ii) any Taxes imposed on the delivery or sale of Energy or Ancillary Services to Purchaser, or Purchaser's possession, transportation, consumption, use, sale or other disposition of the Energy or Ancillary Services; provided, however, that Purchaser shall not be responsible for the payment of any Taxes levied on or with respect to Independence's personal or real property. (b) Each Party will provide the other Party upon written request a certificate of exemption or other reasonably satisfactory evidence of exemption if any exemption from or reduction of any Tax is applicable. Each Party will exercise commercially reasonable efforts to obtain and to cooperate in obtaining any exemption from or reduction of any Tax. 23.02 TAXES - GAS (a) Purchaser is liable for and shall pay, or cause to be paid, or reimburse Independence if Independence has paid, all Taxes applicable to Gas provided by Purchaser pursuant to Section 8.01(a) this Agreement including (i) any Taxes imposed or collected by a taxing authority with jurisdiction over Independence, and (ii) any Taxes imposed on the delivery or sale of Gas to Independence, on Independence's possession, transportation, consumption use, sale or other disposition of the Gas. (b) The price specified in Section 8.02 for Gas delivered pursuant to Section 8.01(b) includes full reimbursement to Purchaser for all Taxes applicable to the Gas sold hereunder upstream of the Gas Facility Point, including all Taxes applicable to the Gas sold hereunder prior to the Gas Facility Point or applicable as a result of the transfer of title to the Gas sold hereunder, but excluding all Taxes applicable to the Gas sold hereunder downstream of the Gas Facility Point and except in each case to the extent that the Tax is assessed due to any subsequent sale by Independence of such Gas. All Taxes incurred in or attributable to the production, sale, and delivery, handling, or transportation of the Gas sold and delivered pursuant to Section 8.01(b) of this Agreement (or otherwise caused by or attributable to such Gas) prior to the Gas Facility Point (including all Taxes applicable to the Gas sold hereunder prior to the Gas Facility Point or applicable as *** CONFIDENTIAL TREATMENT REQUESTED *** 51 a result of the transfer of title to the Gas sold hereunder) shall be the responsibility of Purchaser and Purchaser shall indemnify, defend, and hold Independence and its officers, directors, employees, agents, and partners harmless from and against all such Taxes. Any liability for the New York State Tax on Natural Gas Importers under ss.189 of the New York Tax Law, or any similar taxes enacted in place of the Sec. 189 Taxes (together, the "Sec. 189 Taxes"), which are assessed as a result of the location of any Gas Delivery Point outside of New York State shall be the responsibility of Purchaser and Purchaser shall indemnify, defend, and hold Independence and its officers, directors, employees, agents, and partners harmless from and against all such Taxes. Except as provided in the Gas Supply Agreement and with respect to Sec. 189 Taxes, all Taxes incurred in or attributable to the purchase and transfer, handling, or transportation of the Gas purchased and received pursuant to Section 8.01(b) of this Agreement (or otherwise caused by or attributable to such Gas) after the Gas Facility Point shall be the responsibility of Independence, and Independence shall indemnify, defend, and hold Purchaser and its officers, directors, employees, agents, and shareholders harmless from and against all such Taxes. Except as provided in the Gas Supply Agreement, all sales, transfer, and use Taxes (if any) applicable to the sale or transfer of Gas pursuant to Section 8.01(b) of this Agreement at the Gas Facility Point shall be borne 50% each by Independence and Purchaser. Each of Purchaser and Independence shall apply for, and shall cooperate with the other in applying for, such exemption and other certificates as the other reasonably may request to eliminate the necessity of paying, collecting, or withholding any such Taxes. 23.03 COOPERATION The Parties agree to use commercially reasonable efforts to mitigate the Parties' exposure to Taxes which could be imposed on either Party as a result of this Agreement. ARTICLE XXIV - MISCELLANEOUS 24.01 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of Purchaser and Independence hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Agreement. 24.02 SUBMISSION TO JURISDICTION Each of the Parties hereby irrevocably and unconditionally: *** CONFIDENTIAL TREATMENT REQUESTED *** 52 (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (b) 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 the other Party at its address set forth in Section 24.07, or at such other address of which the other Party shall have been notified pursuant thereto; and (c) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Law. 24.03 HEADINGS The descriptive headings of the Articles and Sections of this Agreement are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Agreement. 24.04 WAIVER Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first Party to comply with such obligation, covenant, agreement or condition. 24.05 SEVERABILITY Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 24.06 ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the Parties, and supersedes any and all previous understandings, oral or written, with respect to the subject matter hereof. *** CONFIDENTIAL TREATMENT REQUESTED *** 53 24.07 NOTICES Any notice, request, demand, statement or payment provided for in this Agreement shall be in writing and shall be made as specified below; provided, however, that notices of interruption may be provided verbally, effective immediately and confirmed in writing and, provided further, that any Scheduling shall be done pursuant to the Scheduling and Operating Procedures. Invoices may be sent by facsimile. A notice sent by facsimile transmission will be recognized and shall be deemed received on the Business Day on which such notice was transmitted if received before close of business (and if received after close of business, on the next Business Day) and a notice by overnight mail or courier shall be deemed to have been received two Business Days after it was sent or such earlier time as is confirmed by the receiving Party unless it confirms a prior verbal communication, in which case any such notice shall be deemed received on the Day sent. To Purchaser:
NOTICES & CORRESPONDENCE: PAYMENTS & INVOICES: Dynegy Power Marketing, Inc. Bank One, NA-Chicago P.O. Box 4777 For the Account of: Houston, Texas 77210-4777 Dynegy Power Marketing, Inc. Account #/CHIPS UID: 552-7651 Street Address: (courier delivery) Fed. ABA #: 071000013 1000 Louisiana, Suite 5800 Houston, Texas 77002-5050 Attention: Gerardo P. Manalac Telephone No.: (713) 507-6438 Facsimile No.: (713) 507-6538 To Independence: NOTICES & CORRESPONDENCE: PAYMENTS BY WIRE TRANSFER: Sithe/Independence Power Partners, L.P. All payments made by Purchaser P.O. Box 1046 to Independence shall be made 76 Independence Way directly to the account entitled Oswego, New York 13126 "Project Revenue Fund" Attention: General Manager maintained by Independence with Facsimile: (315) 342-8425 The Bank of New York, Account No. 229289, 101 Barclay Street, Floor 21W, New York, New York, 10286, or to such
***CONFIDENTIAL TREATMENT REQUESTED*** 54 with a copy to: other person or account as shall be specified from time to time Sithe/Independence Power Partners, L.P by Independence to Purchaser in c/o Sithe Energies, Inc. writing. Any payments being 335 Madison Avenue wired to the above-referenced 28th Floor account should be directed to New York, New York 10017 ABA 021000018; The Bank of New Attention: General Counsel York; Corporate Trust/GLA Facsimile: (212) 351-0800 111-565; for further credit to TAS Account 229289; REF: Sithe Independence PWR Project Revenue Fund.
From time to time either Party may change the foregoing addresses and payment information by sending written notice of such change in accordance with this Section. 24.08 CONFIDENTIALITY (a) "Confidential Information" shall be any information or data exchanged by the Parties relating to the trading and marketing activities of either Party, the bids and Schedules submitted directly or indirectly to the NYISO pursuant to this Agreement or daily advisory billing statements and monthly billing statements received from the NYISO related to the Facility (including non-public information related thereto communicated to a Party from the NYISO). Confidential Information shall not include information: (i) which was developed by the Receiving Party and was contained in a writing in the Receiving Party's possession before its receipt from the other Party; (ii) which at the time of its disclosure to the Receiving Party is, or thereafter becomes, through no act or failure to act on the part of the Receiving Party, part of the public domain; (iii) which has been rightfully furnished to the Receiving Party by a third party without restriction on disclosure or use and not in violation of any rights of, or obligations to, the other Party. The occurrence of any of the above exceptions shall not be construed as an express or implied grant of any rights under any of the other Party's patents or other intellectual property rights. For the purposes of this Section 24.08, a Party that receives Confidential Information from the other Party shall be referred to as the "Receiving Party." ***CONFIDENTIAL TREATMENT REQUESTED*** 55 (b) No Receiving Party shall disclose or use Confidential Information received from the other Party for any purpose other than in connection with the performance of its obligations under this Agreement, without the prior written consent of the other Party. The Receiving Party agrees to utilize with respect to received Confidential Information the same standards and procedures which it applies to protection of its own confidential information, but not less than reasonable care. (c) Each Party will limit access to received Confidential Information to those of its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents, and consultants who need to know about or participate in the performance of its obligations under this Agreement. Each Party agrees to (i) inform each of its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents, and consultants who receive Confidential Information of the confidential nature thereof and of the obligations imposed by this Agreement, and (ii) each Party shall remain primarily liable to the other for unauthorized use or disclosure of received Confidential Information by its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents or consultants receiving such information. (d) Notwithstanding Section 24.08(c), Independence shall not disclose Confidential Information to individuals who are actively involved in material marketing and trading activities in the markets administered by the NYISO; provided that Independence may designate by notice to Purchaser up to two individuals for receipt of Confidential Information who have responsibilities related to the Facility and associated contracts (including this Agreement) and who are engaged in material marketing and trading activities in the markets administered by the NYISO; provided further that Independence shall take all reasonable precautions to ensure that such designated individuals do not utilize Confidential Information in their marketing and trading activities; and provided further that information related to transmission congestion contracts or Installed Capacity contained in daily advisory billing statements and monthly billing statements received from the NYISO related to the Facility shall not be considered Confidential Information for purposes of this Section 24.08(d) only. Such individuals will not be provided access to the results of the NYISO's Day-Ahead Market bidding process undertaken by Purchaser under this Agreement and the Energy Management Agreement, unless and until Independence's Facility operating personnel (who will have daily access to such results) (i) have identified a problem or material issue regarding such results, (ii) have attempted to discuss the problem or material issue with Purchaser, and (iii) following such discussions, have been unable to resolve the problem or material issue. (e) Notwithstanding Section 24.08(c), Purchaser shall not disclose information related to transmission congestion contracts or Installed Capacity ***CONFIDENTIAL TREATMENT REQUESTED*** 56 contained in daily advisory billing statements and monthly billing statements received from the NYISO related to the Facility to individuals who are actively involved in material marketing and trading activities in the markets administered by the NYISO. (f) Each Party may disclose Confidential Information to third parties or other Governmental Authorities, including NYISO, to the extent such disclosures are contemplated in and required by the Parties in connection with the performance of their obligations under this Agreement. Each Party may also disclose Confidential Information which it is legally required to furnish to comply with a subpoena or other legal process of a Governmental Authority, provided that the disclosing Party shall use reasonable efforts to limit such disclosure and to obtain confidential treatment of such Confidential Information. (g) The provisions of this Section 24.08 shall survive expiration, cancellation, or termination of this Agreement. Each Party agrees to be bound by the confidentiality obligations herein for a period of five (5) years from expiration, cancellation or termination. 24.09 COUNTERPARTS This Agreement may be executed in counterparts, all of which shall constitute one and the same Agreement and each of which shall be deemed to be an original. 24.10 NO OFFSET Except as provided in Section 12.05, the amounts due Purchaser from Independence and the amounts due Independence from Purchaser shall constitute separate and independent obligations and may not be offset or net against each other or offset or net against any other amounts due between the Parties (whether under this Agreement or otherwise). 24.11 OTHER ACTIVITIES The Parties acknowledge and agree that either Party or its Affiliates may engage in competitive activities, including, on the part of Independence and its Affiliates, the possible expansion of the Facility or construction of a new generating facility adjacent to the Facility; provided, however, that such activities shall not interfere with the Party's ability to perform its obligations under this Agreement. ***CONFIDENTIAL TREATMENT REQUESTED*** 57 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first above written. SITHE/INDEPENDENCE POWER PARTNERS, L.P. BY: SITHE/INDEPENDENCE, INC., ITS GENERAL PARTNER By: /s/ Sandra J. Manilla ------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer DYNEGY POWER MARKETING, INC. By: /s/ Miles Allen -------------------------------- Name: Miles Allen Title: Vice President ***CONFIDENTIAL TREATMENT REQUESTED*** 58 EXHIBIT 3.01(A) CONTRACT TOLLING CAPABILITY The Contract Tolling Capability for any Month shall be equal to the amount set forth in Table 3.01 below:
- ------------------------- ---------------------------- MONTH CONTRACT TOLLING CAPABILITY (MW) - ------------------------- ---------------------------- January [***] - ------------------------- ---------------------------- February [***] - ------------------------- ---------------------------- March [***] - ------------------------- ---------------------------- April [***] - ------------------------- ---------------------------- May [***] - ------------------------- ---------------------------- June [***] - ------------------------- ---------------------------- July [***] - ------------------------- ---------------------------- August [***] - ------------------------- ---------------------------- September [***] - ------------------------- ---------------------------- October [***] - ------------------------- ---------------------------- November [***] - ------------------------- ---------------------------- December [***] - ------------------------- ----------------------------
EXHIBIT 3.01(B) RESERVED TOLLING CAPABILITY The Reserved Tolling Capability for each Month shall be equal to [***] MW. ***CONFIDENTIAL TREATMENT REQUESTED*** 59 EXHIBIT 5.01 TABLE 5.01 START-UP DATA
- ----------------------------------------------------------------------------------------------------------------- ENERGY PRODUCED*** FUEL CONSUMED** (MWH) TIME TO FULL LOAD* ---------------- -------------------- (HOURS) (MMBTU) GAS TURBINE STEAM TURBINE - ----------------------------------------------------------------------------------------------------------------- Start-up of one CT in Block when other CT and ST are not operating - ----------------------------------------------------------------------------------------------------------------- Cold [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Warm [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Hot [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Start-up of one CT in Block when other CT and ST are operating - ----------------------------------------------------------------------------------------------------------------- Cold [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Warm [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Hot [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Start-up of an entire Block - ----------------------------------------------------------------------------------------------------------------- Cold [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Warm [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Hot [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Start-up of entire Facility - ----------------------------------------------------------------------------------------------------------------- Cold [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------- Hot [***] [***] [***] [***] - -----------------------------------------------------------------------------------------------------------------
* Including supplemental firing ** The Start-up Gas amounts identified in this table are guaranteed by Independence For purposes of this Agreement, the term "Start-up Gas" refers to the amounts listed in this table. *** Energy produced will be reduced by the amount of Energy delivered to Alcan during Start-up. As used in this table, "CT" means one combustion turbine/generator set, "ST" means one steam turbine/generator set and "Block" means 2 CTs and one ST. ***CONFIDENTIAL TREATMENT REQUESTED*** 60 EXHIBIT 5.02(A) I. DAILY OPERATING PROCEDURE The following table lists the primary interactions and communications as between Purchaser, Independence and the NYISO for deliveries on a hypothetical Day 3 (for example, if the delivery date, Day 3, were Wednesday, Days 1 and 2 would be Monday and Tuesday in this example). The Parties shall comply with the communications deadlines set forth in the table. Note that pursuant to Section 10.01(a), Independence shall initially be responsible for the submission of all NYISO Bids. Pursuant to Section 10.01(b), at some point during the Contract Term, Purchaser may take over responsibility to submit the NYISO Bids. The Daily Operating Procedures set forth in this Exhibit 5.02(A)(I) describe a process pursuant to which Purchaser submits all NYISO Bids. Until Purchaser takes over responsibility to submit all NYISO Bids, the Parties will work together to effectuate the requirements of this Exhibit 5.02(A)(I) with Independence submitting all NYISO Bids. Operating activities pursuant to this Exhibit 5.02(A) shall not result in any operations of the Facility that conflict with the requirements of Exhibit 5.02(B). The Daily Operating Procedures set forth in this Exhibit 5.02(A) may be modified from time to time by mutual agreement of the Parties without requiring amendment to this Agreement; provided such modified procedures are not inconsistent with this Agreement or the Energy Management Agreement.
- ------------------------------------------------------------------------------------------------------------------------------- EASTERN PREVAILING PARTY/ENTITY STEP TIME TASK RESPONSIBLE - ------------------------------------------------------------------------------------------------------------------------------- 1 Day 1, by no later Independence shall notify Purchaser of the following for Independence than 10:00 operations on Day 3, in the format attached hereto as Section II ("Available Tolling Capability Notice"): (1) Anticipated hourly output of the Facility available for Tolling Services under this Agreement ("Available Tolling Capability"); (2) The Minimum Output Capability; (3) The Reserved Capability; (4) The estimated amounts of Start-up Gas (if applicable), Gas required to operate the portion of the Reserved Capability designated by Independence as its - -------------------------------------------------------------------------------------------------------------------------------
***CONFIDENTIAL TREATMENT REQUESTED*** 61 - ------------------------------------------------------------------------------------------------------------------------------------ minimum output requirement ("Minimum Output Requirement"), Gas required to operate the Facility at the output level associated with the Reserved Capability, Gas required at the output level associated with the Available Tolling Capability, Gas require to operate the Facility at the Minimum Output Capability, and the total Gas required at full output; (5) The amount of Installed Capacity sold from the Facility into the New York Control Area; and (6) the number of combustion turbine/generator sets available for dispatch in combined cycle mode. - ------------------------------------------------------------------------------------------------------------------------------------ 2 Day 1 by no later than Purchaser shall provide Independence with an estimate of the Gas Price Index Purchaser 15:00 - ------------------------------------------------------------------------------------------------------------------------------------ 3 Day 1 between 15:00 and Independence shall notify Purchaser of its desire to operate the Facility at Independence 17:00 the Minimum Output Requirement and of its intent to schedule bilateral sales to Niagara Mohawk for Day 3 under the Niagara Mohawk Power Purchase Agreement with respect to all or a portion of the Reserved Capability. Whenever any portion of the Facility is operating (including whenever any portion of the Reserved Tolling Capability is operating), Purchaser must cause up to 44 MW of the Reserved Capability to be dispatched, at Independence's direction, either in the DAM or pursuant to the Niagara Mohawk Power Purchase Agreement. From time to time, Independence may notify Purchaser of its desire to operate all or a portion of the Reserved Tolling Capability during designated hours to effectuate a physical hedge against its financial obligations associated with the Market Price. - ------------------------------------------------------------------------------------------------------------------------------------ 4 Day 2, by no later than Purchaser shall provide Independence with its best estimate by hour of the Purchaser 12:00 actual anticipated - ------------------------------------------------------------------------------------------------------------------------------------
***CONFIDENTIAL TREATMENT REQUESTED*** 62 - ------------------------------------------------------------------------------------------------------------------------------------ dispatch schedule ("Anticipated Dispatch Schedule") that shall include Scheduled Energy commitments for Day 3 operations and required notices of bilateral sales as soon as practicable after the NYISO posts the results of the Day-Ahead Market bidding process. Subject to the requirements of Section 24.08, Independence shall have the right to access the results of the NYISO's Day-Ahead Market bidding process directly on the NYISO web site. - ------------------------------------------------------------------------------------------------------------------------------------ 5 Day 2 between 12:00 and If the Anticipated Dispatch Schedule does not show dispatch of the Facility Independence 13:00 or within one hour at the Minimum Output Requirement or greater during all hours and of Purchaser completing Independence desires to operate the Facility at the Minimum Output step two. Requirement during such period, Independence shall notify Purchaser that it will require Gas to operate the Facility at the Minimum Output Requirement in the Hour-Ahead Market ("HAM"). Such notification will be defined as "Minimum Generation Dispatch." If the Anticipated Dispatch Schedule does not dispatch the Facility, Independence shall notify Purchaser if it will require Gas to operate the auxiliary boilers or notify Purchaser that Independence will not require Gas to operate the Facility. - ------------------------------------------------------------------------------------------------------------------------------------ 6 Day 2, as early as Independence estimates Gas requirements for Day 3 operations based on the Independence reasonably practicable, Anticipated Dispatch Schedule. The Gas estimates will include all of the Gas but no later than 13:00 required for all of the activities described in Section 8.01(b), whether such or within one hour of Gas is provided pursuant to the Tolling Agreement or the Gas Supply Agreement. Purchaser completing step two. - ------------------------------------------------------------------------------------------------------------------------------------ 7 Day 2, as early as Purchaser confirms Gas delivery arrangement and notifies Independence. Purchaser reasonably practicable but no later than 14:00 PM - ------------------------------------------------------------------------------------------------------------------------------------ 8 Day 2, and Purchaser throughout the applicable Days may Purchaser - ------------------------------------------------------------------------------------------------------------------------------------
***CONFIDENTIAL TREATMENT REQUESTED*** 63 - ------------------------------------------------------------------------------------------------------------------------------------ Day 3 inquire of Independence of the operational configuration of the Facility to enable Purchaser to formulate its HAM bids. Purchaser submits HAM bids throughout the applicable Days. If Purchaser instructs Independence to dispatch differently than Purchaser instructed Independence under Step 4, Purchaser must confirm revised Gas delivery arrangements and notify Independence. Case 1- If Purchaser in Step 4 provides Independence with an Anticipated Dispatch Schedule greater than the Minimum Output Requirement and Independence in Step 5 notifies Purchaser of its desire to operate the Facility at the Minimum Output Requirement, Purchaser shall dispatch the Facility in either the DAM or HAM to ensure that the NYISO Directed Operation will be at least equal to the Minimum Output Requirement. Case 2- If the Anticipated Dispatch Schedule provided by Purchaser in Step 4 does not dispatch the Facility at the Minimum Output Requirement and Independence notifies Purchaser under Step 5 that it will require Gas to operate at the Minimum Output Requirement in the HAM, Purchaser shall submit HAM bids to ensure that the NYISO Directed Operation will be at least equal to the Minimum Output Requirement. If under this Case 2, Purchaser instructs Independence to dispatch the Facility at a level greater than the Minimum Output Requirement, Purchaser must confirm revised Gas delivery arrangements and notify Independence. - ------------------------------------------------------------------------------------------------------------------------------------ 9 Day 2, commencing 23:45 Purchaser shall provide Independence with a revised Anticipated Dispatch Purchaser and continuing through Schedule for the balance of Day 3 at least ten minutes before the top of the Day 3 hour to the extent Purchaser, at its sole discretion, believes that dispatch will be - ------------------------------------------------------------------------------------------------------------------------------------
***CONFIDENTIAL TREATMENT REQUESTED*** 64 - ------------------------------------------------------------------------------------------------------------------------------------ different from the schedule submitted in Step 4. - ------------------------------------------------------------------------------------------------------------------------------------ 10 Day 3, commencing 0:00 Independence operates in accordance with NYISO Directed Operation. Independence AM (Operating Day) - ------------------------------------------------------------------------------------------------------------------------------------
***CONFIDENTIAL TREATMENT REQUESTED*** 65 II. Available Tolling Capability Notice AVAILABLE TOLLING CAPABILITY NOTICE INDEPENDENCE STATION GENERATION DATE: ISSUED BY:
- ------------------------------------------------------------------------------------------------------------------------------------ Hour begin- Avail- Minimum Reser- Esti- Esti- Esti- Esti- Esti- Esti- Instal- Number of ning able Tolling ved Capa- mated mated Gas mated Gas mated Gas mated Gas mated Gas led Capacity combus- Tolling Capa- bility Start- for Minimum for Reser- for Avail- for full for Minimum sold into tion Capa- bility (MW) up Gas Output ved Capa- able Tolling output Tolling New York turbine/ bility (MW) (MMBtu) Require bility only Capa- (MMBtu) Capa- Control gener- (MW) -ment only MMBtu) bility only bility only Area ator sets MMBtu) (MMBtu) (MMBtu) (MW) avail- able - ------------------------------------------------------------------------------------------------------------------------------------ 0:00 - ------------------------------------------------------------------------------------------------------------------------------------ 1:00 - ------------------------------------------------------------------------------------------------------------------------------------ 2:00 - ------------------------------------------------------------------------------------------------------------------------------------ 3:00 - ------------------------------------------------------------------------------------------------------------------------------------ 4:00 - ------------------------------------------------------------------------------------------------------------------------------------ 5:00 - ------------------------------------------------------------------------------------------------------------------------------------ 6:00 - ------------------------------------------------------------------------------------------------------------------------------------ 7:00 - ------------------------------------------------------------------------------------------------------------------------------------ 8:00 - ------------------------------------------------------------------------------------------------------------------------------------ 9:00 - ------------------------------------------------------------------------------------------------------------------------------------ 10:00 - ------------------------------------------------------------------------------------------------------------------------------------ 11:00 - ------------------------------------------------------------------------------------------------------------------------------------ 12:00 - ------------------------------------------------------------------------------------------------------------------------------------ 13:00 - ------------------------------------------------------------------------------------------------------------------------------------ 14:00 - ------------------------------------------------------------------------------------------------------------------------------------ 15:00 - ------------------------------------------------------------------------------------------------------------------------------------ 16:00 - ------------------------------------------------------------------------------------------------------------------------------------ 17:00 - ------------------------------------------------------------------------------------------------------------------------------------ 18:00 - ------------------------------------------------------------------------------------------------------------------------------------ 19:00 - ------------------------------------------------------------------------------------------------------------------------------------ 20:00 - ------------------------------------------------------------------------------------------------------------------------------------ 21:00 - ------------------------------------------------------------------------------------------------------------------------------------ 22:00 - ------------------------------------------------------------------------------------------------------------------------------------ 23:00 - ------------------------------------------------------------------------------------------------------------------------------------
Comments: ***CONFIDENTIAL TREATMENT REQUESTED*** 66 III. Sample NYISO Bid Form GENERATOR BID GENERATOR NAME:
- -------------------------------------------------------------------------------------------------- Bid Date Number of Hours Market Expiration (DAM Only) - -------------------------------------------------------------------------------------------------- (mm/dd/yyyy hh:mm) (mm/dd/yyyy hh:mm) - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- ENERGY BID - -------------------------------------------------------------------------------------------------- Upper Operating Limit Minimum Generation Minimum Generation Cost (MW) (MW) ($) - -------------------------------------------------------------------------------------------------- ================================================================================================== Bid-Curve Format Unit Operations - -------------------------------------------------------------------------------------------------- |_| Block Bid (3 Pairs Max) |_| On-Dispatch |_| Zero Start-Up Cost |_| Energy Cost Curve (6 Pairs Max) |_| Off-Dispatch - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- BID CURVE - -------------------------------------------------------------------------------------------------- MW (Basepoint) - -------------------------------------------------------------------------------------------------- $/MW - --------------------------------------------------------------------------------------------------
[NOTES: - Not Available to Purchaser: 1. On - Dispatch operation - Note that the generation parameters for the Independence facility as on file with the NYISO are set forth in the form attached hereto as Section V to this Exhibit 5.02(A).] ***CONFIDENTIAL TREATMENT REQUESTED*** 67 IV. GENERATOR COMMITMENT PARAMETERS GENERATOR:
Last Changed by: Last Changed Date: - ------------------------------------------------------------ Minimum Run Time (hrs) - ------------------------------------------------------------ Minimum Down Time (hrs) - ------------------------------------------------------------ Maximum Stops per Day - ------------------------------------------------------------ Start up Notification Time (hrs) - ------------------------------------------------------------ STARTUP COST CURVE - -------------------------------------------------------------------------------- Hours Off Line - -------------------------------------------------------------------------------- Startup Cost ($) - -------------------------------------------------------------------------------- STARTUP NOTIFICATION TIME CURVE - -------------------------------------------------------------------------------- Hours to Start - -------------------------------------------------------------------------------- Hours Off Line - --------------------------------------------------------------------------------
[NOTE: This form may be modified with the NYISO on a daily basis.] ***CONFIDENTIAL TREATMENT REQUESTED*** 68 V. NOTE: THIS FORM IS NOT BINDING AND IS SET FORTH HEREIN FOR INFORMATIONAL PURPOSES ONLY. GENERATOR PARAMETERS Generator Name: SITHE_INDEPEND Generator Type: PURPA GENERATOR NERC Unit ID: Zone Name: CENTRL Subzone Type: NMPC CENTRAL Active: |X| Contact Information Name: Bill Fernandez Address: Sithe Power Marketing, LP Primary Phone: 315-342-8410 76 Independence Way Secondary Phone: Oswego Fax: 315-342-8425 New York, 13126 E-Mail: bfernandez@sithe.com Pager: PTID: 23800 Max Summer Operating Limit: 1102.0 Max Winter Operating Limit: 1102.0 Summer Installed Capacity Contracts: 914.9 Winter Installed Capacity Contracts: 1022.9 Physical Min Gen MW: 160.0 Emergency Response Rate: 11.1 (MW/MIN) Normal Response Rate: 11.1 (MW/MIN) Max Regulation Response Rate: 11.1 (MW/MIN) Penalty Factor: 1.0 Power Factor: 1.0 AVR Qualified: |X|
- ---------------------------- Unit VAR Capability Leading - ---------------------------- MW MVAR - ---------------------------- - ---------------------------- - ---------------------------- Unit VAR Capability Lagging - ---------------------------- MW MVAR - ---------------------------- - ----------------------------
QUALIFIED TO BID ***CONFIDENTIAL TREATMENT REQUESTED*** 69 DAY AHEAD MARKET |X| Fixed Energy |X| Dispatch Energy |X| Regulation Control |_| 10 Minute Non-Synch |X| 10 Minute Spinning |X| 30 Minute Non-Synch |X| 30 Minute Spinning [NOTE THAT INDEPENDENCE IS NOT CAPABLE OF PROVIDING REGULATION CONTROL AND 30 MINUTE NON-SYNCH.] HOUR AHEAD MARKET |X| Fixed Energy |X| Dispatch Energy |X| Regulation Control |_| 10 Minute Non-Synch |X| 10 Minute Spinning |X| 30 Minute Non-Synch |X| 30 Minute Spinning [NOTE THAT INDEPENDENCE IS NOT CAPABLE OF PROVIDING REGULATION CONTROL AND 30 MINUTE NON-SYNCH.] [NOTES: o This form may be modified only with the concurrence of the NYISO. o Independence's ability to provide 10-minute spinning reserve service and 30-minute spinning reserve service is currently contingent upon resolution with the NYISO of modified procedures for applicable ramp rates. o At present, Independence is bid into the NYISO as a single PURPA facility. In addition, the power supplied to Alcan, as measured by a Niagara Mohawk revenue meter, is subtracted from the net generation of Independence, as measured by two Niagara Mohawk revenue meters, to determine and measure the net output of the Facility to the grid (i.e., to the NYISO and Niagara Mohawk). As a single PURPA facility, in general, the amount of energy that the Facility actually produces that is above or below the NYISO Directed Operation level "floats" under the Niagara Mohawk Power Purchase Agreement between 0 MWs and a maximum of 300 MWs. If the Facility is not selected in the DAM and it runs in the HAM, under the Niagara Mohawk Power Purchase Agreement, Niagara Mohawk must purchase up to 300 MWs. As a result, the Facility's participation in the HAM is currently limited to sales under the ***CONFIDENTIAL TREATMENT REQUESTED*** 70 Niagara Mohawk Power Purchase Agreement of up to 300 MWs. Independence is working with the NYISO with respect to this issue. o Independence physically has two revenue meters, one for each power block, which are summed for net generation. Independence has commenced initial discussions with the NYISO and Niagara Mohawk on "splitting" into two separate "generators" in the eyes of the NYISO. Issues that need to be resolved are changes in software with Niagara Mohawk and NYISO, modifications to provide proper basepoint signals, how to handle PURPA "float" with Niagara Mohawk and how to deal with Alcan load. As for Purchaser, even if two "generators" to the ISO, Independence would still be considered a single Facility for power output, heat rate, etc. This "splitting" would provide much greater flexibility in how to bid Independence with the ISO. o There are certain constraints or limitations on how the Facility can be bid into the NYISO market and also meet the Agreement restrictions in number of starts per day, time between starts and startup times, etc. Details will have to be developed between Independence and Purchaser; however, as examples: o assuming availability of the entire Facility (i.e. all gas and steam turbines available), Independence could bid a minimum generation of nominal 500 MWs with defined startup cost for 4 GTs and run with various combinations thereafter. o assuming the availability of the entire Facility, if Independence or Purchaser wanted to specify minimum generation and startup cost, etc. with a single GT, then Independence does not believe it is possible to use the cost curve format for bidding up to 1000 MWs. o assuming availability of the entire Facility, if one bid using the block method of 250, 500 and 1000 blocks, then the minimum generation of 250 reflect that 2 GTs must be operating and the startup costs should reflect the startup of 2 GTs. Then the cost of starting 1 GT for the 500 MW block would have to be incorporated in this block and likewise for the 1000 MW block. Once we see the actual dispatch scenario, since we can operate up to nominal 500 MWs with 2 GTs or operate down to 500 MWs with 4 GTs, the determination of how to actually operate can be determined.] ***CONFIDENTIAL TREATMENT REQUESTED*** 71 EXHIBIT 5.02(B) I. Forecasts and Operating Limitations 1. On or before 5:00 p.m. Eastern Prevailing Time on the tenth Day of each Month, Purchaser shall provide Independence with a forecast of the estimated Energy and Ancillary Services expected to be bid from the Facility for each Day of the following Month, in the form set forth in Section II to this Exhibit 5.02(B). 2. On or before 5:00 p.m. Eastern Prevailing Time on each Thursday, Purchaser shall provide Independence with a forecast of the estimated Energy and Ancillary Services to be Scheduled from the Facility for each Day of the following Week in the form set forth in Section II to this Exhibit 5.02(B). 3. On or before 5:00 p.m. Eastern Prevailing Time on the fifteenth Day of each Month, Independence shall provide Purchaser with a forecast of the estimated Available Tolling Capability of the Facility for each Day of the following Month and the estimated Gas requirements associated with the output of the forecast Available Tolling Capability and associated with the output of the Reserved Capability, in the form set forth in Section III to this Exhibit 5.02(B). 4. On or before 5:00 p.m. Eastern Prevailing Time each Friday, Independence shall provide Purchaser with a forecast of the estimated Available Tolling Capability of the Facility for each Day of the following Week and the estimated Gas requirements associated with the output of the forecast Available Tolling Capability and associated with the output of the Reserved Capability, in the form set forth in Section III to this Exhibit 5.02(B). 5. From time-to-time, Independence and/or Purchaser may update the information provided under items 1-4 above to reflect any material changes. 6. In addition to any other limitations or restrictions in accordance with the NYISO Requirements, Purchaser may not include in its Bid Submission, and Independence shall have no obligation to submit a bid to the NYISO that would result in: a) more than one Start-up for each combustion turbine/generator set per Day. b) a combustion turbine/generator set, once started, running for less than six consecutive hours before a Shutdown. ***CONFIDENTIAL TREATMENT REQUESTED*** 72 c) operation of any combustion turbine/generator set at a level below 55 percent of the actual capability of such combustion turbine/generator set plus its associated steam turbine/generator set ("Minimum Output Capability"). d) commencement of Start-up procedures of a combustion turbine/generator set less than 4 hours after completion of a Shutdown of such combustion and steam turbine/generator set. e) A change in the level of output of any combustion turbine/generator set and its associated steam turbine/generator set at a rate (up or down) greater than 5 MW per minute. 7. It is expressly acknowledged and agreed that the limitations set forth in item 6 above apply to all bids submitted in the DAM and in the HAM pursuant to Exhibit 5.02(A). 8. It is expressly acknowledged that Independence's ability to provide 10-minute spinning reserve service and 30-minute spinning reserve service is currently contingent upon resolution with the NYISO of modified procedures for applicable ramp rates. 9. As soon as reasonably practicable, each Party will notify the other Party of any material incidents affecting performance under this Agreement, including all Outages and interruptions or curtailments of Gas supplies or electric transmission service. 10. For each hour that Independence elects to supply Replacement Energy, Independence shall provide advance notice to Purchaser of at least 2 hours, in the form set forth in Section IV to this Exhibit 5.02. 11. Upon receipt of a notice that Independence elects to supply Replacement Energy, Purchaser shall confirm receipt of the notice by sending a fax or e-mail to Independence. If Purchaser consents to the Substitute Delivery Point designated by Independence in the Notice, it shall so indicate in its confirming notice. If Purchaser does not consent to such Substitute Delivery Point, it shall promptly notify Independence so that the Parties may resolve the matter. 12. All communications pursuant to this Exhibit 5.02 shall be by electronic means whenever possible. 13. Each Party shall provide a copy to the other Party simultaneously with all notices to the NYISO related to the operation of the Facility. Upon receipt of ***CONFIDENTIAL TREATMENT REQUESTED*** 73 a notice from the NYISO regarding the operation of the Facility, each Party shall promptly provide a copy of such notice to the other Party. ***CONFIDENTIAL TREATMENT REQUESTED*** 74 II. FORECAST SCHEDULE FOR TOLLING SERVICES INDEPENDENCE STATION GENERATION DATE: ISSUED BY:
- ----------------------------------------------------------------- Hour Estimated Energy Estimated Ancillary beginning (MWh) Services - ----------------------------------------------------------------- 0:00 - ----------------------------------------------------------------- 1:00 - ----------------------------------------------------------------- 2:00 - ----------------------------------------------------------------- 3:00 - ----------------------------------------------------------------- 4:00 - ----------------------------------------------------------------- 5:00 - ----------------------------------------------------------------- 6:00 - ----------------------------------------------------------------- 7:00 - ----------------------------------------------------------------- 8:00 - ----------------------------------------------------------------- 9:00 - ----------------------------------------------------------------- 10:00 - ----------------------------------------------------------------- 11:00 - ----------------------------------------------------------------- 12:00 - ----------------------------------------------------------------- 13:00 - ----------------------------------------------------------------- 14:00 - ----------------------------------------------------------------- 15:00 - ----------------------------------------------------------------- 16:00 - ----------------------------------------------------------------- 17:00 - ----------------------------------------------------------------- 18:00 - ----------------------------------------------------------------- 19:00 - ----------------------------------------------------------------- 20:00 - ----------------------------------------------------------------- 21:00 - ----------------------------------------------------------------- 22:00 - ----------------------------------------------------------------- 23:00 - -----------------------------------------------------------------
Comments: ***CONFIDENTIAL TREATMENT REQUESTED*** 75 III. FORECAST SCHEDULE FOR TOLLING SERVICES INDEPENDENCE STATION GENERATION DATE: ISSUED BY:
- -------------------------------------------------------- Hour Estimated Available Estimated Gas beginning Tolling Capability at Full Output (MWh) (MMBtu) - -------------------------------------------------------- 0:00 - -------------------------------------------------------- 1:00 - -------------------------------------------------------- 2:00 - -------------------------------------------------------- 3:00 - -------------------------------------------------------- 4:00 - -------------------------------------------------------- 5:00 - -------------------------------------------------------- 6:00 - -------------------------------------------------------- 7:00 - -------------------------------------------------------- 8:00 - -------------------------------------------------------- 9:00 - -------------------------------------------------------- 10:00 - -------------------------------------------------------- 11:00 - -------------------------------------------------------- 12:00 - -------------------------------------------------------- 13:00 - -------------------------------------------------------- 14:00 - -------------------------------------------------------- 15:00 - -------------------------------------------------------- 16:00 - -------------------------------------------------------- 17:00 - -------------------------------------------------------- 18:00 - -------------------------------------------------------- 19:00 - -------------------------------------------------------- 20:00 - -------------------------------------------------------- 21:00 - -------------------------------------------------------- 22:00 - -------------------------------------------------------- 23:00 - --------------------------------------------------------
Comments: ***CONFIDENTIAL TREATMENT REQUESTED*** 76 IV. REPLACEMENT ENERGY NOTICE INDEPENDENCE STATION GENERATION DATE: ISSUED BY:
- -------------------------------------------------------------------- Hour Replacement Energy Substitute Delivery Point beginning (MWh) - -------------------------------------------------------------------- 0:00 - -------------------------------------------------------------------- 1:00 - -------------------------------------------------------------------- 2:00 - -------------------------------------------------------------------- 3:00 - -------------------------------------------------------------------- 4:00 - -------------------------------------------------------------------- 5:00 - -------------------------------------------------------------------- 6:00 - -------------------------------------------------------------------- 7:00 - -------------------------------------------------------------------- 8:00 - -------------------------------------------------------------------- 9:00 - -------------------------------------------------------------------- 10:00 - -------------------------------------------------------------------- 11:00 - -------------------------------------------------------------------- 12:00 - -------------------------------------------------------------------- 13:00 - -------------------------------------------------------------------- 14:00 - -------------------------------------------------------------------- 15:00 - -------------------------------------------------------------------- 16:00 - -------------------------------------------------------------------- 17:00 - -------------------------------------------------------------------- 18:00 - -------------------------------------------------------------------- 19:00 - -------------------------------------------------------------------- 20:00 - -------------------------------------------------------------------- 21:00 - -------------------------------------------------------------------- 22:00 - -------------------------------------------------------------------- 23:00 - --------------------------------------------------------------------
Comments: ***CONFIDENTIAL TREATMENT REQUESTED*** 77 EXHIBIT 5.03 SHUTDOWN For a Scheduled Shutdown, Independence requires 30 minutes to complete the Shutdown. Shutdown Gas is equal to 600 MMBtu per combustion turbine. The Energy output during Shutdown varies depending on the load level prior to Shutdown, but with a baseload facility running at 1000 MW, a 30 minute shutdown would produce approximately 250 MWh of Energy. For purposes of this Agreement, the term "Shutdown Gas" refers to the amounts described in this Exhibit. ***CONFIDENTIAL TREATMENT REQUESTED*** 78 EXHIBIT 6.01 GUARANTEED HEAT RATE The Guaranteed Heat Rate, measured in Btu/kWh (HHV) for the Tolling Services provided to Purchaser is equal to the levels set forth in Table 6.01 below. The Guaranteed Heat Rate for load factors between 100% and 80% assumes four combustion turbine/generator sets operating combined cycle mode. The Guaranteed Heat Rate for load factors between 75% and 55% assumes three combustion turbine/generator sets operating in combined cycle mode. The Guaranteed Heat Rate for load factors between 50% and 30% assumes two combustion turbine/generator sets operating in combined cycle mode. The Guaranteed Heat Rate for load factors between 25% and 15% assumes one combustion turbine/generator set operating in combined cycle mode. For clarification, if Purchaser desires operations at a load factor between 100% and 15% but not in accordance with the number of combustion turbine/generator sets as stated above (but still within the operating parameters of the plant), the Guaranteed Heat Rate shall be as set forth in Table 6.01 below for the load factor equal to the desired plant load factor divided by the number of combustion turbine/generator sets Purchaser desires to operate. For example, if Purchaser desires operating at a plant load factor of 60% but with four combustion turbine/generator sets, the Guaranteed Heat Rate shall be that set forth for such month at a 15% load factor. TABLE 6.01 - Guaranteed Heat Rate - Load Factor based on Full Plant Output
- ------------------------------------------------------------------------------------------------------------------------------------ 100.0% load 95.0% load 90.0% load 85.0% load 80.0% load Month MW Btu/kWh MW Btu/kWh MW Btu/kWh MW Btu/kWh MW Btu/kWh (HHV) ----- -- (HHV) -- (HHV) -- (HHV) -- (HHV) -- ------------ ------- ------- ------- ------ January [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] February [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] March [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] April [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] May [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] June [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] July [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] August [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] September [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] October [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] November [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] December [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 75.0% load 70.0% load 65.0% load 60.0% load 55.0% load Month MW Btu/kWh MW Btu/kWh MW Btu/kWh MW Btu/kWh MW Btu/kWh (HHV) ----- -- (HHV) -- (HHV) -- (HHV) -- (HHV) -- ------------ ------- ------- ------- ------ January [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] February [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] March [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] April [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] May [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] June [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] July [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] August [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] September [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] October [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] November [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] December [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] - -----------------------------------------------------------------------------------------------------------------------------------
***CONFIDENTIAL TREATMENT REQUESTED*** 79
- ----------------------------------------------------------------------------------------------------------------------------------- 50.0% load 45.0% load 40.0% load 35.0% load 30.0% load Month MW Btu/kWh MW Btu/kWh MW Btu/kWh MW Btu/kWh MW Btu/kWh (HHV) ----- -- (HHV) -- (HHV) -- (HHV) -- (HHV) -- ------------ ------- ------- ------- ------ January [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] February [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] March [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] April [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] May [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] June [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] July [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] August [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] September [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] October [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] November [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] December [***] [***] [***] [***] [***] [***] [***] [***] [***] [***] - ----------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 25.0% load 20.0% load 15.0% load Month MW Btu/kWh MW Btu/kWh MW Btu/kWh ----- -- (HHV) -- (HHV) -- (HHV) ------- ------- ------- January [***] [***] [***] [***] [***] [***] February [***] [***] [***] [***] [***] [***] March [***] [***] [***] [***] [***] [***] April [***] [***] [***] [***] [***] [***] May [***] [***] [***] [***] [***] [***] June [***] [***] [***] [***] [***] [***] July [***] [***] [***] [***] [***] [***] August [***] [***] [***] [***] [***] [***] September [***] [***] [***] [***] [***] [***] October [***] [***] [***] [***] [***] [***] November [***] [***] [***] [***] [***] [***] December [***] [***] [***] [***] [***] [***] - --------------------------------------------------------------------------------
Note: For any Facility output in a given month at a point not shown on Table 6.01, the Guaranteed Heat Rate shall be calculated using linear interpolation based on the closest point above and the closest point below such output level for such month. ***CONFIDENTIAL TREATMENT REQUESTED*** 80 EXHIBIT 17.01(A) ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Power Marketing, Inc., a Texas corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the TOLLING AGREEMENT dated as of July 1, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 24.07 of the Assigned Contract. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any ***CONFIDENTIAL TREATMENT REQUESTED*** - 81 - [shareholder] of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate [officers] [representatives] of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default ***CONFIDENTIAL TREATMENT REQUESTED*** - 82 - under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering ***CONFIDENTIAL TREATMENT REQUESTED*** - 83 - into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Company under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department ***CONFIDENTIAL TREATMENT REQUESTED*** - 84 - (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. ***CONFIDENTIAL TREATMENT REQUESTED*** - 85 - (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. ***CONFIDENTIAL TREATMENT REQUESTED*** - 86 - IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY POWER MARKETING, INC. By: ---------------------------------- Name: ---------------------------------- Title: --------------------------------- SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ---------------------------------- Name: ---------------------------------- Title: --------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** - 87 - EXHIBIT 17.01(B) EXHIBIT B GUARANTY AGREEMENT Base Guaranty Agreement (this "Guaranty") dated as of July 1, 2001 is made and entered into by Dynegy Holdings Inc., a Delaware corporation ("Guarantor"), to and for the benefit of Sithe/Independence Power Partners, L.P., a Delaware limited partnership ("Independence"), and its successors and permitted assigns. WITNESSETH: WHEREAS, Independence and Dynegy Power Marketing, Inc., a Texas corporation (together with successors and permitted assigns, "Purchaser"), have entered into a TOLLING AGREEMENT dated as of July 1, 2001 (as amended, supplemented or modified from time to time, the "Tolling Agreement"), a copy of which is attached hereto as Exhibit 1; WHEREAS, Purchaser is an indirect, wholly owned subsidiary of Guarantor, and Guarantor will derive substantial benefit from the performance by Independence of its obligations under the Tolling Agreement; WHEREAS, it is a condition precedent to Independence's obligations under the Tolling Agreement that this Guaranty be duly executed and delivered to Independence; and WHEREAS, Guarantor is willing to enter into this Guaranty. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. GUARANTY. Subject to the terms hereof, Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Independence and its successors and permitted assigns the due, punctual and full performance and payment of each and every obligation of Purchaser under the Tolling Agreement (each such obligation hereinafter referred to, individually, as a "Guaranteed Obligation" and, collectively, as the "GUARANTEED OBLIGATIONS") and agrees that, if for any reason whatsoever Purchaser shall fail or be unable duly, punctually and fully to perform or pay any such Guaranteed Obligation, Guarantor shall forthwith, upon demand as provided ***CONFIDENTIAL TREATMENT REQUESTED*** - 88 - in Section 4 hereof, perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid, without regard to any exercise or nonexercise by Independence, its successors or permitted assigns of any right, power or privilege under or in respect of the Tolling Agreement or the Guaranteed Obligations. In connection with the foregoing, Independence acknowledges that performance of the obligations of Purchaser under the Tolling Agreement, to the extent that such performance is for an obligation other than the payment of money, shall be accomplished by Guarantor causing such performance to occur through a third party or otherwise by the payment of money. This Guaranty shall be direct, immediate and primary and shall be a guaranty of performance and payment and not of collection, and is not conditioned or contingent upon any attempt to collect from Purchaser or upon any other event, contingency or circumstance whatsoever, except as expressly provided otherwise herein. 2. OBLIGATIONS UNCONDITIONAL. Guarantor covenants to and agrees with Independence and its successors and permitted assigns that, to the fullest extent permitted by law, its obligations under this Guaranty are irrevocable, absolute and unconditional, shall remain in full force and effect, and shall not be impaired or affected by, or be subject to, any reduction, termination or other impairment by set-off, deduction, counterclaim, recoupment, interruption or otherwise, and Guarantor shall have no right to terminate this Guaranty or to be released, relieved or discharged, in whole or in part, from its performance or payment obligations referred to in this Guaranty for any reason whatsoever (other than the performance and payment in full of the Guaranteed Obligations), including (a) any amendment, supplement or modification to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or privilege under or in respect of, the Tolling Agreement, the Guaranteed Obligations or any other agreement or instrument relating thereto, (b) any insolvency, bankruptcy, reorganization, dissolution or liquidation of, or any similar occurrence with respect to, or cessation of existence of, or change of ownership of Purchaser, or any rejection of any of the Guaranteed Obligations in connection with any Proceeding (as defined in Section 3 below) or any disallowance of all or any portion of any claim by Independence, its successors or permitted assigns in connection with any Proceeding, (c) any lack of genuineness, legality, validity, regularity, enforceability or value of the Tolling Agreement, any of the Guaranteed Obligations, or any other agreement or instrument relating thereto, (d) the failure to create, preserve, validate, perfect or protect any security interest granted to, or in favor of, any person, (e) any substitution, modification, exchange, release, settlement or compromise of any security or collateral for or guaranty of any of the Guaranteed Obligations or failure to apply such security or collateral or failure to enforce such guaranty or (f) any other event or circumstance whatsoever that might otherwise constitute a legal or equitable discharge of a surety or guarantor (other than the payment in full of the Guaranteed Obligations, and defenses available to Purchaser ***CONFIDENTIAL TREATMENT REQUESTED*** - 89 - under the Tolling Agreement), it being the intent of Guarantor that its obligations under this Guaranty shall be irrevocable, unconditional and absolute under any and all circumstances, except as expressly provided herein. This Guaranty and the obligations of Guarantor hereunder shall continue to be effective or be automatically reinstated, as the case may be, if at any time any payment by or on behalf of Purchaser is rescinded or must otherwise be restored by Independence, its successors or permitted assigns for any reason, including, but not limited to, as a result of any Proceeding with respect to Purchaser or any other person, as though such payment had not been made. 3. INTEREST. The Guaranteed Obligations shall include, without limitation, interest accruing as part of the Guaranteed Obligations by the terms thereof following the commencement by or against Purchaser of any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation, dissolution or composition or adjustment of debt (hereinafter, a "PROCEEDING"). 4. DEMAND. If Purchaser shall fail or be unable duly, punctually and fully to perform or pay any Guaranteed Obligation, Independence, its successors or permitted assigns may at any time prior to the full performance or payment of such Guaranteed Obligation deliver notice of such failure or inability of Purchaser to perform or pay to Guarantor in writing, which notice shall reasonably specify the nature of such failure or inability to perform or pay, as the case may be and, in the case of a failure or inability to pay, the amount thereof (each such written notice hereinafter a "DEMAND"). Guarantor shall, upon receipt of a Demand, forthwith perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid in full. Promptly on request, Guarantor shall reimburse Independence, its successors and permitted assigns for all costs and expenses (including reasonable attorneys' fees) incurred in enforcing Independence's, its successors' or permitted assigns' rights under this Guaranty, but only to the extent that Independence is successful in enforcing Independence's rights under this Guaranty. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Independence and its successors and permitted assigns that as of the date hereof: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, it has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Guaranty; (b) no authorization, approval, consent or order of, or registration or filing with, any court or other governmental body ***CONFIDENTIAL TREATMENT REQUESTED*** - 90 - having jurisdiction over Guarantor is required on the part of Guarantor for the execution and delivery of this Guaranty; (c) this Guaranty has been duly executed and delivered by Guarantor and constitutes a valid and legally binding agreement of Guarantor enforceable against Guarantor in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law); (d) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action and do not require any other actions or proceedings or any stockholder approval or consent of any trustee or holder of any indebtedness of Guarantor; (e) the execution, delivery and performance of this Guaranty and compliance by Guarantor with the terms hereof (i) will not violate any governmental approval or law applicable to it or any of its property, (ii) will not violate any provision of its certificate of incorporation, bylaws or other governing documents, and (iii) will not violate or constitute a default under any agreement or instrument to which it is a party or by which it or any of its property may be bound, or result in the creation or imposition of any lien upon any of its property, which violation, default or lien would have a material adverse effect on its ability to perform its obligations under this Guaranty; (f) except as disclosed in Guarantor's latest Form 10-K and any Form 10-Qs or Form 8-Ks subsequently filed with the Securities and Exchange Commission, there are no actions, suits, investigations or proceedings against Guarantor by or before any court, arbitrator, administrative or regulatory agency, or other governmental authority pending, or to its knowledge, threatened against or affecting it, its properties, or its assets that, if adversely determined, would reasonably be expected to have a material and adverse effect on its ability to perform its obligations under this Guaranty; and (g) it directly or indirectly owns all of the issued and outstanding shares of each class of capital stock of Purchaser. 6. DOWNGRADE EVENT. If at any time any two of the credit ratings then assigned to Guarantor's unsecured, senior long-term debt obligations falls below ***CONFIDENTIAL TREATMENT REQUESTED*** - 91 - "Investment Grade" from the Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or its successor ("S&P"),"Investment Grade" from Moody's Investor Services, Inc. or its successor ("MOODY'S") or "Investment Grade" from Fitch IBCA, Inc. or its successor ("FITCH") (or if Guarantor is not rated by any of S&P, Moody's or Fitch), then Independence may require Guarantor to provide collateral in the form of either a substitute guaranty on terms and conditions substantially similar to this Guaranty (from a substitute guarantor whose unsecured, senior long-term debt obligations are rated at least "Investment Grade" from two of S&P, Moody's and Fitch) or other security reasonably acceptable to Independence and Purchaser ("Performance Assurance") in an amount determined by Independence in a commercially reasonable manner. The failure of Guarantor to provide such Performance Assurance or a guaranty or other credit assurance acceptable to Independence within twenty (20) business days of receipt of notice shall constitute an Event of Default under the Tolling Agreement and Independence will be entitled to the remedies set forth in the Tolling Agreement. 7. AMENDMENT OF GUARANTY. No term or provision of this Guaranty shall be amended, modified, altered, waived, supplemented or terminated except in a writing signed by Guarantor and Independence or Independence's successors and permitted assigns. 8. WAIVERS. To the fullest extent permitted by law, and except for the Demand required pursuant to Section 4 hereof, Guarantor hereby waives (a) all set-offs, counterclaims, presentments, demands for performance, notices of nonperformance, protests, notice of any of the matters referred to in Section 2, notices of protests, notices of dishonor, notice of any waivers or indulgences or extensions, and notices of every kind that may be required to be given by any statute or rule of law and notice of acceptance of this Guaranty, (b) diligence, presentment, and demand of payment, filing of claims with a court in connection with any Proceeding, protest or notice with respect to the Guaranteed Obligations and all demands whatsoever; and (c) any requirement that any action or proceeding be brought against Purchaser or any other person, or any requirement that any person exhaust any right, power or remedy or proceed against any other person, prior to any action against Guarantor under the terms hereof. No delay on the part of Independence, its successors or permitted assigns in the exercise of, or failure to exercise, any right or remedy shall operate as a waiver thereof, a waiver of any other rights or remedies, or a release of Guarantor from any obligations hereunder, and no single or partial exercise by Independence, its successors or permitted assigns of any right or remedy shall preclude any further exercise thereof or the exercise of any other right or remedy. 9. WAIVER OF SUBROGATION. Guarantor hereby agrees that it will not exercise, and hereby irrevocably, absolutely and unconditionally waives, any rights of subrogation, contribution, reimbursement, indemnification or other rights of ***CONFIDENTIAL TREATMENT REQUESTED*** - 92 - payment or recovery for any payments made by it hereunder until all Guaranteed Obligations have been fully paid and performed. 10. NOTICE. Any Demand, notice, request, instruction, correspondence or other document to be given hereunder (herein collectively called "Notice") shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, or by telecopy, as follows: To Independence: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telecopy: (315) 342-8425 with a copy to: Sithe Energies, Inc. 28th Floor 335 Madison Avenue New York, New York 10017 Attention: General Counsel Telecopy: (212) 351-0019 To Guarantor: Dynegy Holdings Inc. 1000 Louisiana Street, Suite 5800 Houston, Texas 77002 Attention: Assistant Treasurer Telecopy: (713) 507-6786 Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telefax shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All Notices by telefax shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving notice as provided above of such change of address. ***CONFIDENTIAL TREATMENT REQUESTED*** - 93 - 11. ASSIGNMENT. Guarantor shall have no right, power or authority to delegate, assign or transfer all or any of its rights or obligations hereunder. Independence may assign all or any of its rights hereunder to any assignee of its rights under the Tolling Agreement as permitted thereby; provided, further, that Independence may pledge or assign its interest hereunder to the lenders of financial parties referred to in Section 21.01 of the Tolling Agreement ("Financial Parties") in connection with any assignment of the Tolling Agreement to the Financial Parties as contemplated by Section 21.01 of the Tolling Agreement. In connection with any such assignment to any Financial Party, Guarantor agrees to execute and deliver the agreement attached hereto as Exhibit 2. 12. MISCELLANEOUS. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CONFLICT-OF-LAWS RULES. EACH OF GUARANTOR AND INDEPENDENCE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER AGREEMENTS REFERRED TO HEREIN OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself in any legal action or proceeding relating to this 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 New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 10, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. This Guaranty is a continuing guaranty, shall apply to all Guaranteed Obligations whenever arising, shall be binding upon Guarantor and its successors and shall inure to the benefit of and be enforceable by Independence and its successors and permitted assigns. This Guaranty embodies the entire agreement of Guarantor and Independence and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Guaranty are for the purposes of reference only, and shall not affect the meaning hereof. If any provision of this Guaranty shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, but only to the extent of its invalidity, illegality or unenforceability. This Guaranty may be executed in any number of counterparts, ***CONFIDENTIAL TREATMENT REQUESTED*** - 94 - each of which shall be an original, but all of which together shall constitute one instrument. ***CONFIDENTIAL TREATMENT REQUESTED*** - 95 - IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and delivered by its duly authorized officer as of the day and year first above written. DYNEGY HOLDINGS INC. By: ----------------------------- Title: -------------------------- ACCEPTED: SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: -------------------------------------- Title: ----------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** - 96 - EXHIBIT 2 ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Holdings Inc. a Texas corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Guaranty Agreement dated as of July 1, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 24.07 of the Assigned Contract. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: ***CONFIDENTIAL TREATMENT REQUESTED*** - 97 - (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that ***CONFIDENTIAL TREATMENT REQUESTED*** - 98 - the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, ***CONFIDENTIAL TREATMENT REQUESTED*** - 99 - successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Company under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza ***CONFIDENTIAL TREATMENT REQUESTED*** - 100 - Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a ***CONFIDENTIAL TREATMENT REQUESTED*** - 101 - waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. ***CONFIDENTIAL TREATMENT REQUESTED*** - 102 - IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY HOLDINGS INC. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** - 103 - EX-10.3(16) 6 a2056240zex-10_316.txt EXHIBIT 10.3.16 EXHIBIT 10.3.16 (MULTICURRENCY -- CROSS BORDER) ISDA(R) International Swap Dealers Association, Inc. MASTER AGREEMENT dated as of July 1, 2001 SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware limited partnership) and DYNEGY POWER MARKETING, INC. (a Texas corporation) have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows: -- 1. INTERPRETATION (a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) INCONSISTENCY. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. OBLIGATIONS (a) GENERAL CONDITIONS. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. (b) CHANGE OF ACCOUNT. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) NETTING. If on any date amounts would otherwise be payable:-- 1 (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries. (d) DEDUCTION OR WITHHOLDING FOR TAX. (i) GROSS-UP. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:-- (1) promptly notify the other party ("Y") of such requirement; (2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:-- (A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or (B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law. (ii) LIABILITY. If:-- (1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2) X does not so deduct or withhold; and (3) a liability resulting from such Tax is assessed directly against X, then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any 2 related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)). (e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. REPRESENTATIONS Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:-- (a) BASIC REPRESENTATIONS. (i) STATUS. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing; (ii) POWERS. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) CONSENTS. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) OBLIGATIONS BINDING. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. 3 (e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. (f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. AGREEMENTS Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:-- (a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:-- (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (ii) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to 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 or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) COMPLY WITH LAWS. It will 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 or any Credit Support Document to which it is a party. (d) TAX AGREEMENT. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. EVENTS OF DEFAULT AND TERMINATION EVENTS (a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:-- (i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 4 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) CREDIT SUPPORT DEFAULT. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) MISREPRESENTATION. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) BANKRUPTCY. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:-- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or 5 presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:-- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) TERMINATION EVENTS. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:-- (i) ILLEGALITY. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):-- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); (iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax 6 under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); (iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6. EARLY TERMINATION (a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT. (i) NOTICE. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed. 7 (iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iv) RIGHT TO TERMINATE. If:-- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) EFFECT OF DESIGNATION. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) CALCULATIONS. (i) STATEMENT. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) PAYMENT DATE. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off (i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event of Default:-- 8 (1) FIRST METHOD AND MARKET QUOTATION. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. (2) FIRST METHOD AND LOSS. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) SECOND METHOD AND LOSS. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) TERMINATION EVENTS. If the Early Termination Date results from a Termination Event:-- (1) ONE AFFECTED PARTY. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) TWO AFFECTED PARTIES. If there are two Affected Parties:-- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y"); and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y, and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). 9 (iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. TRANSFER Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:-- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. CONTRACTUAL CURRENCY (a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. (b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. (c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement. (d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 10 9. MISCELLANEOUS (a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) AMENDMENTS. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. (e) COUNTERPARTS AND CONFIRMATIONS. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) HEADINGS. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 10. OFFICES; MULTIBRANCH PARTIES (a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into. (b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party. (c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11. EXPENSES A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 11 12. NOTICES (a) EFFECTIVENESS. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:-- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received; (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) CHANGE OF ADDRESSES. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 13. GOVERNING LAW AND JURISDICTION (a) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) JURISDICTION. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:-- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might 12 otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. DEFINITIONS As used in this Agreement:-- "ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b). "AFFECTED PARTY" has the meaning specified in Section 5 (b). "AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "AFFILIATE" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "APPLICABLE RATE" means:-- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "BURDENED PARTY" has the meaning specified in Section 5 (b). "CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. "CONSENT" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent. "CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b). "CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as such in this Agreement. "CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule. "DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "DEFAULTING PARTY" has the meaning specified in Section 6(a). "EARLY TERMINATION DATE" means the date determined in accordance with Section 6(a) or 6(b)(iv). "EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "ILLEGALITY" has the meaning specified in Section 5(b). "INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document). 13 "LAW" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "LAWFUL" and "UNLAWFUL" will be construed accordingly. "LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "LOSS" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "MARKET QUOTATION" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "NON-DEFAULTING PARTY" has the meaning specified in Section 6(a). 14 "OFFICE" means a branch or office of a party, which may be such party's head or home office. "POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "SET-OFF" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination Date, the sum of:-- (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "SPECIFIED ENTITY" has the meanings specified in the Schedule. "SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "STAMP TAX" means any stamp, registration, documentation or similar tax. "TAX" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "TAX EVENT" has the meaning specified in Section 5(b). "TAX EVENT UPON MERGER" has the meaning specified in Section 5(b). "TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "TERMINATION CURRENCY" has the meaning specified in the Schedule. 15 "TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties. 16 IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. DYNEGY POWER MARKETING, INC. SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: /s/ Miles Allen BY: SITHE/INDEPENDENCE, INC., ------------------------ ITS GENERAL PARTNER Name: Miles Allen /s/ Martin B. Rosenberg ----------------------------------- Name: Martin B. Rosenberg Title: Vice President Title: Senior Vice President Date: July 1, 2001 Date: July 1, 2001 17 EX-10.3(17) 7 a2056240zex-10_317.txt EXHIBIT 10.3.17 EXHIBIT 10.3.17 ***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE INDICATED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.*** SCHEDULE TO THE MASTER AGREEMENT (MULTICURRENCY-CROSS BORDER) DATED AS OF JULY 1, 2001 BETWEEN DYNEGY POWER MARKETING, INC. A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS ("PARTY A") AND SITHE/INDEPENDENCE POWER PARTNERS, L.P. A LIMITED PARTNERSHIP ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE ("PARTY B") PART 1. TERMINATION PROVISIONS. Sections 2(a)(iii)(2), 2(e), 5 and 6 of the Master Agreement shall not apply and shall be replaced by the Default provision set forth at Section 5(h) of this Schedule PART 2. TAX REPRESENTATIONS. Section 3 of the Master Agreement shall not apply and shall be replaced by Section 5(a) of this Schedule. Sections 2(d), 4(d) and 4(e) of the Master Agreement shall not apply. ***CONFIDENTIAL TREATMENT REQUESTED*** 1 PART 3. AGREEMENT TO DELIVER DOCUMENTS. For the purpose of Section 4(a)(i) and (ii), each party agrees to deliver the following documents, as applicable:
====================================================================================================================== PARTY REQUIRED TO COVERED BY DELIVER DOCUMENT FORM/DOCUMENT/CERTIFICATE DATE BY WHICH TO BE DELIVERED SECTION 3(d) - ---------------------------------------------------------------------------------------------------------------------- a) Party A and Any document required or reasonably Promptly after the earlier of (i) Yes Party B requested to allow the other party to make reasonable demand by either payments under the Agreement without any party; or (ii) learning that such deduction or withholding for or on account form or document is required. of any Tax or with such deduction or withholding at a reduced rate. ======================================================================================================================
PART 4. MISCELLANEOUS. (a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a): Address for notices or communications to Party A: Address: Dynegy Power Marketing, Inc. P.O. Box 4777 Houston, Texas 77210-4777 Street Address: 1000 Louisiana, Suite 5800 (courier delivery) Houston, Texas 77002-5050 Attention: Lynn A. Lednicky Telephone No.: (713) 507-6438 Facsimile No.: (713) 507-6538 A copy of any notice sent to Party A must also be sent to the above address to: Attention: John C. Herbert, Vice President, Legal Telephone No.: (713) 507-6832 Facsimile No.: (713) 507-6986 ***CONFIDENTIAL TREATMENT REQUESTED*** 2 Address for notices or communications to Party B: Address: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telephone No.: (315) 342-8410 Facsimile No.: (315) 342-8425 A copy of any notice sent to Party B must also be sent to: Address: Sithe/Independence Power Partners, L.P. c/o Sithe Energies, Inc. 335 Madison Avenue 28th Floor New York, New York 10017 Attention: Attention: General Counsel Telephone No.: (212) 351-0000 Facsimile No.: (212) 351-0800 ***CONFIDENTIAL TREATMENT REQUESTED*** 3 (b) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction. (c) CHOICE OF LAW. This Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of Party A and Party B hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Agreement. (d) NETTING OF PAYMENTS. Section 2(c) of the Master Agreement shall not apply and shall be replaced by Section 5(f) of this Schedule. (e) "AFFILIATE" means, with respect to any entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such entity. For this purpose, "control" means the direct or indirect ownership of fifty percent (50%) or more of the outstanding capital stock or other equity interests having ordinary voting power. (f) PROCESS AGENT. For purposes of Section 13(c) of this Agreement: Party A appoints as its Process Agent: Not Applicable Party B appoints as its Process Agent: Not Applicable (g) OFFICES. The provisions of Section 10(a) will not apply to this Agreement. (h) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement: Party A is not a Multibranch Party. Party B is not a Multibranch Party. (i) CREDIT SUPPORT RESERVE. (i) Party B shall, upon the execution of this Agreement, establish for the benefit of Party A, a credit support reserve which shall be maintained throughout the term of this Agreement (the "Credit Support Reserve"). During each year of the term of this Agreement, Party B shall ensure that the Credit Support Reserve have available credit support in the amounts specified below, as such amounts shall be reduced from time to time in accordance with Section 4(i)(v) (the "Credit Support Amount"). Party B shall provide such Credit Support Reserve either in cash, in the form of letter(s) of credit and/or as one or more guaranty(ies). Each such letter of credit must be issued by a financial institution that is and remains rated "A-" or better by Standard & Poor's Rating Group (a division of The McGraw-Hill Companies, Inc.) ("S&P") or "A3" or better by Moody's Investors Service, Inc. ("Moody's") in a form reasonably acceptable to Party A. Each such guaranty shall be with a guarantor with a credit rating at the time of execution of such guaranty for its unsecured, long-term debt obligations or corporate credit of BBB or better from S&P or Baa2 or better from Moody's and substantially in the form of the guaranty attached hereto as Exhibit C. The Credit Support Reserve shall initially be in the form of (1) a guaranty of Enron Corp. in the amount of $[***] (the "Enron Guaranty"), (2) a guaranty of Exelon Generation Company, L.L.C. in the amount of $[***] (the "Exelon Guaranty"), (3) a letter of credit posted by Enron Corp. in the amount of $[***] (the "Enron LC," and together with the Enron Guaranty, the "Enron Credit Support") and (4) a letter of credit posted by Sithe Energies, Inc. in the amount of $[***] (the "Sithe Energies LC," and together with the Exelon Guaranty, the "Exelon/SEI Credit Support") or in such other combination or forms as shall be reasonably acceptable to Party A. For so long as the Credit Support Reserve is in the form of the Enron Credit Support and the Exelon/SEI Credit Support (as described above), any amounts drawn from the Credit Support ***CONFIDENTIAL TREATMENT REQUESTED*** 4 Reserve pursuant to this Section 4(i) shall be allocated between and drawn from the Enron Credit Support and the Exelon/SEI Credit Support as follows: forty percent (40%) from the Enron Credit Support and sixty percent (60%) from the Exelon/SEI Credit Support. Whether an amount is to be drawn from the Enron Credit Support or the Exelon/SEI Credit Supoort, such amount shall first be drawn on any letters of credit then available. Whether in the form of cash, letter(s) of credit or guaranty(ies), the Credit Support Reserve amounts shall be reduced from time to time in accordance with Section 4(i)(v). (ii) The Credit Support Amount required during the term of this Agreement shall correspond to the following schedule, as such amounts shall be reduced from time to time in accordance with Section 4(i)(v). For purposes of this schedule, "Year 1" refers to the period from the date of this Agreement through December 31, 2001 and each subsequent "Year" refers to the next calendar year.
YEAR CREDIT SUPPORT AMOUNT ---- --------------------- 1 through 10 $[***] 11 $[***] 12 $[***] 13 through end of term $[***]
(iii) The Credit Support Amount and the maintenance of the Credit Support Reserve shall be subject to the following terms and conditions. Following the tenth year of the term of this Agreement and for each subsequent year, Party B shall be entitled to a reduction in the amount of the Credit Support Reserve equal to the positive difference between the amount required to be maintained in the Credit Support Reserve for the year reaching termination and the amount required to be maintained in the Credit Support Reserve for the next upcoming year. To the extent that the Credit Support Amount is maintained in a cash account, interest on such Credit Support Amount shall be payable quarterly to Party B. (iv) Party A and Party B acknowledge that the Credit Support Reserve will be applied exclusively to pay Party A certain Floating Price Amounts under Confirmation #1A dated as of July 1, 2001 during Blue Periods (as defined below). For purposes of the foregoing, a "Blue Period" shall mean a period during which Party B is unable to effectuate a physical hedge against all or any portion of its financial obligation as the Floating Price Payor during a Calculation Period. Party B shall advise Party A of the existence of a Blue Period at such time as Party A delivers a Calculation Period Notice, or at any time thereafter that Party B becomes aware of its inability to effectuate a physical hedge against all or any portion of its financial obligation as the Floating Price Payor during a Calculation Period. Party B shall also provide Party A with notice of the end of any Blue Period or such period that would otherwise have constituted a Blue Period had Party A provided a Calculation Period Notice. The existence of a Blue Period shall in no way affect Party B's obligations to make settlement as the Floating Price Payor under the Transaction. On each Settlement Date following a calendar month during which a Blue Period has occurred, the Parties shall calculate the positive difference, if any, between (a) the portion of the Floating Price payable during the Blue Periods occurring during such calendar month minus (b) the sum of (A) the portion of the Fixed Price payable during the Blue Periods occurring during such calendar month plus (B) the Execution Amount payable with respect to such calendar month (the "Cash Shortfall"). If there is a Cash Shortfall, on the immediately succeeding Payment Date, Party A shall be entitled to draw upon the Credit Support Reserve in an amount equal to the lesser of the Cash Shortfall and the amount then available under the Credit Support Reserve. On each Payment ***CONFIDENTIAL TREATMENT REQUESTED*** 5 Date, if the amount of the Cash Shortfall, if any, exceeds the amount then available under the Credit Support Reserve, any excess Cash Shortfall shall be carried over to the immediately succeeding Payment Date with interest calculated from such Payment Date until the next Payment Date, at a rate per annum equal to the prime rate reported in The Wall Street Journal's "Money Rates" column (or any similar column published in The Wall Street Journal in replacement thereof) for the immediately preceding business day; provided that for any twelve-month period, Party B's aggregate liability for Cash Shortfalls (including interest) occurring during such twelve-month period shall not exceed the sum of (1) the amount of the Credit Support Reserve at the beginning of such twelve-month period, plus (2) the Execution Amounts payable during such twelve-month period. At the end of the term of Confirmation #1A, Party B shall be entitled to cancel or terminate each letter of credit and each guaranty and retain any cash amounts, in each case in respect of the Credit Support Reserve. (v) If at any time, Party A draws upon amounts under the Credit Support Reserve, the Credit Support Reserve and the Credit Support Amount for that year and for all subsequent years of the term shall be reduced by such amount. If at any time during the term of this Agreement, Party A is paid amounts from the Credit Support Reserve, or Party B is required to pay Party A Cash Shortfalls utilizing funds or credit support available in the Credit Support Reserve, Party B, notwithstanding such payments or any other provision contained herein, shall have no obligation, and is expressly relieved from any obligation, to provide additional credit support that would have the effect of replenishing the amounts contained in the Credit Support Reserve. Under no circumstances shall Party B's aggregate liability to Party A under this Agreement for the term of the Agreement exceed the sum of (a) $[***] (reduced by any amounts returned to Party B in years 11 through the end of the term pursuant to Section 4(i)(iii)), plus (b) the sum of the Execution Amounts during the term of the Agreement retained by Party A pursuant to Section 4(i)(iv). If at any time during the term of this Agreement, the amount of the Credit Support Reserve has been reduced to zero, then under no circumstances thereafter shall Party B's aggregate liability for Cash Shortfalls (including interest) occurring during any twelve-month period exceed the sum of the Execution Amounts payable during such twelve-month period. (vi) Party A expressly waives any rights it may have to seek or receive any Cash Shortfall in excess of the aggregate and annual liability limits set forth in Section 4(i)(v). Party A expressly waives any rights it may have to seek or receive any Cash Shortfall that may exist following the termination of Confirmation #1A. In addition, the Parties expressly acknowledge and agree that the sole remedy with respect to any Cash Shortfall which may occur or exist is set forth in this Section 4(i) and any failure of Party B to otherwise pay or cause to be paid any Cash Shortfall shall not constitute an event of default under this Agreement. (j) CREDIT SUPPORT PROVIDER. Any requirements related to Credit Support Providers under the Master Agreement shall not apply except as set forth in Section 4(i). (k) PRIOR SWAPS. Party A and Party B may have entered into (either directly, or as successor-in-interest to) certain swaps and similar agreements ("Existing Transactions") prior to the execution of this Agreement, which they hereby agree shall not constitute Transactions under this Agreement. PART 5. OTHER PROVISIONS. ***CONFIDENTIAL TREATMENT REQUESTED*** 6 (a) REPRESENTATIONS. Section 3 is hereby replaced in its entirety with the following: (i) PARTY A'S REPRESENTATIONS Party A hereby represents and warrants as follows: (1) It is a corporation duly organized and validly existing and in good standing under the laws of Texas and is duly qualified to do business and in good standing in the State of New York. (2) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (3) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any shareholder approval or consent of any trustee or holder of any indebtedness of Party A. (4) This Agreement has been duly executed and delivered on behalf of Party A by the appropriate officers of Party A and constitutes the legal, valid and binding obligation of Party A, enforceable against Party A in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally, and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (5) (i) It is entering into this Agreement including, without limitation, any Credit Support Document to which it is a party and each Transaction, in conjunction with its line of business (including financial intermediation services) or the financing of its business; and (ii) with respect to Options (other than weather-related options), it is a producer, processor, commercial user of, or merchant handling, the commodity subject to the Transaction or the products or byproducts thereof, and is entering into each Option Transaction solely for purposes related to its business as such; and (iii) with respect to any weather-related Transactions, it is exposed in the conduct of its business to the risk of variations in weather and is entering into such Transactions to manage or offset such risks. (6) It constitutes an "eligible swap participant" as such term is defined in Rule 35.1(b)(2) of the Commodity Futures Trading Commission, 17 C.F.R.ss.35.1(b)(2) (1993). (7) The economic terms of this Agreement, any Credit Support Document to which it is a party, and each Transaction have been individually tailored and negotiated by it; the creditworthiness of the other party was a material consideration in its entering into or determining the terms of this Agreement, such Credit Support Document, and such Transaction; and the transferability of this Agreement, such Credit Support Document, and such Transaction is restricted as provided herein and therein. ***CONFIDENTIAL TREATMENT REQUESTED*** 7 (8) In connection with the negotiation of, the entering into, and the confirming of the execution of, this Agreement, any Credit Support Document to which it is a party, and each Transaction: (i) it is acting as principal (and not as agent or in any other capacity, fiduciary or otherwise); (ii) the other party is not acting as a fiduciary or financial or investment advisor for it; (iii) it is not relying upon any representations (whether written or oral) of the other party other than the representations expressly set forth in this Agreement and in such Credit Support Document; (iv) the other party has not given to it (directly or indirectly through any other person) any advice, counsel, assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (either legal, regulatory, tax, financial, accounting, or otherwise) of this Agreement, such Credit Support Document, or such Transaction; (v) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary, and not upon any view expressed by the other party; (vi) all trading decisions have been the result of arm's length negotiations between the parties; and (vii) it is entering into this Agreement, such Credit Support Document, and such Transaction with a full understanding of all of the risks hereof and thereof (economic and otherwise), and it is capable of assuming and willing to assume (financially and otherwise) those risks. (ii) PARTY B'S REPRESENTATIONS Party B hereby represents and warrants as follows: (1) It is a limited partnership duly organized and validly existing and in good standing under the laws of Delaware and is duly qualified to do business and in good standing in the State of New York. (2) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (3) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any partnership approval or consent of any trustee or holder of any indebtedness of Party B. (4) This Agreement has been duly executed and delivered on behalf of Party B by the appropriate officers of the general partner of Party B and constitutes the legal, valid and binding obligation of Party B, enforceable against Party B in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (5) (i) It is entering into this Agreement including, without limitation, any Credit Support Document to which it is a party and each Transaction, in conjunction with its line of business (including financial intermediation ***CONFIDENTIAL TREATMENT REQUESTED*** 8 services)or the financing of its business; and (ii) with respect to Options (other than weather-related options), it is a producer, processor, commercial user of, or merchant handling, the commodity subject to the Transaction or the products or byproducts thereof, and is entering into each Option Transaction solely for purposes related to its business as such; and (iii) with respect to any weather-related Transactions, it is exposed in the conduct of its business to the risk of variations in weather and is entering into such Transactions to manage or offset such risks. (6) It constitutes an "eligible swap participant" as such term is defined in Rule 35.1(b)(2) of the Commodity Futures Trading Commission, 17 C.F.R.ss.35.1(b)(2) (1993). (7) The economic terms of this Agreement, any Credit Support Document to which it is a party, and each Transaction have been individually tailored and negotiated by it; the creditworthiness of the other party was a material consideration in its entering into or determining the terms of this Agreement, such Credit Support Document, and such Transaction; and the transferability of this Agreement, such Credit Support Document, and such Transaction is restricted as provided herein and therein. (8) In connection with the negotiation of, the entering into, and the confirming of the execution of, this Agreement, any Credit Support Document to which it is a party, and each Transaction: (i) it is acting as principal (and not as agent or in any other capacity, fiduciary or otherwise); (ii) the other party is not acting as a fiduciary or financial or investment advisor for it; (iii) it is not relying upon any representations (whether written or oral) of the other party other than the representations expressly set forth in this Agreement and in such Credit Support Document; (iv) the other party has not given to it (directly or indirectly through any other person) any advice, counsel, assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (either legal, regulatory, tax, financial, accounting, or otherwise) of this Agreement, such Credit Support Document, or such Transaction; (v) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary, and not upon any view expressed by the other party; (vi) all trading decisions have been the result of arm's length negotiations between the parties; and (vii) it is entering into this Agreement, such Credit Support Document, and such Transaction with a full understanding of all of the risks hereof and thereof (economic and otherwise), and it is capable of assuming and willing to assume (financially and otherwise) those risks. (b) DEFINITIONS. This Agreement, each Confirmation, and each Transaction are subject to the 1991 ISDA Definitions as amended, supplemented, updated, restated (including the 1993 ISDA Commodity Derivatives Definitions and the 2000 Supplement) (the "Definitions"), each as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), and will be governed in all respects by the Definitions (except that references to "Swap Transactions" in the Definitions will be deemed to be references to "Transactions"). The Definitions, as so modified, are incorporated by reference in, and made part of, this Agreement and each Confirmation as if set forth in full in this Agreement and such Confirmations. In the event of any inconsistency between the provisions of this Agreement and the Definitions, this Agreement will prevail. In the event of any inconsistency between the provisions of any ***CONFIDENTIAL TREATMENT REQUESTED*** 9 Confirmation and this Agreement or the Definitions, such Confirmation will prevail for the purpose of the relevant Transaction. (c) ACCOUNTS. If a Confirmation does not state the account to which United States Dollar payments are to be made, they shall be made as follows: PARTY A PARTY B ------- ------- Pay: Bank One, NA-Chicago The Bank of New York; Corporate Trust/GLA 111-565 For the Account of: Dynegy Power Marketing, Inc. Sithe Independence PWR Project Revenue Fund Account #/CHIPS UID: 552-7651 229289 Fed. ABA #: 071000013 021000018 (d) PROCEDURES FOR ENTERING INTO TRANSACTIONS. On or promptly following the date on which the parties reach agreement on the terms of a Transaction as contemplated by the first sentence of Section 9(e)(ii), Party A will send to Party B a Confirmation. Party B will promptly thereafter confirm the accuracy of (in the manner required by Section 9(e)(ii)), or request the correction of, such Confirmation (in the latter case, indicating how it believes the terms of such Confirmation should be correctly stated and such other terms which should be added to or deleted from such Confirmation to make it correct. If any dispute shall arise as to whether an error exists in a Confirmation, the parties shall resolve the dispute in good faith. (e) CONSENT TO RECORDINGS. Each party consents to the monitoring or recording, at any time and from time to time, by the other party of any and all communications between employees of the parties, waives any further notice of such monitoring or recording. (f) SETOFF. The Parties hereby agree that they shall discharge mutual debts and payment obligations due and owing to each other under this Agreement through netting each calendar month on the Payment Date, in which case all amounts owed by each Party to the other Party under this Agreement during the monthly billing period, including, interest, and payments or credits, shall be netted so that only the excess amount remaining due shall be paid by the Party who owes it. Except as provided in the preceding sentence, the amounts due Party A from Party B and the amounts due Party B from Party A shall constitute separate and independent obligations and may not be offset or net against each other or offset or net against any other amounts due between the Parties (whether under this Agreement or otherwise). (g) LIMITATION OF LIABILITY. Neither Party, nor their respective officers, directors, partners, agents, employees or Affiliates, shall be liable to the other Party or its Affiliates, officers, directors, trustees, partners, agents, employees, successors or assigns, for claims for incidental, special, indirect, consequential or punitive damages of any nature connected with or resulting from performance or breach of this Agreement, including, without limitation, claims in the nature of lost revenues, income or profits (other than payments specifically provided for and properly due under this Agreement) or losses, damages or liabilities under any financing, lending or construction contracts, agreements or other arrangements, irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. (h) DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: (i) A material breach of any material term or condition of this Agreement, including, but not limited, to (i) any material breach of a representation, warranty or ***CONFIDENTIAL TREATMENT REQUESTED*** 10 covenant made in this Agreement, and (ii) failure of either Party to make a required payment to the other Party of amounts due hereunder. (ii) A failure of Guarantor to provide Performance Assurance as defined in the Guaranty Agreement dated as of the date hereof by Guarantor (as amended, supplemented or modified and in effect from time to time, the "Guaranty Agreement") or a guaranty or other credit assurance acceptable to Party B, within the time required pursuant to Section 6 of the Guaranty Agreement. (iii) A receiver or liquidator or trustee of either Party or of any of its property shall be appointed by a court of competent jurisdiction, and such receiver, liquidator or trustee shall not have been discharged within one hundred twenty (120) Days, or by decree of such a court, a Party shall be adjudicated bankrupt or insolvent or any substantial part of its property shall have been sequestered, and such decree shall have continued undischarged and unstayed for a period of one hundred twenty (120) Days after the entry thereof; or a petition to declare bankruptcy or to reorganize a Party pursuant to any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, shall be filed against a Party and shall not be dismissed within one hundred twenty (120) Days after such filing. (iv) A Party shall file a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law, or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a proceeding under any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, or an answer admitting the material allegations of a petition filed against it in such a proceeding; or a Party shall make an assignment for the benefit of its creditors; or a Party shall admit in writing its inability to pay its debts generally as they become due; or a Party shall consent to the appointment of a receiver, trustee or liquidator of it or of all or part of its property. (v) The occurrence and continuation of a default, event of default or other similar condition or event in respect of such Party (or an Affiliate of such Party) under the Energy Management Agreement dated as of July 1, 2001 by and among the Parties and Dynegy Marketing and Trade. Upon the occurrence of any such Event of Default other than those described in Section 5(h)(ii),(iii) and (iv), the Party not in default shall give written notice of the Event of Default to the defaulting Party. Such notice of default shall set forth, in reasonable detail, the nature of the default and, where known and applicable, the steps necessary to cure such default. Following receipt of such notice, the defaulting Party shall have: (1) ten (10) Days in the case of the failure of the defaulting Party to make a required payment to the other Party of amounts due hereunder; or ***CONFIDENTIAL TREATMENT REQUESTED*** 11 (2) thirty (30) Days in the case of any other Event of Default described in Sections 5(h)(i) and 5(h)(v): to cure such default or, in the case of an Event of Default under (2), to commence in good faith and continue to diligently pursue all such steps as shall be reasonably necessary and appropriate to cure such default in the event such default cannot reasonably be completely cured within such thirty (30) Day period. Notwithstanding the foregoing, after the occurrence of any such Event of Default and the expiration of all applicable cure periods with respect thereto without such default being cured, the non-defaulting Party shall be entitled (i) to suspend performance under this Agreement or to terminate this Agreement, (ii) to commence an action to require the defaulting Party to remedy such default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof and (iii) to exercise such other rights and remedies as it may have at equity or at law, but subject to any limitation on damages otherwise provided for under this Agreement. (i) CONDITIONS PRECEDENT. The obligations of Party B to consummate the transactions contemplated by this Agreement shall be subject to fulfillment of the following conditions, unless waived in writing by Party B: (i) Party A shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit A or such other form as Party B may approve; (ii) Dynegy Holdings Inc. ("Guarantor") shall have delivered a duly executed Guaranty Agreement in the form of Exhibit B or such other form as Party B may approve; (iii) Guarantor shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit 2 to Exhibit B or such other form as Party B may approve; and (j) INDEMNIFICATION (i) Party A shall indemnify, defend and hold harmless Party B and its Affiliates and their officers, directors, trustees, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to tangible property of third parties and injury to or death of persons (other than Party B's employees or Party A's employees) to the extent caused by, arising out of or related to the gross negligence or willful misconduct of Party A in connection with or resulting from Party A's performance or breach of this Agreement. (ii) Party B shall indemnify, defend and hold harmless Party A and its Affiliates and their officers, trustees, directors, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to the tangible property of third parties and injury to or death of persons (other than Party A's employees and Party B's employees) to the extent caused by, arising out of or relating to the gross negligence or willful misconduct of Party B in connection with or resulting from Party B's performance or breach of this Agreement. (iii) A Party which becomes entitled to indemnification under this Agreement (the "Indemnified Party") shall give written notice to the other Party (the "Indemnifying Party") of the occurrence of the events which give rise to such right of indemnification within 30 Days of the Indemnified Party becoming aware of the occurrence thereof. Such notice shall describe the claim, the basis thereof and ***CONFIDENTIAL TREATMENT REQUESTED*** 12 shall indicate an estimate of the amount of the claim. To the extent that the Indemnifying Party is prejudiced by any failure of the Indemnified Party to provide such notice, such notice shall be a condition precedent to the liability of the Indemnifying Party under this Section 5(j). (iv) At the Indemnified Party's request, the Indemnifying Party shall, at its cost and expense, defend (with counsel reasonably acceptable to the Indemnified Party) any suit asserting a claim against the Indemnified Party with respect to which the Indemnified Party is entitled to indemnification hereunder, and shall pay all costs and expenses incurred by the Indemnified Party to enforce its right to indemnification. The Indemnified Party may, at its own expense, retain separate counsel and participate in the defense of any such suit. Neither Party may settle or compromise a claim or suit without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. (v) The indemnification obligations of each party under this Section 5(j) shall not be limited in any way by any limitation on insurance, by the amount or types of damages, or by any compensation or benefits payable by the parties under Worker's Compensation Acts, disability benefit acts or other employee acts or otherwise. The provisions of this Section 5(j) shall survive termination, cancellation, suspension, completion or expiration of this Agreement. (k) ASSIGNMENT. Section 7 of the Master Agreement shall not apply and shall be replaced by this Section 5(k). (i) This Agreement and all of the provisions hereof (including any Confirmations or Transactions hereunder) shall be binding upon, and inure to the benefit of, the Parties hereto and their respective successors and permitted assigns, but neither this Agreement (including any Confirmations or Transactions hereunder) nor any of the rights, interests or obligations hereunder shall be assigned, except to an Affiliate or successor, by either Party hereto, whether by operation of law or otherwise, without the prior written consent of the other Party, which consent may not be unreasonably withheld or delayed. No assignment of all or any portion of the rights, interests or obligations permitted pursuant to the immediately preceding sentence shall relieve or discharge the assignor from any of its obligations under this Agreement (including any Confirmations or Transactions hereunder) without the prior written consent of the non-assigning Party, which consent shall not be unreasonably withheld or delayed. Any assignment of this Agreement (including any Confirmations or Transactions hereunder) in violation of the foregoing shall be, at the option of the non-assigning Party, void. (ii) Notwithstanding the foregoing provisions of Section 5(k)(i), (1) Party A may assign all or any portion of its rights and obligations hereunder (including any rights and obligations under Confirmations or Transactions hereunder) to any of its Affiliates, (2) Party B may assign all or any portion of its rights and obligations hereunder (including any rights and obligations under Confirmations or Transactions hereunder) to any of its Affiliates (including, without limitation, Sithe Power Marketing, L.P., a Delaware limited partnership), and (3) Party B may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder (including any rights and obligations under Confirmations or Transactions hereunder) to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof, provided, however, that no such assignment of all or any portion of the rights, interests or obligations of a party pursuant to this Section 5(k)(ii) shall relieve or discharge the assignor from ***CONFIDENTIAL TREATMENT REQUESTED*** 13 any of its obligations under this Agreement unless the non-assigning Party consents to such release or discharge in accordance with Section 5(k)(i). With respect to clause (3) of this Section 5(k)(ii), Party A agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, so long as Party A's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. (l) MISCELLANEOUS (i) Section 13 of the Master Agreement shall not apply and shall be replaced by this Section 5(l)(i). Each of the Parties hereby irrevocably and unconditionally: (1) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (2) 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 the other Party at its address set forth in Section 4 of this Schedule, or at such other address of which the other Party shall have been notified pursuant thereto; and (3) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Law. (iii) Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first Party to comply with such obligation, covenant, agreement or condition. (iv) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. ***CONFIDENTIAL TREATMENT REQUESTED*** 14 IN WITNESS WHEREOF, the parties have executed this Schedule by their duly authorized officers as of the date first written above. DYNEGY POWER MARKETING, INC. SITHE/INDEPENDENCE POWER PARTNERS, L.P. (PARTY A) (PARTY B) By: /s/ Miles Allen By: SITHE/INDEPENDENCE, INC., -------------------------- ITS GENERAL PARTNER /s/ Martin B. Rosenberg ---------------------------------- Name: Miles Allen Name: Martin B. Rosenberg Title: Vice President Title: Senior Vice President Date: July 1, 2001 Date: July 1, 2001 ***CONFIDENTIAL TREATMENT REQUESTED*** 15 EXHIBIT A ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Power Marketing, Inc., a Texas corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the MASTER AGREEMENT, dated as of July 1, 2001, the SCHEDULE TO THE MASTER AGREEMENT dated as of July 1, 2001 attached thereto, and CONFIRMATION #1A thereunder dated as of July 1, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, collectively, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 5(e) of the Assigned Contract. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any [shareholder] of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate [officers] [representatives] of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the ***CONFIDENTIAL TREATMENT REQUESTED*** 1 Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new ***CONFIDENTIAL TREATMENT REQUESTED*** 2 contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Company under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non- ***CONFIDENTIAL TREATMENT REQUESTED*** 3 exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. ***CONFIDENTIAL TREATMENT REQUESTED*** 4 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY POWER MARKETING, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** 5 EXHIBIT B GUARANTY AGREEMENT Base Guaranty Agreement (this "Guaranty") dated as of July 1, 2001 is made and entered into by Dynegy Holdings Inc., a Delaware corporation ("Guarantor"), to and for the benefit of Sithe/Independence Power Partners, L.P., a Delaware limited partnership ("Party B"), and its successors and permitted assigns. WITNESSETH: WHEREAS, Party B and Dynegy Power Marketing, Inc., a Texas corporation (together with its successors and permitted assigns, "Party A"), have entered into a MASTER AGREEMENT dated as of July 1, 2001, the SCHEDULE TO THE MASTER AGREEMENT dated as of July 1, 2001 attached thereto and Confirmation #1A thereunder dated as of July 1, 2001 (as amended, supplemented or modified from time to time, collectively, the "Agreement"), a copy of which is attached hereto as Exhibit 1; WHEREAS, Party A is an indirect, wholly owned subsidiary of Guarantor, and Guarantor will derive substantial benefit from the performance by Party B of its obligations under the Agreement; WHEREAS, it is a condition precedent to Party B's obligations under the Agreement that this Guaranty be duly executed and delivered to Party B; and WHEREAS, Guarantor is willing to enter into this Guaranty. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. GUARANTY. Subject to the terms hereof, Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Party B and its successors and permitted assigns the due, punctual and full performance and payment of each and every obligation of Party A under the Agreement (each such obligation hereinafter referred to, individually, as a "Guaranteed Obligation" and, collectively, as the "GUARANTEED OBLIGATIONS") and agrees that, if for any reason whatsoever Party A shall fail or be unable duly, punctually and fully to perform or pay any such Guaranteed Obligation, Guarantor shall forthwith, upon demand as provided in Section 4 hereof, perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid, without regard to any exercise or nonexercise by Party B, its successors or permitted assigns of any right, power or privilege under or in respect of the Agreement or the Guaranteed Obligations. In connection with the foregoing, Party B acknowledges that performance of the obligations of Party A under the Agreement, to the extent that such performance is for an obligation other than the payment of money, shall be accomplished by Guarantor causing such performance to occur through a third party or otherwise by the payment of money. This Guaranty shall be direct, immediate and primary and shall be a guaranty of performance and payment and not of collection, and is not conditioned or contingent upon any attempt to collect from Party A or upon any other event, contingency or circumstance whatsoever, except as expressly provided otherwise herein. 2. OBLIGATIONS UNCONDITIONAL. Guarantor covenants to and agrees with Party B and its successors and permitted assigns that, to the fullest extent permitted by law, its obligations under this Guaranty are irrevocable, absolute and unconditional, shall remain in full force and effect, and shall not be impaired or affected by, or be subject to, any reduction, termination or other impairment by set-off, deduction, counterclaim, recoupment, interruption or otherwise, and Guarantor shall have no right to terminate this Guaranty or to be released, relieved or discharged, in whole or in part, from its performance or payment obligations referred to in this Guaranty for any reason whatsoever (other than the performance and payment in full of the Guaranteed Obligations), including (a) any amendment, supplement or modification to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or ***CONFIDENTIAL TREATMENT REQUESTED*** 6 privilege under or in respect of, the Agreement, the Guaranteed Obligations or any other agreement or instrument relating thereto, (b) any insolvency, bankruptcy, reorganization, dissolution or liquidation of, or any similar occurrence with respect to, or cessation of existence of, or change of ownership of Party A, or any rejection of any of the Guaranteed Obligations in connection with any Proceeding (as defined in Section 3 below) or any disallowance of all or any portion of any claim by Party B, its successors or permitted assigns in connection with any Proceeding, (c) any lack of genuineness, legality, validity, regularity, enforceability or value of the Agreement, any of the Guaranteed Obligations, or any other agreement or instrument relating thereto, (d) the failure to create, preserve, validate, perfect or protect any security interest granted to, or in favor of, any person, (e) any substitution, modification, exchange, release, settlement or compromise of any security or collateral for or guaranty of any of the Guaranteed Obligations or failure to apply such security or collateral or failure to enforce such guaranty or (f) any other event or circumstance whatsoever that might otherwise constitute a legal or equitable discharge of a surety or guarantor (other than the payment in full of the Guaranteed Obligations, and any defenses that may be available to Party B under the Agreement), it being the intent of Guarantor that its obligations under this Guaranty shall be irrevocable, unconditional and absolute under any and all circumstances, except as expressly provided herein. This Guaranty and the obligations of Guarantor hereunder shall continue to be effective or be automatically reinstated, as the case may be, if at any time any payment by or on behalf of Party A is rescinded or must otherwise be restored by Party B, its successors or permitted assigns for any reason, including, but not limited to, as a result of any Proceeding with respect to Party A or any other person, as though such payment had not been made. 3. INTEREST. The Guaranteed Obligations shall include, without limitation, interest accruing as part of the Guaranteed Obligations by the terms thereof following the commencement by or against Party A of any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation, dissolution or composition or adjustment of debt (hereinafter, a "PROCEEDING"). 4. DEMAND. If Party A shall fail or be unable duly, punctually and fully to perform or pay any Guaranteed Obligation, Party B, its successors or permitted assigns may at any time prior to the full performance or payment of such Guaranteed Obligation deliver notice of such failure or inability of Party A to perform or pay to Guarantor in writing, which notice shall reasonably specify the nature of such failure or inability to perform or pay, as the case may be and, in the case of a failure or inability to pay, the amount thereof (each such written notice hereinafter a "DEMAND"). Guarantor shall, upon receipt of a Demand, forthwith perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid in full. Promptly on request, Guarantor shall reimburse Party B, its successors and permitted assigns for all costs and expenses (including reasonable attorneys' fees) incurred in enforcing Party B's, its successors' or permitted assigns' rights under this Guaranty, but only to the extent that Party B is successful in enforcing Party B's rights under this Guaranty. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Party B and its successors and permitted assigns that as of the date hereof: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, it has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Guaranty; (b) no authorization, approval, consent or order of, or registration or filing with, any court or other governmental body having jurisdiction over Guarantor is required on the part of Guarantor for the execution and delivery of this Guaranty; (c) this Guaranty has been duly executed and delivered by Guarantor and constitutes a valid and legally binding agreement of Guarantor enforceable against Guarantor in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law); ***CONFIDENTIAL TREATMENT REQUESTED*** 7 (d) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action and do not require any other actions or proceedings or any stockholder approval or consent of any trustee or holder of any indebtedness of Guarantor; (e) the execution, delivery and performance of this Guaranty and compliance by Guarantor with the terms hereof (i) will not violate any governmental approval or law applicable to it or any of its property, (ii) will not violate any provision of its certificate of incorporation, bylaws or other governing documents, and (iii) will not violate or constitute a default under any agreement or instrument to which it is a party or by which it or any of its property may be bound, or result in the creation or imposition of any lien upon any of its property, which violation, default or lien would have a material adverse effect on its ability to perform its obligations under this Guaranty; (f) except as disclosed in Guarantor's latest Form 10-K and any Form 10-Qs or Form 8-Ks subsequently filed with the Securities and Exchange Commission, there are no actions, suits, investigations or proceedings against Guarantor by or before any court, arbitrator, administrative or regulatory agency, or other governmental authority pending, or to its knowledge, threatened against or affecting it, its properties, or its assets that, if adversely determined, would reasonably be expected to have a material and adverse effect on its ability to perform its obligations under this Guaranty; and (g) it directly or indirectly owns all of the issued and outstanding shares of each class of capital stock of Party A. 6. DOWNGRADE EVENT. If at any time any two of the credit ratings then assigned to Guarantor's unsecured, senior long-term debt obligations falls below "Investment Grade" from the Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or its successor ("S&P"),"Investment Grade" from Moody's Investor Services, Inc. or its successor ("Moody's") or "Investment Grade" from Fitch IBCA, Inc. or its successor ("Fitch") (or if Guarantor is not rated by any of S&P, Moody's or Fitch), then Party B may require Guarantor to provide collateral in the form of either a substitute guaranty on terms and conditions substantially similar to this Guaranty (from a substitute guarantor whose unsecured, senior long-term debt obligations are rated at least "Investment Grade" from two of S&P, Moody's and Fitch) or other security reasonably acceptable to Party B and Party A ("Performance Assurance") in an amount determined by Party B in a commercially reasonable manner. The failure of Guarantor to provide such Performance Assurance or a guaranty or other credit assurance acceptable to Party B within twenty (20) business days of receipt of notice shall constitute an Event of Default under the Agreement and Party B will be entitled to the remedies set forth in the Agreement. 7. AMENDMENT OF GUARANTY. No term or provision of this Guaranty shall be amended, modified, altered, waived, supplemented or terminated except in a writing signed by Guarantor and Party B or Party B's successors and permitted assigns. 8. WAIVERS. To the fullest extent permitted by law, and except for the Demand required pursuant to Section 4 hereof, Guarantor hereby waives (a) all set-offs, counterclaims, presentments, demands for performance, notices of nonperformance, protests, notice of any of the matters referred to in Section 2, notices of protests, notices of dishonor, notice of any waivers or indulgences or extensions, and notices of every kind that may be required to be given by any statute or rule of law and notice of acceptance of this Guaranty, (b) diligence, presentment, and demand of payment, filing of claims with a court in connection with any Proceeding, protest or notice with respect to the Guaranteed Obligations and all demands whatsoever; and (c) any requirement that any action or proceeding be brought against Party A or any other person, or any requirement that any person exhaust any right, power or remedy or proceed against any other person, prior to any action against Guarantor under the terms hereof. No delay on the part of Party B, its successors or permitted assigns in the exercise of, or failure to exercise, any right or remedy shall operate as a waiver thereof, a waiver of any other rights or remedies, or a release of Guarantor from any obligations hereunder, and no single or partial exercise by Party B, its successors or permitted assigns of any right or remedy shall preclude any further exercise thereof or the exercise of any other right or remedy. ***CONFIDENTIAL TREATMENT REQUESTED*** 8 9. WAIVER OF SUBROGATION. Guarantor hereby agrees that it will not exercise, and hereby irrevocably, absolutely and unconditionally waives, any rights of subrogation, contribution, reimbursement, indemnification or other rights of payment or recovery for any payments made by it hereunder until all Guaranteed Obligations have been fully paid and performed. 10. NOTICE. Any Demand, notice, request, instruction, correspondence or other document to be given hereunder (herein collectively called "Notice") shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, or by telecopy, as follows: To Party B: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telecopy: (315) 342-8425 with a copy to: Sithe Energies, Inc. 28th Floor 335 Madison Avenue New York, New York 10017 Attention: General Counsel Telecopy: (212) 351-0800 To Guarantor: Dynegy Holdings Inc. 1000 Louisiana Street, Suite 5800 Houston, Texas 77002 Attention: Assistant Treasurer Telecopy: (713) 507-6786 Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telecopy shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All Notices by telecopy shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving notice as provided above of such change of address. 11. ASSIGNMENT. Guarantor shall have no right, power or authority to delegate, assign or transfer all or any of its rights or obligations hereunder. Party B may assign all or any of its rights hereunder to any assignee of its rights under the Agreement as permitted thereby; provided, further, that Party B may pledge or assign its interest hereunder to the lenders of financial parties referred to in Section 5(k)(ii) of the Schedule to the Agreement ("Financial Parties") in connection with any assignment of the Agreement to the Financial Parties as contemplated by Section 5(k)(ii) of the Schedule to the Agreement. In connection with any such assignment to any Financial Party, Guarantor agrees to execute and deliver the agreement attached hereto as Exhibit 2. 12. MISCELLANEOUS. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CONFLICT-OF-LAWS RULES. EACH OF GUARANTOR AND PARTY B HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER ***CONFIDENTIAL TREATMENT REQUESTED*** 9 AGREEMENTS REFERRED TO HEREIN OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself in any legal action or proceeding relating to this 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 New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 10, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. This Guaranty is a continuing guaranty, shall apply to all Guaranteed Obligations whenever arising, shall be binding upon Guarantor and its successors and shall inure to the benefit of and be enforceable by Party B and its successors and permitted assigns. This Guaranty embodies the entire agreement of Guarantor and Party B and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Guaranty are for the purposes of reference only, and shall not affect the meaning hereof. If any provision of this Guaranty shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, but only to the extent of its invalidity, illegality or unenforceability. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. ***CONFIDENTIAL TREATMENT REQUESTED*** 10 IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and delivered by its duly authorized officer as of the day and year first above written. DYNEGY HOLDINGS INC. By: ---------------------------------- Title: ------------------------------- ACCEPTED: SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ---------------------------------- Title: ------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** 11 EXHIBIT 2 ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Holdings Inc. a Texas corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Guaranty Agreement dated as of July 1, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 24.07 of the Assigned Contract. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. ***CONFIDENTIAL TREATMENT REQUESTED*** 12 SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of ***CONFIDENTIAL TREATMENT REQUESTED*** 13 entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Company under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, ***CONFIDENTIAL TREATMENT REQUESTED*** 14 the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. ***CONFIDENTIAL TREATMENT REQUESTED*** 15 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY HOLDINGS INC. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ ***CONFIDENTIAL TREATMENT REQUESTED*** 16 EXHIBIT C GUARANTY AGREEMENT Base Guaranty Agreement (this "Guaranty") dated as of __________, 2001 is made and entered into by __________________, a ____________________ ("Guarantor"), to and for the benefit of Dynegy Power Marketing, Inc., a Texas corporation ("Party A"), and its successors and permitted assigns. WITNESSETH: WHEREAS, Party A and Sithe/Independence Power Partners, L.P a __________ (together with its successors and permitted assigns, "Party B"), have entered into a MASTER AGREEMENT dated as of July 1, 2001, the SCHEDULE TO THE MASTER AGREEMENT dated as of July 1, 2001 attached thereto, and CONFIRMATION #1A thereunder dated as of July 1, 2001 (as amended, supplemented or modified from time to time, collectively, the "Agreement"), a copy of which is attached hereto as Exhibit 1; WHEREAS, Party B is [an indirect, wholly owned subsidiary] of Guarantor, and Guarantor will derive substantial benefit from the performance by Party A of its obligations under the Agreement; WHEREAS, it is a requirement under the Agreement that this Guaranty be duly executed and delivered to Party A; and WHEREAS, Guarantor is willing to enter into this Guaranty. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. GUARANTY. Subject to the terms hereof, Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Party A and its successors and permitted assigns the due, punctual and full performance and payment of each and every obligation of Party B under Section 4(i) of the Agreement (each such obligation hereinafter referred to, individually, as a "Guaranteed Obligation" and, collectively, as the "GUARANTEED OBLIGATIONS") and agrees that, if for any reason whatsoever Party B shall fail or be unable duly, punctually and fully to perform or pay any such Guaranteed Obligation, Guarantor shall forthwith, upon demand as provided in Section 4 hereof, perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid, without regard to any exercise or nonexercise by Party A, its successors or permitted assigns of any right, power or privilege under or in respect of the Agreement or the Guaranteed Obligations. In connection with the foregoing, Party A acknowledges that performance of the obligations of Party B under the Agreement, to the extent that such performance is for an obligation other than the payment of money, shall be accomplished by Guarantor causing such performance to occur through a third party or otherwise by the payment of money. This Guaranty shall be direct, immediate and primary and shall be a guaranty of performance and payment and not of collection, and is not conditioned or contingent upon any attempt to collect from Party B or upon any other event, contingency or circumstance whatsoever, except as expressly provided otherwise herein. 2. OBLIGATIONS UNCONDITIONAL. Guarantor covenants to and agrees with Party A and its successors and permitted assigns that, to the fullest extent permitted by law, its obligations under this Guaranty are irrevocable, absolute and unconditional, shall remain in full force and effect, and shall not be impaired or affected by, or be subject to, any reduction, termination or other impairment by set-off, deduction, counterclaim, recoupment, interruption or otherwise, and Guarantor shall have no right to terminate this Guaranty or to be released, relieved or discharged, in whole or in part, from its performance or payment obligations referred to in this Guaranty for any reason whatsoever (other than the performance and payment in full of the Guaranteed Obligations), including (a) any amendment, supplement or modification to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or privilege under or in respect of, the Agreement, the Guaranteed Obligations or any other agreement or ***CONFIDENTIAL TREATMENT REQUESTED*** 17 instrument relating thereto, (b) any insolvency, bankruptcy, reorganization, dissolution or liquidation of, or any similar occurrence with respect to, or cessation of existence of, or change of ownership of Party B, or any rejection of any of the Guaranteed Obligations in connection with any Proceeding (as defined in Section 3 below) or any disallowance of all or any portion of any claim by Party A, its successors or permitted assigns in connection with any Proceeding, (c) any lack of genuineness, legality, validity, regularity, enforceability or value of the Agreement, any of the Guaranteed Obligations, or any other agreement or instrument relating thereto, (d) the failure to create, preserve, validate, perfect or protect any security interest granted to, or in favor of, any person, (e) any substitution, modification, exchange, release, settlement or compromise of any security or collateral for or guaranty of any of the Guaranteed Obligations or failure to apply such security or collateral or failure to enforce such guaranty or (f) any other event or circumstance whatsoever that might otherwise constitute a legal or equitable discharge of a surety or guarantor (other than the payment in full of the Guaranteed Obligations, and any defenses that may be available to Party A under the Agreement), it being the intent of Guarantor that its obligations under this Guaranty shall be irrevocable, unconditional and absolute under any and all circumstances, except as expressly provided herein. This Guaranty and the obligations of Guarantor hereunder shall continue to be effective or be automatically reinstated, as the case may be, if at any time any payment by or on behalf of Party B is rescinded or must otherwise be restored by Party A, its successors or permitted assigns for any reason, including, but not limited to, as a result of any Proceeding with respect to Party B or any other person, as though such payment had not been made. 3. INTEREST. The Guaranteed Obligations shall include, without limitation, interest accruing as part of the Guaranteed Obligations by the terms thereof following the commencement by or against Party B of any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation, dissolution or composition or adjustment of debt (hereinafter, a "PROCEEDING"). 4. DEMAND. If Party B shall fail or be unable duly, punctually and fully to perform or pay any Guaranteed Obligation, Party A, its successors or permitted assigns may at any time prior to the full performance or payment of such Guaranteed Obligation deliver notice of such failure or inability of Party B to perform or pay to Guarantor in writing, which notice shall reasonably specify the nature of such failure or inability to perform or pay, as the case may be and, in the case of a failure or inability to pay, the amount thereof (each such written notice hereinafter a "DEMAND"). Guarantor shall, upon receipt of a Demand, forthwith perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid in full. Promptly on request, Guarantor shall reimburse Party A, its successors and permitted assigns for all costs and expenses (including reasonable attorneys' fees) incurred in enforcing Party A's, its successors' or permitted assigns' rights under this Guaranty, but only to the extent that Party A is successful in enforcing Party A's rights under this Guaranty. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Party A and its successors and permitted assigns that as of the date hereof: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, it has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Guaranty; (b) no authorization, approval, consent or order of, or registration or filing with, any court or other governmental body having jurisdiction over Guarantor is required on the part of Guarantor for the execution and delivery of this Guaranty; (c) this Guaranty has been duly executed and delivered by Guarantor and constitutes a valid and legally binding agreement of Guarantor enforceable against Guarantor in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law); ***CONFIDENTIAL TREATMENT REQUESTED*** 18 (d) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action and do not require any other actions or proceedings or any stockholder approval or consent of any trustee or holder of any indebtedness of Guarantor; (e) the execution, delivery and performance of this Guaranty and compliance by Guarantor with the terms hereof (i) will not violate any governmental approval or law applicable to it or any of its property, (ii) will not violate any provision of its certificate of incorporation, bylaws or other governing documents, and (iii) will not violate or constitute a default under any agreement or instrument to which it is a party or by which it or any of its property may be bound, or result in the creation or imposition of any lien upon any of its property, which violation, default or lien would have a material adverse effect on its ability to perform its obligations under this Guaranty; (f) except as disclosed in Guarantor's latest Form 10-K and any Form 10-Qs or Form 8-Ks subsequently filed with the Securities and Exchange Commission, there are no actions, suits, investigations or proceedings against Guarantor by or before any court, arbitrator, administrative or regulatory agency, or other governmental authority pending, or to its knowledge, threatened against or affecting it, its properties, or its assets that, if adversely determined, would reasonably be expected to have a material and adverse effect on its ability to perform its obligations under this Guaranty; and (g) it directly or indirectly owns ______________________ of Party B. 6. DOWNGRADE EVENT. If at any time any two of the credit ratings then assigned to Guarantor's unsecured, senior long-term debt obligations falls below "Investment Grade" from the Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or its successor ("S&P"),"Investment Grade" from Moody's Investor Services, Inc. or its successor ("MOODY'S") or "Investment Grade" from Fitch IBCA, Inc. or its successor ("FITCH") (or if Guarantor is not rated by any of S&P, Moody's or Fitch), then Party A may require Guarantor to provide collateral in the form of either a substitute guaranty on terms and conditions substantially similar to this Guaranty or other security reasonably acceptable to Party A and Party B ("Performance Assurance") in an amount determined by Party A in a commercially reasonable manner. The failure of Guarantor to provide such Performance Assurance or a guaranty or other credit assurance acceptable to Party A within twenty (20) business days of receipt of notice shall constitute an Event of Default under the Agreement and Party A will be entitled to the remedies set forth in the Agreement. 7. AMENDMENT OF GUARANTY. No term or provision of this Guaranty shall be amended, modified, altered, waived, supplemented or terminated except in a writing signed by Guarantor and Party A or Party A's successors and permitted assigns. 8. WAIVERS. To the fullest extent permitted by law, and except for the Demand required pursuant to Section 4 hereof, Guarantor hereby waives (a) all set-offs, counterclaims, presentments, demands for performance, notices of nonperformance, protests, notice of any of the matters referred to in Section 2, notices of protests, notices of dishonor, notice of any waivers or indulgences or extensions, and notices of every kind that may be required to be given by any statute or rule of law and notice of acceptance of this Guaranty, (b) diligence, presentment, and demand of payment, filing of claims with a court in connection with any Proceeding, protest or notice with respect to the Guaranteed Obligations and all demands whatsoever; and (c) any requirement that any action or proceeding be brought against Party B or any other person, or any requirement that any person exhaust any right, power or remedy or proceed against any other person, prior to any action against Guarantor under the terms hereof. No delay on the part of Party A, its successors or permitted assigns in the exercise of, or failure to exercise, any right or remedy shall operate as a waiver thereof, a waiver of any other rights or remedies, or a release of Guarantor from any obligations hereunder, and no single or partial exercise by Party A, its successors or permitted assigns of any right or remedy shall preclude any further exercise thereof or the exercise of any other right or remedy. 9. WAIVER OF SUBROGATION. Guarantor hereby agrees that it will not exercise, and hereby irrevocably, absolutely and unconditionally waives, any rights of subrogation, contribution, reimbursement, ***CONFIDENTIAL TREATMENT REQUESTED*** 19 indemnification or other rights of payment or recovery for any payments made by it hereunder until all Guaranteed Obligations have been fully paid and performed. 10. NOTICE. Any Demand, notice, request, instruction, correspondence or other document to be given hereunder (herein collectively called "Notice") shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, or by telecopy, as follows: To Party A: To Guarantor: Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telecopy shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All Notices by telecopy shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving notice as provided above of such change of address. 11. ASSIGNMENT. Guarantor shall have no right, power or authority to delegate, assign or transfer all or any of its rights or obligations hereunder. Party A may assign all or any of its rights hereunder to any assignee of its rights under the Agreement as permitted thereby. 12. MISCELLANEOUS. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CONFLICT-OF-LAWS RULES. EACH OF GUARANTOR AND PARTY B HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER AGREEMENTS REFERRED TO HEREIN OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself in any legal action or proceeding relating to this 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 New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 10, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. This Guaranty is a continuing guaranty, shall apply to all Guaranteed Obligations whenever arising, shall be binding upon Guarantor and its successors and shall inure to the benefit of and be enforceable by Party A and its successors and permitted assigns. This Guaranty embodies the entire agreement of Guarantor and Party A and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Guaranty are for the purposes of reference only, and shall not affect the meaning hereof. If any provision of this Guaranty shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, but only to the extent of its invalidity, illegality or unenforceability. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. ***CONFIDENTIAL TREATMENT REQUESTED*** 20 IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and delivered by its duly authorized officer as of the day and year first above written. -------------------------- By: ----------------------- Title: --------------------- ACCEPTED: DYNEGY POWER MARKETING, INC. By: ------------------------------------ Title: --------------------------------- EX-10.3(18) 8 a2056240zex-10_318.txt EXHIBIT 10.3.18 Exhibit 10.3.18 ***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE INDICATED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.*** DYNEGY POWER MARKETING, INC. 1000 Louisiana Street , Suite 5800 Houston, Texas 77002 ELECTRICITY SWAP CONFIRMATION CONFIRMATION # 1A Sithe/Independence Power Partners, L.P. P.O. Box 1046 Oswego, New York 13126 Attention: General Manager Telecopy: (315) 342-8425 Dear Sirs: The purpose of this document is to confirm the terms and conditions of the transaction entered into between Sithe/Independence Power Partners, L.P. ("Counterparty") and Dynegy Power Marketing, Inc. ("DPM") on July 1, 2001 ("the Transaction"). This document constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. 1. This Confirmation will be governed by the 1992 ISDA Master Agreement (Multicurrency-Cross Border), as modified pursuant to the Schedule dated as of July 1, 2001 between DPM and the Counterparty (the "Agreement"). All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. The definitions and provisions contained in the 1991 ISDA Definitions, the 1993 ISDA Commodity Derivatives Definitions and the 2000 Supplement (the "Definitions"), as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), are incorporated into this Confirmation. In the event of any inconsistency between the 1991 ISDA Definitions, the 1993 ISDA Commodity Derivatives Definitions, and the 2000 Supplement, the 2000 Supplement will prevail. In addition, for purposes of this Confirmation, the following terms shall have the following meanings: "Btu" means British thermal unit, which is the quantity of thermal energy necessary to increase the temperature of one pound of pure water by one degree Fahrenheit from 59 degrees Fahrenheit to 60 degrees Fahrenheit at a constant pressure of 14.73 pounds per square inch absolute. "MMBtu" means one million Btu. "MW" means megawatt. "MWh" means megawatt-hour. 2. TERMS OF TRANSACTION. The terms of the particular Transaction to which this Confirmation relates are as follows: ***CONFIDENTIAL TREATMENT REQUESTED*** 1 TRADE DATE July 1, 2001 EFFECTIVE DATE: July 1, 2001 TERMINATION DATE: The Termination Date is November 14, 2014; provided, however, that Counterparty may terminate this Confirmation in its sole discretion at any time prior to 12:01 A.M. on July 1, 2001 by providing notice of termination to DPM. CALCULATION AGENT: DPM PAYMENT DATE: Business Day immediately preceding the twenty-fifth (25th) day of each calendar month of the Term. Subject to Section 5(f) of the Schedule to the Agreement, payment will be made by each Party to the accounts specified below. FIXED PRICE PAYOR: DPM FLOATING PRICE PAYOR: Counterparty TERM: July 1, 2001 through November 14, 2014. The Calculation Periods during the Term shall be determined by DPM as provided below. NOTIONAL QUANTITY: The Notional Quantity shall be [***] MW. FIXED PRICE: The Fixed Price ("FP") for a Calculation Period other than a Linked Calculation Period (defined below) shall be calculated as: FP = A+B+C+D The Fixed Price for a Linked Calculation Period (or a series of Linked Calculation Periods) shall be calculated as: FP = A+B+C(b) Provided that if, for the most recent Calculation Period other than a Linked Calculation Period prior to such Linked Calculation Period, C equals C(a), then until the number of hours in such Calculation Period and immediately subsequent Linked Calculation Period(s) are equal to [***], C(b) for such Linked Calculation Period(s) shall be equal to zero. For all other hours during any Linked Calculation Period, C(b) shall be calculated as set forth below. Where: A = NQ x H x (GP/[***] + $[***]/MMBtu) x HR B = NQ x H x VC(1) C = maximum of (a) VC2 and (b) H x VC3 D = (GP/[***] + $[***]/MMBtu) x [***] MMBtu Where: ***CONFIDENTIAL TREATMENT REQUESTED*** 2 NQ = Notional Quantity applicable during such Calculation Period H = total hours contained in such Calculation Period GP = the price representing the weighted average of the midpoints for each of the days during such Calculation Period of the common range for [***] as reported in the "Daily Gas Survey" in Gas Daily (published by Financial Times Energy) (with respect to weekdays for the flow date, and with respect to weekend days and holidays for the flow date immediately following such weekend day or holiday) expressed in $/MMBtu. If such information is no longer published, DPM and Counterparty shall agree upon an appropriate replacement index. HR = [***] MMBtu/MWh VC(1) = $[***] per MWh multiplied on January 1 of each year by the GDP-IPD Escalation Factor VC(2) = $[***] multiplied on January 1 of each year by the GDP-IPD Escalation Factor VC(3) = $[***] per hour multiplied on January 1 of each year by the GDP-IPD Escalation Factor GDP-IPD Escalation Factor = as of January 1 of each year, a fraction, the numerator of which is the Gross Domestic Product Implicit Price Deflator published in the National Income and Product Account by the U.S. Department of Commerce for the third calendar quarter of the immediately preceding year, and the denominator of which is the Gross Domestic Product Implicit Price Deflator published in the National Income and Product Account by the U.S. Department of Commerce for the third calendar quarter of 2000 FLOATING PRICE: The Floating Price for a particular Calculation Period shall be equal to the product of (1) the total hours in the Calculation Period, multiplied by (2) the Notional Quantity multiplied by (3) the average of the hourly day-ahead prices (in $/MWh and as published by the New York Independent System Operator (the "NYISO") on the last day of the month that includes the applicable Calculation Period on the NYISO's official web site currently located at: http://www.nyiso.com/oasis/index.html, or any successor thereto, under the headings "Day Ahead Market LBMP Generator; SITHE_INDEPEND") for electricity during the applicable hours specified as pertaining to an agreed upon Calculation Period. In the event that such hourly day-ahead prices are no longer published by the NYISO, DPM and Counterparty shall agree upon an appropriate replacement price. EXECUTION AMOUNT: The Execution Amount means a monthly amount paid in arrears during the Term by DPM to Counterparty equal to $[***] per month. The Execution Amount represents consideration paid by DPM in exchange for DPM's right to provide Calculation Period ***CONFIDENTIAL TREATMENT REQUESTED*** 3 Notices as described below. Subject to the remaining provisions of this Agreement, payment of the Execution Amount shall be made on a monthly basis on each Payment Date. SETTLEMENT DATE: The Settlement Date for all Calculation Periods, to the extent occurring during a calendar month, shall be the date on which the NYISO makes payments to participating generators pursuant to the terms of the NYISO Services Tariff with respect to such calendar month. The Settlement Date is the date on which the Calculation Agent shall determine the Fixed Price and the Floating Price for the Calculation Periods specified. Subject to the remaining provisions of this Agreement, payment of the Fixed Price and of the Floating Price shall be made on a monthly basis on each Payment Date. For purposes of the foregoing, the "NYISO Services Tariff" means the NYISO Market Administration and Control Area Services Tariff filed with the Federal Energy Regulatory Commission by NYISO. CALCULATION PERIODS: DPM shall have the right to establish each Calculation Period with respect to the Transaction by delivering to the Counterparty a Calculation Period notice (the "Calculation Period Notice"). Each Calculation Period Notice shall establish a Calculation Period as follows. The Calculation Period Notice shall be delivered by DPM to Counterparty at least 33 hours prior to the commencement of the Calculation Period but no later than 4:00 p.m. Eastern Prevailing Time on the date that is two days prior to the date during which the Calculation Period commences (the "Calculation Period Notice Deadline"). ("Eastern Prevailing Time" means the time in New York, New York.) The Calculation Period Notice shall establish the date and hour that the Calculation Period commences and the date and hour that the Calculation Period shall terminate. The Calculation Period may include periods that are not contained within Business Days. LIMITATIONS ON CALCULATION PERIODS: No Calculation Period Notice shall designate a quantity other than the Notional Quantity for any Calculation Period. Each Calculation Period Notice shall designate a Calculation Period of at least six (6) consecutive hours. No Calculation Period Notice shall designate a Calculation Period that begins less than eight (8) hours (a "CP Interim Period") after the conclusion of a prior Calculation Period unless the next succeeding Calculation Period Notice (which must be provided by the applicable Calculation Period Notice Deadline) establishes a Calculation Period that begins immediately upon the conclusion of the prior Calculation Period, in which case, there shall not be any requirement for any CP Interim Period. A Calculation Period that immediately follows a previous Calculation Period (without any CP Interim Period) is sometimes referred to as a "Linked Calculation Period". Unless specific reference is made to a Linked Calculation Period, all references to a Calculation Period shall include references to a Linked Calculation Period. DPM shall not be entitled to deliver more than [***] Calculation Period Notices during (1) any ***CONFIDENTIAL TREATMENT REQUESTED*** 4 calendar year, (2) the 365 day period from July 1, 2001 through June 30, 2002, or (3) the 365 day period from November 15, 2013 through November 14, 2014, provided that no Calculation Period Notice shall be counted where such Calculation Period Notice establishes a Linked Calculation Period. ACCOUNT INFORMATION: Account Information for payments to DPM Dynegy Power Marketing, Inc. Bank One, N.A. Chicago, Illinois Acct.: 552-7651 ABA Number: 071 0000 13 Account Information for payments to Counterparty The Bank of New York; Corporate Trust/GLA 111-565 Sithe Independence PWR Project Revenue Fund Acct.: 229289 ABA Number: 021000018 For the purposes of the calculation of the Floating Price(s), all numbers shall be rounded to four (4) decimal places. If the fifth (5th) decimal number is five (5) or greater, then the fourth (4th) decimal number shall be increased by one (1), and if the fifth (5th) decimal number is less than five (5), then the fourth (4th) decimal number shall remain unchanged. For purposes of determining the relevant prices for any day, if the price published or announced on a given day and used or to be used by DPM to determine a relevant price is subsequently corrected and the correction is published or announced by the person responsible for that publication or announcement within two years of the original publication or announcement, either party may notify the other party of (i) that correction and (ii) the amount (if any) that is payable as a result of that correction. If, not later than two years after publication or announcement of that correction, a party gives notice that an amount is so payable, the party that originally either received or retained such amount will, not later than three (3) business days after the effectiveness of that notice, pay, subject to any applicable conditions precedent, to the other party that amount, together with interest at the Interest Rate for the period from and including the day on which payment originally was (or was not) made to but excluding the day of payment of the refund or payment resulting from that correction period. ***CONFIDENTIAL TREATMENT REQUESTED*** 5 IN WITNESS WHEREOF, the Parties hereto have caused this Confirmation to be executed as of the date first above written. DYNEGY POWER MARKETING, INC. SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: /s/ Miles Allen By: Sithe/Independence, Inc., --------------------------- its General Partner Name: Miles Allen By: /s/ Sandra J. Manilla ---------------------------------------- Date: July 1, 2001 Name: Sandra J. Manilla Vice President and Treasurer Date: July 1, 2001 ***CONFIDENTIAL TREATMENT REQUESTED*** 6 EX-10.3(19) 9 a2056240zex-10_319.txt EXHIBIT 10.3.19 EXHIBIT 10.3.19 ***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE INDICATED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.*** ENERGY MANAGEMENT AGREEMENT AMONG SITHE/INDEPENDENCE POWER PARTNERS, L.P., DYNEGY MARKETING AND TRADE AND DYNEGY POWER MARKETING, INC. JULY 1, 2001 *** CONFIDENTIAL TREATMENT REQUESTED *** ENERGY MANAGEMENT AGREEMENT ENERGY MANAGEMENT AGREEMENT dated as of July 1, 2001 by and among Dynegy Marketing and Trade (a Colorado general partnership, "DMT"), Dynegy Power Marketing, Inc. (a Texas corporation, "DPM"), and Sithe/Independence Power Partners, L.P. (a Delaware limited partnership, "Independence"), WITNESSETH WHEREAS, Independence owns a natural gas fired electric generating plant of approximately 1,032 MW net capacity located in the Town of Scriba, New York (the "Facility"); WHEREAS, DPM and Independence have entered into a certain Tolling Agreement dated as of July 1, 2001 (the "Tolling Agreement"), pursuant to which DPM has the right to receive Tolling Services and Ancillary Services (both as defined in the Tolling Agreement) with respect to a portion of the Facility; WHEREAS, Independence has retained the right to sell the output of the remainder of the Facility; WHEREAS, Independence and Dynegy Canada Marketing and Trade ("Dynegy Canada") have entered into a certain Gas Supply Agreement dated as of July 1, 2001 (the "Gas Agreement") pursuant to which Dynegy Canada supplies Independence all of its requirements for Gas, excluding Gas for which DPM is responsible under the Tolling Agreement; WHEREAS, DPM has certain wholesale energy management and marketing expertise in the scheduling and management of electric generation services and products; WHEREAS, DMT has certain wholesale energy management expertise in the supply and delivery of natural gas; and WHEREAS, Independence wishes to take advantage of the combined wholesale energy management expertise of DPM and DMT for the Facility in accordance with the terms hereof, and DPM and DMT are willing to provide such energy management services; *** CONFIDENTIAL TREATMENT REQUESTED *** 1 NOW THEREFORE, in consideration of the mutual promises and agreements contained herein, DMT, DPM and Independence, intending to be legally bound, agree as follows: ARTICLE 1 - DEFINITIONS 1.01 FORMAT (a) References to Articles and Sections herein are cross-references to Articles and Sections, respectively, in this Agreement, unless otherwise stated. (b) All Schedules that are attached to this Agreement are incorporated by reference as if fully set forth herein. (c) All references to quantities of Gas are references on an HHV basis unless otherwise stated. 1.02 DEFINITIONS In addition to the terms defined elsewhere in this Agreement, when used with initial capitalization, whether singular or plural, the following terms shall have the meanings set forth below. All references in this Agreement to any governmental or non-governmental entity, including, without limitation, NYISO and FERC, shall include any and all successors to such entities. Unless the context otherwise requires, any reference herein to any contract, agreement or tariff and any schedule, attachment or exhibit thereto shall mean such contract, agreement, tariff, schedule, attachment or exhibit as amended, supplemented and modified and in effect from time to time. (1) "Affiliate" means, with respect to any entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such entity. For this purpose, "control" means the direct or indirect ownership of fifty percent (50%) or more of the outstanding capital stock or other equity interests having ordinary voting power. (2) "Business Day" means any Day on which Federal Reserve member banks in New York, New York are open for business. (3) "Claim" means any demand, claim, cause of action, lawsuit, or proceeding of any kind or character, including investigation or audit by a Governmental Authority. *** CONFIDENTIAL TREATMENT REQUESTED *** 2 (4) "Contract Term" has the meaning set forth in Section 2.01. (5) "Day" has the meaning set forth in the NYISO Requirements. (6) "Effective Date" has the meaning set forth in Section 2.01. (7) "Empire" means Empire State Pipeline. (8) "Empire Gas Transportation Contract" means the Empire Firm Transportation Agreement dated October 4, 1993 between Empire, Empire State Pipeline Company ("ESPC"), St. Clair Pipeline Company, Inc. ("SCPC") and Independence as it incorporates the terms of the Supplemental Agreement dated February 28, 1992 among Independence, Empire, SCPC and ESPC. (9) "Energy Management Fee" means an amount equal to $[***] per month. (10) "Energy Manager(s)" means, in the singular, either of DPM or DMT, and in the plural both DPM and DMT. (11) "FERC" means the Federal Energy Regulatory Commission. (12) "Gas" means natural gas, including gas-well gas, casinghead gas and/or residue gas resulting from processing both casinghead gas and gas-well gas, and shall include liquefied natural gas and synthetic gas in a vaporized state, in each case meeting or exceeding the minimum quality specifications under the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Transportation Contract (and related Niagara Mohawk Gas tariffs). (13) "Gas Facility Point" means the outlet flange of the Gas Metering Equipment at the interconnection between the Facility and Line 63 of Niagara Mohawk. (14) "Good Electrical Practices" means those practices, methods and acts engaged in or approved by a significant portion of the independent electric power generation industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time a decision is made, could have been expected to accomplish a desired result at reasonable cost consistent with good business practices, reliability, safety and expedition. Good Electrical Practices are not intended to be *** CONFIDENTIAL TREATMENT REQUESTED *** 3 limited to the optimum practices, methods or acts to the exclusion of others, but rather to those practices, methods and acts generally accepted or approved by a significant portion of the power industry in the relevant region, during the relevant time period, as described in the immediately preceding sentence. (15) "Governmental Authority" shall mean any federal, state, local or municipal governmental body; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority, jurisdiction or power; any court or governmental tribunal; or any applicable independent system operator, regional transmission organization, regional power pool, reliability council or other regional entity performing similar functions. (16) "Interest Rate" means, for each Day, a rate per annum equal to the prime rate reported in The Wall Street Journal's "Money Rates" column (or any similar column published in The Wall Street Journal in replacement thereof) for the immediately preceding Business Day plus 2%. If the Wall Street Journal ceases to report the prime rate, the prime rate for purposes of this Agreement shall be the prevailing prime rate (or base rate) charged by major banks in the United States. (17) "Law" means any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination by a Governmental Authority. (18) "Loss" means any loss, award, judgment, liability, damage, charge, fine, penalty, interest cost, or expense of any kind or nature (including attorneys' fees and other expenses associated with litigation and preparation for litigation, such as court costs and expert and consultants' fees and expenses). (19) "Month" means calendar month. (20) "Niagara Mohawk" means Niagara Mohawk Power Corporation. (21) "Niagara Mohawk Gas Transportation Contract" means the Niagara Mohawk Firm Transportation Agreement dated March 11, 1992 between Niagara Mohawk and Independence. (22) "NYISO" means the New York Independent System Operator, Inc. *** CONFIDENTIAL TREATMENT REQUESTED *** 4 (23) "NYISO Bid" means a bid, Schedule or request to operate submitted to the NYISO related to the generation of energy or ancillary services from the Facility. (24) "NYISO Directed Operation" means, for any period, the operation of all or a portion of the Facility at the direction of the NYISO during such period, including the operation of the Facility in response to an NYISO Bid accepted by the NYISO or the operation of the Facility at the direction of a Transmission Provider (as defined in the Tolling Agreement) pursuant to NYISO Requirements. (25) "NYISO Open Access Transmission Tariff" means the NYISO Open Access Transmission Tariff filed with FERC by the NYISO. (26) "NYISO Operating Agreement" means the amended and restated Operating Agreement of the NYISO filed with FERC by the NYISO. (27) "NYISO Requirements" means the then applicable and valid obligations, rules and regulations as defined and set forth in the NYISO Operating Agreement, the NYISO Services Tariff, the NYISO Open Access Transmission Tariff and/or similar agreements, policies and guidelines. (28) "NYISO Services Tariff" means the NYISO Market Administration and Control Area Services Tariff filed with FERC by the NYISO. (29) "Operating Committee" has the meaning set forth in Section 7.02. (30) "Operator" means the person named by Independence from time to time, as the operator of the Facility, as the same may be re-appointed by Independence from time to time. (31) "Party" or "Parties" means in the singular, any one of Independence, DPM or DMT, and in the plural, means Independence, DPM and DMT; provided, however, that with respect to Articles 5, 12 and 13, Independence shall be considered one Party, and the Energy Managers collectively shall be considered the other Party. (32) "Person" means any individual, corporation, partnership, trust, estate, limited liability company, governmental agency or authority or other entity. (33) "Purchase Agreement" shall have the meaning set forth in Section 9.02. *** CONFIDENTIAL TREATMENT REQUESTED *** 5 (34) "Reserved Capability" shall have the meaning set forth in the Tolling Agreement. (35) "Reserved Tolling Capability" shall have the meaning set forth in the Tolling Agreement. (36) "Schedule" or "Scheduling" or "Scheduled" means communicating and confirming that a particular amount of Gas or Energy and/or Ancillary Services is to be delivered or received and providing all information as may be necessary to cause such delivery or receipt to occur. (37) "Transporter" means any Person that transports Gas provided under the Gas Agreement or under the Tolling Agreement upstream of the Gas Facility Point. (38) "Transportation Agreement" shall have the meaning set forth in Section 9.02. ARTICLE 2 - EFFECTIVE DATE AND TERM 2.01 TERM This Agreement shall commence on the later of (a) the date on which all conditions specified in Article 16 are satisfied or waived or (b) July 1, 2001 ("Effective Date") and shall remain in effect through November 14, 2014 ("Contract Term"); provided, however, that Independence may terminate this Agreement in its sole discretion at any time prior to 12:01 A.M. on July 1, 2001 by providing notice of termination to the Energy Managers. This Agreement shall terminate automatically at the end of the Contract Term and neither Independence nor the Energy Managers shall have any further liability or obligation to the other hereunder, except for obligations or duties that accrued prior to such termination and for obligations that expressly survive termination of this Agreement. ARTICLE 3 - GAS MANAGEMENT SERVICES 3.01 APPOINTMENT OF GAS MANAGER Independence hereby appoints and authorizes DMT to act as its exclusive agent for the purposes set forth in this Article 3, and DMT hereby agrees to such appointment and authorization. *** CONFIDENTIAL TREATMENT REQUESTED *** 6 3.02 SPECIFIC RESPONSIBILITIES Specifically, DMT shall, in accordance with this Agreement and the Gas Agreement: (a) monitor the daily Gas requirements of the Facility based on the anticipated dispatch of the Facility, including the forecasts provided in accordance with Section 5.02 and Exhibits 5.02(A) and 5.02(B) of the Tolling Agreement; (b) Schedule nominations with Transporters in accordance with Dynegy Canada's obligations under the Gas Agreement and in accordance with DPM's obligations under the Tolling Agreement; (c) coordinate with Independence, DPM, Dynegy Canada and Operator to ensure that the Gas supply for the Facility is sufficient to meet the anticipated dispatch of the Facility; (d) immediately notify Independence, Operator and DPM of any Gas supply or Gas transportation event which could reasonably be expected to have a material impact on Independence or the availability of the Facility; and (e) maintain records of all relevant information necessary or appropriate to administer its obligations under this Agreement, under the Gas Agreement, under related agreements and under any transactions contemplated thereby. 3.03 CERTAIN GAS NOMINATIONS In circumstances where DMT has made the Gas supply nomination for the Facility and the nomination is less than the Gas transportation capacity under contract for the Facility's requirements, DMT shall use commercially reasonable efforts to mitigate the costs and charges which would otherwise be incurred by Independence as a result of the under-utilization of the transportation capacity, provided, however, nothing in this Agreement shall require DMT to pay or be liable for any such costs or charges unless such obligation is set forth in the Gas Agreement. Under no circumstances, absent DMT's gross negligence or willful misconduct shall DMT have any liability or suffer any consequences associated with Gas imbalance or any such similar or related charges imposed by any transportation provider or Governmental Authority under any fuel supply agreement other than the Gas Agreement; it being understood that Independence shall be solely and exclusively liable for any such charges and liabilities (except as otherwise specified in the Gas Agreement or in the Tolling Agreement). *** CONFIDENTIAL TREATMENT REQUESTED *** 7 3.04 STANDARDS OF CARE DMT agrees to use commercially reasonable efforts to provide to Independence all Gas management services described in this Agreement necessary for the dispatch of energy from the Facility as provided in this Agreement and DMT agrees to perform such services with reasonable care and diligence, and in accordance with industry standards and all Laws. Notwithstanding the foregoing, nothing in this Article shall establish a standard of performance relative to the Gas Agreement or the Tolling Agreement, it being understood and agreed that Dynegy Canada's and DPM's Gas supply obligations with respect to the Facility are set forth exclusively, in the case of Dynegy Canada, in the Gas Agreement and, in the case of DPM, the Tolling Agreement and that the obligations with respect to the delivery of Gas to the Facility other than in connection with deliveries under the Gas Agreement and the Tolling Agreement are set forth exclusively in the other fuel supply agreements entered into by Independence. 3.05 DELIVERIES UNDER THE GAS AGREEMENT All payments for Gas delivered under the Gas Agreement shall be made in accordance with the terms of the Gas Agreement. ARTICLE 4 - ELECTRICITY MANAGEMENT SERVICES 4.01 APPOINTMENT OF ELECTRICITY MANAGER Independence hereby appoints and authorizes DPM to act as its exclusive agent for the purposes set forth in this Article 4, and DPM hereby agrees to such appointment and authorization. 4.02 SPECIFIC RESPONSIBILITIES Specifically, DPM shall: (a) on behalf of DPM and Independence and to the extent permitted by the NYISO Requirements, enter any nominations and enter all bids of energy under the Tolling Agreement on behalf of Independence into the NYISO's Day-Ahead Market (as defined in the Tolling Agreement) or otherwise in accordance with the arrangements for bidding of energy into the NYISO markets as may be set forth in the Tolling Agreement; (b) on behalf of DPM and Independence and to the extent permitted by the NYISO Requirements, enter any Schedule of energy in *** CONFIDENTIAL TREATMENT REQUESTED *** 8 accordance with the directions of Independence that may arise in connection with the Reserved Capability; (c) on behalf of DPM and Independence and to the extent permitted by the NYISO Requirements, conform to the standards of entering bids of energy to the various NYISO markets in accordance with the NYISO Requirements and otherwise where applicable, in accordance with the Tolling Agreement; (d) on behalf of DPM and Independence and to the extent permitted by the NYISO Requirements, maintain accounts with, and administer payments and reconciliations of amounts due from the NYISO with respect to Tolling Services provided under the Tolling Agreement and with respect to revenues attributable to the use of the Reserved Capability; (e) maintain records of all relevant information necessary or appropriate to administer its obligations under this Agreement, under the Tolling Agreement, under related agreements and under any transactions contemplated thereby; (f) verify daily and hourly bids of energy with the NYISO in comparison to the operation of the Facility; and (g) on behalf of DPM and Independence and to the extent permitted by the NYISO Requirements, be the primary point of contact with the NYISO with respect to all matters related to bidding and Scheduling as contemplated by Sections 5.02 and 10.01 and Exhibits 5.02(A) and 5.02(B) of the Tolling Agreement. 4.03 COMMUNICATIONS WITH NYISO Subject to Article X of the Tolling Agreement and to the extent permitted by the NYISO Requirements, it is the intent of the Parties that DPM shall be the primary contact with the NYISO with respect to all of the functions listed in Section 4.02(a), (b), (c) and (f) and any other matters reasonably related thereto. If the NYISO contacts Independence directly with respect to any of the functions listed in Section 4.02, Independence shall promptly notify DPM. It is the intent of the Parties that Independence shall continue to be the primary contact with the NYISO with respect to reliability considerations and emergency operations. If the NYISO contacts DPM directly with respect to reliability considerations and emergency operations, DPM shall promptly notify Independence. The Parties agree to work together to develop operating procedures with respect to communications between the Parties and the NYISO related to all other matters. To the extent practicable, Independence shall provide copies to DPM of any *** CONFIDENTIAL TREATMENT REQUESTED *** 9 correspondence or written communications with the NYISO related to the operation of the Facility. 4.04 SCHEDULING AND DISPATCH (a) Subject to Article X of the Tolling Agreement and to the extent permitted by the NYISO Requirements, it is the intention of Independence and DPM to allow DPM to have maximum flexibility with respect to preparing and submitting bids of energy to the NYISO markets under the Tolling Agreement. As such, all bidding and scheduling of energy shall be done in accordance with Article X and Exhibits 5.02(A) and 5.02(B) of the Tolling Agreement. (b) From time to time, Independence will notify DPM of its contractual responsibilities related to the operation of the Facility and, consistent with the procedures specified herein and in Section 5.02 and Exhibits 5.02(A) and 5.02(B) to the Tolling Agreement, DPM will prepare and submit bids to the NYISO in a manner designed to cause operation of the Facility to conform to such contractual responsibilities. 4.05 STANDARD OF CARE DPM agrees to use commercially reasonable efforts to provide to Independence all of the electricity management services described in this Agreement and DPM agrees to perform such services with reasonable care and diligence and in accordance with the Tolling Agreement, the instructions from Independence related to the Reserved Capability, Good Electrical Practices and all Laws. ARTICLE 5 - DEFAULT AND REMEDIES 5.01 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: (a) A material breach of any material term or condition of this Agreement, including, but not limited, to (i) any material breach of a representation, warranty or covenant made in this Agreement, and (ii) failure of a Party to make a required payment to another Party of amounts due hereunder. (b) A failure of Guarantor to provide Performance Assurance as defined in the Guaranty Agreement dated as of the date hereof by Guarantor (as amended, supplemented or modified and in effect from time to *** CONFIDENTIAL TREATMENT REQUESTED *** 10 time, the "Guaranty Agreement") or a guaranty or other credit assurance acceptable to Independence, within the time required pursuant to Section 6 of the Guaranty Agreement. (c) A receiver or liquidator or trustee of a Party or of any of its property shall be appointed by a court of competent jurisdiction, and such receiver, liquidator or trustee shall not have been discharged within one hundred twenty (120) Days, or by decree of such a court, a Party shall be adjudicated bankrupt or insolvent or any substantial part of its property shall have been sequestered, and such decree shall have continued undischarged and unstayed for a period of one hundred twenty (120) Days after the entry thereof; or a petition to declare bankruptcy or to reorganize a Party pursuant to any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, shall be filed against a Party and shall not be dismissed within one hundred twenty (120) Days after such filing. (d) A Party shall file a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law, or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a proceeding under any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, or an answer admitting the material allegations of a petition filed against it in such a proceeding; or a Party shall make an assignment for the benefit of its creditors; or a Party shall admit in writing its inability to pay its debts generally as they become due; or a Party shall consent to the appointment of a receiver, trustee or liquidator of it or of all or part of its property. (e) The occurrence and continuation of a default, event of default or other similar condition or event in respect of such Party under (i) the Gas Supply Agreement; or (ii) the Tolling Agreement, or (iii) the ISDA Master Agreement (Multicurrency - Cross Border) dated as of July 1, 2001, the Schedule dated as of July 1, 2001 to the ISDA Master Agreement (Multicurrency - Cross Border) or the Electricity Swap Confirmation dated as of July 1, 2001, all between Independence and DPM. *** CONFIDENTIAL TREATMENT REQUESTED *** 11 5.02 NOTICE OF DEFAULT; CURE Upon the occurrence of any such Event of Default other than those described in Section 5.01(b), (c) and (d), the Party not in default shall give written notice of the Event of Default to the defaulting Party. Such notice of default shall set forth, in reasonable detail, the nature of the default and, where known and applicable, the steps necessary to cure such default. Following receipt of such notice, the defaulting Party shall have: (a) ten (10) Days in the case of the failure of the defaulting Party to make a required payment to the other Party of amounts due hereunder; or (b) thirty (30) Days in the case of any other Event of Default described in Sections 5.01(a) and 5.01(e): to cure such default or, in the case of an Event of Default under Section 5.02(b), to commence in good faith and continue to diligently pursue all such steps as shall be reasonably necessary and appropriate to cure such default in the event such default cannot reasonably be completely cured within such thirty (30) Day period. 5.03 REMEDIES Notwithstanding the foregoing, after the occurrence of any such Event of Default and the expiration of all applicable cure periods with respect thereto without such default being cured, the non-defaulting Party shall be entitled (i) to suspend performance under this Agreement or to terminate this Agreement, (ii) to commence an action to require the defaulting Party to remedy such default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof and (iii) to exercise such other rights and remedies as it may have at equity or at law, but subject to any limitation on damages otherwise provided for under this Agreement. ARTICLE 6 - BILLING AND PAYMENT 6.01 BILLING As soon as practicable after the end of each Month, Independence shall deliver to the Energy Managers an invoice setting forth all charges and any other amount payable to Independence pursuant to this Agreement, and any amounts payable to the Energy Managers pursuant to the terms of this Agreement (other than the Energy Management Fee). *** CONFIDENTIAL TREATMENT REQUESTED *** 12 6.02 PAYMENT On or before the tenth Day of each Month, Independence shall pay to DMT, on behalf of the Energy Managers, the Energy Management Fee. Each Party shall render payment to the other Party by wire transfer payment, or other acceptable method agreed to by the Parties, of the amount due as set forth in any invoice under Section 6.01, by the later of (i) the twenty fifth (25th) Day of the Month, and (ii) ten Days after the other Party's receipt of the invoice. The address, account information and/or wire transfer information shall be as provided pursuant to Section 24.07. Failure to make such payment when due shall result in a late charge on the unpaid balance that shall accrue on each calendar day from the due date to the date paid at the Interest Rate. If either Party in good faith disputes any part of any invoice, it shall make payment of the undisputed amount invoiced and shall provide to the other Party on or before the payment due date a written explanation of the basis for the dispute. If any amount disputed is determined to be due, the disputing Party shall pay such disputed amount within two Days of such determination, along with interest accrued daily at the Interest Rate from the date that, but for the dispute, payment was due until the date paid. 6.03 AUDIT Each Party has the right with reasonable prior notice, at its sole expense, to examine the records of the other Party during Regular Business Hours to the extent reasonably necessary to verify the accuracy of any invoice, or calculations provided with or supporting such invoice, rendered pursuant to this Agreement. Each Party shall retain the records necessary to verify the accuracy of any invoice for 18 Months following the date of such invoice. If any such examination reveals any inaccuracy in any invoice, or calculations provided with or supporting such invoice, the necessary adjustments in such invoice, or calculations provided with or supporting such invoice, and the payments made pursuant to such inaccurate invoice, or calculations provided with or supporting such invoice, shall be adjusted in the next invoice; provided, however, that the Party asserting the need for such adjustment brought it to the attention of the other Party within twelve Months after the event causing the need for adjustment. This Section 6.03 shall survive any termination of this Agreement for a period of one year from the date on which the last invoice is rendered to such Party pursuant to this Agreement. 6.04 OFFSET The Parties hereby agree that they shall discharge mutual debts and payment obligations due and owing to each other under this Agreement 13 through netting, in which case all amounts owed by each Party to the other Party under this Agreement during the monthly billing period, including, interest, and payments or credits, shall be netted so that only the excess amount remaining due shall be paid by the Party who owes it. ARTICLE 7 - MANAGEMENT REPORTS AND OPERATING COMMITTEE 7.01 MANAGEMENT REPORTS The Energy Managers shall provide Independence with periodic management reports detailing all activities undertaken under this Agreement. The Energy Managers and Independence shall conduct quarterly meetings (or more frequent meetings if more frequent meetings are requested by Independence) to jointly review and evaluate the performance under this Agreement and determine future strategies and operational decisions concerning all aspects of the Agreement. The meetings may be held telephonically or by other agreed upon means. 7.02 OPERATING COMMITTEE The Parties shall each appoint a member and an alternate to an Operating Committee, and so notify the other Parties of such appointments in writing. Such appointments may be changed at any time by similar notice. The Operating Committee shall meet as necessary to carry out the duties set forth herein. The Operating Committee shall hold meetings at the request of any Party at the Facility (unless otherwise agreed upon by the members of the Operating Committee) and at a time agreed upon by the members of the Operating Committee. Each member and alternate shall be a responsible person working with his or her Party's respective day-to-day operations under this Agreement. The duties of the Operating Committee shall include, but not be limited to, (i) coordinating operation schedules, (ii) establishing and maintaining operating procedures, including those pertaining to information transfers between and among the Parties, consistent with the provisions of this Agreement, and (iii) such other duties as may be conferred upon it by mutual agreement of the Parties. ARTICLE 8 - REPRESENTATIONS AND WARRANTIES 8.01 ENERGY MANAGERS REPRESENTATIONS The Energy Managers hereby represents and warrants as follows: *** CONFIDENTIAL TREATMENT REQUESTED *** 14 (a) DMT is a general partnership duly organized and validly existing and in good standing under the laws of Colorado and is duly qualified to do business and in good standing in the State of New York. (b) DPM is a corporation duly organized and validly existing and in good standing under the laws of Texas and is duly qualified to do business and in good standing in the State of New York. (c) DMT has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (d) DPM has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (e) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of DMT and do not require any other actions or proceedings or any partner approval or consent of any trustee or holder of any indebtedness of DMT. (f) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of DPM and do not require any other actions or proceedings or any shareholder approval or consent of any trustee or holder of any indebtedness of DPM. (g) This Agreement has been duly executed and delivered on behalf of DMT by the appropriate officers of DMT and constitutes the legal, valid and binding obligation of DMT, enforceable against DMT in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (h) This Agreement has been duly executed and delivered on behalf of DPM by the appropriate officers of DPM and constitutes the legal, valid and binding obligation of DPM, enforceable against DPM in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). *** CONFIDENTIAL TREATMENT REQUESTED *** 15 (i) The execution, delivery, and performance of its obligations under this Agreement do not: (i) violate any provision of any Law having applicability to any Energy Manager or any provision of the organizational documents of either Energy Manager, the violation of which could reasonably be expected to have a material adverse effect on the ability of an Energy Manager to perform its obligations under this Agreement; (ii) result in a breach of or constitute a default under any provision of the organizational documents of either Energy Manager, (iii) result in a breach of or constitute a default under any agreement relating to the management or affairs of either Energy Manager or any indenture or loan or credit agreement or any other agreement, lease, or instrument to which any Energy Manager is a party or by which any Energy Manager or its properties or assets may be bound, the breach or default of which could reasonably be expected to have a material adverse affect on the ability of such Energy Manager to perform its obligations under this Agreement, or (iv) result in, or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, or other charge or encumbrance of any nature (other than as may be contemplated by this Agreement) upon or with respect to any of the assets or properties of any Energy Manager, the creation or imposition of which could reasonably be expected to have a material adverse affect on the ability of such Energy Manager to perform its obligations under this Agreement. (j) There is no pending or, to the best of each of the Energy Manager's knowledge, threatened Claim affecting an Energy Manager before any court or other Governmental Authority, or arbitrator that could reasonably be expected to materially and adversely affect the financial condition or operations of either Energy Manager or the ability of either Energy Manager to perform its obligations hereunder (except with respect to consents, licenses, permits, and other approvals of Governmental Authorities that are required to be obtained by either Energy Manager to enable it to perform its obligations under this Agreement), or that purport to affect the legality, validity, or enforceability of this Agreement. 8.02 INDEPENDENCE REPRESENTATIONS Independence hereby represents and warrants as follows: (a) It is a limited partnership duly organized and validly existing and in good standing under the laws of Delaware and is duly qualified to do business and in good standing in the State of New York. (b) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the *** CONFIDENTIAL TREATMENT REQUESTED *** 16 transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (c) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any partnership approval or consent of any trustee or holder of any indebtedness of Independence. (d) This Agreement has been duly executed and delivered on behalf of Independence by the appropriate officers of the general partner of Independence and constitutes the legal, valid and binding obligation of Independence, enforceable against Independence in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (e) The execution, delivery, and performance of its obligations under this Agreement do not: (i) violate any provision of any Law having applicability to Independence or any provision of the organizational documents of Independence, the violation of which could reasonably be expected to have a material adverse effect on the ability of Independence to perform its obligations under this Agreement; (ii) result in a breach of or constitute a default under any provision of the organizational documents of Independence, (iii) result in a breach of or constitute a default under any agreement relating to the management or affairs of Independence or any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Independence is a party or by which Independence or its properties or assets may be bound, the breach or default of which could reasonably be expected to have a material adverse affect on the ability of Independence to perform its obligations under this Agreement, or (iv) result in, or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, or other charge or encumbrance of any nature (other than as may be contemplated by this Agreement) upon or with respect to any of the assets or properties of Independence, the creation or imposition of which could reasonably be expected to have a material adverse affect on the ability of Independence to perform its obligations under this Agreement. (f) There is no pending or, to the best of Independence's knowledge, threatened Claim affecting Independence before any court or other Governmental Authority, or arbitrator that could reasonably be expected to materially and adversely affect the financial condition or operations of Independence or the ability of Independence to perform its obligations hereunder (except with respect to consents, licenses, permits, and *** CONFIDENTIAL TREATMENT REQUESTED *** 17 other approvals of Governmental Authorities that are required to be obtained by Independence to enable it to perform its obligations under this Agreement), or that purport to affect the legality, validity, or enforceability of this Agreement. 8.03 NO IMPLIED WARRANTIES THE REPRESENTATIONS AND WARRANTIES OF INDEPENDENCE AND THE ENERGY MANAGERS ARE SET FORTH FULLY AND COMPLETELY IN THIS AGREEMENT. THE PARTIES HEREBY EXPRESSLY DISCLAIM AND NEGATE ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND HEREUNDER, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHER, WRITTEN OR ORAL, INCLUDING ANY REPRESENTATION OR WARRANTY WITH RESPECT TO CONFORMITY OR MODELS OR SAMPLES, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. 8.04 RELIANCE Notwithstanding any due diligence, analysis, investigation, review, study, or audit, each Party shall be entitled to rely on the representations, warranties, obligations, covenants, and agreements set forth herein. ARTICLE 9 - AGENCY 9.01 AGENCY AUTHORITY Persons dealing with either of the Energy Managers are entitled to rely qconclusively on the power and authority of the Energy Managers as set forth in this Agreement. 9.02 GAS AGENCY (a) Independence hereby appoints and authorizes DMT to act as its exclusive agent for the purposes set forth in Section 9.02(b) and DMT hereby agrees to such appointment and authorization. (b) Commencing on the Effective Date, DMT shall have the authority to: (i) administer and manage Independence's Transportation Agreements, any Gas storage agreements entered into by Independence, and the Purchase Agreements, as the same may be executed or amended from time to time; (ii) make and change on behalf of Independence all nominations for daily deliveries of Gas to and from the receipt and delivery points specified in the Transportation Agreements, Purchase Agreements, or if *** CONFIDENTIAL TREATMENT REQUESTED *** 18 applicable, any Gas storage agreements; (iii) make assignments on behalf of Independence under the Transportation Agreements entered into by Independence and (iv) take such other action on behalf of Independence as Independence and DMT may agree upon from time to time. For purposes of this Section 9.02, "Purchase Agreements" are those Gas purchase agreements Independence has entered into or will enter into, and "Transportation Agreements" are those firm Gas transportation agreements Independence has entered into or will enter into, in each case under which Gas may be purchased and delivered to the Facility. (c) There is no requirement under this Agreement that every aspect of the day-to-day operation of the agency relationship between Independence and DMT, or that any transaction between Independence and DMT under this Agreement, be reduced to a written agreement and incorporated into this Agreement. (d) By this Agreement, DMT is hereby authorized and directed by Independence (i) to provide any applicable Transporters under the Transportation Agreements with accurate and timely information as necessary for DMT to make and change daily deliveries to applicable receipt points at which deliveries are to be made, and (ii) to receive from the Transporters under the Transportation Agreements and immediately forward to Independence any notice of curtailment, operational flow orders, or other emergencies which would otherwise be sent by a Transporter under the Transportation Agreements to Independence. If Independence receives any such notices or operational flow orders, Independence shall promptly forward such information to DMT. ARTICLE 10 - DELIVERY OF FUEL 10.01 FAILURE TO ARRANGE FOR DELIVERY OF GAS In circumstances where DMT has met the obligations imposed on DMT under this Agreement, has arranged for deliveries of Gas to the Gas Facility Point and there is a failure of Dynegy Canada to deliver Gas under the Gas Agreement, or a failure of a third-party supplier to deliver Gas to the Gas Facility Point, DMT and Independence hereby agree that the exclusive remedies for any failure in the delivery of Gas shall be governed exclusively by the Gas Agreement, the other Gas supply agreements and/or the Tolling Agreement. *** CONFIDENTIAL TREATMENT REQUESTED *** 19 ARTICLE 11 - ELECTRIC ENERGY 11.01 FAILURE TO SUPPLY OR RECEIVE ELECTRIC ENERGY In circumstances where DPM has met the obligations imposed on DPM under this Agreement, DPM and Independence hereby agree that the exclusive remedies for the failure of any delivery of energy shall be governed exclusively by the Tolling Agreement. ARTICLE 12 - INDEMNIFICATION 12.01 INDEPENDENCE'S INDEMNIFICATION Independence shall indemnify, defend and hold harmless the Energy Managers and their Affiliates and their officers, trustees, directors, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to the tangible property of third parties and injury to or death of persons (other than the Energy Manager's employees and Independence's employees) to the extent caused by, arising out of or relating to the gross negligence or willful misconduct of Independence in connection with or resulting from Independence's performance or breach of this Agreement. 12.02 ENERGY MANAGERS' INDEMNIFICATION The Energy Managers shall jointly indemnify, defend and hold harmless Independence and its Affiliates and their officers, directors, trustees, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to tangible property of third parties and injury to or death of persons (other than Independence's employees or the Energy Managers' employees) to the extent caused by, arising out of or related to the gross negligence or willful misconduct of the Energy Managers in connection with or resulting from the Energy Managers' performance or breach of this Agreement. 12.03 INDEMNIFICATION PROCEDURES (a) A Party which becomes entitled to indemnification under this Agreement (the "Indemnified Party") shall give written notice to the other Party (the "Indemnifying Party") of the occurrence of the events which give rise to such right of indemnification within 30 Days of the Indemnified Party becoming aware of the occurrence thereof. Such notice shall describe the claim, the basis thereof and shall indicate an estimate of the amount of *** CONFIDENTIAL TREATMENT REQUESTED *** 20 the claim. To the extent that the Indemnifying Party is prejudiced by any failure of the Indemnified Party to provide such notice, such notice shall be a condition precedent to the liability of the Indemnifying Party under this Article 12. (b) At the Indemnified Party's request, the Indemnifying Party shall, at its cost and expense, defend (with counsel reasonably acceptable to the Indemnified Party) any suit asserting a claim against the Indemnified Party with respect to which the Indemnified Party is entitled to indemnification hereunder, and shall pay all costs and expenses incurred by the Indemnified Party to enforce its right to indemnification. The Indemnified Party may, at its own expense, retain separate counsel and participate in the defense of any such suit. Neither Party may settle or compromise a claim or suit without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. 12.04 SURVIVAL The indemnification obligations of each party under this Article 12 shall not be limited in any way by any limitation on insurance, by the amount or types of damages, or by any compensation or benefits payable by the parties under Worker's Compensation Acts, disability benefit acts or other employee acts or otherwise. The provisions of this Article 12 shall survive termination, cancellation, suspension, completion or expiration of this Agreement. ARTICLE 13 - LIMITATION OF LIABILITY 13.01 LIMITATION OF LIABILITY None of the Parties, nor their respective officers, directors, partners, agents, employees or Affiliates, shall be liable to the other Parties or their Affiliates, officers, directors, trustees, partners, agents, employees, successors or assigns, for claims for incidental, special, indirect, consequential or punitive damages of any nature connected with or resulting from performance or breach of this Agreement, including, without limitation, claims in the nature of lost revenues, income or profits (other than payments specifically provided for and properly due under this Agreement) or losses, damages or liabilities under any financing, lending or construction contracts, agreements or other arrangements, irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. *** CONFIDENTIAL TREATMENT REQUESTED *** 21 13.02 DUTY TO MITIGATE Notwithstanding any other provision of this Agreement, each Party has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party's performance or non-performance. ARTICLE 14 - FORCE MAJEURE 14.01 FORCE MAJEURE (a) The term "Force Majeure" shall mean 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; strikes and other labor disturbances; earthquakes; storms; fires; lightning; epidemics; wars; riots or civil disturbances; sabotage or condemnation or other similar acts. (b) If a Party because of Force Majeure is rendered wholly or partly unable to perform its obligations under this Agreement, except for a Party's obligation to make payments under this Agreement (which shall not be excused), that Party shall be excused from whatever performance is affected by the Force Majeure to the extent so affected, provided that the Party whose performance under this Agreement is affected by an event of Force Majeure (i) gives the other Party notice of the occurrence of such Force Majeure event as soon as possible, and (ii) uses all commercially reasonable efforts to remedy the cause(s) and effect(s) of such Force Majeure event with all reasonable dispatch. The affected Party shall not be obligated to undertake unreasonable or uneconomic costs or burdens, including the settlement of strikes or labor disturbances on terms other than are acceptable to such Party in its sole discretion, in order to overcome the effects of the Force Majeure and reinstate full performance of its Agreement obligation. ARTICLE 15 - ASSIGNMENT 15.01 ASSIGNMENTS (a) This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, except to an Affiliate or successor, by any Party hereto, whether by operation of law or otherwise, without the prior written consent of the other Parties, which consent may not be unreasonably withheld or delayed. No assignment of all or any portion of the rights, interests or obligations permitted pursuant to the *** CONFIDENTIAL TREATMENT REQUESTED *** 22 immediately preceding sentence shall relieve or discharge the assignor from any of its obligations under this Agreement without the prior written consent of the non-assigning Parties, which consent shall not be unreasonably withheld or delayed. Any assignment of this Agreement in violation of the foregoing shall be, at the option of the non-assigning Parties, void. (b) Notwithstanding the foregoing provisions of Section 15.01(a), (i) each Energy Manager may assign all or any portion of its rights and obligations hereunder to any of its Affiliates, (ii) Independence may assign all or any portion of its rights and obligations hereunder to any of its Affiliates (including, without limitation, Sithe Power Marketing, L.P., a Delaware limited partnership), and (iii) Independence may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof, provided, however, that no such assignment of all or any portion of the rights, interests or obligations of a party pursuant to this Section 15.01(b) shall relieve or discharge the assignor from any of its obligations under this Agreement unless the non-assigning Parties consent to such release or discharge in accordance with Section 15.01(a). With respect to clause (iii) of this Section 15.01(b), the Energy Managers agree to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, so long as the Energy Managers' rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 15.02 AFFILIATION Notwithstanding any right to assignment pursuant to Section 15.01, DPM, Dynegy Canada and DMT shall remain Affiliates throughout the Contract Term. ARTICLE 16 - CONDITIONS 16.01 CONDITIONS PRECEDENT The obligations of Independence to consummate the transactions contemplated by this Agreement shall be subject to fulfillment of the following conditions, unless waived in writing by Independence: (a) DPM and DMT shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit A or such other form as Independence may approve; *** CONFIDENTIAL TREATMENT REQUESTED *** 23 (b) Dynegy Holdings Inc. ("Guarantor") shall have delivered a duly executed Guaranty Agreement in the form of Exhibit B or such other form as Independence may approve; and (c) Guarantor shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit 2 to Exhibit B or such other form as Independence may approve. ARTICLE 17 - MISCELLANEOUS 17.01 NO AMENDMENT OF UNDERLYING AGREEMENTS Nothing in this Agreement shall in any way amend or alter any provisions of the Gas Agreement, the Tolling Agreement, agreements relating to sales of the output of the Reserved Capability, or any third-party Gas supply agreements, or any of the duties or obligations of the Parties thereunder. 17.02 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Parties hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Agreement. 17.03 SUBMISSION TO JURISDICTION Each of the Parties hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (b) 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 the other Party at its address set forth in Section 17.08, or at such other address of which the other Party shall have been notified pursuant thereto; and (c) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Law. *** CONFIDENTIAL TREATMENT REQUESTED *** 24 17.04 HEADINGS The descriptive headings of the Articles and Sections of this Agreement are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Agreement. 17.05 WAIVER Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first Party to comply with such obligation, covenant, agreement or condition. 17.06 SEVERABILITY Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 17.07 ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the Parties, and supersedes any and all previous understandings, oral or written, with respect to the subject matter hereof. 17.08 NOTICES Any notice, request, demand, statement or payment provided for in this Agreement shall be in writing and shall be made as specified below; provided, however, that notices of interruption may be provided verbally, effective immediately and confirmed in writing and, provided further, that any Scheduling shall be done pursuant to the Scheduling and Operating Procedures. Invoices may be sent by facsimile. A notice sent by facsimile transmission will be recognized and shall be deemed received on the Business Day on which such notice was transmitted if received before close of business (and if received after close of business, on the next Business Day) and a notice by overnight mail or courier shall be deemed to have been received two Business Days after it was sent or such earlier time as is confirmed by the *** CONFIDENTIAL TREATMENT REQUESTED *** 25 receiving Party unless it confirms a prior verbal communication, in which case any such notice shall be deemed received on the Day sent. To the Energy Managers:
NOTICES & CORRESPONDENCE: PAYMENTS & INVOICES: c/o Dynegy Marketing & Trade All payments made by Independence to 1000 Louisiana Street, Suite 5800 the Energy Managers shall be made Houston, Texas 77002 directly to: Attention: Contract Administration First National Bank of Chicago - Phone: 713-507-3713 Chicago, Illinois Fax: 713-507-3780 Account Title: Dynegy Marketing and Trade Account No.: 55-53911 To Independence: ABA Reference No.: 071000013 NOTICES & CORRESPONDENCE: PAYMENTS BY WIRE TRANSFER: Sithe/Independence Power Partners, L.P. All payments made by the Energy P.O. Box 1046 Manager to Independence shall be 76 Independence Way made directly to the account Oswego, New York 13126 entitled "Project Revenue Fund" Attention: General Manager maintained by Independence with Facsimile: (315) 342-8425 The Bank of New York, Account No. 229289, 101 Barclay Street, with a copy to: Floor 21W, New York, New York, 10286, or to such other person Sithe/Independence Power Partners, L.P. or account as shall be specified c/o Sithe Energies, Inc. from time to time by 335 Madison Avenue Independence to the Energy 28th Floor Manager in writing. Any payments New York, New York 10017 being wired to the Attention: General Counsel above-referenced account should Facsimile: (212) 351-0800 be directed to ABA 021000018; The Bank of New York; Corporate Trust/GLA 111-565; for further credit to TAS Account 229289; REF: Sithe Independence PWR Project Revenue Fund.
*** CONFIDENTIAL TREATMENT REQUESTED *** 26 From time to time a Party may change the foregoing addresses and payment information by sending written notice of such change in accordance with this Section. 17.09 CONFIDENTIALITY (a) "Confidential Information" shall be any information or data exchanged by the Parties relating to the trading and marketing activities of either Party, the bids and Schedules submitted directly or indirectly to the NYISO pursuant to this Agreement or daily advisory billing statements and monthly billing statements received from the NYISO related to the Facility (including non-public information related thereto communicated to a Party from the NYISO). Confidential Information shall not include information: (i) which was developed by the Receiving Party and was contained in a writing in the Receiving Party's possession before its receipt from the other Party; (ii) which at the time of its disclosure to the Receiving Party is, or thereafter becomes, through no act or failure to act on the part of the Receiving Party, part of the public domain; (iii) which has been rightfully furnished to the Receiving Party by a third party without restriction on disclosure or use and not in violation of any rights of, or obligations to, the other Party. The occurrence of any of the above exceptions shall not be construed as an express or implied grant of any rights under any of the other Party's patents or other intellectual property rights. For the purposes of this Section 17.09, a Party that receives Confidential Information from the other Party shall be referred to as the "Receiving Party." (b) No Receiving Party shall disclose or use Confidential Information received from the other Party for any purpose other than in connection with the performance of its obligations under this Agreement, without the prior written consent of the other Party. The Receiving Party agrees to utilize with respect to received Confidential Information the same standards and procedures which it applies to protection of its own confidential information, but not less than reasonable care. (c) Each Party will limit access to received Confidential Information to those of its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents, and consultants who need to know about or participate in the performance of its obligations under this *** CONFIDENTIAL TREATMENT REQUESTED *** 27 Agreement. Each Party agrees to (i) inform each of its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents, and consultants who receive Confidential Information of the confidential nature thereof and of the obligations imposed by this Agreement, and (ii) each Party shall remain primarily liable to the other for unauthorized use or disclosure of received Confidential Information by its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents or consultants receiving such information. (d) Notwithstanding Section 17.09(c), Independence shall not disclose Confidential Information to individuals who are actively involved in material marketing and trading activities in the markets administered by the NYISO; provided that Independence may designate by notice to the Energy Managers up to two individuals for receipt of Confidential Information who have responsibilities related to the Facility and associated contracts (including this Agreement) and who are engaged in material marketing and trading activities in the markets administered by the NYISO; provided further that Independence shall take all reasonable precautions to ensure that such designated individuals do not utilize Confidential Information in their marketing and trading activities; and provided further that information related to transmission congestion contracts or installed capacity contained in daily advisory billing statements and monthly billing statements receieved from the NYISO related to the Facility shall not be considered Confidential Information for purposes of this Section 17.09(d) only. Such individuals will not be provided access to the results of the NYISO's Day-Ahead Market bidding process undertaken by DPM under this Agreement and the Tolling Agreement, unless and until Independence's Facility operating personnel (who will have daily access to such results) (i) have identified a problem or material issue regarding such results, (ii) have attempted to discuss the problem or material issue with DPM, and (iii) following such discussions, have been unable to resolve the problem or material issue. (e) Notwithstanding Section 17.09(c), the Energy Managers shall not disclose information related to transmission congestion contracts or installed capacity contained in daily advisory billing statements and monthly billing statements received from the NYISO related to the Facility to individuals who are actively involved in material marketing and trading activities in the markets administered by the NYISO. (f) Each Party may disclose Confidential Information to third parties or other Governmental Authorities, including NYISO, to the extent such disclosures are contemplated in and required by the Parties in connection with the performance of their obligations under this Agreement. Each Party may also disclose Confidential Information which it is legally *** CONFIDENTIAL TREATMENT REQUESTED *** 28 required to furnish to comply with a subpoena or other legal process of a Governmental Authority, provided that the disclosing Party shall use reasonable efforts to limit such disclosure and to obtain confidential treatment of such Confidential Information. (g) The provisions of this Section 17.09 shall survive expiration, cancellation, or termination of this Agreement. Each Party agrees to be bound by the confidentiality obligations herein for a period of five (5) years from expiration, cancellation or termination. 17.10 COUNTERPARTS This Agreement may be executed in counterparts, all of which shall constitute one and the same Agreement and each of which shall be deemed to be an original. 17.11 NO OFFSET Except as provided in Section 6.04, the amounts due Energy Managers from Independence and the amounts due Independence from the Energy Managers shall constitute separate and independent obligations and may not be offset or net against each other or offset or net against any other amounts due between the Parties (whether under this Agreement or otherwise). *** CONFIDENTIAL TREATMENT REQUESTED *** 29 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to be executed as of the date first set forth above. SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: /s/ Sandra J. Manilla --------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer DYNEGY POWER MARKETING, INC. By: /s/ Miles Allen --------------------------------- Name: Miles Allen Title: Vice President DYNEGY MARKETING AND TRADE By: /s/ Miles Allen --------------------------------- Name: Miles Allen Title: Senior Vice President *** CONFIDENTIAL TREATMENT REQUESTED *** 30 EXHIBIT A ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 among Dynegy Power Marketing, Inc., a Texas corporation and Dynegy Marketing and Trade, a Colorado general partnership (together with their successors and assigns, the "ENERGY MANAGERS") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Energy Managers hereby (a) acknowledge that they have been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consent, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the ENERGY MANAGEMENT AGREEMENT dated as of July 1, 2001 among the Energy Managers and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledge the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledge and agree that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Energy Managers to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 17.08 of the Assigned Contract. *** CONFIDENTIAL TREATMENT REQUESTED *** 31 SECTION 3. REPRESENTATIONS OF ENERGY MANAGERS (a) The Energy Managers represent and warrant that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Energy Managers of this Consent has been duly authorized by all necessary action on the part of the Energy Managers and does not require any approval or consent of any shareholder or partner of the Energy Managers or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Energy Managers, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Energy Managers by the appropriate officers and representatives of the Energy Managers and constitutes the legal, valid and binding obligation of the Energy Managers, enforceable against the Energy Managers in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Energy Managers nor, to the knowledge of the Energy Managers, the Partnership is in default under the Assigned Contract. The Energy Managers have no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Energy Managers agree that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Energy Managers and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Energy Managers deliver a notice of default to the Partnership under the Assigned *** CONFIDENTIAL TREATMENT REQUESTED *** 32 Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Energy Managers as provided in Section 5 below, the Energy Managers will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Energy Managers' reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Energy Managers under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior *** CONFIDENTIAL TREATMENT REQUESTED *** 33 act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Energy Managers shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Energy Managers shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Energy Managers under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Energy Managers that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Energy Managers hereby agree to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Energy Managers under this Consent. *** CONFIDENTIAL TREATMENT REQUESTED *** 34 SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Energy Managers, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Energy Managers and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified *** CONFIDENTIAL TREATMENT REQUESTED *** 35 mail (or any substantially similar form of mail), postage prepaid, to the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Energy Managers, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. *** CONFIDENTIAL TREATMENT REQUESTED *** 36 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY POWER MARKETING, INC. By: ---------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- DYNEGY MARKETING AND TRADE By: ---------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ---------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED *** 37 EXHIBIT B GUARANTY AGREEMENT Base Guaranty Agreement (this "Guaranty") dated as of July 1, 2001 is made and entered into by Dynegy Holdings Inc., a Delaware corporation ("Guarantor"), to and for the benefit of Sithe/Independence Power Partners, L.P., a Delaware limited partnership ("Independence"), and its successors and permitted assigns. WITNESSETH: WHEREAS, Independence, Dynegy Power Marketing, Inc., a Texas corporation ("DPM") and Dynegy Marketing and Trade, a Colorado general partnership ("DMT") (DPM and DMT referred to collectively, together with their respective successors and permitted assigns, as "Energy Managers"), have entered into an ENERGY MANAGEMENT AGREEMENT dated as of July 1, 2001 (as amended, supplemented or modified from time to time, the "Energy Management Agreement"), a copy of which is attached hereto as Exhibit 1; WHEREAS, the Energy Managers are indirect, wholly owned subsidiaries of Guarantor, and Guarantor will derive substantial benefit from the performance by Independence of its obligations under the Energy Management Agreement; WHEREAS, it is a condition precedent to Independence's obligations under the Energy Management Agreement that this Guaranty be duly executed and delivered to Independence; and WHEREAS, Guarantor is willing to enter into this Guaranty. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. GUARANTY. Subject to the terms hereof, Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Independence and its successors and permitted assigns the due, punctual and full performance and payment of each and every obligation of the Energy Managers under the Energy Management Agreement (each such obligation hereinafter referred to, individually, as a "Guaranteed Obligation" and, collectively, as the "GUARANTEED OBLIGATIONS") and *** CONFIDENTIAL TREATMENT REQUESTED *** 38 agrees that, if for any reason whatsoever the Energy Managers shall fail or be unable duly, punctually and fully to perform or pay any such Guaranteed Obligation, Guarantor shall forthwith, upon demand as provided in Section 4 hereof, perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid, without regard to any exercise or nonexercise by Independence, its successors or permitted assigns of any right, power or privilege under or in respect of the Energy Management Agreement or the Guaranteed Obligations. In connection with the foregoing, Independence acknowledges that performance of the obligations of the Energy Managers under the Energy Management Agreement, to the extent that such performance is for an obligation other than the payment of money, shall be accomplished by Guarantor causing such performance to occur through a third party or otherwise by the payment of money. This Guaranty shall be direct, immediate and primary and shall be a guaranty of performance and payment and not of collection, and is not conditioned or contingent upon any attempt to collect from the Energy Managers or upon any other event, contingency or circumstance whatsoever, except as expressly provided otherwise herein. 2. OBLIGATIONS UNCONDITIONAL. Guarantor covenants to and agrees with Independence and its successors and permitted assigns that, to the fullest extent permitted by law, its obligations under this Guaranty are irrevocable, absolute and unconditional, shall remain in full force and effect, and shall not be impaired or affected by, or be subject to, any reduction, termination or other impairment by set-off, deduction, counterclaim, recoupment, interruption or otherwise, and Guarantor shall have no right to terminate this Guaranty or to be released, relieved or discharged, in whole or in part, from its performance or payment obligations referred to in this Guaranty for any reason whatsoever (other than the performance and payment in full of the Guaranteed Obligations), including (a) any amendment, supplement or modification to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or privilege under or in respect of, the Energy Management Agreement, the Guaranteed Obligations or any other agreement or instrument relating thereto, (b) any insolvency, bankruptcy, reorganization, dissolution or liquidation of, or any similar occurrence with respect to, or cessation of existence of, or change of ownership of the Energy Managers, or any rejection of any of the Guaranteed Obligations in connection with any Proceeding (as defined in Section 3 below) or any disallowance of all or any portion of any claim by Independence, its successors or permitted assigns in connection with any Proceeding, (c) any lack of genuineness, legality, *** CONFIDENTIAL TREATMENT REQUESTED *** 39 validity, regularity, enforceability or value of the Energy Management Agreement, any of the Guaranteed Obligations, or any other agreement or instrument relating thereto, (d) the failure to create, preserve, validate, perfect or protect any security interest granted to, or in favor of, any person, (e) any substitution, modification, exchange, release, settlement or compromise of any security or collateral for or guaranty of any of the Guaranteed Obligations or failure to apply such security or collateral or failure to enforce such guaranty or (f) any other event or circumstance whatsoever that might otherwise constitute a legal or equitable discharge of a surety or guarantor (other than the payment in full of the Guaranteed Obligations and any defenses available to the Energy Managers under the Energy Management Agreement), it being the intent of Guarantor that its obligations under this Guaranty shall be irrevocable, unconditional and absolute under any and all circumstances, except as expressly provided herein. This Guaranty and the obligations of Guarantor hereunder shall continue to be effective or be automatically reinstated, as the case may be, if at any time any payment by or on behalf of the Energy Managers is rescinded or must otherwise be restored by Independence, its successors or permitted assigns for any reason, including, but not limited to, as a result of any Proceeding with respect to the Energy Managers or any other person, as though such payment had not been made. 3. INTEREST. The Guaranteed Obligations shall include, without limitation, interest accruing as part of the Guaranteed Obligations by the terms thereof following the commencement by or against the Energy Managers of any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation, dissolution or composition or adjustment of debt (hereinafter, a "PROCEEDING"). 4. DEMAND. If the Energy Managers shall fail or be unable duly, punctually and fully to perform or pay any Guaranteed Obligation, Independence, its successors or permitted assigns may at any time prior to the full performance or payment of such Guaranteed Obligation deliver notice of such failure or inability of the Energy Managers to perform or pay to Guarantor in writing, which notice shall reasonably specify the nature of such failure or inability to perform or pay, as the case may be and, in the case of a failure or inability to pay, the amount thereof (each such written notice hereinafter a "DEMAND"). Guarantor shall, upon receipt of a Demand, forthwith perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid in full. Promptly on request, Guarantor shall *** CONFIDENTIAL TREATMENT REQUESTED *** 40 reimburse Independence, its successors and permitted assigns for all costs and expenses (including reasonable attorneys' fees) incurred in enforcing Independence's, its successors' or permitted assigns' rights under this Guaranty, but only to the extent that Independence is successful in enforcing Independence's rights under this Guaranty. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Independence and its successors and permitted assigns that as of the date hereof: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, it has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Guaranty; (b) no authorization, approval, consent or order of, or registration or filing with, any court or other governmental body having jurisdiction over Guarantor is required on the part of Guarantor for the execution and delivery of this Guaranty; (c) this Guaranty has been duly executed and delivered by Guarantor and constitutes a valid and legally binding agreement of Guarantor enforceable against Guarantor in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law); (d) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action and do not require any other actions or proceedings or any stockholder approval or consent of any trustee or holder of any indebtedness of Guarantor; (e) the execution, delivery and performance of this Guaranty and compliance by Guarantor with the terms hereof (i) will not violate any governmental approval or law applicable to it or any of its property, (ii) will not violate any provision of its certificate of incorporation, bylaws or other governing documents, and (iii) will not violate or constitute a default under any agreement or instrument to which it is a party or by which it or any of its property may be bound, or result in the creation or imposition of any lien upon any of its property, which violation, default or lien would have a material adverse effect on its ability to perform its obligations under this Guaranty; (f) except as disclosed in Guarantor's latest Form 10-K and any Form 10-Qs or Form 8-Ks subsequently filed with the Securities *** CONFIDENTIAL TREATMENT REQUESTED *** 41 and Exchange Commission, there are no actions, suits, investigations or proceedings against Guarantor by or before any court, arbitrator, administrative or regulatory agency, or other governmental authority pending, or to its knowledge, threatened against or affecting it, its properties, or its assets that, if adversely determined, would reasonably be expected to have a material and adverse effect on its ability to perform its obligations under this Guaranty; and (g) it directly or indirectly owns all of the issued and outstanding shares of each class of capital stock of the Energy Managers. 6. DOWNGRADE EVENT. If at any time any two of the credit ratings then assigned to Guarantor's unsecured, senior long-term debt obligations falls below "Investment Grade" from the Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or its successor ("S&P"),"Investment Grade" from Moody's Investor Services, Inc. or its successor ("MOODY'S") or "Investment Grade" from Fitch IBCA, Inc. or its successor ("FITCH") (or if Guarantor is not rated by any of S&P, Moody's or Fitch), then Independence may require Guarantor to provide collateral in the form of either a substitute guaranty on terms and conditions substantially similar to this Guaranty (from a substitute guarantor whose unsecured, senior long-term debt obligations are rated at least "Investment Grade" from two of S&P, Moody's and Fitch) or other security reasonably acceptable to Independence and the Energy Managers ("Performance Assurance") in an amount determined by Independence in a commercially reasonable manner. The failure of Guarantor to provide such Performance Assurance or a guaranty or other credit assurance acceptable to Independence within twenty (20) business days of receipt of notice shall constitute an Event of Default under the Energy Management Agreement and Independence will be entitled to the remedies set forth in the Energy Management Agreement. 7. AMENDMENT OF GUARANTY. No term or provision of this Guaranty shall be amended, modified, altered, waived, supplemented or terminated except in a writing signed by Guarantor and Independence or Independence's successors and permitted assigns. 8. WAIVERS. To the fullest extent permitted by law, and except for the Demand required pursuant to Section 4 hereof, Guarantor hereby waives (a) all set-offs, counterclaims, presentments, demands for performance, notices of nonperformance, protests, notice of any of the matters referred to in Section 2, notices of protests, notices of dishonor, notice of any waivers or indulgences or extensions, and notices of every *** CONFIDENTIAL TREATMENT REQUESTED *** 42 kind that may be required to be given by any statute or rule of law and notice of acceptance of this Guaranty, (b) diligence, presentment, and demand of payment, filing of claims with a court in connection with any Proceeding, protest or notice with respect to the Guaranteed Obligations and all demands whatsoever; and (c) any requirement that any action or proceeding be brought against the Energy Managers or any other person, or any requirement that any person exhaust any right, power or remedy or proceed against any other person, prior to any action against Guarantor under the terms hereof. No delay on the part of Independence, its successors or permitted assigns in the exercise of, or failure to exercise, any right or remedy shall operate as a waiver thereof, a waiver of any other rights or remedies, or a release of Guarantor from any obligations hereunder, and no single or partial exercise by Independence, its successors or permitted assigns of any right or remedy shall preclude any further exercise thereof or the exercise of any other right or remedy. 9. WAIVER OF SUBROGATION. Guarantor hereby agrees that it will not exercise, and hereby irrevocably, absolutely and unconditionally waives, any rights of subrogation, contribution, reimbursement, indemnification or other rights of payment or recovery for any payments made by it hereunder until all Guaranteed Obligations have been fully paid and performed. 10. NOTICE. Any Demand, notice, request, instruction, correspondence or other document to be given hereunder (herein collectively called "Notice") shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, or by telecopy, as follows: To Independence: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telecopy: (315) 342-8425 with a copy to: Sithe Energies, Inc. 28th Floor 335 Madison Avenue *** CONFIDENTIAL TREATMENT REQUESTED *** 43 New York, New York 10017 Attention: General Counsel Telecopy: (212) 351-0800 To Guarantor: Dynegy Holdings Inc. 1000 Louisiana Street, Suite 5800 Houston, Texas 77002 Attention: Assistant Treasurer Telecopy: (713) 507-6786 Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telefax shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All Notices by telefax shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving notice as provided above of such change of address. 11. ASSIGNMENT. Guarantor shall have no right, power or authority to delegate, assign or transfer all or any of its rights or obligations hereunder. Independence may assign all or any of its rights hereunder to any assignee of its rights under the Energy Management Agreement as permitted thereby; provided, further, that Independence may pledge or assign its interest hereunder to the lenders of financial parties referred to in Section 15.01 of the Energy Management Agreement ("Financial Parties") in connection with any assignment of the Energy Management Agreement to the Financial Parties as contemplated by Section 15.01 of the Energy Management Agreement. In connection with any such assignment to any Financial Party, Guarantor agrees to execute and deliver the agreement attached hereto as Exhibit 2. 12. MISCELLANEOUS. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CONFLICT-OF-LAWS RULES. EACH OF GUARANTOR AND INDEPENDENCE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER AGREEMENTS REFERRED TO HEREIN OR ANY OF THE TRANSACTIONS CONTEMPLATED *** CONFIDENTIAL TREATMENT REQUESTED *** 44 HEREBY OR THEREBY. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself in any legal action or proceeding relating to this 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 New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 10, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. This Guaranty is a continuing guaranty, shall apply to all Guaranteed Obligations whenever arising, shall be binding upon Guarantor and its successors and shall inure to the benefit of and be enforceable by Independence and its successors and permitted assigns. This Guaranty embodies the entire agreement of Guarantor and Independence and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Guaranty are for the purposes of reference only, and shall not affect the meaning hereof. If any provision of this Guaranty shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, but only to the extent of its invalidity, illegality or unenforceability. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. *** CONFIDENTIAL TREATMENT REQUESTED *** 45 IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and delivered by its duly authorized officer as of the day and year first above written. DYNEGY HOLDINGS INC. By: ------------------------ Title: --------------------- ACCEPTED: SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: --------------------------------- Title: ------------------------------ *** CONFIDENTIAL TREATMENT REQUESTED *** 46 EXHIBIT 2 ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Holdings Inc. a Texas corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Guaranty Agreement dated as of July 1, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 24.07 of the Assigned Contract. SECTION 3. REPRESENTATIONS OF COMPANY *** CONFIDENTIAL TREATMENT REQUESTED *** 47 (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if *** CONFIDENTIAL TREATMENT REQUESTED *** 48 the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party *** CONFIDENTIAL TREATMENT REQUESTED *** 49 Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such *** CONFIDENTIAL TREATMENT REQUESTED *** 50 further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Company under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; *** CONFIDENTIAL TREATMENT REQUESTED *** 51 (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (d) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. *** CONFIDENTIAL TREATMENT REQUESTED *** 52 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY HOLDINGS INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: --------------------------------- Name: ------------------------------- Title: ------------------------------ *** CONFIDENTIAL TREATMENT REQUESTED *** 53 EX-10.3(20) 10 a2056240zex-10_320.txt EXHIBIT 10.3.20 Exhibit 10.3.20 SECOND AMENDMENT TO ENERGY PURCHASE AGREEMENT This SECOND AMENDMENT TO ENERGY PURCHASE AGREEMENT (hereinafter referred to as "SECOND AMENDMENT") is made and entered into as of June 28, 2001 between NIAGARA MOHAWK POWER CORPORATION (hereinafter referred to as "NIAGARA") and SITHE/INDEPENDENCE POWER PARTNERS, L.P. (hereinafter referred to as "SELLER"). WHEREAS, NIAGARA and SELLER have previously entered into an agreement (hereinafter referred to as the "AGREEMENT"), dated July 24, 1992, as amended on November 16, 1992 and supplemented by a notification from SELLER dated March 29, 2000, which provides for the purchase by NIAGARA of energy produced by an electric generating plant (hereinafter referred to as the "PLANT"), owned and operated by SELLER, and located in the Town of Scriba, County of Oswego, State of New York; and WHEREAS, SELLER and NIAGARA desire to amend certain provisions of the AGREEMENT. NOW THEREFORE, in consideration of the mutual obligations and undertakings set forth herein, the parties to this SECOND AMENDMENT covenant and agree as follows: A. AMENDMENTS. FIRST: Paragraph FIRST of the AGREEMENT is hereby deleted in its entirety and replaced with the following: "NIAGARA expressly acknowledges and agrees that SELLER has no obligation to remain a QF under this AGREEMENT, and may, in its sole discretion, choose to terminate its QF status. NIAGARA further acknowledges and agrees that, if SELLER elects to terminate its QF status, none of the rates, terms or conditions of the AGREEMENT will be modified, terminated, or otherwise affected in any respect." SECOND: Paragraph FIFTH of the AGREEMENT is hereby deleted in its entirety and replaced with the following: "Intentionally left blank." THIRD: The words "an amount of ELECTRICITY not to exceed 300 megawatts in any hourly period." in Paragraph SIXTH of the AGREEMENT are hereby deleted and replaced with the words: "an amount of ELECTRICITY not to exceed 50 megawatts in any hourly period." B. GOVERNING LAW. This SECOND AMENDMENT shall be governed by and construed in accordance with the laws of the State of New York. C. COUNTERPARTS. This SECOND AMENDMENT may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. D. EFFECTIVENESS. Except as provided herein, the AGREEMENT shall remain unchanged and in full force and effect. IN WITNESS WHEREOF the parties hereto have caused this instrument to be executed as of the day and year first above written. [SIGNATURE PAGES FOLLOW] 2 Sithe/Independence Power Partners, L.P. By: Sithe/Independence, Inc., its General Partner By: /s/ Martin B. Rosenberg -------------------------------------------- Title: Senior Vice President Date: June 28, 2001 Niagara Mohawk Power Corporation By: /s/ Edward J. Dienst ------------------------------------------- Title: Senior Vice President Date: June 28, 2001 3 EX-10.5(3) 11 a2056240zex-10_53.txt EXHIBIT 10.5.3 EXHIBIT 10.5.3 Niagara Mohawk Power Corporation Substitute Original Sheet No. 1 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 1 AMENDED AND RESTATED TRANSMISSION SERVICES AGREEMENT This AMENDED AND RESTATED TRANSMISSION SERVICES AGREEMENT (hereinafter referred to as "AGREEMENT") is made as of June 29, 2001, between NIAGARA MOHAWK POWER CORPORATION (hereinafter referred to as "NIAGARA MOHAWK") and SITHE/INDEPENDENCE POWER PARTNERS, L.P. (hereinafter referred to as the "PRODUCER"). WHEREAS, NIAGARA MOHAWK and PRODUCER have previously entered into the TRANSMISSION SERVICES AGREEMENT dated November 5, 1991, as amended on March 9, 1992 and May 11, 1994, which provides that NIAGARA MOHAWK will provide transmission services to deliver electric energy and capacity from the PRODUCTION FACILITY (as defined in Section 1.1) to Consolidated Edison Company of New York, Inc. at the Pleasant Valley Substation; and WHEREAS NIAGARA MOHAWK and PRODUCER desire to amend the TRANSMISSION SERVICES AGREEMENT further in certain respects and to restate the AGREEMENT as set forth herein, in compliance with the Federal Energy Regulatory Commission's (hereinafter referred to as "FERC") Order No. 614, 90 FERC [Paragraph] 61,352 (2000); and WHEREAS, PRODUCER owns the PRODUCTION FACILITY (as defined in Section 1.1 below), which is interconnected with NIAGARA MOHAWK's bulk power transmission system at the POINT OF RECEIPT (as defined in Section 5.1.1 below); and Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 2 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 2 WHEREAS, PRODUCER may deliver electric energy, capacity, ancillary or other services or any combination thereof under this AGREEMENT for sale to Consolidated Edison Company of New York, Inc. (hereinafter referred to as the "PURCHASER") or to another entity (hereinafter referred to as "ADDITIONAL BUYER"); and WHEREAS, NIAGARA MOHAWK is directly interconnected with the PURCHASER at the Pleasant Valley Substation (hereinafter referred to as the "POINT OF DELIVERY"); and WHEREAS, the New York Independent System Operator (hereinafter referred to as the "NYISO") provides transmission services pursuant to its Open Access Transmission Tariff (as amended, supplemented or modified and in effect from time to time, the "NYISO OATT"), and provides certain market and control area services pursuant to its Market Administration and Control Area Services Tariff (as amended, supplemented or modified and in effect from time to time, the "NYISO SERVICES TARIFF"); and WHEREAS, the New York State electricity market has been restructured: (a) to give the NYISO operational control over certain transmission facilities owned by the Members of the Transmission Owners Committee of the Energy Association of New York State (hereinafter referred to as the "MEMBER SYSTEMS"); and (b) to establish the ISO ADMINISTERED MARKETS; as defined in the NYISO OATT; and WHEREAS, PRODUCER may, in PRODUCER's sole discretion, subject to the provisions of the NYISO OATT, the NYISO SERVICES TARIFF and this AGREEMENT, as applicable, sell electric energy, capacity, ancillary or other services, or any combination thereof, Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 3 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 3 into the ISO ADMINISTERED MARKETS and/or may enter into any number of BILATERAL TRANSACTIONS (as that term is defined in the NYISO SERVICES TARIFF) with PURCHASER, any ADDITIONAL BUYER, or any other entity; and WHEREAS, PRODUCER desires to receive, and NIAGARA desires to furnish, the transmission services provided in this AGREEMENT. NOW THEREFORE, in consideration of the mutual obligations and undertakings set forth herein, the parties to this AGREEMENT covenant and agree as follows; 1. DESCRIPTION OF POWER PURCHASE AGREEMENT AND FACILITY FOR WHICH SERVICES WILL BE RENDERED 1.1 PRODUCER owns, operates, and maintains a generation facility located in Oswego County, New York (hereinafter referred to as the "PRODUCTION FACILITY"). The PRODUCTION FACILITY is capable of generating approximately 9,000,000 MWH of electric energy annually and has a nominal rated capacity of approximately 1060 MW (individually and together referred to as "ELECTRICITY"). 1.2 PRODUCER may, in its sole discretion, subject to the provisions of the NYISO OATT, the NYISO SERVICES TARIFF, and this AGREEMENT, as applicable, sell electric energy, capacity, ancillary or other services or any combination thereof to PURCHASER, any ADDITIONAL BUYER, any other entity or into the ISO ADMINISTERED MARKETS. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 4 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 4 1.3 For purposes of this AGREEMENT, the commercial operation date (the "COMMERCIAL OPERATION DATE") will have the same definition as the term "Date of Commercial Operation" in the Energy Purchase Agreement between Producer and Purchaser entered into on May 20, 1991 (hereinafter referred to as "Power Purchase Agreement"). 2. REPRESENTATIONS AND WARRANTIES OF PRODUCER 2.1 The Representations and Warranties of PRODUCER in Sections 2.2 and 2.3 are made as of November 1, 1991. 2.2 PRODUCER is a limited partnership duly organized and validly existing under the laws of the State of Delaware. PRODUCER is qualified to do business under the laws of the state of New York, is in good standing under the laws of the State of New York, has the power and authority to own its properties, to carry on its business as now being conducted, and to enter into this AGREEMENT and the transactions contemplated herein and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT, and is duly authorized to execute and deliver this AGREEMENT and consummate the transactions contemplated herein. 2.3 PRODUCER is not prohibited from entering into this AGREEMENT and discharging and performing all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT. The execution and delivery of this AGREEMENT, the consummation of the transactions contemplated herein and the fulfillment of and compliance with the provisions of this AGREEMENT will not conflict with or constitute a breach of or a Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 5 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 5 default under any of the terms, conditions or provisions of any law, rule or regulation, any order, judgment, writ, injunction, decree, determination, award or other instrument or legal requirement of any court or other agency of government, the partnership agreement of PRODUCER or any contractual limitation, corporate restriction or outstanding trust indenture, deed of trust, mortgage, loan agreement, lease, other evidence of indebtedness or any other agreement or instrument to which PRODUCER is a party or by which it or any of its property is bound and will not result in a breach of or a default under any of the foregoing. This AGREEMENT is the legal, valid and binding obligation of PRODUCER enforceable in accordance with its terms. 3. REPRESENTATIONS AND WARRANTIES OF NIAGARA MOHAWK 3.1 The Representations and Warranties of NIAGARA MOHAWK in Sections 3.2 and 3.3 are made as of November 5, 1991. 3.2 NIAGARA MOHAWK is a corporation duly organized, validly existing and qualified to do business under the laws of the State of New York, is in good standing under its certificate of incorporation and the laws of the State of New York, has the corporate authority to own its properties, to carry on its business as now being conducted, and to enter into this AGREEMENT and the transactions contemplated herein and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT, and is duly authorized to execute and deliver this AGREEMENT and consummate the transactions contemplated herein. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 6 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 6 3.3 NIAGARA MOHAWK is not prohibited from entering into this AGREEMENT and discharging and performing all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT. The execution and delivery of this AGREEMENT, the consummation of the transactions contemplated herein and the fulfillment of and compliance with the provisions of this AGREEMENT will not conflict with or constitute a breach of or a default under any of the terms, conditions or provisions of any law, rule or regulation, any order, judgment, writ, injunction, decree, determination, award or other instrument or legal requirement of any court or other agency of government, the certificate of incorporation or bylaws of NIAGARA MOHAWK or any contractual limitation, corporate restriction or outstanding trust indenture, deed of trust, mortgage, loan agreement, lease, other evidence of indebtedness or any other agreement or instrument to which NIAGARA MOHAWK is a party or by which it or any of its property is bound and will not result in a breach of or a default under any of the foregoing. This AGREEMENT is the legal, valid and binding obligation of NIAGARA MOHAWK enforceable in accordance with its terms. 4. INTERCONNECTION 4.1 The parties understand and recognize that interconnection of the PRODUCTION FACILITY with NIAGARA MOHAWK is required for NIAGARA MOHAWK to provide the transmission services hereunder. NIAGARA MOHAWK's obligation to provide transmission services hereunder is expressly contingent on the parties entering into a separate agreement providing for the interconnection of the PRODUCTION FACILITY with NIAGARA MOHAWK, (as amended, supplemented or modified, and in effect from time to time, Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 7 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 7 "Interconnection Agreement"), and the completion of such interconnection in accordance with the terms of the Interconnection Agreement. 5. ELECTRIC TRANSMISSION SERVICE TO BE RENDERED 5.1 Reserved for future use. 5.1.1 As of the COMMERCIAL OPERATION DATE, provided that PRODUCER has fulfilled all of its applicable obligations hereunder and contingent upon the completion of the interconnection in accordance with the terms of the Interconnection Agreement, NIAGARA MOHAWK shall, in accordance with GOOD UTILITY PRACTICE, provide sufficient firm transmission capacity to transmit the amounts of ELECTRICITY, up to and including the CONTRACT DEMAND specified in Schedule A, from the POINT OF RECEIPT (as defined below) to the POINT OF DELIVERY at the rate specified in Schedule B, subject to the remaining provisions of this AGREEMENT. As used herein, the words "POINT OF RECEIPT" shall mean the points of interconnection between the PRODUCTION FACILITY and NIAGARA MOHAWK's bulk power transmission system located within the Independence switchyard owned by NIAGARA MOHAWK adjacent to the PRODUCTION FACILITY at the motor operated switches commonly referred to as Switch Number 273 and Switch Number 283. ELECTRICITY shall be delivered to PURCHASER at approximately 345,000 volts, 60 Hertz, and three (3) phase. "GOOD UTILITY PRACTICE" as used in this AGREEMENT shall have the same meaning as "Good Utility Practice" as defined in the NYISO OATT and shall include all those practices, methods, and acts, that at a particular time in the exercise of reasonable \ Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 8 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 8 judgment, would have been expected to accomplish the desired result in a manner consistent with regulations, reliability, safety, environmental protection, economy and expedition. The Contract Demand shall initially be 805 MW; provided that pursuant to a capability test conducted as soon as is practicable after the COMMERCIAL OPERATION DATE, PRODUCER may revise the Contract Demand to reflect the maximum net capability of the PRODUCTION FACILITY; provided further that such revision does not increase the Contract Demand above 853 MW. Thereafter, PRODUCER may annually restate the Contract Demand to satisfy its requirements for firm transmission capacity; provided that no such revision increases the Contract Demand by more than two (2) percent above the previous year's Contract Demand ; provided, further, that in no event shall NIAGARA MOHAWK be obligated to provide firm transmission capacity in excess of 853 MW; and provided further that during the period commencing on July 2, 1999 and ending on December 31, 2005, PRODUCER agrees that it will not exercise its rights to reduce the Contract Demand below 853 MW. PRODUCER's agreement not to exercise its rights to reduce the Contract Demand below 853 MW during the period from July 2, 1999 to December 31, 2005 is based upon and made in reliance upon NIAGARA MOHAWK's representation that, as of June 29, 2001, NIAGARA MOHAWK has no non-public knowledge of any transmission expansion or other similar projects that, in NIAGARA MOHAWK's opinion, is reasonably likely to materially impact the transfer capability of the transmission interface in New York State commonly known as the Total East Interface. 5.1.2 NIAGARA MOHAWK and PRODUCER acknowledge and agree that, subject to the provisions of the NYISO OATT, as applicable, PRODUCER may obtain any Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 9 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 9 transmission service(s) from the NYISO pursuant to the NYISO OATT at any time without affecting the services provided hereunder. 5.2 Reserved for future use. 5.3 NIAGARA MOHAWK's obligation to provide PRODUCER with transmission services as described in Section 5.1.1 is subordinate to and subject to NIAGARA MOHAWK's obligations under the New York Public Service Law to serve its own retail customers, its obligations to its firm wholesale and transmission customers under agreements entered into prior to the date of this AGREEMENT and its obligations under the New York Power Pool Agreement, all as may be amended from time to time. Niagara Mohawk shall have the right, in its sole discretion, to modify the level of service under agreements entered into prior to the date of this AGREEMENT, provided that NIAGARA MOHAWK's ability to provide PRODUCER with the level of transmission services described in this AGREEMENT is not reduced in any way. In addition, NIAGARA MOHAWK shall have the right in its sole discretion to take such actions, including curtailment of services to PRODUCER under this AGREEMENT prior to the implementation of voltage reduction, or any other actions necessary to maintain reliable electric service in accordance with NIAGARA MOHAWK's operating policies and GOOD UTILITY PRACTICE. In the event of such curtailment NIAGARA MOHAWK shall not be held liable for any losses or damages which PRODUCER may incur as a result; provided such curtailment shall continue only for so long as it is reasonably necessary under NIAGARA MOHAWK's operating policies and GOOD UTILITY PRACTICE. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 10 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 10 5.4 PRODUCER shall schedule and deliver all electricity delivered pursuant to this AGREEMENT with the NYISO, pursuant to the scheduling and delivery provisions of the NYISO OATT. PRODUCER shall be subject, with respect to such deliveries, to any rates, charges and penalties properly assessed by the NYISO pursuant to the scheduling and delivery provisions of the NYISO OATT, including, without limitation, all congestion rents assessed in accordance with Section 4.3 of Attachment K of the NYISO OATT, unless the NYISO OATT is amended to make such charges inapplicable to PRODUCER, but excluding, without limitation, any and all charges associated with Ancillary Services Schedules 1-6 of the NYISO OATT and the NYPA Transmission Adjustment Charge of the NYISO OATT, unless the NYISO OATT is specifically amended subsequent to June 29, 2001 to make such charges applicable to transmission services furnished to the PRODUCER under this AGREEMENT; provided however, that PRODUCER retains its rights under the Federal Power Act to challenge and oppose any such amendments to the NYISO OATT. PRODUCER shall be responsible for the cost of the computer system and interface necessary to accommodate the scheduling function for the ELECTRICITY to be transmitted under this agreement. Such computer system and associated interface shall be installed by PRODUCER in accordance with NIAGARA MOHAWK's specifications, as provided for in ESB #756-B. 5.5 Reserved for future use. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 11 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 11 5.6 The parties expressly acknowledge and agree that PRODUCER has exercised its right to convert its transmission rights in this AGREEMENT to GRANDFATHERED TCCs (as defined in the NYISO OATT), pursuant to Section 4 of Attachment K of the NYISO OATT. 6. METERING REQUIREMENTS 6.1 Metering requirements for services provided under this AGREEMENT shall be as provided in the Interconnection Agreement. 7. DEPOSIT: PAYMENT FOR THE USE OF TRANSMISSION FACILITIES; PROGRESS REPORTS 7.1 On the earlier of either (i) the date eighteen (18) months after execution of this Agreement; or (ii) the fifth business day to occur after the date an which the funds necessary to construct, own, operate and maintain the PRODUCTION FACILITY described in Section 1.1 first become available to PRODUCER, PRODUCER shall post with NIAGARA MOHAWK a refundable, interest-bearing deposit in the form of cash or in the alternative, an irrevocable letter of credit (hereinafter referred to as an "LOC") for the amount as specified by the rate defined in Schedule D (hereinafter referred to as the "DEPOSIT"). In the event the DEPOSIT is made in cash, NIAGARA MOHAWK shall hold such cash in an interest-bearing escrow account with Marine Midland Bank, N.A., or another bank chosen by NIAGARA MOHAWK and reasonably acceptable to PRODUCER and invest it in the Certificate of Deposit or U.S. Treasury Bill of the PRODUCER's choice; provided, however, the instrument must mature on or before the scheduled COMMERCIAL OPERATION DATE of the PRODUCTION FACILITY. In the Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 12 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 12 event the DEPOSIT made is in the form of an LOC, such LOC must be from a financial institution rated at least AA and must be maintained for a term that extends ten (10) days past the scheduled date of the COMMERCIAL OPERATION DATE of the PRODUCTION FACILITY. Failure of the PRODUCER to post the DEPOSIT in accordance with this Section 7.1 shall render this AGREEMENT null and void at the option of NIAGARA MOHAWK or PRODUCER. If, after posting the DEPOSIT, PRODUCER fails to enter into a loan or credit agreement (hereinafter referred to as the "FINANCIAL CLOSING") for the financing of the construction and/or permanent financing of the PRODUCTION FACILITY with one or more financial institutions (hereinafter referred to as the "LENDERS") within the following eight (8) months, either party may terminate this AGREEMENT upon thirty days prior written notice and in such event NIAGARA MOHAWK shall retain the DEPOSIT (less interest, if any) without further obligation to PRODUCER; provided, however, that PRODUCER may extend such eight (8) month period, on a month by month basis up to a maximum of twelve (12) months, by paying NIAGARA MOHAWK on the first business day of each month following the expiration of such eight (8) month period, a nonrefundable amount equal to one-twelfth (1/12) of the rate per KW of Contract Demand as specified in Schedule D. In addition, the deadline for FINANCIAL CLOSING, shall be extended for up to twelve month-by-month periods upon a demonstration by PRODUCER to NIAGARA MOHAWK'S reasonable satisfaction that an event of force majeure (as defined in Section 20.1) has delayed the commencement of construction by at least the length of time of such extension. In the event that NIAGARA MOHAWK does not reasonably concur that such event of force majeure has occurred, no such extensions shall be granted. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 13 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 13 Provided that the PRODUCER meets the COMMERCIAL OPERATION DATE not later than forty-eight (48) months after FINANCIAL CLOSING, as such date may be extended in accordance with the provisions of the following two paragraphs or due to NIAGARA MOHAWK'S failure to complete construction of any systems upgrade facilities as may be required under the Interconnection Agreement, the DEPOSIT plus interest (if any) shall be returned to the PRODUCER within thirty (30) days from the achievement of the COMMERCIAL OPERATION DATE. In the event that PRODUCER fails to-meet the COMMERCIAL OPERATION DATE within forty-eight (48) months of the FINANCIAL CLOSING, NIAGARA MOHAWK may terminate this AGREEMENT upon thirty days prior written notice and retain the DEPOSIT (less interest, if any) without further obligation to PRODUCER; provided, however, that PRODUCER may extend such forty-eight (48) month period, on a month by month basis up to a maximum of twelve (12) months, by paying NIAGARA MOHAWK on the first business day of each month following the expiration of such forty-eight (48) month period a non-refundable amount equal to one-twelfth (1/12) the rate specified in Schedule B per kilowatt of Contract Demand. In addition, the deadline for the COMMERCIAL OPERATION DATE shall be extended for up to twelve month-by-month periods upon a demonstration by PRODUCER to NIAGARA MOHAWK'S reasonable satisfaction that an event of force majeure (as defined in Section 20.1) has delayed the COMMERCIAL OPERATION DATE by at least the length of \ Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 14 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 14 time of such extension. In the event that NIAGARA MOHAWK does not reasonably concur that such event of force majeure has occurred, no such extensions shall be granted. 7.2 For services rendered pursuant to Section 5.1.1, NIAGARA MOHAWK shall bill PRODUCER on or before the tenth (l0th) day of the month following the month in which services were rendered. PRODUCER shall pay NIAGARA MOHAWK on the first banking day common to the parties hereto following the nineteenth (19th) day of the month in which the bills are rendered. If any amount billed PRODUCER by NIAGARA MOHAWK remains unpaid for a period of sixty (60) days or more after the date due under this AGREEMENT, NIAGARA MOHAWK shall have the right upon no less than thirty (30) days' prior written notice to PRODUCER (i) to discontinue providing service to PRODUCER for nonpayment of bills and to refuse to resume provision of service so long as any part of the amount due, including interest, remains unpaid; or (ii) to terminate this AGREEMENT, if the amount due, including interest, is not paid during such thirty (30) day period. Any LENDER shall have the right, in its sole discretion and without obligation, to prevent such termination by making any such payment on PRODUCER's behalf within the relevant period. 7.3 In the event of a dispute as to the amount of any bill, PRODUCER shall notify NIAGARA MOHAWK in writing of the amount in dispute and PRODUCER shall pay to NIAGARA MOHAWK the total bill including the disputed amount. NIAGARA MOHAWK shall refund to PRODUCER, with interest at the rate of one and one-half (1.5) percent per month from the date such payment was made, any portion of the disputed amount ultimately found to be improper. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 15 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 15 7.4 Payments will be made by wire transfer to a bank specified by NIAGARA MOHAWK. Amounts overdue will be charged monthly interest at one and one-half (1.5) percent per month on the amount that is overdue calculated from the due date until the day of payment. 7.5 PRODUCER shall send NIAGARA MOHAWK complete copies of the progress reports regarding the development of the PRODUCTION FACILITY which it sends to PURCHASER at the time such material is mailed to PURCHASER. Promptly after execution of this AGREEMENT all copies of such progress reports sent to PURCHASER prior to the date of execution of this AGREEMENT shall be sent to NIAGARA MOHAWK, provided that PRODUCER may delete any and all information in such reports not relating to transmission and interconnection matters. 8. FUTURE RATE CHANGES 8.1 Nothing contained herein shall be construed as affecting in any way either NIAGARA MOHAWK's right under this rate schedule to unilaterally make application to the FERC or any other appropriate regulatory authority having jurisdiction over the transactions provided the PRODUCER hereunder, for a change in rates under Section 205 of the Federal Power Act and pursuant to FERC's Rules and Regulations promulgated thereunder, or any other applicable statute or regulations, or PRODUCER's right to challenge such application. 8.2 The PRODUCER and NIAGARA MOHAWK expressly acknowledge and agree that the firm transmission rate in the AGREEMENT shall be fixed at $1.76/kW/month for the period commencing on July 2, 1999 and ending on December 31, 2005 and that no change may Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 16 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 16 be made to this firm transmission rate during such period except as required by the FERC pursuant to the public interest standard in Section 206 of the Federal Power Act. NIAGARA MOHAWK and PRODUCER waive their rights to seek changes to the firm transmission rate in the AGREEMENT for the period described in the previous sentence pursuant to Sections 205 and 206 of the Federal Power Act; provided that nothing contained in this provision shall constitute a waiver of any of the PRODUCER's or NIAGARA MOHAWK's rights in this AGREEMENT or in the Interconnection Agreement, including under Section 205 or Section 206 of the Federal Power Act, except as expressly set forth in this sentence. 9. COMPENSATION FOR LOSSES 9.1 PRODUCER shall compensate NIAGARA MOHAWK for losses incurred by NIAGARA MOHAWK in its control area and NIAGARA MOHAWK shall compensate PRODUCER for losses avoided by NIAGARA MOHAWK in its control area as a result of NIAGARA MOHAWK's provision of transmission services hereunder. The determination of such losses and the procedure for compensation thereof shall be determined by NIAGARA MOHAWK's Power Control Department in accordance with NIAGARA MOHAWK's practices relating to other similar transactions and in accordance with GOOD UTILITY PRACTICE. 9.2 Notwithstanding the foregoing provisions in Section 9.1, effective as of September 1, 2000, and so long as transmission losses continue to be provided by the NYISO: (i) PRODUCER agrees to compensate the NYISO for transmission losses associated with transmission services provided hereunder, in accordance with Section 4.3 of Attachment K to the Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 17 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 17 NYISO OATT; and (ii) NIAGARA MOHAWK agrees not to assess PRODUCER any rate, cost, charge or any other expense for transmission losses under this AGREEMENT. 10. INDEMNIFICATION. INSURANCE, DAMAGE LIMITATION 10.1 Each party hereto respectively assumes full responsibility in connection with the transmission services provided hereunder on its side of the POINT OF RECEIPT and for the wires, apparati, devices and appurtenances used in connection therewith. Each party shall indemnify, save harmless and defend the other against all third party claims, demands, costs or expenses for loss, damage or injury to person or persons or property in any manner directly or indirectly arising from, connected with or growing out of the generation, transmission or use of energy by it on its side of the POINT OF RECEIPT or for the operation of switching equipment in connection with said delivery; provided, however, that each party shall be liable for all claims of the party's own employees arising out of any provision of the Workers' Compensation Law. 10.2 Each party agrees to maintain Workers' Compensation and Employers' Liability Insurance covering their respective employees as required by law. PRODUCER agrees to provide and maintain public liability insurance, including contractual coverage, with respect to the PRODUCTION FACILITY with one or more reputable insurance companies rated by Best's with not less than a B+ rating. The minimum limits of liability shall be: Bodily injury - $2,000,000 each occurrence Property Damage - $1,000,000 each occurrence Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 18 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 18 or a minimum combined single limit of: $2,500,000 each occurrence 10.3 Prior to the FINANCIAL CLOSING, PRODUCER shall provide NIAGARA MOHAWK with copies of Certificates of Insurance for all coverages required herein. All such Certificates shall show that the policy shall not be cancelled, nor material change made in the coverages provided thereunder until not less than thirty (30) days prior written notice has been given to the PRODUCER. Such Certificates shall show expiration dates of insurance coverages. PRODUCER shall notify NIAGARA MOHAWK immediately of any cancellation or material change in coverage. 10.4 Subject to Section 10.1 and except for any loss, damage, claim, cost, charge or expense resulting from the grossly negligent, reckless or willful misconduct of either party, its directors or members of its governing bodies, officers or employees, neither party shall be liable to the other party for incidental, punitive, special, indirect or consequential damages connected with or resulting from the performance or nonperformance of this AGREEMENT or arising from breach of this AGREEMENT. Except as provided in the foregoing sentence, each party releases the other party, its directors or members of its governing bodies, officers and employees from any such liability, claim or action arising from damage to its property due to the performance of this AGREEMENT. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 19 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 19 10.5 PRODUCER shall not execute, levy or otherwise enforce a judgment for liability under Section 10.4, including recording or effecting a judgment lien against NIAGARA MOHAWK'S directors or members of its governing bodies, officers and employees. 10.6 The provisions of this Article shall survive the termination of this AGREEMENT. 11. ASSIGNMENT; BINDING EFFECT AND GOVERNING LAW 11.1 Except as otherwise provided in this Article 11, neither party shall assign, pledge or otherwise transfer this AGREEMENT or any right or obligation under this AGREEMENT, by operation of law or otherwise, without first obtaining the other party's written consent, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, PRODUCER may, without the prior written consent of NIAGARA MOHAWK, from time to time, assign or resell to any third party ("ASSIGNEE") that is (i) an electric utility (including NIAGARA MOHAWK and any power marketer), (ii) a Federal power marketing agency, or (iii) any person generating electric energy for sale for resale, all or any portion of GRANDFATHERED TCCs assigned to PRODUCER by the NYISO; provided that PRODUCER complies with all applicable provisions of the NYISO OATT, that PRODUCER retains and pays for the transmission capacity associated with such assigned TCCs under this AGREEMENT, and that PRODUCER notifies NIAGARA MOHAWK of the scope and duration of any such assignment; and provided further that PRODUCER shall not be relieved of its obligations with respect to any of the rights assigned hereunder without the prior written consent of NIAGARA MOHAWK, which consent shall not Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 20 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 20 be unreasonably withheld or delayed. ASSIGNEE will receive, for the term of any such assignment, all of the rights under the AGREEMENT and the NYISO OATT given to PRODUCER in its capacity as holder of the TCCs in question. PRODUCER shall also have the right to assign all or any portion of PRODUCER's GRANDFATHERED TCCs through the CENTRALIZED TCC AUCTION or SECONDARY MARKETS for TCCs (as both of those terms are defined in the NYISO OATT), or any other markets made available for the sale of PRODUCER's GRANDFATHERED TCCs. The parties expressly acknowledge and agree that PRODUCER shall have all rights to the revenues from PRODUCER's exercise of its assignment of its GRANDFATHERED TCCs, and that NIAGARA MOHAWK shall not have any right or claim to any part of such revenues. 11.2 Upon thirty (30) days prior written notice to NIAGARA MOHAWK, PRODUCER may, without the consent of NIAGARA MOHAWK, assign its interests in this AGREEMENT, in whole or in part, to (a) LENDERS or any successor to such LENDERS; or (b) an entity controlling, controlled by, or under common control with PRODUCER ("Affiliate"); provided, however, that in each such case, such assignment shall not relieve PRODUCER of its obligations under this AGREEMENT, unless the assignee shall expressly assume all of PRODUCER's obligations under this AGREEMENT. If LENDERS or any successor to such LENDERS succeed to the interest of PRODUCER in this AGREEMENT by foreclosure or otherwise, NIAGARA MOHAWK shall accord such LENDERS or any successor to such LENDERS, their successors and assigns, the same rights as PRODUCER hereunder. In connection with the FINANCIAL CLOSING, NIAGARA MOHAWK agrees to execute, and deliver and to furnish a written consent to the assignment by PRODUCER of this AGREEMENT Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 21 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 21 to the LENDERS, a certificate of an authorized officer to NIAGARA MOHAWK and an opinion of counsel to NIAGARA MOHAWK, in each case in form and substance reasonably acceptable to the LENDERS and NIAGARA MOHAWK. 11.3 Any company or entity which shall succeed by purchase, merger or consolidation to the properties, substantially or entirely, of either NIAGARA MOHAWK or PRODUCER, as the case may be, shall be entitled to the rights and shall be subject to the obligations of its predecessor in title under this AGREEMENT provided that, at least thirty (30) days prior to the effective date of the proposed assignment, the assignee shall unconditionally assume, and agree to be bound by, all of the terms and conditions of this AGREEMENT, and the assignee makes certain additional representations and warranties as appropriate for assignee as contained in Article 2. 11.4 This AGREEMENT shall be governed by the laws of the State of New York. 12. EXECUTION IN COUNTERPARTS 12.1 This AGREEMENT may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 13. WAIVER 13.1 No delay or omission in the exercise of any right under this AGREEMENT shall impair any such right or shall be taken, construed or considered as a waiver or relinquishment thereof, but any such right may be exercised from time to time as often as may be deemed Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 22 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 22 expedient. In the event that any agreement or covenant herein shall be breached and the breach thereafter waived, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. The rights provided herein are cumulative and exclusive of any remedies provided by law. 14. COMPLETE AGREEMENT 14.1 Except as provided in Articles 4, 7 and 8, this AGREEMENT is exclusive and contains all of the terms of the agreement between the parties and no change or variation in this AGREEMENT may be made except in express terms and by an instrument in writing signed by the parties hereto. 14.2 Subject to FERC acceptance as provided in Section 17.2, if any provision hereof is invalid or unenforceable in any jurisdiction, to the fullest extent permitted by law, the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be construed in order to carry out the intentions of the parties as nearly as possible. 15. DISPUTES 15.1 In the event of any dispute under this AGREEMENT, either party may make application to an appropriate administrative or judicial authority or body for relief. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 23 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 23 16. NOTICES 16.1 All written notifications pursuant to this AGREEMENT shall be in writing and shall be personally delivered or mailed by certified or registered first class mail, return receipt requested, as follows: To NIAGARA MOHAWK To PRODUCER: MANAGER-TRANSMISSION CONTRACTS General Manager NIAGARA MOHAWK POWER CORPORATION Sithe/Independence Power 300 Erie Boulevard West Partners, L.P. Syracuse, New York 13202 c/o Sithe/Independence, Inc. P.O. Box 1046 76 Independence Way Oswego, New York 13126 and Sithe Energies, Inc. 335 Madison Ave. 28th Floor New York, New York 10017 Attn: General Counsel Either party may change its address for notices by notice to the other in the manner provided above. 17. TERM OF AGREEMENT 17.1 NIAGARA MOHAWK shall file this AGREEMENT for approval with the FERC under Section 205 of the Federal Power Act and pursuant to the FERC's Rules and Regulations promulgated thereunder. NIAGARA MOHAWK shall file this AGREEMENT for approval with the FERC within twenty (20) days of receipt of the executed AGREEMENT from PRODUCER. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 24 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 24 All filing fees for the initial filing of this AGREEMENT and for any subsequent filings with FERC or other regulatory or judicial authorities for the approval or effectiveness of this AGREEMENT shall be paid by PRODUCER. NIAGARA MOHAWK shall pay any filing fees in connection with any other filing by it including any filing under Article 8 hereof. 17.2 This AGREEMENT shall not be effective until it has been accepted or approved by FERC, whichever occurs first. Upon such effectiveness, this AGREEMENT shall continue for a period of twenty (20) years from the COMMERCIAL OPERATION DATE of the PRODUCTION FACILITY. In the event FERC should initially permit this AGREEMENT to become effective subject to further proceedings and pursuant to those proceedings FERC does not accept or materially modifies this AGREEMENT, the parties shall modify this AGREEMENT to carry out their original intentions as nearly as possible. 17.3 PRODUCER shall notify NIAGARA MOHAWK in writing thirty (30) days prior to the anticipated date of initial operation of the PRODUCTION FACILITY. PRODUCER shall then confirm the COMMERCIAL OPERATION DATE within ten (10) days after its actual occurrence. 17.4 If (i) the Power Purchase Agreement should terminate prior to the expiration of this AGREEMENT or (ii) for any other reason, PRODUCER is unable to continue development or operation of the PRODUCTION FACILITY, PRODUCER may terminate this AGREEMENT effective thirty (30) days after written notice to NIAGARA MOHAWK without further obligation to NIAGARA MOHAWK except as set forth in Section 17.5 below. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 25 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 25 17.5 Applicable provisions of this AGREEMENT shall continue in effect after termination to the extent necessary to provide for final billings and adjustments and as may be otherwise required to carry out the intent of the parties as expressed in this AGREEMENT. 18. DEFAULT OR BREACH OF CONTRACT 18.1 Except as otherwise provided in Sections 7.1 and 7.2, in the event of a material default or breach of any provision of this AGREEMENT, where such default or breach shall have continued for and not been cured within sixty (60) days after receipt of a written notice from the non-breaching party specifying in reasonable detail the nature of such default or breach, the non-breaching party may by written notice terminate the AGREEMENT at the end of the next succeeding calendar month; provided however, that if such default or breach cannot be reasonably cured within such sixty (60) day period, the breaching party shall be entitled to an additional period of time to cure the breach, as may be reasonable under the circumstances; provided that the breaching party commences efforts to cure within the initial sixty (60) day period and diligently pursues cure thereafter. Any LENDER shall have the right, in its sole discretion and without obligation, to prevent such termination by curing any such default or breach on PRODUCER'S behalf within the relevant period. If the AGREEMENT is terminated, NIAGARA MOHAWK shall give the FERC notice of such termination as is required by regulation. 18.2 Termination of this AGREEMENT for breach or default shall not relieve the breaching party of any of its liabilities and obligations hereunder, and the non-breaching party may take whatever judicial or administrative actions as appear necessary or desirable to enforce Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 26 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 26 its rights hereunder. The rights specified herein shall be in addition to all other remedies available to NIAGARA MOHAWK or the PRODUCER, either at law or in equity, for default or breach of any provision of this AGREEMENT. 19. RELATIONSHIP OF PARTIES 19.1 Nothing contained in this AGREEMENT shall be construed as causing PRODUCER and NIAGARA MOHAWK to be partners, joint venturers, employer and employee or principal and agent. Neither party shall have any authority to create or assume in the other party's name or on its behalf any obligation, express or implied, or to act or purport to act as the other party's agent or legally empowered representative for any purpose whatsoever. Neither party shall be liable to any third party in any way for any engagement, obligation, commitment, contract, representative or for any negligent act or omission to act of the other party except as expressly provided for herein. 20. FORCE MAJEURE 20.1 Except as provided in Section 7.1, neither party shall be considered to be in default or breach hereunder, and each party shall be excused from performance hereunder, if and to the extent that it shall be delayed in or prevented from performing or carrying out any provision of this AGREEMENT by reasons of or through storm, flood, lightning strikes, earthquake, fire, ice, epidemic, war, invasion, riot, civil disturbance, sabotage, explosion, insurrection, military or usurped power, strikes, stoppage of labor, labor dispute, failure of contractors or suppliers of material, action of any court or public authority, or any civil or Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 27 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 27 military authority de facto or de jure, change in law, act of God or the public enemy, or any other cause reasonably beyond such party's control including, without limitation, disconnection or limited operation of the PRODUCTION FACILITY, the INTERCONNECTION FACILITY or NIAGARA MOHAWK's electric system due to failure of facilities or unscheduled repairs/maintenance. The party claiming force majeure shall use due diligence to resume the provision of service hereunder as soon as practicable. Neither party shall be liable to the other party for or on account of any loss, damage, injury or expense, including but not limited to incidental, punitive, special, indirect or consequential damages resulting from or arising out of such delay or inability to perform. 21. HEADINGS 21.1 Article headings in this AGREEMENT are included herein for convenience of reference only and shall not constitute a part of this AGREEMENT for any other purpose. IN WITNESS WHEREOF the parties hereto have caused this instrument to be executed as of the day and year first above written. [SIGNATURE PAGES FOLLOW] Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on:June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 27 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 27 SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: Sithe/Independence, Inc., its General Partner By: /s/ Martin B. Rosenberg -------------------------------------------- Title: Senior Vice President Date: June 29, 2001 Niagara Mohawk Power Corporation By: /s/ Edward J. Dienst -------------------------------------------- Title: Senior Vice President Date: June 29, 2001 Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 28 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 28 SCHEDULE A NIAGARA MOHAWK POWER CORPORATION FIRM TRANSACTIONS 853 MW of firm power (CONTRACT DEMAND). Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 29 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 29 SCHEDULE B NIAGARA MOHAWK POWER CORPORATION RATE FOR FIRM TRANSMISSION SERVICE EFFECTIVE UPON SYNCHRONIZATION TO NIAGARA MOHAWK'S ELECTRIC SYSTEM For Firm Contract Demand Deliveries $ 1.76/kw/Mo. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 30 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 30 SCHEDULE C Reserved for future use. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 31 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 31 SCHEDULE D NIAGARA MOHAWK POWER CORPORATION RATE FOR DEPOSIT NIAGARA MOHAWK's rate for the deposit to be posted as payment for the use of transmission facilities. $5.00/kw of CONTRACT DEMAND Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 32-52 Rate Schedule FERC No. 178 Superceding Original Sheet Nos. 32-52 RESERVED FOR FUTURE USE Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
EX-10.5(4) 12 a2056240zex-10_54.txt EXHIBIT 10.5.4 Exhibit 10.5.4 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Sithe/Independence Power Partners, L.P. ) ) v. ) Docket Nos. EL99-65-000 ) EL95-38-000 Niagara Mohawk Power Corporation ) (not consolidated) SETTLEMENT AGREEMENT (JUNE 28, 2001) SECTION I. INTRODUCTION 1. Niagara Mohawk Power Corporation ("Niagara Mohawk") is an electric utility in New York State providing transmission services in interstate commerce subject to the Commission's jurisdiction under the Federal Power Act ("the FPA"). 2. Sithe/Independence Power Partners, L.P. ("Sithe") is the owner and operator of a 1060 MW gas-fired electric generating facility located in Scriba, New York ("the Independence Plant"). Prior to September 1, 2000, Sithe sold the majority of the electricity produced at its Independence Plant to the Consolidated Edison Company of New York, Inc. ("Con Edison"). 3. Sithe and Niagara Mohawk are parties to a transmission service agreement with Niagara Mohawk dated November 5, 1991 (as amended, the "TSA") and an interconnection agreement dated March 9, 1992 (as amended, the "IA"). The TSA was initially accepted for filing by the Commission on February 5, 1992, as Niagara Mohawk's Rate Schedule No. 178. The IA was initially accepted for filing by the Commission on October 29, 1993, as Niagara Mohawk's Rate Schedule No. 189. SECTION II. PROCEDURAL HISTORY 1. In March of 1995, Sithe filed a complaint against Niagara Mohawk under Section 206 of the FPA, which complaint was assigned Docket No. EL95-38-000 by the Commission. In that complaint, Sithe claimed that Niagara Mohawk's methodology for calculating transmission losses under the TSA was unjust, unreasonable and unduly discriminatory. On May 10, 1995, Niagara Mohawk filed an answer to Sithe's complaint, denying Sithe's claims that Niagara Mohawk was calculating transmission losses under the TSA pursuant to a methodology that was unjust, unreasonable or unduly discriminatory. On September 16, 1996, the Commission issued an order denying Sithe's complaint in SITHE/INDEPENDENCE POWER PARTNERS, L.P. V. NIAGARA MOHAWK POWER CORP., 76 FERC [Paragraph] 61,285 (1996). The Commission denied rehearing of the September 16, 1996 order in SITHE/INDEPENDENCE POWER PARTNERS, L.P. V. NIAGARA MOHAWK POWER CORP., 81 FERC [Paragraph] 61,071 (1997). 2. On December 16, 1997, Sithe petitioned the United States Court of Appeals for the District of Columbia Circuit ("Court") for review of the Commission's two orders. On January 29, 1999, the Court issued an opinion granting Sithe's petition for review and remanding the proceeding to the Commission. SITHE/INDEPENDENCE POWER PARTNERS V. FEDERAL ENERGY REGULATORY COMM'N, 165 F.3d 944, 949 (D.C. Cir. 1999). On April 30, 1999, Sithe filed a Motion for Further Proceedings on Remand in Docket No. EL95-38-000. On May 17, 1999, Niagara Mohawk filed an answer to Sithe's Motion, requesting the Commission to reaffirm its prior orders denying Sithe's Complaint. This Settlement 2 Agreement ("Settlement") fully resolves the issues raised by Sithe's complaint in Docket No. EL95-38-000. 3. On May 3, 1999, Sithe filed another complaint against Niagara Mohawk under Section 206 of the FPA. This second complaint ("the Complaint") was assigned Docket No. EL99-65-000 by the Commission. This Settlement also fully resolves the issues raised in this Complaint. 4. In the Complaint, Sithe claimed that both the transmission rates established in Rate Schedule No. 178 and loss rates contained in that Rate Schedule were unjust and unreasonable. Sithe also sought a refund or reduction in future rates of approximately $63 million for certain expenditures made by Sithe for facilities constructed by Sithe and transferred to Niagara Mohawk or constructed by Niagara Mohawk and paid for by Sithe. Sithe requested this refund or reduction in future rates on the ground that the facilities to which those payments related were allegedly improvements to Niagara Mohawk's transmission system rather than the kind of generator leads or interconnection facilities which could be charged to Sithe under applicable Commission pricing policies. In addition, Sithe also sought a variety of changes to the provisions of both the TSA and the IA. In each sentence of this paragraph, the relief sought by Sithe is as more particularly described in the Complaint. 5. On June 16, 1999, Niagara Mohawk filed its Answer to the Complaint. In its Answer, Niagara Mohawk contended that the transmission and loss rates established in the TSA were in all respects just and reasonable. Niagara Mohawk also denied Sithe's claim that Niagara Mohawk had required Sithe to pay for any upgrades to Niagara 3 Mohawk's transmission system in violation of Commission pricing policies and opposed the changes to the provisions of the TSA and the IA requested by Sithe. 6. On July 1, 1999, Sithe filed a Response to Niagara Mohawk's Answer to the Complaint. 7. On September 27, 2000, the Commission issued its Order on Complaint Establishing Hearing and Settlement Judge Procedures. NIAGARA MOHAWK POWER CORPORATION, 97 FERC [Paragraph] 61,258 (2000) ("September 27 Order"). In the September 27 Order, the Commission set for hearing Sithe's challenges to the transmission rate and loss rates contained in the TSA and Sithe's request for a refund of approximately $63 million for transmission facilities provided to Niagara Mohawk or constructed by Niagara Mohawk at Sithe's expense. 8. On October 27, 2000, Niagara Mohawk filed an Application for Rehearing of the portion of the September 27 Order setting for hearing Sithe's claim for a refund of approximately $63 million for transmission facilities provided to Niagara Mohawk by Sithe or constructed by Niagara Mohawk at Sithe's expense. On November 13, 2000, Sithe filed an Answer to this rehearing request. By order dated November 15, 2000, the Commission granted rehearing for the purpose of further consideration of the issues raised in Niagara Mohawk's rehearing request. 9. By order dated October 4, 2000, the Commission's Chief Administrative Law Judge assigned the Honorable Carmen A. Cintron to act as Settlement Judge in these proceedings. A settlement conference was held at the Commission's offices on November 14, 2000 and numerous subsequent meetings and telephone conversations have been conducted between the parties and with Judge Cintron. These negotiations 4 have resulted in this Settlement, which resolves all issues in Docket Nos. EL99-65-000 and EL95-38-000. SECTION III. TERMS OF THE SETTLEMENT 1. Niagara Mohawk and Sithe (collectively referred to herein as "the Sponsoring Parties") have agreed to this Settlement resolving all issues in Docket Nos. EL99-65-000 and EL95-38-000. 2. Sithe has previously consented in Docket Nos. ER97-1523-011, ET AL., to the application of the marginal loss provisions of the NYISO OATT to service received by Sithe under the TSA after August 31, 2000. The Sponsoring Parties stipulate and agree that: (a) as full compensation to Sithe for claims by Sithe for overcharges for transmission losses during the period from July 2, 1999 to November 17, 1999, Niagara Mohawk has paid Sithe a lump-sum payment in an amount equal to $2,300,000.00; and (b) Niagara Mohawk made this payment to Sithe on March 2, 2001. The Sponsoring Parties agree that issues relating to transmission losses during the period from November 18, 1999 to August 31, 2000 shall be finally determined in Docket Nos. ER97-1523-011, ET AL. 3. The Sponsoring Parties stipulate and agree that the TSA will be amended and restated as provided in Attachment A to this Settlement to provide that the currently effective firm transmission rate of $1.76/kW/month and the currently effective Contract Demand of 853 MW shall be fixed for a period commencing on July 2, 1999 and ending December 31, 2005, and to further provide that no change may be made to the transmission rate during this period except as required by the Commission pursuant to the public interest standard of Section 206 of the FPA. To this end, Niagara Mohawk and 5 Sithe each waive their rights to seek changes to the firm transmission rate established by this Settlement pursuant to Sections 205 and 206 of the FPA during this period; provided however that nothing in this Settlement shall constitute a waiver of any of the Sponsoring Parties' rights under the TSA or the IA, including under Sections 205 or 206 of the FPA, except as expressly set forth in this sentence and in Sections 5.1.1 and 8.2 of the TSA. 4. In order to settle Sithe's interconnection and transmission upgrade claims in Docket No. EL99-65-000: (a) Niagara shall pay to Sithe an amount equal to $28,112,917.00 ("Purchased Facilities Payment") to purchase the facilities identified in Attachment C to this Settlement ("Purchased Facilities"); (b) The Sponsoring Parties acknowledge and agree that, as of the date of the execution of this Settlement, the Purchased Facilities are transmission upgrade facilities that are integrated with the Niagara Mohawk transmission system; (c) The Sponsoring Parties agree that the Purchased Facilities Payment is intended to represent the full fair-market value, as determined by the Sponsoring Parties, of the Purchased Facilities as of the date of this Settlement, and that, accordingly, Niagara Mohawk believes (and will use its best efforts, consistent with its obligations under federal and state law, not to take any position inconsistent therewith) that neither Sithe's original payment for the Purchased Facilities nor the Purchased Facilities Payment will give rise to federal or state tax liability to Niagara Mohawk; (d) The Purchased Facilities Payment shall be made in two lump-sum payments to Sithe, and Commission acceptance or approval of this Settlement shall constitute authorization to Niagara Mohawk to reflect this payment on its books as a capital payment appropriately made for transmission facilities with a fair market value of $28,112,917.00; and (e) Niagara Mohawk has already paid Sithe $15,075,000.00 of the 6 Purchased Facilities Payment, on March 2, 2001, and shall pay to Sithe, by no later than August 1, 2001, the remaining $13,037,917.00 of the Purchased Facilities Payment (the "Remaining Portion"). 5. The Sponsoring Parties stipulate and agree that it is appropriate to assign directly to Sithe those costs already incurred by Sithe prior to the date of this Settlement, for the facilities identified in Attachment D to this Settlement (the "Other Facilities"). Sithe agrees to waive its right to make filings at the Commission under Section 206 of the Federal Power Act to: (i) seek reimbursement from Niagara Mohawk for all, or any part of, the costs and/or expenses already incurred by Sithe prior to the date of this Settlement for the specific facilities and operation and maintenance prepayments identified in Attachment D; and (ii) pursue the specific transmission losses claims raised by Sithe in Docket No. EL95-38-000, subject to Sithe's reservation of rights set forth in Section III, Paragraph 2, above. The provisions of this Paragraph 5 shall not hereafter be modified except as required by the Commission pursuant to the public interest standard of Section 206 of the FPA. 6. In addition to the foregoing, the Sponsoring Parties have agreed to make certain modifications to the TSA and IA to: (i) implement this Settlement; (ii) reflect the NYISO's operation and control of the New York Control Area and to reflect the existence of the NYISO markets and its market rules; and (iii) comply with the Commission's Order No. 614, 90 FERC [Paragraph] 61,352 (2000). As noted in Paragraph 3 above, the amended and restated TSA is included as Attachment A to the Settlement. The amended and restated IA is included as Attachment B to the Settlement. Acceptance 7 or approval of this Settlement shall constitute acceptance or approval by the Commission of these amendments to the TSA and the IA. 7. The Sponsoring Parties shall retain any rights they may have to pursue all issues related to: (a) the proposal of Niagara Mohawk and the other Member Systems in Docket Nos. ER97-1523-011, ET AL., to impose marginal losses on service under the TSA and the pursuit of the transmission losses issues and requests for relief related thereto raised by Sithe in that proceeding; and (b) all claims with respect to service rendered under the TSA after December 31, 2005. 8. If the FERC does not accept this Settlement in its entirety or orders changes to this Settlement that are unacceptable to either of the Sponsoring Parties, then: (a) this Settlement shall terminate, be null and void and shall have no binding effect under applicable law; (b) Sithe shall return the payments discussed in Section III, Paragraphs 2 and 4 of this Settlement to Niagara Mohawk within five (5) business days of the date of any such final Commission order, with interest calculated in accordance with the interest rate set forth in the Commission's regulations (calculated from the date that Sithe received the payments to the date that Sithe returned the payments to Niagara Mohawk); and (c) the Sponsoring Parties shall use good faith efforts to reach a mutually agreeable settlement with the same economic impact and legal effect on the Sponsoring Parties as this Settlement. SECTION IV. OTHER PROVISIONS 1. The Sponsoring Parties agree to take all reasonable action to support this Settlement and its implementation before the Commission. 8 2. The Sponsoring Parties have both participated in the drafting of this Settlement and, therefore, no rule of construction should apply that would interpret this document more favorably to either Sponsoring Party. 3. The rights conferred and obligations imposed on either Sponsoring Party by this Settlement shall inure to the benefit of or be binding on that Party's successors in interest or assignees as if each such successor or assignee was itself a Sponsoring Party. 4. This Settlement is made upon the express understanding that it constitutes a negotiated settlement and no person or Sponsoring Party shall be deemed to have approved, accepted, agreed to or otherwise consented to any ratemaking or tariff principle or methodology underlying or supposed to underlie any of the provisions herein. This Settlement shall not be deemed to have established a "settled practice," as that term is used in PUBLIC SERVICE COMM'N OF NEW YORK V. FERC, 642 F.2d 1335 (D.C. Cir. 1980), CERT. DENIED, 454 U.S. 879 (1981). The making of this Settlement shall not be deemed in any respect to constitute an admission by either Sponsoring Party with respect to any allegation or contention in this proceeding. 5. The discussions that have produced this Settlement have been conducted on the explicit understanding, pursuant to Rule 602(e) of the Commission's Rules of Practice and Procedure, 18 C.F.R. Section 602(e) (2000), that neither this Settlement, the accompanying Explanatory Statement, nor any comment on this Settlement, are admissible in evidence against any participant, except in any proceeding to enforce the provisions of the Settlement, and on the further explicit understanding that any discussions among the Sponsoring Parties with respect to this Settlement prior to the execution and filing thereof shall not be subject to discovery or admissible in evidence; 9 provided however that, notwithstanding the foregoing, the provisions of Section III, Paragraph 4 of this Settlement shall be admissible in evidence and binding on the Sponsoring Parties in any future proceedings in which Niagara Mohawk's transmission rates or the Transmission Service Charge for withdrawals to serve load in Niagara Mohawk's Transmission District (as those terms are defined in the NYISO OATT) or other similar charges for the recovery of Niagara Mohawk's transmission revenue requirements are at issue ("Transmission Rate Proceeding"), as long as Niagara Mohawk is not seeking to assign such charges directly to Sithe in the Transmission Rate Proceeding. At Niagara Mohawk's reasonable request, Sithe shall provide supporting evidence in the form of testimony or affidavit(s) in such a Transmission Rate Proceeding. 6. This Settlement constitutes a full settlement with respect to Docket Nos. EL99-65-000 and EL95-38-000, and supersedes any and all prior or contemporaneous representations, agreements, instruments and understandings between the participants, whether written or oral, relating to the matters addressed herein. There are no other oral understandings, terms or conditions of this Settlement, and none of the participants has relied upon any such representation, express or implied in making this Settlement. 7. The Commission is hereby requested to grant such waivers of its regulations as may be necessary to effectuate all of the provisions of this Settlement. 8. Any number of counterparts of this Settlement may be executed, and each shall have the same force and effect as an original instrument, as if each of the Sponsoring Parties to all the counterparts had signed the same instrument. 10 The undersigned party to this proceeding, by its signature, supports this Settlement Agreement. NIAGARA MOHAWK POWER CORPORATION By: /s/ Edward J. Dienst ----------------------------------- Dated: June 28, 2001 11 The undersigned party to this proceeding, by its signature, supports this Settlement Agreement. SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: Sithe/Independence, Inc., its General Partner By: /s/ Martin B. Rosenberg ---------------------------------------------- Dated: June 28, 2001 12 ATTACHMENT C PURCHASED FACILITIES PAYMENT The Purchased Facilities Payment of $28,112,917.00 shall be in exchange for the facilities that consist of the 345 kV Transmission Circuit from the Independence Substation to the Clay Substation (Line #26). The facilities and costs related to the facilities listed on Attachment D are excluded from the Purchased Facilities Payment. 13 ATTACHMENT D The following facilities are excluded from the Purchased Facilities Payment: 1. Independence 345 kV Substation; 2. Independence Plant Power System Stabilizer; 3. Operation and Maintenance Pre-Payment to Niagara; 4. Sithe's capitalized interest during construction; 5. Niagara System Improvements for Adding Scriba to Clay 345 kV Circuit; 6. The 345 kV Transmission Circuit from the Scriba Substation to the Independence Substation (Line #25); and 7. Interest on Items 1-6 above. 14 EX-10.6(5) 13 a2056240zex-10_65.txt EXHIBIT 10.6.5 EXHIBIT 10.6.5 Niagara Mohawk Power Corporation Substitute Original Sheet No. 1 Rate Schedule FERC No. 189 Superceding Original Sheet No. 1 AMENDED AND RESTATED INTERCONNECTION AGREEMENT This AMENDED AND RESTATED INTERCONNECTION AGREEMENT (hereinafter referred to as the "AGREEMENT") is made as of June 29, 2001, between NIAGARA MOHAWK POWER CORPORATION (hereinafter referred to as "NIAGARA MOHAWK") and SITHE/INDEPENDENCE POWER PARTNERS, L.P., (hereinafter referred to as the "PRODUCER"). WHEREAS, NIAGARA MOHAWK and PRODUCER have previously entered into the INTERCONNECTION AGREEMENT dated March 9, 1992, as amended on July 20, 1992 and November 17, 1992, which provides for the interconnection of the PRODUCTION FACILITY (as defined below) with NIAGARA MOHAWK's electric transmission system; and WHEREAS NIAGARA MOHAWK and PRODUCER desire to amend the INTERCONNECTION AGREEMENT further in certain respects and to restate the AGREEMENT as set forth herein, in compliance with the Federal Energy Regulatory Commission's (hereinafter referred to as "FERC") Order No. 614, 90 FERC [Paragraph] 61,352 (2000); and WHEREAS, PRODUCER owns the PRODUCTION FACILITY (as defined in Section 1.1 of the Amended and Restated Transmission Services Agreement between the parties, dated June 29, 2001 (as amended, supplemented or modified and in effect from time to time, "Transmission Services Agreement")), which is interconnected with NIAGARA MOHAWK's bulk power transmission system at the POINT OF RECEIPT (as defined in Section 1.2 below); and Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 2 Rate Schedule FERC No. 189 Superceding Original Sheet No. 2 WHEREAS, the New York State electricity market has been restructured: (a) to give the New York Independent System Operator, Inc. (hereinafter referred to as "NYISO") operational control over certain transmission facilities owned by the Members of the Transmission Owners Committee of the Energy Association of New York State (hereinafter referred to as the "MEMBER SYSTEMS"); and (b) to establish the ISO ADMINISTERED MARKETS (as defined in the New York Independent System Operator Market Administration and Control Area Services Tariff (as amended, supplemented or modified and in effect from time to time, the "NYISO SERVICES TARIFF")); and WHEREAS, the NYISO also provides transmission services to customers in New York State pursuant to the provisions of its Open Access Transmission Tariff, as amended, supplemented, or modified and in effect from time to time (the "NYISO OATT"); and WHEREAS, PRODUCER may, in PRODUCER's sole discretion, subject to the provisions of the NYISO OATT and the NYISO SERVICES TARIFF, as applicable, sell electric energy, capacity or other services into the ISO ADMINISTERED MARKETS and/or may enter into any number of BILATERAL TRANSACTIONS (as that term is defined in the NYISO SERVICES TARIFF); and WHEREAS, PRODUCER and NIAGARA MOHAWK have entered into the Transmission Services Agreement, which provides that NIAGARA MOHAWK will provide transmission services to deliver electric energy and capacity from the PRODUCTION FACILITY to the Pleasant Valley Substation; and WHEREAS, PRODUCER desires to receive, and NIAGARA desires to furnish, the interconnection services provided in this AGREEMENT. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 3 Rate Schedule FERC No. 189 Superceding Original Sheet No. 3 NOW THEREFORE, in consideration of the mutual obligations and undertakings set forth herein, the parties to this AGREEMENT covenant and agree as follows: 1. AGREEMENT TO INTERCONNECT; DESCRIPTION OF INTERCONNECTION FACILITY 1.1 NIAGARA MOHAWK and PRODUCER agree to retain the existing interconnection between the PRODUCTION FACILITY and NIAGARA MOHAWK's existing transmission system (hereinafter "TRANSMISSION SYSTEM") in accordance with the terms and conditions contained herein. 1.2 The TRANSMISSION SYSTEM and PRODUCTION FACILITY are interconnected within the Independence Switchyard owned by NIAGARA MOHAWK at the motor-operated switches commonly referred to as Switch Number 273 and Switch Number 283 (collectively, the "POINT OF RECEIPT"). For purposes of this AGREEMENT, the term "INTERCONNECTION FACILITY" includes, as detailed in Schedule A and Schedule B, the Independence 345kV Switchyard, the 345kV line from Independence to Scriba, the new two breaker bay at Scriba, the new 345kV line from Independence to Clay and the new two breaker bay at Clay. PRODUCER and NIAGARA MOHAWK stipulate and agree that the facilities on NIAGARA MOHAWK's side of the POINT OF RECEIPT are operated and controlled by the NYISO and that PRODUCER's delivery of electricity to the POINT OF RECEIPT constitutes delivery of such electricity to the NYISO for purposes of service under the NYISO OATT, or for any sales by PRODUCER of electricity, capacity, ancillary services or any other services under the NYISO SERVICES TARIFF. The parties further stipulate and agree that PRODUCER shall not be required to purchase any additional services from NIAGARA MOHAWK in connection with transmission service under the NYISO OATT, or for any sales by PRODUCER of electricity, capacity, ancillary services or any other services under the NYISO SERVICES Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 4 Rate Schedule FERC No. 189 Superceding Original Sheet No. 4 TARIFF, so long as the NYISO continues to operate and control the transmission facilities on NIAGARA MOHAWK's side of the POINT OF RECEIPT. In accordance with Article 11, PRODUCER shall be responsible for all of the reasonable out-of-pocket costs and expenses of NIAGARA MOHAWK in connection with the operation and maintenance of the INTERCONNECTION FACILITY. 1.3 Electricity transferred to the TRANSMISSION SYSTEM shall be measured by electric watt-hour meters of a type approved by the Public Service Commission of the State of New York. If the meters are located at a point other than the POINT OF RECEIPT, the readings will be adjusted for losses between the metering location and the POINT OF RECEIPT. These metering facilities will be installed, owned and maintained by NIAGARA MOHAWK and shall be sealed by NIAGARA MOHAWK, with the seal broken only upon occasion when the meters are to be inspected, tested or adjusted and representatives of both NIAGARA MOHAWK and PRODUCER are present. The meter and installation costs shall be borne by PRODUCER. The meters shall be maintained in accordance with the rules set forth in 16 NYCRR Part 92 and in conformance with ESB #756-B, both of which are incorporated herein by reference. NIAGARA MOHAWK will guarantee the installation of any meter and its accuracy for a period of one year from the date that said meter is installed. Any maintenance, repair or replacement required during the initial year for any such meter will be at the expense of NIAGARA MOHAWK. In the event that any meter is found to be inaccurate after the initial year, NIAGARA MOHAWK will repair or replace the same as soon as possible at the expense of PRODUCER. Each party shall have the right at all reasonable times, upon giving not less than five (5) days notice to the other party for the purpose of permitting the other party to be present at the inspection, to inspect, and test said meters and, if found defective, NIAGARA MOHAWK Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 5 Rate Schedule FERC No. 189 Superceding Original Sheet No. 5 shall adjust, repair or replace the same at the expense (after the initial year) of PRODUCER. Any test or inspection requested by a party shall be at the expense of the requesting party. If a meter fails to register, or if the measurement made by a meter is found to be inaccurate by more than the limits defined in 16 NYCRR Part 92, then an adjustment shall be made correcting all measurements made by the inaccurate or defective meter for (a) the actual period during which inaccurate measurements were made, if that period can be determined to the satisfaction of the parties; or (b) if the actual period cannot be determined to the mutual satisfaction of the parties, one-half of the period from the date of the last previous test of the meter. PRODUCER may elect to install its own metering equipment in addition to NIAGARA MOHAWK's metering equipment. Such metering equipment shall meet the requirements of 16 NYCRR Part 92. Should any metering equipment installed by NIAGARA MOHAWK fail to register during the term of this AGREEMENT, the parties shall use PRODUCER's metering equipment, if installed, to determine the amount of electricity delivered to the TRANSMISSION SYSTEM. On a day on which neither NIAGARA MOHAWK's nor PRODUCER's metering equipment is in service, the quantity of electricity delivered shall be determined in such manner as the parties shall agree. The duly authorized agent or agents of NIAGARA MOHAWK shall, at all reasonable business hours, upon three (3) days written notice, have free access to the premises of PRODUCER for the purpose of inspecting the records of electricity generated by PRODUCER and delivered to the POINT OF RECEIPT. 1.4 PRODUCER agrees that the installation of the electrical connections and the operation of the PRODUCTION FACILITY must meet or exceed the requirements of NIAGARA MOHAWK's Electric System Bulletin No. 756-B, as well as any Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 6 Rate Schedule FERC No. 189 Superceding Original Sheet No. 6 other pertinent NIAGARA MOHAWK bulletins. The voltage control requirements for the PRODUCTION FACILITY are detailed in Schedule B. 2. REPRESENTATIONS AND WARRANTIES OF PARTIES 2.1 The Representations and Warranties of the Parties in Sections 2.2 through 2.6 are made as of March 3, 1992 for PRODUCER and March 9, 1992 for NIAGARA MOHAWK. 2.2 PRODUCER is a limited partnership duly organized and validly existing under the laws of the State of Delaware. PRODUCER is qualified to do business under the laws of the State of New York, is in good standing under the laws of the State of New York, has the power and authority to own its properties, to carry on its business as now being conducted, and to enter into this AGREEMENT and the transactions contemplated herein and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT, and is duly authorized to execute and deliver this AGREEMENT and consummate the transactions contemplated herein. 2.3 PRODUCER is not prohibited from entering into this AGREEMENT and discharging and performing all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT. The execution and delivery of this AGREEMENT, the consummation of the transactions contemplated herein and the fulfillment of and compliance with the provisions of this AGREEMENT will not conflict with or constitute a breach of or a default under any of the terms, conditions or provisions of any law, rule or regulation, any order, judgment, writ, injunction, decree, determination, award or other instrument or legal requirement of any court or other agency of government, the partnership agreement of PRODUCER or any contractual limitation, corporate restriction or outstanding trust Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 7 Rate Schedule FERC No. 189 Superceding Original Sheet No. 7 indenture, deed of trust, mortgage, loan agreement, lease, other evidence of indebtedness or any other agreement or instrument to which PRODUCER is a party or by which it or any of its property is bound and will not result in a breach of or a default under any of the foregoing. This AGREEMENT is the legal, valid and binding obligation of PRODUCER enforceable in accordance with its terms. 2.4 With respect to the PRODUCTION FACILITY, PRODUCER is a "qualifying cogenerator" as defined in Section 3 of the Federal Power Act, as amended by Section 201 of the Public Utilities Regulatory Policies Act of 1978, and, the Production Facility is considered a "Qualifying Facility" within the meaning of Internal Revenue Service ("IRS") Notice 88-129, 1988-2 C.B. 541. PRODUCER reasonably projects that during the first ten taxable years, beginning with the year the INTERCONNECTION FACILITY is placed in service, no more than 5% of the projected total power flows over the INTERCONNECTION FACILITY will flow to the PRODUCTION FACILITY ("the 5% test"); provided, that if the power flows in the taxable year during which the INTERCONNECTION FACILITY is placed in service cause the PRODUCER to violate the "5% test" NIAGARA MOHAWK shall ignore the power flows in the taxable year in which the INTERCONNECTION FACILITY is placed in service as provided in Notice 88-129. PRODUCER will promptly notify NIAGARA MOHAWK of any change in its circumstances affecting the accuracy of the statements set forth in this Section 2.4 or any failure to otherwise meet the "5% test" during the term of this AGREEMENT. 2.5 NIAGARA MOHAWK is a corporation duly organized, validly existing and qualified to do business under the laws of the State of New York, is in good standing under its certificate of incorporation and the laws of the State of New York, has the corporate authority to own its properties, to carry on its business as now being conducted, and to Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 8 Rate Schedule FERC No. 189 Superceding Original Sheet No. 8 enter into this AGREEMENT and the transactions contemplated herein and perform and carry under the pursuant to this AGREEMENT, and is duly authorized to execute and deliver this AGREEMENT and consummate the transactions contemplated herein. 2.6 NIAGARA MOHAWK is not prohibited from entering into this AGREEMENT and discharging and performing all covenants and obligations on its part to be performed under and pursuant to this AGREEMENT. The execution and delivery of this AGREEMENT, the consummation of the transactions contemplated herein and the fulfillment of and compliance with the provisions of this AGREEMENT will not conflict with or constitute a breach of or a default under any of the terms, conditions on provisions of any law, rule or regulation, any order, judgment, writ, injunction, decree, determination, award or other instrument or legal requirement of any court or other agency of government, the certificate of incorporate or bylaws of NIAGARA MOHAWK or any contractual limitation, corporate restriction or outstanding trust indenture, deed of trust, mortgage, loan agreement, lease, other evidence of indebtedness or any other agreement or instrument to which NIAGARA MOHAWK is a party or by which it or any of its property is bound and will not result in a breach of or a default under any of the foregoing. This AGREEMENT is the legal, valid and binding obligation of NIAGARA MOHAWK enforceable in accordance with its terms. 3. INTERCONNECTION STUDY 3.1 NIAGARA MOHAWK has performed the interconnection study (hereinafter referred to as the "INTERCONNECTION STUDY") which is attached hereto as Schedule B. PRODUCER understands, as stated in Schedule B, that additional power system stabilizers may be required on other generating units in the Oswego area pending the design of a power system stabilizer on the PRODUCTION FACILITY. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 9 Rate Schedule FERC No. 189 Superceding Original Sheet No. 9 4. OBTAINING RIGHTS-OF-WAY 4.1 PRODUCER will acquire all rights of way needed for placement, construction, and maintenance of all equipment and facilities reasonably required including, but not limited to electric transmission and substation facilities, access roads, system enhancements and improvements or equipment incidental thereto. The quantum of land, including width of transmission corridor and size and configuration of substation sites shall be as reasonably required by NIAGARA MOHAWK. The interest in land acquired by PRODUCER, whether in fee or by easement, or other means, must be adequate for the purposes for which such land is being acquired hereunder. The format and content of the legal instruments conveying such rights in land shall be approved by NIAGARA MOHAWK, which approval shall not be unreasonably withheld or delayed. PRODUCER understands and agrees that all right-of-way acquisition must conform to NIAGARA MOHAWK standards for location and siting of transmission facilities, including without limitation, transmission line structures and appurtenances, substation equipment and improvements, clearings, access roads and various system enhancements and equipment incidental thereto. Prior to initiating such efforts and during the course of such efforts, PRODUCER shall regularly consult with NIAGARA MOHAWK. In the event PRODUCER elects to hire a consulting firm to acquire the said lands, NIAGARA MOHAWK reserves the right to approve said firm and its land and right of way acquisition methods and practices, which approval shall not be unreasonably withheld or delayed. Details regarding he use of NIAGARA MOHAWK's existing rights-of-way are detailed in Schedule B except that PRODUCER will not be required to provide NIAGARA MOHAWK with monetary compensation for the use of NIAGARA MOHAWK's existing rights-of-way between Volney and Clay substations. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 10 Rate Schedule FERC No. 189 Superceding Original Sheet No. 10 4.2 PRODUCER agrees that prior to the acquisition of any property interest or rights-of-way, or the acquisition of any property to be used or developed in connection with the INTERCONNECTION FACILITY, it will conduct sampling, soil testing, and any other methods of investigation which would disclose the presence of any hazardous substance as waste which has been released on the property or which is present upon the property by migration from an external source on the property. PRODUCER agrees to indemnify and save NIAGARA MOHAWK harmless from all liability cost and expense (including reasonable attorney's fees), civil and criminal, for the removal of any hazardous substance or management methods. If the presence of any such hazardous substance is discovered prior to acquisition of the property, PRODUCER agrees to provide NIAGARA MOHAWK with prompt written notice thereof, and the parties will thereafter determine whether said property should be acquired and used. 4.3 INTERCONNECTION FACILITY construction activities will be developed and carried out in accordance with standard NIAGARA MOHAWK environmental, construction, forestry, and right-of-way management practices and procedures, including but not limited to, "NMPC EMCP Protection Measures", and NIAGARA MOHAWK's "Transmission Right-of-Way Management Plan - October 1989", and NIAGARA MOHAWK's specification for right of way clearing, access roads, and right-of-way restoration. Copies of these and other relevant procedures will be provided on a timely basis by NIAGARA MOHAWK to PRODUCER. PRODUCER agrees it will not deviate from NIAGARA MOHAWK's practices or procedures without prior written NIAGARA MOHAWK approval, which approval shall not be unreasonably withheld or delayed. 4.4 In the event PRODUCER is unable to acquire any of the applicable permits, authorizations, or rights-of-way after using its best efforts to do so, NIAGARA Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 11 Rate Schedule FERC No. 189 Superceding Original Sheet No. 11 MOHAWK agrees to accept and cooperate with PRODUCER in seeking approval for the transfer of so much of the appropriate documents as authorizes construction of the transmission and interconnection facilities and upon the effectiveness of such transfer, to assert its eminent domain authority for the prosecution of said eminent domain proceedings. NIAGARA MOHAWK shall retain counsel to conduct eminent domain proceedings. PRODUCER agrees to reimburse NIAGARA MOHAWK for all reasonable legal fees and costs therefore, and, except to the extent arising out of the gross negligence or intentional acts or omissions of NIAGARA MOHAWK, for all reasonable legal fees, costs, liabilities, judgements, fines, and other sanctions against NIAGARA MOHAWK arising out of its exercise of eminent domain powers. NIAGARA MOHAWK agrees to take such reasonable steps prior to the commencement of eminent domain proceedings as are necessary to facilitate said proceedings. The parties understand and agree that their execution of this AGREEMENT setting forth terms and conditions relating to the engineering, construction and ownership of the transmission line and interconnection is a condition precedent to the actual exercise by NIAGARA MOHAWK of its eminent domain authority. NIAGARA MOHAWK does not warrant or guarantee that assertion of its eminent domain powers will result in successful acquisition of real property interests for the INTERCONNECTION FACILITY. If NIAGARA MOHAWK is unable to acquire real property for the INTERCONNECTION FACILITY using its eminent domain authority, PRODUCER shall have the option of modifying the INTERCONNECTION STUDY subject to the prior written approval of NIAGARA MOHAWK, which approval shall not be unreasonably withheld or delayed or terminate this AGREEMENT. 4.5 All expenditures by PRODUCER, and all reasonable out-of-pocket expenditures by NIAGARA MOHAWK, incurred in acquiring the necessary rights-of-way and Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 12 Rate Schedule FERC No. 189 Superceding Original Sheet No. 12 associated permits and authorizations shall be borne by PRODUCER. PRODUCER shall reimburse NIAGARA MOHAWK for such expenditures as provided in Article 11 of this AGREEMENT. 4.6 After completion of construction of the INTERCONNECTION FACILITIES, and thirty (30) days prior to the anticipated date of initial operation of the PRODUCTION FACILITY, PRODUCER shall convey and transfer to NIAGARA MOHAWK by warranty deed, by assignment of easement or other means, as appropriate for the conveyance and transfer of such interest, all of its right, title and interest in the INTERCONNECTION FACILITY free and clear of all liens and encumbrances other than easements, rights-of-way, restrictions, minor defects and other similar encumbrances and exceptions to title (whether or not identified as an exception to title in any title search or title insurance policy furnished in accordance with this Section 4.6) which could not, individually or in the aggregate, reasonably be expected to have a material and adverse effect on the ability of the parties to operate and maintain the INTERCONNECTION FACILITY. PRODUCER further agrees to provide to NIAGARA MOHAWK an instrument survey of the lands conveyed by and/or described in the documents of title transfer, which said survey shall be prepared in accordance with the Code of Practice for land title surveys adopted by the New York State Association of Professional Land Surveyors. In addition to such a survey prepared as aforesaid, PRODUCER shall, in a format and size designated by NIAGARA MOHAWK, also furnish maps and drawings of the transmission corridor which shall constitute a plan and profile of said electric line depicting the transmission corridor, location of electric transmission structures, survey and title data, and a profile setting forth grade elevations and structure and conductor locations. A reasonable time prior to completion of construction, and in no event less than sixty (60) days, PRODUCER shall Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 13 Rate Schedule FERC No. 189 Superceding Original Sheet No. 13 provide to NIAGARA MOHAWK copies of the proposed deeds and other title documents together with either fully guaranteed tax and title searches made by an incorporated abstract company which shall cover the premises constituting the transmission corridor and substation site together with tax searches, federal code searches and local tax certificates or a fee title insurance policy, containing only standard exceptions and such other exceptions which could not, individually or in the aggregate, reasonably be expected to have a material and adverse effect on the ability of the parties to operate and maintain the INTERCONNECTION FACILITY, insuring marketability of the lands and interest in lands to be transferred to NIAGARA MOHAWK. For purposes of this Agreement, "Completion of Construction" shall mean the acquisition of all required rights in land, design and construction in the field of electric transmission and substation facilities, acquisition of licenses and permits in accordance with Article 10 and completion of all other matters reasonably necessary to effect successful transfer of property interests, including the transfer of ownership. NIAGARA MOHAWK shall be given the opportunity to inspect the INTERCONNECTION FACILITY and review all appropriate approvals, certificates, permits and authorizations and PRODUCER shall be responsible for correcting any situations which NIAGARA MOHAWK reasonably deems unacceptable or any deficiencies which could reasonably be expected to impede the transfer of title pursuant to this AGREEMENT. The provisions and requirements of this Section 4.6 shall apply to any STEP DOWN FACILITIES which Producer may transfer ownership of to NIAGARA MOHAWK; provided, however, that PRODUCER may retain ownership in the STEP DOWN FACILITIES should PRODUCER provide NIAGARA MOHAWK with written notice prior to the transfer of the INTERCONNECTION FACILITY as provided herein of its intention to retain ownership in the STEP DOWN FACILITIES for the purposes of supplying the electrical requirements of its steam Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 14 Rate Schedule FERC No. 189 Superceding Original Sheet No. 14 host(s) (steam hosts shall be defined as other businesses or entities to which PRODUCER may sell steam for said businesses' or entities' own use). For purposes of this Agreement, STEP DOWN FACILITIES shall be defined as those facilities (as depicted in Schedule C), including the 345-115 KV transformer, 115 KV tap, 115-13.2 KV transformer, 13.2 KV tap and all associated equipment. 4.7 PRODUCER shall grant to NIAGARA MOHAWK rights of access to PRODUCER's property interests acquired hereunder, prior to and upon transfer of title to NIAGARA MOHAWK. 4.8 PRODUCER and NIAGARA MOHAWK agree that in the event PRODUCER abandons going forward with its PRODUCTION FACILITY, for whatever reason, NIAGARA MOHAWK shall have the option and right of first refusal to acquire any rights-of-way obtained by PRODUCER pursuant to this AGREEMENT. 5. CONSTRUCTION OF INTERCONNECTION FACILITY 5.1 The INTERCONNECTION FACILITY shall be designed and constructed in accordance with NIAGARA MOHAWK standards and in accordance with Schedules A and B. Upon NIAGARA'S MOHAWK'S completion and/or acceptance of the INTERCONNECTION STUDY, the INTERCONNECTION FACILITY shall be designed and constructed by either NIAGARA MOHAWK, the PRODUCER, or by a third-party contractor to be selected by PRODUCER or by a combination of the parties and subject to NIAGARA MOHAWK's and PRODUCER'S prior written approval, which approval shall not be unreasonably withheld or delayed. PRODUCER shall be responsible for all of the reasonable out-of-pocket costs and expenses of NIAGARA MOHAWK in connection with the design and construction of the INTERCONNECTION FACILITY and the correction of any situations which Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 15 Rate Schedule FERC No. 189 Superceding Original Sheet No. 15 NIAGARA MOHAWK reasonably deems unacceptable. PRODUCER shall be responsible for all of its costs and expenses and all of the costs and expenses of any third-party contractor. The INTERCONNECTION FACILITY shall be designed and constructed in accordance with prudent electrical practices and good engineering practices in the same first class and workmanlike manner and using materials and equipment of a quality and type customarily used by NIAGARA MOHAWK in designing and constructing its transmission systems. Prior to transfer of ownership of INTERCONNECTION FACILITY pursuant to Article 4 herein, NIAGARA MOHAWK shall be given the opportunity to inspect the INTERCONNECTION FACILITY. PRODUCER shall be responsible for correcting any situations which NIAGARA MOHAWK reasonably deems unacceptable. Prior to the COMMERCIAL OPERATION DATE and line energization, PRODUCER shall be responsible for the costs associated with making such corrections. For the purposes of the AGREEMENT, "COMMERCIAL OPERATION DATE" shall be as defined in the Transmission Services Agreement. 5.2 Upon completion of construction of the INTERCONNECTION FACILITY, PRODUCER shall convey to NIAGARA MOHAWK copies of all documents, reasonably required by NIAGARA MOHAWK'S Engineering Department, including but not limited to as-built drawings, in both hard copy as well as in the form of computer readable data that will generate the drawings. 5.3 PRODUCER will be deemed to be in exclusive control of and be responsible for any loss or damage to the INTERCONNECTION FACILITY until the transfer thereof to NIAGARA MOHAWK in accordance with Section 4.6. Subject to Section 1.2, NIAGARA MOHAWK will be deemed to be in exclusive control of and be responsible for any Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 16 Rate Schedule FERC No. 189 Superceding Original Sheet No. 16 loss or damage to the INTERCONNECTION FACILITY from and after the transfer thereof to NIAGARA MOHAWK in accordance with Section 4.6. 5.4 PRODUCER shall grant to NIAGARA MOHAWK rights of access to the INTERCONNECTION FACILITY prior to and upon transfer of title to NIAGARA MOHAWK. NIAGARA MOHAWK shall grant to PRODUCER rights of access to the INTERCONNECTION FACILITY prior to transfer of title to NIAGARA MOHAWK. 5.5 NIAGARA MOHAWK shall perform an environmental inspection of the INTERCONNECTION FACILITIES which includes but is not limited to NIAGARA MOHAWK'S Right-of-Way Restoration Specification compliance, access road stability, erosion control, successful revegetation, vegetative visual screening and Right-of-Way access security within the first growing season after Construction Restoration has been completed. The PRODUCER shall be responsible for correcting any situations which NIAGARA MOHAWK reasonably deems unacceptable. 5.6 PRODUCER and NIAGARA MOHAWK shall provide the other with all documentation reasonably necessary to verify the cost of the INTERCONNECTION FACILITY. PRODUCER and NIAGARA MOHAWK shall have the right to any supporting documents or evidence which PRODUCER or NIAGARA MOHAWK reasonably deems necessary to further substantiate such costs. 6. CONSTRUCTION OF SYSTEM FACILITIES 6.1 NIAGARA MOHAWK shall be responsible for the construction of any reinforcements to or additions of new facilities to NIAGARA MOHAWK's transmission system (other than the INTERCONNECTION FACILITY) reasonably required in order for NIAGARA MOHAWK to provide PRODUCER with the transmission services agreed to Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 17 Rate Schedule FERC No. 189 Superceding Original Sheet No. 17 pursuant to the Transmission Services Agreement (the "SYSTEM FACILITIES") as detailed in Schedule B. PRODUCER shall be responsible for all of the reasonable out-of-pocket costs and expenses of NIAGARA MOHAWK in connection with the construction of such reinforcements and additions. Prior to approval of the Article VII License or within a reasonable time period thereafter agreed to by both parties, the parties shall exchange schedules for the construction of the SYSTEM FACILITIES and INTERCONNECTION FACILITY respectively, such schedules shall not be inconsistent with each other or the Power Purchase Agreement. PRODUCER shall provide NIAGARA MOHAWK with monthly status reports on the progress of the INTERCONNECTION FACILITY construction and NIAGARA MOHAWK may revise its construction schedule based upon PRODUCER'S status reports. NIAGARA MOHAWK will provide PRODUCER with monthly status reports on the progress of the SYSTEM FACILITIES construction. If NIAGARA MOHAWK completes construction of the SYSTEM FACILITIES after the scheduled completion date or any revised or adjusted scheduled completion dates of the INTERCONNECTION FACILITY, the date of Commercial Operation shall be extended by the same length of time by which the scheduled completion date of the SYSTEM FACILITIES is delayed without liability of any kind to NIAGARA MOHAWK. NIAGARA MOHAWK will use its best efforts to complete the construction of the SYSTEM FACILITIES by the scheduled completion date or any revised or adjusted scheduled completion dates of the INTERCONNECTION FACILITY, provided that NIAGARA MOHAWK shall not be responsible for delays in Completion of Construction of the INTERCONNECTION FACILITY or SYSTEM FACILITIES arising from or attributable to any cause including but not limited to the application for necessary governmental licenses, permits, authorizations, and approvals Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 18 Rate Schedule FERC No. 189 Superceding Original Sheet No. 18 except to the extent that any such delays are the result of the gross negligence or intentional acts or omissions of NIAGARA MOHAWK. 6.2 NIAGARA MOHAWK shall bill PRODUCER for its costs of constructing the SYSTEM FACILITIES in accordance with Articles 11 and 12 herein. 7. MODIFICATION TO INTERCONNECTION FACILITY DUE TO TRANSMISSION SYSTEM 7.1 If, during the term of this AGREEMENT, NIAGARA MOHAWK reasonably determines that it is necessary to relocate or rearrange its transmission system in order to maintain reliable electric service in accordance with GOOD UTILITY PRACTICE (as defined in the Transmission Services Agreement), so that a change is required to a portion of the INTERCONNECTION FACILITY and/or a new INTERCONNECTION FACILITY is required, NIAGARA MOHAWK shall give the PRODUCER no less than one year's written notice of such relocation or rearrangement and shall defer such relocation or rearrangement until the new INTERCONNECTION FACILITY can be reconfigured so that PRODUCER's sales of energy, capacity, ancillary or other services, or any combination thereof, into the ISO ADMINISTERED MARKETS and/or through any BILATERAL TRANSACTIONS (as that term is defined in the NYISO SERVICES TARIFF) may continue without interruption, provided that such notice period or deferral may be reduced to the extent reasonably required in order to maintain reliable electric service in accordance with GOOD UTILITY PRACTICE (as defined in the Transmission Services Agreement). 7.2 If NIAGARA MOHAWK is required or ordered by governmental authority to relocate or rearrange its transmission system so that a new POINT OF RECEIPT is required, NIAGARA MOHAWK shall promptly so notify PRODUCER. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 19 Rate Schedule FERC No. 189 Superceding Original Sheet No. 19 7.3 If NIAGARA MOHAWK reasonably determines that it is necessary to relocate or rearrange its transmission system in accordance with Section 7.1 or if NIAGARA MOHAWK is required or ordered by governmental authority to relocate or rearrange its transmission system, NIAGARA MOHAWK shall perform or have performed a new INTERCONNECTION STUDY in accordance with the terms of this AGREEMENT. NIAGARA MOHAWK shall be responsible for all of the costs and expenses in connection with such INTERCONNECTION STUDY, in connection with obtaining rights-of-way and in connection with the construction of any new INTERCONNECTION FACILITIES unless such relocation or rearrangement is required in order to maintain reliable electric service in accordance with GOOD UTILITY PRACTICE (as defined in the Transmission Services Agreement), in which case PRODUCER shall be responsible for such costs and expenses in accordance with the terms of Articles 3, 4 and 5. In its sole discretion, if, in accordance with the preceding sentence, PRODUCER is responsible for the costs and expenses of any new INTERCONNECTION STUDY or the construction of any new INTERCONNECTION FACILITIES, PRODUCER shall have the option to (a) reimburse NIAGARA MOHAWK for the actual out-of-pocket costs of such construction promptly upon completion thereof; (b) construct, at its own expense, a new INTERCONNECTION FACILITY in accordance with the terms of this AGREEMENT; or (c) terminate this AGREEMENT upon at least thirty (30) days written notice to NIAGARA MOHAWK. 7.4 If the relocation or rearrangement is ordered or required by governmental authority, NIAGARA MOHAWK shall cooperate with PRODUCER in PRODUCER's efforts to be reimbursed by the governmental authority for its mutually agreed upon share of the costs of such relocation or rearrangement, but in no event shall NIAGARA Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 20 Rate Schedule FERC No. 189 Superceding Original Sheet No. 20 MOHAWK be responsible for reimbursing PRODUCER for any costs associated with such relocation or rearrangement for which PRODUCER is responsible hereunder. 7.5 If the PRODUCER elects to construct a new INTERCONNECTION FACILITY, construction, title, and payment shall be in accordance with the terms and conditions of this AGREEMENT. 8. ABANDONMENT OR RETIREMENT OF INTERCONNECTION FACILITY 8.1 If NIAGARA MOHAWK reasonably determines that it is necessary to abandon or to retire the entire INTERCONNECTION FACILITY so that it can relocate or rearrange its transmission system in order to maintain reliable electric service in accordance with GOOD UTILITY PRACTICE (as defined in the Transmission Services Agreement), NIAGARA MOHAWK shall give the PRODUCER no less than (1) year's written notice of such abandonment or retirement and shall defer such abandonment or retirement until a new INTERCONNECTION FACILITY has been constructed, so that PRODUCER's sales of energy, capacity, ancillary or other services, or any combination thereof, into the ISO ADMINISTERED MARKETS and/or through any BILATERAL TRANSACTIONS may continue without interruption, provided that such notice period or deferral may be reduced to the extent reasonably required in order to maintain reliable electric service in accordance with GOOD UTILITY PRACTICE (as defined in the Transmission Services Agreement). 8.2 If NIAGARA MOHAWK is required to abandon or retire its transmission system as a result of an order of government authority, and such relocation or rearrangement requires the construction of a new INTERCONNECTION FACILITY, NIAGARA MOHAWK shall so notify PRODUCER. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 21 Rate Schedule FERC No. 189 Superceding Original Sheet No. 21 8.3 If NIAGARA MOHAWK reasonably determines that it is necessary to abandon or retire its transmission system in accordance with Section 8.1 or if NIAGARA MOHAWK is required or ordered by governmental authority to abandon or retire its transmission system, NIAGARA MOHAWK shall perform or have performed a new INTERCONNECTION STUDY in accordance with the terms of this AGREEMENT. NIAGARA MOHAWK shall be responsible for all of the costs and expenses in connection with such INTERCONNECTION STUDY, in connection with obtaining rights-of-way and in connection with the construction of any new INTERCONNECTION FACILITIES unless such abandonment or retirement is required in order to maintain reliable electric service in accordance with GOOD UTILITY PRACTICE (as defined in the Transmission Services Agreement), in which case PRODUCER shall be responsible for such costs and expenses in accordance with the terms of Articles 3, 4 and 5. In its sole discretion, if, in accordance with the preceding sentence, PRODUCER is responsible for the costs and expenses of any new INTERCONNECTION STUDY or the construction of any new INTERCONNECTION FACILITIES, PRODUCER shall have the option to (a) reimburse NIAGARA MOHAWK for the actual out-of-pocket costs of such construction promptly upon completion thereof; (b) construct at its own expense, a new INTERCONNECTION FACILITY subject to the terms of this AGREEMENT; or (c) terminate this AGREEMENT, upon no less than thirty (30) days written notice to NIAGARA MOHAWK. 8.4 If the abandonment or retirement of the entire INTERCONNECTION FACILITY is ordered or required by governmental authority, NIAGARA MOHAWK will cooperate with PRODUCER in PRODUCER's efforts to be reimbursed by such governmental authority for its mutually agreed upon share of the costs of such abandonment or retirement, but in no event shall NIAGARA MOHAWK be responsible for reimbursing Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 22 Rate Schedule FERC No. 189 Superceding Original Sheet No. 22 PRODUCER for any costs associated with such abandonment or retirement for which PRODUCER is responsible hereunder. 8.5 If the PRODUCER elects to construct a new INTERCONNECTION FACILITY, construction, title and payment shall be in accordance with the terms and conditions of this AGREEMENT. 9. [INTENTIONALLY LEFT BLANK] 10. COMPLIANCE WITH LAWS AND OBTAINING PERMITS AND LICENSES 10.1 PRODUCER and NIAGARA MOHAWK agree to comply with all applicable federal, state and local, ordinances, rules, regulations, permits, licenses, approvals, certificates, and requirements thereunder in connection with all activities performed pursuant to this AGREEMENT, including, but not limited to all design, environmental, regulatory, engineering, construction, and property acquisition activities. 10.2 PRODUCER further agrees to obtain all necessary environmental, regulatory, licenses, certificates, permits and approvals, in connection with all activities performed pursuant to this Agreement, at its sole expense, and to obtain NIAGARA MOHAWK's review and approval of all applications with respect thereto, which approval shall not be unreasonably withheld or delayed, prior to their submittal to any of the appropriate agencies or governmental authorities. To the extent permitted by law, prior to the Initial Synchronization Date, PRODUCER shall convey to NIAGARA MOHAWK said licenses, certificates, permits and approvals. 10.3 Each of PRODUCER and NIAGARA MOHAWK agrees to indemnify and save the other harmless and defend the other from all liability, civil and criminal, costs and expenses (including reasonable attorney's fees) arising from violations by it of all Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 23 Rate Schedule FERC No. 189 Superceding Original Sheet No. 23 applicable laws, ordinances, rules, regulations, permits, licenses, approvals, certificates and requirements thereunder. Each of PRODUCER and NIAGARA MOHAWK agrees to bear fully all civil and criminal penalties that may arise from its activities or from its violations of or its failure to comply with the aforementioned laws and requirements, whether such penalties are assessed against PRODUCER or NIAGARA MOHAWK. 10.4 If PRODUCER observes that any requirement specified in this AGREEMENT is at variance with any governing laws, ordinances, rules, regulations, permits, licenses, approvals, certificates and requirements thereunder, PRODUCER shall promptly notify NIAGARA MOHAWK in writing before incurring any further liability, expense or obligation. NIAGARA MOHAWK and PRODUCER shall in good faith attempt to reform this Agreement to comply with the aforementioned laws, ordinances, rules, regulations, permits, licenses, approvals, or certificates at PRODUCER's sole cost and expense. If NIAGARA MOHAWK and PRODUCER are unable to do so, either party may terminate this AGREEMENT. 11. COST PAYMENTS 11.1 Prior to the start of construction of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES, PRODUCER shall pay to NIAGARA MOHAWK from time to time an amount equal to the reimbursable costs incurred by NIAGARA MOHAWK in connection with the design of such INTERCONNECTION FACILITY and SYSTEM FACILITIES as set forth in itemized invoices provided by NIAGARA MOHAWK detailing such reimbursable costs. Prior to the start of construction of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES and as soon as reasonably practicable, PRODUCER and NIAGARA MOHAWK shall agree upon a schedule of payments by PRODUCER to NIAGARA MOHAWK for reimbursable costs to be incurred by NIAGARA MOHAWK in connection with Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 24 Rate Schedule FERC No. 189 Superceding Original Sheet No. 24 the construction of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES, which schedule of payments shall be based upon the current estimate of such costs included in Schedule B hereto less reimbursable costs actually paid by PRODUCER to NIAGARA MOHAWK in connection with the design of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES. Such schedule of payments may be modified upon the agreement of each of the parties to reflect the actual costs incurred by NIAGARA MOHAWK. NIAGARA MOHAWK shall review actual charges on a regular basis and invoice PRODUCER accordingly if additional funds are required to pay reimbursable costs (as defined in Section 11.2). At the completion of construction, should the actual out-of-pocket costs incurred by NIAGARA MOHAWK be less than the amount paid to NIAGARA MOHAWK by PRODUCER, NIAGARA MOHAWK shall reimburse PRODUCER accordingly. NIAGARA MOHAWK shall provide itemized invoices detailing all reimbursable costs against PRODUCER'S payments at the time of final billing. PRODUCER agrees to pay all invoices within thirty (30) days from date of the invoice. In accordance with NIAGARA MOHAWK POWER CORPORATION'S P.S.C. 207. Electricity, if any invoice remains unpaid thirty (30) days from the invoice date, NIAGARA MOHAWK shall apply to the unpaid balance, and PRODUCER shall pay, a finance charge at the rate of one and one-half percent (1.5%) per month, but in no event more than the maximum allowed by law. If any invoice remains unpaid for sixty (60) days, NIAGARA MOHAWK shall have no further obligation to perform under this AGREEMENT until all outstanding sums, including interest, have been paid in full. 11.2 Reimbursable costs shall mean the following: (A) All reasonable NIAGARA MOHAWK out-of-pocket costs and expenses associated with the acquisition, inspection, design review, engineering, survey, project management and coordination, Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 25 Rate Schedule FERC No. 189 Superceding Original Sheet No. 25 testing of electrical equipment and installation and testing of EMS-RTU and metering equipment, development of energization procedure, construction, environmental and regulatory permitting and licensing of, taxes as provided for in Article 12 and transfer of title and interest to, the INTERCONNECTION FACILITY, and any new or replaced facility as provided under Articles 7 and 8 for which PRODUCER is responsible hereunder, upon transfer of title and interest to NIAGARA MOHAWK. (B) All reasonable NIAGARA MOHAWK out-of-pocket costs in connection with any INTERCONNECTION STUDIES for which PRODUCER is responsible hereunder. (C) All reasonable NIAGARA MOHAWK out-of-pocket costs and expenses of acquiring, designing, engineering, constructing, financing, taxes as provided for in Article 12, environmental permitting, and licensing any SYSTEM FACILITIES, or any new or replaced facilities for which PRODUCER is responsible hereunder. (D) All reasonable out-of-pocket legal fees, costs, liabilities, judgments, fines and other sanctions or penalties arising out of NIAGARA MOHAWK's exercise of its eminent domain authority, except to the extent arising out of the gross negligence or intentional acts or omissions of NIAGARA MOHAWK. (E) Any transmission related out-of-pocket cost or expense determined by a regulatory body having jurisdiction to be properly allocable to PRODUCER, in whole or in part. (F) All other reasonable out-of-pocket costs NIAGARA MOHAWK incurs in carrying out any responsibilities under this AGREEMENT, including the following services: engineering services, legal services, contract administration, rights-of-way acquisition, and environmental service and studies except for costs for which NIAGARA MOHAWK is responsible in accordance with the provisions of this AGREEMENT. 11.3 NIAGARA MOHAWK shall not be responsible or liable for any losses or damages resulting from any delays in PRODUCER's completion of construction according to schedule, or PRODUCER's failure to meet the COMMERCIAL OPERATION DATE, or PRODUCER's failure to pay or delay in paying NIAGARA MOHAWK all costs Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 26 Rate Schedule FERC No. 189 Superceding Original Sheet No. 26 invoiced hereunder except to the extent that any such delays are the result of the gross negligence or intentional acts or omissions of NIAGARA MOHAWK. 11.4 Payment of amounts due for the operation, maintenance, reconstruction or relocation of the INTERCONNECTION FACILITY during the term of this AGREEMENT shall be made in accordance with the provisions of this Article. 11.5 NIAGARA MOHAWK shall be solely responsible for the operation, maintenance and repair of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES. The INTERCONNECTION FACILITY and the SYSTEM FACILITIES shall at all times be operated, maintained and repaired in accordance with GOOD UTILITY PRACTICES (as defined in the Transmission Services Agreement) and NIAGARA MOHAWK'S own standards and procedures. Except as provided in Section 12.1(b), as full compensation to NIAGARA MOHAWK for its ownership, operation, maintenance and repair of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES for the entire term of this AGREEMENT, PRODUCER hereby agrees to pay to NIAGARA MOHAWK an aggregate amount equal to $8,950,000 (hereinafter, the "OPERATION AND MAINTENANCE FEE"). The OPERATION AND MAINTENANCE FEE shall be in lieu of any other payments or compensation to NIAGARA MOHAWK in respect of its ownership, operation, maintenance or repair of the INTERCONNECTION FACILITY and the SYSTEM FACILITIES (other than payments for electric transmission service to be rendered in accordance with Article 5 of the Transmission Services Agreement). The OPERATION AND MAINTENANCE FEE shall be payable in three installments. The first installment shall be in an amount equal to $4,300,000 and shall be payable by PRODUCER to NIAGARA MOHAWK within thirty days of receipt of written confirmation from NIAGARA MOHAWK that the construction of the Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 27 Rate Schedule FERC No. 189 Superceding Original Sheet No. 27 INTERCONNECTION FACILITY and the SYSTEM FACILITIES is complete. The second installment shall also be in an amount equal to $1,550,000 and shall be payable by PRODUCER to NIAGARA MOHAWK within thirty days of receipt of written acknowledgment from NIAGARA MOHAWK that the PLANT has been synchronized with the NIAGARA MOHAWK transmission system. The third installment shall be in an amount equal to $3,100,000 and shall be payable by PRODUCER to NIAGARA MOHAWK within thirty days of the COMMERCIAL OPERATION DATE. Furthermore, PRODUCER shall indemnify, defend and hold harmless NIAGARA MOHAWK for any and all claims, suits, liabilities or damages (including reasonable attorney's fees) arising from NIAGARA MOHAWK's obligations under this Agreement, except to the extent said claims, suits, liabilities or damages are caused in whole or in part by the gross negligence or intentional acts or omissions of NIAGARA MOHAWK. 12. TAXES 12.1 PRODUCER shall reimburse, indemnify, and hold harmless NIAGARA MOHAWK for the following taxes levied or assessed on NIAGARA MOHAWK, as a result of this AGREEMENT: (a) Transfer Tax. PRODUCER shall be responsible for any transfer taxes associated with the transfer of the INTERCONNECTION FACILITY. (b) Property Tax. PRODUCER shall be responsible for one-half of any property taxes levied or assessed against NIAGARA MOHAWK attributable to the transfer of title to NIAGARA MOHAWK in the INTERCONNECTION FACILITY. (c) Federal Income Tax. PRODUCER shall be responsible for any federal income taxes imposed on NIAGARA MOHAWK, or any increased federal income tax liability incurred by NIAGARA MOHAWK arising from (i) the reimbursement by PRODUCER of any cost incurred by NIAGARA MOHAWK to design, construct, install, obtain rights-of-way, licenses, certificates, permits or approvals for, operate, or maintain the INTERCONNECTION Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 28 Rate Schedule FERC No. 189 Superceding Original Sheet No. 28 FACILITY or SYSTEM FACILITIES, (ii) the transfer of any property, rights-of-way, licenses, certificates, permits or approvals from PRODUCER to NIAGARA MOHAWK, or any other provision of services by PRODUCER relating to this AGREEMENT, and (iii) the termination of the Power Purchase Agreement or the occurrence of any other "disqualification event" within the meaning of IRS Notice 88-129 and IRS Notice 90-60 as they may be amended; provided, the "disqualification event" is not caused by NIAGARA MOHAWK. (d) New York Taxes. Consistent with Section 12.1(c), PRODUCER shall be responsible for any New York State taxes imposed on NIAGARA MOHAWK that are based on or measured by net or gross income or receipts as a result of payments made by PRODUCER for (i) the reimbursement by PRODUCER of any cost incurred by NIAGARA MOHAWK to design, construct, install, obtain rights-of-way, licenses, certificates, permits or approvals for, operate, or maintain the INTERCONNECTION FACILITY or SYSTEM FACILITIES, (ii) the transfer of any property, rights-of-way, licenses, certificates, permits or approvals from PRODUCER to NIAGARA MOHAWK, or any other provision of services by PRODUCER relating to this AGREEMENT, and (iii) the termination of the Power Purchase Agreement or the occurrence of any other "disqualification event" within the meaning of IRS Notice 88-128 and ITS Notice 90-60 as they may be amended; provided, the "disqualification event" is not caused by NIAGARA MOHAWK. (e) Adjustments Arising from the Payment or Reimbursement of Tax under the Preceding Provisions. The amounts payable pursuant to clauses (a) through (d) of this Section 12.1 shall be reduced by (i) any net actual tax savings resulting from the payment or accrual by NIAGARA MOHAWK of the taxes described in said clauses (a) through (d) and (ii) the present value of the tax benefits, if any, that NIAGARA MOHAWK can expect to realize through depreciation, amortization and other deduction available to it with respect to expenses reimbursed hereunder or the acquisition of depreciable or amortizable assets in connection with the transaction which causes NIAGARA MOHAWK to be entitled to reimbursement of tax from PRODUCER (collectively (i) and (ii) are the "Tax Benefits"). PRODUCER shall fully reimburse NIAGARA MOHAWK for any net actual federal income tax, New York tax or transfer tax ("Tax"), if any, arising out of any payment or reimbursement of any tax by PRODUCER under this Section such that the net amount received by NIAGARA MOHAWK, after reduction by such net actual Taxes on the amounts payable pursuant to this Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 29 Rate Schedule FERC No. 189 Superceding Original Sheet No. 29 Article 12 (including this Section 12.1(e)) shall equal the amount payable pursuant to clauses (a) through (d) of this Section 12.1 less any Tax Benefits. NIAGARA MOHAWK shall calculate and advise PRODUCER of its liability for Tax under this paragraph. NIAGARA MOHAWK shall perform this calculation utilizing (i) its effective rate of Tax (the "Rate") for the year(s) of income inclusion and (ii) with respect to any Tax Benefits, the depreciation or amortization rates, methodology, bases and periods of time that it would normally use for similar property, the Rate or Rates of Tax expected to be applicable for the year or years in which the deductions will be utilized and a discount factor equal to it "Composite Cost of Capital" as approved by the COMMISSION for the year to which the calculation relates. At PRODUCER's request, the amount of any indemnity payment by PRODUCER to NIAGARA MOHAWK pursuant to this Article 12 shall be verified and certified by Price Waterhouse or the nationally recognized firm of independent public accountants then normally employed by NIAGARA MOHAWK. Producer shall pay the accountants' fee for verifying the indemnity payment pursuant to this Section 12.1(e), unless the verification discloses an error in NIAGARA MOHAWK's favor exceeding 2.5% for the amount of the payment as determined by NIAGARA MOHAWK, in which case NIAGARA MOHAWK shall pay the accountants' fee for verifying the amount of the payment. PRODUCER and NIAGARA MOHAWK hereby agree that the accountants' sole responsibility shall be to verify the calculation of an indemnity payment under this Article 12 and interpretation of this AGREEMENT shall not be within the scope of the accountants' responsibilities. 12.2 Except as provided in Sections 12.3 and 12.5, PRODUCER shall fully reimburse NIAGARA MOHAWK for the amount of any tax that is the responsibility of PRODUCER pursuant to Section 12.1 within thirty (30) days of being notified by NIAGARA MOHAWK, but not prior to the date that such taxes (including any estimated payments of such taxes) are due. PRODUCER shall not be liable for taxes that would otherwise be owed by NIAGARA MOHAWK in the absence of this AGREEMENT or any activities hereunder. 12.3 At the time of the payment or reimbursement of any amount by PRODUCER under this AGREEMENT, or the transfer of any property, rights-of-way, licenses, Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 30 Rate Schedule FERC No. 189 Superceding Original Sheet No. 30 certificates, permits or approvals from PRODUCER to NIAGARA MOHAWK pursuant to this AGREEMENT, or the termination of the Power Purchase Agreement or the occurrence of any other "disqualification event" within the meaning of IRS Notice 88-129 and IRS notice 90-60, as they may be amended, PRODUCER shall also pay to NIAGARA MOHAWK any amounts due under Section 12.1 if NIAGARA MOHAWK advises PRODUCER that it believes the payment, reimbursement or transfer constitutes gross income to NIAGARA MOHAWK; provided, however, NIAGARA MOHAWK shall not file any return reflecting a liability for any tax subject to indemnity under Section 12.1 or pay such tax if PRODUCER, at PRODUCER's sole expense, furnishes NIAGARA MOHAWK with an opinion of independent tax counsel selected by PRODUCER and reasonably satisfactory to NIAGARA MOHAWK, to the effect that there is substantial authority within the meaning of Section 6662(d)(2)(5)(i) of the Internal Revenue Code of 1986, as amended, and the regulations (whether final, temporary or proposed) thereunder (or with respect to New York taxes, applying corresponding principles) ("Substantial Authority") to conclude that the payments, reimbursements and transfers do not constitute gross income to NIAGARA MOHAWK. If PRODUCER shall have furnished NIAGARA MOHAWK with such an opinion concerning tax liability which NIAGARA MOHAWK believes may be in excess of $100,000 and PRODUCER's senior unsecured debt is rated lower than investment grade by either Moody's Investor's Services, Inc. or by Standard and Poor's Corporation ("INVESTMENT GRADE"), PRODUCER shall provide collateral to NIAGARA MOHAWK in a manner reasonably satisfactory to NIAGARA MOHAWK for any tax that later may be imposed unless the opinion described in the preceding sentence shall be to the effect that it is more likely than not that the payment, reimbursement or transfer does not constitute gross income. In no event shall PRODUCER be required to provide collateral in excess of the amount payable under Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 31 Rate Schedule FERC No. 189 Superceding Original Sheet No. 31 Section 12.1 (the net amount of any taxes to be calculated assuming the taxes are payable at the highest marginal statutory rates applicable to NIAGARA MOHAWK for the relevant period, and further assuming, in the case of a termination of the Power Purchase Agreement or the occurrence of any other "disqualification event" within the meaning of IRS Notice 88-129 and IRS Notice 90-60, that NIAGARA MOHAWK's gross income arising from such event will not exceed the lesser of the INTERCONNECTION FACILITY's (i) fair market value as determined using the depreciated replacement cost method, as defined in IRS Notice 90-60, and (ii) fair market value as determined under a procedure or method established or utilized by the relevant utility commission, as provided in IRS Notice 90-60). Notwithstanding the foregoing, NIAGARA MOHAWK shall return all collateral provided under this Section 12.3 to PRODUCER within 30 days from the date PRODUCER's senior unsecured debt is rated INVESTMENT GRADE or higher, and in any event, NIAGARA MOHAWK shall return the collateral provided under this Section 12.3 to PRODUCER upon the termination of the statute of limitations applicable to the taxable year in which occurs such payment, reimbursement or transfer. Nothing in this Section 12.3 shall reduce or limit any liability by PRODUCER to pay such tax if, and when, it is imposed on NIAGARA MOHAWK. Notwithstanding the foregoing provisions of this Section, 12.3, PRODUCER shall not be required to provide collateral with respect to potential tax liability to the State of New York. 12.4 NIAGARA MOHAWK agrees to cooperate in good faith with PRODUCER in attempting to minimize NIAGARA MOHAWK's costs under this Article, provided PRODUCER reimburses NIAGARA MOHAWK for all out of pocket costs incurred by NIAGARA MOHAWK in connection therewith, including attorneys fees, and provided further that PRODUCER shall indemnify NIAGARA MOHAWK against any and all penalties, Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 32 Rate Schedule FERC No. 189 Superceding Original Sheet No. 32 judgments, fines (civil or criminal), or other costs that may be imposed by any governmental authority as a result hereof except to the extent caused by the gross negligence or willful misconduct of NIAGARA MOHAWK. 12.5 Notwithstanding the foregoing, PRODUCER shall have the right to require NIAGARA MOHAWK to contest, appeal or seek abatement of any tax, levy or assessment against NIAGARA MOHAWK and for which PRODUCER may be required to reimburse NIAGARA MOHAWK under this Article if (i) PRODUCER shall have furnished to NIAGARA MOHAWK, at PRODUCER's sole expense, an opinion of independent tax counsel selected by PRODUCER and reasonably satisfactory to NIAGARA MOHAWK, to the effect that there is Substantial Authority that such contest, appeal or abatement will be successful. If the PRODUCER's senior unsecured debt is rated lower than INVESTMENT GRADE, PRODUCER shall provide collateral to NIAGARA MOHAWK in a manner reasonably satisfactory to NIAGARA MOHAWK for the amount of the tax asserted (excluding taxes imposed by the State of New York) and all out of pocket costs expected to be incurred by NIAGARA MOHAWK in connection with such contest, appeal or abatement. NIAGARA MOHAWK shall, in good faith, control any such contest, appeal or abatement, including, but not limited to, the selection of counsel and the forum for such contest, appeal or abatement. Unless prepayment of tax is necessary in the forum selected (in which case PRODUCER shall make such prepayment in the form of an interest-free loan to NIAGARA MOHAWK to be applied for that purpose, and NIAGARA MOHAWK shall return to PRODUCER, at the conclusion of such contest, appeal or abatement, any refund it actually receives of the amount of such prepayment and any interest it actually receives thereon), no reimbursement shall be payable by PRODUCER to NIAGARA MOHAWK under this Article until such tax, levy or assessment is due by a final and non- Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 33 Rate Schedule FERC No. 189 Superceding Original Sheet No. 33 appealable order by a court or agency of competent jurisdiction. PRODUCER shall reimburse NIAGARA MOHAWK for all out of pocket costs incurred by NIAGARA MOHAWK in connection with such contest, appeal or abatement request, including but not limited to interest charges, penalties, additions to tax, and attorneys' fees, as such costs are incurred by NIAGARA MOHAWK. 12.6 PRODUCER shall not be responsible for any taxes under this Article to the extent that such liability is attributable to a "disqualification event" within the meaning of IRS Notice 88-129 and IRS Notice 90-60, as they may be amended, which is caused by NIAGARA MOHAWK. In addition, PRODUCER shall not be responsible for any income tax assessed against NIAGARA MOHAWK to the extent such tax would not be assessed but for NIAGARA MOHAWK's use of the INTERCONNECTION FACILITY for any purpose other than transmitting power for, or selling power to, PRODUCER or an entity which is a customer of PRODUCER (an "unrelated use"); provided, however, that if such income tax would be assessed against NIAGARA MOHAWK regardless of such unrelated use, then NIAGARA MOHAWK shall only be obligated to pay the incremental portion of the tax above the amount that would have been due if there had been no unrelated use. 12.7 If NIAGARA MOHAWK shall obtain a refund of all or any part of any tax for which it has been compensated by PRODUCER under this Article 12, or if, in lieu of such refund, NIAGARA MOHAWK shall receive a credit against any tax not indemnified against hereunder by reason of all or part of any such tax, NIAGARA MOHAWK shall pay PRODUCER, on an after tax basis (after giving effect to any tax savings the PRODUCER realizes determined in a manner consistent with Section 12.1(e)), an amount equal to the amount Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 34 Rate Schedule FERC No. 189 Superceding Original Sheet No. 34 of such tax, refund or credit, including interest attributable thereto, to the extent such amount has not previously been paid or credited to PRODUCER under the provision of this AGREEMENT. 13. NOTICES 13.1 All written notifications pursuant to this AGREEMENT shall be in writing and shall be personally delivered or mailed by certified or registered first class mail, return receipt requested, as follows: To NIAGARA MOHAWK To PRODUCER: -------- MANAGER-TRANSMISSION CONTRACTS General Manager NIAGARA MOHAWK POWER CORPORATION Sithe/Independence Power 300 Erie Boulevard West Partners, L.P. Syracuse, New York 13202 c/o Sithe/Independence, Inc. P.O. Box 1046 76 Independence Way Oswego, NY 13126 and Sithe Energies, Inc. 335 Madison Ave. 28th Floor New York, NY 10017 Attn: General Counsel Either party may change its address for notices by notice to the other in the manner provided above. 13.2 The above mentioned representatives of their designees shall be authorized to act on behalf of the parties, and their instructions, requests, and decisions will be binding upon the parties as to all matters pertaining to this AGREEMENT and the performance of the parties hereunder. Only these representatives shall have the authority to commit funds or make binding obligations on behalf of the parties. These representatives shall be responsible for Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 35 Rate Schedule FERC No. 189 Superceding Original Sheet No. 35 tracking work, costs, schedules and all other matters related to this AGREEMENT, and for the performance of any third parties. 14. TERM 14.1 This AGREEMENT shall be effective on the date of execution by both parties. 14.2 Upon such effectiveness, this AGREEMENT shall expire on the date occurring twenty (20) years from the COMMERCIAL OPERATION DATE of the PRODUCTION FACILITY. 14.3 This AGREEMENT shall not merge with or be terminated or superseded by any future agreement between the parties that does not specifically so provide. 15. TERMINATION FOR BREACH/DEFAULT 15.1 In the event of a material default or breach of any provision of this AGREEMENT, where such default or breach shall have continued for and not been cured within sixty (60) days after receipt of a written notice from the non-breaching party specifying in reasonable detail the nature of such default or breach, the non-breaching party may by written notice terminate the AGREEMENT at the end of the next succeeding calendar month; provided however, that if such default or breach cannot reasonably be cured within such sixty (60) day period, the breaching party shall be entitled to an additional period of time to cure the breach, as may be reasonable under the circumstances; provided that the breaching party commences efforts to cure within the initial sixty (60) day period and diligently pursues cure thereafter. Any LENDER (as defined in the Transmission Services Agreement) shall have the right, in its sole discretion and without obligation, to prevent such termination by curing any such default or breach on PRODUCER's behalf within the relevant period. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 36 Rate Schedule FERC No. 189 Superceding Original Sheet No. 36 15.2 Termination of this AGREEMENT for breach or default shall not relieve the breaching party of any of its liabilities and obligations hereunder, and the non-breaching party may take whatever judicial or administrative actions as appear necessary or desirable to enforce its rights hereunder. The rights specified herein are not exclusive and shall be in addition to all other remedies available to NIAGARA MOHAWK or PRODUCER, either at law or in equity, for default or breach of any provision of this AGREEMENT. Notwithstanding any other provision of this AGREEMENT, neither NIAGARA MOHAWK nor the PRODUCER shall be liable to the other for incidental, consequential, indirect, special or punitive damages arising from breach of this AGREEMENT. 15.3 Upon termination, NIAGARA MOHAWK shall give any regulatory or judicial authorities such notice as is required by law. 16. FORCE MAJEURE 16.1 Neither party shall be considered to be in default or breach hereunder, and each party shall be excused from performance hereunder, if and to the extent that it shall be delayed in or prevented from performing or carrying out any provision of this AGREEMENT by reason of or through storm, flood, lightning strikes, earthquake, fire, ice, epidemic, war, invasion, riot, civil disturbance, sabotage, explosion, insurrection, military or usurped power, strikes, stoppage of labor, labor dispute, failure of contractors or supplies of material, action of any court or public authority, or any civil or military authority de facto or de jure, change in law, act of God or the public enemy, or any other cause beyond such party's control, including, without limitation, disconnection or limited operation of the PRODUCTION FACILITY, the INTERCONNECTION FACILITY or NIAGARA MOHAWK's electric system due to failure of facilities or unscheduled repairs or maintenance. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 37 Rate Schedule FERC No. 189 Superceding Original Sheet No. 37 16.2 The party claiming force majeure shall use due diligence to resume performance or the provision of service hereunder as soon as practicable. 16.3 Neither party shall be liable to the other party for or on account of any loss, damage, injury or expense, including, but not limited to, incidental, punitive, special, indirect and consequential damages, resulting from or arising out of such delay or inability to perform. 17. RELATIONSHIP OF PARTIES 17.1 Nothing contained in this AGREEMENT shall be construed or deemed to cause, create, constitute, give effect to, or otherwise recognize PRODUCER and NIAGARA MOHAWK to be partners, joint venturers, employer and employee, principal and agent, or any other business association, with respect to any matter. 17.2 Unless otherwise agreed to in writing signed by both parties, neither party shall have any authority to create or assume in the other party's name or on its behalf any obligation, express or implied, or to act or purport to act as the other party's agent or legally empowered representative for any purpose whatsoever. 17.3 Neither party shall be liable to any third party in any way for any engagement, obligation, commitment, contract, representation or for any negligent act or omission to act of the other party, except as expressly provided for herein. 18. THIRD-PARTY BENEFICIARY 18.1 No person or party shall have any rights or interests, direct or indirect, in this AGREEMENT or the services or facilities to be provided hereunder, or both, except the parties, their successors, and authorized assigns. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 38 Rate Schedule FERC No. 189 Superceding Original Sheet No. 38 18.2 The parties specifically disclaim any intent to create any rights in any person or party as a third-party beneficiary to this AGREEMENT or to the services or facilities to be provided hereunder, or both. 19. APPROVAL 19.1 If required by law, NIAGARA MOHAWK shall file this AGREEMENT with the appropriate regulatory or judicial authorities within thirty days of receipt of the executed AGREEMENT from PRODUCER. If such regulatory body substantially modifies the terms and conditions of this AGREEMENT either party shall have the right to unilaterally terminate this AGREEMENT effective upon written notice to the other party; provided, however, that prior to exercising such termination rights, the parties agree to meet and discuss possibly modifying this AGREEMENT or entering into a new agreement. 19.2 All filing fees for the initial filing of this AGREEMENT and for any subsequent filings with any regulatory or judicial authorities for the approval or effectiveness of this AGREEMENT shall be paid by PRODUCER. NIAGARA MOHAWK shall pay any filing fees in connection with any other filing by it. Nothing contained herein shall be construed as affecting in any way either NIAGARA MOHAWK's right to make applications to the FERC or any other appropriate regulatory authority having jurisdiction over the transactions contemplated hereby or PRODUCER's right to challenge such application. 20. ASSIGNMENT 20.1 Except as otherwise expressly provided in this Article 20, neither party shall assign, pledge or otherwise transfer this AGREEMENT or any right or obligation under this AGREEMENT, by operation of law or otherwise, without first obtaining the other party's written consent, which consent shall not be unreasonably withheld. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 39 Rate Schedule FERC No. 189 Superceding Original Sheet No. 39 20.2 Upon thirty (30) days prior written notice to NIAGARA MOHAWK, PRODUCER may, without the consent of NIAGARA MOHAWK, assign its interests in this AGREEMENT, in whole or in part, to (a) LENDERS (as defined in the Transmission Services Agreement) or any successor to such LENDERS; or (b) an entity controlling, controlled by, or under common control with PRODUCER ("Affiliate"); provided, however, that in each such case, such assignment shall not relieve PRODUCER of its obligations under this AGREEMENT, unless the assignee shall expressly assume all of PRODUCER's obligations under this AGREEMENT. If LENDERS or any successor to such LENDERS succeed to the interest of PRODUCER in this AGREEMENT by foreclosure or otherwise, NIAGARA MOHAWK shall accord such LENDERS or any successor to such LENDERS, their successors and the assigns, the same rights as PRODUCER hereunder. In connection with the FINANCIAL CLOSING (as defined in the Transmission Services Agreement), NIAGARA MOHAWK agrees to execute and deliver and to furnish a written consent to the assignment by PRODUCER of this AGREEMENT to the LENDERS, a certificate of an authorized officer of NIAGARA MOHAWK and an opinion of counsel to NIAGARA MOHAWK, in each case in form and substance reasonably acceptable to the LENDERS and NIAGARA MOHAWK. 20.3 Any company or entity which shall succeed by purchase, merger or consolidation to the properties, substantially or entirely, of either NIAGARA MOHAWK or PRODUCER, as the case may be, shall be entitled to the rights and shall be subject to the obligations of its predecessor in title under this AGREEMENT provided that, at least thirty (30) days prior to the effective date of the proposed assignment, the assignee shall unconditionally assume, and agree to be bound by, all of the terms and conditions of this AGREEMENT, and the Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 40 Rate Schedule FERC No. 189 Superceding Original Sheet No. 40 assignee makes certain additional representations and warranties as appropriate for assignee as contained in Article 2. 20.4 This AGREEMENT shall bind and inure to the benefit of the parties to this AGREEMENT, their successors and permitted assigns. 21. WAIVER 21.1 No provision of this AGREEMENT may be waived except by mutual agreement of the parties as expressed in writing and signed by both parties. 21.2 Any waiver that is not in writing and signed by both parties shall be null and void from its inception. 21.3 No express waiver in any specific instance as provided in a required writing shall be construed as a waiver of future instances unless specifically so provided in the required writing. 21.4 No express waiver of any specific default shall be deemed a waiver of any other default whether or not similar to the default waived, or a continuing waiver of any other right or default by a party. 21.5 The failure of either party to insist in any one or more instances upon the strict performance of any of the provisions of this AGREEMENT, or to exercise any right herein, shall not be construed as a waiver or relinquishment for the future of such strict performance of such provision or the exercise of such right. 22. AMENDMENT/MODIFICATION 22.1 This AGREEMENT may be amended or modified only if the amendment or modification is in writing and executed by both parties. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 41 Rate Schedule FERC No. 189 Superceding Original Sheet No. 41 22.2 Any amendment or modification that is not in writing and signed by both parties shall be null and void from its inception. 22.3 No express amendment or modification in any specific instance as provided herein shall be construed as an amendment or modification of future instances, unless specifically so provided in the required writing. 23. CHOICE OF LAW/JURISDICTION/SERVICE OF PROCESS 23.1 This AGREEMENT shall be deemed to be executed in the State of New York and shall be interpreted and enforced according to the Laws of the State of New York. 23.2 Each of the parties agrees to submit to the jurisdiction of the courts in the State of New York for the purposes of interpretation and enforcement of this AGREEMENT; provided, however, that this Article shall not serve to divest an administrative agency of competent jurisdiction from interpreting or enforcing this AGREEMENT. 23.3 Each of the parties waives personal service by manual delivery and agrees that service of process in any action concerning or arising out of this AGREEMENT may be made by registered or certified mail, return receipt requested, delivered at such party's address set forth in Section 13.1 hereof. 24. SEVERABILITY 24.1 If any terms of this AGREEMENT, or the interpretation or application of any term or provision to any prior circumstance, is held to be unenforceable, illegal, or invalid by a court or agency of competent jurisdiction, the remainder of this AGREEMENT, or the interpretation or application of all other terms or provisions to persons or circumstances other than those that are unenforceable, illegal, or invalid, shall not be affected Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 42 Rate Schedule FERC No. 189 Superceding Original Sheet No. 42 thereby and each term and provision shall be valid and be enforced to the fullest extent permitted by law. 25. HEADINGS 25.1 The headings in this AGREEMENT are included herein for convenience of reference only and shall not constitute a part of this AGREEMENT for any other purpose, or limit or be used as an aid in construing the provisions of this AGREEMENT. 26. INTEGRATION/MERGER/SURVIVABILITY 26.1 This AGREEMENT sets forth the entire understanding and agreement of the parties as to the subject matter of this AGREEMENT, except to the extent covered in the Transmission Services Agreement. 26.2 This AGREEMENT merges and supersedes all prior agreements, commitments, representations, writings and discussions between the parties regarding the subject matter herein, except those contained in the Transmission Services Agreement. 26.3 In the event of any conflict between the terms and conditions of this AGREEMENT and the Transmission Services Agreement, the terms and conditions of the Transmission Services Agreement shall control. 26.4 Neither party shall be bound or liable to the other party for any prior obligations, affirmations of fact, conditions, warranties, representations, understandings, promises, assurances, inducements, or agreements of any kind, whether written or oral, made by any agent or person in the other party's employ with respect to the subject matter of this AGREEMENT, unless explicitly embodied herein. Issued by: Susan L. Hodgson Effective Date: July 1, 2001 Manager- Transmission and Delivery Services Issued on: June 29, 2001
Niagara Mohawk Power Corporation Substitute Original Sheet No. 43 Rate Schedule FERC No. 189 Superceding Original Sheet No. 43 27. EXECUTION IN COUNTERPARTS 27.1 This AGREEMENT may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed as of the day and year first above written. SITHE/INDEPENDENCE POWER NIAGARA MOHAWK PARTNERS, L.P. POWER CORPORATION By: Sithe/Independence, Inc. its General Partner By: /s/ Martin B. Rosenberg By: /s/ Edward J. Dienst ------------------------------- -------------------------- Title: Senior Vice President Title: Senior Vice President Date: June 29, 2001 Date: June 29, 2001 EX-10.7(10) 14 a2056240zex-10_710.txt EXHIBIT 10.7.10 EXHIBIT 10.7.10 TENTH AMENDMENT TO AMENDED AND RESTATED BASE GAS SALES AGREEMENT THIS TENTH AMENDMENT TO AMENDED AND RESTATED BASE GAS SALES AGREEMENT (this "AMENDMENT") is made and entered into as of June 29, 2001 by and between ENRON NORTH AMERICA CORP., a corporation organized and existing under the laws of the State of Delaware, as successor in interest by merger to Enron Power Services, Inc. ("SELLER"), and SITHE/INDEPENDENCE POWER PARTNERS, L.P., a limited partnership organized and existing under the laws of the State of Delaware ("BUYER"). WITNESSETH: WHEREAS, Seller and Buyer are parties to that certain Amended and Restated Base Gas Sales Agreement, dated as of October 26, 1992, as previously amended by amendments, dated as of December 1, 1992, August 26, 1993, December 31, 1993, October 31, 1994, February 1, 1995, March 1, 1995, March 31, 1995, October 10, 1995 and September 1, 2000 (as so amended, the "ORIGINAL AGREEMENT"); and WHEREAS, Buyer intends, at the Effective Date (as defined below), to enter into a tolling agreement or similar arrangements (the "TOLLING AGREEMENT") for the provision by Buyer of tolling services or similar arrangements at the Facility; and WHEREAS, pursuant to the terms of the Tolling Agreement and related documents, the purchaser or purchasers thereunder shall be obligated to procure and deliver to the Facility all of the Facility's natural gas requirements associated with such Tolling Agreement and related documents, and as a result thereof, Seller and Buyer desire to terminate all of the obligations of Seller to sell to Buyer, and Buyer to purchase from Seller, gas under the Original Agreement; with the result that the sole obligations remaining under the Original Agreement as amended by this Amendment are the obligations of the Buyer to pay the agreed upon balance of the Tracking Account as provided in this Amendment and to otherwise comply with the terms of the Original Agreement as amended by this Amendment; and WHEREAS, Seller and Buyer wish to amend the Original Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises, the covenants and agreements contained herein and the benefits to be derived therefrom, the receipt and sufficiency of which is hereby acknowledged by each of Seller and Buyer, Seller and Buyer, intending to be legally bound, hereby agree that the Original Agreement is amended effective as of the Effective Date as follows: 1. Unless otherwise defined in this Amendment, capitalized terms used in this Amendment shall have the meanings assigned to them in the Agreement. 2. The parties agree that Article I of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: DEFINITIONS 1.1 DEFINITIONS. The following expressions, as used in this Agreement, have the meanings set forth below or given them in the provisions hereof cited (such meanings to be equally applicable to both the singular and plural forms of the expressions defined): "AFFILIATE" with respect to any Person means any other Person directly or indirectly controlling, controlled by, or under common control with such first Person whether through ownership, by contract, or otherwise; provided that any Person with direct or indirect ownership of 5% or more of the voting power for the election of directors or other governing body of a corporation or 5% or more of the economic interest of any other Person will be deemed to control such corporation or other Person. "AGREEMENT" means this Amended and Restated Base Gas Sales Agreement, as amended from time to time. "BUSINESS DAY" means any Day other than a Saturday, Sunday, or a state or federal bank holiday in Houston, Texas or New York, New York. "BUYER EVENT OF DEFAULT" shall have the meaning set forth in Section 8.1. "COLLATERAL" shall have the meaning set forth in the Intercreditor Agreement. "CONED" means Consolidated Edison Company of New York, Inc. "CONED SUBORDINATED OBLIGATIONS" means all amounts payable by Buyer to ConEd in accordance with Section 4.01 of the Amended and Restated Energy Purchase Agreement dated as of September 1, 2000 by and between Buyer and ConEd. "CLAIM" means any actual or potential claim, suit, action, debt, account, damage, cost, loss or expense (including attorneys' fees and court costs). "DAY" means a calendar day. "DEFAULT INTEREST RATE" means, with respect to any date, the rate per annum equal to the lesser of (i) one percent (1%) over the rate identified in 2 the final Eastern edition of THE WALL STREET JOURNAL for such date under "Money Rates" as the "Prime Rate" (or, if no such rate is identified, the "Prime Rate" as published by Citibank NA or its successor at its New York office), and (ii) the maximum rate of interest permitted by applicable law. "EFFECTIVE DATE" shall mean June 29, 2001. "FACILITY" means the gas-fired electrical and steam generating plant and associated materials, structures and systems constructed and owned by Buyer in the Town of Scriba, County of Oswego, New York, having a net generating capacity of approximately 1,040 megawatts. "FACILITY LENDERS" means the financial institutions or other Persons from which, or on the credit of which, Buyer incurs any Senior Obligations, and any trustee or agent acting on any such Person's behalf. "INDENTURE" means the Trust Indenture dated January 1, 1993 among Sithe/Independence Funding Corporation, Sithe/Independence Power Partners, L.P., and Bank of New York (as successor in interest to IBJ Schroder Bank and Trust Company), as Trustee, as amended, and any successor agreement thereto. "INTERCREDITOR AGREEMENT" means the Collateral Agency and Intercreditor Agreement dated January 1, 1993 among Buyer, Seller, The Sumitomo Bank Limited (as successor in interest to Union Bank), Bank of New York (as successor in interest to IBJ Schroder Bank & Trust Company), Sithe/Independence Funding Corporation, the County of Oswego Industrial Development Agency and Manufacturers and Traders Trust Company. "INTEREST PAYMENT DATE" shall have the meaning set forth in Section 4.4(c). "INTEREST RATE" means, with respect to any date, a rate per annum equal to the lesser of (i) seven percent (7%) and (ii) the maximum rate of interest permitted by applicable law. "OUTSTANDING BALANCE" shall have the meaning set forth in Section 4.4(a). "PARENT" means Enron Corp., an Oregon corporation. "PARENT GUARANTY" means the Base Guaranty Agreement dated as of December 1, 1992 and made by Enron Corp. to and for the benefit of the Buyer. 3 "PERSON" means any individual, corporation, partnership, trust, estate, limited liability company, governmental agency or authority, or other entity. "PROJECT DOCUMENTS" shall have the meaning set forth in the Indenture. "SECURITY AGREEMENT AND ASSIGNMENT OF CONTRACTS" means that certain Security Agreement and Assignment of Contracts, dated as of January 1, 1993, made by Buyer in favor of Manufacturers and Traders Trust Company. "SENIOR DEBT TERMINATION DATE" shall have the meaning set forth in the Intercreditor Agreement. "SENIOR OBLIGATIONS" means the "Financing Liabilities" (as that term is defined in the Intercreditor Agreement) outstanding as of the Effective Date, plus any other such Financing Liabilities incurred after the Effective Date, but only to the extent that the proceeds of which are used to repair, replace or modify all or any portion of the Facility to the extent required by the terms of the Senior Obligations. "TENTH AMENDMENT" means the Tenth Amendment to Amended and Restated Base Gas Sales Agreement dated June 29, 2001. "TERMINATION DATE" shall have the meaning set forth in Section 8.1. "TRACKING ACCOUNT" shall have the meaning set forth in Section 4.4(a). "TRACKING ACCOUNT LOAN" shall have the meaning set forth in Section 4.4(a)." "TRACKING ACCOUNT MORTGAGE AND SECURITY AGREEMENT" means that certain Mortgage and Security Agreement, dated as of January 1, 1993, from the County of Oswego Industrial Development Agency and Buyer to Manufacturers and Traders Trust Company. 1.2 ACCOUNTING DEFINITIONS. All accounting definitions not specifically defined herein shall be construed in accordance with generally accepted accounting principles as in effect from time to time, including, without limitation, applicable statements, bulletins, and interpretations issued by the Financial Accounting Standards Board and bulletins, opinions, interpretations, and statements issued by the American Institute of Certified Public Accountants or its committees. When used herein, the expression "FINANCIAL STATEMENTS" includes the notes and schedules thereto, but unless 4 otherwise prepared need not include such notes or schedules when used with reference to such statements of any Person as of any date other than the end of a fiscal year of such Person. Where the character or amount of any asset or liability or item of income or expense is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with generally accepted accounting principles applied on a consistent basis. 1.3 OTHER DEFINITIONS; USE OF DEFINED EXPRESSIONS. The words "HEREOF," "HEREIN" and "HEREUNDER," and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Exhibit, and like references refer to such portions of this Agreement unless otherwise specified. Each Exhibit attached hereto is made a part hereof for all purposes. Unless otherwise defined or the context otherwise requires, expressions for which meanings are provided in this Agreement shall have such meanings when used in each notice or other communication delivered or given from time to time under or in connection with this Agreement. Unless the context otherwise requires, any reference herein to any Project Document shall mean such Project Document and all schedules, exhibits, and attachments thereto as amended, supplemented, or otherwise modified and in effect from time to time. Unless otherwise stated, any reference in this Agreement to any Person shall include its permitted successors and assigns and, in the case of any governmental agency or authority, any Person succeeding to its functions and capacities. 3. The parties agree that Article II of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE II [RESERVED] 4. The parties agree that Article III of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE III [RESERVED] 5. The parties agree that Article IV of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE IV PAYMENTS 4.1 [Reserved]. 4.2 [Reserved]. 4.3 [Reserved]. 5 4.4 TRACKING ACCOUNT. (a) Seller shall maintain an account (the "TRACKING ACCOUNT"), as provided in this Section 4.4. As of the Effective Date, the balance of the Tracking Account shall be an amount equal to the sum of (i) four hundred and eight million, seven hundred and fifty-nine thousand, nine hundred and sixteen dollars and seventy-one cents ($408,759,916.71) (which represents the agreed balance of the Tracking Account as of May 31, 2001) and (ii) the net change in the Tracking Account for the period from and including June 1, 2001 and ending on the Effective Date, determined pursuant to Section 4.4 of the Agreement as it existed immediately prior to the Tenth Amendment. Within thirty (30) days after the Effective Date, Seller shall provide Buyer with Seller's calculation of the Effective Date balance of the Tracking Account, together with supporting documentation therefor. If Buyer and Seller are unable to agree on the Effective Date balance of the Tracking Account within twenty (20) days of receipt by Buyer of Seller's calculation, the Effective Date balance of the Tracking Account shall be determined by a nationally recognized independent accounting firm mutually acceptable to the parties, the fees of which shall be shared equally between Buyer and Seller. Seller and Buyer agree that the Effective Date balance of the Tracking Account as finally determined hereunder (the "OUTSTANDING BALANCE") shall be deemed to be a loan by Seller to Buyer in a principal amount equal to the Outstanding Balance (the "TRACKING ACCOUNT LOAN"). Notwithstanding any limitations on recourse in any Project Document to the contrary, but subject to all terms and conditions of subordination (including with respect to the Collateral) set forth in the Intercreditor Agreement, Buyer hereby waives any such limitations on recourse applicable to it with respect to its obligations hereunder, and agrees that it shall be personally liable (on a recourse basis) for the repayment of the Tracking Account Loan and any accrued and unpaid interest thereon pursuant to this Agreement. Repayment of the Tracking Account Loan shall be made in accordance with this Section 4.4. (b) [Reserved]. (c) Interest shall accrue on the unpaid balance of the Tracking Account Loan for the period commencing on the Effective Date until the Tracking Account Loan shall have been paid in full, at the Interest Rate, calculated on the basis of the actual number of Days elapsed divided by 365. From the Effective Date to but excluding June 1, 2015, but subject to the provisions of Section 4.7, interest (i) shall be due and payable on each June 1 and December 1, commencing on December 1, 2001 (each such date, an "INTEREST PAYMENT DATE") in an amount equal to the interest accrued and unpaid on the Tracking Account Loan (including interest accrued on any deferred interest) as of such date and (ii) may be prepaid, at Buyer's option, on any Business Day on which any payments may be made to Buyer's equity investors under the Indenture, in an amount equal to the lesser of (A) the interest accrued on the unpaid balance of the Tracking Account Loan (including interest accrued on any deferred interest) as of such date, and (B) the amount available to be distributed to Buyer's equity investors pursuant to the Indenture on such date. Commencing on June 1, 2015 and continuing on the first day of each December and June 6 thereafter until December 1, 2034 (or until the Tracking Account Loan has been paid in full), but subject to Section 4.7, the Tracking Account Loan shall be payable in forty (40) equal semi-annual installments of principal and interest, each such installment to be in such amount as is necessary to fully amortize the Tracking Account Loan over the period from and including June 1, 2015 to but excluding December 1, 2034. Each of Buyer and Seller shall use its reasonable efforts to prepare and attach to the Tenth Amendment, within thirty (30) days of the final determination of the Effective Date, the balance of the Tracking Account pursuant to Section 4.4(a) and a schedule reflecting the payments required under the Tracking Account Loan pursuant to the immediately preceding sentence. Interest which is not paid as of the due date therefor shall not be capitalized into the principal amount of the Tracking Account Loan, but shall be carried by Buyer as a separate obligation on its books and records, provided that if any payment of interest is not made as of the due date, interest shall accrue on the amount of interest that Buyer has so failed to make payment at the Interest Rate (if Buyer was unable to make such payment pursuant to Section 4.7) or at the Default Interest Rate (in all other circumstances) for the period from such due date until the date upon which such payment is made in full. Buyer may, at any time after the date hereof and from time to time, prepay all or any portion of accrued but unpaid interest and/or the unpaid balance of the Tracking Account Loan, without penalty or premium. If (i) a Termination Date occurs pursuant to Section 8.1 hereof, the entire principal amount of the Tracking Account Loan outstanding, and all interest accrued and unpaid thereon, shall be accelerated and shall become immediately due and payable without any further presentment, demand, protest or further notice of any kind or (ii) the Facility Lenders declare the Senior Obligations to be due and payable prior to the scheduled maturity thereof and the Facility Lenders shall commence any judicial, non-judicial or other proceeding to foreclose or to realize against any of their liens or security interests on the Facility (including through a deed or other transfer in lieu of foreclosure on the Facility), then Seller, by notice to Buyer, may declare the unpaid balance of the Tracking Account Loan accelerated, whereupon the entire principal amount of the Tracking Account Loan outstanding, and all interest accrued and unpaid thereon, shall, upon Buyer's receipt of such notice, be accelerated and shall become immediately due and payable without any further presentment, demand, protest or further notice of any kind, and Buyer shall pay the amount due, determined as of the date of such notice (including any interest accrued thereon until the date of payment), to Seller; provided, however, that, in the case of clause (ii) of this sentence, if the Senior Obligations shall no longer be due and payable prior to the scheduled maturity thereof or if the Facility Lenders shall no longer be seeking to succeed to Buyer's interest in the Facility (whether through foreclosure or by delivery of a deed or other transfer of the ownership of the Facility in lieu of foreclosure), or, in the case of clause (i) or (ii) of this sentence, if the Facility Lenders or their designee(s) or assignee(s) shall succeed to Buyer's interest under this Agreement in the manner contemplated by the Intercreditor Agreement, then such payment shall no longer be due and payable under this Section 4.4(c) until a due date for such payment occurs thereafter, and if Buyer shall have theretofore made payment of all or any portion of the Tracking Account Loan or any interest thereon in accordance with clause (i) or clause (ii) of this sentence or if Seller shall have theretofore obtained any portion of any such payment, whether through 7 foreclosure or otherwise, Seller shall refund any such payment or recovery to Buyer. Notwithstanding any other provision contained herein, but subject to the Intercreditor Agreement, Seller's sole remedy for Buyer's failure to make payment to Seller in accordance with clause (ii) of the immediately preceding sentence of this Section 4.4(c) shall be to foreclose on any collateral securing such payment. (d) At the written request of Seller at any time after the occurrence of a Buyer Event of Default pursuant to Section 8.1(a) or, in the case of any other Buyer Event of Default, on or after any Termination Date in respect thereof, Buyer agrees that it will immediately and irrevocably certify to the Trustee, pursuant to Section 4.14(b) of the Indenture that all principal and interest payments due in accordance with this Section 4.4 constitute amounts payable to Seller as the "Fuel Supplier" as contemplated by Section 4.14(b) of the Indenture. By its execution of this Agreement, Buyer irrevocably constitutes and appoints Seller as Buyer's "Authorized Representative" (as such term is defined in the Indenture), with full power and authority in Buyer's name, place and stead, to execute, acknowledge and deliver to the Trustee any certificate as may be required to be furnished to the Trustee in accordance with Section 4.14(b) of the Indenture; PROVIDED that Seller agrees that it shall only exercise such power and authority under the circumstances described in, and for the purpose of effectuating, the provisions of the immediately preceding sentence. The foregoing grant of authority (i) to act as Buyer's "Authorized Representative" under the Indenture is coupled with an interest in favor of Seller and as such shall be irrevocable and shall survive the merger, dissolution or other termination of Buyer's existence, (ii) may be exercised by a facsimile signature of the Seller, and (iii) shall survive the assignment by Buyer of this Agreement. If any payment under this Agreement shall be due on a Day which is not a Business Day, such payment shall be made without default on the next succeeding Business Day. Any payments made pursuant to this Article 4 shall be made by wire transfer in immediately available funds for credit to Seller's account at Bank of America, N.A., Houston, Texas, ABA No. 111000012, Account No. 3750494099, or as Seller may specify by notice to Buyer on or before the second Business Day prior to payment. (e) All payments received by Seller under this Agreement, shall be applied first to the payment of accrued and unpaid interest; and then to principal, with any prepayments of principal to be applied to the installments of the principal of the Tracking Account Loan in inverse order of maturity. 4.5 [Reserved]. 4.6 [Reserved]. 4.7 DEFERRAL OF CERTAIN PAYMENTS. For as long as the Senior Obligations are outstanding, notwithstanding the provisions of Section 4.4, payment of amounts otherwise due under Section 4.4 shall be deferred if and to the extent Buyer's agreements with the Facility Lenders in connection with the Senior Obligations prohibit payment of like amounts to Buyer's equity investors until such time as such payments to Buyer's 8 equity investors could be made under such agreements (and Buyer agrees not to make payment to its equity investors during such deferral). For as long as the ConEd Subordinated Obligations are outstanding, notwithstanding the provisions of Section 4.4 hereof, if and to the extent that Buyer can make payments to its equity investors, all amounts which could be paid to Buyer's equity investors by Buyer shall be applied first to pay any and all amounts due and payable under the ConEd Subordinated Obligations, and second to pay all amounts due and payable under Section 4.4 hereof, and any additional amounts due under Section 4.4 hereof and not paid shall be deferred; PROVIDED, FURTHER, that Buyer shall not, on any Business Day on which any payments may be made to Buyer's equity investors under the Indenture, make any payments to its equity investors of amounts which could be paid to its equity investors unless and until Buyer shall have paid (i) first, all amounts due and payable under the ConEd Subordinated Obligations; (ii) second, all amounts due and payable under Section 4.4 hereof (including accrued interest thereon) which have previously been deferred pursuant to this Section 4.7; (iii) third, all principal, accrued interest and all other amounts otherwise due and payable on such Business Day under Section 4.4 hereof; and (iv) fourth, if such Business Day is not an Interest Payment Date, all accrued and unpaid interest under Section 4.4 hereof as of such Business Day. The provisions of this Section 4.7, however, shall not limit the ability of Seller to exercise its rights to accelerate the Tracking Account Loan or to foreclose on any collateral securing payment of amounts due under Section 4.4(c) when due as therein provided. Notwithstanding anything contained herein, if and to the extent that Buyer is required to defer payment of any amount due under Section 4.4 in accordance with this Section 4.7, Buyer's failure to make any such payment shall not constitute or result in a Buyer Event of Default under this Agreement. Buyer and Seller expressly acknowledge and agree that the obligation of Buyer to pay the principal amount of the Tracking Account Loan and accrued interest thereon when due and payable in accordance with the provisions of Section 4.4, shall constitute Tracking Account Liabilities for purposes of the Intercreditor Agreement and shall be subject to, and shall be payable when and as permitted by, the provisions of Section 3(b) of the Intercreditor Agreement. 6. The parties agree that Article V of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE V [RESERVED] 7. The parties agree that Article VI of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE VI COVENANTS OF BUYER 6.1 COVENANTS OF BUYER. From the Effective Date hereof through the Day upon which the Tracking Account Loan is paid in full, Buyer shall, unless otherwise consented to by Seller in writing: 9 (a) [Reserved]. (b) REPORTS AND OTHER INFORMATION. Furnish, or cause to be furnished, to Seller: (i) NOTICE OF EVENTS. Promptly after Buyer shall have obtained knowledge of the occurrence of a Buyer Event of Default, written notice thereof setting forth the details of such Buyer Event of Default and the action which Buyer proposes to take with respect thereto. (ii) REPORTS TO FACILITY LENDERS. At the same time as they are (or if the Senior Obligations have been repaid, at the time they would have been) required to be delivered to the Facility Lenders, a copy of each quarterly, annual, or other audit or financial report and each report on the electrical or thermal output of the Facility to be furnished to Facility Lenders and each notice of default or condition or event that, with notice or lapse of time or the taking of any action, will constitute a default under the agreements with the Facility Lenders. (iii) OPERATION AND MAINTENANCE BUDGETS. Not later than five Days following Buyer's receipt thereof, a copy of each annual operations and maintenance budget prepared by the operator of the Facility; and at least thirty Days prior to the first Day of the second half of each annual operations and maintenance period, a copy of the semi-annual operations and maintenance budget for the next following six month period prepared by the operator of the Facility. Each annual and semi-annual budget shall, among other information, set out the amount and expected timing of all material expenses, including, without limitation, the amount to be expended for and the expected timing of capital expenditures, scheduled maintenance and other material non-operating expense categories. If and to the extent that the amount or expected timing of all material expenses, including, without limitation, the amount to be expended for and the expected timing of capital expenditures, scheduled maintenance and other material non-operating expense categories is materially revised, Buyer shall provide Seller with the revised schedule of such items. (iv) NOTICE OF OTHER DEFAULTS. Promptly upon Buyer having received or having sent any written notice of any default under any of the following: (A) Amended and Restated Energy Purchase Agreement dated as of September 1, 2000 by and between Buyer and ConEd; (B) Tolling Agreement dated July 1, 2001 between Buyer and Dynegy Power Marketing, Inc.; (C) Master Agreement dated July 1, 2001 between Buyer and Dynegy Power Marketing, Inc., the Schedule to the Master Agreement attached thereto dated July 1, 2001 and Confirmation #1A thereof dated July 1, 2001; (D) Gas Supply Agreement dated July 1, 2001 between Buyer and Dynegy Canada Marketing and Trade; (E) Energy Management Agreement dated July 1, 2001 among Buyer, Dynegy Marketing and Trade and Dynegy Power Marketing, Inc.; and (F) Energy Sales Contract, dated as 10 of November 18, 1992, between Buyer and Alcan Aluminium Corporation d/b/a Alcan Rolled Products Company, as amended, a copy of such written notice together with a written explanation of the details of such default and the action which Buyer proposes to take with respect thereto. (c) NO EQUITY DISTRIBUTIONS. Not make any distribution to its equity investors except in accordance with the second sentence of Section 4.7. (d) PROJECT DOCUMENTS. Deliver to Seller for Seller's timely review copies of all final drafts of Project Documents and final drafts of amendments thereto requiring Seller's acceptance entered into on or after the date hereof, promptly on their becoming available to Buyer (provided, however, that Seller may review engineering, procurement, and construction contracts only at Buyer's offices and Buyer shall not be required to provide Seller copies thereof and provided further that Seller may review Project Documents relating to the Senior Obligations only at Buyer's offices or such other location as shall be acceptable to Buyer and Buyer shall not be required to provide Seller copies thereof) and to enter into Project Documents (other than Project Documents relating to the Senior Obligations) only upon acceptance by Seller (which acceptance shall not be withheld or delayed unreasonably). Buyer may enter into amendments to any of the Project Documents relating to the Senior Obligations subject to the limitations contained in the definition of Senior Obligations contained herein. Buyer may not, without the consent of Seller (which consent shall not be unreasonably withheld or delayed), enter into any amendment to any other Project Document or fail to maintain such other Project Document in full force and effect or fail to perform its obligations under such other Project Document except to the extent such amendment or failure would not reasonably be expected materially and adversely to affect Buyer's ability to perform its obligations under this Agreement. (e) GOVERNMENTAL APPROVALS. Obtain and maintain in full force and effect all Governmental Approvals necessary for its execution, delivery, and performance of this Agreement and for the operation of the Facility. (f) TITLE, NO MERGER. (i) Maintain good and marketable title to all assets and properties comprising a part of the Facility, including fee simple title to the site on which the Facility is located (or a valid leasehold interest therein), and all easements and other interests acquired for use in connection with the Facility, in each case free and clear of all liens, claims, and encumbrances of any nature whatsoever, except those in favor of the Facility Lenders in connection with the Senior Obligations or Seller as contemplated hereby and those that would not reasonably be expected to have a material and adverse effect on Buyer's ability to own and operate the Facility and to perform its obligations under this Agreement; (ii) not sell, assign, transfer, convey or otherwise dispose of all or a material portion of the assets and properties comprising a part of the Facility; and (iii) not merge with or into or consolidate with any Person, or acquire, by lease, purchase, or otherwise all or substantially all of the assets or stock of any class of, or any partnership or joint venture interest in, any Person. 11 (g) SECURITY INTEREST. Create, perfect, and preserve (including payment of all associated recording fees and Taxes, provided that Seller shall enter into such agreements, instruments, and documents (including amendments hereto) as Buyer may reasonably request to create, perfect, and preserve such security instruments and liens so long as such agreements, instruments, and documents do not, in Seller's reasonable opinion, materially and adversely affect Seller's rights hereunder) in favor of Seller a security interest and lien on the Facility, Buyer's interest in all Project Documents, and the proceeds of the foregoing, securing Buyer's obligations to pay the Tracking Account Loan when due as provided herein, free and clear of any other security interest or lien other than those in favor of the Facility Lenders in connection with the Senior Obligations (and subordinate to such security interests and liens of the Facility Lenders on terms satisfactory to Seller and the Facility Lenders) and those that would not reasonably be expected to have a material and adverse effect on Buyer's ability to own and operate the Facility and to perform its obligations under this Agreement, all on substantially the same terms and conditions as the security interests and liens in favor of the Facility Lenders in connection with the Senior Obligations (other than with respect to covenants specifically addressed in this Agreement) or as Seller and Buyer otherwise may agree. (h) [Reserved]. (i) INDEBTEDNESS. Not directly or indirectly create, incur, assume, or otherwise be or become liable with respect to any indebtedness other than (i) indebtedness in respect of the Senior Obligations, (ii) indebtedness in respect of current accounts and other amounts payable in the ordinary course of business, (iii) unsecured indebtedness or indebtedness subject and subordinate (on terms and conditions reasonably satisfactory to Seller) to Buyer's obligations under Section 4.4, provided that such indebtedness is in respect of the acquisition, development, construction, completion, operation, maintenance, repair, replacement, use, expansion, or modification of all or any portion of the Facility or the performance of any of Buyer's obligations under this Agreement, and (iv) indebtedness, the proceeds of which are to be distributed by Buyer to the equity investors in Buyer, provided that such indebtedness has been approved by Seller. (j) [Reserved]. 6.2 COVENANTS OF SELLER. From the Effective Date hereof through the Day upon which the Tracking Account Loan is paid in full, Seller shall, unless otherwise consented to by Buyer in writing: (a) [Reserved]. (b) [Reserved]. (c) REVIEW OF PROJECT DOCUMENTS. Within 15 Days after receipt (as evidenced by Seller's written or electronic confirmation that such Project Documents have been actually received by each of the notice recipients), notify Buyer of any objections to drafts 12 of Project Documents and amendments thereto delivered by Buyer as provided in Section 6.1(d). (d) GOVERNMENTAL APPROVALS. Obtain and maintain in full force and effect all Governmental Approvals necessary for its execution, delivery, and performance of this Agreement. (e) [Reserved]. 8. The parties agree that Article VII of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE VII [RESERVED] 9. The parties agree that Article VIII of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE VIII REMEDIES 8.1 BUYER EVENTS OF DEFAULT. If one or more of the following conditions or events (each a "BUYER EVENT OF DEFAULT") occurs and is continuing: (a) Buyer fails to pay any amounts due Seller hereunder when due and such failure continues for a period of three (3) Days; (b) Buyer generally fails to pay, or admits in writing its inability to pay, its debts as they become due, or shall voluntarily commence any case or proceeding or file any petition under any bankruptcy, insolvency or similar law seeking dissolution, liquidation or reorganization or the appointment of a receiver, trustee, custodian or liquidator for itself or for a substantial portion of its property, assets or business, or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of any involuntary petition filed against it in any bankruptcy, insolvency or similar case or proceeding or is adjudicated bankrupt, or makes a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian or liquidator for itself or for a substantial portion of its property, assets or business, or corporate action is taken by Buyer for the purpose of effectuating any of the foregoing; and, in any such circumstance, the Person exercising control over the assets of the Buyer shall fail to affirm this Agreement within a reasonable period of time and shall fail to provide evidence reasonably satisfactory to Seller that the Buyer can reasonably be expected to perform its obligations when and as they become due under this Agreement; (c) involuntary proceedings or any involuntary petition shall be commenced or filed against Buyer under any bankruptcy, insolvency, or similar law seeking the 13 dissolution, liquidation, or reorganization of Buyer, or the appointment of a receiver, trustee, custodian, or liquidator for Buyer, or of a substantial portion of the property, assets or business of Buyer, or any writ, judgment, warrant of attachment, execution or similar process is issued or levied against a substantial part of the property, assets or business of Buyer and, in any such circumstance, such involuntary bankruptcy or similar proceedings are not stayed or dismissed within 120 Days or (ii) the Person exercising control over the assets of the Buyer shall fail to provide evidence reasonably satisfactory to Seller that the Buyer can reasonably be expected to perform its obligations when and as they become due under this Agreement; or (d) Buyer fails to perform in any material respect any of its material obligations under this Agreement or the documents evidencing the security interest described in Section 6.1(g); then Seller, in its sole discretion, may: (i) in the case of a Buyer Event of Default under Section 8.1(a), at any time on or after the 30th Day, or, if the Senior Debt Termination Date shall have occurred, at any time on or after the 5th Day, following delivery of a notice from Seller to Buyer requesting the cure of such Buyer Event of Default, unless such Buyer Event of Default has been cured, designate a date of acceleration of the Tracking Account Loan by notice to Buyer, which date shall be no earlier than the 10th Day following the date of such notice or, if the Senior Debt Termination Date shall have occurred, which date shall be no earlier than the date Buyer receives such notice (the "TERMINATION DATE"); or (ii) in the case of any other Buyer Event of Default, at any time on or after the 30th Day (or if such condition or event cannot reasonably be cured by such 30th Day but can reasonably be expected to be cured by the 120th Day and Buyer is diligently pursuing such cure, on or after the 120th Day) following delivery of notice from Seller to Buyer requesting the cure of such Buyer Event of Default, unless it has been cured, designate by notice to Buyer a Termination Date. 8.2 [Reserved]. 8.3 REMEDIES CUMULATIVE. Subject to the provisions of Section 8.4, the rights, powers, and remedies provided in Article VIII are in addition to other rights, powers, or remedies the parties may have at law or in equity. Seller shall have the right to obtain equitable relief from any court of competent jurisdiction to specifically enforce the provisions of Sections 4.4(d) and 6.1(c), and Buyer expressly acknowledges that damages would not be a sufficient remedy for any breach of Buyer's obligations under such Section. 8.4 LIMITATION ON DAMAGES. Notwithstanding any other provision of this Agreement or applicable law, in no event shall any party hereto be liable for indirect, 14 special, consequential, punitive, or exemplary damages for any breach of the provisions hereof. 10. The parties agree that Article IX of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE IX ADDITIONAL AGREEMENTS 9.1 [Reserved]. 9.2 MUTUAL WAIVERS AND RELEASES. Except (i) as specifically provided with respect to the Tracking Account Loan and (ii) with respect to the final invoice for payment submitted by Seller to Buyer in the ordinary course of business in connection with deliveries of gas by Seller to Buyer, in accordance with Section 4.1 of the Agreement as in effect prior to the Effective Date, for the period from and including June 1, 2001 to but excluding the Effective Date, and effective upon and in consideration for Buyer's payment to Seller, within thirty (30) Days of the Effective Date, of eleven million four hundred fifty-seven thousand three hundred ninety-four dollars ($11,457,394) by wire transfer in immediately available funds to an account to be specified by Seller, each of Seller and Buyer, on behalf of itself and its Affiliates, its shareholders, and their respective successors and assigns, hereby irrevocably waives and releases the other party and such party's Affiliates, shareholders, and their respective successors and assigns, from any and all Claims arising out of or relating to this Agreement as in effect prior to the Effective Date, including, without limitation, any and all Claims arising out of or relating to the purchase and sale of gas, any minimum annual or minimum monthly take obligations, any incremental revenues, any transportation savings or demand charges, any price risk management fees or any foreign currency adjustments. 9.3 REVOCATION OF AGENCY. Buyer hereby expressly terminates and revokes any appointment of Seller to serve as Buyer's agent with respect to any matter arising under the Original Agreement, whether express or implied, including, without limitation, any appointment of Seller to serve as Buyer's agent for the purposes set forth in Section 3.3(a) of the Original Agreement. Seller acknowledges and agrees to the foregoing termination and revocation of any such agency. 11. The parties agree that Article X of the Original Agreement shall be deleted in its entirety, and the following shall be inserted in its place: ARTICLE X MISCELLANEOUS 10.1 NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been duly given when actually delivered to the other party (by telecopier or other means) or when received by registered or certified mail, postage prepaid, by the receiving party at the following address or such other address as may be specified in 15 writing from time to time by the receiving party by notice to the other in the foregoing manner: (a) if to Seller: Enron North America Corp. Compliance Department 1400 Smith Street Houston, Texas 77002 Attention: Donna Lowry Telecopy: (713) 646-4039 WITH COPIES TO: Enron North America Corp. 1400 Smith Street Houston, Texas 77002 Attention: Charles Ward Telecopy: (713) 646-3059 AND Enron North America Corp. 1400 Smith Street Houston, Texas 77002 Attention: Sheila R. Tweed Telecopy: (713) 646-3490 (b) if to Buyer: Sithe/Independence Power Partners, L.P. 76 Independence Way P.O. Box 1046 Oswego, New York 13126 Attention: Project Manager Telecopy: (315) 342-8425 WITH A COPY TO: Sithe Energies U.S.A., Inc. c/o Sithe Energies, Inc. 335 Madison Avenue 28th Floor New York, New York 10017 Attention: General Counsel Telecopy: (212) 351-0800 16 10.2 BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFICIARY. Subject to the remaining provisions of this Section 10.2, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. No party may assign any rights or obligations under this Agreement without the prior written consent of the other party or parties; provided, however, that Seller may assign its rights to receive payments hereunder and Seller acknowledges that Buyer has pledged its interests hereunder with the consent of the Seller to the Facility Lenders; and provided, further, that as long as the Parent Guaranty is in effect and Parent shall have confirmed in writing to Buyer and the Facility Lenders, in a manner and in form and substance reasonably satisfactory to Buyer and the Facility Lenders, the continuing validity and enforceability of the Parent Guaranty, Seller may assign this Agreement to any Person and thereby be relieved of its obligations hereunder. If Buyer does assign its rights under this Agreement, the expression "BUYER" as used herein and in the exhibits attached hereto shall be deemed to refer to Buyer's assignee. The parties acknowledge and agree that any assignment by any party of any rights or obligations hereunder shall not in any way release such party from any obligations so assigned. Nothing expressed or implied in this Agreement is intended to confer on any Person other than Buyer, Seller and their successors and permitted assigns, any rights or obligations under this Agreement. 10.3 INCIDENTAL EXPENSES; BROKERS. Except as expressly provided otherwise herein, each party hereto shall bear and pay its own expenses of negotiating and consummating the transactions contemplated by this Agreement, and any broker's or other commissions that may be due as a result of any agreement made by the party. 10.4 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which may be signed by fewer than all parties hereto, but all of which shall be considered one instrument for all purposes. 10.5 ENTIRE AGREEMENT. This Agreement and the other documents, if any, to be delivered pursuant hereto constitute the entire agreement between the parties and supersede any prior or contemporaneous written or oral agreement or understanding between the parties with respect to the subject matter of this Agreement. The execution and delivery of any other documents contemplated to be executed and delivered hereunder shall not supersede or otherwise affect the provisions of this Agreement. 10.6 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CONFLICT-OF-LAWS RULES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). EACH OF BUYER AND SELLER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER AGREEMENTS 17 REFERRED TO HEREIN OR ANY OF TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 10.7 AMENDMENT. No amendment or modification of this Agreement shall be effective unless same is in writing and signed by the parties affected by such amendment or modification. 10.8 WAIVER. No waiver of any provision of or rights under this Agreement shall be effective unless in writing and signed by the waiving party. No waiver of any specified right or provision shall be construed as a waiver of any other right or provision or as a continuing waiver. 10.9 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall to the fullest extent permitted by law nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the extent possible. 10.10 [Reserved]. 10.11 PUBLICITY. Seller and Buyer will cooperate with each other in the development and distribution of all news releases and other public disclosures relating to the transactions contemplated hereby. Neither Seller nor Buyer shall issue or make, or cause to have issued or made, any press release or announcement concerning the transactions contemplated hereby without the advance approval in writing of the form and substance thereof by the other party, unless otherwise required by applicable law. 10.12 PREPARATION. This Agreement was negotiated and prepared by both parties hereto with advice of counsel to the extent deemed necessary by each party, was not prepared by any party to the exclusion of the other, and accordingly, should not be construed against either party by reason of its preparation. 12. The parties agree that Exhibit 2.2, Exhibit 4.2, Exhibit 4.6, Exhibit 4.6(d), Exhibit 7.2(e)(i) and Exhibit 7.2(e)(ii) of the Original Agreement shall be deleted in their entirety. The parties further agree that Annex "A" and the Schedule A referred to therein, which were incorporated into the Original Agreement pursuant to the Fifth Amendment to the Amended and Restated Base Gas Sales Agreement dated February 1, 1995, shall also be deleted in their entirety. 13. This Amendment shall be effective as of 8:00 a.m. (Central time) on June 29, 2001. 18 14. Each party, to induce the other party to enter into this Amendment, represents and warrants to the other Party that: (a) ORGANIZATION. Each party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in all jurisdictions in which the nature of business conducted by it makes such qualification necessary and where failure so to qualify would preclude its ability to perform its obligations under this Amendment. (b) AUTHORIZATION AND VALIDITY. This Amendment and the transactions contemplated hereby have been duly authorized by such party, and this Amendment has been duly executed and delivered by such party and constitutes the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (c) NO VIOLATION. The execution and delivery of this Amendment by such party and the performance by such party of this Amendment and the transactions contemplated hereby, do not and will not (i) violate or conflict with any provision of such party's partnership agreement, certificate of incorporation or by-laws, as the case may be, (ii) violate any existing statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to such party, which violation will have a material and adverse effect on such party's ability to perform its obligations under this Amendment or (iii) under existing law require any consent, approval or authorization of, or designation, declaration or filing with, any governmental authority on the part of such party. (d) LEGAL PROCEEDINGS. There are no judicial or administrative actions, proceedings, or to such party's knowledge, investigations (including, without limitation, bankruptcy, reorganization or insolvency actions, proceedings or investigations) pending or, to such party's knowledge, threatened that (i) challenge the validity of this Amendment or the transactions contemplated hereby or (ii) seek to restrain or prevent any action taken or to be taken by such party in connection with this Amendment would have a material and adverse effect on such party's ability to perform its obligations under this Amendment. 15. Except as specifically amended herein, the Original Agreement, as amended by this Amendment, shall continue to be in full force and effect and is hereby ratified by Seller and Buyer. 16. This Amendment may be executed in multiple counterparts, each of which may be signed by fewer than all parties hereto, but all of which shall be considered one instrument for all purposes. This Amendment was negotiated and prepared by all parties hereto with the advice of counsel to the extent deemed necessary by each party, was not prepared by any party to the exclusion of the other parties, and accordingly, should not be construed against any party by reason of its preparation. 19 IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment in multiple originals as of the date first written above. ENRON NORTH AMERICA CORP. By: /s/ Jeffrey M. Donahue ------------------------------------- Name: Jeffrey M. Donahue Title: Managing Director SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC. its General Partner By: /s/ Sandra J. Manilla ------------------------------------- Name: Sandra J. Manilla Title: Vice President and Treasurer 20 EX-10.7(11) 15 a2056240zex-10_711.txt EXHIBIT 10.7.11 EXHIBIT 10.7.11 ***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE INDICATED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.*** GAS SUPPLY AGREEMENT BETWEEN DYNEGY CANADA MARKETING AND TRADE AND SITHE/INDEPENDENCE POWER PARTNERS, L.P. JULY 1, 2001 *** CONFIDENTIAL TREATMENT REQUESTED *** GAS SUPPLY AGREEMENT GAS SUPPLY AGREEMENT ("Agreement") dated as of July 1, 2001 between Sithe/Independence Power Partners, L.P. (a Delaware limited partnership, "Independence"), and Dynegy Canada Marketing and Trade (a division of Dynegy Canada Inc., an Alberta corporation, "Supplier"); (each of Independence and Supplier referred to herein individually, as a "Party," and collectively, as the "Parties"), WITNESSETH: WHEREAS, Independence owns a natural gas fired electric generating plant of approximately 1,032 MW net capacity located in the Town of Scriba, New York (the "Facility"); WHEREAS, Dynegy Power Marketing, Inc. ("DPM") and Independence have entered into a certain Tolling Agreement dated as of July 1, 2001 (the "Tolling Agreement"); and WHEREAS, Independence desires to purchase from Supplier all of its requirements for Gas, excluding Gas for which DPM is responsible under the Tolling Agreement; NOW THEREFORE, in consideration of the mutual promises and agreements contained herein, Independence and Supplier, intending to be legally bound, agree as follows: ARTICLE I - DEFINITIONS 1.01 FORMAT (a) References to Articles and Sections herein are cross-references to Articles and Sections, respectively, in this Agreement, unless otherwise stated. (b) All Schedules that are attached to this Agreement are incorporated by reference as if fully set forth herein. (c) All references to quantities of Gas are references on an HHV basis unless otherwise stated. 1.02 DEFINITIONS In addition to the terms defined elsewhere in this Agreement, when used with initial capitalization, whether singular or plural, the following terms shall ***CONFIDENTIAL TREATMENT REQUESTED*** 1 have the meanings set forth below. All references in this Agreement to any governmental or non-governmental entity, including, without limitation, NYISO and FERC, shall include any and all successors to such entities. Unless the context otherwise requires, any reference herein to any contract, agreement or tariff and any schedule, attachment or exhibit thereto shall mean such contract, agreement, tariff, schedule, attachment or exhibit as amended, supplemented and modified and in effect from time to time. (1) "Affiliate" means, with respect to any entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such entity. For this purpose, "control" means the direct or indirect ownership of fifty percent (50%) or more of the outstanding capital stock or other equity interests having ordinary voting power. (2) "Ancillary Services" has the meaning set forth in the Tolling Agreement. (3) "Available Tolling Capability" has the meaning set forth in the Tolling Agreement. (4) "Authorized Representatives" has the meaning set forth in Section 5.01. (5) "Btu" means British thermal unit, which is the quantity of thermal energy necessary to increase the temperature of one pound of pure water by one degree Fahrenheit from 59 degrees Fahrenheit to 60 degrees Fahrenheit at a constant pressure of 14.73 pounds per square inch absolute. (6) "Business Day" means any Day on which Federal Reserve member banks in New York, New York are open for business. (7) "Contract Administration Charge" has the meaning set forth in Section 3.08. (8) "Contract Price" has the meaning set forth in Section 3.02. (9) "Contract Price Gas" has the meaning set forth in Section 17.01(a). (10) "Contract Term" has the meaning set forth in Section 2.01. (11) "Day" has the meaning set forth in the NYISO Requirements. (12) "DMT" means Dynegy Marketing and Trade. (13) "Eastern Prevailing Time" means local time in New York, New York. (14) "Effective Date" has the meaning set forth in Section 2.01. (15) "Empire" means Empire State Pipeline. ***CONFIDENTIAL TREATMENT REQUESTED*** 2 (16) "Empire Gas Transportation Contract" means the Empire Firm Transportation Agreement dated October 4, 1993 between Empire, Empire State Pipeline Company ("ESPC"), St. Clair Pipeline Company, Inc. ("SCPC") and Independence as it incorporates the terms of the Supplemental Agreement dated February 28, 1992 among Independence, Empire, SCPC and ESPC. (17) "Energy" means electricity (measured in kWh or MWh, as the case may be). (18) "Energy Management Agreement" means the Energy Management Agreement dated as of July 1, 2001 among Independence, DMT and DPM. (19) "Event of Default" has the meaning set forth in Section 12.01. (20) "FERC" means the Federal Energy Regulatory Commission. (21) "FGP" shall have the meaning set forth in Section 3.02(b). (22) "Fixed Price Gas" means, for any period, the sum of (a) all Gas delivered by Supplier to Independence at the Gas Facility Point to be utilized for purposes of operating all or any portion of the Reserved Tolling Capability in order to effectuate a physical hedge against Independence's obligations associated with the Market Price, plus (b) for any portion of a period in which Independence desires to operate all or any portion of the Reserved Tolling Capability in order to effectuate a physical hedge against Independence's obligations associated with the Market Price, but Independence is unable to do so as a result of the exercise by third parties of rights under contracts with Independence, all Gas that would have been required to operate such portion of the Reserved Tolling Capability. (23) "Force Majeure" has the meaning set forth in Article XVI. (24) "Gas" means natural gas, including gas-well gas, casinghead gas and/or residue gas resulting from processing both casinghead gas and gas-well gas, and shall include liquefied natural gas and synthetic gas in a vaporized state, in each case meeting or exceeding the minimum quality specifications under the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Transportation Contract (and related Niagara Mohawk Gas tariffs). (25) "Gas Delivery Point" means (a) during periods when Independence has all required regulatory authorizations under this Agreement and the Tolling Agreement from (i) United States Governmental Authorities to import and (ii) their Canadian counterparts to export, Gas from Canada to the United States, the Canadian side of the point of interconnection between the system of TransCanada Pipelines Limited and the Empire system located near ***CONFIDENTIAL TREATMENT REQUESTED*** 3 Chippawa,New York, and (b) during periods when Independence does not have all such regulatory authorizations from United States Governmental Authorities and their Canadian counterparts, the Gas Facility Point. (26) "Gas Facility Point" means the outlet flange of the Gas Metering Equipment at the interconnection between the Facility and Line 63 of Niagara Mohawk. (27) "Gas Index Price" for each day means the midpoint of the common range for [***] as reported in the "Daily Gas Survey" for that day in Gas Daily (published by Financial Times Energy) (with respect to weekdays for the flow date, and with respect to weekend days and holidays for the flow date immediately following such weekend day or holiday). If such information is no longer published, the Parties shall mutually agree on an appropriate replacement index. If, at any time, the Parties mutually agree that the specified index no longer provides a reasonable proxy, the Parties shall mutually agree on an appropriate replacement index. (28) "Gas Metering Equipment" means Gas meters and associated equipment specified in the Empire Gas Transportation Contract (and related Empire Gas tariffs) and in the Niagara Mohawk Gas Transportation Contract (and related Niagara Mohawk Gas tariffs), utilized in determining the amount of Gas consumed by the Facility. (29) "Governmental Authority" shall mean any federal, state, provincial, local or municipal governmental body; any governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority, jurisdiction or power; any court or governmental tribunal; or any applicable independent system operator, regional transmission organization, regional power pool, reliability council or other regional entity performing similar functions. (30) "Higher Heating Value" or "HHV" means the total heat content, expressed in Btu per cubic foot (Btu/ft^3), produced by the complete combustion of 1 cubic foot of natural gas at a temperature of 60 degrees Fahrenheit with the natural gas free of water vapor and at a pressure of 14.73 pounds per square inch absolute with the products of combustion to be cooled to the initial temperature of the natural gas and the water formed by the combustion reaction condensed to the liquid state. (31) "Interest Rate" means, for each Day, a rate per annum equal to the prime rate reported in The Wall Street Journal's "Money Rates" column (or any similar column published in The Wall Street Journal in replacement thereof) for the immediately preceding Business Day plus 2%. In the event The Wall Street Journal ceases to report the prime rate, the prime rate for purposes of ***CONFIDENTIAL TREATMENT REQUESTED*** 4 this Agreement shall be the prevailing prime rate (or base rate) charged by major banks in the United States of America. (32) "kW" means kilowatt. (33) "kWh" means kilowatt-hour. (34) "Law" means any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination by a Governmental Authority. (35) "Market Price" has the meaning set forth in the Tolling Agreement. (36) "MMBtu" means one million Btu. (37) "Month" means calendar month. (38) "MW" means megawatt. (39) "MWh" means megawatt-hour (one MWh equals 1,000 kWh). (40) "Niagara Mohawk Gas Transportation Contract" means the Niagara Mohawk Firm Transportation Agreement dated March 11, 1992 between Niagara Mohawk and Independence. (41) "NYISO" means the New York Independent System Operator, Inc. (42) "NYISO Bid" means a bid, Schedule (as defined in the Tolling Agreement) or request to operate submitted to the NYISO related to the generation of Energy or Ancillary Services from the Facility. (43) "NYISO Directed Operation" means, for any period, the operation of all or a portion of the Facility at the direction of the NYISO during such period, including the operation of the Facility in response to an NYISO Bid accepted by the NYISO or the operation of the Facility at the direction of a Transmission Provider (as defined in the Tolling Agreement) pursuant to NYISO Requirements. (44) "NYISO Open Access Transmission Tariff" means the ISO Open Access Transmission Tariff filed with FERC by the NYISO. (45) "NYISO Operating Agreement" means the amended and restated Operating Agreement of the NYISO filed with FERC by the NYISO. (46) "NYISO Requirements" means the then applicable and valid obligations, rules and regulations as defined and set forth in the NYISO Operating Agreement, the NYISO Services Tariff, the NYISO Open Access Transmission Tariff and/or similar agreements, policies and guidelines. ***CONFIDENTIAL TREATMENT REQUESTED*** 5 (47) "NYISO Services Tariff" means the NYISO Market Administration and Control Area Services Tariff filed with FERC by the NYISO. (48) "Outage" has the meaning set forth in the Tolling Agreement. (49) "Person" means any individual, corporation, partnership, trust, estate, limited liability company, governmental agency or authority or other entity. (50) "Regular Business Hours" means 9:00 a.m. through 5:00 p.m. Eastern Prevailing Time on Business Days. (51) "Reserved Capability" has the meaning set forth in the Tolling Agreement. (52) "Reserved Tolling Capability" has the meaning set forth in the Tolling Agreement. (53) "Schedule" or "Scheduling" or "Scheduled" means communicating and confirming that a particular amount of Gas is to be delivered or received and providing all information as may be necessary to cause such delivery or receipt to occur at the Gas Facility Point. (54) "Scheduling and Operating Procedures" has the meaning set forth in Section 5.01. (55) "Shutdown" means, with respect to each combustion turbine/generator set, the reduction in output to zero necessary as a result of NYISO Directed Operation. (56) "Start-up" means, with respect to each combustion turbine/generator set, the action of bringing such combustion turbine/generator set from a non-operating mode to the level of output in combined cycle mode. (57) "Taxes" means any and all ad valorem, property, occupation, severance, generation, first use, conversion, Btu or Energy, transmission, utility, gross receipts, privilege, sales, use, consumption, excise, lease, transaction and other taxes, governmental charges, surcharges, licenses, fees, permits and assessments or increases therein, and any interest or penalties on such taxes, charges, licenses, fees, permits and assessments, other than taxes based on net income or net worth. (58) "Transporter" means any Person that transports Gas provided under this Agreement upstream of the Gas Facility Point. (59) "Week" means calendar week. ***CONFIDENTIAL TREATMENT REQUESTED*** 6 ARTICLE II - TERM 2.01 TERM This Agreement shall commence on the later of (a) the date on which all conditions specified in Article XI are satisfied or waived or (b) July 1, 2001 ("Effective Date") and shall remain in effect through the November 14, 2014 ("Contract Term"); provided, however, that Independence may terminate this Agreement in its sole discretion at any time prior to 12:01 A.M. on July 1, 2001 by providing notice of termination to Supplier. This Agreement shall terminate automatically at the end of the Contract Term and neither Independence nor Supplier shall have any further liability or obligation to the other hereunder, except for obligations or duties that accrued prior to such termination and for obligations that expressly survive termination of this Agreement. ARTICLE III - GAS SUPPLY AND COST RESPONSIBILITY 3.01 SUPPLIER'S GAS DELIVERY OBLIGATIONS Subject to the procedures specified in the Energy Management Agreement and in Exhibits 5.02(A) and 5.02(B) to the Tolling Agreement, Supplier shall arrange for delivery to the Gas Facility Point of all of Independence's requirements for Gas at the Facility, excluding Gas for which DPM is responsible under the Tolling Agreement, but including (a) Gas required for Independence to generate Energy utilizing the Reserved Capability, (b) Gas required for Independence to operate auxiliary boilers, and (c) Gas Independence is obligated to purchase pursuant to Sections 5.01, 5.03 and 5.06 of the Tolling Agreement. 3.02 COST RESPONSIBILITY (a) Independence shall purchase all Gas provided pursuant to Section 3.01 (other than Fixed Price Gas) from Supplier at a contract price ("Contract Price") per MMBtu of Gas equal to the Gas Index Price plus the variable Gas transportation charges, fuel, applicable Taxes (if any) in accordance with Section 17.01, shrinkage and loss requirements associated with Supplier's use of (i) the firm transportation capacity under the Empire Gas Transportation Agreement and the Niagara Mohawk Gas Transportation Agreement and (ii) firm transportation capacity on the system of TransCanada Pipelines Limited between Kirkwall and Chippawa and firm transportation capacity on the system of Union Gas Limited between Dawn and Kirkwall for Gas provided pursuant to Section 3.01. Except as specifically provided in this Agreement, Supplier shall be responsible for all other costs associated with the supply and transportation of Gas under this Agreement. ***CONFIDENTIAL TREATMENT REQUESTED*** 7 (b) Independence shall pay Supplier for all Fixed Price Gas provided during any period pursuant to Section 3.01 at a fixed gas price ("FGP") calculated as follows (provided, however, that, while Independence shall have an obligation to pay Supplier for the Fixed Price Gas described in Section 1.02(22)(b), Supplier shall have no obligation to physically deliver such quantities of Gas to Independence): FGP = C x H x (GP/[***] + $[***]/MMBtu) x HR C = the average quantity (in MW) of the Reserved Tolling Capability (i) operated during such period for purposes of effectuating a physical hedge against Independence's financial obligations associated with the Market Price or (ii) that Independence desired to operate in order to effectuate a physical hedge against Independence's obligations associated with the Market Price, but was unable to operate as a result of the exercise by third parties of rights under contracts with Independence H = total hours contained in such period GP = the price representing the weighted average of the midpoints for each of the days during such period of the common range for [***] as reported in the "Daily Gas Survey" in Gas Daily (published by Financial Times Energy) (with respect to weekdays for the flow date, and with respect to weekend days and holidays for the flow date immediately following such weekend day or holiday) expressed in $/MMBtu. If such information is no longer published, the Parties shall agree upon an appropriate replacement index. HR = [***] MMBtu/MWh 3.03 TRANSPORTATION OBLIGATIONS To transport Gas identified in Section 3.01 to the Gas Facility Point, Independence will make available to Supplier firm transportation capacity (a) on the Empire system pursuant to the Empire Gas Transportation Contract, and (b) on the Niagara Mohawk system pursuant to the Niagara Mohawk Gas Transportation Contract. Independence will pay all demand charges and all surcharges (excluding all variable charges, which include commodity charges, fuel use and shrinkage) under both firm transportation agreements. Independence will retain all rights and obligations for the transportation capacity on the Empire and Niagara Mohawk systems, except that Independence will take all actions reasonably required to appoint Supplier as Independence's agent for purposes of nominations and ***CONFIDENTIAL TREATMENT REQUESTED*** 8 scheduling under such firm transportation agreements. Supplier shall pay directly (if permitted by the applicable Transporter) or reimburse Independence for all variable charges, including commodity charges, fuel use, shrinkage and imbalance charges associated with Supplier's use of such firm transportation capacity. The Parties shall reasonably cooperate in delivering any documentation necessary to implement this Section 3.03. During the Contract Term, in addition to other indemnification obligations of Independence set forth elsewhere in this Agreement, Independence shall indemnify and hold Supplier harmless from and against any and all liabilities, costs, claims, causes of action, judgments, lawsuits, or damages that may be incurred by Supplier in connection with the Empire Gas Transportation Contract and the Niagara Mohawk Gas Transportation Contract for all periods prior to the Effective Date. During the Contract Term, in addition to other indemnification obligations of Supplier set forth elsewhere in this Agreement, Supplier shall indemnify and hold Independence harmless from and against any and all liabilities, costs, claims, causes of action, judgments, lawsuits, or damages that may be incurred by Independence in connection with Supplier's actions as Independence's agent for purposes of nominations and scheduling under the Empire Gas Transportation Contract and the Niagara Mohawk Gas Transportation Contract. 3.04 PIPELINE IMBALANCE CHARGES (a) Notwithstanding any other provision contained herein, Supplier shall be responsible for and pay all pipeline imbalance and similar charges arising out of or relating to Gas provided under this Agreement on all Gas transportation facilities upstream of the Gas Facility Point. (b) The Parties shall use commercially reasonable efforts to minimize all such pipeline imbalance charges. 3.05 SCHEDULING RESPONSIBILITY Supplier is responsible for all Scheduling and nomination activities with the Transporters upstream of the Gas Facility Point. 3.06 EFFECT OF DELIVERY; INDEMNITY Title to all Gas delivered pursuant to Section 3.01 shall pass to Independence at the Gas Delivery Point. As between the Parties, Supplier shall be deemed to be in exclusive control and possession of the Gas delivered hereunder until the same shall have been delivered at the Gas Delivery Point, at and after which delivery Independence shall be deemed to be in exclusive control and possession thereof. Supplier and Independence each assumes full responsibility and liability for and shall indemnify and save harmless the other Party and its officers, directors, ***CONFIDENTIAL TREATMENT REQUESTED*** 9 employees, agents, and partners from all liability and expense on account of any and all damages, claims, or actions, including injury to and death of Persons, arising from any act or accident occurring when title to the Gas is vested in the indemnifying Party as herein provided. 3.07 REGULATORY AUTHORIZATIONS Supplier shall be responsible for obtaining and maintaining, on behalf of Independence, all required regulatory authorizations for Independence under this Agreement and the Tolling Agreement from (i) United States Governmental Authorities to import and (ii) their Canadian counterparts to export Gas from Canada to the United States. 3.08 CONTRACT ADMINISTRATION CHARGE Each Month during the Contract Term, Independence shall pay Supplier a Contract Administration Charge of $[***]. ARTICLE IV - QUALITY 4.01 TRANSPORTER'S SPECIFICATIONS Gas delivered by Supplier shall meet or exceed the minimum quality specifications under the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Gas Transportation Contract (and related Niagara Mohawk Gas tariffs). If any Gas delivered by Supplier shall fail to conform to such quality specifications, Independence's sole remedy shall be refusal to accept the tendered quantities, in which event such Gas shall be treated as if Supplier shall have failed to deliver it; all other Gas shall be treated as meeting such specifications. Gas delivered by Supplier shall be delivered at pressures sufficient to cause such Gas to enter Independence's facilities at the Gas Facility Point, but not below the minimum allowable or above the maximum allowable operating pressure specified in the Empire Gas Transportation Contract (and related Empire Gas tariffs) and the Niagara Mohawk Gas Transportation Contract (and related Niagara Mohawk Gas tariffs). ***CONFIDENTIAL TREATMENT REQUESTED*** 10 ARTICLE V - SCHEDULING 5.01 SCHEDULING AND OPERATING PROCEDURES AND AUTHORIZED REPRESENTATIVES Each of Independence and Supplier agree that Gas will be provided only in accordance with the Energy Management Agreement and Scheduling and Operating Procedures specified in Exhibits 5.02(A) and 5.02(B) to the Tolling Agreement. Each Party shall designate in writing to the other Party the persons authorized to make or provide notices on behalf of such Party in connection with nominations, schedules or instructions for the delivery or acceptance of Gas or make other notices on behalf of such Party and specify the scope of their individual authority and responsibilities ("Authorized Representatives"). Each Party may change its Authorized Representatives from time to time with a notice in accordance with this Agreement. Each Party consents to the recording of all telephone conversations between its Authorized Representatives and the Authorized Representatives of the other Party with respect to implementation of this Agreement. ARTICLE VI - NYISO AND REGULATORY REQUIREMENTS 6.01 REGULATORY REQUIREMENTS Supplier shall supply Gas as required for Independence to comply with any NYISO Directed Operation. 6.02 AMENDMENT This Agreement shall not be amended unless such amendment is in writing and executed by the Parties. Either Party shall, as and if requested by the other Party, support this Agreement in filings and with testimony in any administrative or judicial proceeding relating to or in connection with this Agreement. In addition to the foregoing, Independence shall keep Supplier informed as to any material changes in the Empire Gas Transportation Contract and the Niagara Mohawk Gas Transportation Contract. In addition, Independence shall permit Supplier to participate in the negotiation of any amendments to such agreements and in any filings with any Governmental Authority, to the extent that such amendments or filings could have a material effect on the arrangements embodied in this Agreement. ***CONFIDENTIAL TREATMENT REQUESTED*** 11 ARTICLE VII - METERING 7.01 METERING (a) To the maximum extent possible given the capabilities of the Gas Metering Equipment, Gas delivered by Supplier to Independence shall be measured at the Gas Facility Point on a continuous real-time basis. Subject to Section 7.04, the delivering pipeline revenue meter shall be used to determine the quantity of Gas delivered at the Gas Facility Point. (b) Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (and related Gas tariffs), Independence shall be responsible for performing, or causing to be performed, and shall bear all costs and expenses of the installation, maintenance, repair, testing and initial calibration of the Gas Metering Equipment (to the extent not otherwise installed, maintained, tested and calibrated by the delivery pipeline or supplier of Gas to the Facility). (c) Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), Independence will work with Supplier to permit Supplier, at Supplier's expense, either to install electronic access to the existing real-time gas meters, or to install Supplier's own real-time meters. 7.02 INDUSTRY STANDARDS Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), all Gas Metering Equipment, whether owned by Independence or by a third party, shall be operated, maintained and tested by and/or on behalf of Independence in accordance with AGA and ANSI standards. 7.03 ACCESS Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), each Party shall have the right to receive reasonable advance notice with respect to, and to be present at the time of, any installing, cleaning, changing, repairing, inspecting, testing, calibrating or adjusting of the Gas Metering Equipment irrespective of whether such Gas Metering Equipment is owned or operated by Independence or by a third party. Upon reasonable advance notice, Independence shall make available to Supplier all data, records and charts relating to the Gas Metering Equipment, together with measurements and calculations therefrom, for inspection and verification. ***CONFIDENTIAL TREATMENT REQUESTED*** 12 7.04 CALIBRATION Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), Independence at its sole cost and expense shall inspect and calibrate, or cause to be inspected, all Gas Metering Equipment periodically, but not less frequently than as required by Niagara Mohawk and Empire. Subject to the requirements and limitations of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract (including related Gas tariffs), correction shall be made when any test shows a measurement error of more than two percent (2%) or such lower percentage as may be established by applicable tariff of the delivering pipeline. 7.05 RECORDS The Parties shall maintain accurate and detailed records relating to the Facility's Gas consumption for three years or for such longer period as may be required by FERC, the NYISO, Empire or Niagara Mohawk. All records shall be available for inspection by either Party upon reasonable notice during Regular Business Hours. 7.06 UPGRADED METERING Notwithstanding any other provision of this Article VII, the Parties acknowledge that the Gas Metering Equipment may not provide the degree of precision that the Parties desire regarding the measurement and monitoring of the Gas input of the Facility, and the Parties agree to work together to develop plans for upgraded and additional meters. Such plans shall be developed by mutual agreement of the Parties, and shall be subject to the requirements of the Niagara Mohawk Gas Transportation Contract and the Empire Gas Transportation Contract. Independence agrees to bear the reasonable costs of such upgraded metering. ARTICLE VIII - BILLING AND PAYMENT 8.01 BILLING As soon as practicable after the end of each Month, Supplier shall deliver to Independence an invoice detailing the Gas delivered to Independence and setting forth all charges and any other amount payable to Supplier pursuant to this Agreement, and any amounts payable to Independence pursuant to the terms of this Agreement. ***CONFIDENTIAL TREATMENT REQUESTED*** 13 8.02 PAYMENT Each Party shall render payment to the other Party by wire transfer payment, or other acceptable method agreed to by the Parties, of the amount due as set forth in the invoice, by the later of (i) the twenty fifth (25th) Day of the Month, and (ii) ten Days after the other Party's receipt of the invoice. The address, account information and/or wire transfer information shall be as provided pursuant to Section 18.07. Failure to make such payment when due shall result in a late charge on the unpaid balance that shall accrue on each calendar day from the due date to the date paid at the Interest Rate. If either Party in good faith disputes any part of any invoice, it shall make payment of the undisputed amount invoiced and shall provide to the other Party on or before the payment due date a written explanation of the basis for the dispute. If any amount disputed is determined to be due, the disputing Party shall pay such disputed amount within two Days of such determination, along with interest accrued daily at the Interest Rate from the date that, but for the dispute, payment was due until the date paid. 8.03 AUDIT Each Party has the right with reasonable prior notice, at its sole expense, to examine the records of the other Party during Regular Business Hours to the extent reasonably necessary to verify the accuracy of any invoice, or calculations provided with or supporting such invoice, rendered pursuant to this Agreement. If any such examination reveals any inaccuracy in any invoice, or calculations provided with or supporting such invoice, the necessary adjustments in such invoice, or calculations provided with or supporting such invoice, and the payments made pursuant to such inaccurate invoice, or calculations provided with or supporting such invoice, shall be adjusted in the next invoice; provided, however, that the party asserting the need for such adjustment brought it to the attention of the other Party within twelve Months after the event causing the need for adjustment. This Section 8.03 shall survive any termination of this Agreement for a period of one year from the date on which the last invoice is rendered to such Party pursuant to this Agreement. 8.04 OFFSET The Parties hereby agree that they shall discharge mutual debts and payment obligations due and owing to each other under this Agreement through netting, in which case all amounts owed by each Party to the other Party under this Agreement during the monthly billing period, including, interest, and payments or credits, shall be netted so that only the excess amount remaining due shall be paid by the Party who owes it. ***CONFIDENTIAL TREATMENT REQUESTED*** 14 ARTICLE IX - ADDITIONAL AGREEMENTS 9.01 INSURANCE Each Party shall at all times effect, maintain and keep in force, or cause to be effected, maintained and kept in force, comprehensive general liability insurance, public liability coverage and property insurance for injuries to persons and property, automobile liability insurance and workman's compensation insurance, all in commercially reasonable amounts and terms. In the event that a Party reasonably determines that any such policy of insurance is no longer available at commercially reasonable rates, such Party shall not be obligated to continue to carry such insurance, and shall obtain substitute insurance which is as nearly identical as possible to the policy of insurance which it is intended to replace. ARTICLE X - REPRESENTATIONS 10.01 INDEPENDENCE'S REPRESENTATIONS Independence hereby represents and warrants as follows: (a) It is a limited partnership duly organized and validly existing and in good standing under the laws of Delaware and is duly qualified to do business and in good standing in the State of New York. (b) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (c) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any partnership approval or consent of any trustee or holder of any indebtedness of Independence. (d) This Agreement has been duly executed and delivered on behalf of Independence by the appropriate officers of the general partner of Independence and constitutes the legal, valid and binding obligation of Independence, enforceable against Independence in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). ***CONFIDENTIAL TREATMENT REQUESTED*** 15 10.02 SUPPLIER'S REPRESENTATIONS Supplier hereby represents and warrants as follows: (a) It is a division of Dynegy Canada Inc., which is duly organized and validly existing and in good standing under the laws of Alberta. (b) It has all requisite power and authority to carry on the business to be conducted by it and to enter into this Agreement and the transactions contemplated hereby, and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (c) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on its part and do not require any other actions or proceedings or any corporate approval or consent of any trustee or holder of any indebtedness of Supplier. (d) This Agreement has been duly executed and delivered on behalf of Supplier by the appropriate officers of Supplier and constitutes the legal, valid and binding obligation of Supplier, enforceable against Supplier in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (e) Supplier warrants that it will, at the time of delivery, have good title to all Gas delivered by it to Independence hereunder, free and clear of all liens, encumbrances and claims whatsoever. ARTICLE XI - CONDITIONS 11.01 CONDITIONS PRECEDENT The obligations of Independence to consummate the transactions contemplated by this Agreement shall be subject to fulfillment of the following conditions, unless waived in writing by Independence: (i) Supplier shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit 11.01(A) or such other form as Independence may approve; (ii) Dynegy Holdings Inc. ("Guarantor") shall have delivered a duly executed Guaranty Agreement in the form of Exhibit 11.01(B) or such other form as Independence may approve; ***CONFIDENTIAL TREATMENT REQUESTED*** 16 (iii) Guarantor shall have delivered a duly executed Acknowledgement and Consent in the form of Exhibit 2 to Exhibit 11.01(B) or such other form as Independence may approve; and ARTICLE XII - DEFAULT AND REMEDIES 12.01 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an Event of Default under this Agreement: (a) A material breach of any material term or condition of this Agreement, including, but not limited, to (i) any material breach of a representation, warranty or covenant made in this Agreement, and (ii) failure of either Party to make a required payment to the other Party of amounts due hereunder. (b) A failure of Guarantor to provide Performance Assurance as defined in the Guaranty Agreement dated as of the date hereof by Guarantor (as amended, supplemented or modified and in effect from time to time, the "Guaranty Agreement") or a guaranty or other credit assurance acceptable to Independence, within the time required pursuant to Section 6 of the Guaranty Agreement. (c) A receiver or liquidator or trustee of either Party or of any of its property shall be appointed by a court of competent jurisdiction, and such receiver, liquidator or trustee shall not have been discharged within one hundred twenty (120) Days, or by decree of such a court, a Party shall be adjudicated bankrupt or insolvent or any substantial part of its property shall have been sequestered, and such decree shall have continued undischarged and unstayed for a period of one hundred twenty (120) Days after the entry thereof; or a petition to declare bankruptcy or to reorganize a Party pursuant to any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, shall be filed against a Party and shall not be dismissed within one hundred twenty (120) Days after such filing. (d) A Party shall file a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; or, without limiting the generality of the foregoing, a Party shall file a petition or answer or consent seeking relief or assisting in seeking relief in a bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law, or, without limiting the generality of the foregoing, a Party shall file a petition or answer or ***CONFIDENTIAL TREATMENT REQUESTED*** 17 consent seeking relief or assisting in seeking relief in a proceeding under any of the provisions of the Federal Bankruptcy Code, as now in effect or as it may hereafter be amended, or pursuant to any other similar state statute as now or hereafter in effect, or an answer admitting the material allegations of a petition filed against it in such a proceeding; or a Party shall make an assignment for the benefit of its creditors; or a Party shall admit in writing its inability to pay its debts generally as they become due; or a Party shall consent to the appointment of a receiver, trustee or liquidator of it or of all or part of its property. (e) The occurrence and continuation of a default, event of default or other similar condition or event in respect of such Party (or an Affiliate of such Party) under (i) the Tolling Agreement; or (ii) the Energy Management Agreement dated as of July 1, 2001 among Independence, DMT and DPM. 12.02 NOTICE OF DEFAULT; CURE Upon the occurrence of any such Event of Default other than those described in Sections 12.01(b), (c) and (d), the Party not in default shall give written notice of the Event of Default to the defaulting Party. Such notice of default shall set forth, in reasonable detail, the nature of the default and, where known and applicable, the steps necessary to cure such default. Following receipt of such notice, the defaulting Party shall have: (a) ten (10) Days in the case of the failure of the defaulting Party to make a required payment to the other Party of amounts due hereunder; or (b) thirty (30) Days in the case of any other Event of Default described in Sections 12.01(a) and 12.01(e): to cure such default or, in the case of an Event of Default under Section 12.02(b), to commence in good faith and continue to diligently pursue all such steps as shall be reasonably necessary and appropriate to cure such default in the event such default cannot reasonably be completely cured within such thirty (30) Day period. 12.03 REMEDIES Notwithstanding the foregoing, after the occurrence of any such Event of Default and the expiration of all applicable cure periods with respect thereto without such default being cured, the non-defaulting Party shall be entitled (i) to suspend performance under this Agreement or to terminate this Agreement, (ii) to commence an action to require the defaulting Party to remedy such default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof and (iii) to exercise such other rights and remedies as it ***CONFIDENTIAL TREATMENT REQUESTED*** 18 may have at equity or at law, but subject to any limitation on damages otherwise provided for under this Agreement. ARTICLE XIII - LIMITATION OF LIABILITY 13.01 LIMITATION OF LIABILITY (a) Subject to Section 13.01(b), neither Party, nor their respective officers, directors, partners, agents, employees or Affiliates, shall be liable to the other Party or its Affiliates, officers, directors, trustees, partners, agents, employees, successors or assigns, for claims for incidental, special, indirect, consequential or punitive damages of any nature connected with or resulting from performance or breach of this Agreement, including, without limitation, claims in the nature of lost revenues, income or profits (other than payments specifically provided for and properly due under this Agreement) or losses, damages or liabilities under any financing, lending or construction contracts, agreements or other arrangements, irrespective of whether such claims are based upon warranty, negligence, strict liability, contract, operation of law or otherwise. (b) Notwithstanding the limitation of liability under Section 13.01(a), if Supplier fails for any reason (including as a result of Force Majeure) to deliver Gas to the Gas Facility Point during all or any portion of a period in which Independence desires to operate any portion of the Reserved Tolling Capability for purposes of effectuating a physical hedge against its financial obligations associated with the Market Price (during which such portion of the Reserved Tolling Capability is otherwise available), Supplier shall pay to Independence the Market Price for all quantities of Energy that would have been delivered to the Electric Delivery Point but for the Supplier's failure to deliver Gas for such period. The Parties acknowledge that damages for such failure to deliver Gas are difficult or impossible to determine or otherwise obtaining an adequate remedy is inconvenient and the damages calculated under this Section 13.01(b) constitute a reasonable approximation of the harm or loss. 13.02 DUTY TO MITIGATE Notwithstanding any other provision of this Agreement, each Party has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party's performance or non-performance. ***CONFIDENTIAL TREATMENT REQUESTED*** 19 ARTICLE XIV - INDEMNIFICATION 14.01 INDEPENDENCE'S INDEMNIFICATION Independence shall indemnify, defend and hold harmless Supplier and its Affiliates and their officers, trustees, directors, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to the tangible property of third parties and injury to or death of persons (other than Supplier's employees and Independence's employees) to the extent caused by, arising out of or relating to the gross negligence or willful misconduct of Independence in connection with or resulting from Independence's performance or breach of this Agreement. 14.02 SUPPLIER'S INDEMNIFICATION Supplier shall indemnify, defend and hold harmless Independence and its Affiliates and their officers, directors, trustees, employees and agents from and against any and all claims, demands, suits, losses, damages, liabilities, costs and expenses (including reasonable attorney's fees and costs of investigation) for damage to tangible property of third parties and injury to or death of persons (other than Independence's employees or Supplier's employees) to the extent caused by, arising out of or related to the gross negligence or willful misconduct of Supplier in connection with or resulting from Supplier's performance or breach of this Agreement. 14.03 INDEMNIFICATION PROCEDURES (a) A Party which becomes entitled to indemnification under this Agreement (the "Indemnified Party") shall give written notice to the other Party (the "Indemnifying Party") of the occurrence of the events which give rise to such right of indemnification within 30 Days of the Indemnified Party becoming aware of the occurrence thereof. Such notice shall describe the claim, the basis thereof and shall indicate an estimate of the amount of the claim. To the extent that the Indemnifying Party is prejudiced by any failure of the Indemnified Party to provide such notice, such notice shall be a condition precedent to the liability of the Indemnifying Party under this Article XIV. (b) At the Indemnified Party's request, the Indemnifying Party shall, at its cost and expense, defend (with counsel reasonably acceptable to the Indemnified Party) any suit asserting a claim against the Indemnified Party with respect to which the Indemnified Party is entitled to indemnification hereunder, and shall pay all costs and expenses incurred by the Indemnified Party to enforce its right to indemnification. The Indemnified Party may, at its own expense, retain ***CONFIDENTIAL TREATMENT REQUESTED*** 20 separate counsel and participate in the defense of any such suit. Neither Party may settle or compromise a claim or suit without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. 14.04 SURVIVAL The indemnification obligations of each party under this Article XIV shall not be limited in any way by any limitation on insurance, by the amount or types of damages, or by any compensation or benefits payable by the parties under Worker's Compensation Acts, disability benefit acts or other employee acts or otherwise. The provisions of this Article XIV shall survive termination, cancellation, suspension, completion or expiration of this Agreement. ARTICLE XV - ASSIGNMENT AND SUCCESSION 15.01 ASSIGNMENT (a) This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, except to an Affiliate or successor, by either Party hereto, whether by operation of law or otherwise, without the prior written consent of the other Party, which consent may not be unreasonably withheld or delayed. No assignment of all or any portion of the rights, interests or obligations permitted pursuant to the immediately preceding sentence shall relieve or discharge the assignor from any of its obligations under this Agreement without the prior written consent of the non-assigning Party, which consent shall not be unreasonably withheld or delayed. Any assignment of this Agreement in violation of the foregoing shall be, at the option of the non-assigning Party, void. (b) Notwithstanding the foregoing provisions of Section 15.01(a), (i) Supplier may assign all or any portion of its rights and obligations hereunder to any of its Affiliates, (ii) Independence may assign all or any portion of its rights and obligations hereunder to any of its Affiliates (including, without limitation, Sithe Power Marketing, L.P., a Delaware limited partnership), and (iii) Independence may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof, provided, however, that no such assignment of all or any portion of the rights, interests or obligations of a party pursuant to this Section 15.01(b) shall relieve or discharge the assignor from any of its obligations under this Agreement unless the non-assigning Party consents to such release or discharge in accordance with Section 15.01(a). With respect to ***CONFIDENTIAL TREATMENT REQUESTED*** 21 clause (iii) of this Section 15.01(b), Supplier agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, so long as Supplier's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. ARTICLE XVI - FORCE MAJEURE 16.01 FORCE MAJEURE (a) The term "Force Majeure" shall mean 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; strikes and other labor disturbances; earthquakes; storms; fires; lightning; epidemics; wars; riots or civil disturbances; sabotage or condemnation or other similar acts. Notwithstanding the foregoing, under no circumstances shall Force Majeure include any of the following: (i) any reduction, curtailment or interruption of generation or operation of the Facility, whether in whole or in part, which reduction, curtailment or interruption is caused by or arises from the negligence or willful misconduct of the affected Party or any third party vendor or supplier to the Facility of materials, equipment, supplies or services; (ii) changes in market conditions that affect the cost of or demand for Energy, Ancillary Services or Gas; (iii) any NYISO or other grid constraint affecting the transmission of energy by Dynegy Power Marketing from the Electric Delivery Point; (iv) derating of the Facility, unless such derating is due to a Force Majeure event; (v) change in Law; (vi) failure of a Party to obtain and maintain any governmental approval, (vii) any failure or outage of the Facility the cause of which cannot be determined through reasonable diligence; (viii) any failure or outage of the Facility that is due to a latent or patent defect or inadequacy in the generation equipment comprising the Facility; (ix) any failure or outage of the Facility that is due to the improper or negligent maintenance, installation, delivery, or design of the Facility; (x) the unavailability of equipment, goods, or services that could have been avoided by the observance of Good Electrical Practices or (ix) causes or events affecting the performance of third-party suppliers of goods or services to the Facility or to Independence except to the extent caused by an event that otherwise is an event of Force Majeure as specified in this Section 16.01(a). (b) If either Party because of Force Majeure is rendered wholly or partly unable to perform its obligations under this Agreement, except for a Party's obligation to make payments under this Agreement (which shall not be excused), that Party shall be excused from whatever performance is affected by the Force Majeure to the extent so affected, provided that the Party whose performance under this Agreement is affected by an event of Force Majeure (i) gives the other Party notice of the occurrence of such Force Majeure event as soon as possible, and (ii) uses all commercially reasonable efforts to remedy the cause(s) and effect(s) of such Force Majeure event with all reasonable dispatch. The affected Party shall not be ***CONFIDENTIAL TREATMENT REQUESTED*** 22 obligated to undertake unreasonable or uneconomic costs or burdens, including the settlement of strikes or labor disturbances on terms other than are acceptable to such Party in its sole discretion, in order to overcome the effects of the Force Majeure and reinstate full performance of its Agreement obligation. ARTICLE XVII - TAXES 17.01 TAXES AND ADVERSE CLAIMS (a) The Contract Price under this Agreement includes full reimbursement to Supplier for all Taxes applicable to the Gas sold hereunder (other than Fixed Price Gas) ("Contract Price Gas") upstream of the Gas Facility Point, including all Taxes applicable to the Contract Price Gas sold hereunder prior to the Gas Facility Point or applicable as a result of the transfer of title to the Contract Price Gas sold hereunder, but excluding all Taxes applicable to the Contract Price Gas sold hereunder downstream of the Gas Facility Point and except in each case to the extent that the Tax is assessed due to any subsequent sale by Independence of such Gas. All Taxes incurred in or attributable to the production, sale, and delivery, handling, or transportation of the Contract Price Gas sold and delivered under this Agreement (or otherwise caused by or attributable to such Gas) prior to the Gas Facility Point (including all Taxes applicable to the Contract Price Gas sold hereunder prior to the Gas Facility Point or applicable as a result of the transfer of title to the Contract Price Gas sold hereunder) shall be the responsibility of Supplier and Supplier shall indemnify, defend, and hold Independence and its officers, directors, employees, agents, and partners harmless from and against all such Taxes. Any liability for the New York State Tax on Natural Gas Importers under ss.189 of the New York Tax Law, or any similar taxes enacted in place of the Sec. 189 Taxes (together, the "Sec. 189 Taxes"), which are assessed as a result of the location of any Gas Delivery Point outside of New York State shall be the responsibility of Supplier and Supplier shall indemnify, defend, and hold Independence and its officers, directors, employees, agents, and partners harmless from and against all such Taxes. Except with respect to Sec. 189 Taxes, all Taxes incurred in or attributable to the purchase and transfer, handling, or transportation of the Contract Price Gas purchased and received under this Agreement (or otherwise caused by or attributable to such Gas) after the Gas Facility Point shall be the responsibility of Independence, and Independence shall indemnify, defend, and hold Supplier and its officers, directors, employees, agents, and shareholders harmless from and against all such Taxes. All sales, transfer, and use Taxes (if any) applicable to the sale or transfer of Contract Price Gas under this Agreement at the Gas Facility Point shall be borne 50% each by Independence and Supplier. Each of Supplier and Independence shall apply for, and shall cooperate with the other in applying for, such exemption and other certificates as the other reasonably may request to eliminate the necessity of paying, collecting, or withholding any such Taxes. ***CONFIDENTIAL TREATMENT REQUESTED*** 23 (b) The FGP under this Agreement includes full reimbursement to Supplier for all Taxes applicable to the Fixed Price Gas sold hereunder, including all Taxes applicable as a result of the transfer of title to the Fixed Price Gas sold hereunder. All Taxes incurred in or attributable to the production, sale, and delivery, handling, or transportation of the Fixed Price Gas sold and delivered under this Agreement (or otherwise caused by or attributable to such Gas) (including all Taxes applicable as a result of the transfer of title to the Fixed Price Gas sold hereunder) shall be the responsibility of Supplier and Supplier shall indemnify, defend, and hold Independence and its officers, directors, employees, agents, and partners harmless from and against all such Taxes. All sales, transfer, and use Taxes (if any) applicable to the sale or transfer of Fixed Price Gas under this Agreement at the Gas Facility Point shall be borne by Supplier. Each of Supplier and Independence shall apply for, and shall cooperate with the other in applying for, such exemption and other certificates as the other reasonably may request to eliminate the necessity of paying, collecting, or withholding any such Taxes. (c) Except for matters addressed in Sections 17.01(a) and 17.01(b), including the indemnification provided thereunder, Supplier shall indemnify Independence and its officers, directors, employees, agents, and partners and save each of them harmless from all suits, actions, debts, accounts, damages, costs, losses, and expenses (including attorneys' fees and court costs) arising from or out of or relating to the existence of adverse claims of any or all persons to Gas delivered under this Agreement and/or any sums paid to Supplier by Independence pursuant to this Agreement, or royalties, license fees, or charges thereon that are applicable before title to such Gas passes to Independence and Taxes (including all production related Taxes) applicable before the Gas Facility Point. (d) The Parties agree to use commercially reasonable efforts to mitigate the Parties' exposure to Taxes which could be imposed on either Party as a result of this Agreement. ARTICLE XVIII - MISCELLANEOUS 18.01 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of Supplier and Independence hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Agreement. 18.02 SUBMISSION TO JURISDICTION Each of the Parties hereby irrevocably and unconditionally: ***CONFIDENTIAL TREATMENT REQUESTED*** 24 (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (b) 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 the other Party at its address set forth in Section 18.07, or at such other address of which the other Party shall have been notified pursuant thereto; and (c) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by Law. 18.03 HEADINGS The descriptive headings of the Articles and Sections of this Agreement are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Agreement. 18.04 WAIVER Except as otherwise provided in this Agreement, any failure of a Party to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first Party to comply with such obligation, covenant, agreement or condition. 18.05 SEVERABILITY Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 18.06 ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the Parties, and supersedes any and all previous understandings, oral or written, with respect to the subject matter hereof. ***CONFIDENTIAL TREATMENT REQUESTED*** 25 18.07 NOTICES Any notice, request, demand, statement or payment provided for in this Agreement shall be in writing and shall be made as specified below; provided, however, that notices of interruption may be provided verbally, effective immediately and confirmed in writing and, provided further, that any Scheduling shall be done pursuant to the Scheduling and Operating Procedures. Invoices may be sent by facsimile. A notice sent by facsimile transmission will be recognized and shall be deemed received on the Business Day on which such notice was transmitted if received before close of business (and if received after close of business, on the next Business Day) and a notice by overnight mail or courier shall be deemed to have been received two Business Days after it was sent or such earlier time as is confirmed by the receiving Party unless it confirms a prior verbal communication, in which case any such notice shall be deemed received on the Day sent. To Supplier: NOTICES & CORRESPONDENCE: PAYMENTS & INVOICES: Dynegy Canada Marketing and Trade, All payments made by Independence to a division of Dynegy Canada Inc. Supplier (in U.S. funds) shall be made Suite 805, 1275 North Service Road West directly to: Oakville, Ontario L6M 3G4 Intermediary Bank: Bank of America N.T. and S.A., New York, N.Y. Attention: Brian Byers ABA Routing Number: 026009593 Account Number: 6550826336 Fax: 905-469-0200 Beneficiary Bank: The with a copy to: Toronto-Dominion Bank, 340 - 5th Ave., S.W., Calgary, Alberta Dynegy Canada Marketing and Trade, Transit: 80609 a division of Dynegy Canada Inc. Bank Code: 004 2200, 350 - 7th Avenue SW Account Name: Dynegy Marketing and Calgary, Alberta Trade, a division of Dynegy Canada Inc. T2P 3N9 Account Number: 731 0127 (US Funds Attention: Darren Marine Only) EFT Account Number: 0805 731 0127 Fax: 403-213-6044 ***CONFIDENTIAL TREATMENT REQUESTED*** 26 To Independence: NOTICES & CORRESPONDENCE: PAYMENTS BY WIRE TRANSFER: Sithe/Independence Power Partners, All payments made by Supplier to L.P. Independence shall be made directly to the P.O. Box 1046 account entitled "Project Revenue Fund" 76 Independence Way maintained by Independence with The Bank of Oswego, New York 13126 New York, Account No. 229289, 101 Barclay Attention: General Manager Street, Floor 21W, New York, New York, Facsimile: (315) 342-8425 10286, or to such other person or account as shall be specified from time to time by with a copy to: Independence to Supplier in writing. Any payments being wired to the above-referenced Sithe/Independence Power Partners, account should be directed to ABA 021000018; L.P. The Bank of New York; Corporate Trust/GLA c/o Sithe Energies, Inc. 111-565; for further credit to TAS Account 335 Madison Avenue 229289; REF: Sithe Independence PWR Project 28th Floor Revenue Fund. New York, New York 10017 Attention: General Counsel Facsimile: (212) 351-0800 From time to time either Party may change the foregoing addresses and payment information by sending written notice of such change in accordance with this Section. 18.08 CONFIDENTIALITY (a) "Confidential Information" shall be any information or data exchanged by the Parties relating to the trading and marketing activities of either Party or the bids and Schedules (as defined in the Tolling Agreement) submitted directly or indirectly to the NYISO pursuant to this Agreement (including non-public information related thereto communicated to a Party from the NYISO). Confidential Information shall not include information: (i) which was developed by the Receiving Party and was contained in a writing in the Receiving Party's possession before its receipt from the other Party; (ii) which at the time of its disclosure to the Receiving Party is, or thereafter becomes, through no act or failure to act on the part of the Receiving Party, part of the public domain; ***CONFIDENTIAL TREATMENT REQUESTED*** 27 (iii) which has been rightfully furnished to the Receiving Party by a third party without restriction on disclosure or use and not in violation of any rights of, or obligations to, the other Party. The occurrence of any of the above exceptions shall not be construed as an express or implied grant of any rights under any of the other Party's patents or other intellectual property rights. For the purposes of this Section 18.08, a Party that receives Confidential Information from the other Party shall be referred to as the "Receiving Party." (b) No Receiving Party shall disclose or use Confidential Information received from the other Party for any purpose other than in connection with the performance of its obligations under this Agreement, without the prior written consent of the other Party. The Receiving Party agrees to utilize with respect to received Confidential Information the same standards and procedures which it applies to protection of its own confidential information, but not less than reasonable care. (c) Each Party will limit access to received Confidential Information to those of its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents, and consultants who need to know about or participate in the performance of its obligations under this Agreement. Each Party agrees to (i) inform each of its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents, and consultants who receive Confidential Information of the confidential nature thereof and of the obligations imposed by this Agreement, and (ii) each Party shall remain primarily liable to the other for unauthorized use or disclosure of received Confidential Information by its owners, affiliates, directors, officers, employees, attorneys, lenders, contractors, suppliers, agents or consultants receiving such information. (d) Each Party may disclose Confidential Information to third parties or other Governmental Authorities, including NYISO, to the extent such disclosures are contemplated in and required by the Parties in connection with the performance of their obligations under this Agreement. Each Party may also disclose Confidential Information which it is legally required to furnish to comply with a subpoena or other legal process of a Governmental Authority, provided that the disclosing Party shall use reasonable efforts to limit such disclosure and to obtain confidential treatment of such Confidential Information. (e) The provisions of this Section 18.08 shall survive expiration, cancellation, or termination of this Agreement. Each Party agrees to be bound by the confidentiality obligations herein for a period of five (5) years from expiration, cancellation or termination. ***CONFIDENTIAL TREATMENT REQUESTED*** 28 18.09 COUNTERPARTS This Agreement may be executed in counterparts, all of which shall constitute one and the same Agreement and each of which shall be deemed to be an original. 18.10 NO OFFSET Except as provided in Section 8.05, the amounts due Supplier from Independence and the amounts due Independence from Supplier shall constitute separate and independent obligations and may not be offset or net against each other or offset or net against any other amounts due between the Parties (whether under this Agreement or otherwise). ***CONFIDENTIAL TREATMENT REQUESTED*** 29 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first above written. SITHE/INDEPENDENCE POWER PARTNERS, L.P. BY: SITHE/INDEPENDENCE, INC., ITS GENERAL PARTNER By: /s/ Sandra J. Manilla ------------------------------------ Name: Sandra J. Manilla Title: Vice President and Treasurer DYNEGY CANADA MARKETING AND TRADE, A DIVISION OF DYNEGY CANADA INC. BY: DYNEGY CANADA INC. By: /s/ Miles Allen ------------------------------------ Name: Miles Allen Title: Vice President ***CONFIDENTIAL TREATMENT REQUESTED*** 30 EXHIBIT 11.01(A) ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Canada Marketing and Trade, a division of Dynegy Canada Inc., an Alberta corporation (together with its successors and assigns, the "SUPPLIER") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Supplier hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the GAS SUPPLY AGREEMENT dated as of July 1, 2001 between the Supplier and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Supplier to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 24.07 of the Assigned Contract. SECTION 3. REPRESENTATIONS OF SUPPLIER (a) The Supplier represents and warrants that as of the date hereof: ***CONFIDENTIAL TREATMENT REQUESTED*** 31 (i) AUTHORIZATION. The execution, delivery and performance by the Supplier of this Consent has been duly authorized by all necessary action on the part of the Supplier and does not require any approval or consent of any [shareholder] of the Supplier or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Supplier, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Supplier by the appropriate [officers] [representatives] of the Supplier and constitutes the legal, valid and binding obligation of the Supplier, enforceable against the Supplier in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Supplier nor, to the knowledge of the Supplier, the Partnership is in default under the Assigned Contract. The Supplier has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Supplier agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Supplier and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Supplier delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful ***CONFIDENTIAL TREATMENT REQUESTED*** 32 means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Supplier as provided in Section 5 below, the Supplier will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Supplier's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Supplier under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Supplier shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Supplier shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, ***CONFIDENTIAL TREATMENT REQUESTED*** 33 successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Supplier under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Supplier that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Supplier hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Supplier under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Supplier, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department ***CONFIDENTIAL TREATMENT REQUESTED*** 34 (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Supplier and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective ***CONFIDENTIAL TREATMENT REQUESTED*** 35 to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Supplier, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. ***CONFIDENTIAL TREATMENT REQUESTED*** 36 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY CANADA MARKETING AND TRADE, a division of DYNEGY CANADA INC. By: DYNEGY CANADA INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** 37 EXHIBIT 11.01(B) GUARANTY AGREEMENT Base Guaranty Agreement (this "Guaranty") dated as of July 1, 2001 is made and entered into by Dynegy Holdings Inc., a Delaware corporation ("Guarantor"), to and for the benefit of Sithe/Independence Power Partners, L.P., a Delaware limited partnership ("Independence"), and its successors and permitted assigns. WITNESSETH: WHEREAS, Independence and Dynegy Canada Marketing and Trade, a division of Dynegy Canada Inc., an Alberta corporation (together with its successors and permitted assigns, "Supplier"), have entered into a GAS SUPPLY AGREEMENT dated as of July 1, 2001 (as amended, supplemented or modified from time to time, the "Gas Supply Agreement"), a copy of which is attached hereto as Exhibit 1; WHEREAS, Supplier is an indirect, wholly owned subsidiary of Guarantor, and Guarantor will derive substantial benefit from the performance by Independence of its obligations under the Gas Supply Agreement; WHEREAS, it is a condition precedent to Independence's obligations under the Gas Supply Agreement that this Guaranty be duly executed and delivered to Independence; and WHEREAS, Guarantor is willing to enter into this Guaranty. NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. GUARANTY. Subject to the terms hereof, Guarantor hereby irrevocably, absolutely, and unconditionally guarantees to Independence and its successors and permitted assigns the due, punctual and full performance and payment of each and every obligation of Supplier under the Gas Supply Agreement (each such obligation hereinafter referred to, individually, as a "Guaranteed Obligation" and, collectively, as the "GUARANTEED OBLIGATIONS") and agrees that, if for any reason whatsoever Supplier shall fail or be unable duly, punctually and fully to perform or pay any such Guaranteed Obligation, Guarantor shall forthwith, upon demand as provided in Section 4 hereof, perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid, without regard to any exercise or ***CONFIDENTIAL TREATMENT REQUESTED*** 38 nonexercise by Independence, its successors or permitted assigns of any right, power or privilege under or in respect of the Gas Supply Agreement or the Guaranteed Obligations. In connection with the foregoing, Independence acknowledges that performance of the obligations of Supplier under the Gas Supply Agreement, to the extent that such performance is for an obligation other than the payment of money, shall be accomplished by Guarantor causing such performance to occur through a third party or otherwise by the payment of money. This Guaranty shall be direct, immediate and primary and shall be a guaranty of performance and payment and not of collection, and is not conditioned or contingent upon any attempt to collect from Supplier or upon any other event, contingency or circumstance whatsoever, except as expressly provided otherwise herein. 2. OBLIGATIONS UNCONDITIONAL. Guarantor covenants to and agrees with Independence and its successors and permitted assigns that, to the fullest extent permitted by law, its obligations under this Guaranty are irrevocable, absolute and unconditional, shall remain in full force and effect, and shall not be impaired or affected by, or be subject to, any reduction, termination or other impairment by set-off, deduction, counterclaim, recoupment, interruption or otherwise, and Guarantor shall have no right to terminate this Guaranty or to be released, relieved or discharged, in whole or in part, from its performance or payment obligations referred to in this Guaranty for any reason whatsoever (other than the performance and payment in full of the Guaranteed Obligations), including (a) any amendment, supplement or modification to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or privilege under or in respect of, the Gas Supply Agreement, the Guaranteed Obligations or any other agreement or instrument relating thereto, (b) any insolvency, bankruptcy, reorganization, dissolution or liquidation of, or any similar occurrence with respect to, or cessation of existence of, or change of ownership of Supplier, or any rejection of any of the Guaranteed Obligations in connection with any Proceeding (as defined in Section 3 below) or any disallowance of all or any portion of any claim by Independence, its successors or permitted assigns in connection with any Proceeding, (c) any lack of genuineness, legality, validity, regularity, enforceability or value of the Gas Supply Agreement, any of the Guaranteed Obligations, or any other agreement or instrument relating thereto, (d) the failure to create, preserve, validate, perfect or protect any security interest granted to, or in favor of, any person, (e) any substitution, modification, exchange, release, settlement or compromise of any security or collateral for or guaranty of any of the Guaranteed Obligations or failure to apply such security or collateral or failure to enforce such guaranty or (f) any other event or circumstance whatsoever that might otherwise constitute a legal or equitable discharge of a surety or guarantor (other than the payment in full of the Guaranteed Obligations, and any defenses that may be available to Supplier under the Gas Supply Agreement), it being the intent of Guarantor that its obligations under this Guaranty shall be irrevocable, unconditional and absolute under any and all circumstances, except as expressly provided herein. This Guaranty and the obligations of Guarantor hereunder shall ***CONFIDENTIAL TREATMENT REQUESTED*** 39 continue to be effective or be automatically reinstated, as the case may be, if at any time any payment by or on behalf of Supplier is rescinded or must otherwise be restored by Independence, its successors or permitted assigns for any reason, including, but not limited to, as a result of any Proceeding with respect to Supplier or any other person, as though such payment had not been made. 3. INTEREST. The Guaranteed Obligations shall include, without limitation, interest accruing as part of the Guaranteed Obligations by the terms thereof following the commencement by or against Supplier of any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation, dissolution or composition or adjustment of debt (hereinafter, a "PROCEEDING"). 4. DEMAND. If Supplier shall fail or be unable duly, punctually and fully to perform or pay any Guaranteed Obligation, Independence, its successors or permitted assigns may at any time prior to the full performance or payment of such Guaranteed Obligation deliver notice of such failure or inability of Supplier to perform or pay to Guarantor in writing, which notice shall reasonably specify the nature of such failure or inability to perform or pay, as the case may be and, in the case of a failure or inability to pay, the amount thereof (each such written notice hereinafter a "DEMAND"). Guarantor shall, upon receipt of a Demand, forthwith perform or pay such Guaranteed Obligation, or cause such Guaranteed Obligation to be performed or paid in full. Promptly on request, Guarantor shall reimburse Independence, its successors and permitted assigns for all costs and expenses (including reasonable attorneys' fees) incurred in enforcing Independence's, its successors' or permitted assigns' rights under this Guaranty, but only to the extent that Independence is successful in enforcing Independence's rights under this Guaranty. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Independence and its successors and permitted assigns that as of the date hereof: (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, it has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Guaranty; (b) no authorization, approval, consent or order of, or registration or filing with, any court or other governmental body having jurisdiction over Guarantor is required on the part of Guarantor for the execution and delivery of this Guaranty; (c) this Guaranty has been duly executed and delivered by Guarantor and constitutes a valid and legally binding agreement of ***CONFIDENTIAL TREATMENT REQUESTED*** 40 Guarantor enforceable against Guarantor in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law); (d) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate action and do not require any other actions or proceedings or any stockholder approval or consent of any trustee or holder of any indebtedness of Guarantor; (e) the execution, delivery and performance of this Guaranty and compliance by Guarantor with the terms hereof (i) will not violate any governmental approval or law applicable to it or any of its property, (ii) will not violate any provision of its certificate of incorporation, bylaws or other governing documents, and (iii) will not violate or constitute a default under any agreement or instrument to which it is a party or by which it or any of its property may be bound, or result in the creation or imposition of any lien upon any of its property, which violation, default or lien would have a material adverse effect on its ability to perform its obligations under this Guaranty; (f) except as disclosed in Guarantor's latest Form 10-K and any Form 10-Qs or Form 8-Ks subsequently filed with the Securities and Exchange Commission, there are no actions, suits, investigations or proceedings against Guarantor by or before any court, arbitrator, administrative or regulatory agency, or other governmental authority pending, or to its knowledge, threatened against or affecting it, its properties, or its assets that, if adversely determined, would reasonably be expected to have a material and adverse effect on its ability to perform its obligations under this Guaranty; and (g) it directly or indirectly owns all of the issued and outstanding shares of each class of capital stock of Supplier. 6. DOWNGRADE EVENT. If at any time any two of the credit ratings then assigned to Guarantor's unsecured, senior long-term debt obligations falls below "Investment Grade" from the Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or its successor ("S&P"),"Investment Grade" from Moody's Investor Services, Inc. or its successor ("MOODY'S") or "Investment Grade" from Fitch IBCA, Inc. or its successor ("FITCH") (or if Guarantor is not rated by any of S&P, Moody's or Fitch), then Independence may require Guarantor to provide collateral in the form of either a substitute guaranty on terms and conditions substantially ***CONFIDENTIAL TREATMENT REQUESTED*** 41 similar to this Guaranty (from a substitute guarantor whose unsecured, senior long-term debt obligations are rated at least "Investment Grade" from two of S&P, Moody's and Fitch) or other security reasonably acceptable to Independence and Supplier ("Performance Assurance") in an amount determined by Independence in a commercially reasonable manner. The failure of Guarantor to provide such Performance Assurance or a guaranty or other credit assurance acceptable to Independence within twenty (20) business days of receipt of notice shall constitute an Event of Default under the Gas Supply Agreement and Independence will be entitled to the remedies set forth in the Gas Supply Agreement. 7. AMENDMENT OF GUARANTY. No term or provision of this Guaranty shall be amended, modified, altered, waived, supplemented or terminated except in a writing signed by Guarantor and Independence or Independence's successors and permitted assigns. 8. WAIVERS. To the fullest extent permitted by law, and except for the Demand required pursuant to Section 4 hereof, Guarantor hereby waives (a) all set-offs, counterclaims, presentments, demands for performance, notices of nonperformance, protests, notice of any of the matters referred to in Section 2, notices of protests, notices of dishonor, notice of any waivers or indulgences or extensions, and notices of every kind that may be required to be given by any statute or rule of law and notice of acceptance of this Guaranty, (b) diligence, presentment, and demand of payment, filing of claims with a court in connection with any Proceeding, protest or notice with respect to the Guaranteed Obligations and all demands whatsoever; and (c) any requirement that any action or proceeding be brought against Supplier or any other person, or any requirement that any person exhaust any right, power or remedy or proceed against any other person, prior to any action against Guarantor under the terms hereof. No delay on the part of Independence, its successors or permitted assigns in the exercise of, or failure to exercise, any right or remedy shall operate as a waiver thereof, a waiver of any other rights or remedies, or a release of Guarantor from any obligations hereunder, and no single or partial exercise by Independence, its successors or permitted assigns of any right or remedy shall preclude any further exercise thereof or the exercise of any other right or remedy. 9. WAIVER OF SUBROGATION. Guarantor hereby agrees that it will not exercise, and hereby irrevocably, absolutely and unconditionally waives, any rights of subrogation, contribution, reimbursement, indemnification or other rights of payment or recovery for any payments made by it hereunder until all Guaranteed Obligations have been fully paid and performed. 10. NOTICE. Any Demand, notice, request, instruction, correspondence or other document to be given hereunder (herein collectively called "Notice") shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, or by telecopy, as follows: ***CONFIDENTIAL TREATMENT REQUESTED*** 42 To Independence: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telecopy: (315) 342-8425 with a copy to: Sithe Energies, Inc. 28th Floor 335 Madison Avenue New York, New York 10017 Attention: General Counsel Telecopy: (212) 351-0800 To Guarantor: Dynegy Holdings Inc. 1000 Louisiana Street, Suite 5800 Houston, Texas 77002 Attention: Assistant Treasurer Telecopy: (713) 507-6786 Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telefax shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All Notices by telefax shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving notice as provided above of such change of address. 11. ASSIGNMENT. Guarantor shall have no right, power or authority to delegate, assign or transfer all or any of its rights or obligations hereunder. Independence may assign all or any of its rights hereunder to any assignee of its rights under the Gas Supply Agreement as permitted thereby; provided, further, that Independence may pledge or assign its interest hereunder to the lenders of financial parties referred to in Section 21.01 of the Gas Supply Agreement ("Financial Parties") in connection with any assignment of the Gas Supply Agreement to the Financial Parties as contemplated by Section 21.01 of the Gas Supply Agreement. In connection with any such assignment to any Financial ***CONFIDENTIAL TREATMENT REQUESTED*** 43 Party, Guarantor agrees to execute and deliver the agreement attached hereto as Exhibit 2. 12. MISCELLANEOUS. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CONFLICT-OF-LAWS RULES. EACH OF GUARANTOR AND INDEPENDENCE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER AGREEMENTS REFERRED TO HEREIN OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself in any legal action or proceeding relating to this 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 New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 10, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. This Guaranty is a continuing guaranty, shall apply to all Guaranteed Obligations whenever arising, shall be binding upon Guarantor and its successors and shall inure to the benefit of and be enforceable by Independence and its successors and permitted assigns. This Guaranty embodies the entire agreement of Guarantor and Independence and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Guaranty are for the purposes of reference only, and shall not affect the meaning hereof. If any provision of this Guaranty shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, but only to the extent of its invalidity, illegality or unenforceability. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. ***CONFIDENTIAL TREATMENT REQUESTED*** 44 IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed and delivered by its duly authorized officer as of the day and year first above written. DYNEGY HOLDINGS INC. By: ---------------------------- Title: ------------------------- ACCEPTED: SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ------------------------------- Title: ---------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** 45 EXHIBIT 2 ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of July 1, 2001 between Dynegy Holdings Inc. a Texas corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Guaranty Agreement dated as of July 1, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract as the Partnership could have taken absent the Event of Default, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account specified in Section 24.07 of the Assigned Contract. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on ***CONFIDENTIAL TREATMENT REQUESTED*** 46 the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default ***CONFIDENTIAL TREATMENT REQUESTED*** 47 under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and ***CONFIDENTIAL TREATMENT REQUESTED*** 48 payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent, provided, however, that such further assurances shall not expand the liability, or obligations arising under this Consent or dilute any rights or remedies otherwise accruing to Company under this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and ***CONFIDENTIAL TREATMENT REQUESTED*** 49 (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. ***CONFIDENTIAL TREATMENT REQUESTED*** 50 (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. ***CONFIDENTIAL TREATMENT REQUESTED*** 51 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. DYNEGY HOLDINGS INC. By: ------------------------------------ Name: ------------------------------------ Title: ----------------------------------- SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ------------------------------------ Name: ------------------------------------ Title: ----------------------------------- ***CONFIDENTIAL TREATMENT REQUESTED*** 52 EX-10.8(30) 16 a2056240zex-10_830.txt EXHIBIT 10.8.30 EXHIBIT 10.8.30 ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of June 29, 2001 (this "Assignment Agreement"), by and between Sithe/Independence Power Partners, L.P., a Delaware limited partnership ("Assignor") and Enron North America Corp., a Delaware corporation ("Assignee"). W I T N E S S E T H: WHEREAS, Assignor and TransCanada Pipelines Limited, an Ontario corporation ("TransCanada") have entered into those certain agreements relating to the transportation of natural gas for use at Assignor's gas-fired generating plant of approximately 1,032 MW net capacity located in the Town of Scriba, New York (the "Facility"), each as listed on ANNEX A hereto (the "TransCanada Gas Transportation Agreements"); WHEREAS, Assignor and Union Gas Limited, an Ontario corporation ("Union," and together with TransCanada, the "Gas Transporters") have entered into those certain agreements relating to the transportation of natural gas for use at the Facility, each as listed on ANNEX B hereto (the "Union Gas Transportation Agreements," and together with the TransCanada Gas Transportation Agreements, the "Gas Transportation Agreements"); WHEREAS, TransCanada and Union each have procedures whereby a transporter of natural gas on their respective pipelines may temporarily and/or permanently assign natural gas transportation capacity to a third party; and WHEREAS, Assignor desires to permanently assign and Assignee desires to permanently assume all of Assignor's right, title and interest in and to, and Assignor desires to be permanently released from any and all obligations under, the Gas Transportation Agreements and all of the gas transportation capacity covered thereby; and until such permanent assignment and assumption and permanent release are consummated, to temporarily assign and assume such capacity. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee, intending to be legally bound, hereby agree as follows: 1. Assignor and Assignee agree, as soon as practicable following the execution of this Assignment Agreement, to effectuate the permanent assignment by Assignor to Assignee of all of Assignor's right, title and interest in and to, and the permanent release of any and all obligations under, the Gas Transportation Agreements and the gas transportation capacity (the "Capacity") covered thereby. In furtherance thereof, Assignee agrees to promptly apply for approval of such assignment and release by the Gas Transporters pursuant to their respective procedures governing permanent assignments and permanent releases. Assignor hereby agrees with Assignee to execute and deliver to the Transporters and/or Assignee, as applicable, such further documents and instruments, and to take such further actions, as may be necessary or reasonably requested by the Transporters and/or Assignee to effect such permanent assignment and permanent release of the Gas Transportation Agreements to Assignee as contemplated herein. Assignor and Assignee acknowledge and agree that Assignee shall have primary responsibility for ensuring compliance with the respective procedures of the Transporters and for obtaining all third party consents, or other consents required by the respective procedures of the Transporters, in connection with the permanent assignment of the Gas Transportation Agreements to Assignee and the permanent release of Assignor therefrom; PROVIDED that Assignor shall cooperate with Assignee's efforts hereunder upon Assignee's reasonable request. 2. Until such time as the permanent assignment and permanent release of the Gas Transportation Agreements are approved by the respective Gas Transporters, Assignor shall, if and to the extent permitted by the procedures of the Gas Transporters governing temporary assignments of Capacity, from time to time at the request of Assignee and at Assignee's sole expense, temporarily assign Capacity to Assignee in such amount and for such period as Assignee may request. 3. From and after July 1, 2001 (the "Effective Date"), Assignee agrees to perform all of Assignor's liabilities, responsibilities and obligations under such Gas Transportation Agreement. Assignee shall, upon receipt of reasonable documentation substantiating any such claim, promptly reimburse Assignor for any payments made by Assignor to the Gas Transporter pursuant to such Gas Transportation Agreement attributable solely to periods on and after the Effective Date. Assignee agrees that it shall be solely liable for all liabilities, responsibilities and obligations arising under the Gas Transportation Agreements for periods on and after the Effective Date. 4. Assignor agrees that it shall be solely liable for all liabilities, responsibilities and obligations arising under the Gas Transportation Agreements for periods prior to the Effective Date. Assignor shall, upon the receipt of reasonable documentation substantiating any such claim, promptly reimburse Assignee for any payment made by Assignee to a Transporter pursuant to any of the Gas Transportation Agreements attributable solely to periods prior to the Effective Date. 5. If Assignee receives any refunds or credits under the Gas Transportation Agreements relating to periods prior to the Effective Date, or if Assignor receives any refunds or credits under the Gas Transportation Agreements relating to periods after the Effective Date, Assignee or Assignor, as the case may be, shall promptly remit such refund or credit to the other party in the form received. 6. Assignee shall, except as set forth in Section 7(b) below, and subject to the procedures set forth in Sections 7(c) and 7(d) below, indemnify, reimburse, defend, and hold harmless Assignor, its Affiliates and their respective directors, officers, stockholders, partners, employees, agents, representatives, successors, permitted transferees and permitted assigns, from and against all demands, actions or causes of action, assessments, losses, liabilities, damages, costs and expenses, judgments, claims and tax claims (including, without limitation, interest, fines, penalties, reasonable legal, consultants' and experts' fees and expenses) suffered or incurred by Assignor by reason of or resulting from any imbalance between the amount of 2 natural gas exported out of Canada and the amount of natural gas imported into Canada pursuant to the Gas Transportation Agreements in connection with (i) the Department of Energy, Office of Fossil Energy Order No. 724 (November 19, 1992); (ii) the Department of Energy, Office of Fossil Energy Order No. 762 (January 22, 1993), modified by Department of Energy, Office of Fossil Energy Order No. 762-A (December 9, 1994); (iii) the National Energy Board of Canada Order GOL-13-92 (November 27, 1992), modified by National Energy Board of Canada Order AO-1-GOL-13-92 (February 1, 1993); and (iv) the National Energy Board of Canada Order GL-219 (April 29, 1993), modified by National Energy Board of Canada letter order (December 16, 1994). 7. (a) Assignor shall, except as set forth in this Section 7, indemnify, reimburse, defend and hold harmless Assignee, its Affiliates and their respective directors, officers, stockholders, partners, employees, agents, representatives, successors, permitted transferees and permitted assigns, from and against any and all demands, actions or causes of action, assessments, losses, liabilities, damages, costs and expenses, judgments, claims and tax claims (including, without limitation, interest, fines, penalties, reasonable legal, consultants' and experts' fees and expenses) suffered or incurred by Assignee by reason of or resulting from the inaccuracy or breach of any representation, warranty or covenant of Assignor contained in this Assignment Agreement. Assignee shall, except as set forth in this Section 7, indemnify, reimburse, defend, and hold harmless Assignor, its Affiliates and their respective directors, officers, stockholders, partners, employees, agents, representatives, successors, permitted transferees and permitted assigns, from and against all demands, actions or causes of action, assessments, losses, liabilities, damages, costs and expenses, judgments, claims and tax claims (including, without limitation, interest, fines, penalties, reasonable legal, consultants' and experts' fees and expenses) suffered or incurred by Assignor by reason of or resulting from the inaccuracy or breach of any of the representations, warranties or covenants of Assignee contained in this Assignment Agreement. The indemnity provision contained in this Section 7(a) shall be the parties' sole remedies as a result of the breach by any party hereto of any of its representations, warranties, covenants or agreements contained in this Assignment Agreement. (b) No party shall be entitled to recover damages in respect of any claim for breach of any warranty, representation or covenant or otherwise obtain reimbursement or restitution more than once in respect of any one such breach or any fact, event or circumstance or set of facts, events or circumstances. (c) If Assignor or Assignee, as the case may be ("Claimant"), has a claim against the other party hereunder ("Indemnifying Party"), Claimant will transmit to the Indemnifying Party a written notice with respect to such claim, specifying the basis therefor; PROVIDED, HOWEVER, that any failure or delay in providing such notice to the Indemnifying Party will not relieve the Indemnifying Party of any obligation hereunder except and only to the extent the Indemnifying Party was actually prejudiced by such delay or failure. The Indemnifying Party shall within 30 days from its receipt of such notice either notify Claimant that the Indemnifying Party disputes such claim, or pay the amounts owing by the Indemnifying Party under such claim in cash. If a claim may be deemed to involve both a direct claim (and thus subject to the terms of this Section 3 7(c)) and a claim involving a third party (and thus subject to the terms of Section 7(d)), it will be treated hereunder as a claim involving a third party. (d) Promptly after receipt of written notice of a claim involving a third party, Claimant will give Indemnifying Party written notice of any such claim; PROVIDED, HOWEVER, that any failure or delay in providing such notice to Indemnifying Party will not relieve Indemnifying Party of any obligations hereunder except and only to the extent Indemnifying Party was actually prejudiced by such delay or failure. Indemnifying Party will have the right to undertake the defense, compromise or settlement of such claim and Indemnifying Party will not be liable for the fees or expenses of separate counsel for Claimant, unless the counsel designated by Indemnifying Party is unable, due to a conflict (as determined under applicable law, bar rules and regulations and canons of ethics) arising in connection with representation of Indemnifying Party and Claimant, to fully represent Claimant with respect to such claim, in which case Indemnifying Party will be liable for the fees and expenses of one separate counsel for Claimant. Claimant will use its reasonable efforts to cooperate fully with respect to the defense of any claim. Unless Indemnifying Party has delivered to Claimant a written statement in form and substance acceptable to Claimant acknowledging and confirming that a subject claim is fully within the scope of indemnification obligations of Indemnifying Party under this Assignment Agreement, if after the passage of a reasonable period of time after notice of any claim, Indemnifying Party has not initiated a defense against such claim, Claimant will have the right to undertake the defense, compromise or settlement of such claim at any time prior to settlement, compromise or final determination thereof and any action so taken by Claimant with regard to such defense, compromise or settlement will be deemed to be within the protection afforded by this Assignment Agreement; PROVIDED, HOWEVER, that any settlement of any such claim shall require the prior written consent of Indemnifying Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything in this Section 7(d) to the contrary, (i) if there is a reasonable possibility that a claim may materially adversely affect Claimant other than as a result of money damages or other money payments that are within the protection afforded by this Assignment Agreement, Claimant will have the right, at Indemnifying Party's cost and expense, to defend, and, with the consent of Indemnifying Party (which consent will not be unreasonably withheld or delayed), to compromise or settle such claim, and (ii) Indemnifying Party will not settle or compromise any claim or consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the third party claimant or plaintiff to Claimant a full, irrevocable and unconditional release from all liability in respect of such claim. 8. Assignor and Assignee acknowledge that, in order to induce Assignor to enter into this Assignment Agreement and to consummate the transactions contemplated hereby, Enron Corp., an affiliate of Assignee, has executed on the date hereof a guaranty pursuant to which Enron Corp. shall, among other things, irrevocably and unconditionally guarantee Assignee's obligations under this Assignment Agreement. 9. Assignee, to induce Assignor to enter into this Assignment Agreement, represents and warrants to Assignor that: 4 (a) AUTHORIZATION AND VALIDITY. This Assignment Agreement and the transactions contemplated hereby have been duly authorized by it, and this Assignment Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (b) NO VIOLATION. The execution and delivery of this Assignment Agreement by it and the performance by it of this Assignment Agreement and the consummation of the transactions contemplated hereby, do not and will not (i) violate or conflict with any provision of its certificate of incorporation or by-laws, (ii) violate any existing statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to it, which violation will have a material and adverse effect on its ability to perform its obligations under this Assignment Agreement or (iii) under existing law require any consent, approval or authorization of, or designation, declaration or filing with, any governmental authority on the part of Assignee, other than as described in this Assignment Agreement. (c) LEGAL PROCEEDINGS. There are no judicial or administrative actions, proceedings, or to its knowledge, investigations (including, without limitation, bankruptcy, reorganization or insolvency actions, proceedings or investigations) pending or, to its knowledge, threatened that (i) challenge the validity of this Assignment Agreement or the transactions contemplated hereby, (ii) seek to restrain or prevent any action taken or to be taken by it in connection with this Assignment Agreement or (iii) if adversely determined, would have a material and adverse effect on its ability to perform its obligations under this Assignment Agreement. 10. Assignor, to induce Assignee to enter into this Assignment Agreement, represents and warrants to Assignee that: (a) AUTHORIZATION AND VALIDITY. This Assignment Agreement and the transactions contemplated hereby have been duly authorized by it, and this Assignment Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (b) NO VIOLATION. The execution and delivery of this Assignment Agreement by it and the performance by it of this Assignment Agreement and the consummation of the transactions contemplated hereby, do not and will not (i) violate or conflict with any provision of its limited partnership agreement, (ii) violate any existing statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to it, which violation will have a material and adverse effect on its ability to perform its obligations under this Assignment Agreement or (iii) under existing law require any consent, approval or authorization 5 of, or designation, declaration or filing with, any governmental authority on the part of Assignor, other than as described in this Assignment Agreement. (c) LEGAL PROCEEDINGS. There are no judicial or administrative actions, proceedings, or to its knowledge, investigations (including, without limitation, bankruptcy, reorganization or insolvency actions, proceedings or investigations) pending or, to its knowledge, threatened that (i) challenge the validity of this Assignment Agreement or the transactions contemplated hereby, (ii) seek to restrain or prevent any action taken or to be taken by it in connection with this Assignment Agreement or (iii) if adversely determined, would have a material and adverse effect on its ability to perform its obligations under this Assignment Agreement. 11. (a) This Assignment Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns, but neither this Assignment Agreement nor any of the rights, interests or obligations hereunder shall be assigned, except to an affiliate or successor, by either party hereto, whether by operation of law or otherwise, without the prior written consent of the other party, which consent may not be unreasonably withheld or delayed. No assignment of all or any portion of the rights, interests or obligations permitted pursuant to the immediately preceding sentence shall relieve or discharge the assignor from any of its obligations under this Assignment Agreement without the prior written consent of the non-assigning party, which consent shall not be unreasonably withheld or delayed. Any assignment of this Assignment Agreement in violation of the foregoing shall be, at the option of the non-assigning party, void. (b) Notwithstanding the foregoing provisions of Section 11(a), Assignor may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof. Assignee agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, including, without limitation, the Acknowledgement and Consent in the form attached hereto as ANNEX C, so long as Assignee's rights under this Assignment Agreement are not thereby altered, amended, diminished or otherwise impaired. 12. This Assignment Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles other than Section 5-1401 of the New York General Obligations Law). Each of Assignor and Assignee hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Assignment Agreement. 13. Each of Assignee and Assignor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the 6 non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (b) consents and agrees 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; (c) 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 the other party at its address set forth in Section 14, or at such other address of which the other party shall have been notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. 14. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (including delivery by an express or overnight delivery service), when received by facsimile transmission or when sent by registered mail, return receipt requested, addressed: IF TO ASSIGNOR, at: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telefax: (315) 342-8425 with a copy to: Sithe Energies, Inc. 335 Madison Avenue 28th Floor New York, NY 10017 Attention: General Counsel Telefax: (212) 351-0800 7 if to Assignee, at: Enron North America Corp. 1400 Smith Street Houston, Texas 77002 Attention: Donna Lowry Telefax: (713) 646-4039 15. Any provision of this Assignment Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof. The invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 16. This Assignment Agreement 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. 17. This Agreement shall be effective as of 8:00 a.m. (Central time) on June 29, 2001. 8 IN WITNESS WHEREOF, the undersigned have executed this Assignment Agreement as of the date first above written. SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., as its sole general partner By: /s/ Martin B. Rosenberg ----------------------------------- Name: Martin B. Rosenberg Title: Senior Vice President ENRON NORTH AMERICA CORP. By: /s/ Jeffrey M. Donahue ----------------------------------- Name: Jeffrey M. Donahue Title: Managing Director 9 ANNEX A TRANSCANADA GAS TRANSPORTATION AGREEMENTS 1. Firm Service Contract for Firm Transportation Service (Kirkwall/Chippawa) dated March 9, 1994, between Sithe/Independence Power Partners, L.P. and TransCanada Pipelines Limited, as amended or supplemented from time to time. 2. Firm Service Contract for Firm Transportation Service (St. Clair/Dawn), dated March 9, 1994 between Sithe/Independence Power Partners, L.P. and TransCanada Pipelines Limited, as amended pursuant to the Amending Agreement dated May 1, 1995 between Sithe/Independence Power Partners, L.P. and TransCanada Pipelines Limited, and as further amended by the Amending Agreement dated June 5, 1996 between Sithe/Independence Power Partners, L.P. and TransCanada Pipelines Limited. 3. Agreement for Disaggregation dated November 6, 1992, between Sithe/Independence Power Partners, L.P. and TransCanada Pipelines Limited, as amended or supplemented from time to time. 4. Performance Agreement on Financial Assurances (St. Clair), dated November 6, 1992, among Sithe/Independence Power Partners, L.P., TransCanada Pipelines Limited, Enron North America Corp. (as successor by interest in merger to Enron Power Services, Inc.) and Enron Corp. 5. Assignment Agreement, dated March 9, 1994, among Sithe/Independence Power Partners, L.P., TransCanada Pipelines Limited (f/k/a St. Clair Pipelines Ltd.) and Union Gas Limited. 6. Performance Agreement on Financial Assurances (Kirkwall), dated November 6, 1992, among Sithe/Independence Power Partners, L.P., TransCanada Pipelines Limited, Enron North America Corp. (as successor by interest in merger to Enron Power Services, Inc.) and Enron Corp. 1 ANNEX B UNION GAS TRANSPORTATION AGREEMENTS 1. M12 Firm Transportation Contract (M12017), dated April 10, 1992, between Union Gas Limited and Sithe/Independence Power Partners, L.P., as amended by the Amending Agreement for M12 Firm Transportation Contract (No. M12017) dated February 19, 1993 between Union Gas Limited and Sithe/Independence Power Partners, L.P. 2. C-1 Firm Transportation Contract (C10018), dated April 10, 1992, between Union Gas Limited and Sithe/Independence Power Partners, L.P. 1 ANNEX C ACKNOWLEDGEMENT AND CONSENT Acknowledgment and Consent (this "Consent") dated as of June 29, 2001 between Enron North America Corp., a Delaware corporation (together with its successors and assigns, the "Company") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "Partnership"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with its successors and assigns in that capacity, the "Collateral Agent"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "Security Agreement") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Assignment and Assumption Agreement dated as of June 29, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "Assigned Contract") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account entitled "Project Revenue Fund" maintained by the Partnership with The Bank of New York, Account No. 229289, 101 Barclay Street, Floor 21W, New York, New York, 10286, or to such other person or account as shall be specified from time to time by the Partnership to the Company in writing. Any payments being wired to the above-referenced account should be directed to ABA 021000018; The Bank of New York; Corporate Trust/GLA 111-565; for further credit to TAS Account 229289; REF: Sithe Independence PWR Project Revenue Fund. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: 1 (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "Notice"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; provided, however, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; provided, further, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. 2 (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "Third Party Transferee") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; provided that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES 3 The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. TERMINATION Notwithstanding anything in this Consent to the contrary, this Consent shall terminate upon the earlier of (a) the termination of the Security Agreement and (b) the date Assignor is fully released (pursuant to an instrument reasonably satisfactory to the Partnership) from all liability under all of the Gas Transportation Agreements (as defined in the Assigned Contract). SECTION 9. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law 4 principles other than Section 5-1401 of the New York General Obligations Law). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) consents and agrees 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. 5 (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. (h) EFFECTIVE TIME. This Agreement shall be effective as of 8:00 a.m. (Central time) on June 29, 2001. [Signature page follows] 6 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. ENRON NORTH AMERICA CORP. By: ---------------------------- Name: Jeffrey M. Donahue Title: Managing Director SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ---------------------------- Name: Martin B. Rosenberg Title: Senior Vice President 7 EX-10.8(31) 17 a2056240zex-10_831.txt EXHIBIT 10.8.31 EXHIBIT 10.8.31 CAPACITY RELEASE TRANSFER AGREEMENT CAPACITY RELEASE TRANSFER AGREEMENT, dated as of June 29, 2001 (this "Agreement"), by and between Sithe/Independence Power Partners, L.P., a Delaware limited partnership ("Independence") and Enron North America Corp., a Delaware corporation ("Enron"). W I T N E S S E T H: WHEREAS, Independence and ANR Pipeline Company, a Delaware corporation ("ANR"), have entered into those certain agreements relating to the gathering and transportation of natural gas for use at Independence's gas-fired generating plant of approximately 1,032 MW net capacity located in the Town of Scriba, New York (the "Facility"), each as listed on ANNEX A hereto (the "ANR Gas Transportation Agreements"); WHEREAS, Independence and Great Lakes Gas Transmission Limited Partnership, a Delaware limited partnership ("Great Lakes"), have entered into that certain agreement relating to the transportation of natural gas for use at the Facility, as listed on ANNEX B hereto (the "Great Lakes Gas Transportation Agreement"); and WHEREAS, Independence and Panhandle Eastern Pipe Line Company, a Delaware corporation ("Panhandle" and, together with ANR and Great Lakes, the "Transporters", and each such party, a "Transporter"), have entered into those certain agreements relating to the transportation of natural gas for use at the Facility, as listed on ANNEX C hereto (the "Panhandle Gas Transportation Agreements" and, together with the ANR Gas Transportation Agreements and the Great Lakes Gas Transportation Agreement, the "Gas Transportation Agreements"); and WHEREAS, Independence desires (i) to permanently release, and Enron desires to acquire, all of the gas transportation capacity and associated service rights available to Independence (the "Capacity") under the Gas Transportation Agreements, and (ii) to be permanently released from any and all obligations, under the Gas Transportation Agreements; and WHEREAS, until Enron acquires the permanent release of the Capacity and until Independence is permanently released from any and all obligations under the Gas Transportation Agreements, Independence desires to provide Enron, from time to time at Enron's request, with a temporary release of the Capacity. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Independence and Enron, intending to be legally bound, hereby agree as follows: 1. Independence hereby agrees with Enron to "permanently release" (within the meaning of 18 CFR 284.8 (2000)) all of the Capacity in accordance with and subject to the regulations of the Federal Energy Regulatory Commission (the "FERC") and the procedures of the applicable FERC Gas Tariff ("Tariff") of each Transporter, at the rate or rates set forth in the applicable Gas Transportation Agreement (the "Contract Rate"). Until such time as the Capacity under each Gas Transportation Agreement is permanently released to Enron and until Independence is permanently released from any and all obligations under the Gas Transportation Agreements, Independence shall, from time to time at the request of Enron and at Enron's sole expense, temporarily release that portion of the Capacity to which such request relates in accordance with the regulations of the FERC and the Tariff of such Transporter. Independence and Enron acknowledge and agree that Independence shall not maintain or reserve any right, title or interest in, to or under all or any part of such Capacity following the permanent release of Capacity contemplated herein. 2. Independence and Enron hereby agree that Enron will be designated as the prearranged replacement shipper for each of the capacity release transactions pursuant to Section 1 hereof. To the extent necessary under the procedures of each Transporter's Tariff, Enron agrees to reaffirm its willingness to acquire all of the Capacity released by Independence pursuant to Section 1 hereof and to pay the Contract Rate for such Capacity. From and after July 1, 2001 (the "Effective Date"), Enron agrees to pay or perform all of Independence's liabilities, responsibilities and obligations under the Gas Transportation Agreements. Enron shall, upon the receipt of reasonable documentation substantiating any such claim, promptly reimburse Independence for any payment made by Independence to a Transporter pursuant to any of the Gas Transportation Agreements attributable solely to periods on and after the Effective Date. Enron shall be solely liable for all liabilities, responsibilities and obligations arising under the Gas Transportation Agreements for periods on and after the Effective Date. 3. Independence hereby agrees with Enron to execute and deliver to the Transporters and/or Enron, as applicable, release notices and such further documents and instruments, and to take such further actions, as may be necessary or reasonably requested by the Transporters and/or Enron to effect such permanent release of the Capacity to Enron, and to permanently release Independence from any and all obligations under Gas Transportation Agreements, as contemplated herein. Independence and Enron acknowledge and agree that Enron shall have primary responsibility for ensuring compliance with the Transporter's tariffs and for obtaining all third party consents or consents required by any applicable tariff of the Transporters, and approvals of any governmental agency or any other person required, in connection with the permanent release and assignment of the Capacity from the Transporters to Enron, and the permanent release of Independence from all obligations, under the Gas Transportation Agreements; PROVIDED, that Independence shall cooperate with Enron's efforts hereunder upon Enron's reasonable request. 4. Independence agrees that it shall be solely liable for all liabilities, responsibilities and obligations arising under the Gas Transportation Agreements for periods prior to the Effective Date. Independence shall, upon the receipt of reasonable documentation substantiating any such claim, promptly reimburse Enron for any payment made by Enron to a Transporter pursuant to any of the Gas Transportation Agreements attributable solely to periods prior to the Effective Date. 5. If Enron receives any refunds or credits under the Gas Transportation Agreements relating to periods prior to the Effective Date, or if Independence receives any refunds or credits under the Gas Transportation Agreements relating to periods on or after the Effective Date, 2 Enron or Independence, as the case may be, shall promptly remit such refund or credit to the other party in the form received. 6. [Reserved]. 7. (a) Independence shall, except as set forth in this Section 7, indemnify, reimburse, defend and hold harmless Enron, its affiliates and their respective directors, officers, stockholders, partners, employees, agents, representatives, successors, permitted transferees and permitted assigns, from and against any and all demands, actions or causes of action, assessments, losses, liabilities, damages, costs and expenses, judgments, claims and tax claims (including, without limitation, interest, fines, penalties, reasonable legal, consultants' and experts' fees and expenses) suffered or incurred by Enron by reason of or resulting from the inaccuracy or breach of any representation, warranty or covenant of Independence contained in this Agreement. Enron shall, except as set forth in this Section 7, indemnify, reimburse, defend, and hold harmless Independence, its affiliates and their respective directors, officers, stockholders, partners, employees, agents, representatives, successors, permitted transferees and permitted assigns, from and against all demands, actions or causes of action, assessments, losses, liabilities, damages, costs and expenses, judgments, claims and tax claims (including, without limitation, interest, fines, penalties, reasonable legal, consultants' and experts' fees and expenses) suffered or incurred by Independence by reason of or resulting from the inaccuracy or breach of any of the representations, warranties or covenants of Enron contained in this Agreement. The indemnity provision contained in this Section 7(a) shall be the parties' sole remedies as a result of the breach by any party hereto of any of its representations, warranties, covenants or agreements contained in this Agreement. (b) No party shall be entitled to recover damages in respect of any claim for breach of any warranty, representation or covenant or otherwise obtain reimbursement or restitution more than once in respect of any one such breach or any fact, event or circumstance or set of facts, events or circumstances. (c) If Independence or Enron, as the case may be ("Claimant"), has a claim against the other party hereunder ("Indemnifying Party"), Claimant will transmit to the Indemnifying Party a written notice with respect to such claim, specifying the basis therefor; PROVIDED, HOWEVER, that any failure or delay in providing such notice to the Indemnifying Party will not relieve the Indemnifying Party of any obligation hereunder except and only to the extent the Indemnifying Party was actually prejudiced by such delay or failure. The Indemnifying Party shall within 30 days from its receipt of such notice either notify Claimant that the Indemnifying Party disputes such claim, or pay the amounts owing by the Indemnifying Party under such claim in cash. If a claim may be deemed to involve both a direct claim (and thus subject to the terms of this Section 7(c)) and a claim involving a third party (and thus subject to the terms of Section 7(d)), it will be treated hereunder as a claim involving a third party. (d) Promptly after receipt of written notice of a claim involving a third party, Claimant will give Indemnifying Party written notice of any such claim; PROVIDED, HOWEVER, that any failure or delay in providing such notice to Indemnifying Party will not relieve Indemnifying Party of any obligations hereunder except and only to the extent Indemnifying Party was actually 3 prejudiced by such delay or failure. Indemnifying Party will have the right to undertake the defense, compromise or settlement of such claim and Indemnifying Party will not be liable for the fees or expenses of separate counsel for Claimant, unless the counsel designated by Indemnifying Party is unable, due to a conflict (as determined under applicable law, bar rules and regulations and canons of ethics) arising in connection with representation of Indemnifying Party and Claimant, to fully represent Claimant with respect to such claim, in which case Indemnifying Party will be liable for the fees and expenses of one separate counsel for Claimant. Claimant will use its reasonable efforts to cooperate fully with respect to the defense of any claim. Unless Indemnifying Party has delivered to Claimant a written statement in form and substance acceptable to Claimant acknowledging and confirming that a subject claim is fully within the scope of indemnification obligations of Indemnifying Party under this Agreement, if after the passage of a reasonable period of time after notice of any claim, Indemnifying Party has not initiated a defense against such claim, Claimant will have the right to undertake the defense, compromise or settlement of such claim at any time prior to settlement, compromise or final determination thereof and any action so taken by Claimant with regard to such defense, compromise or settlement will be deemed to be within the protection afforded by this Agreement; PROVIDED, HOWEVER, that any settlement of any such claim shall require the prior written consent of Indemnifying Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything in this Section 7(d) to the contrary, (i) if there is a reasonable possibility that a claim may materially adversely affect Claimant other than as a result of money damages or other money payments that are within the protection afforded by this Agreement, Claimant will have the right, at Indemnifying Party's cost and expense, to defend, and, with the consent of Indemnifying Party (which consent will not be unreasonably withheld or delayed), to compromise or settle such claim, and (ii) Indemnifying Party will not settle or compromise any claim or consent to the entry of any judgment that does not include as an unconditional term thereof the giving by the third party claimant or plaintiff to Claimant a full, irrevocable and unconditional release from all liability in respect of such claim. 8. Independence and Enron acknowledge that, in order to induce Independence to enter into this Agreement and to consummate the transactions contemplated hereby, Enron Corp., an affiliate of Enron, has executed on the date hereof a guaranty pursuant to which Enron Corp. shall, among other things, irrevocably and unconditionally guarantee Enron's obligations under this Agreement. 9. Enron, to induce Independence to enter into this Agreement, represents and warrants to Independence that: (a) AUTHORIZATION AND VALIDITY. This Agreement and the transactions contemplated hereby have been duly authorized by it, and this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). 4 (b) NO VIOLATION. The execution and delivery of this Agreement by it and the performance by it of this Agreement and the consummation of the transactions contemplated hereby, do not and will not (i) violate or conflict with any provision of its certificate of incorporation or by-laws, (ii) violate any existing statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to it, which violation will have a material and adverse effect on its ability to perform its obligations under this Agreement or (iii) under existing law require any consent, approval or authorization of, or designation, declaration or filing with, any governmental authority on the part of Enron, other than as described in this Agreement. (c) LEGAL PROCEEDINGS. There are no judicial or administrative actions, proceedings, or to its knowledge, investigations (including, without limitation, bankruptcy, reorganization or insolvency actions, proceedings or investigations) pending or, to its knowledge, threatened that (i) challenge the validity of this Agreement or the transactions contemplated hereby, (ii) seek to restrain or prevent any action taken or to be taken by it in connection with this Agreement or (iii) if adversely determined, would have a material and adverse effect on its ability to perform its obligations under this Agreement. 10. Independence, to induce Enron to enter into this Agreement, represents and warrants to Enron that: (a) AUTHORIZATION AND VALIDITY. This Agreement and the transactions contemplated hereby have been duly authorized by it, and this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (b) NO VIOLATION. The execution and delivery of this Agreement by it and the performance by it of this Agreement and the consummation of the transactions contemplated hereby, do not and will not (i) violate or conflict with any provision of its limited partnership agreement, (ii) violate any existing statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to it, which violation will have a material and adverse effect on its ability to perform its obligations under this Agreement or (iii) under existing law require any consent, approval or authorization of, or designation, declaration or filing with, any governmental authority on the part of Independence, other than as described in this Agreement. (c) LEGAL PROCEEDINGS. There are no judicial or administrative actions, proceedings, or to its knowledge, investigations (including, without limitation, bankruptcy, reorganization or insolvency actions, proceedings or investigations) pending or, to its knowledge, threatened that (i) challenge the validity of this Agreement or the transactions contemplated hereby, (ii) seek to restrain or prevent any action taken or to be taken by it in connection with this Agreement or (iii) if adversely determined, would have a material and adverse effect on its ability to perform its obligations under this Agreement. 5 11. (a) This Agreement and all of the provisions hereof shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, except to an affiliate or successor, by either party hereto, whether by operation of law or otherwise, without the prior written consent of the other party, which consent may not be unreasonably withheld or delayed. No assignment of all or any portion of the rights, interests or obligations permitted pursuant to the immediately preceding sentence shall relieve or discharge the assignor from any of its obligations under this Agreement without the prior written consent of the non-assigning party, which consent shall not be unreasonably withheld or delayed. Any assignment of this Agreement in violation of the foregoing shall be, at the option of the non-assigning party, void. (b) Notwithstanding the foregoing provisions of Section 11(a), Independence may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof. Enron agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, including, without limitation, the Acknowledgement and Consent in the form attached hereto as ANNEX D, so long as Enron's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 12. This Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles other than Section 5-1401 of the New York General Obligations Law). Each of Independence and Enron hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Agreement. 13. Each of Independence and Enron hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non- exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (b) consents and agrees 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; (c) 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 the other party at its address set forth in Section 14, or at such other address of which the other party shall have been notified pursuant thereto; and 6 (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. 14. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (including delivery by an express or overnight delivery service), when received by facsimile transmission or when sent by registered mail, return receipt requested, addressed: IF TO SELLER, at: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telefax: (315) 342-8425 with a copy to: Sithe Energies, Inc. 335 Madison Avenue 28th Floor New York, NY 10017 Attention: General Counsel Telefax: (212) 351-0800 IF TO PURCHASER, at: Enron North America Corp. Compliance Department 1400 Smith Street Houston, Texas 77002 Attention: Donna Lowry Telefax: (713) 646-4039 15. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof. The invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 16. This Agreement 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. 17. This Agreement shall be effective as of 8:00 a.m. (Central time) on June 29, 2001. 7 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., as its sole general partner By: /s/ Martin B. Rosenberg ------------------------------------- Name: Martin B. Rosenberg Title: Senior Vice President ENRON NORTH AMERICA CORP. By: /s/ Jeffrey M. Donahue -------------------------------------- Name: Jeffrey M. Donahue Title: Managing Director 8 ANNEX A ANR GAS TRANSPORTATION AGREEMENTS 1. FTS-1 Service Agreement (Contract No. 19600), dated August 23, 1994, between ANR Pipeline Company and Sithe/Independence Power Partners, L.P., as amended by the Second Amended and Restated Agreement dated August 23, 1994 between ANR Pipeline Company and Sithe/Independence Power Partners, L.P., and as further amended by the Amendment dated April 15, 1997 between ANR Pipeline Company and Sithe/Independence Power Partners, L.P. 2. FTS-1 Service Agreement (Contract No. 19630), dated April 15, 1997, between ANR Pipeline Company and Sithe/Independence Power Partners, L.P. 3. Gathering Agreement (Contract No. GA69600), dated May 1, 1994, between ANR Pipeline Company and Sithe/Independence Power Partners, L.P., as amended by the Amendment dated August 15, 1996 between ANR Pipeline Company and Sithe/Independence Power Partners, L.P. 1 ANNEX B GREAT LAKES GAS TRANSPORTATION AGREEMENT 1. Transportation Service Agreement (FT089), dated May 6, 1997, between Sithe/Independence Power Partners, L.P. and Great Lakes Gas Transmission Limited Partnership, as amended or supplemented from time to time. 1 ANNEX C PANHANDLE GAS TRANSPORTATION AGREEMENTS 1. FT Transportation Agreement (Contract No. 012941), dated July 13, 1994, between Sithe/Independence Power Partners, L.P. and Panhandle Eastern Pipe Line Company, as amended by the Amendment to Transportation Agreement dated November 30, 1998. 2. Alternative Rate Letter Agreement, dated March 20, 1992, between Sithe/Independence Power Partners, L.P. and Panhandle Eastern Pipe Line Company. 1 ANNEX D ACKNOWLEDGEMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of June 29, 2001 between Enron North America Corp., a Delaware corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with its successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Capacity Release Transfer Agreement dated as of June 29, 2001 between the Company and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. PAYMENT OF ASSIGNED SUMS All payments (if any) to be made by the Company to the Partnership under the Assigned Contract shall be made by wire transfer to the account entitled "Project Revenue Fund" maintained by the Partnership with The Bank of New York, Account No. 229289, 101 Barclay Street, Floor 21W, New York, New York, 10286, or to such other person or account as shall be specified from time to time by the Partnership to the Company in writing. Any payments being wired to the above-referenced account should be directed to ABA 021000018; The Bank of New York; Corporate Trust/GLA 111-565; for further credit to TAS Account 229289; REF: Sithe Independence PWR Project Revenue Fund. SECTION 3. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or 1 any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 4. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 5 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting 2 for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 5. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. 3 SECTION 6. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent. SECTION 7. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 8. TERMINATION Notwithstanding anything in this Consent to the contrary, this Consent shall terminate upon the earlier of (a) the termination of the Security Agreement and (b) the date Assignor is fully released (pursuant to an instrument reasonably satisfactory to the Partnership) from all liability under all of the Gas Transportation Agreements (as defined in the Assigned Contract). SECTION 9. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles other than Section 5-1401 of the New York General Obligations Law). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; 4 (ii) consents and agrees 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 the other Party at its address set forth in Section 7, or at such other address of which the other Party shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. (h) EFFECTIVE TIME. This Agreement shall be effective as of 8:00 a.m. (Central time) on June 29, 2001. 5 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. ENRON NORTH AMERICA CORP. By: ------------------------------------------- Name: Jeffrey M. Donahue Title: Managing Director SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: ------------------------------------------- Name: Martin B. Rosenberg Title: Senior Vice President 6 EX-10.12(5) 18 a2056240zex-10_125.txt EXHIBIT 10.12(5) EXHIBIT 10.12.5 ***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE INDICATED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.*** FINANCIAL SWAP CREDIT SUPPORT CONTRIBUTION AGREEMENT AMONG ENRON CORP. AND EXELON GENERATION COMPANY, L.L.C. AND SITHE/INDEPENDENCE POWER PARTNERS, L.P. JUNE 30, 2001 *** CONFIDENTIAL TREATMENT REQUESTED *** FINANCIAL SWAP CREDIT SUPPORT CONTRIBUTION AGREEMENT THIS FINANCIAL SWAP CREDIT SUPPORT CONTRIBUTION AGREEMENT (this "AGREEMENT") is made and entered into as of June 30, 2001 among Enron Corp., an Oregon corporation ("ENRON"), Exelon Generation Company, L.L.C., a Pennsylvania limited liability company ("EXELON"), and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (the "PARTNERSHIP"). Each of Enron, Exelon and the Partnership may be referred to herein as a "PARTY" and collectively as the "PARTIES". WHEREAS, Sithe Energies, Inc., a Delaware corporation ("SITHE ENERGIES"), Sithe Energies U.S.A., Inc., a Delaware corporation ("SITHE USA"), Sithe/Independence, Inc., a Delaware corporation ("SITHE INDEPENDENCE"), Mitex, Inc., a Delaware corporation ("MITEX"), and Oswego Cogen Company, LLC, a Delaware limited liability company ("OCC"), are partners (each such party a "PARTNER" and collectively, the "PARTNERS") in the Partnership; WHEREAS, the Partnership owns and operates a gas-fired generating plant of approximately 1,032 MW net capacity located in the Town of Scriba, New York; WHEREAS, the Partnership is a party to that certain Master Agreement, dated as of July 1, 2001, between Dynegy Power Marketing, Inc. ("DPM") and the Partnership, the Schedule to the Master Agreement attached thereto dated as of July 1, 2001 and Confirmation #1A thereof dated as of July 1, 2001 (collectively, as amended from time to time, the "FINANCIAL SWAP AGREEMENT"), pursuant to which the Partnership has agreed to perform certain obligations therein, including the Financial Swap Credit Support Obligation (as defined below); WHEREAS, each of Sithe Independence, Sithe USA and Mitex (together with Sithe Energies and any successor owners of their respective interests in the Partnership, the "SITHE PARTNERS") is a direct or indirect, wholly owned subsidiary of Sithe Energies; WHEREAS, Sithe Energies is a subsidiary of Exelon; WHEREAS, OCC is a direct or indirect, wholly owned subsidiary of Enron; and WHEREAS, each of Enron and Exelon desires, pursuant to the terms of this Agreement, to satisfy the Financial Swap Credit Support Obligation for and on behalf of the Partnership. NOW, THEREFORE, in consideration of the covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby covenant and agree as follows: SECTION 1 DEFINITIONS. The following terms shall have the meanings herein specified unless the context otherwise requires. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. Unless otherwise stated, any reference herein to any agreement, contract or document defined or referred to herein shall mean such agreement, contract or document and all ***CONFIDENTIAL TREATMENT REQUESTED*** schedules, exhibits and attachments thereto as in effect on the date hereof, as the same may be thereafter amended, supplemented or otherwise modified from time to time. Any reference to any Person shall include its permitted successors and assigns. "AGREEMENT" means this Financial Swap Credit Support Contribution Agreement. "APPLICABLE PERCENTAGE" means, with respect to Enron, forty percent (40%), and with respect to Exelon, sixty percent (60%). "CAPITAL CONTRIBUTION" means a contribution to the capital of the Partnership. "CREDIT SUPPORT LOAN" has the meaning set forth in Section 2(c) hereof. "CREDIT SUPPORT PAYMENT" has the meaning set forth in Section 2(b) hereto. "CURING PARTY" has the meaning set forth in Section 2(c) hereof. "DEFAULTING PARTY" has the meaning set forth in Section 2(c) hereof. "DISTRIBUTABLE CASH" shall have the meaning set forth in the Partnership Agreement. "DPM" has the meaning set forth in the recitals hereto. "ENRON" has the meaning set forth in the first paragraph of this Agreement. "EXELON" has the meaning set forth in the first paragraph of this Agreement. "FINANCIAL SWAP AGREEMENT" has the meaning set forth in the recitals hereto. "FINANCIAL SWAP CREDIT SUPPORT OBLIGATION" means the obligation of the Partnership to establish, or to cause another Person to establish, for the benefit of DPM, a credit support reserve (which may be provided in the form of cash collateral, letters of credit or guarantees) initially in the aggregate amount of $[***], pursuant to and subject to future reduction as provided in, Section 4(i) of the Schedule to the Master Agreement of the Financial Swap Agreement. "INTEREST RATE" means, with respect to any date, the rate per annum equal to the lesser of (i) two percent (2%) over the rate identified in the final Eastern edition of THE WALL STREET JOURNAL for such date under "Money Rates" as the "Prime Rate" (or, if no such rate is identified, the "Prime Rate" as published by Citibank NA or its successor at its New York office), and (ii) the maximum rate of interest permitted by applicable law. "MITEX" has the meaning set forth in the recitals hereto. "OCC" has the meaning set forth in the recitals hereto. "PARTNER" has the meaning set forth in the recitals hereto. "PARTNERSHIP" has the meaning set forth in the first paragraph of this Agreement. ***CONFIDENTIAL TREATMENT REQUESTED*** 2 "PARTNERSHIP AGREEMENT" means that certain Second Amended and Restated Agreement of Limited Partnership of Sithe/Independence Power Partners, L.P. dated June 29, 2001 by and among Sithe Independence, Sithe Energies, OCC, Sithe USA and Mitex. "PARTY" has the meaning set forth in the first paragraph of this Agreement. "PERSON" means any individual, partnership, limited liability company, corporation or other entity. "PERCENTAGE INTEREST" means in respect of a Partner, such Partner's ownership interest in the Partnership, expressed as a percentage of the aggregate of all of the ownership interests in the Partnership. "SITHE ENERGIES" has the meaning set forth in the first paragraph of this Agreement. "SITHE INDEPENDENCE" has the meaning set forth in the recitals hereto. "SITHE PARTNERS" has the meaning set forth in the recitals hereto. "SITHE USA" has the meaning set forth in the recitals hereto. SECTION 2 CONTRIBUTION AND FINANCIAL SWAP CREDIT SUPPORT. The Parties hereby agree that, subject to the terms and conditions of this Agreement: (a) Each of Enron and Exelon agrees, between each other and on behalf of the Partnership, that it shall, when and as required by the Financial Swap Agreement, satisfy on behalf of the Partnership the obligation of the Partnership to provide the Financial Swap Credit Support Obligation by providing DPM with cash collateral, a letter of credit or a guarantee (as selected from time to time by Enron or Exelon, as the case may be) in an aggregate amount equal to its respective Applicable Percentage of the requirements of the Financial Swap Agreement. For sake of clarity, with respect to any claim against the Partnership's Financial Swap Credit Support Obligation, each of Enron and Exelon shall only be obligated to satisfy its respective Applicable Percentage of the lesser of (i) the amount of such claim and (ii) the maximum amount of the Partnership's applicable Financial Swap Credit Support Obligation. The Applicable Percentages shall not be adjusted regardless of a change or adjustment in the Percentage Interests of the Sithe Partners and OCC, respectively, in the Partnership. (b) The Parties agree that any amounts paid to DPM (i) out of any cash collateral posted by Enron or Exelon, as the case may be, (ii) pursuant to any draw under any letter of credit provided by Enron or Exelon, as the case may be, or (iii) by Enron or Exelon, as the case may be, under any guarantee provided by Enron or Exelon, respectively, in each case in satisfaction of the Financial Swap Credit Support Obligation (any amount so paid being referred to as a "CREDIT SUPPORT PAYMENT"), shall be deemed to be a Capital Contribution to the Partnership made by OCC (in the case of any amounts paid or deemed to have been paid by Enron) and the Sithe Partners (in the case of amounts paid or deemed to have been paid by Exelon, in proportion to the Sithe Partners' respective Percentage Interests), respectively, subject to and as provided in Section 9.7 of the Partnership Agreement. ***CONFIDENTIAL TREATMENT REQUESTED*** 3 (c) In the event that Enron or Exelon (for the purposes of this Section 2(c) and Section 2(d), as the case may be, the "DEFAULTING PARTY") shall have failed to make any Credit Support Payment in satisfaction of the Partnership's Financial Swap Credit Support Obligation, the other Party (the "CURING PARTY") shall have the right, but not the obligation, to make all or part of such Credit Support Payment and the amount of such Credit Support Payment made by the Curing Party on behalf of the Defaulting Party shall be deemed to be a loan by the Curing Party to the Defaulting Party (a "CREDIT SUPPORT LOAN") and shall constitute an absolute and unconditional obligation of the Defaulting Party, payable to the Curing Party on demand, together with interest from the day such Credit Support Payment is made by the Curing Party until the Credit Support Loan is paid in full, at an annual interest rate equal to the Interest Rate. (d) Each of Enron and Exelon acknowledges and agrees that the amount of any Credit Support Loan (provided by the Curing Party pursuant to Section 2(c) above) shall be deemed to have been re-loaned by the Defaulting Party to each of the Partners Affiliated with such Defaulting Party (pro rata in accordance with the respective Percentage Interests of such Partners) on the same terms as the loan by the Curing Party to the Defaulting Party. Each of Enron and Exelon further acknowledges and agrees on its own behalf and on behalf of the Partners Affiliated with it that, as a non-exclusive remedy and without altering in any way the absolute and unconditional obligation of the Defaulting Party to fully repay a Credit Support Loan on demand to the Curing Party, Distributable Cash otherwise payable to the Partners Affiliated with the Defaulting Party under or pursuant to the Partnership Agreement shall be disbursed by the Partnership to the Curing Party pursuant to Section 9.7 of the Partnership Agreement and any such amounts received by the Curing Party shall be deemed to have been applied to payment of the outstanding balance of (i) the loan made by the Defaulting Party to each of the Partners Affiliated with such Defaulting Party pursuant to this Section 2(d) and (ii) the Credit Support Loan until paid in full. SECTION 3 OBLIGATIONS ABSOLUTE. Each of Enron and Exelon covenants and agrees that: (a) The obligation of each of Enron and Exelon to satisfy the Partnership's Financial Swap Credit Support Obligation constitutes a direct, absolute and unconditional obligation of such Party to the Partnership, and shall be enforceable against such Party by the Partnership, and is not, and shall not be, subject to any defense or right of set-off, counterclaim, deduction, diminution, abatement, recoupment, suspension, deferment or reduction or any other legal or equitable defense of a surety which such Party has or may hereafter have, against any other Person (including the Partnership) for any reason whatsoever. The obligations of each of Enron and Exelon to satisfy the Partnership's Financial Swap Credit Support Obligation shall be absolute and unconditional irrespective of: (i) any change in the time, manner or place of payment of, or in any other term of, the Financial Swap Agreement, or any amendment or waiver thereof; (ii) any merger or consolidation of such Party into any other entity, or any sale, lease or transfer of all or any of the assets of such Party to any other person; or (iii) any impossibility or impracticability of performance, force majeure, any act of any government or other circumstance which might constitute a defense available to such Party, or a discharge of such Party, or, to the fullest extent permitted by applicable law, any other circumstance, event or happening whatsoever, whether foreseen or unforeseen and whether similar or dissimilar to anything ***CONFIDENTIAL TREATMENT REQUESTED*** 4 referred to in this paragraph (a); PROVIDED, that such Party shall be entitled to any defenses available to the Partnership under the Financial Swap Agreement. (b) Neither Enron nor Exelon shall have any right to terminate this Agreement or to be released, relieved or discharged (other than by full and strict compliance with the terms hereof) from any obligation or liability hereunder for any reason whatsoever, as long as the Partnership has any obligation to provide any Financial Swap Credit Support Obligation. (c) The obligations of Enron and Exelon to satisfy the Partnership's Financial Swap Credit Support Obligation are several (and not joint) obligations of each such Party to the Partnership and shall not be affected by the failure of any other Party to perform its obligations to the Partnership hereunder. Notwithstanding anything to the contrary herein, in no event shall the maximum liability of Enron under this Agreement exceed [***] dollars ($[***]). Notwithstanding anything to the contrary contained herein, in no event shall the maximum liability of Exelon under this Agreement exceed [***] dollars ($[***]). In no event shall Enron or Exelon be subject to consequential, indirect, equitable, loss of profits, tort or other damages or costs as a result of any breach of this Agreement or otherwise. SECTION 4 COVENANTS. Each of Enron and Exelon further covenants and agrees with the Partnership as follows: (a) LEGAL EXISTENCE. It shall preserve and maintain (i) its legal existence and form and (ii) all of its rights, privileges and franchises, if any, necessary for the operation of its business and the maintenance of its existence. (b) COMPLIANCE. It shall comply in all material respects with all requirements of law applicable to it, except if the noncompliance therewith could not reasonably be expected to materially and adversely affect its ability to perform its obligations under this Agreement. SECTION 5 REPRESENTATIONS AND WARRANTIES. Each of Enron and Exelon represents and warrants, severally and not jointly, to the Partnership that: (a) ORGANIZATION AND QUALIFICATION. It (i) is a corporation or limited liability company duly organized and validly existing under the laws of the State of Oregon or the Commonwealth of Pennsylvania, as the case may be, with full right, power and authority under its corporate charter and bylaws, or limited liability company agreement and certificate of formation, to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, (ii) is duly qualified to do business and in good standing in each jurisdiction where such qualification is necessary, except where the failure to be so qualified or authorized could not reasonably be expected to materially and adversely affect its ability to perform its obligations under this Agreement and (iii) has the corporate or limited liability company power to carry on its business as now being conducted and as proposed to be conducted. ***CONFIDENTIAL TREATMENT REQUESTED*** 5 (b) AUTHORIZATION AND ENFORCEABILITY. It has taken all necessary corporate or limited liability company action to authorize the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability (i) may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights and remedies generally and (ii) is subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law). (c) NO CONFLICT. Neither the execution and delivery of this Agreement, the compliance with any of the terms and provisions hereof nor the consummation of the transactions contemplated hereby (i) contravenes any requirement of law applicable to it or its properties or assets which contravention could reasonably be expected to materially and adversely affect its ability to perform its obligations under this Agreement or (ii) conflicts with, breaches or contravenes the provisions of its corporate charter or by-laws, or its limited liability company agreement or certificate of formation, in a manner that could reasonably be expected to materially and adversely affect its ability to perform its obligations under this Agreement. It is in compliance with and not in default under any and all requirements of law applicable to it or its properties or assets, except where such non-compliance could not reasonably be expected to materially and adversely affect its ability to perform its obligations under this Agreement. SECTION 6 CERTAIN PERFORMANCE BY SITHE ENERGIES. The Parties acknowledge and agree that Sithe Energies shall be permitted to provide, on behalf of Exelon, letters of credit in support of Exelon's obligations hereunder to satisfy pursuant to Section 2(a) the Partnership's Financial Swap Credit Support Obligation. Any Credit Support Payment made pursuant to a draw under a letter of credit posted by Sithe Energies on behalf of Exelon shall be treated for all purposes hereunder as performance by Exelon, with such payment being deemed to have been made by Exelon, including, without limitation, for purposes of Section 2(b). SECTION 7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Parties and their successors and permitted assigns. This Agreement may not be assigned by any Party without the prior written consent of the other Parties. Notwithstanding the foregoing, the Partnership may assign, transfer, pledge or otherwise dispose of its rights and interests hereunder to a trustee or lending institution for the purposes of financing or refinancing any of its assets, including upon or pursuant to the exercise of remedies with respect to such financing or refinancing, or by way of assignments, transfers, pledges or other dispositions in lieu thereof. Each of Enron and Exelon hereby agrees to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights hereunder, including, without limitation, the acknowledgement and consent substantially in the form attached hereto as EXHIBIT A (in the case of Enron) or EXHIBIT B (in the case of Exelon); PROVIDED that such Party's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. ***CONFIDENTIAL TREATMENT REQUESTED*** 6 SECTION 8 AMENDMENT AND MODIFICATION. No amendment or waiver of any provision of this Agreement nor any consent to any departure by any Party herefrom shall in any event be effective unless the same shall be in writing and signed by the Parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure or delay on the part of any Party in exercising any right or remedy hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other right or remedy. SECTION 9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof. SECTION 10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles other than Section 5-1401 of the New York General Obligations Law). Each of the Parties hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Agreement. SECTION 11 SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (b) consents and agrees 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; (c) 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 the other Parties at their respective addresses set forth in Section 12, or at such other addresses of which the other Parties shall have notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. ***CONFIDENTIAL TREATMENT REQUESTED*** 7 SECTION 12 NOTICES. Any notice or other communication hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (including delivery by an express or overnight delivery service), when received by facsimile transmission or when sent by registered mail, return receipt requested, addressed as follows: To Enron: Enron Corp. 1400 Smith Street Houston, Texas 77002 Attention: Donna Lowry Telefax: (713) 646-4039 To Exelon: Exelon Generation Company, L.L.C. 300 Exelon Way Kennett Square, PA 19348 Attention: Charles P. Lewis Telefax: (610) 765-5724 To the Partnership: Sithe/Independence Power Partners, L.P. P.O. Box 1046 76 Independence Way Oswego, New York 13126 Attention: General Manager Telefax: (315) 342-8425 with a copy to: Sithe Energies, Inc. 335 Madison Avenue 28th Floor New York, New York 10017 Attention: General Counsel Telefax: (212) 351-0800 Any Party may change any address to which notice is to be given to it by giving notice as provided above of such change of address. ***CONFIDENTIAL TREATMENT REQUESTED*** 8 SECTION 13 SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof. The invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. SECTION 15 EFFECTIVE TIME. This Agreement shall be effective as of 12:01 a.m. (New York time) on June 30, 2001. [Signature page follows] ***CONFIDENTIAL TREATMENT REQUESTED*** 9 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. ENRON CORP. By: /s/ Barry J. Schnapper ------------------------------------------------ Name: Barry J. Schnapper Title: Deputy Treasurer EXELON GENERATION COMPANY, L.L.C. By: /s/ Charles P. Lewis ------------------------------------------------ Name: Charles P. Lewis Title: Vice President SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., as its sole general partner By: /s/ Martin B. Rosenberg ------------------------------------------------ Name: Martin B. Rosenberg Title: Senior Vice President ***CONFIDENTIAL TREATMENT REQUESTED*** EXHIBIT A ACKNOWLEDGEMENT AND CONSENT ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of June 30, 2001 between Enron Corp., an Oregon corporation (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with its successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Financial Swap Credit Support Contribution Agreement dated as of June 30, 2001 among the Company, Exelon Generation Company, LLC and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any shareholder of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate officers of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). ***CONFIDENTIAL TREATMENT REQUESTED*** (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 3. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 4 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and conditions of the Assigned Contract, except that the Collateral Agent or any Third Party ***CONFIDENTIAL TREATMENT REQUESTED*** 2 Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 4. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 5. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent. SECTION 6. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or ***CONFIDENTIAL TREATMENT REQUESTED*** 3 communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 7. TERMINATION Notwithstanding anything in this Consent to the contrary, this Consent shall terminate upon the earlier of (a) the termination of the Security Agreement and (b) the date the Partnership is fully and permanently released (pursuant to an instrument reasonably satisfactory to the Partnership) from all liability under the Guaranteed Agreements. SECTION 8. MISCELLANEOUS (a) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles other than Section 5-1401 of the New York General Obligations Law). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (b) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) consents and agrees 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; ***CONFIDENTIAL TREATMENT REQUESTED*** 4 (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 the other Party at its address set forth in Section 6, or at such other address of which the other Party shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (c) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (d) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (e) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (g) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. [Signature page follows] ***CONFIDENTIAL TREATMENT REQUESTED*** 5 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. ENRON CORP. By: -------------------------------------------- Name: Barry J. Schnapper Title: Deputy Treasurer SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: -------------------------------------------- Name: Martin B. Rosenberg Title: Senior Vice President ***CONFIDENTIAL TREATMENT REQUESTED*** EXHIBIT B ACKNOWLEDGEMENT AND CONSENT ACKNOWLEDGMENT AND CONSENT Acknowledgment and Consent (this "CONSENT") dated as of June 30, 2001 between Exelon Generation Company, L.L.C., a Pennsylvania limited liability company (together with its successors and assigns, the "COMPANY") and Sithe/Independence Power Partners, L.P., a Delaware limited partnership (together with its successors and assigns, the "PARTNERSHIP"), to and for the benefit of Manufacturers and Traders Trust Company, a New York banking corporation, in its capacity as collateral agent (together with its successors and assigns in that capacity, the "COLLATERAL AGENT"). SECTION 1. CONSENT TO ASSIGNMENTS, ETC. The Company hereby (a) acknowledges that it has been advised of that certain Security Agreement and Assignment of Contracts dated as of January 1, 1993 (as amended, supplemented or modified and in effect from time to time, the "SECURITY AGREEMENT") between the Collateral Agent and the Partnership, (b) consents, subject to the provisions of this Consent, to the collateral assignment by the Partnership of the Financial Swap Credit Support Contribution Agreement dated as of June 30, 2001 among the Company, Enron Corp. and the Partnership (as amended, supplemented or modified and in effect from time to time, the "ASSIGNED CONTRACT") as collateral for the Partnership's obligations to the Secured Parties (as defined in the Security Agreement), and any subsequent assignments by the Collateral Agent, on behalf of the Secured Parties, (c) acknowledges the right of the Collateral Agent, following an Event of Default (as defined in the Security Agreement) by the Partnership, to make all demands, give all notices, take all actions and exercise all rights of the Partnership under the Assigned Contract, and (d) acknowledges and agrees that the Collateral Agent succeeding to the rights and obligations of the Partnership under the Assigned Contract shall not, in and of itself, constitute or cause a default by the Partnership under the Assigned Contract. SECTION 2. REPRESENTATIONS OF COMPANY (a) The Company represents and warrants that as of the date hereof: (i) AUTHORIZATION. The execution, delivery and performance by the Company of this Consent has been duly authorized by all necessary action on the part of the Company and does not require any approval or consent of any member of the Company or any holder (or any trustee for any holder) of any indebtedness or other obligation of the Company, except as has been heretofore obtained. (ii) EXECUTION; DELIVERY; BINDING AGREEMENT. This Consent has been duly executed and delivered on behalf of the Company by the appropriate representatives of the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally and except as the ***CONFIDENTIAL TREATMENT REQUESTED*** enforceability thereof may be limited by general principles of equity (regardless of whether considered in a proceeding in equity or at law). (iii) NO DEFAULT OR AMENDMENT. As of the date hereof, neither the Company nor, to the knowledge of the Company, the Partnership is in default under the Assigned Contract. The Company has no existing claims, counterclaims, offsets or defenses against the Partnership in respect of the Assigned Contract except for routine claims for payment under the Assigned Contract. SECTION 3. RIGHTS OF SECURED PARTIES The Company agrees that, subject to the provisions of this Consent, the Secured Parties shall have the following rights with respect to the Assigned Contract: (a) Notwithstanding anything to the contrary contained in the Assigned Contract, the Assigned Contract shall not be terminated or cancelled by action of the Company and shall not be deemed abandoned or surrendered without prior notice in writing to the Collateral Agent specifying the Partnership's default (hereinafter called a "NOTICE"). Any such Notice shall contain a copy of the notice of default sent to the Partnership and shall be delivered to the Collateral Agent when the Company delivers a notice of default to the Partnership under the Assigned Contract. The Collateral Agent shall have the right (but not the obligation) to cure the defaults listed in any Notice within the same period of time provided in the Assigned Contract for the Partnership to cure such default; PROVIDED, HOWEVER, if the nature of any non-monetary default on the part of the Partnership under the Assigned Contract is such that it cannot be cured by the Collateral Agent without the Collateral Agent having taken possession of the Project (as defined in the Security Agreement), then the Collateral Agent's time for commencing such cure shall be extended for such reasonable period of time as is necessary for the Collateral Agent to lawfully obtain possession of the Project; PROVIDED, FURTHER, that the Collateral Agent shall at all times be seeking by all reasonable and lawful means to obtain such possession. Once the defaults listed in any Notice are timely cured by the Collateral Agent, there shall no longer be deemed to be any default under the Assigned Contract in respect of such defaults so cured. The curing of any defaults under the Assigned Contract shall not in and of itself be construed as an assumption by the Collateral Agent or any of the Secured Parties of any of the obligations, covenants or agreements of the Partnership under the Assigned Contract. (b) If a notice of election is delivered to the Company as provided in Section 4 below, the Company will accept performance of the Partnership's obligations (as specified in such notice of election) under the Assigned Contracts by the Collateral Agent, or its nominee(s) acting for the Secured Parties, as the case may be, in lieu of the Partnership's performance of such obligations. (c) Upon any transfer of the Partnership's rights under the Assigned Contract pursuant to the exercise of the Collateral Agent's rights under this Consent, the Collateral Agent or any third party to which such rights are transferred by the Collateral Agent (hereinafter, a "THIRD PARTY TRANSFEREE") shall, upon the Company's reasonable satisfaction with the Collateral Agent's or such Third Party Transferee's financial condition and subject to all applicable laws, rules and regulations, succeed to all of the Partnership's right, title and interest under and in connection with the Assigned Contract and shall be obligated to perform all of the terms and ***CONFIDENTIAL TREATMENT REQUESTED*** 2 conditions of the Assigned Contract, except that the Collateral Agent or any Third Party Transferee shall not be required to perform or cause to be performed any of the Partnership's obligations under the Assigned Contract (except for the Partnership's obligation for the payment of all amounts due and payable to the Company under the terms of the Assigned Contract including any interest applicable thereon) that remain unperformed at the time that the Collateral Agent or such Third Party Transferee is transferred such Assigned Contract other than continuing non-monetary defaults under the Assigned Contract which are capable of performance by the Collateral Agent or the Third Party Transferee or be liable for any prior act or omission of the Partnership, and upon the transfer by the Collateral Agent of its rights and interests and the rights and interests of the Partnership under the Assigned Contracts to a Third Party Transferee, the Collateral Agent and the Partnership shall be relieved of all obligations under the Assigned Contract arising after such transfer. (d) In the event that (i) the Assigned Contract is rejected by a trustee or any person exercising the powers of a trustee in any bankruptcy or insolvency proceeding applicable to the Partnership or (ii) the Assigned Contract is terminated as a result of any bankruptcy or insolvency proceeding applicable to the Partnership, the Company shall, subject to all applicable laws, rules and regulations, execute and deliver to the Collateral Agent and its designees, successors and assigns a new contract; PROVIDED that the Company shall be required to execute a new contract with the Collateral Agent only if the Collateral Agent or its designees, successors or assigns shall within ten (10) business days of entering into such new contract, cure all defaults for failure to pay all amounts due and payable to the Company under the Assigned Contract, including any interest applicable thereon. The new contract shall, subject to all applicable laws, rules and regulations, contain the same covenants, agreements, terms, provisions and limitations as the Assigned Contract (except for any requirements with respect to past performance which have been fulfilled by the Partnership or the Collateral Agent or its designees, successors and assigns hereunder). SECTION 4. LIABILITY OF SECURED PARTIES The Collateral Agent, on behalf of the Secured Parties, and its successors and assigns, shall have no right or power to enforce the Assigned Contract, and assumes no duty or obligation thereunder unless and until the Collateral Agent shall have notified the Company that it has elected to exercise its rights and remedies under the Security Agreement and to substitute itself in the position of the Partnership under the Assigned Contracts and has agreed in a written instrument executed by the Collateral Agent to be bound by all terms and conditions of the Assigned Contract applicable to the Partnership. SECTION 5. FURTHER ASSURANCES The Company hereby agrees to execute and deliver all such instruments and take all such actions as may be reasonably necessary to effectuate fully the purposes of this Consent. SECTION 6. NOTICES All notices and other communications hereunder shall be in writing, shall refer on their face to the Assigned Contract (although failure to so refer shall not render any such notice or ***CONFIDENTIAL TREATMENT REQUESTED*** 3 communication ineffective), shall be sent by first class mail, facsimile, by hand or overnight courier service and shall be directed: (a) if to the Company, in accordance with the Assigned Contract; (b) if to the Collateral Agent, addressed to: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department (c) if to the Partnership, in accordance with the Assigned Contract; and (d) to such other address as any party may designate by notice to the other party hereto given pursuant hereto. SECTION 7. TERMINATION Notwithstanding anything in this Consent to the contrary, this Consent shall terminate upon the earlier of (a) the termination of the Security Agreement and (b) the date the Partnership is fully and permanently released (pursuant to an instrument reasonably satisfactory to the Partnership) from all liability under the Guaranteed Agreements. SECTION 8. MISCELLANEOUS (h) GOVERNING LAW. This Consent shall be governed by and construed in accordance with the law of the State of New York as to all matters (without giving effect to conflict of law principles other than Section 5-1401 of the New York General Obligations Law). Each of the Company and the Partnership hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceedings arising out of or relating to this Consent. (i) SUBMISSION TO JURISDICTION. Each of the Parties hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Consent, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York and appellate courts from any thereof; (ii) consents and agrees 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 ***CONFIDENTIAL TREATMENT REQUESTED*** 4 form of mail), postage prepaid, to the other Party at its address set forth in Section 6, or at such other address of which the other Party shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. (j) HEADINGS. The descriptive headings of the Articles and Sections of this Consent are inserted for convenience only and are not intended to affect the meaning, interpretation or construction of this Consent. (k) WAIVER. Except as otherwise provided in this Consent, any failure of a party to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent failure of the first party to comply with such obligation, covenant, agreement or condition. (l) SEVERABILITY. Any provision of this Consent which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (m) SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and inure to the benefit of the Company, the Collateral Agent, the Partnership and their respective permitted successors and assigns. (n) COUNTERPARTS. This Consent may be executed in counterparts, all of which shall constitute one and the same Consent and each of which shall be deemed to be an original. [Signature page follows] ***CONFIDENTIAL TREATMENT REQUESTED*** 5 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the day and year first above written. EXELON GENERATION COMPANY, L.L.C. By: -------------------------------------------- Name: Charles P. Lewis Title: Vice President SITHE/INDEPENDENCE POWER PARTNERS, L.P. By: SITHE/INDEPENDENCE, INC., its General Partner By: -------------------------------------------- Name: Martin B. Rosenberg Title: Senior Vice President ***CONFIDENTIAL TREATMENT REQUESTED*** -----END PRIVACY-ENHANCED MESSAGE-----