-----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, CsUKiuPo5Jgl2mokkS2tTGvcxUU4AqZx7IolPmqIdhKn9VJzpq29ikoOyVaPM4yG 5t2W1sy1UD2ptHga73dXLQ== 0001024739-98-000320.txt : 19980330 0001024739-98-000320.hdr.sgml : 19980330 ACCESSION NUMBER: 0001024739-98-000320 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEC FUNDING CORP CENTRAL INDEX KEY: 0000934665 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 043255377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-87902 FILM NUMBER: 98576403 BUSINESS ADDRESS: STREET 1: 350 LINCOLN PL CITY: HINGHAM STATE: MA ZIP: 02043 BUSINESS PHONE: 6177499800 MAIL ADDRESS: STREET 1: 350 LINCOLN PLACE CITY: HINGHAM STATE: MA ZIP: 02043 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH JERSEY ENERGY ASSOCIATES CENTRAL INDEX KEY: 0000934666 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042955646 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-87902-01 FILM NUMBER: 98576404 BUSINESS ADDRESS: STREET 1: 350 LINCOLN PL CITY: HINGHAM STATE: MA ZIP: 02043 BUSINESS PHONE: 6177499800 MAIL ADDRESS: STREET 1: 350 LINCOLN PLACE CITY: HINGHAM STATE: MA ZIP: 02043 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST ENERGY ASSOCIATES CENTRAL INDEX KEY: 0000934667 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042955642 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-87902-02 FILM NUMBER: 98576405 BUSINESS ADDRESS: STREET 1: 350 LINCOLN PL CITY: HJINGHAM STATE: MA ZIP: 02043 BUSINESS PHONE: 6177499800 MAIL ADDRESS: STREET 1: 350 LINCOLN PLACE CITY: HINGHAM STATE: MA ZIP: 02043 10-K 1 FORM 10-K =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______________to_______________ Commission File Number: 33-87902 33-87902-01 33-87902-02 ESI Tractebel Funding Corp. North Jersey Energy Associates, A Limited Partnership Northeast Energy Associates, A Limited Partnership ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 04-3255377 New Jersey 04-2955646 Massachusetts 04-2955642 ------------------------------- ----------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification No.) c/o FPL Energy, Inc. 11760 US Highway 1, Suite 600 North Palm Beach, Florida 33408 - --------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (561) 691-3500 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: 8.43% Senior Secured Notes due 2000, Series A 9.16% Senior Secured Notes due 2002, Series A 9.32% Senior Secured Bonds due 2007, Series A 9.77% Senior Secured Bonds due 2010, Series A =============================================================================== Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X] ESI TRACTEBEL FUNDING CORP. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 INDEX PART I Page Number Items 1, 2 and 3. Business, Properties and Legal Proceedings............. 2 Item 4. Submission of Matters to Vote of Security Holders...... 60 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................................... 60 Item 6. Selected Financial Data................................. 60 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 62 Item 8 Financial Statements and Supplementary Data............. 67 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 68 PART III Item 10. Directors and Executive Officers of the Registrants..... 68 Item 11. Executive Compensation.................................. 71 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 72 Item 13 Certain Relationships and Related Transactions.......... 73 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 74 Signatures.............................................. 85 Defined Terms........................................... A-1 This Annual Report on Form 10-K is filed in respect of three Registrants: ESI Tractebel Funding Corp. ("ESI Tractebel Funding"), Northeast Energy Associates, A Limited Partnership ("NEA") and North Jersey Energy Associates, A Limited Partnership ("NJEA"). NEA and NJEA are from time to time referred to herein as the "Partnerships." Other capitalized terms used herein shall have the meaning provided in Appendix A unless the context requires otherwise. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), ESI Tractebel Funding and the Partnerships are hereby filing cautionary statements identifying important factors that could cause the Partnerships' actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) of the Partnerships made by or on behalf of the Partnerships which are made in this Form 10-K, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions, and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause the Partnerships' actual results to differ materially from those contained in forward-looking statements of the Partnerships made by or on behalf of the Partnerships. Any forward-looking statement speaks only as of the date on which such statement is made, and the Partnerships undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Some important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include prevailing governmental policies and regulatory actions, with respect to allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of plant facilities, and present or prospective competition. The business and profitability of the Partnerships are also influenced by economic and geographic factors including political and economic risks, changes in and compliance with environmental and safety laws and policies, weather conditions, population growth rates and demographic patterns, competition for retail and wholesale customers, pricing and transportation of commodities, market demand for energy from plants or facilities, changes in tax rates or policies or in rates of inflation, unanticipated development project delays or changes in project costs, unanticipated changes in operating expenses and capital expenditures, capital market conditions, competition for new energy development opportunities, and legal and administrative proceedings (whether civil, such as environmental, or criminal) and settlements. All such factors are difficult to predict, contain uncertainties which may materially affect actual results, and are beyond the control of the Partnerships. 1 PART I ITEMS 1, 2 AND 3. BUSINESS, PROPERTIES AND LEGAL PROCEEDINGS Business The Partnerships Northeast Energy, LP ("NE LP"), a limited partnership jointly owned by subsidiaries of ESI Energy, Inc. ("ESI Energy") and Tractebel Power, Inc. ("Tractebel Power"), owns a one percent (1%) general partner interest and a ninety-eight percent (98%) limited partner interest in each of NEA and NJEA. Northeast Energy, LLC ("NE LLC" and together with NE LP, the "Partners"), a limited liability company directly and wholly-owned by NE LP, owns a one percent (1%) limited partner interest in each of the Partnerships. The Partners purchased their interests in the Partnerships on January 14, 1998 from Intercontinental Energy Corporation ("IEC") and from certain individuals (collectively, with IEC, the "Sellers"). Each of the Partnerships was formed in 1986 to develop, construct, own, operate and manage a nominal 300 MW gas-fired combined-cycle cogeneration facility. NEA's facility is located in Bellingham, Massachusetts (the "NEA Project") and NJEA's facility is located in Sayreville, New Jersey (the "NJEA Project" and, together with the NEA Project, the "Projects"). The NEA Project commenced commercial operation in September 1991, and the NJEA Project commenced commercial operation in August 1991. NE LP is the sole general partner of each of the Partnerships and NE LP and its wholly-owned subsidiary NE LLC are the only limited partners of each of the Partnerships. NE LP is dedicated solely to the ownership, operation and management of the Projects. NE LLC is dedicated solely to the ownership of its limited partner interest in each of the Partnerships. All of the interests in the Partnerships are held by NE LP and NE LLC, which in turn are owned by ESI GP and ESI LP (as defined herein), wholly-owned subsidiaries of ESI Energy; and by Tractebel GP and Tractebel LP, wholly-owned subsidiaries of Tractebel Power. Each of ESI GP and Tractebel GP owns a one percent (1%) general partner interest in NE LP, and each of ESI LP and Tractebel LP owns a forty-nine percent (49%) limited partner interest in NE LP. ESI GP and ESI LP are wholly-owned, direct subsidiaries of ESI Energy, and Tractebel GP and Tractebel LP are wholly-owned subsidiaries of Tractebel Power. On January 15, 1998, FPL Energy, Inc., ("FPL Energy"), an indirect, wholly-owned subsidiary of FPL Group, Inc. ("FPL Group"), received as capital contribution from FPL Group Capital Inc. ("FPL Group Capital") all of the outstanding shares of stock of ESI Energy and of FPL Group International. FPL Group is a holding company whose stock is traded on the New York Stock Exchange. FPL Group is also the parent company of Florida Power & Light Company ("FPL"), one of the largest investor-owned utilities in the United States. 2 FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the capital stock of FPL Energy and provides most of the funding for the operating subsidiaries of FPL Group other than FPL. The business activities of these companies primarily consist of investments in non-utility energy projects and agricultural operations. Tractebel Power is a direct, wholly-owned subsidiary of Tractebel Inc. ("Tractebel"), which in turn is a direct, wholly-owned subsidiary of Tractebel, S.A. ("Tractebel Belgium"), a global energy and environmental services business founded in 1895 and based in Brussels, Belgium. Services include engineering, installations and communications. Tractebel Belgium's two primary U.S. operating subsidiaries are Tractebel Power and Tractebel Energy Marketing, Inc. ESI Tractebel Funding Corp. ESI Tractebel Funding is a Delaware corporation formerly known as IEC Funding Corp. that was established in 1994 solely for the purpose of issuing debt securities in connection with the financing of the Partnerships. It is a pass-through entity and does not have any operations. ESI Tractebel Funding issued the Project Securities, the proceeds of which were originally used by ESI Tractebel Funding to acquire certain outstanding bank debt of the Partnerships and to lend additional funds to the Partnerships. The Project Securities are guaranteed by the Partnerships. The terms of the Partnerships' obligations to ESI Tractebel Funding (the "Loans") are identical to the terms of the Project Securities. The Loans and the related collateral rights are the only assets of ESI Tractebel Funding. The Projects Each of the Projects is a nominal 300 MW combined-cycle cogeneration facility. The Projects use natural gas to produce electrical energy and thermal energy in the form of steam. The Projects were constructed by Westinghouse Electric Corporation ("Westinghouse Electric") and pursuant to contracts with Westinghouse Electric that expire in 2001 (collectively, the "O&M Agreements"), are operated and maintained by Westinghouse Operating Services Company ("Westinghouse Services" or the "Operator"), a subsidiary of Westinghouse Electric. On November 15, 1997, Westinghouse Electric announced that it intended to sell all of its industrial businesses, including the business of Westinghouse Services, to Siemens AG. Each of the Partnerships is also party to an operation and maintenance agreement (collectively, the "New O&M Agreements") with ESI Operating Services, Inc. (the "New Operator"), a direct and wholly-owned subsidiary of ESI Energy, pursuant to which the New Operator has agreed to operate and maintain the Projects following the expiration or early termination of the O&M Agreements and, prior to such date, to provide certain other services. NEA currently sells 100% of the net electrical energy produced by the NEA Project to three regulated utilities, Boston Edison Company ("Boston Edison"), Commonwealth Electric Company ("Commonwealth") and Montaup Electric Company ("Montaup"). Boston Edison purchases approximately 75% of such energy under two contracts, Commonwealth purchases approximately 16% under two contracts and Montaup purchases approximately 9%. NJEA currently sells the electricity produced at the NJEA Project to one regulated utility, Jersey Central Power & Light Company ("JCP&L"). Such sales are made pursuant to power purchase agreements, all of which provide substantially for the continuous delivery of base load power (collectively, the "Power Purchase Agreements"). Two of the six Power Purchase Agreements are scheduled to expire in September 2011 and August 2011, three are scheduled to expire in September 2016 and the sixth is scheduled to expire in September 2021. 3 The Projects were developed and are operated as Qualifying Facilities ("QFs") under the Public Utility Regulatory Policies Act of 1978 and the regulations promulgated thereunder ("PURPA") by the Federal Energy Regulatory Commission ("FERC"). The Projects must satisfy certain annual operating and efficiency standards, as well as ownership requirements, to maintain QF status, which exempts the Projects from certain federal and state regulations. To date, both Projects have satisfied these standards, and NE LP expects that they will continue to do so. Steam generated by the NEA Project is sold to NECO-Bellingham, Inc. ("NECO"), a special-purpose subsidiary of a privately held company based in Texas, for use by a carbon dioxide plant located adjacent to the NEA Project (the "Carbon Dioxide Plant"). The Carbon Dioxide Plant is owned by NEA and leased to NECO. The steam generated by the NJEA Project is sold to Hercules, Incorporated ("Hercules") for use by Hercules' Parlin, New Jersey plant. Approximately 80% of the natural gas that fuels the Projects is supplied to the Projects pursuant to long-term gas supply agreements with ProGas Limited of Alberta, Canada ("ProGas") and, in the case of the NJEA Project, also pursuant to a long-term gas supply agreement with Public Service Electric and Gas of Newark, New Jersey ("PSE&G"). The gas supply agreements with ProGas and the gas supply agreement with PSE&G are referred to collectively as the "Long-term Gas Supply Agreements." Gas is transported to, or stored for later use by, the Projects pursuant to long-term gas transportation agreements (the "Long-term Gas Transportation Agreements") and long-term gas storage agreements (the "Long-term Gas Storage Agreements"). The Long-term Gas Supply Agreements between NEA and ProGas (the "NEA ProGas Agreement") and between NJEA and ProGas (the "NJEA ProGas Agreement" and, together with the NEA ProGas Agreement, the "ProGas Agreements"), expire in November 2013. The Long-term Gas Supply Agreement between NJEA and PSE&G (the "PSE&G Contract") for the supply, delivery and transportation of natural gas expires in August 2011. There are several Long-term Gas Transportation Agreements for transportation on a firm basis by various transporters of gas purchased under the gas supply and storage contracts, which expire in March 1999, October 2006, November 2011, March 2012 and November 2016. The Long-term Gas Storage Agreements expire in March 2012. The remainder of the daily fuel requirements of the Projects are met by open-market purchases delivered on an interruptible basis both into storage and directly to the Projects. The price escalators under the Long-term Gas Agreements are intended to substantially correlate to the price escalators under the Power Purchase Agreements. The NEA Project may also be run on Number 2 fuel oil in certain limited circumstances. Each of the Partnerships is party to a fuel management agreement (collectively, the "Fuel Management Agreements") with ESI Northeast Fuel Management, Inc. (the "Fuel Manager"), an indirect wholly-owned subsidiary of FPL Energy, pursuant to which the Fuel Manager has agreed to provide certain fuel management and administrative services. For more detailed information regarding the Projects, including the various contracts referred to above and regulatory matters affecting the Projects, see "-Regulation" and "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS." 4 The Acquisitions The Partners acquired all of the partnership interests in each of the Partnerships on January 14, 1998, pursuant to a Purchase Agreement, dated as of November 21, 1997, by and among the Partners, the Sellers, ESI Northeast Energy Funding, Inc. ("ESI Funding") and Tractebel Power. In connection with the acquisition of all of the partnership interests in the Partnerships, ESI Funding and Tractebel Power each acquired a thirty-seven and one-half percent (37.5%) interest in ESI Tractebel Funding. The Partners paid the purchase price for all of the partnership interests in the Partnerships and for seventy-five percent (75%) of the outstanding shares of capital stock in ESI Tractebel Funding (collectively, the "Acquisitions") from contributions made by each of ESI GP, Tractebel GP, ESI LP and Tractebel LP, the partners of NE LP. The remaining 25% belongs to Broad Street Contract Services, Inc. for the purposes of providing an independent director. On January 14, 1998 in connection with the Acquisitions and with the consent of the holders of a majority in aggregate principal amount of the Project Securities then outstanding, the Original Project Indenture was amended by the Second Supplemental Indenture. The amendments contained in the Second Supplemental Indenture permit (i) the Acquisitions, (ii) substitution of a guaranty (the "FPL Group Capital Guaranty") to be issued by FPL Group Capital for the cash collateral (the "Cash Collateral Proceeds") that secured the Partnerships' reimbursement obligations related to the Sanwa Letters of Credit, (iii) at the time of substitution of the FPL Group Capital Guaranty, the release of such Cash Collateral Proceeds directly to the Partners without first depositing such amounts to the Revenue Fund and (iv) upon the substitution of Substitute Letters of Credit, the release directly to the Partners of amounts held in the Debt Service Reserve Fund for the Project Securities, without first depositing such amounts to the Reserve Fund. The Independent Power Market Utilities in the United States have been the predominant producers of electric power intended primarily for sale to third parties since the early 1900s. In 1978, however, PURPA removed regulatory constraints relating to the production and sale of electric energy by certain non-utility power producers and required electric utilities to buy electricity from certain types of non-utility power producers under certain conditions, thereby encouraging companies other than electric utilities to enter the electric power production market. Utilities are required to comply with state law guidelines and, in general, are required to buy electricity from non-utility generators if there is a need for such electricity and if it is priced at or below the utility's avoided cost at the time of the agreements. According to the Edison Electric Institute, as of December 31, 1996 non-utility generators represent approximately 8.4% of the United States' installed capacity, accounting for approximately 12% of the total electric generation in 1996. Between December 31, 1993 and December 31, 1996, non-utility generators represented 52.3% of the new capacity added in the United States. Competition in the non-utility power production market is not a material factor in the Partnerships' operations, except as described in "--Competition" and as described below. Electric utility systems that purchase a substantial portion of their energy supply from non-utility generators under contracts that require purchases of fixed or minimum quantities of energy have recently expressed an interest in lowering consumer rates by extending their dispatch flexibility to include the generating plants of their non-utility generators. Under this approach lower fuel cost sources of energy would be drawn on before higher fuel cost sources. General Public Utility's system, of which JCP&L is a part, has publicly 5 announced and is pursuing its Natural Gas Private Pooling Point Program in which it would draw on its lower fuel cost sources of energy before drawing on higher fuel cost sources. JCP&L has contacted NJEA regarding this program and has made a presentation to NJEA regarding JCP&L's proposal to transform NJEA's must-run contract into a dispatchable contract on terms that are to cover all fixed costs (debt service and fixed operating expenses) and preserve current net profits while allowing JCP&L to reduce its purchased power costs. JCP&L has reported to New Jersey regulators that its above-market costs for power associated with the NJEA Power Purchase Agreement will total $837.67 million during the remaining life of the NJEA Power Purchase Agreement (present value of such amount recently estimated by JCP&L to be approximately $509.44 million) and that it intends to pursue its efforts to mitigate these costs. In November 1997, legislation was enacted in Massachusetts requiring electric companies and sellers under purchased-power contracts to make good-faith efforts to renegotiate contracts that contain a price for electricity that is above-market as of March 1, 1998. A good-faith effort under the Act does not require accepting all proposals or making unlimited concessions but does require the parties to show that they have actively participated in negotiations and have shown a willingness to make reasonable concessions. See "-Regulation -- Utility Industry Restructuring -- Massachusetts." It is not possible to predict the outcomes of various regulatory initiatives in connection with utility restructuring or changes that may be requested by JCP&L or the NEA Power Purchasers. Except as provided in the Project Indenture and the Indenture, any requested changes to the Power Purchase Agreements would require the consents of NEA or NJEA, as applicable, and of a majority of the holders of the Project Securities. Cogeneration Cogeneration is a power production technology that provides for the sequential generation of two or more useful forms of energy from a single primary fuel source. The Projects use natural gas to produce electricity and useful thermal energy in the form of steam. Cogeneration has an inherent economic advantage over the conventional production of electricity alone because cogeneration facilities more efficiently convert the energy contained in the input fuel source to a useful energy output. Power Purchase Agreements NEA's primary sources of revenue are five Power Purchase Agreements with Boston Edison, Commonwealth and Montaup. NJEA's primary source of revenue is a Power Purchase Agreement with JCP&L. All six Power Purchase Agreements provide for the substantially continuous provision of base-load power. The following table sets forth the applicable Power Purchaser's nominal entitlement (its share of capacity and associated energy contracted by the facilities) and the date of scheduled expiration with respect to each of the Power Purchase Agreements. 6 Purchaser's Nominal Expiration Entitlement Of Contract ------------- -------------- NEA Project: Boston Edison I Power Purchase Agreement........ 135MW 46% September 15, 2016 Boston Edison II Power Purchase Agreement.. 84 39 September 15, 2011 Commonwealth I Power Purchase Agreement........ 25 9 September 15, 2016 Commonwealth II Power Purchase Agreement........ 21 7 September 15, 2016 Montaup Power Purchase Agreement........ 25 9 September 15, 2021 --- --- NEA Total........ 290MW 100% NJEA Project: JCP&L Power Purchase Agreement................. 252MW 100% August 13, 2011 Energy Banks The Power Purchase Agreements (other than the Commonwealth Power Purchase Agreements) provide for tracking accounts, or Energy Banks, to be calculated during the terms of such Power Purchase Agreements. The Energy Banks represent the cumulative differences from time to time between (i) the amount originally estimated to be paid or actually paid, depending on the Power Purchaser Agreement, by the applicable Power Purchaser for electric power delivered under the applicable Power Purchase Agreement and (ii) the amounts originally estimated as such Power Purchaser's Avoided Cost ("PPA Avoided Cost") of electric power, adjusted in certain cases for peak and off-peak deliveries of electric power from the Projects. Depending upon the Power Purchase Agreement, PPA Avoided Cost is either set at a scheduled amount per kWh of power, or determined by reference to the Power Purchaser's actual Avoided Cost over time. If the price paid under a Power Purchase Agreement exceeds the applicable Power Purchaser's PPA Avoided Cost, a positive balance will build up in the applicable Energy Bank, which depending upon the terms of the particular Power Purchase Agreement, must be either fully or partially secured by Energy Bank Letters of Credit and, in the case of the Power Purchase Agreements for the NEA Project, by the NEA Second Mortgage. A positive balance in an Energy Bank represents a liability of the applicable Partnership to the applicable Power Purchaser that will be reduced by subsequent sales of electric power to such Power Purchaser to the extent that, in later periods, PPA Avoided Costs are above the contract rate. Under certain circumstances (in particular, following an early termination of a Power Purchase Agreement resulting (i) in the case of the Boston Edison I Power Purchase Agreement, from an Event of Default by NEA (which includes the failure to deliver a minimum quantity of electricity equal to approximately 50% of historical levels for two consecutive years) and (ii) in the case of the Montaup Power Purchase Agreement, from NEA's insolvency or bankruptcy or NEA's failure to generate electricity at an annual capacity factor of 60% or higher for two successive years) such liability, if any, must be repaid in cash. The Energy Bank balances under the JCP&L Power Purchase Agreement and the Boston Edison II Power Purchase Agreement have been reduced to zero and, consequently, the Energy Bank provisions set forth in such Power Purchase Agreements have terminated. As of December 31, 1997, the Energy Bank liability under the Montaup Power Purchase Agreement was approximately $27,055,000. The Energy Bank Balance under the Boston Edison I Power Purchase Agreement was approximately $144,526,000 as of December 31, 1997 and is projected to decrease to zero by 2007. The Energy Bank balance under the Montaup Power Purchase Agreement is expected to increase throughout the term of the Agreement and to be approximately $69,677,000 on December 31, 2013. In February 1998, NE LP terminated the Sanwa Credit Agreement, the Sanwa Letters of Credit and the Sanwa Working Capital Facility and arranged for the 7 delivery of new project letters of credit to satisfy requirements in certain of the Power Purchase Agreements (the "Energy Bank Letters of Credit"). The new Energy Bank Letters of Credit were issued in face amounts of $12,656,000 and $54,000,000 by BankBoston, N.A. ("BankBoston") and NationsBank of Texas ("NationsBank"), respectively. Following the issuance of the Energy Bank Letters of Credit ;and the FPL Group Capital Guaranty to BankBoston and NationsBank, cash in the amount of approximately $69,156,000, constituting the Cash Collateral Proceeds, was released and distributed to the Partners. In January 1998 NE LP arranged for the issuance to the Project Trustee by BankBoston and Bank Brussels Lambert of two letters of credit (the "Substitute Letters of Credit") in substitution for the cash on deposit in the Debt Service Reserve Fund under the Project Indenture. Following the issuance of the Substitute Letters of Credit, cash in the amount of approximately $33,270,000 was released from the Debt Service Reserve Fund and distributed to the Partners. Second Mortgage The performance of NEA's obligations under the NEA Power Purchase Agreements is secured by the NEA Second Mortgage, which is expressly subordinate to the NEA Project Mortgage that secures the Project Indebtedness. Under the subordination provisions set forth in the NEA Second Mortgage, such remedies cannot be exercised so long as the Project Securities are outstanding. For a more detailed summary of the Power Purchase Agreements, see "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase Agreements." Gas Supply Arrangements The fuel supply arrangements for the Projects are designed to create flexibility with respect to the Projects' major fuel supplier, ProGas. The Long-term Gas Supply Agreements are designed to manage the risk of precipitous increases in the price of natural gas (i) by indexing the prices paid by the Partnerships to ProGas for a portion of the natural gas to the energy prices paid by NEA's customers, (ii) by indexing the prices paid to ProGas for additional natural gas to the cost of natural gas purchased by New Jersey electrical utilities (including NJEA's customer, JCP&L), as reported in FERC Form 423 and (iii) by allowing the Partnerships the flexibility to shift gas purchased from ProGas between the Projects. Such fuel supply and management arrangement, however, cannot eliminate entirely the risks associated with gas price volatility. Approximately 80% of the Projects' combined fuel requirements of natural gas are supplied under the Long-term Gas Arrangements on a "firm" basis, that is, without interruption except for events of force majeure and in other limited circumstances. The remaining natural gas supplies are purchased on the open market and are transported by various means to the Projects. The Long-term Gas Arrangements consist of two long-term contracts with ProGas for supply and delivery of gas into the United States, one long-term contract with PSE&G for supply and delivery of gas, several contracts for the transportation on a firm basis by various transporters of gas purchased under the gas supply and storage contracts and contracts for the storage of gas. For a more detailed summary of the contracts comprising the Long-term Gas Arrangements, see "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Gas Purchase Agreements; -- Gas Transportation and Storage Agreements." 8 Although it is expected that the Projects will use natural gas almost exclusively, the NEA Project's air quality permit allows the NEA Project to burn Number 2 fuel oil for up to 1,440 turbine generating hours per year (equivalent to approximately 60 days per year, assuming one turbine is burning oil and operating at base load) in the event of certain curtailments in the gas supplies for the NEA Project, and the NEA Project has a 2.3 million gallon fuel tank for storage of approximately a nine-day supply (assuming only one turbine is burning oil) of Number 2 fuel oil as a back-up fuel. There is no fixed-price fuel purchase agreement for the purchase or delivery of Number 2 fuel oil. To date, the NEA Project has not been operated using Number 2 fuel oil (except for testing purposes). Use of Number 2 fuel oil would result in the suspension of NEA's sales of steam to NECO. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS-- Steam Sales Agreements -- NEA." The air quality permits for the NJEA Project do not allow fuel oil to be burned. The table below illustrates natural gas supply consumed by the Projects during 1997, expressed as a percentage of the total gas requirement for each Project and for the combined total gas requirement for both Projects. Natural Gas Consumption for the Projects For the year ended December 31, 1997 Sources of Gas Consumed by the NEA NJEA Total Contract Projects (Bef) (Bef) (Bef) Expiration - ----------- ------------- ----------------- ------------- ----------- ProGas(1) 14.3 65% 9.2 50% 23.5 59% 2013 PSE&G - 0% 7.9 44% 7.9 20% 2011 Market Purchases 6.2 28% - 0% 6.2 15% N/A From Storage(2) 1.4 7% 1.1 6% 2.5 6% 2012 ---- ---- ---- ---- ---- ---- ---- TOTAL 21.9 100% 18.2 100% 40.1 100% ==== ==== ==== ==== ==== ==== - ---------- (1) ProGas volumes are adjusted to reflect exchanges between the Projects. (2) Gas from storage includes both volumes purchased as market purchases and volumes purchased under the Long-term Gas Supply Agreement from ProGas. Steam Sales Arrangements NEA FERC regulations require that at least 5% of a QF's total energy output be useful thermal energy. To meet this requirement, the NEA Project sells 60,000 to 70,000 pounds per hour of steam (equal to approximately 6 to 7% of the Project's total energy output) to NECO for use by NECO in the operation of the Carbon Dioxide Plant, pursuant to the NEA Steam Sales Agreement. Steam Sales. NEA has leased the Carbon Dioxide Plant to NECO for an initial term that expires on June 1, 2007, renewable at NECO's option for up to four renewal periods of five years each and subject to termination by NEA for the convenience of NEA or following an event of default by NECO. The NEA Steam Sales 9 Agreement, which also expires on June 1, 2007, provides for NEA to sell to NECO at least 60,000 pounds per hour of steam during each hour that the NEA Project is being fueled by 100% pipeline quality natural gas. NECO is required to buy all its steam from the NEA Project whenever the NEA Project is operating and to return all condensate. In any hour in which the NEA Project is being fueled by 100% pipeline quality natural gas, NECO has contracted to accept steam quantities at least equal to 5% of the NEA Project's total energy output. The price of steam is adjusted annually according to an index that takes into account the blended base prices of gas supplied to NEA under the NEA ProGas Agreement and to NJEA under the NJEA ProGas Agreement, subject to a floor price of $3.50 per 1,000 pounds. The average price of steam under the NEA Steam Sales Agreement during 1997 was $3.52 per 1,000 pounds. NE LP expects to renew the NECO Lease and the NEA Steam Sales Agreement with NECO following its scheduled expiration in 2007. In the event that such renewal is not obtained, NE LP expects that NEA, as owner of the Carbon Dioxide Plant, will be successful in replacing NECO with another steam purchaser. NECO's ability to pay for steam depends upon its successful operation of the Carbon Dioxide Plant and the performance by NECO's two carbon dioxide customers described below. The NEA Steam Sales Agreement permits NECO to defer payment for all or a portion of the steam it takes if, after deferring its payments under the NECO Lease, NECO's monthly expenses still exceed its monthly revenues. In addition, NEA has agreed with NECO's two carbon dioxide customers that if NECO fails to satisfy its obligations under the Carbon Dioxide Sales Agreements described below, NEA will, within 45 days after receipt of notice from such customer, terminate the NECO Lease, also terminating the NEA Steam Sales Agreement, and will replace NECO as lessee. For more detailed summaries of the NEA Steam Sales Agreement and the NECO Lease, See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales Agreements -- NEA." In addition to steam, the NEA Project provides exhaust gas from the combustion turbines to the Carbon Dioxide Plant for use as a feedstock. Only the exhaust from burning natural gas (and not Number 2 fuel oil) can be used for carbon dioxide production. The Carbon Dioxide Plant can be run at full operational output provided that at least one combustion turbine is run on gas only. Under the Long-term Gas Arrangements, it is expected that there will be sufficient natural gas to run at least one turbine year-round in this manner. NEA will be obligated to pay liquidated damages to NECO if the NEA Project fails to provide exhaust gas from at least one turbine running only on natural gas for at least approximately 80% of the available hours per year. Carbon Dioxide Sales Agreements. As required by the NECO Lease, NECO has entered into carbon dioxide sales agreements with BOC Gases and Praxair (collectively, the "Carbon Dioxide Sales Agreements"), whereby NECO agrees to dedicate 55% of the Carbon Dioxide Plant's output to Praxair and 45% of the Carbon Dioxide Plant's output to BOC Gases. BOC Gases and Praxair are two of the largest suppliers and distributors of carbon dioxide in the United States. Under the Carbon Dioxide Sales Agreements, 88% of Praxair's allocation and 65% of BOC Gases' allocation are subject to a mandatory take-and-pay clause, up to a maximum of 55,660 tons per year for Praxair and 35,000 tons per year for BOC Gases. The price to be paid to NECO by BOC Gases is subject to adjustment based upon the New England carbon dioxide market price and is protected by a floor price of $38.00 per ton, unless and until a competitive plant is constructed and becomes operational. Upon construction of such a plant, the floor price will be reduced to $33.00 per ton and BOC Gases has a one-time option, exercisable within six months after construction of the competitive plant, to lower the floor price to $30.00 per ton. The price to be paid to NECO by Praxair is subject to quarterly adjustment with the wholesale carbon dioxide market price. The price to be paid by Praxair may not be reduced below $38.00 per ton, unless and until a competitive plant is built in New England or in parts of New York or New Jersey. After construction of such a plant, the floor price may be reduced to $30.00 per ton. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales Agreements -- NEA." 10 Operation and Maintenance. The Carbon Dioxide Plant is operated for NECO by Westinghouse Services pursuant to an agreement between NECO and Westinghouse Services. On November 15, 1997, Westinghouse Electric announced that it intended to sell all of its industrial businesses, including the business of Westinghouse Services, to Siemens AG. NJEA NJEA has entered into the NJEA Steam Sales Agreement with Hercules to sell steam to Hercules' Parlin, New Jersey facility. The Hercules plant is located approximately 1.5 miles from the NJEA Project and is connected by a steam pipeline over land owned by Hercules. NJEA's sales of steam to Hercules enable NJEA to satisfy FERC's rules with respect to useful thermal output necessary to maintain the NJEA Project's QF status. To meet this requirement, the NJEA Project sells approximately 125,000 pounds per hour of steam (equal to approximately 15% of the NJEA Project's total energy output) to Hercules. Steam Sales. The NJEA Steam Sales Agreement has an initial term that expires on August 13, 2011, subject to renewal for two five-year terms. Under the NJEA Steam Sales Agreement, Hercules must, for any hour in which it takes steam, take a minimum of 30,000 pounds of steam. Although Hercules may require a maximum of 205,000 pounds of steam per hour, Hercules' actual requirements have averaged approximately 125,000 pounds of steam per hour. NJEA is required to pay liquidated damages to Hercules in the event that (i) it fails to make delivery on an average annual basis of at least 85% of the steam used by Hercules up to a maximum of 205,000 pounds per hour or (ii) there are more than five total forced outages annually or more than 15 partial forced outages annually. Hercules is obligated under the contract to take sufficient process steam to maintain the NJEA Project's QF status. The NJEA Steam Sales Agreement is terminable upon Hercules' closing its Parlin plant, although in such case Hercules has agreed to lease to NJEA sufficient land to construct an alternative steam host. The NJEA Steam Sales Agreement's scheduled expiration date (2011) is the same as the scheduled expiration date for the JCP&L Power Purchase Agreement. Following the expiration of the JCP&L Power Purchase Agreement, the maintenance of the NJEA Project's QF status may not be required. In such case, NE LP expects that a replacement for or a renewal of the NJEA Steam Sales Agreement may not be obtained. For a more detailed summary of the NJEA Steam Sales Agreement, see "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales Agreements -- NJEA Steam Sales Agreement." Seasonal Factors The performance of the Projects is dependent on ambient conditions (principally air temperature, air pressure and humidity), which affect the efficiency and capacity of the combustion turbines. Ambient conditions also affect the steam turbine cycle efficiency by affecting the operation of the air cooled condenser, and, therefore, the steam turbine exhaust back pressure. Payments due to NJEA under the JCP&L Power Purchase Agreement during winter and summer peak hour periods are substantially higher than those in spring and fall. Otherwise, the business of the Partnerships is not materially subject to seasonal factors. 11 Competition Recent regulatory change has created additional competition in the form of wholesale "power marketers" that engage in purchase and resale transactions between power producers and power distributors. The resultant increased competition has reduced the price utilities are willing to pay to independent power producers for electrical capacity and energy. Although the output of the Projects is substantially all committed under the Power Purchase Agreements, these factors may adversely affect the price payable under certain Power Purchase Agreements tied to actual Avoided Cost of the purchasing utility, as well as the price, if any, NJEA could obtain for merchant sales of power output in excess of the output under contract to JCP&L. (250 MW of a theoretical yearly average potential output of 290 MW is under contract.) Employees None of the Partnerships, ESI Tractebel Funding or the Partners have any employees. Pursuant to the Administrative Services Agreement, ESI Northeast Energy GP, Inc. ("ESI GP") has agreed to provide administrative services to NE LP. The Operator, the Fuel Manager and the New Operator are to provide certain operation and maintenance, oversight and fuel management services for the Projects. See "MANAGEMENT" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Legal Proceedings Neither Partnership nor ESI Tractebel Funding is involved in any material legal proceedings. Properties The Partnerships' principal properties are as follows: Approximate Building Location Principal Use Square Footage -------- ------------- --------------------- NEA Bellingham, MA NEA Project(1)....... Power Production 70,000 Carbon Dioxide Plant(2)............. Carbon Dioxide Production 9,000 Certain Residences properties(3)........ Residences 27,000 NJEA Sayreville, NJ NJEA Project(4)...... Power Production 60,000 - ---------- (1) NEA owns the NEA Project and the land upon which it is located, with the exception of an approximately 15.25-acre parcel that is leased from The Prestwich Corporation, pursuant to a 26 year operating lease that expires on May 31, 2012. Subject to certain conditions, NEA has the option under such operating lease to extend the term of such lease for an additional 25 years. (2) NEA owns the Carbon Dioxide Plant, which has been leased to NECO pursuant to the NECO Lease. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Steam Sales Agreements -- NEA." (3) NEA owns 12 single-family dwellings located on land immediately adjacent to the NEA Site. (4) NJEA owns the NJEA Project and the land upon which it is located. The NJEA Site is leased to IECURC (a direct, wholly-owned subsidiary of NJEA) and leased back to NJEA. 12 The NEA Site, the NEA Project, the Carbon Dioxide Plant and all other related improvements and fixtures on the NEA Site owned by NEA are subject to the NEA Project Mortgage. The NEA Site and the NEA Project are also subject to the NEA Second Mortgage. The NJEA Site, the NJEA Project and all other related improvements and fixtures on the NJEA Site owned by NJEA are subject to the NJEA Project Mortgage. The residential properties referred to in the chart above are subject to the NEA Additional Properties Mortgage. Regulation Energy Regulation PURPA PURPA provides an electric generating project with rate and regulatory incentives if the project is a QF. Under PURPA, a cogeneration facility is a QF if (i) the facility sequentially produces both electricity and a useful thermal energy output during any calendar year which constitutes at least 5% of its total energy output and which is used for industrial, commercial, heating or cooling purposes, (ii) during any calendar year the sum of the useful power output of the facility plus one-half of its useful thermal energy output equals or exceeds 42.5% of the total energy input of natural gas and oil, or, in the event that the facility's useful thermal energy output is less than 15% of the facility's total energy output, such sum equals or exceeds 45% of such total energy input and (iii) the facility is not more than 50% owned, directly or indirectly, by an electric utility, electric utility holding company or any combination of the above. Under PURPA, QFs receive two primary benefits. First, PURPA exempts QFs from the Public Utility Holding Company Act of 1935 ("PUHCA"), most provisions of the Federal Power Act (the "FPA") and certain state laws relating to financial, organization and rate regulation. Second, FERC's regulations promulgated under PURPA require (i) that electric utilities purchase electricity generated by QFs, construction of which commenced on or after November 9, 1978, at a price based on the purchasing utility's full Avoided Costs, and (ii) that the utilities sell supplementary, back-up, maintenance and interruptible power to QFs on a just and reasonable and nondiscriminatory basis. PURPA defines "Avoided Costs" as the "incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source." Utilities may also purchase power at prices other than Avoided Costs pursuant to negotiations as provided by FERC regulations. 13 NE LP expects the Projects to continue to meet all of the criteria required for certification as QFs under PURPA. If either Project were to fail to meet such criteria, the related Partnership and, by virtue of the Partnerships' common Partners, the other Partnership may become subject to regulation as a public utility company or its equivalent under PUHCA, the FPA and state utility laws. Certain of the Power Purchase Agreements require that the applicable Partnership use its best efforts to maintain QF status, and others may be terminated or be subject to price renegotiation if QF status is lost. In addition, each of the O&M Agreements may be suspended by the Operator if the applicable Project is operated in a manner likely to result in the loss of QF status, and if such potential loss is certified by an independent engineer. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Operations and Maintenance Agreements." PUHCA PUHCA provides that any corporation, partnership or other entity or organized group that owns, controls or holds power to vote 10% or more of the outstanding voting securities of a "public utility company" or a company that is a "holding company" of a "public utility company" is subject to registration with the SEC and to regulation under PUHCA, unless exempted by Commission rule, regulation or order. An entity may also be deemed to be a holding company if the Commission determines, after providing notice and an opportunity for hearing that such entity exercises a controlling influence over the management or policies of any public utility or holding company as to make it necessary or appropriate in the public interest or for the protection of investors or consumers that such entity be regulated as a holding company. Unless an exemption is obtained, PUHCA requires registration for a holding company of a public utility company, and requires a public utility holding company to limit its utility operations to a single integrated utility system and to divest any other operations not functionally related to the operation of the utility system. In addition, a public utility company that is a subsidiary of a registered holding company under PUHCA is subject to financial and organizational regulation, including approval by the Commission of its financing transactions. The Energy Policy Act of 1992 (the "Policy Act") contains amendments to PUHCA that may allow the Partnerships to operate their businesses without becoming subject to PUHCA in the event that either Project loses its status as a QF. Under the Policy Act, a company engaged exclusively in the business of owning and/or operating one or more facilities used for the generation of electric energy exclusively for sale at wholesale may be exempted from PUHCA. To qualify for such an exemption, a company must apply to FERC for a determination of eligibility, pursuant to implementing rules promulgated by FERC. Obtaining this exemption may require amendments to or replacements of certain of the Power Purchase Agreements. Moreover, although the Policy Act and its implementing rules provide certain exemptions from PUHCA, the Policy Act may also encourage greater competition in wholesale electricity markets, which could result in a decline in long-term rates to be paid by electric utilities, including those party to the Power Purchase Agreements. Even if a Partnership obtained an exemption from PUHCA pursuant to the Policy Act and implementing rules, in the event that QF status is revoked, the applicable Partnership would be subject to regulation under the FPA, as described below. 14 FPA Under the FPA, FERC has exclusive rate-making jurisdiction over wholesale sales of electricity and transmission in interstate commerce. These rates may be based on a cost of service approach or may be determined through competitive bidding or negotiation. If a Project were to lose its QF status, the rates set forth in each of the Power Purchase Agreements would have to be filed with FERC and would be subject to review by FERC under the FPA. Under FERC policy, the rates under those circumstances could be no higher than the price such Power Purchasers would have paid for energy had they not been required to purchase from such Project under PURPA's mandatory purchase requirements, i.e. such Power Purchaser's economy energy (incremental) cost during the period of non-compliance, unless the applicable power purchase agreement otherwise provides for alternative rates to apply in the event of such loss of QF status. Certain of the Power Purchase Agreements contain provisions for a renegotiation of the rates to be paid for electric energy in the event of loss of QF status, and loss of QF status constitutes an event of default under the JCP&L Power Purchase Agreement. The FPA and FERC's authority under the FPA subject public utilities to various other requirements, including accounting and record-keeping requirements; FERC approval requirements applicable to activities such as selling, leasing or otherwise disposing of facilities; FERC approval requirements for mergers, consolidations, acquisitions and the issuance of securities; and certain restrictions regarding affiliations of officers and directors. State Regulation The Projects, by virtue of being QFs, are exempt from New Jersey and Massachusetts rate, financial and organizational regulations that are applicable to public utilities. QFs, however, are not exempt from the state regulatory commissions' general supervisory powers relating to environmental and safety matters. In addition, the NEA Project is required to file reports used by the Massachusetts Department of Public Utilities to forecast long-term electrical power needs. In the event that the NEA Project loses its QF status, in addition to FPA and PUHCA regulation, NEA and the NEA Project would be subject to a wide range of state regulations applicable to Massachusetts "electric companies," including requirements for the filing of annual reports and approval by the Massachusetts Department of Telecommunications and Energy of any issuance of securities. Similarly, in the event that the NJEA Project loses its QF status, in addition to FPA and PUHCA regulation, NJEA and the NJEA Project could, depending upon the character and extent of the business activities of NJEA with respect to sales of electricity from the NJEA Project, and whether NJEA engages in retail sales of electricity (such retail sales subject to the implementation of retail competition in New Jersey pursuant to deregulation imposed by the New Jersey Board of Public Utilities ("NJBPU")), be subject to a wide range of state statutes and regulations applicable to New Jersey public utilities, which includes the ability of the NJBPU to fix the rates charged by NJEA for the sale of the electric energy generated by the NJEA Project, the approval by the NJBPU of the issuance of securities by NJEA and the requirements for periodically furnishing to the NJBPU detailed reports of NJEA's finances and operations. 15 Wheeling and Interconnection Under the FPA, FERC is authorized to regulate the rates, terms and conditions for the transmission of electric energy in interstate commerce. This has been interpreted to mean that FERC has jurisdiction to prescribe the terms of and to set the rates contained in agreements for the transmission of electric energy when the applicable transmission system is interconnected and capable of transmitting energy across a state boundary, even if the utility has no direct connection with another utility outside its state but is interconnected with another utility that in turn has interstate connections with other utilities. Accordingly, the rates to be paid by NEA to Boston Edison under the Boston Edison Interconnection Agreement are subject to the jurisdiction of FERC under the FPA. Boston Edison submitted the Boston Edison Interconnection Agreement to FERC on October 13, 1993. FERC accepted such filing; however, the terms thereof and the rates thereunder remain subject to review and potential modification pursuant to the jurisdiction of FERC. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Boston Edison Interconnection Agreement." FERC's authority under the FPA to require electric utilities to provide transmission service to QFs and other wholesale electricity producers has been significantly expanded by the Policy Act. Pursuant to the Policy Act, the Partnerships may apply to FERC for an order requiring a utility to provide transmission services in order to transmit power to a wholesale purchaser. FERC may issue such an order if FERC determines that such order would promote the economically efficient transmission and generation of electricity, would be just and reasonable and not unduly discriminatory or preferential and otherwise would be in the public interest, provided that the reliability of the affected electric systems would not be unreasonably impaired. The Policy Act may enhance the Partnerships' ability to obtain transmission access necessary to sell electric energy or capacity to purchasers other than those with which the Partnerships presently have Power Purchase Agreements and NEA's ability to obtain transmission line access for electrical sales to Commonwealth and Montaup following the scheduled expiration in 2001 of Commonwealth's and Montaup's access rights to Boston Edison's Medway Substation, which interconnects the NEA Project with Montaup and Commonwealth's respective grids. There can be no assurance however, that FERC would issue any such order or that the rates for such transmission service would be economical for the Partnerships. The Policy Act may also result in greater competition among wholesale electric energy producers. Utility Industry Restructuring State and federal regulators are in the process of a major examination of the organization of the electric utility industry, which is dominated by vertically integrated investor-owned utilities. Federal In the Spring of 1996, FERC promulgated its Order No. 888, an order containing significant policy initiatives designed to open the market for generation of electricity to competition. In its order, FERC promulgated rules requiring utilities owning transmission facilities to file uniform, non- discriminatory open access tariffs. These filings were made during the summer of 1996. The utilities themselves must use these tariffs for their wholesale sales. The order permits the utilities an opportunity to recover stranded costs (described below) associated with wholesale transmission. Additionally, FERC directed the regional power pools that control the major electric transmission networks to file uniform, non-discriminatory open access tariffs. Among the power pools that are subject to this mandate are the New England Power Pool ("NEPOOL") and the Pennsylvania-New Jersey-Maryland Interconnection ("PJM"), the two power pools that control transmission of electricity within the areas in which the Projects are located. Both NEPOOL and PJM filed proposals for open access tariffs prior to the FERC's deadline, December 3, 1996. FERC granted conditional approval of both of the proposed tariffs in the Fall of 1997. The Partners do not expect Order No. 888 to have a material impact on Partnerships' ability to obtain access to transmission lines for electrical sales to those utilities with whom they have power purchase agreements. 16 In the Spring of 1996, FERC also issued its Order No. 889. This order requires utilities owning transmission facilities to adopt procedures for an open-access same-time information system ("OASIS") that will make available, on a real-time basis, pertinent information concerning each transmission utility's services. The order also promulgated standards of conduct to ensure that the utilities functionally separate their transmission and wholesale power merchant functions to prevent self-dealing. In the Spring of 1997, FERC issued its orders on rehearing of Order Nos. 888 and 889. In these orders FERC upheld the bulk of its rulings in Order Nos. 888 and 889, while making changes to a few of its rules to implement its open-access policies. Transmitting utilities were required to submit revised tariffs to FERC during the summer of 1997 to reflect FERC's orders on rehearing. In November 1997, FERC issued further orders on rehearing affirming, with certain clarifications, its previous orders. Certain aspects of Order Nos. 888 and 889 have been appealed to the U.S. Court of Appeals. Congress is considering legislation to modify federal laws affecting the electric industry. Bills have been introduced in the current Congress to provide retail electric customers with the right to choose their power suppliers. Modifications of PUHCA and PURPA have also been proposed. NEPOOL NEPOOL was initially organized in 1971 and presently has over 130 members representing more than ninety-nine percent (99%) of the electric business in New England. NEPOOL is a voluntary association which operates to assure that the bulk electric power supply of the New England region is provided through central dispatch of virtually all of the generation and transmission facilities in New England as a single control area. On December 31, 1996, as supplemented February 14, April 18, May 1 and June 5, 1997, NEPOOL filed with FERC a comprehensive restructuring proposal. The restructuring proposal was intended to: (1) comply with the requirements of Order No. 888; (2) transfer control of the NEPOOL transmission grid to an independent system operator; and (3) provide a more open, competitive market for wholesale sales and purchases of electric energy in the New England region through a bilateral market and a regional power exchange. On June 25, 1997, FERC unconditionally authorized the establishment of the independent system operator and authorized the transfer of control of pool transmission facilities ("PTFs") owned by the public utility members of NEPOOL to the independent system operator. FERC concluded that this was both consistent with the public interest and would serve to maximize the potential for reliable, competitive bulk power operations in the region. The independent system operator is responsible for, among other things, monitoring the regional power market which includes maintaining system reliability, operating the NEPOOL control area and control center, administering the 7 spot markets, administering the NEPOOL tariff, and promoting efficient and competitive functioning within the market. 17 PJM The PJM power pool is a voluntary association of eight member electric utility companies in the mid-Atlantic region, originally formed in 1927, with a pooled generating capacity of over 56,000 megawatts. Under the historic PJM power pool structure, the member companies jointly own and control the bulk power transmission systems in the region and jointly plan transmission systems upgrades. On December 31, 1996, the PJM filed with FERC a proposal to restructure PJM to introduce open access transmission and otherwise to implement FERC Order 888. On February 28, 1997, FERC approved PJM's filing subject to further orders. FERC, on an interim basis, approved the PJM open access transmission tariffs effective April 1, 1997, and incorporated such proposal with respect to all issues except for congestion pricing. With implementation of a pool-wide open-access transmission tariff on April 1, 1997, PJM began operating a regional bid-based energy market. Participants buy and sell spot energy, schedule bilateral transactions, and reserve transmission service using the PJM OASIS. On November 25, 1997, FERC approved a restructuring plan for the PJM interconnection. The comprehensive plan included the approval of the PJM Operating Agreement, the PJM Open-Access Transmission Tariff, the Transmission Owners Agreement, and the Reliability Assurance Agreement. FERC modifications to the Agreement will be made in subsequent compliance filings by PJM. PJM has requested an April 1, 1998 implementation date for the approved PJM Open-Access Transmission Tariff. Massachusetts On November 25, 1997 the Massachusetts legislature passed a comprehensive electric deregulation bill entitled "AN ACT RELATIVE TO RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY IN THE COMMONWEALTH, REGULATING THE PROVISIONS OF ELECTRICITY AND OTHER SERVICES, AND PROMOTING ENHANCED CONSUMER PROTECTIONS THEREIN" (the "Act"). The purpose of the Act is to establish a comprehensive framework for the restructuring of the electric utility industry. In furtherance of this, the Act eliminates the existing Department of Public Utilities, replacing it with a five-member Department of Telecommunications and Energy ("DTE"). Divestiture The Act provides that each electric company may, in its sole discretion, divest itself of its existing generation facilities. An electric company that chooses not to divest all of its non-nuclear generation facilities, is required to subject its nuclear and non-nuclear generation facilities and purchased power contracts to a valuation under which the DTE determines the market value of such generation facilities and contracts. The DTE is to require a reconciliation of projected transition costs to actual transition costs by March 1, 2000, and for every 18 months thereafter through March 1, 2008, or the termination date of any transition charge allowed to be assessed. If an electric company chooses to divest itself of its existing non-nuclear generation facilities, such company shall transfer or separate ownership of generation, transmission, and distribution facilities into independent affiliates on or before March 1, 1998. Commonwealth, Montaup and Boston Edison are all in various stages of divestiture. 18 Stranded Costs The Act also requires the DTE to identify and determine stranded costs that may be allowed to be recovered through a non-bypassable transition charge. The DTE is required to approve any plan for recovery of such costs and to issue a finding that the company has taken all reasonable steps to mitigate the total amount of such costs that will be recovered and minimize the impact of such costs on ratepayers. Above-Market Power Purchase Contracts The Act further provides that to mitigate the projected market value of power associated with purchased power contracts ("PPCs") approved by the DTE or by its predecessor, the Department of Public Utilities Commission, by December 31, 1995, except with respect to trash to energy facilities, electric companies and sellers under such contracts are required to make good-faith efforts to renegotiate those contracts that contain a price for electricity that is above-market as of March 1, 1998. In order to meet this standard, the parties must show that they have actively participated in negotiations and have shown a willingness to make reasonable concessions to mitigate equitably stranded costs. A good-faith effort under the Act does not require accepting all proposals and making unlimited concessions. Beginning July 1, 1998, and at least annually thereafter, the DTE is required to continue to review such PPCs to determine if the contracts are above-market as of the date of review. If such contract is above-market, the electric company and the seller under the contract must attempt to make a good-faith effort to renegotiate such contract to achieve further reductions in the transition charge. If an electric company has assigned such contract to a buyer having adequate financial resources under a DTE-approved divestiture plan, the electric company is deemed to have met its obligations. If the seller under such contract has consented to the assignment and has agreed to release the electric company from all obligations under such contract, the seller is deemed to have met its obligations. If the DTE finds that a negotiated contract buyout or other modification is likely to achieve savings to the ratepayers and is otherwise in the public interest, the remaining amounts in excess of market value associated with such contract shall be included in the transition charges. If the DTE finds that a seller has made a bona fide offer for such a contract buyout or modification that has been refused by the purchasing electric company, only those amounts in excess of market value associated with such contract that would not have been mitigated by such offer shall be included in the transition charges, and the seller is deemed to have met its obligation to negotiate in good faith. New Jersey Industry restructuring efforts are also underway in New Jersey. On April 30, 1997, the New Jersey Board of Public Utilities ("NJBPU" or "Board") issued its Final Report in the Energy Master Planning Process entitled "Restructuring the Electric Power Industry in New Jersey: Findings and Recommendations." The principal announced goal of the NJBPU in its restructuring initiative is to open the electric generation market to increased competition. On July 15, 1997, each of New Jersey's four electric utility companies filed: (1) a Restructuring Plan, (2) an Unbundled Rate Filing, and (3) a Stranded Costs Filing with the NJBPU pursuant to the NJBPU's Final Report. 19 Stranded Costs The stranded costs filing of each utility will determine the specific initial level of non-mitigatable stranded costs to be recovered by the local electric distribution company. The stranded cost filing for each utility has been transmitted to the Office of Administrative Law for evidentiary hearings. The JCP&L hearing commenced on December 2, 1997; the Initial Decision from the Administrative Law Judge is due on May 15, 1998, with a Final Decision by the NJBPU due thereafter. Stranded costs are defined by the NJBPU as the potential shortfall in revenues, or "loss," which would be experienced by the electric utilities as competition is introduced and their traditional monopolies are opened up to competitors. The Board seeks to address the stranded costs that may be created as a result of its recommendation to open the power generation and supply market up to competition. The Board has determined to limit the eligibility for stranded cost surcharge recovery to costs related directly to power supply including utility generation plant, long- and short-term power purchase contracts with other utilities and long-term power purchase contracts with non-utility generators. The NJBPU concluded in its April 30, 1997 report that electric utilities should be given an opportunity to recover from customers the costs associated with past financial commitments made by the utility for the purpose of procuring generating supplies to serve the retail electric customers in their service territory, notwithstanding the emergence of competition in the generation market. Such pronouncement is not binding at the present, and is subject to future regulatory proceedings and actions by the New Jersey Legislature. Additionally, federal legislation has been proposed that may alter a state's ability to regulate the emerging competitive market and the recovery of stranded costs. Above Market Power Purchase Contracts The NJBPU stated in its final report that utilities should make a reasonable good faith effort to mitigate stranded costs, including the buy-out or renegotiation of existing purchased power contracts with non-utility generators. The Board has acknowledged that it appears to lack jurisdiction to order modification of non-utility generators' contracts, and has determined that the "non-mitigatable costs associated with all such contracts which have previously been reviewed and approved by the Board, notwithstanding the specific date, must be eligible for stranded cost recovery." The NJBPU based its determination that it lacks jurisdiction to order modification of non-utility generators' contracts on the decision of the Third Circuit Court of Appeals in Freehold Cogeneration Associates, L.P. v. Board of Regulatory Commissioners of New Jersey, 44 F.3d. 1178 (3rd Cir. 1995), cert. den., 116 S. Ct. 68, which held that Once the [NJBPU] approved the power purchase agreement between Freehold and JCP&L, on the grounds that the rates were consistent with avoided cost, any action or order by the [NJBPU] to reconsider its approval or to deny the passage of those rates to JCP&L consumers under purported state authority was preempted by federal law. (Id., Freehold, 44 F.3d at 1194). 20 The NJBPU has interpreted the Freehold decision to mean that "without legislative action at the federal or State level, a State regulator has minimal ability to subsequently adjust the pricing in such non-utility generators contracts once approved." Notwithstanding the NJBPU's acknowledgment that it appears to lack jurisdiction to order modification of non-utility generators' contracts under current law it has "strongly encouraged all stakeholders to renew their efforts to explore all reasonable means to mitigate IPP contracts." The Board further stated that the appropriate legislative bodies may wish to review this issue to "provide an added impetus for parties to these [non-utility generators'] contracts to seriously consider mitigation." JCP&L has reported to the NJBPU that it intends to pursue efforts to mitigate its above-market costs for non-utility generator purchase power agreements. JCP&L has contacted NJEA and made a presentation to NJEA regarding a preliminary proposal by JCP&L to transform NJEA's must-run contract into a dispatchable contract on terms that are to cover all fixed costs (debt service and fixed operating expenses) and preserve current net profits while allowing JCP&L to reduce its purchase power costs. While NE LP does not expect utility industry restructuring to result in any material adverse change to the Partnerships' Power Purchase Agreements, the impact of electrical industry restructuring on the companies that purchase power from Partnerships is uncertain. Permit Status NE LP believes that as of the date of this report all material permits required for the operation of the Projects have been obtained. The 1990 Amendments to the Clean Air Act require states and the federal government to implement certain measures that may affect the operation of the Projects. The State of New Jersey and the Commonwealth of Massachusetts are required to incorporate new, more stringent requirements into their plans for bringing the air quality in the areas in which the Projects are located into compliance with national air quality standards. In addition, thirteen northeastern states, including Massachusetts and New Jersey, have entered into a Memorandum of Understanding to address problems associated with the cross-boundary transport of ozone (the "MOU"). Under the MOU, the states have agreed to reduce emissions of nitrogen oxides ("NOx"), which is a precursor to ozone, in two phases. In 1999, utility sources in Massachusetts and New Jersey generally will be expected to meet a 0.20 lbs/mmBtu effective NOx emissions rate. In 2003 and thereafter, such sources will be expected to meet a 0.15 lbs/mmBtu effective NOx emissions rate. The Projects currently meet an effective NOx emissions rate of .09 lbs/mmBtu, and thus it appears that the Projects are favorably positioned to meet the NOx emissions limits contemplated under the MOU without the need for additional capital expenditures. In the event that the Projects are unable to meet the NOx emissions limitations contemplated under the MOU or other regulations, it is possible that each Project could be required to install a selective catalytic reduction (SCR) system in order to meet any such limitations, at a cost of approximately $1.2 to $1.5 million per system. 21 The 1990 Amendments also require each state to implement an operating permit program that incorporates all of a facility's Clean Air Act requirements into a single permit and that includes sufficient monitoring requirements to ensure compliance. In addition, states are authorized to impose fees of at least $25 per ton of air pollutants emitted by a facility, even if such emissions are within permitted limits. The Departments of Environmental Protection for each of New Jersey and Massachusetts are currently reviewing the operating permit applications for the NJEA Project, the NEA Project and the Carbon Dioxide Plant, respectively. SUMMARY OF PRINCIPAL PROJECT AGREEMENTS The following is a summary of selected provisions of certain principal agreements related to the Projects and is not considered to be a full statement of the terms of such agreements. Accordingly, the following summaries are qualified by reference to each agreement and are subject to the terms of the full text of each agreement. Unless otherwise stated, any reference in this summary to any agreement shall mean such agreement and all schedules, exhibits and attachments thereto as amended, supplemented or otherwise modified and in effect as of the date hereof. Power Purchase Agreements NEA Power Purchase Agreements Boston Edison I Power Purchase Agreement The Power Purchase Agreement entered into by NEA and Boston Edison as of April 1, 1986 (the "Boston Edison I Power Purchase Agreement"), provides for the sale to Boston Edison of 46% of the net power actually generated by the NEA Project. Term. The Boston Edison I Power Purchase Agreement extends for an initial term of 25 years expiring September 15, 2016, subject to earlier termination in accordance with its terms. Following the initial term, Boston Edison has the right to extend the Boston Edison I Power Purchase Agreement for an additional five years upon six months written notice. Following any such renewal, the Boston Edison I Power Purchase Agreement will remain in effect until terminated by either party by giving the other party six month's written notice of such termination. Purchase and Delivery. Pursuant to the Boston Edison I Power Purchase Agreement, NEA is obligated to deliver to Boston Edison, and Boston Edison is obligated to accept, a portion of the available capacity and hourly generation of the NEA Project equal to the ratio of 135 MW to the Net Electrical Capability (as defined herein) of 290 MW of the NEA Project multiplied by 100% of the available capacity and hourly generation of the NEA Project, or 46% of the net power actually generated. Plant output is dependent, among other things, on ambient temperatures, and is therefore subject to some variation. Whenever the NEA Project is operating above or below its Net Electrical Capability of 290 MW, the output sold to Boston Edison and other NEA Power Purchasers will be increased or reduced proportionately. NEA is obligated, however, to make available and dedicate to Boston Edison capacity and electric energy in the amount of 135 MW. Boston Edison has a right of first refusal, on terms to be agreed, to purchase a proportionate share based on its then current entitlement of any increased capacity resulting from an expansion of or addition to the NEA Project or from any other electricity generating facility on the NEA Site. All power is to be delivered to the nearest Boston Edison interconnection point, which is presently Boston Edison's Medway Station. 22 Curtailment. Boston Edison has the right under the Boston Edison I Power Purchase Agreement to refuse power from the NEA Project for up to 200 hours per year (in addition to its other curtailment rights described below). Boston Edison also has the right to interrupt, reduce or refuse to purchase electric energy and NEA has the right to interrupt, reduce or refuse to deliver electric energy in order to install equipment, make inspections or perform maintenance and repairs. In addition, Boston Edison has the right to curtail or interrupt the taking of electric energy for as long as reasonably necessary in the event of an emergency. Interconnection. NEA has agreed to secure and pay all expenses of interconnection for the delivery of electrical energy at the delivery point. While Boston Edison may, at its option (subject to certain conditions), enter into transmission and interconnection agreements if necessary to ensure continued transmission and delivery of electrical energy, the expense and the risk of loss of such transmission are to be borne by NEA. All necessary interconnection agreements have been entered into. See "-Boston Edison Interconnection Agreement" below. Pricing. The Boston Edison I Power Purchase Agreement provides for a fixed capacity payment of 1.04 cents per kWh for all power delivered to Boston Edison plus an energy payment per kWh delivered equal to a percentage of the "Qualifying Facility Power Purchase Rate," which is a rate determined under Massachusetts law. It has been agreed that this percentage shall be 80% in each contract year through 2003, 75% from 2004 through 2007, 80% from 2008 through 2010, 85% in 2011 and 90% thereafter. If Boston Edison elects to exercise its right to extend the Boston Edison I Power Purchase Agreement, the energy payment for the period of any such extension will be 100% of the Qualifying Facility Power Purchase Rate. The Boston Edison I Power Purchase Agreement further provides that the minimum total payment for both energy and capacity to be received by NEA (in all cases whether or not such minimum amount is greater than the applicable percentage of the "Qualifying Facility Power Purchase Rate") shall not be less than 7.50 cents per kWh through 1997, after which the minimum payment becomes 6.50 cents per kWh until the end of the initial term. There is no minimum for any extension period. In 1997 the price per kWh was 7.50 cents. If, due to transmission constraints, Boston Edison must purchase power from NEA rather than a lower priced source, the purchase price for such power will be the lower price Boston Edison was forced to forego. However, such substitute rate is only available for up to 100 hours in any contract year. Energy Bank. The Boston Edison I Power Purchase Agreement provides for a special account referred to as the Energy Bank or Balance Account, and the Energy Bank balances therein are to be increased or decreased based upon a formula that prices power delivered to Boston Edison at its projected avoided cost, which is determined by reference to a fixed schedule specifying dollar amounts per kWh sold for each year of the Boston Edison I Power Purchase Agreement. As of December 31, 1997, the Energy Bank balance under the Boston Edison I Power Purchase Agreement was approximately $144,526,000 and is projected to decrease to zero by 2007. The Boston Edison I Power Purchase Agreement requires that approximately 50% of all positive Energy Bank balances be supported by an irrevocable letter of credit, subject to a maximum letter of credit requirement of $54 million. See "Business -- Power Purchase Agreements." Contract Security. To secure its performance under the Boston Edison I Power Purchase Agreement (as well as the other NEA Power Purchase Agreements), NEA has granted Boston Edison, Commonwealth and Montaup the NEA Second Mortgage on the NEA Site and the NEA Project, subordinated only to the rights of the holders of the Project Securities ("the Project Secured Parties") pursuant to the NEA Project Mortgage and certain replacements thereof. In addition, NEA has granted Boston Edison an unsubordinated declaration of easements, encumbering the NEA Project for the term of the Boston Edison I Power Purchase Agreement. This declaration provides Boston Edison with limited access to the NEA Project under certain specified conditions and obligates any subsequent owner of the NEA Project to sell to Boston Edison its entitlement under the Boston Edison I Power Purchase Agreement. See "--Accommodation Agreement." 23 Sale of Power to Other Purchasers. The Boston Edison I Power Purchase Agreement contains a "most-favored nation" clause specifying that if any of the Commonwealth Power Purchase Agreements and the Montaup Power Purchase Agreement are amended or if NEA enters into any additional power purchase agreements, and Boston Edison believes the terms of such amendment or such power purchase agreement are more favorable to the applicable third party than the terms of the Boston Edison I Power Purchase Agreement are to Boston Edison, NEA shall make such terms available to Boston Edison for the remaining term of the Boston Edison I Power Purchase Agreement, provided Boston Edison accepts the other substantive terms of such amendment or power purchase agreement. Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in a Confirmation Agreement, dated September 16, 1994, subject to conditions contained therein, Boston Edison has irrevocably waived its rights to invoke the "most-favored nation" clause. NEA may not enter into any contract for the sale of electricity from any addition to or expansion of the NEA Project or from any other electricity generation facilities located at the NEA Site unless it first offers Boston Edison an amount of electricity proportionate to its then current entitlement on substantially the same business terms specified in any proposal or letter of intent with the applicable third party and Boston Edison does not accept such terms. Right of First Offer. Other than in connection with the financing or refinancing of the NEA Project, or with the sale of equity participations in the form of partnership interests or otherwise, NEA has agreed under the Boston Edison I Power Purchase Agreement that if it desires to sell all or any portion of the NEA Project, it will first offer the terms of such sale to Boston Edison, which will have 60 days to respond to such offer. If Boston Edison declines the offer, NEA, will be free to offer the same terms to any third party, but in the event that an agreement is reached with such third party on terms more favorable than those proposed to Boston Edison, NEA is obligated to offer such terms to Boston Edison. The right of first offer is subject to adjustments proportionate to increases in entitlements of Commonwealth and Montaup. Qualifying Facility Status. The Boston Edison I Power Purchase Agreement does not require that the NEA Project's QF status be maintained. However, NEA has warranted to Boston Edison that NEA will use its best efforts to maintain the NEA Project's QF status. Events of Default and Remedies; Termination. The occurrence of any one or more of the following events constitutes an event of default under the Boston Edison I Power Purchase Agreement and may result in termination of the Boston Edison I Power Purchase Agreement and the exercise of other remedies by the non-defaulting party: (i) the dissolution or liquidation of either party; (ii) failure by either party to perform or observe any of the material terms of the Boston Edison I Power Purchase Agreement, where such failure has not been cured within 45 days of notice thereof by the non-defaulting party or, where cure is not practicable within 45 days, cure has not been undertaken within 45 days and completed within a reasonable period not to exceed two years; (iii) certain events of bankruptcy or insolvency; (iv) the failure of NEA to deliver at least 591.3 million kWh of electricity per year (equivalent to 135 MW at 50% capacity factor annually) to Boston Edison in each of two consecutive contract years, whether or not such failure is due to force majeure; and (v) either party contests the enforceability of the Boston Edison I Power Purchase Agreement. In addition, Boston Edison may terminate the Boston Edison I Power Purchase Agreement in the event of NEA's failure to pay costs and expenses, if any, associated with transmission services, filing fees, administrative costs and any interest accrued thereon in accordance with such contract. 24 Boston Edison II Power Purchase Agreement The Power Purchase Agreement entered into by NEA and Boston Edison as of January 28, 1988 (the "Boston Edison II Power Purchase Agreement"), provides for the sale to Boston Edison of 29% of the net power actually generated by the NEA Project, subject to certain limitations described below. Term. The Boston Edison II Power Purchase Agreement extends for a term of 20 years expiring September 15, 2011, subject to earlier termination in accordance with its terms. The Boston Edison II Power Purchase Agreement does not include any right to extend its term. Purchase and Delivery. Pursuant to the Boston Edison II Power Purchase Agreement, NEA is obligated to deliver to Boston Edison, and Boston Edison is obligated to accept, a portion of the available capacity and hourly generation of the NEA Project equal to the ratio of 84 MW to the Net Electrical Capability of 290 MW of the NEA Project multiplied by 100% of the available capacity and hourly generation of the NEA Project, or 29% of the net power actually generated, not to exceed 68 MW during the Summer Period (June through September) or 92 MW during the Winter Period (October through May). The maximum delivery amount under the Boston Edison II Power Purchase Agreement during any contract year is 735.84 million kWh (equivalent to 84 MW at 100% capacity factor annually). Boston Edison is not obligated to accept energy in excess of the amounts stated. Project output is dependent, among other things, on ambient temperatures, and is therefore subject to some variation. Whenever the NEA Project is operating above or below its Net Electric Capability of 290 MW, the output sold to Boston Edison and other NEA Power Purchasers will be increased or reduced proportionately subject to Boston Edison's maximum purchase obligations described above. All power is to be delivered to an interconnection point mutually agreed to by Boston Edison and NEA, which is presently Boston Edison's Medway Station. Curtailment. Boston Edison has the right under the Boston Edison II Power Purchase Agreement to interrupt, reduce or refuse to purchase electric energy, and NEA has the right to interrupt, reduce or refuse to deliver electric energy in order to install equipment, make inspections or perform maintenance and repair. Boston Edison also has the right to curtail or interrupt the taking of electric energy for as long as reasonably necessary in the event of an emergency. Interconnection. NEA has agreed to pay all expenses of interconnection for the delivery of electrical energy at the delivery point. All necessary interconnection agreements have been entered into. See "--Boston Edison Interconnection Agreement." Pricing. The Boston Edison II Power Purchase Agreement provides for fixed payments for all power delivered to Boston Edison averaging 4.50 cents per kWh in 1992, 4.84 cents per kWh in 1993, and rising thereafter at a fixed escalation rate of 7.5% per year. In 1997, this rate was 6.46 cents per kWh. 25 Escrow Account. NEA is required by the Boston Edison II Power Purchase Agreement to maintain an escrow account for plant maintenance of $1.275 million. Pursuant to Boston Edison's consent to the issuance of the Project Securities, amounts on deposit in the Project Debt Service Reserve Fund will be deemed to fulfill this obligation. Energy Bank Liability and Support. Although the Boston Edison II Power Purchase Agreement provides for an Energy Bank, there is no liability remaining for the Energy Bank under the Boston Edison II Power Purchase Agreement. Contract Security. To secure its performance under the Boston Edison II Power Purchase Agreement (as well as the other NEA Power Purchase Agreements), NEA has granted Boston Edison, Commonwealth and Montaup the NEA Second Mortgage on the NEA Site and the NEA Project, subordinated only to the rights of the Project Secured Parties pursuant to the NEA Project Mortgage and certain replacements thereof. In addition, NEA has granted Boston Edison an unsubordinated declaration of easements, encumbering the NEA Project for the term of the Boston Edison II Power Purchase Agreement. This declaration provides Boston Edison with limited access to the NEA Project under certain specified conditions and obligates any subsequent owner of the NEA Project to sell to Boston Edison its entitlement under the Boston Edison II Power Purchase Agreement. See "--Accommodation Agreement" below. Sale of Power to Other Purchasers. The Boston Edison II Power Purchase Agreement provides that NEA may not enter into any contract for the sale of electricity from the NEA Project or any additions to the NEA Project unless it first offers Boston Edison an amount of electricity proportionate to its then current entitlement on substantially the same business terms specified in any letters or notice of intent with the applicable third party and Boston Edison does not accept such terms. Qualifying Facility Status. The Boston Edison II Power Purchase Agreement does not require that the NEA Project's QF status be maintained. However, NEA has warranted to Boston Edison that NEA will use its best efforts to maintain the NEA Project's QF status. Events of Default and Remedies; Termination. The occurrence of any one or more of the following events constitutes an Event of Default under the Boston Edison II Power Purchase Agreement and may result in termination of the Boston Edison II Power Purchase Agreement and the exercise of other remedies by the non-defaulting party: (i) the dissolution or liquidation of either party; (ii) the failure by either party to perform or observe any of the material terms of the Boston Edison II Power Purchase Agreement, where such failure has not been cured within 45 days of notice thereof by the non-defaulting party, or, where cure is not practicable within 45 days, cure has not been undertaken within 45 days and completed within a reasonable period not to exceed two years (subject to force majeure); (iii) certain events of bankruptcy and insolvency; (iv) the failure of NEA (other than due to the acts or omissions of Boston Edison) to deliver at least 367.92 million kWh of electricity per year (equivalent to 84 MW at 50% capacity factor annually) to Boston Edison in each of three consecutive contract years, whether or not such failure is due to force majeure, except that such failure shall not be an event of default if (x) on or before the final day of such three year period, NEA delivers to Boston Edison the report of an independent engineer stating that the NEA Project is expected to be generating electricity at or near its 290 MW Net Electrical Capability within 90 days, and (y) the NEA Project begins generating at such level within 90 days; and (v) either party contests the enforceability of the Boston Edison I Power Purchase Agreement. 26 Commonwealth I Power Purchase Agreement The Power Purchase Agreement entered into by NEA and Commonwealth as of November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), provides for the sale to Commonwealth of approximately 9% of the net power actually generated by the NEA Project. Term. The Commonwealth I Power Purchase Agreement extends for a term of 25 years expiring September 15, 2016. The Commonwealth I Power Purchase Agreement does not have any provision for extension of its term. Purchase and Delivery. Pursuant to the Commonwealth I Power Purchase Agreement, NEA is obligated to sell and deliver to Commonwealth, and Commonwealth is obligated to accept, a portion of the available capacity and hourly generation of the NEA Project equal to the ratio of 25 MW to the Net Electrical Capability of 290 MW of the NEA Project multiplied by 100% of the available capacity and hourly generation of the NEA Project, or approximately 9% of the net power actually generated. Project output is dependent, among other things, on ambient temperatures, and is therefore subject to some variation. Whenever the NEA Project is operating above or below its Net Electrical Capability of 290 MW, the output sold to Commonwealth and other NEA Power Purchasers will be increased or reduced proportionately. NEA has the right to withdraw the NEA Project from service and to cease to supply electricity to Commonwealth as necessary to perform any maintenance or repair of the NEA Project. Curtailment. Commonwealth has the right under the Commonwealth I Power Purchase Agreement to curtail or interrupt the taking of electricity when, in its reasonable judgment, such curtailment or interruption is needed or desirable in order to restore service on Commonwealth's system or those systems with which it is directly or indirectly connected or whenever any of such systems experience a system emergency. Pricing. The Commonwealth I Power Purchase Agreement provides for a payment per kWh for all power delivered to Commonwealth consisting of (i) a fixed capacity payment of 2.00 cents per kWh, (ii) an energy payment of 3.375 cents per kWh through December 31, 1998, and 2.70 cents per kWh thereafter, multiplied by the ratio of (x) the actual price per barrel of Number 6 fuel oil to (y) a base price of $16.69 per barrel, and (iii) a production factor not to exceed plus or minus 0.4 cents, depending on the extent to which availability in the preceding year has exceeded or been less than 85%. The energy payment component of the foregoing price is subject to the floor price of at least 4.50 cents per kWh through December 31, 2000. The foregoing price is required to be paid for 99% of the kWh delivered to Commonwealth minus non-pool transmission facility losses. As a result of the foregoing formula, the price paid by Commonwealth will be influenced significantly by changes in the price of Number 6 fuel oil. During 1997, the average price per kWh under this contract was 6.76 cents. 27 Contract Security. To secure its performance under the Commonwealth I Power Purchase Agreement (as well as the other NEA Power Purchase Agreements), NEA has granted Commonwealth, Boston Edison and Montaup the NEA Second Mortgage on the NEA Site and the NEA Project, subordinated only to the rights of the Project Secured Parties pursuant to the NEA Project Mortgage and certain replacements thereof. In addition, NEA has granted Commonwealth an unsubordinated declaration of easements, encumbering the NEA Project for the term of the Commonwealth I Power Purchase Agreement. This declaration provides Commonwealth with limited access to the NEA Project under certain specified conditions and obligates any subsequent owner of the NEA Project to sell to Commonwealth its entitlement under the Commonwealth I Power Purchase Agreement. See "--Accommodation Agreement" below. Sale of Power to Other Purchasers. The Commonwealth I Power Purchase Agreement has a "most favored nation" clause specifying that Commonwealth will be given the benefit of any more favorable terms established in future NEA power sales contracts or any amendment to any other NEA Power Purchase Agreement provided that it agrees to be bound by the other substantive provisions thereof. Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in a Confirmation Agreement, dated October 13, 1994, subject to conditions contained therein, Commonwealth has irrevocably waived its rights to invoke the "most-favored nation" clause. The Commonwealth I Power Purchase Agreement also specifies that NEA shall not enter into any contract for the sale of electricity from any additions to the NEA Project unless it first offers a contract to Commonwealth for the sale of a proportionate amount of such electricity according to Commonwealth's then current entitlement under the Commonwealth I Power Purchase Agreement on the same terms as those specified in any proposal to another party. Transmission. Under the Commonwealth I Power Purchase Agreement, NEA bears all risk and expenses with respect to the provision of transmission services to Commonwealth for the term of the contract. Qualifying Facility Status. Commonwealth's obligations under the Commonwealth I Power Purchase Agreement were conditioned upon the NEA Project's being certified as a QF on the in-service date, which condition was satisfied. NEA has agreed to use its best efforts to maintain such status, and in the event that the QF status of the NEA Project is revoked, NEA has agreed to use its best efforts to regain the certification and both parties have agreed to continue to purchase and sell electrical power on the terms set forth in the Commonwealth I Power Purchase Agreement (including those relating to price). Commonwealth II Power Purchase Agreement The Power Sale Agreement entered into by NEA and Commonwealth as of August 15, 1988 (the "Commonwealth II Power Purchase Agreement") provides for the sale to Commonwealth of approximately 7% of the net power actually generated by the NEA Project. Term. The Commonwealth II Power Purchase Agreement extends for a term of 25 years expiring September 15, 2016. The Commonwealth II Power Purchase Agreement does not have any provision for extension of its term. 28 Purchase and Delivery. Pursuant to the Commonwealth II Power Purchase Agreement, NEA is obligated to sell and deliver and Commonwealth is obligated to accept a portion of the available capacity and hourly generation of the NEA Project equal to the ratio of 21 MW to the Net Electrical Capability of 290 MW of the NEA Project multiplied by 100% of the available capacity and hourly generation of the NEA Project, or approximately 7% of the net power actually generated. Project output is dependent, among other things, on ambient temperatures, and is therefore subject to some variation. Whenever the NEA Project is operating above or below its Net Electrical Capability of 290 MW, the output sold to Commonwealth and other NEA Power Purchasers will be increased or reduced proportionately. NEA has the right to withdraw the NEA Project from service and to cease to supply electricity to Commonwealth as necessary to perform any maintenance or repair to the NEA Project. Curtailment. Commonwealth has the right under the Commonwealth II Power Purchase Agreement to curtail or interrupt the taking of electricity when, in its reasonable judgment, such curtailment or interruption is needed or desirable in order to restore service on Commonwealth's system or those systems with which it is directly or indirectly connected or whenever any of such systems experience a system emergency. Pricing. The Commonwealth II Power Purchase Agreement provides for fixed payments of 4.5 cents per kWh for all power delivered to Commonwealth in 1992 and 4.84 cents per kWh in 1993, rising thereafter at a fixed escalation rate of 7.5% per year, which are payable with respect to 99% of the kWh delivered to Commonwealth minus non-pool transmission facility losses. The rate per kWh in 1997 was 6.46 cents. Contract Security. To secure its performance under the Commonwealth I Power Purchase Agreement (as well as the other NEA Power Purchase Agreements), NEA has granted Commonwealth, Boston Edison and Montaup the NEA Second Mortgage on the NEA Site and the NEA Project, subordinated only to the rights of the Project Secured Parties pursuant to the NEA Project Mortgage and certain replacements thereof. In addition, NEA has granted Commonwealth an unsubordinated declaration of easements, encumbering the NEA Project for the term of the Commonwealth II Power Purchase Agreement. This declaration provides Commonwealth with limited access to the NEA Project under certain specified conditions and obligates any subsequent owner of the NEA Project to sell to Commonwealth its entitlement under the Commonwealth II Power Purchase Agreement. See "--Accommodation Agreement" below. Finally, The Commonwealth II Power Purchase Agreement requires that NEA's obligations be secured by a letter of credit in the amount of $1 million until September 15, 1998. Sale of Power to Other Purchasers. The Commonwealth II Power Purchase Agreement has a "most favored nation" clause specifying that Commonwealth will be given the benefit of any more favorable terms established in future NEA power sales contracts or any amendment to any other NEA Power Purchase Agreement provided that it agrees to be bound by the other substantive provisions thereof. Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in a Confirmation Agreement, dated October 13, 1994, subject to conditions contained therein, Commonwealth has irrevocably waived its rights to invoke the "most-favored nation" clause. The Commonwealth II Power Purchase Agreement also specifies that NEA shall not enter into any contract for the sale of electricity from any additions to the NEA Project unless it first offers a contract to Commonwealth for the sale of a proportionate amount of such electricity according to Commonwealth's then current entitlement under the Commonwealth II Power Purchase Agreement on the same terms as those specified in any proposal to another party. 29 Transmission. Under the Commonwealth I Power Purchase Agreement, NEA bears all risk and expenses with respect to the provision of transmission services to Commonwealth for the term of the contract. Qualifying Facility Status. Commonwealth's obligations under the Commonwealth II Power Purchase Agreement were initially conditioned upon the NEA Project's being certified as a QF on the in-service date, which condition was satisfied. NEA has agreed to use its best efforts to maintain such status, and in the event that the NEA Project's QF status is revoked, NEA has agreed to use its best efforts to regain the certification and both parties have agreed to continue to purchase and sell power on the terms set forth in the Commonwealth II Power Purchase Agreement (including those relating to price). Montaup Power Purchase Agreement The Power Purchase Agreement entered into by NEA and Montaup as of October 17, 1986 (the "Montaup Power Purchase Agreement") provides for the sale to Montaup of approximately 9% of the net power actually generated by the NEA Project. Term. The Montaup Power Purchase Agreement extends for an initial term of 30 years expiring September 15, 2021, subject to earlier termination in accordance with its terms. The Montaup Power Purchase Agreement will remain in effect thereafter until either party terminates the contract by giving the other party six months' written notice of such termination. Purchase and Delivery. Pursuant to the Montaup Power Purchase Agreement, NEA is obligated to deliver to Montaup, and Montaup is obligated to accept, a portion of the available capacity and hourly generation of the NEA Project equal to the ratio of 25 MW to the Net Electrical Capability of 290 MW of the NEA Project multiplied by 100% of the available capacity and hourly generation of the NEA Project, or approximately 9% of the net power actually generated. Project output is dependent, among other things, on ambient temperatures, and is therefore subject to some variation. Whenever the NEA Project is operating below its Net Electrical Capacity of 290 MW, the output sold to Montaup and other NEA Power Purchasers will be reduced proportionately. Whenever the NEA Project is operating above its Net Electrical Capacity of 290 MW, NEA may sell the increased output to Montaup or another power purchaser subject to Montaup's right of first refusal. Curtailment. Montaup has the right under the Montaup Power Purchase Agreement to refuse power for up to 200 hours per year, at its reasonable discretion, in addition to its other curtailment rights described below. Montaup has the right to interrupt, reduce or refuse to purchase electric energy, and NEA has the right to interrupt, reduce or refuse to deliver electric energy, in order to install equipment, make inspections or perform maintenance and repairs. In addition, Montaup has the right to curtail or interrupt the taking of electric energy for as long as reasonably necessary in the event of an emergency. 30 Pricing. The Montaup Power Purchase Agreement provides for an energy payment per kWh for all power delivered to Montaup equal to 75% of Montaup's Qualifying Facility Power Purchase Rate (described below) in each year through 2000 and at least 75% but no more than 95% of such rate thereafter, dependent upon the balance in the Energy Bank in such year, together with an average fixed capacity payment of 1.04 cents per kWh, which is not subject to adjustment provided that peak-hour availability remains in excess of 80%. The Montaup Power Purchase Agreement further provides that the minimum rate to be received by NEA is 6.50 cents per kWh through 2000, after which no minimum rate applies. The foregoing rates are payable in respect of 99% of the kilowatt hours delivered by NEA for sale to Montaup under the Montaup Power Purchase Agreement. Montaup's Qualifying Facility Power Purchase Rate is a rate determined under state law based on Montaup's Avoided Cost of power production. If, due to transmission constraints, Montaup must purchase power from NEA rather than a lower priced source, then the purchase price for such power will be the lower price Montaup was forced to forego. However, this substitute rate is only available for up to 100 hours annually. During 1997, the payment per kWh under the Montaup Power Purchase Agreement was 6.5 cents. Energy Bank Liability and Support. The Montaup Power Purchase Agreement provides for an Energy Bank, and the Energy Bank balance under the Montaup Power Purchase Agreement will be increased to the extent that the price paid by Montaup exceeds the greater of (i) Montaup's Qualifying Facility Power Purchase Rate and (ii) an Energy Bank floor rate. The Energy Bank floor rate is specified pursuant to a fixed schedule. Positive Energy Bank balances are reduced to the extent payments to NEA are less than the foregoing Energy Bank rates. Positive balances are subject to interest each month at the prime rate as established from time to time by the First National Bank of Boston. As of December 31, 1997 the Energy Bank balance under the contract was approximately $27,055,000. The Montaup Power Purchase Agreement requires NEA to deliver a letter of credit to Montaup securing the payment of positive Energy Bank balances. However, the face amount of the letter of credit is not required to exceed $12.656 million or (if less) the remaining Energy Bank balance. Contract Security. To secure its performance under the Montaup Power Purchase Agreement, NEA has granted Montaup (as well as other NEA Power Purchasers), the NEA Second Mortgage, subordinated only to the rights of the Project Secured Parties pursuant to the NEA Project Mortgage and certain replacements thereof. In addition, NEA has granted Montaup an unsubordinated Declaration of Easements, encumbering the NEA Project for the life of the Montaup Power Purchase Agreement. This declaration provides Montaup with limited access to the NEA Project and obligates any subsequent owner of the NEA Project to sell Montaup in contract entitlement. See "-Accommodation Agreement" below. Right of First Refusal. Montaup has a right of first refusal for the purchase of any additional capacity generated by the NEA Project and not covered by the Power Purchase Agreements with Boston Edison and Commonwealth, proportionate to its then current entitlement. Any capacity currently covered by Boston Edison's or Commonwealth's entitlement which becomes available in the future is also subject to Montaup's proportionate right of first refusal. Transmission. Under the Montaup Power Purchase Agreement, NEA is responsible for, bears all risk with respect to and is required to pay all expenses in connection with the provision of transmission services to Montaup for the term of the contract. 31 Qualifying Facility Status. NEA has warranted to Montaup that as of the date the NEA Project commenced operations, it would be a QF, and that should the NEA Project lose its QF status thereafter, NEA would use its best efforts to regain such status. Montaup is entitled to renegotiate the pricing provisions of the Montaup Power Purchase Agreement in the event that the NEA Project's QF status is revoked. NJEA Power Purchase Agreement The Power Purchase Agreement entered into by JCP&L and NJEA as of October 22, 1987 (the "JCP&L Power Purchase Agreement"), provides for the sale of 250 MW of power from the NJEA Project's baseload power. Term. The JCP&L Power Purchase Agreement extends for an initial term of 20 years expiring August 13, 2011, and may be extended for an additional five year period upon written notice by JCP&L to NJEA, subject to the renegotiation of the price terms for any such extension. Purchase and Delivery. Pursuant to the JCP&L Power Purchase Agreement, NJEA is obligated to deliver to JCP&L, and JCP&L is obligated to accept, the contract capacity of not less than 250 MW and up to 2.2 million MwH per year of associated energy (250 MW at 100% capacity factor annually) from the NJEA Project throughout the term of the JCP&L Power Purchase Agreement. JCP&L has certain rights, but not the obligation, to purchase certain energy produced by the NJEA Project in excess of 250 MW per hour at a discounted price. Curtailment. Pursuant to the JCP&L Power Purchase Agreement, JCP&L has the right, for up to 200 hours annually during the period expiring August 13, 2001, and for 400 hours annually thereafter, to refuse electric power from the NJEA Project, in any event on no more than 20 separate occasions annually, if conditions on the PJM Interconnected Power Pool system are such that generators of all PJM member utilities are required to reduce generation to minimum levels during periods of low load in accordance with applicable procedures. In addition, without affecting the number of hours during which JCP&L may refuse power under the circumstances described above, JCP&L may refuse power: (i) for up to 200 hours annually during off peak periods (provided that each such curtailment shall be for a minimum of six hours); (ii) when JCP&L deems such refusal to be in keeping with prudent utility practices or necessary to facilitate construction, installation, maintenance, repair or inspection of any of JCP&L's or NJEA's facilities or equipment, to maintain JCP&L's system integrity, or due to emergency, forced outages, potential overloading or force majeure and (iii) if NJEA's operation of the NJEA Project endangers JCP&L personnel, until such dangerous condition is corrected. Interconnection. NJEA has agreed to design, construct and provide during the term of the JCP&L Power Purchase Agreement all interconnection facilities and protective apparatus necessary to effect delivery of power to JCP&L's system pursuant to the JCP&L Power Purchase Agreement, subject to JCP&L's approval and in accordance with its standards. Pricing. The JCP&L Power Purchase Agreement provides for payment to NJEA of: (i) a variable energy payment referencing JCP&L's 1989 cost of gas, indexed to the cost of gas purchased by New Jersey utilities; (ii) a capacity payment that is made for power purchased during peak hours in peak season (approximately 1,800 hours per year); and (iii) a fixed energy payment. 32 For the elapsed portion of the operating year commencing in August, 1994 (through July 1995), the average variable energy payment has been 2.296 cents per kWh, the capacity payment has been 6.41 cents per kWh and the average fixed energy payment has been 2.2 cents per kWh, for a total average payment of 5.85 cents per kWh. Commencing in July, 1994, and for each year thereafter, if average annual on-peak electricity generation is less than 85% of the average annual on-peak generation during the three preceding years, a penalty payment of 3.6 cents for each kWh of shortfall in average on-peak generation for such year will be due to JCP&L from NJEA. Energy Bank. Although the JCP&L Power Purchase Agreement provides for an Energy Bank, there is no liability remaining for the Energy Bank under the JCP&L Power Purchase Agreement. Right of First Offer. Other than in connection with the financing or refinancing of the NJEA Project, NJEA has agreed under the JCP&L Power Purchase Agreement that it will not sell or transfer all or any portion of the NJEA Project without the prior written consent of JCP&L. The JCP&L Power Purchase Agreement also grants a right of first offer to JCP&L for any such sale or transfer. Right of First Refusal. If as a result of improvements or the construction of additional generating units the capacity of the NJEA Projects increased, then JCP&L has a right of first refusal on such excess capacity produced by the NJEA Project on terms no less favorable than those offered to any third party in an arm's length transaction for such excess capacity. Qualifying Facility Status. NJEA is required under the JCP&L Power Purchase Agreement to maintain the NJEA Project's QF status for so long as PURPA or legislation of similar import is in effect. Failure to maintain such status constitutes an event of default under the JCP&L Power Purchase Agreement. Remedies; Events of Default; Termination. The occurrence of any one or more of the following events constitutes an event of default and may result in termination of the JCP&L Power Purchase Agreement by the non-defaulting party: (i) a material breach of any material term or condition of the JCP&L Power Purchase Agreement, including but not limited to failure to maintain the collateral security, breach of any representation, warranty or covenant and failure of either party to make a required payment to the other party of amounts due under the contract, or failure by a party to provide any required schedule, report or notice if such failure is not cured within 30 days after notice to the defaulting party; (ii) failure by NJEA to deliver electricity for a period of 365 consecutive days for any reason except as may be excused by force majeure; (iii) sale or supply of electricity by NJEA from the NJEA Project, or agreement by NJEA to sell or supply electricity, to anyone other than JCP&L at times when JCP&L can accept delivery of such electricity; (iv) failure by JCP&L to accept deliveries of electricity from NJEA Project for a period of 90 consecutive days for any reason other than force majeure or as otherwise permitted by the contract; (v) certain events of insolvency or bankruptcy; or (vi) revocation by FERC at any time during the term of the JCP&L Power Purchase Agreement of the NJEA Project's certification as a Qualifying Facility. Upon the occurrence of any event of default, the non-defaulting party may furnish the other party with a written of default. If the defaulting party does not cure or make a good faith attempt to cure such event of default within 30 days of such notice, the non-defaulting party may terminate the JCP&L Power Purchase Agreement and may exercise all other remedies. 33 Either party may terminate the JCP&L Power Purchase Agreement upon 10 days' written notice if (i) the NJEA Project is either substantially damaged or destroyed and NJEA advise JCP&L that it does not intend to reconstruct or repair the NJEA Project promptly or (ii) an event of force majeure prevents either party from making substantial performance of its respective obligations for a period of 24 consecutive months. In addition, JCP&L, at its sole election and without any obligation to do so, may assume management control of and otherwise operate the NJEA Project as necessary to generate and deliver electric power from the NJEA Project to JCP&L's system (i) upon the occurrence of an event of default, other than an event of default due to force majeure, or (ii) in the event that NJEA fails to operate and maintain the NJEA Project in accordance with the terms and conditions of the JCP&L Power Purchase Agreement for a period of 60 days after receiving written notice from JCP&L regarding the need for repairs or replacement of equipment during which NJEA does not make such necessary repairs or replacements. JCP&L's right to assume control of and operate the NJEA Project will be limited in time until such date when NJEA demonstrates to JCP&L's reasonable satisfaction its ability to resume performance of its obligations under the JCP&L Power Purchase Agreement. The assumption of control and operation of the NJEA Project by JCP&L will not, however, create any duty or responsibility on JCP&L to continue operation of the NJEA Project. NJEA has agreed to indemnify JCP&L from and against claims (other than those due to JCP&L's gross negligence) stemming from JCP&L's control and operation of the NJEA Project, and NJEA has waived all claims it may have against JCP&L in the future (other than for damages arising from JCP&L's gross negligence) as a result of any injury or damages to any property during the time of JCP&L's control or operation of the NJEA Project pursuant to the terms of the JCP&L Power Purchase Agreement. NJEA is required to reimburse JCP&L for any expenses reasonably incurred by JCP&L in operating the NJEA Project or JCP&L may set off such expenses against amounts due to NJEA under the JCP&L Power Purchase Agreement. Steam Sales Agreements NEA The NEA Project is adjacent to the Carbon Dioxide Plant, which is presently being leased by NEA to NECO pursuant to the NECO Lease. NEA sells steam to NECO for use in the Carbon Dioxide Plant pursuant to the NEA Steam Sales Agreement. The principal terms of the NEA Steam Sales Agreement and the NECO Lease are summarized below. 34 NEA Steam Sales Agreement The Amended and Restated NEA Steam Sales Agreement dated as of December 21, 1990 between NEA and NECO (the "NEA Steam Sales Agreement") provides for the exclusive sale by NEA to NECO of a minimum of 60,000 pounds and a maximum of 120,000 pounds of steam per hour when the NEA Project is being fueled by 100% pipeline quality natural gas, subject to certain limited exceptions. NECO will at all times have immediate first call on steam up to such maximum amount, provided, however, that if NEA is unable to satisfy NECO's steam needs for any period more than ten days, NECO may seek alternative sources of steam. Term. The NEA Steam Sales Agreement extends for the same term as that of the NECO Lease described below, with automatic extension for any renewal period elected under the NECO Lease. Price. The monthly base price payable by NECO to NEA for steam delivered under the NEA Steam Sales Agreement is $3.50 per thousand pounds of steam, subject to periodic adjustments based on the blended base prices for natural gas in the ProGas Agreements. The minimum base price also is subject to adjustment for, among other things, liquidated damages as described below under "Minimum Output." Minimum Output. Under the NEA Steam Sales Agreement, NEA has agreed to deliver a minimum output of 60,000 pounds of steam per hour when the NEA Project is being fueled by 100% pipeline quality natural gas. All such steam deliveries are required to take place for at least 80% of the hours in each year, adjusted for excused downtime and subject to the force majeure provisions described below. In every fourth year of the NEA Steam Sales Agreement, the hourly percentage drops to 75% to allow for routine maintenance. In any operating year in which the minimum outputs are not met, NEA is obligated to pay liquidated damages for each hour of shortfall equal to the sum of the hourly cost of NECO's operating and maintenance expenses, property taxes and basic rent under the NECO Lease, each calculated as the annual charge for such expenses divided by 8,760 hours per year. NECO has contracted to purchase (during each hour that the NEA Project is in commercial operation using 100% pipeline quality natural gas) a minimum of 5% of the total energy output of the NEA Project so as to meet requirements set by PURPA in order to maintain the NEA Project's QF Status. NECO is obligated to buy all of its steam from the NEA Project, subject to limited exceptions, and also is obligated to return all condensate to the NEA Project. NECO may defer payment for all or a portion of the steam it takes if after deferring its payments under the NECO Lease, NECO's monthly expenses still exceed its monthly revenues. If the amounts due to NEA are reduced to zero and NECO continues to incur losses, NEA may reimburse NECO for such losses or alternatively, NEA may terminate the NECO Lease and the NEA Steam Sales Agreement. Liability. The NEA Steam Sales Agreement provides that the total cumulative liability of NEA and any of its contractors, subcontractors and suppliers arising from, or in any way connected with, its obligations under such agreement shall not in the aggregate exceed $500,000 in any calendar year prorated for any portion of such year where such agreement is in effect. Notwithstanding such maximum aggregate liability provision, neither NEA nor any of its contractors, subcontractors and suppliers will be liable to NECO or any of its affiliates for any special, incidental, consequential or indirect losses or for damage to or loss of property or equipment not furnished under the NEA Steam Sales Agreement, or for loss of use of the facilities, cost of capital, lost profits or revenues, costs of replacement power or steam or claims of customers of NECO. 35 Assignment. The NEA Steam Sales Agreement and the NECO Lease may be assigned by either party with the written consent of the other party, or by NEA without any such consent (i) to any NEA affiliate, (ii) to a lender as security for financing for NEA or its affiliates, (iii) as a security assignment or (iv) to any successor or entity to NEA. NECO has granted its consent to the assignment of NEA's rights under the NEA Steam Sales Agreement as collateral security pursuant to the Project Security Documents. Breach/Remedies. NEA may temporarily suspend sales of steam under the NEA Steam Sales Agreement for (i) fraudulent or unauthorized use of NEA's meters or (ii) an assignment of the NEA Steam Sales Agreement by NECO not made in accordance with the requirements for assignment under the NEA Steam Sales Agreement. In addition, NEA may suspend sales of steam in the event of the occurrence of any life-threatening conditions at the Carbon Dioxide Plant until such conditions are remedied. Upon the occurrence of any of the above events, if NECO shall fail to remedy such event within 20 days of notice thereof (unless such event cannot be remedied within such period to avoid exercise of the following remedies) NEA may terminate the NEA Steam Sales Agreement. NEA may also terminate the NEA Steam Sales Agreement if (i) NECO shall fail to pay any bill for steam within 15 days of such bill's due date, (ii) NECO shall fail to satisfy its minimum purchase requirement of 5% of the NEA Project's total energy output, (iii) NECO terminates the NECO Lease at its option or (iv) an event of default under the NECO Lease shall have occurred and be continuing. Interconnection Obligations. The NEA Steam Sales Agreement provides that NEA is responsible for all auxiliary equipment and systems required to supply steam to the point of interconnection with the Carbon Dioxide Plant. Lease of Carbon Dioxide Facility The NECO Lease, dated as of December 31, 1990, provides for the lease of the Carbon Dioxide Plant and certain related utilities by NEA to NECO. Term. The NECO Lease has an initial term of 15 years expiring June 1, 2007. The NECO Lease may be renewed at NECO's option for up to four subsequent five year periods, with such option to be exercised at the end of the initial term or any five year renewal period, as applicable. The NECO Lease may be terminated by NEA upon 30 days' written notice to NECO, subject to payment by NEA of any amounts that may be due to NECO as a result of certain rent adjustment provisions of the NECO Lease. The NECO Lease may also be terminated by NEA for its convenience upon the occurrence of an event of default, as defined in the NECO Lease. NEA has agreed with Praxair and BOC Gases that if NECO fails to satisfy its obligations to Praxair or BOC Gases, NEA will terminate the NECO Lease within 45 days after notice of such failure. 36 Operation. The Carbon Dioxide Plant is operated by Westinghouse Services pursuant to a separate operating agreement between Westinghouse Services and NECO. Rent. The basic rent payable by NECO to NEA pursuant to the NECO Lease is $100,000 per month and is subject to adjustment based upon the monthly profits or losses realized by NECO in connection with the operation of the Carbon Dioxide Plant. Right of First Refusal. Absent an event of default under the NECO Lease, NECO has a right of first refusal with respect to any sale of the Carbon Dioxide Plant. Event of Loss. Under the NECO Lease, NECO is required to pay to NEA, as promptly as practicable and in any event within five days following the receipt of insurance proceeds with respect to the occurrence of an event of loss (as defined in the NECO Lease) with respect to the Carbon Dioxide Plant, an amount equal to the sum of (a) any insurance proceeds so received plus (b) any rent accrued but unpaid plus (c) any amount payable under the NEA Steam Sales Agreement accrued but unpaid. NJEA Steam Sales Agreement The NJEA Project sells steam to Hercules pursuant to the Industrial Steam Sales Contract dated as of June 5, 1990 between NJEA and Hercules (the "NJEA Steam Sales Agreement"). The NJEA Steam Sales Agreement provides for the sale by NJEA to Hercules of up to an annualized maximum of 205,000 pounds of steam per hour when both gas turbines at the NJEA Project are fully operational and up to a maximum of 100,000 pounds of steam per hour when only one gas turbine is fully operational. Term. The NJEA Steam Sales Agreement extends for a term of 20 years expiring August 13, 2011, subject to automatic renewal for two consecutive five-year terms unless either party to the agreement gives written notice of its intent not to renew at least two years before the expiration of the then-current term. Price. The monthly floor price payable by Hercules to NJEA for steam delivered under the NJEA Steam Sales Agreement is $2.50 per thousand pounds of steam, subject to monthly escalation (which began in September, 1991) based on a national coal price index. After Hercules has purchased steam amounting to 205,000 pounds per hour on an annualized basis or purchased more than 230,000 pounds of steam per hour in any given hour, Hercules also is required to pay the fuel costs associated with the production of additional steam, payable within 20 days of receipt of NJEA's invoice. Minimum Purchase Obligation. Hercules is required, for any hour in which it purchases steam, to purchase an hourly minimum of 30,000 pounds of steam, and a minimum of 415.8 million pounds of steam annually. Hercules is required to apply 378 million pounds of such steam to thermal uses annually, which will satisfy the minimum thermal use requirement for maintaining the NJEA Project's QF status under PURPA. However, Hercules has no obligation to continue purchasing steam in the event that it closes or abandons its Parlin plant. NJEA is entitled to a minimum of 90 days advance notice of any such closure. NJEA has an option under the NJEA Steam Sales Agreement to lease the Parlin plant site from Hercules in the event of any such closure. Pursuant to the NJEA Steam Sales Agreement, the terms and conditions of any lease entered into pursuant to such option are subject to negotiation, except that the term of any such lease shall not be for a period that is less than the unexpired term of the NJEA Steam Sales Agreement when the parties enter into such lease. 37 Events of Default and Remedies. Events of default by Hercules under the NJEA Steam Sales Agreement include (i) failure to pay bills for steam when due within 30 days of notice of such failure, (ii) fraudulent use of meters which continues for 90 days after notice thereof and (iii) breach of any other material obligation under the NJEA Steam Sales Agreement which continues unremedied for 90 days after notice thereof. NJEA may terminate the NJEA Steam Sales Agreement in the event of any such event of default. Events of default by NJEA under the NJEA Steam Sales Agreement include (i) fraudulent use of meters and failure to cure within 90 days following notice thereof, (ii) failure to deliver on an annual average basis a minimum of 85% of the total steam used by Hercules in its Parlin plant, (iii) more than five total forced outages resulting in total loss of steam production for more than 15 minutes in any full calendar year and (iv) more than 15 partial forced outages resulting in a loss of 10% of steam production of more than 15 minutes in any full calendar year. In the event NJEA fails to deliver at least 85% of Hercules' steam requirement, NJEA is required to reimburse Hercules for up to $800,000 of Hercules' cost of making replacement steam. In the event that there are more than five total outages or more than 15 partial outages in a year, including those due to force majeure, NJEA is required to pay Hercules $40,000 per total forced outage and $5,000 per partial forced outage up to a maximum of $200,000 annually. Gas Purchase Agreements NEA ProGas Agreement Quantities. The Gas Purchase Contract dated as of May 12, 1988 and amended as of April 17, 1989, June 23, 1989, November 1, 1991 and June 30, 1993 between NEA and ProGas (the "NEA ProGas Agreement") provides for the sale by ProGas to NEA of 49,560 Mcf of natural gas per day, with an equivalent heating value of at least 48,817 Dth (the "Daily NEA Quantity"). If NEA fails to take 75% of the annualized Daily NEA Quantity in any contract year, then NEA is required to purchase additional gas in the following contract year to make up any such deficiency. If NEA fails to purchase such required quantities in any year, ProGas has the right to bill NEA monthly for interest at the rate of the then-current Canadian Imperial Bank of Commerce prime rate plus 2% on the contract price that would have been payable in respect of the shortfall amount. Further, following any such year in which NEA fails to take such percentage of the annualized Daily NEA Quantity, ProGas has the right to renegotiate the Daily NEA Quantity unless NEA was unable to take the required amount due to the temporary inability of the NEA Project to utilize the gas supplies. If NEA requests volumes in excess of the Daily NEA Quantity, ProGas may accommodate such requests on a best efforts basis. If ProGas fails to deliver the required quantities on a sustained basis, ProGas will, contingent on receipt of any necessary regulatory approvals extend deliveries beyond the primary term in order to permit NEA to recover such deficiencies. If ProGas fails to deliver the required quantities in any contract year by an amount greater than ten percent, NEA has the right to renegotiate the Daily NEA Quantity. If the NEA Facility experiences certain outages and NEA does not require natural gas for any other purpose, NEA may notify ProGas that such gas supplies are available to ProGas for resale. ProGas will use all reasonable efforts to remarket such gas supplies in order to relieve NEA of its purchase obligations. 38 Term. The term of the NEA ProGas Agreement is 22 years expiring November 1, 2013. The final seven years of this term constitutes an extension of the original 15 year term which has been agreed to by the parties and approved by the producers and Canadian regulatory authorities. Delivery Point. Gas delivered by ProGas under the NEA ProGas Agreement is delivered to the Import Point at Niagara Falls, Ontario/Niagara Falls, New York. For a description of transportation arrangements for such gas from the Import Point to the NEA Project, see "-Gas Transportation and Storage Agreements" below. Price. The actual billings to NEA by ProGas are developed through the use of a two-part rate structure, consisting of a monthly demand charge which is subject to a commodity charge. The monthly demand charge is the product of the average Daily NEA Quantity and the monthly demand rate where the monthly demand rate is the sum of (i) the monthly demand toll per Mcf, as determined by Canada's National Energy Board, charged to ProGas by TransCanada PipeLines Limited, a Canadian Transporter ("TransCanada"), (ii) the monthly demand toll per Mcf charged by NOVA Corporation of Alberta, also a Canadian Transporter, to ProGas and (iii) the monthly demand toll per Mcf charged by ProGas as approved by the Alberta Petroleum Marketing Commission. Payments pursuant to this monthly demand charge are based on the anticipated Daily NEA Quantities under the NEA ProGas Agreement. The monthly demand charge is payable regardless of the actual volume of gas delivered. The commodity charge is applied to volumes of gas actually delivered under the NEA ProGas Agreement and is the difference between the unitized monthly heating demand rate and the then applicable "base price" escalated from U.S. $2.7665 per Dth as of January 1, 1990. The "base price," as theretofore escalated, was further increased by $.038 per Mcf, effective December 1, 1994. Escalation of the "base price" is determined by reference to the escalation rates in the Power Purchase Agreements for both Projects. The "base price" for approximately 70% of the contract quantities is escalated using the weighted average of (I) the fixed escalators applicable to NEA's fixed price power sales and (ii) the changes in fuel prices that determine escalation of price under NEA's Avoided Cost contracts. No more than 150 MW of Avoided Cost sales are included in this weighing at a price no lower than a floor price of 6.5 cents per kWh. The remaining contract quantities, approximately 30%, have a "base price" adjusted annually by the change in the cost of natural gas purchased by New Jersey electric utilities as reported in FERC Form 423. The price of gas sold pursuant to the NEA ProGas Agreement will be adjusted in the event that (i) the NJEA Project has ceased to operate for a period of six consecutive months and (ii) ProGas is not selling gas under the NJEA ProGas Agreement on a monthly basis at least equal to 65% of the Daily NJEA Quantity (as defined below). The price adjustment will be subject to an escalator based on natural gas costs as determined by FERC and the pricing provisions contained in the NJEA ProGas Agreement. In any contract year commencing on or after November 1, 2001, the contract pricing also is subject to renegotiation or arbitration if the contract prices do not track comparable long-term service contracts then prevailing. Arbitration conducted between November 1, 2001 and October 31, 2006 may result in an increase in the escalation of the "base price," while arbitration conducted between November 1, 2006 and the end of the term may result in an increase or decrease in the rate of escalation of the "base price." In either time period, the change is not to impair the ability of NEA to cover operating costs of the NJEA project or to service the debt on the project, nor is it to cause a materially adverse affect on NEA's net cash flow from the NJEA project. The actual price of the natural gas service, however, is not subject to arbitration in either time period. 39 NEA's Right to Pay Gas Transporters and Gas Producers Directly. In the event of ProGas' bankruptcy, insolvency or failure to pay any transporter of gas, or to pay gas producers with reserves dedicated in whole or in part to the NEA ProGas Agreement any amounts due them for transportation services or sale of gas relating to transportation of gas for ultimate redelivery to NEA or sale of gas for resale to NEA, NEA shall have the right to the extent permitted by ProGas' contractual arrangements with transporters or gas producers and subject to any limitation imposed by law or regulation, to withhold payments due ProGas, in whole or in necessary part, and from such withheld amounts to pay directly to any transporter or gas producer the amount due to it from ProGas. Termination. In the event NEA is 60 or more days in arrears on undisputed amounts payable, ProGas may terminate the NEA ProGas Agreement provided it has given NEA 15 days' written notice of its intent to exercise such right in the event the arrears is not cured within that period. In addition, ProGas may terminate the NEA ProGas Agreement in the event that each of the following conditions has occurred and is continuing: (i) NEA has filed a petition of bankruptcy, (ii) NEA has failed to take an average of 50% of the Daily NEA Quantity for six consecutive months or has failed to resume acceptance at an average of 65% of the Daily NEA Quantity during the last month of the six-month period and (iii) NEA's failure to take such Daily NEA Quantity for such period is not the result of a force majeure event. NEA may terminate the NEA ProGas Agreement in the event that each of the following conditions has occurred and is continuing: (i) ProGas has filed a petition of bankruptcy, (ii) ProGas has failed to deliver 50% of the volumes designated for six consecutive months or has failed to resume delivery at a rate of 65% of the volumes scheduled for daily delivery during the last month of the six month period and (iii) ProGas' failure to deliver such volumes for such period is not the result of a force majeure event. In the event that any change in applicable law has a materially adverse effect on the terms of performance under the NEA ProGas Agreement, the party adversely affected may terminate such agreement. NJEA Gas Purchase Agreements NJEA ProGas Agreement Quantities. The Gas Purchase Contract dated as of May 12, 1988 and amended as of April 17, 1989, June 23,1989, November 1, 1991, and July 30, 1993 between NJEA and ProGas (the "NJEA ProGas Agreement") provides for the sale by ProGas to NJEA of 22,354 Mcf of natural gas per day, with an equivalent heating value of at least 22,019 Dth (the "Daily NJEA Quantity"). If NJEA fails to take 75% of the annualized Daily NJEA Quantity in any contract year, then NJEA is required to purchase additional gas in the following contract year to make up any such deficiency. If NJEA fails to purchase such required quantities in any year, ProGas has the right to bill NJEA monthly for interest at the rate of the then-current Canadian Imperial Bank of Commerce prime rate plus 2% on the contract price that would have been payable in respect of the shortfall amount. Further, following any such year in which NJEA fails to take such percentage of the annualized Daily NJEA Quantity, ProGas has the right to renegotiate the Daily NJEA Quantity unless NJEA was unable to take the required amount due to the temporary inability of the NJEA Project to utilize the gas supplies, if NJEA requests volumes in excess of the Daily NJEA Quantity, ProGas may accommodate such requests on a best efforts basis. If ProGas fails to deliver the required quantities on a sustained basis, ProGas will, contingent on receipt of any required regulatory approvals, extend deliveries beyond the primary term in order to permit NJEA to recover such deficiencies. If ProGas fails to deliver the required quantities in any contract year by an amount greater than ten percent, NJEA has the right to renegotiate the Daily NJEA Quantity. If the NJEA Facility experiences certain outages and NJEA does not require natural gas for any other purpose, NJEA may notify ProGas that such gas supplies are available to ProGas for resale. ProGas will use all reasonable efforts to remarket such gas supplies in order to relieve NJEA of its purchase obligations. 40 Term. The term of the NJEA ProGas Agreement is 22 years expiring November 1, 2013. The final seven years of this term constitutes an extension of the original 15 year term, which has been agreed to by the parties and approved by the producers and Canadian regulatory authorities. Delivery Point. Gas delivered by ProGas under the NJEA ProGas Agreement is delivered to the Import Point at Niagara Falls, Ontario/ Niagara Falls, New York. For a description of transportation arrangements for such gas from the Import Point to the NJEA Project see "-Gas Transportation and Storage Agreements" below. Price. The actual billings to NJEA by ProGas are developed through the use of a two-part rate structure, consisting of a monthly demand charge which is subject to a commodity charge. The monthly demand charge is the product of the average Daily NJEA Quantity and the monthly demand rate where the monthly demand rate is the sum of (i) the monthly demand toll per Mcf, as determined by Canada's National Energy Board, charged to ProGas by TransCanada, (ii) the monthly demand toll per Mcf charged by NOVA Corporation of Alberta, also a Canadian Transporter, to ProGas and (iii) the monthly demand toll per Mcf charged by ProGas as approved by the Alberta Petroleum Marketing Commission. Payments pursuant to this monthly demand charge are based on the anticipated Daily NJEA Quantities under the NJEA ProGas Agreement. The monthly demand charge is payable regardless of the actual volume of gas delivered. The commodity charge is applied to volumes of gas actually delivered under the NEA ProGas Agreement and is the difference between the unitized monthly heating demand rate and the then applicable "base price" escalated from U.S. $2.7665 per Dth as of January 1, 1990. The "base price" as theretofore escalated, was further increased by $.038 per Mcf, effective December 1, 1994 Such escalation rate is adjusted annually by the change in the cost of natural gas purchased by New Jersey electric utilities as reported in FERC Form 423. The price of gas, sold pursuant to the NJEA ProGas Agreement will be adjusted in the event that (i) the NEA Project has ceased to operate for a period of six consecutive months and (ii) ProGas is not selling gas under the NEA ProGas Agreement on a monthly basis at least equal to 65% of the Daily NEA Quantity (as defined below). The price adjustment will be subject to an escalator based on natural gas costs as determined by FERC and the pricing provisions contained in the NEA ProGas Agreement. In any contract year commencing on or after November 1, 2001, the contract pricing also is subject to renegotiation or arbitration if the contract prices do not track comparable long term service contracts then prevailing. Arbitration conducted between November 1, 2001 and October 31, 2006 may result in an increase in the escalation of the "base price," while arbitration conducted between November 1, 2006 and the end of the term may result in an increase or decrease in the rate of escalation of the "base price." In either time period, the change is not to impair the ability of NJEA to cover operating costs of the NEA project or to. service the debt on the project, nor is it to cause a materially adverse effect on NJEA's net cash flow from the NEA project. The actual price of the natural gas service, however, is not subject to arbitration in either. 41 NJEA's Right to Pay Gas Transporters and Gas Producers Directly. In the event of ProGas' bankruptcy, insolvency or failure to pay any transporter of gas, or to pay gas producers with reserves dedicated in whole or in part to the NJEA ProGas Agreement any amounts due them for transportation services or sale of gas relating to transportation of gas for ultimate redelivery to NJEA or sale of gas for resale to NJEA, NJEA shall have the right to the extent permitted by ProGas' contractual arrangements with transporters or gas producers and subject to any limitation imposed by law or regulation, to withhold payments due ProGas, in whole or in necessary part, and from such withheld amounts to pay directly to any transporter or gas producer the amount due to it from ProGas. Termination. In the event NJEA is 60 or more days in arrears on undisputed amounts payable, ProGas may terminate the NJEA ProGas Agreement provided it has given NJEA 15 days' written notice of its intent to exercise such right in the event the arrears is not cured within that period. In addition, ProGas may terminate the NJEA ProGas Agreement in the event that each of the following conditions has occurred and is continuing: (i) NJEA has filed a petition of bankruptcy, (ii) NJEA has failed to take an average of 50% of the Daily NJEA Quantity for six consecutive months or has failed to resume acceptance at an average of 65% of the Daily NJEA Quantity during the last month of the six-month period and (iii) NJEA's failure to take such Daily NJEA Quantity for such period is not the result of a force majeure event. NJEA may terminate the NJEA ProGas Agreement in the event that each of the following conditions has occurred and is continuing: (I) ProGas has filed a petition of bankruptcy, (ii) ProGas has failed to deliver 50% of the volumes designated for six consecutive months or has failed to resume delivery at a rate of 65% of the volumes scheduled for daily delivery during the last month of the six-month period and (iii) ProGas' failure to deliver such volumes for such period is not the result of a force majeure event. In the event that any change in applicable law has a materially adverse effect on the terms of performance under the NJEA ProGas Agreement, the party adversely affected may terminate such agreement. PSE&G Contract The Gas Purchase and Sales Agreement dated as of May 4, 1989 between NJEA and PSE&G (the "PSE&G Contract"), provides for the sale by PSE&G to NJEA of gas, and for certain gas transportation services. Sale of Gas. PSE&G sells to NJEA up to 25,000 dekatherms of gas per day subject to "Service Interruptions" by PSE&G discussed below. NJEA has the option to purchase additional gas (i) at NJEA's request on a daily basis subject to PSE&G's ability to provide such amounts, (ii) under an Extended Gas Service (as defined herein) option if PSE&G retains gas on certain "peak days" and (iii) commencing November 1 and ending March 31 for "winter-seasonal service" up to a specified amount with appropriate notice. 42 Transportation Service. PSE&G transports for NJEA all of the fuel required to operate the NJEA Project (from points originating in PSE&G's service territory to the delivery point at the NJEA Project), including all gas purchased by NJEA from ProGas, gas purchased on the open market and gas delivered from storage. NJEA may deliver to PSE&G for transport to the NJEA Project up to 32,500 dekatherms of gas per day purchased from sources other than PSE&G, and PSE&G is required to redeliver an equal quantity to the NJEA Project except in certain limited circumstances on "peak days." In the event that NJEA has delivered to PSE&G for transport in any calendar month an amount less than the amount redelivered by PSE&G to the NJEA Project in such calendar month and NJEA falls to correct the resulting imbalance in the immediately following month, then PSE&G will sell to NJEA at NJEA's request a quantity of gas equal to up to 10% of the gas used by NJEA in the month of the imbalance at a price equal to the commodity charge under the PSE&G Contract plus a penalty fee of three times the "service charge" discussed below. Term. The term of the PSE&G Contract is 20 years expiring August 12, 2011. The PSE&G Contract does not include any renewal provision. Price. The monthly price payable by NJEA to PSE&G for gas sold under the PSE&G Contract equals the sum of (i) a "customer charge" (indexed to the Implicit Price Deflator of GNP as published by the United States Department of Commerce, Bureau of Economic Analysis in its "Survey of Current Business") initially set in 1990 at $86 per month and adjusted annually as of the first calendar day of each succeeding year, (ii) a "commodity charge" per dekatherm sold by PSE&G to NJEA based upon the average costs incurred by PSE&G in acquiring gas during such month, (iii) a "service charge" (indexed to the weighted average change in PSE&G's natural gas rates as approved by the New Jersey Board of Public Utilities) initially set in 1990 at $0.30 per dekatherm delivered and (iv) a "loss and shrinkage charge" equal to 1.5% of the monthly "commodity charge." The price for additional amounts purchased under the Extended Gas Service option includes a "service charge" and an "extended gas service charge." The price for additional amounts purchased under the winter-seasonal service is equal to the "extended gas service charge" plus a delivery charge. If PSE&G retains gas on certain "peak days" PSE&G will pay to NJEA a "Peak Gas Service Credit" described below under "Service Interruption." The monthly price payable by NJEA to PSE&G under the PSE&G Contract for the transportation of gas purchased by NJEA from gas suppliers other than PSE&G is the product of the number of dekatherms of gas transported multiplied by the monthly "service charge" described in clause (iii) above. NJEA may elect to renegotiate the sales price under the PSE&G Contract if the actual price charged thereunder to NJEA in any one-year period ending on October 31 exceeds the comparable average gas cost incurred by New Jersey electric utilities by 15%. Conversely, if such price is less than 85% of the comparable average gas cost incurred by New Jersey electric utilities, then PSE&G may elect to renegotiate the sales price. To date, actual prices have not fallen above or below this range. If NJEA and PSE&G are unable to renegotiate the sales price, the parties may elect to terminate the sales provisions contained in the PSE&G Contract without terminating the transportation provisions contained therein. During 1997, the "customer charge" was approximately $97 per month, the "commodity charge" was approximately $.32928 per dekatherm, and the "service charge" was approximately $.32928 per dekatherm. Quantity Adjustments. All quantities specified in the PSE&G Contract, upon 30 days' written notice to PSE&G, may be adjusted by NJEA to reflect changes in the percentage of gas that is retained by Canadian or U.S. pipelines transporting gas for NJEA in order to provide the NJEA Project with the same delivered quantity as existed prior to such changes. 43 Service Interruption. PSE&G may interrupt sales and transportation service to the NJEA Project on "peak days" when the mean daily temperature forecast for Newark, New Jersey is 22 (degree) F or below. On such days, PSE&G may retain the gas supplies tendered to it by NJEA. This occurred on 4 days during 1997. At NJEA's election, PSE&G will offer Extended Gas Service on such days, unless the mean daily temperature forecast is 14(degree) F or below. In the latter case PSE&G may curtail all service to NJEA and the NJEA Project may not be able to operate. This occurred on 2 days during 1997. The price of Extended Gas Service is based upon the cost to PSE&G of propane supplies delivered to its processing facilities plus a mark-up. During 1997, NJEA purchased 908,290 dekatherms of Extended Gas Service supplies at an average price of $8.813 per dekatherm. In exchange for the right to retain NJEA's gas supplies on those certain peak days described above, PSE&G pays a demand charge to NJEA (the "Peak Gas Service Credit") which is indexed to demand charges paid by NJEA for the transportation and storage of its supplies in the U.S. The Peak Gas Service Credit is subject to a floor of 37% of the PSE&G "service charge" and a cap of 68% of the "service charge." During 1997, PSE&G paid NJEA over $2 million in Peak Gas Service Credits. In addition, PSE&G pays NJEA for gas retained according to a formula which prices these supplies at the greater of (i) the weighted average commodity cost of PSE&G for natural gas supplies purchased from all sources, or (ii) an amount which is the lesser of the market price of fuel oil per dekatherm or PSE&G's propane cost per dekatherm. During 1997, PSE&G retained 120,288 dekatherms at an average price of $5.199916 per dekatherm. Termination. In the event either party is in arrears on undisputed amounts payable, the party to whom payment is owed may provide the other party with a written protest of failure to pay and suspend performance 15 days later if the failure continues, and, in addition, may terminate the contract upon written notice to the other party. In the event regulatory authorities having jurisdiction take any action that requires an increase in the "service charge" described above under "Price," or materially alters the method for the calculation of the sales price, NJEA may terminate the PSE&G Contract on 90 days' notice in writing to PSE&G. Gas Transportation and Storage Agreements The following table identifies the Long-term Gas Transportation Agreements and Long-term Gas Storage Agreements and sets forth certain information with respect thereto. The Long-term Gas Storage Agreements provide contractual arrangements for the storage of limited volumes of gas with third parties for future delivery to the Projects. 44 NEA -- Transportation Agreements Maximum Daily Contract Gas Transporter and Agreements Quantity Expiration Date - ------------------------------ -------- --------------- CNG Transmission Corporation 48,817 Dth November 1, 2011 Firm Transportation Service Agreement Rate Schedule X-71 CNG Transmission Corporation 1,654 Dth Winter March 31, 1999 Service Agreement Applicable to 828 Dth Summer Transportation of Natural Gas Rate Schedule FT: Transcontinental Gas Pipe Line 48,800 Mcf October 31 2006 Corporation Firm Gas Transportation Agreement Rate Schedule X-320 Algonquin Gas Transmission Company 62,000 Dth November 30, 2016 Service Agreement Rate Schedule AFT-1 CNG Transmission Corporation 14,000 Dth March 31, 2012 Service Agreement Applicable to the Storage of Natural Gas (1) Rate Schedule FT-GSS-11 Texas Eastern Transmission 14,000 Dth March 31, 2012 Corporation Service Agreement Rate Schedule FTS-5 - ------------- (1) Includes an agreement for the transportation of natural gas held in storage. 45 NEA -- Transportation Agreements Maximum Daily Contract Gas Transporter and Agreements Quantity Expiration Date - ------------------------------ -------- --------------- CNG Transmission Corporation Firm 22,019 Dth November 1, 2011 Transportation Service Agreement Rate Schedule X-70 CNG Transmission Corporation 746 Dth Winter March 31, 1999 Service Agreement Applicable to 372 Dth Summer Transportation of Natural Gas, Rate Schedule FT Transcontinental Gas Pipe Line 22,019 Mcf October 31, 2006 Corporation Firm Gas Transportation Agreement Rate Schedule X-319 Public Service Electric & Gas 32,500 Dth August 12, 2011 Company Gas Purchase and Sales Agreement CNG Transmission Corporation 10,508 Dth March 31, 2012 Service Agreement Applicable to the Storage of Natural Gas (1) Rate Schedule FT-GSS-11 Texas Eastern Transmission 10,508 Dth March 31, 2012 Corporation Service Agreement Rate Schedule FTS-5 - ------------- (1) Includes an agreement for the transportation of natural gas held in storage. NEA -- Storage Agreements Maximum Daily Contract Gas Transporter and Agreements Quantity Expiration Date - ------------------------------ -------- --------------- CNG Transmission Corporation Withdrawal: 14,000 Dth March 31, 2012 Service Agreement Applicable Injection: 10,000 Dth to the Storage of Natural Gas Capacity: 1,400,000 Dth Rate Schedule GSS-11 - ---------------------------- NJEA - Storage Agreements Maximum Daily Contract Gas Transporter and Agreements Quantity Expiration Date - ------------------------------ -------- --------------- CNG Transmission Corporation Withdrawal: 10,508 Dth March 31, 2012 Service Agreement Applicable Injection: 7,506 Dth to the Storage of Natural Gas Capacity: 1,050,800 Dth Rate Schedule GSS-11 46 Operations and Maintenance Agreements NEA Operations and Maintenance Agreement The Second Amended and Restated Operation and Maintenance Agreement for the NEA Project dated as of June 28, 1989, as amended, between NEA and Westinghouse Electric (the "NEA O&M Agreement"), provides for the operation and maintenance by Westinghouse Services (the "Operator") of the NEA Project. Term. The term of the NEA O&M Agreement extends for an initial term of 10 years expiring September 15, 2001. The Operator has agreed, pursuant to a letter agreement with NEA dated as of June 23, 1993, to enter into a successor agreement for a term of ten years at NEA's option, with payments to be made to the Operator for certain services on either a firm-price basis, subject to successful negotiation of terms by the parties, or a cost-plus basis. In the event that the agreement is not extended on either basis, the Operator is to provide assistance to effect a transition to a new service provider. Pursuant to the New NEA O&M Agreement, the New Operator is providing certain services for the NEA Project, and has agreed to replace Westinghouse Services as the operator of the NEA Project upon the expiration or early termination of the NEA O&M Agreement. Basic Obligations. The Operator has agreed to provide all operations and maintenance services, including scheduled all major maintenance and has agreed to provide all personnel, spare parts and consumables necessary in order to operate and maintain the NEA Project. Such services include all services necessary or advisable to use, operate and maintain the NEA Project in good operating condition and in compliance with (i) the NEA Project Documents, (ii) all insurance policies relating to the NEA Project, (iii) the procedures established in the operation and maintenance manuals provided pursuant to the construction contract for the NEA Project, or applicable industry guidelines, (iv) all applicable prudent industry practices and standards, (v) vendor and manufacturer requirements or conditions, as applicable, (vi) the standards set forth in the NEPOOL Agreement, (vii) the operating and maintenance procedures established by the Operator in accordance with the NEA O&M Agreement and (viii) any and all governmental approvals, licenses or permits associated with the NEA Project. Substantive changes to the obligations of the Operator require consent of NEA and of an independent engineer to a written "change order" request of the Operator. Compensation. For the initial term, NEA has agreed to pay the Operator a monthly fee (the "NEA O&M Fee") of $435,417 (in 1990 dollars), subject to a biannual adjustment each January and July calculated on the basis of certain national indices for the cost of labor, materials and producer prices. The NEA O&M Fee incurred during 1997 was $6,550,447 (excluding heat rate and performance bonuses). Performance Guarantees. The NEA O&M Agreement specifies certain guaranteed performance levels for the NEA Project, including but not limited to (i) guaranteed electrical output of approximately 290 MW of capacity, adjusted for variations from standard operating conditions and excused downtime and by 3% per annum for plant degradation, at 90% average availability, when the NEA Project is being fueled by 100% pipeline quality natural gas, (ii) guaranteed electrical output of approximately 290 MW of capacity, adjusted for variations from standard operating conditions and excused downtime, at 83% for purposes of liquidated damages calculations or 85% for purposes of bonus payments average availability, when the NEA Project is burning a combination of natural gas and fuel oil, (iii) guaranteed steam output of not less than 5% of the total energy output of the NEA Project, with an affirmative obligation for the Operator to correct any deficiency as NEA's sole remedy, (iv) guaranteed fuel consumption, as adjusted to reflect variations from standard conditions, not in excess of certain agreed upon levels with an affirmative obligation to correct inefficiencies and, in certain circumstances, to reimburse excess fuel costs and (v) a guarantee that emissions will not exceed certain agreed upon levels, with remediations the sole liability in the event of failure to maintain such levels. 47 Catastrophic Loss of Viability. Subject to the provisions regarding liquidated damages and the limitations on the Operator's liability contained in the NEA O&M Agreement, the Operator has agreed to pay off the outstanding balance of NEA's senior debt financing for the NEA Project (which would include the Project Notes (as defined herein)) upon the occurrence of certain specified events, including the following: (i) the destruction of the NEA Project; (ii) the unavailability of insurance proceeds or the lapse of insurance policies in respect of such destruction, in either case, as a result of the Operator's acts or omissions; (iii) the inability of NEA to service its senior debt as a result of a catastrophic loss of viability; (iv) the failure of attempts to cure; and (v) the acceleration of the entire principal balance of NEA's senior debt financing for the NEA Project. Liquidated Damages. The Operator has agreed to pay liquidated damages to NEA in the following amounts for shortfalls in the annual (adjusted) number of MWH produced below the guaranteed performance levels described above: (i) $15 per MWH for the first 100,000 MWH of shortfall, (ii) $33 per MWH for the second 100,000 MWH of shortfall and (iii) $50 per MWH for all additional MWH of shortfall. Aggregate liquidated damages are subject to a maximum cumulative liability of the Operator (excluding certain indemnities) of $9 million in any operating year, and $60 million over the initial term of the NEA O&M Agreement. During any extension period, the maximum liability of the Operator under the NEA O&M Agreement is reduced to $3 million (in 1993 dollars) in any operating year. Bonus Payment. In the event that the amount of energy generated by the NEA Project exceeds the guaranteed electrical output, as adjusted for certain specified excused outages and seasonal variations from standard operating conditions, NEA has agreed to pay to the Operator the following amounts as a bonus for each MWH of energy generated in excess of the guaranteed levels: (i) $5 per MWH for the first 25,000 MWH of excess, (ii) $10 per MWH for the second 25,000 MWH of excess, and (iii) $15 per MWH for all additional MWH of excess. By a letter agreement dated as of June 23, 1993, NEA and the Operator agreed that NEA would pay the Operator the aggregate sum of $3.289 million as the heat rate bonus for the initial term of the NEA O&M Agreement, payable in installments (without interest) as follows: (i) an initial payment of $572,000 on December 30, 1992; and (ii) the remaining $2.717 million to be paid in equal annual installments of $543,400 each on September 30 of each of the succeeding five years except that in the event of a refinancing of the Original Project Credit Agreement, a portion of the remaining balance of the heat rate bonus may be payable at the time of the refinancing based on the amount of net proceeds. No payment was due to the Operator pursuant to this provision in respect of the refinancing effected by the issuance of the Project Securities. During any extension period beyond the initial term of the NEA O&M Agreement, heat rate bonuses will be payable based upon actual heat rates in each year, subject to a maximum annual bonus of $1 million (in 1993 dollars). During 1997, NEA incurred an aggregate heat bonus of $310,514. Energy Bank. In the event that any Power Purchaser draws against any letter of credit supporting the Energy Bank balances under its Power Purchase Agreement solely as a result of the Operator's acts or omissions, the Operator is obligated to refund the amount of such drawing to NEA. 48 Termination. With the concurrence of an independent engineer, NEA has the right to terminate the NEA O&M Agreement if (i) the Operator is in material breach of any material provision of the NEA O&M Agreement (however, breach of performance guarantees for which liquidated damages have been paid or remediation has been undertaken by the Operator does not constitute material breach for this purpose), and such breach has not been cured within 45 days of written notice thereof, or as soon as practicable thereafter (ii) the actual output of the NEA Project for four consecutive quarters is less than 67% of the adjusted guaranteed MWH or (iii) the Operator is required in any given year to pay the entire $9 million maximum liquidated damages allowed by the NEA O&M Agreement. The Operator has the right to terminate the NEA O&M Agreement if NEA fails to make any monthly payment, insurance reimbursement or payment in respect of fuel off-loading services when due, if NEA fails to cure such failure within 30 days of written notice thereof. Either party may terminate the NEA O&M Agreement (but only with the concurrence of an independent engineer in the case of a termination by NEA) if the other party is insolvent, commences bankruptcy, insolvency or reorganization proceedings or makes a general assignment for the benefit of its creditors. The NEA O&M Agreement will terminate automatically in the event that the NEA Project is subject to a catastrophic loss of viability and the Operator makes the required payment with respect thereto as described above under "-Catastrophic Loss of Viability." After termination of the NEA O&M Agreement by written notice from NEA to the Operator, NEA is entitled, in addition to its other remedies, to take possession of the NEA Project and any spare parts located on the NEA Site. If NEA takes possession of the NEA Project in this manner, the Operator will remain liable for (i) all liquidated damages accrued but unpaid at the time of such termination and (ii) for each remaining operating year following termination up to September 15, 2001, the difference between (x) the amount that would have been payable to the Operator pursuant to the NEA O&M Agreement as NEA O&M Fees for such year and (y) the amount payable to a replacement operator for each such operating year, provided, however, that the Operator's aggregate liability shall not exceed the lesser of (a) 30% of the aggregate amounts payable to the Operator in the year of termination or (b) $12.5 million. The Operator is to have no other liability to NEA. Right to Suspend Performance for Loss of Qualifying Facility Status. In the event that the NEA Project is operated in a manner during any three-month period in any calendar year that would result in the loss of its QF status if such operation were to be continued for the remainder of such calendar year, and such projected loss is confirmed by an independent engineer, NEA has agreed to take reasonable steps to ensure that operating practices will maintain such QF status. Under certain circumstances relating to a potential or actual loss of QF status, the Operator may suspend performance under the NEA O&M Agreement and find a replacement operator. See "Business -- Regulation -- Energy Regulation." 49 NJEA Operations and Maintenance Agreement The Amended and Restated Operations and Maintenance Agreement for the NJEA Project dated as of June 28, 1989, as amended, between NJEA and Westinghouse Electric (the "NJEA O&M Agreement") provides for the operation and maintenance by Westinghouse Services (the "Operator") of the NJEA Project. Term. The term of the NJEA O&M Agreement extends for an initial term of ten years expiring September 15, 2001. The Operator has agreed, pursuant to a letter agreement with NJEA dated June 23, 1993, to enter into a successor agreement for a term of ten years at NJEA's option, with payments to be made to the Operator for certain services on a fixed price basis, with major maintenance and certain other items on a firm price basis, subject to negotiation of terms by the parties, or on a cost-plus basis. Pursuant to the New NJEA O&M Agreement, the New Operator is providing certain services for the NJEA Project, and has agreed to replace Westinghouse Services as the operator of the NJEA Project upon the expiration or early termination of the NJEA O&M Agreement. Basic Obligations. The Operator has agreed to provide all operations and maintenance services, including all scheduled major maintenance, and has agreed to provide all personnel, spare parts and consumables necessary in order to efficiently operate and maintain the NJEA Project. Such services include all services necessary or advisable to use, operate and maintain the NJEA Project in good operating condition and in compliance with (i) the NJEA Project Documents, (ii) all insurance policies relating to the NJEA Project, (iii) the procedures established in the operation and maintenance manuals provided pursuant to the construction contract for the NJEA Project, or applicable industry guidelines, (iv) all applicable prudent industry practices and standards, (v) vendor and manufacturer requirements or conditions, as applicable, (vi) all applicable requirements and guidelines adopted by PJM Interconnected Power Pool, including the PJM Agreement, (vii) the operating and maintenance procedures established by the Operator in accordance with the NJEA O&M Agreement and (viii) any and all governmental approvals, licenses or permits associated with the NJEA Project. Substantive changes to the obligations of the Operator require consent of NJEA and of an independent engineer to a written "change order" request of the Operator. Compensation. For the initial term, NJEA has agreed to pay the Operator a monthly fee (the "NJEA O&M Fee") of $493,750 (in 1990 dollars), subject to adjustment in January and in July of each year, calculated on the basis of certain national indices for the cost of labor, materials and producer prices. The aggregate NJEA O&M Fee incurred during 1997 was $7,337,011 (excluding heat rate and performance bonus payments). Performance Guarantees. The NJEA O&M Agreement specifies certain guaranteed performance levels for the NJEA Project, including but not limited to (i) guaranteed electrical output of 90% of the approximately 275 MW of capacity, adjusted for variations from standard operating conditions and excused downtime and by 3% per annum for plant degradation, during on-peak hours (8:00 a.m. to 8:00 p.m. Monday through Friday, December through February and June through September excluding holidays), (ii) guaranteed electrical output of 85% of the approximately 275 MW of capacity, adjusted for variations from standard operating conditions, during off-peak hours, (iii) guaranteed steam output of not less than 5% of the total energy output of the NJEA Project, with an affirmative obligation for the Operator to correct any deficiency as NJEA's sole remedy, (iv) guaranteed fuel consumption, as adjusted to reflect variations from standard conditions, not in excess of certain agreed upon levels with an affirmative obligation to correct inefficiencies and, in certain circumstances, to reimburse excess fuel costs as NJEA's sole remedy and (v) a guarantee that emissions will not exceed certain agreed upon levels, with restriction of the level of power output or cessation of operation of the NJEA Project until such emissions guarantee is satisfied being the sole remedy in the event of failure to maintain such levels. 50 Catastrophic Loss of Viability. Subject to the provision regarding liquidated damages and the limitations on the Operator's liability contained in the NJEA O&M Agreement, the Operator has agreed to pay off the outstanding balance of NJEA's senior debt financing for the NJEA Project (which would include the Project Notes) upon the occurrence of certain specified events, including the following: (i) the destruction of the NJEA Project, (ii) the unavailability of insurance proceeds or the lapse of insurance policies in respect of such destruction, in either case, as a result of the Operator's acts or omissions, (iii) the inability of NJEA to service its senior debt as a result of a catastrophic loss of viability, (iv) the failure of attempts to cure and (v) the acceleration of the entire principal balance of NJEA's senior debt financing for the NJEA Project. Liquidated Damages. The Operator has agreed to pay liquidated damages to NJEA in the following amounts for shortfalls in the annual (adjusted) number of kWh produced below the guaranteed performance levels: (i) 1.5 cents per kWh of off-peak shortfall, (ii) 2 cents per kWh of on-peak shortfall and (iii) if actual on-peak output is less than 85% of average actual on-peak output during the immediately preceding 3 operating years and NJEA is obligated to pay liquidated damages in respect of such shortfall under the JCP&L Power Purchase Agreement 3.6 cents per kWh of shortfall below 85% to the extent of NJEA's liquidated damages obligation to JCP&L (or a total of 5.6 cents per kWh if a part of the on-peak shortfall is below the requisite level). Aggregate liquidated damages are subject to a maximum cumulative liability of the Operator (excluding certain indemnities) of $9 million in any operating year, and $60 million over the initial term of the NJEA O&M Agreement. During any extension period, the maximum liability of the Operator under the NJEA O&M Agreement is reduced to $3 million (in 1993 dollars) in any operating year. Liquidated damages payments will be made only if the cumulative downtime in any quarter exceeds 180 hours during on-peak hours or exceeds 1044 hours during off-peak hours. Bonus Payments. In the event that the amount of energy generated by the NJEA Project during on-peak hours exceeds the guaranteed electrical output, as adjusted for certain specified excused outages and seasonal variations from standard operating conditions, NJEA has agreed to pay to the Operator a bonus for energy generated during such hours in excess of the guaranteed levels of 3.0 cents per kWh. In the event that the amount of energy generated by the NJEA Project during off-peak hours exceeds the guaranteed electrical output, as adjusted for certain specified excused outages and seasonal variations from standard operating conditions, NJEA has agreed to pay to the Operator a bonus for energy generated during such hours in excess of the guaranteed levels of 0.3 cents per kWh. By a letter agreement dated as of June 23, 1993, NJEA and the Operator agreed that NJEA would pay the Operator the aggregate sum of $7.711 million as the heat rate bonus for the initial term of the NJEA O&M Agreement, payable in installments (without interest) as follows: (i) an initial payment of $1.156 million on December 30, 1992; and (ii) the remaining $6.555 million to be paid in equal annual installments of $1.311 million each on September 30 of each of the succeeding five years, except that in the event of a refinancing of the Original Project Credit Agreement, a portion of the remaining balance of the heat rate bonus may be payable at the time of the refinancing based on the amount of the net proceeds. No payment was due to the Operator pursuant to this provision in respect of the refinancing effected by the issuance of the Project Securities. During any extension period beyond the initial term of the NJEA O&M Agreement, heat rate bonuses will be payable based upon actual heat rates in each year, subject to a maximum annual bonus of $1 million (in 1993 dollars). Bonus payments will be made if the cumulative downtime in any quarter is less than 150 hours during on-peak hours or is less than 1,044 hours during off-peak hours. During 1997 NJEA incurred an aggregate heat rate bonus of $749,142. Energy Bank. In the event that JCP&L draws against any letter of credit supporting the Energy Bank obligations under its Power Purchase Agreement solely as a result of the Operator's actions or omissions, the Operator is obligated to refund the amount of such drawing to NJEA. 51 Termination. With the concurrence of an independent engineer, NJEA has the right to terminate the NJEA O&M Agreement if: (i) the Operator is in material breach of any material provision of the NJEA O&M Agreement (however, breach of performance guarantees for which liquidated damages have been paid or remediation has been undertaken by the Operator does not constitute material breach for this purpose), and such breach has not been cured within 45 days of written notice thereof, or as soon as practicable in the event that such a cure cannot be effected within 45 days, (ii) the actual output of the NJEA Project for four consecutive quarters is less than 67% of the adjusted guaranteed output or (iii) the Operator is required in any given year to pay the $9 million maximum liquidated damages allowed by the NJEA O&M Agreement. The Operator has the right to terminate the NJEA O&M Agreement if NJEA fails to make any monthly payment, insurance reimbursement or payment in respect of refuel off-loading services when due if NJEA fails to cure such failure within 30 days of written notice thereof. Either party may terminate the NJEA O&M Agreement (but only with the concurrence of an independent engineer in the case of a termination by NJEA) if the other party is insolvent, commences bankruptcy, insolvency or reorganization proceedings or makes a general assignment for the benefit of its creditors. The NJEA O&M Agreement will terminate automatically in the event that the NJEA Project is subject to catastrophic loss of viability and the Operator makes the required payment with respect thereto as described above under "-Catastrophic Loss of Viability." After termination of the NJEA O&M Agreement by written notice from NJEA to the Operator, NJEA is entitled, in addition to its other remedies, to take possession of the NJEA Project and any spare parts located on the NJEA Site. If NJEA takes possession of the NJEA Project in this manner, the Operator will remain liable for (i) all liquidated damages accrued but unpaid at the time of such termination and (ii) for each remaining operating year following termination up to September 15, 2001, the difference between (x) the amount that would have been payable to the Operator pursuant to the NJEA O&M Agreement as NJEA O&M Fees for such year and (y) the amount payable to a replacement operator for each such operating year, provided, however, that the Operator's aggregate liability shall not exceed the lesser of (a) 30% of the aggregate amounts payable to the Operator in the year of termination or (b) $12.5 million. The Operator is to have no other liability to NJEA. Right to Suspend Performance for Loss of Qualifying Facility Status. In the event that the NJEA project is operated in a manner during any three-month period in any calendar year that would result in the loss of its QF status if such operation were to be continued for the remainder of such calendar year, and such projected loss is confirmed by an independent engineer, NJEA has agreed to take reasonable steps to ensure that operating practices will maintain such QF status. Under certain circumstances relating to a potential or actual loss of C)F status, the Operator may suspend its performance under the NJEA O&M Agreement and find a replacement operator. See "Business -- Regulation -- Energy Regulation." 52 New NEA and NJEA Operation and Maintenance Agreements Each of The Operation and Maintenance Agreements, dated as of November 21, 1997 (the "New NEA O&M Agreement" and the "New NJEA O&M Agreement"), by and between NE LP and ESI Operating Services, Inc. (the "New Operator"), provides for the operation and maintenance by the New Operator of the NEA and NJEA Projects respectively on the day following the expiration or early termination of the NEA and NJEA O&M Agreements (each, an "Operating Period Commencement Date"). Under the New NEA and NJEA O&M Agreements, the New Operator has agreed to provide currently Oversight Services (defined below) and has agreed to provide Transition Services (defined below), commencing ninety (90) days prior to the applicable Operating Period Commencement Date (each, a "Transition Services Commencement Date"). Term. The term of the New NEA and NJEA O&M Agreements extends for an initial term of eighteen (18) years until January 14, 2016, subject to extension by mutual agreement of the parties before six months preceding such expiration. Oversight Services. The New Operator has agreed to provide certain oversight services (the "Oversight Services") prior to the Operating Period Commencement Date, including (i) reviewing certain Operator reports, proposed changes in procedures, facility performance data, operating logs and records of unplanned outages and annual generation forecasts, (ii) assessing NEA and NJEA Site conditions on a quarterly basis, (iii) assessing the Operator's personnel, policies, and procedures, (iv) analyzing all proposed capital expenditures for the NEA and NJEA Project, (v) providing such technical support as reasonably requested by NE LP and (vi) monitoring the Operator's activities during major scheduled outages and major equipment overhauls. Transition Services. On the Transition Period Commencement Date and until the Operating Period Commencement Date, the New Operator has agreed to provide certain transition services consisting of the review of existing maintenance and operation records and the performance of all activities necessary to mobilize its personnel (the "Transition Services"), including without limitation (i) providing the necessary staff to operate and maintain the NEA and NJEA Projects on the Operating Period Commencement Date, including relocation of such personnel, review of personnel qualifications, recruiting and training, (ii) preparing and submitting to NE LP (a) a transition plan and budget for the orderly transition of operation and maintenance responsibilities for the NEA and NJEA Projects, (b) an initial operation and maintenance plan for the upcoming year, (c) an initial proposed budget for operating and maintaining the NEA and NJEA Projects pursuant to such plan and (d) a proposed format for monthly reports to be delivered by the New Operator following the Operating Period Commencement Date, (iii) developing the necessary programs and procedures to perform the operation and maintenance of the NEA and NJEA Projects and (iv) identifying and procuring as NE LP's agent necessary tools, equipment, goods, and other items and materials necessary to operate and maintain the NEA and NJEA Projects. 53 Operation and Maintenance Services. On and following the Operating Period Commencement Date, the New Operator has agreed to perform all activities necessary to operate and maintain the NEA and NJEA Projects (the "O&M Services"), provided that the O&M Services are not to include, and the New Operator is not to be responsible for, supplying water, natural gas, appropriate distillate fuel oil or start up electrical power for the NEA Project, securing or maintaining certain permits to be obtained by NE LP or arranging for the sale of steam or electricity, maintaining insurance other than the insurance described below, and services to be provided by NE LP, as described below. The O&M Services include without limitation, the following: (i) making available qualified labor and professional, supervisory and managerial personnel, including appointing the plant manager, (ii) maintaining the NEA and NJEA Projects in compliance with all applicable laws and permits, including the efficiency requirements set forth in 18 C.F.R. 292.205, and in accordance with Prudent Utility Practices (as defined in the New NEA O&M Agreement), with the approved annual plan, with the approved plant manual and with the Project Documents, (iii) seeking appropriate warranties, (iv) performing certain audits under the NEA and NJEA Power Purchase Agreement(s), (iv) disposing of waste products from the NEA and NJEA Projects, (v) responding to emergencies in accordance with certain requirements, (vi) performing all necessary services in connection with Unscheduled Maintenance (as defined in the New NEA and NJEA O&M Agreements) and establishing maintenance programs, (vii) performing accounting activities, (viii) preparing various reports and coordinating with NE LP and the NEA and NJEA Power Purchasers regarding operations, (ix) maintaining various records of operation and maintenance, finances, accidents and other related data, (x) procuring necessary inventory and (xi) providing certain technical support services. Owner Services. NE LP has agreed to provide certain services at its sole cost and expense during certain periods, including without limitation, the following: (i) providing the New Operator with copies of certain permits, licenses, authorizations, as-built drawings of the NEA and NJEA Projects, quarterly reports and Project Documents, (ii) providing access to the NEA and NJEA Sites and NEA and NJEA Projects, (iii) securing and maintaining all permits required for NE LP to operate the NEA and NJEA Projects, (iv) providing an operating account to pay for costs incurred by the New Operator, (v) paying all taxes relating to the NEA and NJEA Projects (except income taxes of the New Operator) and (v) taking reasonable steps to allow the NEA and NJEA Projects to meet QF standards. Compensation. NE LP has agreed to pay to the New Operator a minimum fee of $750,000 per annum for each Project, commencing on January 14, 1998, payable in monthly installments and adjusted on January 1 of each year based on the Producer Price Index for all Commodities, published by the Department of Labor, Bureau of Labor Statistics. In addition, NE LP has agreed to pay to the New Operator all properly incurred costs and expenses of performing the Transition Services and the O&M Services. 54 Termination. NE LP, may, by written notice to the New Operator, terminate the New NEA and NJEA O&M Agreements if, prior to the Operating Period Commencement Date, an independent engineer has not certified that the New Operator is capable of operating the NEA and NJEA Projects in accordance with Prudent Utility Practices. The New Operator may, by written notice to NE LP, terminate the New NEA and NJEA O&M Agreements, if NE LP fails to make a payment thereunder within 5 days after the same shall have become due. Either party may terminate the New NEA and NJEA O&M Agreements by written notice if (i) the other party defaults in the performance of any material term, covenant or obligation contained in the New NEA and NJEA O&M Agreements and does not remedy such default within 30 days after such party's receipt of the non-defaulting party's written notice thereof to such party (or as soon as possible thereafter but in any event within 180 days, if it cannot be reasonably accomplished in such 30 day period and the defaulting party has commenced all actions required to remedy such default within such 30 day period and diligently thereafter pursues the same to completion), (ii) certain bankruptcy or insolvency events as to the other party occur, (iii) the NEA or the NJEA Project is destroyed or suffers damage in excess of $100,000,000 and is not rebuilt and in commercial operation within 24 months after such damage or destruction, (iv) the NEA or the NJEA Project cannot be operated for a period of at least 18 consecutive months as a result of a force majeure event, (v) the NEA or the NJEA Project loses its QF status or (vi) NE LP determines to permanently shut down the NEA or NJEA Project. Assignment Neither party may assign or otherwise convey its rights under the New NEA and NJEA O&M Agreements, without the prior written consent of the other party (such consent not unreasonably withheld), except that NE LP has agreed to assign its rights and obligations under the New NEA O&M Agreement to NEA upon the later to occur of (i) the applicable Operating Period Commencement Date and (ii) the execution and delivery by NEA of a counterpart of the New NEA O&M Agreement to NE LP and the New Operator and except that NE LP has agreed to assign its rights and obligations under the New NJEA O&M Agreement to NJEA upon the later to occur of the (i) applicable Operating Period Commencement Date and (ii) the execution and delivery by NJEA of a counterpart of the New NJEA O&M Agreement to NE LP and the New Operator. Accommodation Agreement NEA, Chase, as agent for the Original Banks, and the NEA Power Purchasers have entered into an Accommodation Agreement dated as of June 28, 1989 (the "Accommodation Agreement") confirming the NEA Power Purchase Agreements and the declaration of easements, covenants, and restrictions giving the NEA Power Purchasers certain rights in the event that possession of the NEA Project is obtained by or transferred to a third party pursuant to an exercise of remedies under the Project Security Documents, and subordinating the rights of the NEA Power Purchasers under the NEA Second Mortgage on the NEA Project to those of the financial institutions party to the Original Project Credit Agreement (as defined herein) under the NEA Project Mortgage. In connection with the issuance of the Original Project Securities, each of the NEA Power Purchasers affirmed the Accommodation Agreement and agreed that the NEA Second Mortgage will be subordinated to the NEA Project Mortgage. In addition, the Collateral Agent has confirmed to the NEA Power Purchasers that the rights granted to the NEA Power Purchasers under the Accommodation Agreement described above, are in full force and effect with respect to the Collateral Agent, including the rights granted to the NEA Power Purchasers under the Declaration. As a result (i) if the Collateral Agent or any Project Secured Party acquires possession of the NEA Project or the NEA Site, or NEA's interest therein, pursuant to the exercise of rights or remedies under the Project Security Documents, or otherwise, then it will be required, among other things, to use reasonable efforts to perform or cause to be performed the obligations of NEA under the NEA Power Purchase Agreements subject to certain conditions, and to honor the Declaration, (ii) if the Collateral Agent or a Project Secured Party transfers the NEA Project or the NEA Site pursuant to a foreclosure sale or otherwise, it must require any prospective transferee to honor the NEA Power Purchase agreement and the declaration of easements, covenants, and restrictions and (iii) in the event of a casualty to the NEA Project, the Collateral Agent and the Project Secured Parties will allow the application of Loss Proceeds (as defined herein) to the repair or restoration of the NEA Project in accordance with certain provisions specified in the Accommodation Agreement. 55 Boston Edison Interconnection Agreement The Amended and Restated Interconnection Agreement between Boston Edison and NEA, dated September 24, 1993 (the "Boston Edison Interconnection Agreement") provides for the electrical interconnection between the NEA Project and Boston Edison's high voltage transmission line on its Right-of-Way No. 13. This interconnection is used for the delivery of electricity to Boston Edison, Montaup and Commonwealth pursuant to the NEA Power Purchase Agreements. Term. The Boston Edison Interconnection Agreement will remain in effect until the termination date of the latest to terminate of the NEA Power Purchase Agreements. Boston Edison and NEA have agreed to remain interconnected during the term of the Boston Edison Interconnection Agreement, so long as they can do so without significant service disruptions and imminent danger to life or property. An interruption of the interconnection for any of these reasons shall continue only for so long as is reasonably necessary. Operation and Maintenance. Each of NEA and Boston Edison owns and maintains the respective facilities that it has constructed pursuant to the terms of the Boston Edison Interconnection Agreement. Boston Edison and NEA have agreed to operate the interconnection in accordance with NEPOOL's rules and requirements. If NEPOOL ceases to establish such rules and requirements, the parties have agreed to operate interconnection in compliance with requirements of Boston Edison, provided that such requirements are reasonable and consistent with the NEPOOL rules and requirements previously in effect. Boston Edison has the sole right to schedule maintenance (routine or emergency) for its transmission lines and other interconnection facilities used for the NEA Project. Boston Edison has agreed to perform such maintenance and NEA has agreed to pay Boston Edison the cost thereof. NEA has sole responsibility for operating and maintaining its transmission lines and interconnection facilities at its own expense. Payment. NEA has agreed to (i) pay or reimburse Boston Edison for all engineering, design and construction costs incurred by Boston Edison in providing the electrical interconnection, including a percentage of costs attributable to indirect engineering and corporate overhead and (ii) reimburse Boston Edison for all operation and maintenance expenses and all taxes associated with Boston Edison's interconnection facilities used by the NEA Project. If at any time FERC approves a tariff of Boston Edison applicable to the interconnection services provided under the Boston Edison Interconnection Agreement, such tariff shall be used to determine payments and compensation in lieu of the payment terms contained in the agreement. 56 Fuel Management Agreements NEA and NJEA Fuel Management Agreements Each of the Fuel Management Agreements, dated as of January 20, 1998 (the "NEA Fuel Management Agreement"), by and between NE LP and ESI Northeast Fuel Management, Inc., an affiliate of ESI Energy (the "Fuel Manager"), assigned by NE LP to NEA on January 20, 1998, and the Fuel Management Agreement, dated as of January 20, 1998, effective retroactive to January 14, 1998 (the "NJEA Fuel Management Agreement" and together with the NEA Fuel Management Agreement, the "Fuel Management Agreements"), by and between NE LP and the Fuel Manager, assigned by NE LP to NJEA on January 20, 1998, provides for the management of all natural gas (and in the case of the NEA Fuel Management Agreement, fuel oil supply), transportation and storage agreements and the location and purchase of any additional required natural gas (and in the case of the NEA Fuel Management Agreement, fuel oil), by the Fuel Manager for each of the Projects. Term. The term of the NEA Fuel Management Agreement extends for twenty-five (25) years, expiring on January 14, 2023, and the term of the NJEA Fuel Management Agreement extends for twenty-five (25) years, expiring on January 14, 2023. Fuel Management Services. The Fuel Manager has agreed to provide fuel management services for the NEA Project (the "NEA Fuel Management Services") and for the NJEA Project (the "NEA Fuel Management Services"), including without limitation: (i) preparation and modification of fuel transportation, storage and supply plans, (ii) transportation scheduling, transportation balancing, transportation imbalance reconciliation, proposals and possible utilization of excess transportation capacity through scheduling and relinquishment or possible sales to third parties, compliance with pipeline operational orders, general operational and planning advice, (iii) monitoring of pipeline tariff filings and possible intervention in FERC hearings, (iv) analysis of the NEA and NJEA Projects' fuel requirements, (v) analysis of regional supply and demand, sources, transportation, delivery, supply mechanisms and the regulatory structure for natural gas (and, in the case of NEA, fuel oil), (vi) screening of proposals by natural gas and fuel oil suppliers, and if approved by NEA or NJEA, as the case may be, negotiation and obtainment of additional supply agreements with such suppliers, (vii) evaluation of price risk management proposals, and if agreed to by NEA or NJEA, as the case may be, negotiation and obtainment of such risk management arrangements, (viii) review of existing and potential transportation and storage arrangements for natural gas and fuel oil advisement to NEA and NJEA concerning such arrangements, and if approved by NEA or NJEA, as the case may be, negotiation and obtainment of such additional arrangements, (ix) advisement concerning changes in cost, reliability, interruption or other factors affecting supply of natural gas and fuel oil, advisement on alternative supply arrangements, and if agreed to by NEA or NJEA, as the case may be, the negotiation and obtainment of such alternative arrangements and (x) location and purchase of replacement gas and fuel oil or transportation services in emergency situations. Compensation. NEA has agreed to pay to the Fuel Manager a minimum management fee of $450,000 per annum for the services provided under the NEA Fuel Management Agreement (the "NEA Fuel Management Fee"), and NJEA has agreed to pay to the Fuel Manager a minimum management fee of $450,000 per annum for the services provided under the NJEA Fuel Management Agreement (the "NJEA Fuel Management Fee"), each payable in monthly installments and adjusted annually in accordance with the Producer Price Index for All Commodities, published by the Department of Labor, Bureau of Labor Statistics. In addition to the NEA and NJEA Fuel Management Fees, NEA and NJEA have agreed to pay to the Fuel Manager all properly incurred. costs and expenses of performing the NEA Fuel Management Services and NJEA Fuel Management Services, respectively. 57 Termination. NEA may, by written notice to the Fuel Manager, terminate the NEA Fuel Management Agreement, and NJEA may, by written notice to the Fuel Manager, terminate the NJEA Fuel Management Agreement, if the Fuel Manager acts, in a material way, outside the authority granted to it by NEA pursuant to the NEA Fuel Management Agreement or by NJEA pursuant to the NJEA Fuel Management Agreement. The Fuel Manager may, by written notice to NEA or NJEA, as the case may be, terminate their respective Fuel Management Agreements, if the offending party fails to make a payment thereunder within 10 days after the same shall have become due. Either party may terminate the NEA Fuel Management Agreement or the NJEA Fuel Management Agreement by written notice if (i) the other party fails, for reasons other than force majeure, to perform any of the material covenants or obligations imposed upon it under and by virtue of the NEA Fuel Management Agreement or the NJEA Fuel Management Agreement, as the case may be, and does not remedy or cure such default (and the effects thereof) within 30 days after such party's receipt of the non-defaulting party's written notice thereof (or within 90 days after receipt of such notice, in the case of defaults not susceptible of cure within 30 days, provided, however, that the defaulting party commences and diligently seeks to cure such default within such 30 day period), (ii) the applicable Project is destroyed or suffers damage in excess of $100,000,000 and is not rebuilt and in commercial operation within 24 months after such damage or destruction, (iii) the applicable Project cannot be operated for a period of at least 18 consecutive months as a result of a force majeure event, (iv) the applicable Project loses its QF status or (v) NEA or NJEA, as the case may be, determines to permanently shut down the applicable Project. Administrative Services Agreement The Administrative Services Agreement dated as of November 21, 1997 between NE LP and ESI GP (the "Administrative Services Agreement") provides for the performance by ESI GP of certain services, as summarized below, to assist the management committee of NE LP with the management and administration of NE LP and the Partnerships. Term The Administrative Services Agreement extends for a term of 20 years expiring January 14, 2018. Services ESI GP's general obligations under the Administrative Services Agreement consist of (i) leading the negotiation and administration of all contracts to which NE LP or either of the Partnerships is a party (subject to certain contracts with Affiliates of ESI GP) (ii) implementing the annual budgets of each of the Partnerships, NE LP and NE LLC, and other policies and directions provided by the Management Committee, (iii) managing the affairs of NE LP and each of the Partnerships and (iv) administering and coordinating any financing to which NE LP is a party. In the event emergency actions are required and if ESI GP is unable to consult with the Management Committee, ESI GP may make any expenditures it deems advisable to protect and safeguard life and property with respect to the Projects. 58 ESI GP is also obligated to (i) administer the Fuel Management Agreements on behalf of NE LP and the Partnerships, and monitor and supervise the Fuel Manager's compliance therewith, (ii) administer the O&M Agreements and the New O&M Agreements on behalf of NE LP and the Partnerships, and monitor and supervise the Operator's and the New Operator's compliance therewith, (iii) prepare the initial annual budgets of NE LP, NE LLC and the Partnerships for review and approval by the Management Committee, (iv) report on the receipts and expenditures of the NE LP, NE LLC and the Partnerships at each meeting of the Management Committee as of a date reasonably close to the date of the meeting and will recommend to the Management Committee any changes in the annual budgets which it considers necessary or appropriate, (v) keep or cause to be kept complete and accurate books, records and financial statements of NE LP and supporting documentation of transactions with respect to the conduct of NE LP's business and (vi) provide specified financial statements and reports to ESI GP, Tractebel GP, ESI LP and Tractebel LP. Administrative Services Fee NE LP is obligated under the contract to pay to ESI GP a fee, payable monthly, equal to $600,000 per annum (the "Administrative Services Fee"), as adjusted upwards or downwards by multiplying the Administrative Services Fee for the prior year by a fraction the numerator of which will be a producer price index reported by the Department of Labor Bureau of Labor Statistics for the immediately preceding December and the denominator of which will be such producer price index for the month of December one year earlier; provided that in no event shall the Administrative Services Fee be decreased below $600,000. Neither of the Partnerships is liable for the payment of the Administration Services Fee. Administrative Expenses NE LP is obligated under the contract to pay to ESI GP all out-of-pocket costs and expenses of performing the services under the contract. Termination NE LP may terminate the Administrative Services Agreement (i) upon thirty days' notice to ESI GP if ESI GP transfers its general partner interest in NE LP (other than to an Affiliate) or (ii) upon written notice to ESI GP if ESI GP materially defaults in the performance of any material term, covenant or obligation contained in the Administrative Services Agreement and does not remedy such default within thirty days after ESI GP's receipt of NE LP's written notice thereof to ESI GP (or within 180 days, if it cannot be reasonably accomplished in such thirty day period and ESI GP shall diligently take all appropriate actions to remedy such default as soon as commercially practicable within such thirty day period), in such case NE LP shall pay to ESI GP all amounts due and not previously paid to ESI GP for services performed in accordance with the Administrative Services Agreement through the effective date of such termination. ESI GP may, by written notice 59 to NE LP, terminate the Administrative Services Agreement if NE LP (i) fails to make any payment under the Administrative Services Agreement within 5 days after the same shall have become due or (ii) materially defaults in the performance of any material term, covenant or agreement contained therein and does not remedy such default within thirty days after NE LP's receipt of ESI GP's written notice thereof to the Partnership (or within 180 days, if it cannot be reasonably accomplished in such thirty day period and the Partnership shall have commenced all actions required to remedy such default within such thirty day period). Either party may terminate the Administrative Services Agreement by written notice to the other party (but only with the concurrence of ESI GP in the case of termination by NE LP) if (i) the other party is in bankruptcy or makes a general assignment for the benefit of creditors; (ii) proceedings are commenced or steps taken for the appointment of a receiver, custodian, liquidator, trustee or similar person with respect to all or a substantial portion of the other party's property; or (iii) any proceedings are commenced or steps taken by any creditor, regulatory agency or other person relating to the reorganization, arrangement, adjustment composition, liquidation, dissolution, winding up, custodianship or other similar relief with respect to such other party. PART II ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS This item is not applicable to ESI Tractebel Funding or the Partnerships. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This item is not applicable to ESI Tractebel Funding or the Partnerships. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected combined financial data for Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership for each of the five years in the period ended December 31, 1997. The selected combined financial data for these years have been derived from the Partnerships' audited combined financial statements. This data should be read in conjunction with "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 60
Years Ended December 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- (In thousands) STATEMENT OF OPERATIONS DATA: Revenues: Power sales to utilities(1) $234,142 $234,933 $276,022 $267,789 $307,530 Steam sales 4,684 3,779 4,527 4,473 4,624 -------- -------- -------- -------- -------- Total revenues $238,826 $238,712 $280,549 $272,262 $312,154 -------- -------- -------- -------- -------- Costs and expenses: Costs of power and steam 132,580 128,402 132,839 138,727 151,476 Operation and maintenance 20,283 20,808 24,699 22,854 25,689 Depreciation 24,919 24,314 24,904 24,978 24,992 General and administrative 14,162 11,012 12,010 14,424 15,984 -------- -------- -------- -------- -------- Total operating costs and expenses 191,944 184,536 194,452 200,983 218,141 -------- -------- -------- -------- -------- Operating income 46,882 54,176 86,097 71,279 94,013 Other (income) expense: Amortization of financing costs 2,599 2,333 2,305 2,373 2,163 Interest expense 38,992 38,068 50,930 49,841 47,673 Interest expense on energy bank balance(1) 7,252 11,676 16,657 19,675 17,435 Interest income (700) (1,656) (10,652) (10,534) (9,931) Expense related to future obligations under interest rate swap agreements -- 6,734 -- -- -- -------- -------- -------- -------- -------- Total other expense 48,143 57,155 59,240 61,355 57,340 -------- -------- -------- -------- -------- (Loss) income before extraordinary item (1,261) (2,979) 26,857 9,924 36,673 Extraordinary item Loss on extinguishment of debt(3) -- 13,937 -- -- -- -------- -------- -------- -------- -------- Net (loss) income $ (1,261) $(16,916) $ 26,857 $ 9,924 $ 36,673 ======== ======== ======== ======== ======== December 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- (In thousands) BALANCE SHEET DATA: Working capital $ 19,754 $ 74,145 $ 71,975 $ 58,846 $ 63,715 Total assets 546,484 650,027 617,034 566,392 541,431 Total loans payable(2)(5) 465,458 560,000 539,566 514,362 490,287 Energy Bank balances(4) 111,398 155,496 188,053 220,922 230,565 Partners' deficit (48,540) (92,928) (130,577) (187,479) (197,186)
- ------------------------- (1) Power sales to utilities are net of change in Energy Bank principal balance. Energy Bank principal balances represent cumulative payments made to the Partnerships by Power Purchasers under certain Power Purchase Agreements in excess of rates scheduled or specified in such agreements. Under the terms of these agreements, such excess constitutes a liability of the applicable Partnership to the applicable Power Purchaser, which will be reduced by subsequent sales of electric power to such Power Purchaser to the extent in later periods that the scheduled or specified rate has risen above the contract rate, and must be repaid under certain circumstances in cash. (2) On December 1, 1994, the Partnerships refinanced their existing borrowings by means of a placement of securities to institutional investors as defined in Rule 144A of the Securities Act of 1933, as described in Note 5 of Notes to Combined Financial Statements. (3) In connection with the refinancing, total unamortized financing costs related to the Project Loan and Credit Agreement were written off during 1994, as described in Note 5 of Notes to Combined Financial Statements. (4) Energy Bank principal balances plus accrued interest thereon. (5) Loans payable balances at December 31, 1994, 1995, 1996 and 1997 represent loans payable to ESI Tractebel Funding Corp. ESI Tractebel Funding Corp., formerly known as IEC Funding Corp., is a Delaware corporation established in 1994 for the purpose of issuing debt securities for the financing of the Partnerships. 61 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Combined Financial Statements of the Partnerships and the notes thereto included elsewhere herein. General The Partnerships commenced commercial operations in the second half of 1991. The Partnerships' consolidated revenues are derived from, and costs are incurred in connection with, the generation and sale of electricity and, to a much lesser extent, the production and sale of thermal energy (steam). Revenue from sales of electricity is recognized based on electricity delivered at rates stipulated in the Power Purchase Agreements, except that revenue recognition is deferred to the extent that such rates are in excess of rates scheduled or specified in such agreements above which payment is subject to recovery by certain of the Power Purchasers under certain circumstances. The portion subject to deferred revenue recognition, which is referred to as the "Energy Bank," is recorded as a liability of the applicable Partnership for financial statement purposes. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase Agreements." The capitalized costs of the Projects include initial acquisition costs, increased by subsequent development and construction costs, including test period operations, construction management fees and interest during construction. The capitalization period ceased when construction of each Project was complete and satisfactorily tested. Capitalized costs are depreciated over the estimated useful life of each Project. Costs incurred during the development and construction period that were not directly related and incremental to project development and construction were expensed in the period incurred. The Acquisitions The Partners acquired all of the partnership interests in each of the Partnerships on January 14, 1998, pursuant to the Purchase Agreement. In connection with the acquisition of all of the partnership interests in the Partnerships, ESI Funding and Tractebel Power each acquired a thirty-seven and one-half percent (37.5%) interest in ESI Tractebel Funding. The Partners paid the purchase price for all of the partnership interests in the Partnerships and for seventy-five percent (75%) of the outstanding shares of capital stock in ESI Tractebel Funding from contributions made by each of ESI GP, Tractebel GP, ESI LP and Tractebel LP, the partners of NE LP. The Acquisitions will be accounted for under the purchase method; accordingly, the carrying value of the assets acquired and liabilities assumed of the Partnerships will be adjusted based upon the final purchase price allocation, including an allocation to above-market power purchase contracts. Results of Operations The following table sets forth the combined results of the Partnerships' operations and the percentage of gross operating revenues and receipts represented by certain components of operating costs and income for the three years ended December 31, 1997. 62 Years Ended December 31, ----------------------------------------------------- 1995 1996 1997 ---- ---- ---- Gross operating revenues and receipts(1)........... $296,449 100% $285,456 100% $304,363 100% Operating costs......... 157,538 53% 161,581 57% 177,165 58% Depreciation............ 24,904 8% 24,978 9% 24,992 8% General and administrative........ 12,010 4% 14,424 5% 15,984 5% -------- -------- -------- Operating income plus Energy Bank accruals(1)........... 101,997 34% 84,473 30% 86,222 29% -------- -------- -------- Amortization of financing costs...... 2,305 1% 2,373 1% 2,163 1% Interest expense(2).... 50,930 17% 49,841 17% 47,673 16% Interest income........ (10,652) (4%) (10,534) (4%) (9,931) (3%) -------- ------- -------- Net income (loss) plus Energy Bank accruals and interest thereon..... $ 59,414 $42,793 $46,317 ======== ======= ======= - ---------- (1) Gross operating revenue and receipts represents total revenues plus (less), as applicable, annual change in Energy Bank principal balances. (2) Interest expense excludes interest on Energy Bank principal balances. Calendar Year 1997 Compared to Calendar Year 1996 Gross Operating Revenue and Receipts. Gross operating revenue and receipts for the year ended December 31, 1997 of $304.4 million increased by $18.9 million (6.6%) as compared to the year ended December 31, 1996. This increase was primarily due to higher generation and increased prices. The increase in generation was primarily a result of no scheduled major maintenance outages at the NEA Project (during the second quarter of 1996 a major inspection and maintenance program, scheduled at five year intervals, was conducted at the NEA Project) and fewer curtailment hours requested by JCP&L. Operating Costs. Cost of power and steam sales was $151.5 million, or 49.8% of gross operating revenue and receipts for the year ended December 31, 1997 as compared to $138.7 million, or 48.6% of gross operating revenues and receipts for the year ended December 31, 1996. The increased cost is primarily due to price increases under a fuel supply contract that services both facilities. Partially offsetting the increase in natural gas prices was a reduction in extended gas services rights exercised by a NJEA fuel supplier during the first quarter of 1997 as compared to 1996. Operation and maintenance (O&M) costs increased $2.8 million (12.4%) as compared to the same period in 1996. The primary cause of the increased cost was the performance bonus (which is directly related to higher generation) payable to the Operator under the NEA O&M Agreement. Escalation of the O&M Agreement of approximately 4% also contributed to the increased costs. General and Administrative Expenses. General and administrative expenses for the year ended December 31, 1997 increased $1.6 million or 11% as compared to the year ended December 31, 1996. The primary cause for this increase was the write-off of approximately $1.5 million in accounts receivable. Other increases included annual escalation of management fees as well as increased consulting and overhead costs. 63 Interest Expenses and Interest Income. Interest expense for the year ended December 31, 1997 decreased $2.1 million, or 4.3% as compared to the year ended December 31, 1996. Interest on debt decreased as a result of declining principal balances. During 1997, the Partnerships' average amount of debt outstanding was $508.3 million at an average rate of 9.31%. During 1996, the Partnerships' average amount of debt outstanding was $533.3 million at an average rate of 9.26%. These decreases were a result of changes in the underlying amounts accrued for Energy Bank balances. Interest income during 1997 totaled approximately $9.9 million as compared to approximately $10.5 million in 1996, decreasing $.6 million. As discussed below, interest income is expected to decrease materially beginning in 1998. Calendar Year 1996 Compared to Calendar Year 1995 Gross Operating Revenues and Receipts. Gross operating revenues and receipts for the year ended December 31, 1996 of $285.5 million decreased by $11.0 million (3.7%) as compared to the year ended December 31, 1995. This decrease was primarily due to lower availability as a result of scheduled maintenance outages. Availability was approximately 91% in 1996 versus approximately 95% in 1995. During the second quarter of 1996 a major inspection and maintenance program (scheduled at five-year intervals) took place at the NEA Project. During the fourth quarter of 1996 a scheduled overhaul and inspection took place at the NJEA Project. Power purchase rates, on a combined basis, increased slightly over the prior year. Operating Costs. Cost of power and steam sales was $138.7 million, or 48.6% of gross operating revenues and receipts for the year ended December 31, 1996 as compared to $132.8 million, or 44.8% of gross operating revenues and receipts in the prior year. The increased costs were primarily attributable to increases in fuel costs, including higher market prices of Spot Gas and additional charges applicable under NJEA's extended gas service arrangement with a fuel supplier. Extended gas service occurs when temperatures are below 22 degrees F. There were sixteen such days during the first quarter of 1996 compared with four days in the first quarter of 1995. A portion of these increases was offset by gains on natural gas swap agreements (which were entered into in an attempt to limit exposure to market price fluctuations). Operation and maintenance expenses in 1996 decreased by $1.8 million (7.5%) as compared to 1995. This decrease was a result of a lower performance bonus payable to the Operator in 1996 as a result of scheduled maintenance outages and a 1995 water franchise fee. Offsetting these cost decreases were normal and expected escalations under the O&M Agreements. General and Administrative Expenses. General and administrative expenses in 1996 increased by $2.4 million (20.1%) as compared to 1995. The increase was primarily due to increased management costs, insurance premiums and legal and consulting costs related to potential industry restructuring. Interest Expense and Interest Income. Interest expense for the year ended December 31, 1996 decreased by $1.1 million (2.1%) as compared to the year ended December 31, 1995. During 1995, the Partnerships' average amount of debt outstanding was $554.9 million at an average rate of 9.23%. During 1996, the Partnerships' average amount of debt outstanding was $533.3 million at an average rate of 9.26%. Interest income in 1996 totaled $10.5 million as compared to $10.7 million in 1995. This decrease was primarily a result of reduced cash collateral being held in support of letters of credit. 64 Year 2000 The Partnerships are working to resolve the potential impact of the year 2000 on the processing of information by its computer systems. An assessment of identified software, including vendor-supplied software, has been completed and work has begun to make the necessary modifications. The estimated cost of addressing year 2000 issues in software applications is not expected to have a material adverse effect on the Partnership's financial statements. The Partnerships continue to assess the potential financial and operational impacts of computerized processes embedded in operating equipment. Liquidity and Capital Resources To date, the Partnerships have obtained cash from their operations and from proceeds of nonrecourse project financing. The Partnerships have utilized this cash to develop and construct the Projects and the Carbon Dioxide Plant, service debt obligations, fund operations and fund distributions to partners. As of December 31, 1997, the Partnerships' cash and cash equivalents totaled approximately $61.2 million, as compared to $49.9 million at December 31, 1996. The increase in cash and cash equivalents was the net effect of $82.2 million provided by operations, offset by investing and financing activities including debt principal payments of $24.1 million and $46.4 million in distributions to partners. As of December 31, 1997, there were no outstanding loans under the Sanwa Working Capital Facility. NE LP terminated the Sanwa Working Capital Facility and the Sanwa Credit Agreement in February 1998. NE LP does not anticipate the need to arrange for a new Working Capital Facility. Debt Service Reserve Requirements were fully funded as of December 31, 1997. Non-operating income for periods prior to the Acquisitions included investment income received from the Cash Collateral Proceeds that secured the Partnerships' obligations to Sanwa Bank under the Sanwa Credit Agreement and investment income received from investments in the Debt Service Reserve Fund held by the Project Trustee. As permitted under the Project Indenture, NE LP in January 1998, arranged for the release of, and distributed to the Partners, cash in the amount of $33,270,000 from the Debt Service Reserve Fund following the issuance of Substitute Letters of Credit by BankBoston and Bank Brussels Lambert. In February 1998, NE LP also arranged for the release of cash in the amount of $69,156,000, constituting the Cash Collateral Proceeds, following the issuance of the FPL Group Capital Guaranty. Such cash was distributed to the Partners upon its release. As a result, NE LP expects that the Partnerships' investment income will be materially reduced in future years. 65 Working Capital Facility. The Project Indenture permits the Partnerships to enter into revolving credit arrangements from time to time with financial institutions with maximum available borrowings of up to $20 million to provide for the working capital requirements of the Partnerships (the "Working Capital Facility"). Pursuant to the Sanwa Credit Agreement, the Partnerships entered into the Sanwa Working Capital Facility, which provided for maximum available borrowings of up to $15 million subject to a borrowing base calculated based on outstanding receivables and fuel. The Sellers have advised NE LP that the Working Capital Facility has never been utilized. In February 1998, NE LP terminated the Working Capital Facility and the Sanwa Credit Agreement and does not anticipate the need to arrange for a new Working Capital Facility. Project Letter of Credit Facility. The Partnerships are required by the terms of certain of the Power Purchase Agreements to provide the letters of credit to the Power Purchasers thereunder to support the Partnerships' Energy Bank Obligations. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase Agreements." Under the Project Indenture, the Partnerships have agreed to provide such Energy Bank Letters of Credit and to secure the Partnerships' obligations to reimburse the Project Letter of Credit Banks with cash collateral, one or more back-up letters of credit (each a "Back-up Letter of Credit") and/or a FPL Group Capital Guaranty. In addition, the Partnerships may require letters of credit for certain other purposes in the ordinary course of business. Pursuant to the Sanwa Credit Agreement, Sanwa Bank delivered the Project Letters of Credit in an aggregate amount up to $82,000,000 for the purpose of supporting the Partnerships' Energy Bank Obligations and for certain other purposes. The aggregate amount of Energy Bank Letters of Credit issued and outstanding as of December 31, 1997 was $67,656,000. In February 1998, NE LP arranged for the delivery of letters of credit of BankBoston and NationsBank in face amounts of $12.656 million and $54.0 million, respectively, in substitution for the letters of credit of Sanwa Bank and terminated the Sanwa Credit Agreement and the Sanwa Letters of Credit. Swaps. In connection with the initial variable-rate financing of the Projects under the Original Project Credit Agreement, the Partnerships entered into certain interest rate swap agreements (the "Swaps") with certain financial institutions (the "Swap Banks"), providing for payments thereunder on a notional principal amount of indebtedness to be made by the Partnerships at fixed interest rates in exchange for payments to be made by the Swap Banks at floating interest rates. Such Swaps remained in effect after the issuance of the fixed-rate Project Securities. In connection with the issuance of the Project Securities, the Partnerships entered into counter swap agreements to hedge the obligations of the Partnerships under such existing Swaps. As a result of the foregoing arrangements, after giving effect to the net payments to be made and received by the Partnerships pursuant to all of the Swaps (including the counter swaps), the Partnerships' net payments are equivalent to a fixed net interest rate of approximately 1.5% on the specified notional principal amount, which is scheduled to decline periodically until the scheduled expiration of the Swaps in 1999. After giving effect to the counter swaps, the Partnerships' net payments under the Swaps will total approximately $718,275 in 1998 and approximately $195,535 in 1999 (the scheduled year of termination of the Swaps). The following table sets forth the notional principal amount and related fair value of the Swaps as of the dates shown together with the additional interest incurred for the years ended December 31, 1995, 1996 and 1997. 66
December 31, 1995 December 31, 1996 December 31, 1997 ----------------- ----------------- ----------------- Notional Amount............ $27,596,000 $20,335,000 $12,940,000 Fair value (liability)(1).. $(3,654,000) $(2,022,000) $ (889,000) Net Effect of Swaps on Interest Expense(2)...... $ (486,000) $ 137,000 $ 103,000
- ---------- (1) The estimated fair value of each existing Swap is the estimated amount that the applicable Swap Bank would receive to terminate such Swap at the respective dates, taking into account current interest rates and the current creditworthiness of the Swap counter-parties. (2) Represents the net effect of the Swaps on the interest expenses in the statement of operations. The interest expense on the Swaps is reduced by the change in the fair value of the Swaps. Natural Gas Hedging Instruments Approximately 20% of the fuel supply for the Projects must be provided from sources other than the Long-term Gas Arrangements. To mitigate the price risk associated with spot purchases of natural gas, the Partnerships may, from time to time, enter into certain hedging transactions either through public exchanges such as the NYMEX, or by means of over-the-counter transactions with specific counterparties pursuant to the Fuel Management Agreements or otherwise. These hedging transactions include (a) natural gas call options that give the Partnerships the right, but not the obligation, to purchase specified quantities of natural gas at a predetermined price, (b) gas purchase swap agreements that require the Partnerships to pay a fixed price in return for a variable price on a notional specified quantity of natural gas, and (c) forward purchases of natural gas. The effect of these transactions is to fix the price of natural gas purchases made on the open market and, as such, these transactions have not had a material effect on total fuel costs. Industry Deregulation On November 25, 1997, the Massachusetts legislature passed a comprehensive electric deregulation bill, the purpose of which is to establish a comprehensive framework for the restructuring of the electric utility industry. Additionally, industry restructuring efforts are also underway in New Jersey. While the Partnerships do not expect electric utility industry restructuring to result in material adverse changes to the Partnerships' Power Purchase Agreements, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. See "Business - Regulation - Utility Industry Restructuring." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The combined financial statements of the Partnerships and the financial statements of ESI Tractebel Funding are filed as part of this Form 10-K and are set forth on pages F-1 to F-28. 67 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Directors and Executive Officers Until January 14, 1998 Directors and Executive Officers of IEC All management functions of the Partnerships are the responsibility of IEC. The following table sets forth the names, ages and positions of the directors and executive officers of IEC and their positions with IEC. NAME AGE POSITION ---- --- -------- Stephen B. Roy 51 President and Director Peter A. Roy 47 Executive Vice President and Director Jane L. Roy 42 Executive Vice President, Treasurer, Chief Financial Officer and Director Ellen S. Roy 38 Senior Vice President, Clerk and Director Luciano Lauretti 35 Senior Vice President Maureen P. Herbert 39 Vice President George Briden 45 Vice President Bruce A. Herzfelder 38 Senior Vice President Leah Taylor Roy 37 Vice President James Blakey 45 Vice President and General Counsel Stephen R. Pritchard 40 Vice President Stephen B. Roy has been President of IEC since it was formed in March, 1986. From 1973 to 1986, he held construction and management positions in various predecessor companies and, among other things, was responsible for work on the Doha West Power Station in Kuwait. He holds a B.A. degree from Harvard University and an M.B.A. degree from Harvard Business School. Peter A. Roy has been an Executive Vice President of IEC since it was formed in March, 1986. From 1974 to 1986, he held several positions in various predecessor companies, where he was responsible for marketing and daily operations. He attended Harvard University from 1971 to 1974. Jane L. Roy has been Vice President, Chief Financial Officer and Treasurer of IEC since it was formed in March, 1986. In 1992 she became an Executive Vice President. From 1984 to 1986, Ms. Roy worked for The Chase Manhattan Bank, N.A. where she was an Assistant Treasurer. She holds a B.A. degree from Harvard University and an M.P.A. degree from Harvard University's John F. Kennedy School of Government. 68 Ellen S. Roy has been a Vice President of IEC since it was formed in March, 1986 and is responsible for managing government relations. In 1996 she became a Senior Vice President. Prior to joining IEC, Ms. Roy worked at Prudential Venture Capital, Inc. She holds a B.A. degree from Harvard University, an M.P.P. degree from Harvard University's John F. Kennedy School of Government and an M.B.A. degree from Massachusetts Institute of Technology. Luciano Lauretti has been a Vice President of IEC since 1990. In 1996 he became a Senior Vice President. From 1989 to 1990, Mr. Lauretti was an officer in Corporate Finance at Manufacturers Hanover Trust Company. Prior to 1988 he was an associate in corporate lending for The Chase Manhattan Bank, N.A. He holds a B.A. degree in Economics from Universidade de Sao Paulo and an M.B.A. degree from Columbia University. Maureen P. Herbert joined IEC in 1987 and served as Controller until 1991, at which time she became Vice President of Finance. Prior to joining IEC, Ms. Herbert was a senior consultant at Price Waterhouse. Ms. Herbert is a Certified Public Accountant and holds a B.S. degree in accounting and finance from Northeastern University. George Briden joined IEC in 1990 and served as Fuel Supply Manager until 1991, at which time he became a Vice President of Fuel Supply. From 1989 to 1990, Mr. Briden was employed by Equitrans, Inc., where he directed gas supply acquisitions. He holds a B.A. degree in economics from Michigan State University and a Ph.D. degree in economics from Brown University. Bruce A. Herzfelder has been a Vice President of IEC since 1991. In 1996 he became a Senior Vice President. From 1988 to 1991, he was an associate at the New York law firm of Davis, Polk & Wardwell. Prior to that, he clerked for a judge on the U.S. Court of Appeals. He holds a B.A. degree from Harvard University and a J.D. and an M.B.S. degree from the University of Chicago. He is a member of the bar in Massachusetts and New York. Leah Taylor Roy has been a Vice President of IEC since 1992. From 1986 to 1992, Ms. Roy was a consultant at McKinsey & Company. Ms. Roy holds a B.C. degree from the University of Toronto and an M.P.P. degree from Harvard University's John F. Kennedy School of Government. James Blakey joined IEC in 1992 and served as Corporate Counsel until 1995, at which time he became Vice President and General Counsel. From 1976 to 1992, Mr. Blakey was associated with the New York law firm of Kronish, Lieb, Weiner & Hellman, becoming a partner in 1987. Mr. Blakey holds an A.B. degree from Dartmouth College and a J.D. degree from Boston University. He is a member of the bar in Massachusetts, New York and Connecticut. Stephen R. Pritchard joined IEC in 1994 and served as Operations Manager until 1995, at which time he became Vice President of Operations. From 1981 to 1994, Mr. Pritchard held several responsible positions for the design, operations and maintenance of fossil power plants at Baltimore Gas and Electric Company. Mr. Pritchard holds a B.S. - Mechanical Engineering degree from Northeastern University and an M.B.A. degree from Loyola College. He is a registered Professional Engineer in the State of Maryland. 69 Directors are elected annually and each elected director holds office until a successor is elected. The Board of Directors consists of three persons: Stephen B. Roy, Peter A. Roy and Ellen S. Roy. Officers are chosen from time to time by vote of the Board of Directors. Certain Relationships. Stephen, Peter, Jane and Ellen Roy are siblings. Peter, Jane and Ellen Roy are married, respectively, to Leah Taylor Roy, Luciano Lauretti and Bruce Herzfelder. Directors and Executive Officers of IEC Funding Corp. The following table sets forth the names, ages and positions of the directors and executive officers of IEC Funding Corp. and their positions with IEC Funding Corp. Directors are elected annually and each elected director holds office until a successor is elected. Officers are chosen from time to time by vote of the Board of Directors. NAME AGE POSITION ---- --- -------- Stephen B. Roy 51 President, Assistant Treasurer, Assistant Secretary and Director Ellen S. Roy 38 Vice President, Secretary, Assistant Treasurer and Director Jane L. Roy 42 Vice President, Treasurer, Assistant Secretary and Director Peter A. Roy 47 Vice President, Assistant Secretary and Assistant Treasurer Maureen P. Herbert 39 Vice President James Blakey 45 Vice President and General Counsel For biographical information on each of the above listed persons, see "Management -- Directors and Executive Officers of IEC. Directors and Executive Officers Since January 14, 1998 All management functions of ESI Tractebel Funding and the Partnerships are the responsibility of NE LP. Pursuant to the NE LP Partnership Agreement, such functions are performed by the Management Committee of NE LP. The following table lists the names and ages of the members of the Management Committee of NE LP. Name Age Affiliation ---- --- ----------- Glenn E. Smith 40 FPL Energy Kenneth P. Hoffman 46 FPL Energy Timothy R. Dunne 46 Tractebel Power Paul J. Cavicchi 45 Tractebel Power 70 Glenn E. Smith was appointed to the NE LP Management Committee by ESI GP in November, 1997. Mr. Smith joined ESI Energy in June 1997 as its Vice President of Project Development and is currently a Vice President of FPL Energy. From May 1995 until joining ESI Energy, Mr. Smith was the Director of Business Development of Nations Energy Corporation where he directed Greenfield project development and investment in operating energy assets. From August 1992 until May 1995, Mr. Smith was Vice President of BOT Financial Corp. He holds a B.S. degree from Pennsylvania State University. Kenneth P. Hoffman was appointed to the NE LP Management Committee by ESI GP in November, 1997. Mr. Hoffman joined ESI Energy in June 1989, and since 1993 has been the Vice President of Business Management. Mr. Hoffman is currently a Vice President of FPL Energy. Prior to joining ESI Energy , Mr. Hoffman was employed by FPL. Mr. Hoffman holds an M.B.A. degree from Florida International University and a B.S. degree from Rochester Institute of Technology. Timothy R. Dunne was appointed to the NE LP Management Committee by Tractebel GP in November, 1997. Mr. Dunne has been the Senior Vice President, General Counsel and Secretary of Tractebel Power since 1995. In such capacity, Mr. Dunne manages all of the legal services required by Tractebel Power and its affiliates. Prior to joining Tractebel Power in 1990, Mr. Dunne acted as in-house counsel for two major U.S. engineering and construction companies. He holds a J.D. degree from the University of Toledo and M.S. and B.S. degrees from the University of Notre Dame. Paul J. Cavicchi was appointed to the NE LP Management Committee by Tractebel GP in November, 1997. Mr. Cavicchi has been an Executive Vice President of Tractebel Power since 1995. In such capacity, Mr. Cavicchi supervises and directs business development for energy asset investments in North America. Prior to joining Tractebel Power in 1995, Mr. Cavicchi served as a General Manager for American Tractebel, Inc., an affiliate of Tractebel Power. He holds an M.B.A. degree from the University of Virginia, an M.S. degree from the University of Massachusetts and a B.S. degree from Tufts University. Pursuant to the Administrative Services Agreement, ESI GP has agreed to perform services on behalf of NE LP in connection with the management of NE LP, the Partnerships, and ESI Tractebel Funding. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Administrative Services Agreement." ITEM 11. EXECUTIVE COMPENSATION None of the executive officers or directors of ESI Tractebel Funding received any compensation for his or her services during 1997. The members of the Management Committee of NE LP are not entitled to any direct compensation from ESI Tractebel Funding or the Partnerships. The directors and executive officers of IEC were compensated by IEC and were not entitled to any direct compensation from the Partnerships. IEC was paid a management fee by the Partnerships and NE LP is to be paid a management fee by the Partnerships, as described under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Management Costs." 71 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of March 25, 1998, the direct and indirect partnership interests in the Partnerships.
Name and Address of Nature of Title of Class Beneficial Owner Beneficial Ownership Percentage Interest - -------------- ---------------- -------------------- ------------------- General and Limited Northeast Energy LP(1)(2) General Partner 98%LP Partnership Interest 1%GP Limited Partnership Northeast Energy LLC(1)(2) Limited Partner 1%LP Interest General Partnership ESI GP(1)(2) General Partner in 1%GP Interest Northeast Energy LP General Partnership Tractebel GP(3)(4) General Partner in 1%GP Interest Northeast Energy LP Limited Partnership ESI LP(1)(2) Limited Partner in 49%LP Interest Northeast Energy LP Limited Partnership Tracebel LP(3)(4) Limited Partner in 49%LP Interest Northeast Energy LP
- ---------- (1) The address for each of Northeast Energy LP, Northeast Energy LLC, ESI GP and ESI LP is c/o FPL Energy, Inc., 11760 US Highway 1, Suite 600, North Palm Beach, Florida 33408. (2) ESI GP and ESI LP are wholly-owned, direct subsidiaries of ESI Energy. ESI Energy is a wholly-owned, indirect subsidiary of FPL Group, Inc. (3) The address for each of Tractebel GP and Tractebel LP is c/o Tractebel Power, Inc., 1177 West Loop South, Suite 900, Houston, Texas 77027. (4) Tractebel GP and Tractebel LP are wholly-owned, direct subsidiaries of Tractebel Power. Tractebel Power is a wholly-owned, indirect subsidiary of Tractebel, S.A. The following table sets forth as of March 25, 1998, the number of shares and percentage owned of ESI Tractebel Funding's voting securities beneficially owned by each Person known by ESI Tractebel Funding to be the beneficial owner of more than five percent (5%) of ESI Tractebel Funding's voting securities.
Name and Address of Amount and Nature of Title of Class Beneficial Owner Beneficial Ownership Percent of Class - -------------- ---------------- -------------------- ---------------- Common Stock ESI Northeast Energy 3,750 37.5% Funding, Inc.(1) Common Stock Tractebel Power, 3,750 37.5% Inc.(1) Common Stock Broad Street 2,500 25.0% Contract Services, Inc.(2)
- ---------- (1) The address for ESI Northeast Energy Funding, Inc. is c/o FPL Energy, Inc., 11760 US Highway 1, Suite 600, North Palm Beach, Florida 33408 and the address for Tractebel Power, Inc. is 1177 West Loop South, Suite 900, Houston, Texas 77027. (2) Broad Street Contract Services, Inc. is located at Two Wall Street, New York, New York 10005 and is the nominee for the Project Trustee for the purpose of providing an independent director. 72 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Management Costs The Partnerships made direct or indirect payments to IEC and the Sponsor Members (excluding ratable distributions by the Partnerships to their Partners) aggregating approximately $6,480,000 during the year ended December 31, 1995, $8,719,000 during the year ended December 31, 1996 and $8,655,000 during the year ended December 31, 1997. Fees payable by the Partnerships to NE LP are limited to the Management Costs permitted under the Project Indenture, which consists of four components: (i) out-of-pocket costs payable to third parties (including allocated rent and independent legal, consulting and accounting fees and expenses), (ii) general administrative expenses allocable to the Projects, (iii) compensation (including salary and related benefits) of individuals and (iv) for each calendar year, an amount equal to $3,500,000, $1,500,000 of which is the Subordinated Management Fee (each such amount inflated annually in accordance with the Project Indenture). All costs identified in clauses (i), (ii) and (iii) may be included as part of the Management Costs and paid from Project Revenues only to the extent such costs are certified by the Partnerships as being reasonably allocable to the Projects. The amounts described in clause (iv) for the year ending December 31, 1997 and 1996 were approximately $3,758,000 and $3,688,000, respectively, and are subject to escalation as set forth in the Project Indenture. Administrative Services Fee As compensation to ESI GP for the services it performs pursuant to the Administrative Services Agreement, NE LP has agreed to pay to ESI GP a fee, payable monthly, equal to $600,000 per annum, adjusted annually based on a producer price index (the "Administrative Services Fee"), provided that in no event is the Administrative Services fee to be decreased below $600,000. Neither of the Partnerships is liable for the Administrative Services Fee. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Administrative Services Agreement." New O&M Fees The New Operator, an Affiliate of NE LP, currently is providing certain oversight and transition services for the Projects and will provide operation and maintenance services for the Projects following the expiration or early termination of the O&M Agreements, pursuant to each of the New O&M Agreements. As compensation for such services, NE LP has agreed under each of the New O&M Agreements to pay to the New Operator a fee of $750,000 per annum ($1,500,000 per annum in the aggregate), payable monthly and adjusted annually based on a producer price index (the "New O&M Fees"). In addition, NE LP has agreed to pay to the New Operator all properly incurred costs and expenses of performing the transition services and the operation and maintenance services. NE LP expects that combined operations and maintenance costs for both Projects will be reduced by approximately $6.5 million per year after 2001, when the O&M Agreements for the Projects expire. Neither of the Partnerships is liable for the New O&M Fees prior to the applicable Operating Period Commencement Date. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- New O&M Agreements." 73 Fuel Management Fees The Fuel Manager, an affiliate of FPL Energy, currently is providing certain fuel management services for the Projects, pursuant to each of the Fuel Management Agreements. As compensation for such services, each of NEA and NJEA has agreed to pay to the Fuel Manager a fee under the NEA Fuel Management Agreement and the NJEA Fuel Management Agreement, respectively, of $450,000 per annum, payable monthly and adjusted annually based on a producer price index (the "NEA Fuel Management Fee" and the "NJEA Fuel Management Fee," respectively), provided that neither of such Fuel Management Fees is to be decreased below $450,000. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Fuel Management Agreements." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership Report of Independent Accountants Combined Balance Sheet at December 31, 1996 and 1997 Combined Statement of Operations for the years ended December 31, 1995, 1996 and 1997 Combined Statement of Partners' Deficit for the years ended December 31, 1995, 1996 and 1997 Combined Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997 Notes to Combined Financial Statements ESI Tractebel Funding Corp. Report of Independent Accountants Balance Sheet at December 31, 1996 and 1997 Statement of Operations for the years ended December 31, 1995, 1996 and 1997 Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997 Notes to Financial Statements 74 2. Financial Statement Schedules Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. 3. Exhibits Exhibit No. Description ----------- ----------- 3.1* Certificate of Incorporation of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) 3.1.1 Certificate of Amendment of Certificate of Incorporation of IEC Funding Corp as filed with the Secretary of State of the State of Delaware on February 3, 1998 3.2 By-laws of ESI Tractebel Funding Corp. 3.3 Amended and Restated Certificate of Limited Partnership of Northeast Energy Associates, A Limited Partnership, as filed with the Secretary of State of the Commonwealth of Massachusetts on March 31, 1986, as amended and restated on January 9, 1987 and November 6, 1987, as further amended on July 6, 1989 and as amended and restated on February 16, 1998 3.4 Amended and Restated Certificate of Limited Partnership of North Jersey Energy Associates, A Limited Partnership, as filed with the Secretary of State of the State of New Jersey on November 3, 1986, as amended and restated on January 14, 1987, June 25, 1987, March 4, 1988 and February 16, 1998 3.5* Certificate of Incorporation of Intercontinental Energy Corporation, a Massachusetts corporation ("IEC"), the sole general partner of the Partnerships (the "General Partner") 3.6* By-laws of the General Partner 3.7 Amended and Restated Agreement of Limited Partnership of Northeast Energy Associates, A Limited Partnership, dated as of November 21, 1997 3.8 Amended and Restated Agreement of Limited Partnership of North Jersey Energy Associates, A Limited Partnership, dated as of November 21, 1997 3.9 Certificate of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, as filed with the Secretary of State of the State of Delaware on November 21, 1997 75 3.10 Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, dated as of November 21, 1997 4.1* Trust Indenture dated as of November 15, 1994, among the Partnerships, IEC Funding and State Street Bank and Trust Company, a Massachusetts banking corporation, as trustee (the "Trustee") 4.2* First Supplemental Indenture dated as of November 15, 1994, among the Partnerships, IEC Funding and the Trustee, including forms of the Securities 4.3* Credit Agreement dated as of December 1, 1994, among the Partnerships, each of the financial institutions referred to therein as a "Bank" (and collectively referred to as the "Banks") and Sanwa Bank Limited, New York Branch ("Sanwa"), as issuing bank (in such capacity, the "Issuing Bank") and as agent for the Banks and the Issuing Bank (in such capacity, the "Agent") 4.4* Collateral Agency Agreement dated as of December 1, 1994 (the "Collateral Agency Agreement"), among the Partnerships, IEC Funding, the Trustee, Sanwa, the Swap Providers (as defined therein) and State Street Bank and Trust Company, as Collateral Agent (in such capacity, the "Collateral Agent") 4.5* Amended and Restated Project Loan and Credit Agreement dated as of December 1, 1994, between the Partnerships and IEC Funding 4.6* Partnerships' Guarantee Agreement dated as of December 1, 1994, between the Partnerships and the Trustee 4.7* Registration Rights Agreement dated as of November 21, 1994, among the Partnerships, IEC Funding, Chase Securities, Inc., Merrill Lynch, Pierce Fenner & Smith, Incorporated and Salomon Brothers, Inc. 4.8* Pledge, Trust and Intercreditor Agreement dated as of December 1, 1994 (the "Pledge, Trust and Intercreditor Agreement"), among the Partnerships, Sanwa, as "Bank Agent," as a "Bank" and as a "Letter of Credit Bank" (each as defined therein), Sanwa Bank Trust Company of New York, as trustee, the Collateral Agent and the Trustee 4.9* Assignment and Security Agreement dated as of December 1, 1994, between IEC Funding and the Collateral Agent 4.10* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between the Partnerships, the General Partner and the Collateral Agent 4.11* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NEA and the Collateral Agent 76 4.12* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NJEA and the Collateral Agent 4.13* Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of December 1, 1994, made by NEA in favor of the Collateral Agent 4.14* Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Additional Properties) dated as of December 1, 1994, made by NEA in favor of the Collateral Agent 4.15* Amended and Restated Indenture of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of December 1, 1994, made by NJEA in favor of the Collateral Agent 4.16* Amended and Restated Stock Pledge Agreement dated as of December 1, 1994, between NJEA and the Collateral Agent 4.17* Assignment of Mortgage dated as of December 1, 1994, between The Chase Manhattan Bank (National Association) (the "Existing Agent") and the Collateral Agent with respect to the Bellingham Mortgage dated as of June 28, 1989 4.18* Assignment of Mortgage dated as of December 1, 1994, between the Existing Agent and the Collateral Agent with respect to the Bellingham Mortgage dated August 10, 1989 4.19* Assignment of Mortgage dated as of December 1, 1994, between the Existing Agent and the Collateral Agent with respect to the Sayreville Mortgage dated June 28, 1989 4.20* Assignment of Security Agreements dated as of December 1, 1994, among the Existing Agent, the Collateral Agent, the Partnerships, IEC Funding and the General Partner 4.21* Stock Pledge Agreement dated as of December 1, 1994, among Broad Street Contract Services, Inc., Stephen B. Roy, Ellen S. Roy, Jane L. Roy, Peter A. Roy, the Partnerships and the Collateral Agent 4.22 Second Supplemental Trust Indenture dated as of January 14, 1998 among IEC Funding Corp., Northeast Energy Associates, A Limited Partnership, North Jersey Energy Associates, A Limited Partnership and State Street Bank and Trust Company, as trustee. 4.23 Amendment to Amended and Restated Assignment and Security Agreement by and between NEA, NJEA, IEC and State Street Bank and Trust Company dated as of January 14, 1998 77 4.24 Termination of Pledge, Trust and Intercreditor Agreement dated as of January 30, 1998 among NJEA, NEA, the Sanwa Bank, Limited, New York Branch, as "Bank Agent," Sanwa Bank Trust Company of New York, as trustee and State Street Bank and Trust Company, as Collateral Agent and the Bond Trustee 10.1* Accommodation Agreement dated as of June 28, 1989, between NEA, Boston Edison Company, a Massachusetts corporation ("BECO"), Commonwealth Electric Company, a Massachusetts corporation ("Commonwealth"), Montaup Electric Company, a Massachusetts corporation ("Montaup"), and The Chase Manhattan Bank (National Association) 10.2.1* Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Sayreville O&M Agreement"), between NJEA and Westinghouse Electric Corporation, a Pennsylvania company ("Westinghouse") 10.2.2* Letter Agreement regarding the Sayreville Heat Rate dated June 23, 1993, between NJEA and Westinghouse 10.2.3* Letter Agreement regarding extension of the Sayreville O&M Agreement dated June 23, 1993, between Westinghouse and NJEA 10.2.4* Second Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Bellingham O&M Agreement"), between NEA and Westinghouse 10.2.5* Letter Agreement regarding the Bellingham Heat Rate dated June 23, 1993, between NEA and Westinghouse 10.2.6* Letter Agreement regarding extension of the Bellingham O&M Agreement dated June 23, 1993, between NEA and Westinghouse 10.2.7** Amendment No. 1 to the Bellingham O&M Agreement, dated as of May 1, 1995, by and between NEA and Westinghouse 10.3.1* Power Purchase Agreement dated as of April 1, 1986 (the "BECO I Power Purchase Agreement"), between NEA and BECO 10.3.2* First Amendment to the BECO I Power Purchase Agreement dated as of June 8, 1987, between BECO and NEA 10.3.3* Second Amendment to the BECO I Power Purchase Agreement dated as of June 21, 1989, between BECO and NEA 10.3.4* Power Purchase Agreement dated as of January 28, 1988 (the "BECO II Power Purchase Agreement"), between NEA and BECO 10.3.5* First Amendment to the BECO II Power Purchase Agreement dated as of June 21, 1989, between NEA and BECO 78 10.3.6* Power Sale Agreement dated as of November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), between NEA and Commonwealth 10.3.7* First Amendment to the Commonwealth I Power Purchase Agreement dated as of August 15, 1988, between Commonwealth and NEA 10.3.8* Second Amendment to the Commonwealth I Power Purchase Agreement dated as of January 1, 1989, between Commonwealth and NEA 10.3.9* Power Sale Agreement dated as of August 15, 1988 (the "Commonwealth II Power Purchase Agreement"), between NEA and Commonwealth 10.3.10* First Amendment to the Commonwealth II Power Purchase Agreement dated as of January 1, 1989, between NEA and Commonwealth 10.3.11* Power Purchase Agreement dated as of October 17, 1986 (the "Montaup Power Purchase Agreement"), between NEA and Montaup 10.3.12* First Amendment to the Montaup Power Purchase Agreement dated as of June 28, 1989, between Montaup and NEA 10.3.13* Power Purchase Agreement dated as of October 22, 1987 (the "JCP&L Power Purchase Agreement"), between NJEA and Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L") 10.3.14* First Amendment to the JCP&L Power Purchase Agreement dated as of June 16, 1989, between JCP&L and NJEA 10.4.1* Firm Transportation Service Agreement dated as of February 28, 1994, among CNG Transmission Corporation, a Delaware corporation ("CNG"), NEA, ProGas U.S.A., Inc., a Delaware corporation ("ProGas USA") and ProGas Limited, a Canadian corporation ("ProGas") 10.4.2* Firm Gas Transportation Agreement (Rate Schedule X-320) dated as of February 27, 1991, between NEA and Transcontinental Gas Pipe Line Corporation, a Delaware corporation ("Transco") 10.4.3* Rate Schedule X-35 Firm Gas Transportation Agreement dated as of October 1, 1993, between NEA and Algonquin Gas Transmission Company, a Delaware corporation ("Algonquin") 10.4.4* Service Agreement for Rate Schedule FTS-5 dated as of February 16, 1994, between NEA and Texas Eastern Transmission Corporation, a Delaware corporation ("Texas Eastern") 10.4.5* ProGas/TransCanada NE Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada Pipelines Limited, an Ontario corporation ("TransCanada") 79 10.4.6* Northeast Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NEA and TransCanada 10.4.7* Northeast Notice and Consent dated as of July 30, 1993, among NEA, ProGas and TransCanada 10.4.8* ProGas NE Producer Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada 10.4.9* Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA, ProGas USA and ProGas 10.4.10* Firm Gas Transportation Agreement (Rate Schedule X-319) dated as of February 27, 1991, between Transco and NJEA 10.4.11* Service Agreement for Rate Schedule FTS-5 dated as of February 16, 1994, between Texas Eastern and NJEA 10.4.12* ProGas/TransCanada NJ Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada 10.4.13* North Jersey Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NJEA and TransCanada 10.4.14* North Jersey Notice and Consent dated as of July 30, 1993, among NJEA, ProGas and TransCanada 10.4.15* ProGas NJ Producer Assignment dated as of July 30, 1993, between ProGas and TransCanada 10.4.16* Gas Purchase and Sales Agreement dated as of May 4, 1989 (the "PSE&G Agreement"), between NJEA and Public Service Electric and Gas Company, a New Jersey corporation ("PSE&G") 10.5.1* Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NEA 10.5.2* Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NJEA 10.5.3** Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NEA 10.5.4** Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NJEA 10.6.1* Gas Purchase Contract dated as of May 12, 1988 (the "Bellingham ProGas Agreement"), between ProGas and NEA 80 10.6.2* First Amending Agreement to the Bellingham ProGas Agreement dated as of April 17, 1989, between ProGas and NEA 10.6.3* Second Amending Agreement to the Bellingham ProGas Agreement dated as of June 23, 1989, between ProGas and NEA 10.6.4* Amending Agreement to the ProGas Agreements (as defined below) dated as of November 1, 1991, between ProGas, NEA and NJEA 10.6.5* Third Amending Agreement to the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA 10.6.6* Letter Agreement regarding the Bellingham ProGas Agreement dated as of September 14, 1992, between ProGas and NEA 10.6.7* Letter Agreement regarding the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA 10.6.8* Gas Purchase Contract dated as of May 12, 1988 (the "Sayreville ProGas Agreement," and together with the Bellingham ProGas Agreement, the "ProGas Agreements"), between ProGas and NJEA 10.6.9* First Amending Agreement to the Sayreville ProGas Agreement dated April 17, 1989, between ProGas and NJEA 10.6.10* Second Amending Agreement to the Sayreville ProGas Agreement dated June 23, 1989, between ProGas and NJEA 10.6.11* Third Amending Agreement to the Sayreville ProGas Agreement dated July 30, 1993, between ProGas and NJEA 10.6.12* Letter Agreement regarding the Sayreville ProGas Agreement dated as of September 14, 1992, between ProGas and NJEA, as amended as of April 22, 1994 by Letter Agreement between ProGas and NJEA 10.6.13* Letter Agreement regarding the Sayreville ProGas Agreement dated July 30, 1993, between ProGas and NJEA 10.7.1* Amended and Restated Steam Sales Agreement dated as of December 21, 1990, between NEA and NECO-Bellingham, Inc., a Massachusetts corporation ("NECO") 10.7.2* Industrial Steam Sales Contract dated as of June 5, 1989, between NJEA and Hercules Incorporated, a Delaware corporation ("Hercules") 10.8.1* Letter agreement regarding Bellingham Project power transmission arrangements dated June 29, 1989, between NEA and BECO 81 10.8.2* Letter agreement regarding Bellingham Project power transmission arrangements dated June 6, 1989, between NEA and Commonwealth 10.8.3* Letter agreement regarding Bellingham Project power transmission arrangements dated June 28, 1989, between NEA and Montaup 10.9* Amended and Restated Interconnection Agreement dated as of September 24, 1993, between BECO and NEA 10.10.1* Amended and Restated Lease Agreement dated as of December 21, 1990, between NEA and NECO 10.10.2* Carbon Dioxide Agreement dated as of December 21, 1990, between NECO and Praxair, Inc., as successor to Liquid Carbonic Carbon Dioxide Corporation ("Praxair") 10.10.3* BOC Gases Carbon Dioxide Agreement dated as of December 21, 1990, between NECO and the BOC Gases of the BOC Group, Inc., a Delaware corporation (BOC Gases) 10.10.4* Assignment and Security Agreement dated as of December 1, 1991, between NECO and NEA 10.10.5*** Operation and Maintenance Agreement by and between NECO-Bellingham, Inc. as Lessee and Westinghouse Operating Services Company, Inc. as Operator for the Bellingham Project Carbon Dioxide Recovery Facility dated as of May 1, 1995 10.10.5.1**** Guaranty of Contract for Operation and Maintenance dated May 12, 1995 by Westinghouse Electric 10.10.6* Licensing Agreement for the Fluor Daniel Carbon Dioxide Recovery Process dated as of June 28, 1989, between Fluor Daniel Inc., a California corporation ("Fluor Daniel"), and NEA 10.11.1* Ground Lease Agreement dated as of June 28, 1989, between NJEA and IEC Urban Renewal Corporation, a New Jersey corporation ("URC") 10.11.2* Agreement of Sublease dated as of June 28, 1989, between URC and NJEA 10.11.3* Lease of Property dated as of June 1, 1986, between Prestwich Corporation and the General Partner 10.12.1* Investment Agreement dated as of December 1, 1994, between Sanwa and Sanwa Bank Trust Company of New York, as trustee under the Pledge, Trust and Intercreditor Agreement 82 10.12.2* Investment Agreement dated as of December 1, 1994, between Sanwa and Sanwa Bank Trust Company of New York, as trustee under the Pledge, Trust and Intercreditor Agreement 10.13* Agreement between the Water and Sewer Commissioners of the Town of Bellingham and NEA dated as of December 13, 1988 and December 30, 1988, respectively 10.14* Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated June 29, 1989, by NEA in favor of BECO, Commonwealth and Montaup 10.15*** Declaration of Easements, Covenants, and Restrictions dated as of June 28, 1989 by NEA 10.16 Operation and Maintenance Agreement dated as of November 21, 1997 by and between Northeast Energy, LP, a Delaware limited partnership and ESI Operating Services, Inc. 10.17 Operation and Maintenance Agreement dated as of November 21, 1997 by and between Northeast Energy, LP, a Delaware limited partnership and ESI Operating Services, Inc. 10.18 Fuel Management Agreement, dated as of January 20, 1998, by and between Northeast Energy, LP, a Delaware limited partnership and ESI Northeast Fuel Management, Inc., assigned by Northeast Energy, LP to Northeast Energy Associates, a limited partnership on January 20, 1998 10.19 Fuel Management Agreement, dated as of January 20, 1998, effective retroactive to January 14, 1998, by and between Northeast Energy, LP, a Delaware limited partnership and ESI Northeast Fuel Management, Inc. 10.20 Administrative Services Agreement dated as of November 21, 1997 between Northeast Energy, LP, a Delaware limited partnership and ESI Northeast Energy GP, Inc. 12* Statements regarding computation of ratios 21.1* Subsidiary of North Jersey Energy Associates, A Limited Partnership. 27.1 Financial Data Schedule - ESI Tractebel Funding Corp. 27.2 Financial Data Schedule - Northeast Energy Associates 27.3 Financial Data Schedule - North Jersey Energy Associates ------------------- * Incorporated herein by reference from the Registration Statement on Form S-4, file no. 33-87902, filed with the Securities and Exchange Commission by IEC Funding on February 9, 1995, as amended. ** Incorporated herein by reference from the Annual Report on Form 10-K filed by IEC Funding and the Partnerships on April 1, 1996. 83 ***Incorporated herein by reference from the Quarterly Report on Form 10-Q filed by IEC Funding and the Partnerships on November 14, 1996. ****Incorporated herein by reference from the Annual Report on Form 10-K filed by IEC Funding and the Partnerships on March 31, 1997. (b) Reports On Form 8-K: On December 2, 1997, IEC Funding Corp. and the Partnerships filed a report on Form 8-K dated December 2, 1997, in connection with the Acquisitions covering Item 5 (Other Events). 84 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ESI Tractebel Funding Corp., has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized in the City of North Palm Beach, State of Florida, on March 25, 1998. ESI TRACTEBEL FUNDING CORP. By: /s/ Glenn E. Smith ----------------------- Glenn E. Smith Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1998. Signature Title --------- ----- /s/ Glenn E. Smith - ------------------------------ Vice President Glenn E. Smith (Principal Executive Officer) /s/ Peter D. Boylan - ------------------------------ Treasurer Peter D. Boylan (Principal Financial and Accounting Officer) 85 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, North Jersey Energy Associates, A Limited Partnership, has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized in the City of North Palm Beach, State of Florida on March 25, 1998. NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: NORTHEAST ENERGY LP, as General Partner By: ESI NORTHEAST ENERGY GP, INC., as General Partner By: /s/ Glenn E. Smith ------------------------- Glenn E. Smith Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1998. Signature Title --------- ----- /s/ Glenn E. Smith - ------------------------------- Vice President Glenn E. Smith (Principal Executive Officer) /s/ Peter D. Boylan - ------------------------------- Treasurer Peter D. Boylan (Principal Financial and Accounting Officer) 86 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Northeast Energy Associates, A Limited Partnership, has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized in the City of North Palm Beach, State of Florida on March 25, 1998. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: NORTHEAST ENERGY, LP, as General Partner By: ESI NORTHEAST ENERGY GP, INC., as General Partner By: /s/ Glenn E. Smith ------------------------- Glenn E. Smith Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1998. Signature Title --------- ----- /s/ Glenn E. Smith - ----------------------------- Vice President Glenn E. Smith (Principal Executive Officer) /s/ Peter D. Boylan - ----------------------------- Treasurer Peter D. Boylan (Principal Financial and Accounting Officer) 87 APPENDIX A Defined Terms Unless the context requires otherwise, any reference in this Form 10-K to any agreement shall mean such agreement 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 Form 10-K to any person or entity shall include its successors and assignees and, in the case of any government authority, any entity succeeding to its functions and capacities. All terms defined herein used in the singular shall have the same meanings when used in the plural and vice versa. "Accommodation Agreement" means the Accommodation Agreement dated as of June 28, 1989, among NEA, Commonwealth, Boston Edison and Montaup. "Acquisition Date" means January 14, 1998, the date of the consummation of the Acquisitions. "Acquisitions" means the acquisition by NE LP and NE LLC of all of the partnership interests in NEA and NJEA and the acquisition by ESI Funding and Tractebel Power of seventy-five percent (75%) of the outstanding capital stock of ESI Tractebel Funding pursuant to the Purchase Agreement. "Additional Project Securities" means any Debt of ESI Tractebel Funding issued, subject to certain conditions set forth in the Project Indenture, to provide a source of funds for (i) Required Improvements, (ii) cash collateral to support Energy Bank Obligations (or to secure obligations of the Partnerships under the Project Letter of Credit Facility with respect to Project Letters of Credit issued to secure such Energy Bank Obligations) arising as a result of Power Purchase Agreements (or amendments thereto) entered into after November 15, 1994 (iii) payment of fees and costs associated with the issuance of Additional Project Securities, or (iv) funding the Debt Service Reserve Fund to the extent that the balance in such Fund is less than the Debt Service Reserve Requirement. "Administrative Services Agreement" means the Administrative Services Agreement, dated as of November 21, 1997, by and between NE LP and ESI GP. "Administrative Services Fee" means a fee, payable monthly, equal to $600,000 per annum, adjusted annually based on a producer price index paid by NE LP to ESI LP as compensation for the services it performs pursuant to the Administrative Services Agreement. "Affiliate," as used in the Project Indenture, means, as to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that the beneficial ownership of 20% or more of the Voting Stock of a Person shall be deemed to be control. 88 "Algonquin" means Algonquin Gas Transmission Company, a Delaware corporation. "Avoided Cost Security" means the security granted, pursuant to the NEA Second Mortgage, with respect to all amounts paid under the respective Power Purchase Agreements for the NEA Project in excess of the particular mortgagee's actual Avoided Costs, with interest thereon at the prime rate of The First National Bank of Boston, N.A. in effect from time to time. "Avoided Costs" means, the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from a qualifying facility, such utility would generate itself or purchase from some other source. "BankBoston" means BankBoston, N.A. "BOC Gases" means the BOC Cases Division of the BOC Group, Inc., a Delaware corporation. "Boston Edison" means Boston Edison Company, a Massachusetts corporation. "Boston Edison I Power Purchase Agreement" means the Power Purchase Agreement dated as of April 1, 1986, as amended on June 8, 1987 and June 21, 1989, between NEA and Boston Edison. "Boston Edison II Power Purchase Agreement" means the Power Purchase Agreement dated as of January 28, 1988, as amended, between NEA and Boston Edison. "Boston Edison Interconnection Agreement" means the Amended and Restated Interconnection Agreement dated as of September 24, 1993, between Boston Edison and NEA. "Btu" means British thermal units, a unit of energy. "Carbon Dioxide Plant" means the carbon dioxide production facility owned by NEA and located adjacent to the NEA Project on the NEA Site and all equipment and facilities ancillary thereto. "Carbon Dioxide Sales Agreements" means those agreements between NECO and BOC Gases, and NECO and Praxair, respectively, for the purchase and sale of carbon dioxide. "Cash Collateral Proceeds" means the cash collateral (and investments thereof) deposited by the Partnerships to secure the Partnerships' obligations to reimburse under the Project Letter of Credit Facility. "Clean Air Act" means the Federal Clean Air Act of 1955, as amended. "CNG" means CNG Transmission Corporation, a Delaware corporation. 89 "Collateral Agency Agreement" means the Collateral Agency Agreement, dated as of December 1, 1994, as amended, among the Collateral Agent, the Project Trustee, IEC Funding Corp. (now ESI Tractebel Funding), the Swap Banks, the Working Capital Banks and the Partnerships. "Collateral Agent" when used in connection with the Project Securities, means State Street Bank, as collateral agent pursuant to the Collateral Agency Agreement. "Commission" means the United States Securities and Exchange Commission. "Commonwealth" means Commonwealth Electric Company, a Massachusetts corporation. "Commonwealth I Power Purchase Agreement" means the Power Sale Agreement between Commonwealth and NEA dated as of November 26, 1986, and amended as of August 15, 1988 and as further amended as of January 1, 1989. "Commonwealth II Power Purchase Agreement" means the Power Sale Agreement between Commonwealth and NEA dated as of August 15, 1988, and amended as of January 1, 1989. "Commonwealth Power Purchase Agreements" means, collectively, the Commonwealth I Power Purchase Agreement and the Commonwealth II Power Purchase Agreement. "Conrail" means Consolidated Rail Corporation. "CRSS" means CRSS, Inc. "Daily NEA Quantity" means 48,817 Dth of natural gas. "Daily NJEA Quantity" means 22,019 Dth of natural gas. "Debt" of any Person, as defined in the Project Indenture, means (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all obligations under capital leases of such Person, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person (vi) all Debt of others to the extent guaranteed by such Person, (vii) all obligations under letters of credit issued for the account of such Person, (viii) all obligations of such Person under trade or bankers' acceptances and (ix) all obligations of such Person under agreements providing for interest rate swaps, collars or caps. "Debt Service Reserve Fund," as defined in the Project Indenture, means the Fund entitled "Debt Service Reserve Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Debt Service Reserve Requirement," as defined in the Project Indenture, means, as of any Monthly Transfer Date, an amount equal to 50% of the aggregate regularly scheduled interest, principal and fee payments to be made by the Partnerships in respect of the Project Notes (for 90 application to the payment of principal, interest and fees of the Project Securities and any Additional Project Securities) during the period commencing on (and including) such Monthly Transfer Date and ending on (but excluding) the twelfth (12th) Monthly Transfer Date thereafter; provided that the amount of the Debt Service Reserve Requirement as of the Closing Date and as of the date of issuance of any Additional Project Securities and for the period thereafter until the next succeeding Monthly Transfer Date shall be equal to the Debt Service Reserve Requirement calculated as of the Closing Date the date of issuance of any Additional Project Securities or such next succeeding Monthly Transfer Date, as the case may be. "Dekatherm" or "Dth" means one MMBtu. "Dollars" and "$" means lawful money of the United States. "DTE" means Department of Telecommunications and Energy. "Energy Bank" or "Energy Bank Obligations" means an account recording the liability of a Partnership to a Power Purchaser representing cumulative payments made to such Partnership by such Power Purchaser under the applicable Power Purchase Agreement in excess of such Power Purchaser's Avoided Costs, determined in accordance with such Power Purchase Agreement. "Energy Bank Letters of Credit" means, collectively, any letter or letters of credit for the benefit of the Power Purchasers to secure the Energy Bank Obligations. "Environmental Law" means any and all Government Rules relating to human health or the environment, or the release of Hazardous Materials into the indoor or outdoor environment including, without limitation, ambient air, surface water, groundwater, wetlands, land or subsurface strata or otherwise relating to the use of Hazardous Material, whether now or hereafter in effect. Environmental Laws shall include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Toxic Substances Control Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety and Health Act, as amended, and all analogous laws promulgated or issued by any state or other Governmental Authority. "EPA" means the Environmental Protection Agency of the United States. "ESI" or "ESI Energy" means ESI Energy, Inc., a Florida corporation. "ESI Acquisition Funding" means ESI Northeast Energy Acquisition Funding, Inc., a Florida corporation. "ESI Funding" means ESI Northeast Energy Funding, Inc., a Florida corporation. "ESI GP" means ESI Northeast Energy GP, Inc., a Florida corporation. 91 "ESI LP" means ESI Northeast Energy LP, Inc., a Florida corporation. "ESI Tractebel Funding" means ESI Tractebel Funding Corp., a Delaware corporation, formerly known as "IEC Funding Corp." "Event of Loss" means any compulsory transfer or taking or transfer under threat of compulsory transfer or taking of all or any material part of either Project by any Government Authority, or any event which causes all or any material portion of either Project by any Government Authority, or any event which cause all or any material portion of either Project to be damaged, destroyed or rendered unfit for normal use for any reason whatsoever. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extended Gas Service" means the sale and delivery of gas to NJEA by PSE&G for days on which the mean daily temperature for Newark, New Jersey is between 22(o)F and 14(o)F. "FERC" means the United States Federal Energy Regulatory Commission. "Fluor Daniel" means Fluor Daniel Inc., a California corporation. "Fluor Daniel Agreement" means the Design/Build Contract dated as of June 28, 1989 between NEA and Fluor Daniel. "FPA" means the Federal Power Act, as amended. "FPL" means Florida Power & Light Co., a Florida corporation. "FPL Energy" means FPL Energy, Inc., a Florida corporation. "FPL Group" means FPL Group, Inc., a Florida corporation. "FPL Group Capital" means FPL Group Capital Inc., a Florida corporation. "FPL Group Capital Guaranty" or "FPL Capital Guarantee" means a guaranty or an agreement made by FPL Group Capital in to reimburse Energy Bank Letter of Credit Banks and/or Substitute Letter of Credit Banks, issued pursuant to the Reimbursement Agreement. "Fuel Management Agreements" means, collectively, the NEA Fuel Management Agreement and the NJEA Fuel Management Agreement. "Fuel Management Fees" means the monthly fees required to be paid by NEA and NJEA to the Fuel Manager pursuant to the Fuel Management Agreements. "Fuel Manager" means ESI Northeast Fuel Management, Inc., a Florida corporation. 92 "Funds" means the funds established and maintained by the Project Trustee pursuant to the Project Indenture. "Gas Transmission Reserve Fund" means the Fund entitled "Gas Transmission Reserve Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Gas Transmission Reserve Requirement" means (a) as of any date occurring within the fifteen month period preceding the earliest expiration date of the Transco Agreements and which precedes the earliest expiration date of the Transco Agreements by a period that includes not less than three Monthly Transfer Dates, $5,300,000, (b) as of any other date thereafter, $10,600,000 and (c) prior to the date determined pursuant to clause (a), zero; provided that as of and subsequent to any extension or replacement of the Transco Agreements by agreements expiring on or after the final maturity date of the Project Securities and satisfying certain other conditions specified in the Project Indenture, the Gas Transmission Reserve Requirement shall be zero. The Gas Transmission Reserve Requirement has been determined based on the assumption that each Transco Agreement will expire on October 31, 2006, and will not be extended, in whole or in part, beyond such date. In the event that either or both Transco Agreements are extended or replaced by agreements satisfying certain conditions specified in the Project Indenture, the Gas Transmission Reserve Requirement will be adjusted pursuant to a formula specified in the Project Indenture. "General Partner" means NE LP. "Government Approval" means (i) any authorization, consent, approval, license, ruling, permit, certification, exemption, filing, variance, order, judgment, decree or publication of, by or with, (ii) any notice to, (ii) any declaration of or with or (iv) any registration by or with, any Government Authority required to be obtained or made by the Issuer, NE LP, ESI Tractebel Funding or a Partnership or, where the context requires, by any other Person party to a Project Document. "Government Authority" means any United States federal, state, municipal, local, territorial or other governmental subdivision, department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, domestic or foreign. "Government Rule" means any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, code, license, directive, guideline, policy or rule of common law, requirement of, or other governmental restriction or any judicial or administrative order, consent decree or judgement or similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Government Authority, whether now or hereafter in effect. "GSR Deficiency", as defined in the Project Indenture, is now zero. "Guaranty", as defined in the Project Indenture, by any Person means any guaranty, surety, bond or other obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing in any manner any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person: (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other 93 obligation (whether arising by virtue of Partnership arrangements, by agreement to keep well, to purchase assets, goods, bonds or services, to take-or-pay, or to maintain financial statement conditions or otherwise), (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) or (iii) to reimburse any Person for the payment by such Person under any letter of credit, surety, bond or other guaranty issued for the benefit of such other Person, but excluding (x) endorsements for collection or deposit in the ordinary course of business, or (y) indemnity or hold harmless provisions included in contracts entered into in the ordinary course of business. "Hazardous Material", as defined in the Project Indenture, means: (i) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCBs), (ii) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or words of similar import under any Environmental Law and (iii) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated as such under any Environmental Law including the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 6901 et seq., or any similar state statute. "Hercules" means Hercules Incorporated, a Delaware corporation. "HRSG" means a heat recovery steam generator. "IEC" means Intercontinental Energy Corporation, a Massachusetts corporation, the former general partner of each of the Partnerships. "IEC Funding Corp." means the corporation now referred to as ESI Tractebel Funding Corp., a Delaware corporation. "IECURC" means IEC Urban Renewal Corporation, a New Jersey corporation wholly-owned by NJEA. "Import Point" means the point of interconnection between the TransCanada pipeline and CNG's pipeline at Niagara Falls, Ontario/Niagara Falls, New York. "Insurance Proceeds" means all amounts and proceeds (including instruments) in respect of the proceeds of any casualty insurance policy or title insurance policy, except proceeds of delayed opening or business interruption insurance. "Interest Fund," as defined in the Project Indenture, means the Interest Fund established and maintained by the Project Trustee pursuant to the Project Indenture. 94 "ISO Conditions" means a temperature of 59 degrees F and an atmospheric pressure of 29.92 inches of mercury absolute (i.e. sea level). "JCP&L" means Jersey Central Power & Light Company, a New Jersey corporation. "JCP&L Power Purchase Agreement" means the Power Purchase Agreement dated as of October 22, 1987, between NJEA and JCP&L, as amended. "Kilowatt" or "KW" means one thousand watts. "Kilowatt-hours" or "kWh" means a unit of electrical energy equal to one kilowatt of power supplied or taken from an electric circuit steadily for one hour. "Lien", as defined in the Project Indenture, means, with respect to any property of any Person, any mortgage, lien, pledge, charge, lease, easement, servitude, right of others or security interest or encumbrance of any kind in respect of such property of such Person. "Limited Partner" means NE LLC. "Long-term Gas Arrangements" means, collectively, the Long-term Gas Supply Agreements, the Long-term Gas Transportation Agreements and the Long-term Gas Storage Agreements. "Long-term Gas Storage Agreements" means the NEA Gas Storage Agreement and the NJEA Gas Storage Agreement. "Long-term Gas Supply Agreements" means the NEA ProGas Agreement, the NJEA ProGas Agreement and the PSE&G Contract. "Long-term Gas Transportation Agreements" means the NEA Gas Transportation Agreements and the NJEA Gas Transportation Agreements. "Loss Proceeds" means all Insurance Proceeds, all condemnation awards, settlement payments and other amounts (other than proceeds of delayed opening or business interruption insurance or similar items) received or payable in respect of any Event of Loss. "Major Overhaul Expenses" means expenses not covered by any operations and maintenance contractor and which are incurred by a Partnership in connection with scheduled major overhauls of a project in accordance with the maintenance recommendations of the applicable manufacturer or vendor pursuant to the Project Indenture. "Major Overhaul Reserve Fund" means the Fund entitled "Major Overhaul Reserve Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Management Costs" means the management fee payable to NE LP, which fee shall be comprised of four components, without duplication: (i) third-party costs certified as being reasonably allocable to either or both of the Projects or either or both of the Partnerships or ESI 95 Tractebel Funding (including but not limited to any rent, independent legal, consulting and accounting fees and expenses that are certified as such), (ii) general and administrative expenses of NE LP reasonably allocable to either or both of the Projects or either or both of the Projects or either or both of the Partnerships or ESI Tractebel Funding, (iii) compensation (including salary and related benefits) of individuals that are not related by blood or marriage to the Original Project Sponsors certified as being reasonable allocable to either or both of the Projects or either or both of the Partnerships or the company and (iv) for each calendar year, an amount equal to $3,500,000, $1,500,000 of which shall constitute the Subordinated Management Fee (each such amount inflated annually commencing on January 1, 1995, in accordance with the Project Indenture, and adjusted ratably for each partial calendar year in which the Project Securities shall be outstanding). "MBtu" means one thousand Btus. "Mcf" means one thousand cubic feet of gas at 60(o)F and at a pressure of 14.73 pounds per square inch absolute. "Medway Substation" means the Medway Substation of Boston Edison, located in Medway, Massachusetts. "Megawatt" or "MW" means one million watts. "Megawatt hour" or "MWH" means one thousand kilowatt-hours. "MMBtu" means one million Btus. "Montaup" means Montaup Electric Company, a Massachusetts corporation. "Montaup Power Purchase Agreement" means the Power Purchase Agreement dated as of October 17, 1986, as amended on June 28, 1989, between NEA and Montaup. "Monthly MOR Contribution Amount," as defined in the Project Indenture means, for each Monthly Transfer Date commencing with the first such date in calendar year 2001 (a) the applicable amount set forth in the Project Indenture as the aggregate required contribution to the Major Overhaul Reserve Fund for the calendar year of such Monthly Transfer Date (as such schedule may be revised, as set forth therein, by the Independent Engineer in the event that either O&M Agreement is amended or replaced to provide for the payment by a third party operator for either Project of all or a portion of any Major Overhaul Expenses) divided by (b) 12 (or, in the case of the calendar year in which the final maturity date for the Project Securities occurs, the number of Monthly Transfer Dates occurring in such calendar year prior to such date). "Monthly Transfer Date," as defined in the Project Indenture means the first business day of each calendar month. "Monthly Transfer Period" means the period commencing on (and including) a Monthly Transfer Date and ending on (but excluding) the immediately succeeding Monthly Transfer Date. 96 "Moody's" means Moody's Investors Service, Inc. "MOR Deficiency," as defined in the Project Indenture, means, as of any date of determination subsequent to the first Monthly Transfer Date in calendar year 2001, the excess, if any, of (a) the aggregate Monthly MOR Contribution Amounts for all prior Monthly Transfer Dates over (b) the excess (if any) of (i) the aggregate amount of all prior transfers to the Major Overhaul Reserve Fund over (ii) the aggregate amount of all withdrawals from the Major Overhaul Reserve Fund made on or prior to such date of determination other than pursuant to the Project Indenture; provided, that the amount of any MOR Deficiency (i) shall be reduced by the amount of Major Overhaul Expenses previously paid by the Partnerships from funds other than disbursements from the Major Overhaul Reserve Fund, (ii) shall be subject to adjustment as provided in the Project Indenture and (iii) shall be equal to zero as of any date of determination prior to the first Monthly Transfer Date in calendar year 2001. "MOU" means Memorandum of Understanding. "NationsBank" means NationsBank of Texas. "NE LLC" means Northeast Energy, LLC, a Delaware limited liability company. "NE LP" means Northeast Energy, LP, a Delaware limited partnership. "NE LP Partnership Agreement" means the Agreement of Limited Partnership of Northeast Energy, LP, dated as of November 21, 1997, by and among ESI GP, ESI LP, Tractebel GP and Tractebel LP. "NEA" means Northeast Energy Associates, A Limited Partnership, a Massachusetts limited partnership. "NEA Additional Properties Mortgage" means the Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Additional Properties) granted by NEA to the Collateral Agent with respect to certain real estate owned by NEA adjacent to the NEA Site. "NEA Fuel Management Agreement" means the Fuel Management Agreement, dated as of January 20, 1998 (effective retroactively to January 14, 1998) by and between the Fuel Manager and NE LP, assigned by NE LP to NEA on January 20, 1998. "NEA Fuel Management Fee" means $450,000, as compensation for certain fuel management services for the NEA Project pursuant to the NEA Fuel Management Agreement. "NEA Gas Agreements" means the NEA ProGas Agreement, the NEA Gas Transportation Agreements and the NEA Gas Storage Agreement. 97 "NEA Gas Storage Agreement" means the Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NEA, as amended by the parties and in respect of changes in FERC approved tariffs. "NEA Gas Supply Agreement" means the NEA ProGas Agreement. "NEA Gas Transportation Agreements" means collectively, the Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NEA, ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate Schedule X-320) dated February 27, 1991, between Transco and NEA, the Rate Schedule X-35 Firm Gas Transportation Agreement dated October, 1993, between Algonquin and NEA and the Service Agreement for Rate Schedule FTS-5 dated February 16, 1994, between Texas Eastern and NEA, each as amended by the parties and in respect of changes in FERC approved tariffs. "NEA O&M Agreement" means the Second Amended and Restated Operations and Maintenance Agreement dated as of June 28, 1989, between NEA and the Operator (as successor to Westinghouse Electric). "NEA O&M Fee" means the monthly fee required to be paid by NEA to the Operator pursuant to the NEA O&M Agreement. "NEA Partnership Agreement" means the Amended and Restated Agreement of Limited Partnership of Northeast Energy Associates, A Limited Partnership, dated as of November 21, 1997 by and between NE LP and NE LLC. "NEA Power Purchase Agreements" means the Boston Edison I Power Purchase Agreement, the Boston Edison II Power Purchase Agreement, the Commonwealth I Power Purchase Agreement, the Commonwealth II Power Purchase Agreement and the Montaup Power Purchase Agreement. "NEA Power Purchasers" means Boston Edison, Commonwealth and Montaup. "NEA ProGas Agreement" means the Gas Purchase Contract dated as of May 12, 1988, between NEA and ProGas, as amended. "NEA Project" means the nominal 300 MW natural gas-fired combined cycle cogeneration facility owned by NEA located on the NEA Site, including all electrical and steam generating components, and all electrical, steam and natural gas interconnection facilities and structures, associated materials, handling and environmental equipment and ancillary structures, equipment and systems. "NEA Project Documents" means, individually and collectively, certain existing agreements and documents specified in the Project Indenture (which include the NEA Power Purchase Agreements, the NEA Gas Agreements, the NEA Steam Sales Agreement and the NECO Lease), as any of the same may from time to time be amended, modified or supplemented together with all Additional Project Documents (as defined in the Project Indenture) to which NEA is a party or which relate to all or any part of the NEA Project as to the Carbon Dioxide Plant. 98 "NEA Project Mortgage" means the Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing granted by NEA to the Collateral Agent with respect to the NEA Site and all related improvements and fixtures thereon owned by NEA. "NEA Second Mortgage" means the Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of June 28, 1989, by NEA in favor of Boston Edison, Commonwealth and Montaup securing the performance by NEA of its obligations under each of the NEA Power Purchase Agreements. "NEA Site" means the approximately 44-acre site on the upper Charles River in the town of Bellingham, Massachusetts, on which the NEA Project and the Carbon Dioxide Plant are located. "NEA Steam Sales Agreement" means the Amended and Restated Steam Sales Agreement dated as of December 21, 1990, between NEA and NECO. "NECO" means NECO-Bellingham, Inc., a special-purpose subsidiary of a privately held company based in Houston. "NECO Lease" means the Amended and Restated Lease dated as of December 21, 1990, between NEA and NECO. "NEPOOL" means the New England Power Pool. "NEPOOL Agreement" means the NEPOOL Agreement dated September 1, 1971. "Net Electrical Capability" means the sum of the nameplate rating of the generators for each Project, as designated by the manufacturer and expressed in megawatts, less allowance for station service, at which such Project is designed to operate continuously in a reasonable and prudent manner under ISO conditions in accordance with good utility practice. "New NEA O&M Agreement" means the Operation and Maintenance Agreement, dated as of November 21, 1997, by and between NE LP and the New Operator, subsequently assigned by NE LP to NEA. "New NEA O&M Fee" means the monthly fee required to be paid by NEA to the New Operator pursuant to the New NEA O&M Agreement. "New NJEA O&M Agreement" means the Operation and Maintenance Agreement, dated as of November 21, 1997, by and between NE LP and the New Operator, subsequently assigned by NE LP to NJEA. "New NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the New Operator pursuant to the New NJEA O&M Agreement. 99 "New O&M Agreements" means the New NEA O&M Agreement and the New NJEA O&M Agreement. "New O&M Fees" means the fees as compensation for the operation and maintenance services for the Projects under the New O&M Agreements. "New Operator" means ESI Operating Services, Inc., a Florida corporation. "1990 Amendments" means the 1990 Amendments to the Federal Clean Air Act of 1955. "NJBPU" means the New Jersey Board of Public Utilities. "NJEA" means North Jersey Energy Associates, A Limited Partnership, a New Jersey limited partnership. "NJEA Fuel Management Agreement" means the Fuel Management Agreement, dated as of January 20, 1998 (effective retroactively to January 14, 1998) by and between the Fuel Manager and NE LP, assigned by NE LP to NJEA on January 20, 1998. "NJEA Fuel Management Fee" means $450,000, as compensation for certain fuel management services for the NJEA Project pursuant to the NJEA Fuel Management Agreement. "NJEA Gas Agreements" means, collectively, the NJEA ProGas Agreement, the PSE&G Contract, the NJEA Gas Transportation Agreements and the NJEA Gas Storage Agreement. "NJEA Gas Storage Agreement" means the Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NJEA. "NJEA Gas Supply Agreements" means, collectively, the NJEA ProGas Agreement and the PSE&G Contract. "NJEA Gas Transportation Agreements" means collectively, the Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA, ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate Schedule X-319) dated February 27, 1991, between Transco and NJEA and the Service Agreement for Rate Schedule FTS-5 dated February 16, 1994, between Texas Eastern and NJEA, each as amended by the parties and in respect of changes in FERC approved tariffs. "NJEA O&M Agreement" means the Amended and Restated Operations and Maintenance Agreement dated as of June 28, 1989, between NJEA and the Operator (as successor to Westinghouse Electric). "NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the Operator pursuant to the NJEA O&M Agreement. 100 "NJEA Partnership Agreement" means the Amended and Restated Agreement of Limited Partnership of North Jersey Energy Associates, A Limited Partnership, dated as of November 21, 1997 by and between NE LP and NE LLC. "NJEA Power Purchase Agreement" means the JCP&L Power Purchase Agreement. "NJEA Power Purchaser" means JCP&L. "NJEA ProGas Agreement" means the Gas Purchase Contract dated as of May 12, 1988, between NJEA and ProGas, as amended. "NJEA Project" means the nominal 300 MW natural gas-fired combined cycle cogeneration facility owned by NJEA and located on the NJEA Site, including all electrical and steam generating components, and all electrical, steam and natural gas interconnection facilities and structures, associated materials handling and environmental control equipment and ancillary structures, equipment and systems. "NJEA Project Documents" means, individually and collectively, certain existing agreements and documents specified in the Project Indenture (which include the JCP&L Power Purchase Agreement, the NJEA Gas Agreements and the NJEA Steam Sales Agreement), as any of the same may from time to time be amended, modified or supplemented, together with all Additional Project Documents (as defined in the Project Indenture) to which NJEA is a party or which relate to all or any part of the NJEA Project. "NJEA Project Mortgage" means the Amended and Restated Indenture of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated as of December 1, 1994, granted by NJEA to the Collateral Agent with respect to the NJEA Site and all related improvements and fixtures thereon owned by NJEA. "NJEA Site" means the approximately 49-acre site in the Borough of Sayreville, New Jersey, on which the NJEA Project is located. "NJEA Steam Sales Agreement" means the Industrial Steam Sales Contract dated as of June 5, 1989, as amended, between NJEA and Hercules. "Non-Material Project Document", as defined in the Project Indenture, means any Project Document (x) which shall be for a term (including any extensions provided therein, other than those that are optional to the applicable Partnership) not longer than 1 year or (y) under which such Partnership shall have obligations not in excess of $1,000,000, excluding, however, (a) any contract or agreement providing, directly or indirectly, for monetary or nonmonetary obligations of the Partnership the performance of which could reasonably be expected to have a material adverse effect and (b) any contract or agreement providing for the acquisition by either Partnership of property, or the delivery to the Partnership of services, that if no obtained could reasonably be expected to have material adverse effect (taking into consideration all available alternatives). For purposes of this definition, indemnity or similar obligations of a Partnership subject to a maximum dollar amount shall be limited to such amount, and, subject to any such limitation, shall be 101 computed at the maximum amount thereof which could, at the time such agreement is entered into, reasonably be expected to become due and payable. "NOx" means oxides of nitrogen. "NYMEX" means the New York Mercantile Exchange. "O&M Agreements" means the NEA O&M Agreement and the NJEA O&M Agreement, as applicable, (including any extensions or modifications thereof). "OASIS" means an open-access same-time information system, as defined in FERC Order No. 889. "Operating Expenses," as defined in the Project Indenture means, for any period, the sum of the following costs and expenses (without duplication) paid or required to be paid during such period (or, in the case of any future period, projected to be paid or payable in such period): (a) the operating and maintenance expenses of the Projects including, without limitation, (i) amounts due from the applicable Partnership under any operations and maintenance agreement in respect of the operation and maintenance of either Project, (ii) fuel procurement, storage, transportation, management and associated costs for the Projects and costs of any fuel hedging arrangements, (iii) premiums for insurance including, without limitation, insurance required to be maintained pursuant to the Project Indenture or pursuant to any Project Document, (iv) franchise, licensing, excise, property and other similar taxes (other than federal and state income taxes and any other taxes imposed upon, or measured by, income or receipts, unless any such tax shall be imposed on the Partnerships solely by reason of the adoption of a Government Rule or the amendment of an existing Government Rule subsequent to the closing date with respect to the offering of the Project Securities) payable by or on behalf of the Partnerships, (v) all taxes payable by ESI Tractebel Funding, (vi) utilities, supplies and other services acquired in connection with the operation or maintenance of the Projects, (vii) maintenance costs with regard to the Projects, including the rebuilding, repair or replacement of any Project in connection with an Event of Loss (to the extent such costs are not paid from funds on deposit in the Major Overhaul Reserve Fund or the Capital Expenditure Fund), (viii) costs and fees incurred in connection with obtaining and maintaining in effect the Government Approvals relating to a Project, (ix) costs of the Partnerships and ESI Tractebel Funding relating to the settlement of pending or threatened litigation or other claims relating to a Project or any related fines, penalties, judgments and other costs (including, without limitation, legal fees and expenses) associated with such litigation or other claims, (x) rental expense of the Partnerships relating to the rental of any property associated with the Projects, (xi) fees and expenses of consultants and experts retained by or required to be paid by either of the Partnerships or ESI Tractebel Funding, including, without limitation, the Independent Experts, attorneys and accountants, (xii) indemnification payments made by either of the Partnerships or ESI Tractebel Funding to any Person pursuant to any bona fide obligation necessarily and reasonably incurred in connection with the operation or financing (including any financing contemplated pursuant to the Project Indenture) of the Projects and owed by such Partnership to such Person and (xiii) Management Costs (provided that the amount of Management Costs referred to in clause (iv) of the definition thereof payable as an Operating Expense during any Monthly Transfer Period shall not exceed the sum of (A) the quotient of (x) the then applicable annual 102 amount of such Management Costs over (y) 12 or, if applicable, the number of Monthly Transfer Periods in any partial year in which the Project Securities shall be outstanding and (B) the amount of Management Costs that were permitted to be paid as operating expenses pursuant to this proviso in any prior Monthly Transfer Period but not previously paid; provided further that, for purposes of the foregoing proviso, a portion of the amount determined pursuant to clause (A) for each Monthly Transfer Period shall be allocated ratably to the Subordinated Management Fee and amounts determined pursuant to clause (B) shall be allocated to the Subordinated Management Fee to the extent unpaid amounts are attributable to deficiencies in the Subordinated Management Fee Subfund of the Operating Fund); plus (b) fees and expenses of the Project Trustee and the Collateral Agent, plus (c) costs relating to the issuance of any Project Securities, including, without limitation, any exchange offer and any registration statement in respect of the Project Securities or any other costs incurred by ESI Tractebel Funding and the Partnerships in connection with the performance of any further assurance obligations hereunder and under the Project Indenture and the Project Security Documents; plus (d) amounts payable by the Partnerships in respect of guaranties permitted under the Project Indenture; plus (e) amounts payable to any entity (other than an affiliate of NE LP), either in the form of dividends or management or similar fees or reimbursement of expenses (in each case in reasonable amounts) that owns any of the outstanding capital stock of ESI Tractebel Funding, provided that all of the foregoing costs and expenses shall be determined on a cash basis and shall not include depreciation, amortization or other non-cash items. "Operator" means Westinghouse Services. "Original Banks" means the financial institutions party to the Original Project Credit Agreement. "Original Project Credit Agreement" means the Project Loan and Credit Agreement dated as of June 28, 1989, as amended, among the Partnerships as borrowers, IEC, The Chase Manhattan Bank as issuing bank and as agent for the Original Banks, The Bank of New York (as successor to Irving Trust Company) as co-agent and the Original Banks. "Original Project Indenture" means the Trust Indenture, dated as of November 15, 1994, among each of the Partnerships, IEC Funding Corp. (now ESI Tractebel Funding), and the Project Trustee, as supplemented by the First Supplemental Trust Indenture, dated as of November 15, 1994. "Original Project Notes" means the notes issued by the Partnerships to the Original Banks pursuant to the Original Project Credit Agreement. "Original Project Securities" means the 8.43% Senior Secured Notes Due 2000, the 9.16% Senior Secured Notes Due 2002, the 9.32% Senior Secured Bonds Due 2007 and the 9.77% Senior Secured Bonds Due 2010. The Original Project Securities were exchanged for Project Securities in May 1995. "Partial Transportation Extension Event" means the occurrence of the following with respect to a Transco Agreement: (a) either (i) the extension of the term of such Transco Agreement on terms and conditions which would constitute a Transco Extension Event but for the fact that (A) the term 103 of such Transco Agreement (as so extended) is scheduled to expire prior to the final maturity date of the Project Securities and/or (B) the maximum daily quantity to be transported pursuant to such Transco Agreement is less than that in effect under such Transco Agreement on December 1, 1994 or (ii) the execution by either Partnership and one or more third parties of one or more gas transportation agreements providing for firm gas transportation service to such Partnership by such third party(ies) which would constitute a Transco Substitution Event but for the fact that (x) the term of such agreement is scheduled to expire prior to the final maturity date of the Project Securities and/or (y) the maximum daily quantity to be transported pursuant to such agreement(s) is less than that in effect for the applicable Transco Agreement on December 1, 1994; and (b) the receipt by the Project Trustee of a certificate of the Independent Gas Consultant to the effect of (a) above. "Partners" means, collectively, NE LP and NE LLC. "Partnership Distribution Fund" means the Fund entitled "Partnership Distribution Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Partnership Suspense Fund" means the Fund entitled "Partnership Suspense Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Partnerships" means NEA and NJEA. "Peak Gas Service Credit" means the demand charge paid by PSE&G to NJEA in exchange for the right to retain NJEA's gas supplies on days when the mean daily temperature forecast for Newark, New Jersey drops below certain levels. "Permitted Purchase Money Indebtedness," as defined in the Project Indenture, means purchase money or lease obligations incurred to finance items of equipment not comprising an integral part of either Project (and obligations in respect of Debt incurred to refinance any such obligations), provided that (a) if such obligations are secured, they are secured only by Liens upon the equipment being financed and (b) such obligations do not in the aggregate have annual scheduled interest, principal, lease and purchase price installment payments in excess of $5,000,000. "Permitted Unsecured Indebtedness" means unsecured Debt in an aggregate outstanding principal amount at no time greater than $10,000,000. "Person" means any individual, sole proprietorship, corporation, partnership, joint venture, limited liability company, trust, unincorporated association, institution, Government Authority or any other entity. "PJM" or "PJM Interconnected Power Pool" means the Pennsylvania/New Jersey/Maryland interconnected Power Pool. "PJM Agreement" means the PJM Agreement dated September 26, 1956, as amended. "Policy Act" means the Energy Policy Act of 1992. 104 "Power Purchase Agreements" means individually and collectively, the Boston Edison I Power Purchase Agreement, the Boston Edison II Power Purchase Agreement, the Commonwealth I Power Purchase Agreement, the Commonwealth II Power Purchase Agreement, the Montaup Power Purchase Agreement and the JCP&L Power Purchase Agreement, and any Additional Project Document (as defined in the Project Indenture) (other than a Non-Material Project Document) providing for the sale of electric energy or capacity from the Projects. "Power Purchasers" means Boston Edison, Commonwealth, JCP&L and Montaup and any other Person (other than the Partnerships) party to a Power Purchase Agreement. "Praxair" means Praxair, Inc., the successor to Liquid Carbonic Carbon Dioxide Corporation. "Principal Fund" means the Fund entitled "Principal Fund" described in, and pursuant to the Project Indenture. "ProGas" means ProGas Limited, an Alberta corporation. "ProGas Agreement Expiration Date" means, with respect to each ProGas Agreement, the later of (a) November 1, 2006 and (b) the scheduled expiration date of such ProGas Agreement after giving effect to any Partial ProGas Extension Events. "ProGas Agreements" means the NEA ProGas Agreement and the NJEA ProGas Agreement. "Project Accounts" means the accounts entitled "Project Accounts" maintained and used by the Project Trustee. "Project Collateral," defined as "Collateral" in the Project Indenture, means, collectively, all of the collateral mortgaged, pledged or assigned to the Collateral Agent by any of ESI Tractebel Funding, each Partnership, NE LP, ESI Funding and Tractebel Power, in each case pursuant to the granting and assigning clauses of the applicable Project Security Documents. "Project Credit Agreement" means the Amended and Restated Project Loan and Credit Agreement, dated as of December 1, 1994, by and among ESI Tractebel Funding and each of the Partnerships. "Project Documents" means, collectively, the NEA Project Documents and the NJEA Project Documents. "Project Guaranty" means the guaranty agreement, by and among the Project Trustee, NEA and NJEA, guaranteeing the obligations of ESI Tractebel Funding under the Project Indenture. "Project Indebtedness," as used in this Offering Circular means, collectively, the existing Debt of the Partnerships and ESI Tractebel Funding in connection with the Project Securities, the existing Debt of the Partnerships in connection with the Sanwa Credit Agreement and the existing Debt of the Partnerships under the Swaps. 105 "Project Indenture" means the Trust Indenture dated as of November 15, 1994, entered into by ESI Tractebel Funding, the Partnerships and the Project Trustee providing for the issuance of the Project Securities, as supplemented by a First Supplemental Trust Indenture, dated as of November 15, 1994, and as amended and supplemented by the Second Supplemental Trust Indenture dated as of January 14, 1998. "Project Letter of Credit Banks" means the financial institutions from time to time parties to a Project Letter of Credit Facility. "Project Letter of Credit Facility" means any agreement or agreements from time to time in effect among the Partnerships and the Project Letter of Credit Banks, and any replacements thereof which satisfies the requirements under the Power Purchase Agreements, the Fluor Daniel Agreement and the Prestwich Lease providing for the issuance of the Project Letters of Credit. No Letters of Credit are currently outstanding in connection with the Fluor Daniel Agreement or the Prestwich Lease. "Project Letters of Credit" means the Letters of Credit securing the Partnerships' obligations. "Project Loans" means the loan made by ESI Tractebel Funding to each of the Partnerships in connection with the Project Credit Agreement and the Project Indenture. "Project Notes" means (a) the promissory notes of the Partnerships issued to ESI Tractebel Funding on December 1, 1994 pursuant to the Project Credit Agreement, which notes were issued (x) to amend and restate the Original Project Notes and (y) to evidence the Project Loans together with (b) any promissory notes issued by the Partnerships to ESI Tractebel Funding subsequent to December 1, 1994 in accordance with the terms of the Project Credit Agreement. "Project Partnership Agreements" means, collectively, the NEA Partnership Agreement and the NJEA Partnership Agreement. "Project Revenues," as defined in the Project Indenture means, for any period, the sum of the following (without duplication) received by either of the Partnerships, or credited to the account of either of the Partnerships as described in clause (iii) below, on a cash basis during such period: (i) all revenues under the Power Purchase Agreements and the Steam Sales Agreements plus (ii) all other revenues, whether from the sale of electrical capacity or electricity, thermal energy or by-products of the operations of the Projects or otherwise plus (iii) investment earnings on amounts in the Funds and on the investment of the Cash Collateral Proceeds (and any substitute collateral for the Project Letter of Credit Facility), but only to the extent such investment earnings have been transferred to the Revenue Fund plus (iv) the proceeds of any business interruption insurance and other payments received for interruption of operations (excluding any proceeds of any physical damage or liability insurance) plus (v) refunds of deposits plus (vi) all rental and other payments received by either of the Partnerships from the lease or sale of any portion of either or both of the Project Sites plus (vii) all other income, proceeds or receipts, howsoever earned or received by either of the Partnerships during such period plus (viii) Cash Collateral Proceeds (and any substitute collateral for the Project Letter of Credit Facility) transferred to the Revenue Fund as a 106 result of any reduction in the Energy Bank Obligations. Project Revenues shall exclude, to the extent otherwise included, (a) proceeds of the Project Securities (including any such proceeds advanced to the Partnerships pursuant to the Project Credit Agreement), (b) proceeds of borrowings under the Working Capital Facility or any other permitted Debt, (c) Cash Collateral Proceeds (and any substitute collateral for the Project Letter of Credit Facility) released from the security of the Project Letter of Credit Banks or the Power Purchasers, as the case may be, which are not the result of any reduction in the Energy Bank Obligations and (d) Loss Proceeds. "Project Secured Parties" include the holders of the Project Securities (represented by the Project Trustee), the Sanwa Working Capital Banks, the Swap Banks, if any, the Collateral Agent and the Project Trustee. "Project Securities" means, collectively, the 8.43% Senior Secured Notes Due 2000, Series A, the 9.16% Senior Secured Notes Due 2002, Series A, the 9.32% Senior Secured Bonds Due 2007, Series A and the 9.77% Senior Secured Bonds Due 2010, Series A issued by ESI Tractebel Funding under the Project Indenture. "Project Security Documents" means the mortgages and other security agreements pursuant to which the Partnerships, ESI Tractebel Funding and NE LP grant liens to the Collateral Agent for the benefit of the Project Secured Parties. "Project Sites" means, collectively, the NEA Site and the NJEA Site. "Project Trustee" means State Street Bank and Trust Company in its capacity as trustee under the Project Indenture. "Projections" means certain projections of the Projects' revenues and the costs associated therewith including certain assumptions by NE LP. "Projects" means, collectively, the NEA Project and the NJEA Project. "Prudent Utility Practices" means the practices, methods and standards generally followed by the independent power and electric utility industry with respect to the design, construction, operation and maintenance of electric generating equipment of the type applicable to the Projects, and which practices, methods and standards generally conform to operation and maintenance standards recommended by the applicable Project's equipment suppliers and manufacturers. "PSE&G Contract" means the Gas Purchase and Sales Agreement dated as of May 4, 1989, as amended, between NJEA and PSE&G. "PTFs" means pool transmission facilities. "PSE&G" means Public Service Electric and Gas Company, a New Jersey corporation. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. 107 "Purchase Agreement" means the Purchase Agreement, dated as of November 21, 1997, by and among the Sellers, the Partners, ESI Funding and Tractebel Power for the acquisition of all of the partnership interests in the Partnerships. "PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended, and the regulations promulgated thereunder. "QF" or "Qualifying Facility" means a "qualifying cogeneration facility" in accordance with PURPA and the rules and regulations of FERC under PURPA relating thereto. "Qualifying Facility Power Purchase Rate" means the energy rate filed from time to time by each of the NEA Power Purchasers and approved by the Massachusetts Department of Public Utilities. "Quarterly Tax Payment Dates" means, collectively, January 15, April 15, June 15 and September 15 of each calendar year or, in the event that any tax payments contemplated by the definition of "Tax Requirements" shall become due on any date or dates other than those provided for immediately above, any such other date or dates on which such tax payments shall be due. "Required Improvements" means improvements required to comply with any change in applicable Environmental Laws or other Government Rules (or interpretations thereof), or to maintain the status of a Project as a QF. "Restricted Payments," as defined in the Project Indenture, means: (a) (i) the declaration or payment of distributions or dividends by, or the occurrence of any liability to make any such payment or distribution on account of, either Partnership in cash, property, obligations or other securities on, or (ii) other payments or distributions on account of, or (iii) the purchase, redemption, retirement or other acquisition of, or (iv) the setting apart of money for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any Partnership (whether general or limited) interest (or any share capital of any class or any preferred stock issued by any Permitted Successor (as defined in the Project Indenture), including redeemable preferred shares, or any warrant, option or other right to acquire such share capital or preferred stock, but excluding dividends or other distributions payable solely in ordinary common shares of such Permitted Successor (as defined in the Project Indenture)); and (b) any payment of the principal of or interest on any subordinated indebtedness; and (c) the making of any loans or advances from either Partnership or ESI Tractebel Funding to any Related Party (other than certain permitted Debt contemplated by the Project Indenture). "Revenue Fund" means the Fund entitled "Revenue Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Rolling Prior Year" means, (i) as of December 1, 1994 and any date occurring prior to the delivery to the Project Trustee of financial statements of the Partnerships for any fiscal quarter ending after December 1, 1994, the most recent period of four consecutive fiscal quarters of the Partnerships ended prior to 108 such date, treated as a single accounting period and (ii) as of any other date, the most recent period of four consecutive fiscal quarters of the Partnerships ended prior to such date (or shorter period commencing on December 1, 1994), treated as a single accounting period, with respect to which financial statements shall have been delivered to the Project Trustee. "S&P" means Standard & Poor's Ratings Services, a division of McGraw Hill. "Sanwa Bank" means The Sanwa Bank, Limited, New York Branch. "Sanwa Credit Agreement" means the Credit Agreement, dated as of December 1, 1994, by and among the Partnerships, Sanwa Bank as issuing bank and as agent, and the other banks named therein. "Sanwa Letter of Credit Banks" means the financial institutions from time to time parties to the Sanwa Letter of Credit Facility, "Sanwa Letters of Credit" means the letters of credit issued by the Sanwa Letter of Credit Banks to secure the Partnerships' Energy Bank Obligations. "Sanwa Working Capital Banks" means the financial institutions from time to time parties to the Sanwa Working Capital Facility. "Sanwa Working Capital Facility" means the Working Capital Facility provided by the Sanwa Working Capital Banks pursuant to the Sanwa Credit Agreement. "SEC" means the United States Securities and Exchange Commission. "Second Supplemental Indenture" means the Second Supplemental Trust Indenture dated as of January 14, 1998 among IEC Funding Corp., Northeast Energy Associates, A Limited Partnership, North Jersey Energy Associates, A Limited Partnership and State Street Bank and Trust Company. "Securities Act" means the Securities Act of 1933, as amended. "Sellers" means those Sellers identified on Schedule I to the Purchase Agreement. "Sponsors" means ESI Energy, Inc. and Tractebel Power, Inc. "Sponsor Members" means individually and collectively, (i) each of John R. Roy and Mary Lou Roy, (ii) any lineal descendant or any spouse of any of the foregoing (excluding Jack Roy and his spouse and their lineal descendants and their spouses) and (iii) the heirs, executors, legal representatives and administrators of any of the foregoing. "Spot Gas" means any natural gas purchased by either Partnership pursuant to (a) arrangements and agreements having a term of one year or less, (b) either ProGas Agreement subsequent to the ProGas Agreement Expiration Date with respect thereto (i.e., during the period over which such ProGas Agreement shall be extended on terms not constituting a Partial ProGas Extension Event) or (c) any arrangements and agreements entered into after the date hereof and covering a period 109 subsequent to the earliest ProGas Agreement Expiration Date and having a term greater than one year in duration. "State Street Bank" means State Street Bank and Trust Company, a Massachusetts banking corporation. "Steam Sales Agreements" means, collectively, the NEA Steam Sales Agreement and the NJEA Steam Sales Agreement. "Subfunds" means the subfunds established and maintained by the Project Trustee pursuant to the Project Indenture. "Subordinated Debt" means all Debt of the Partnerships or ESI Tractebel Funding subordinated in right of payment to the Project Securities in accordance with certain requirements specified in the Project Indenture. "Subordinated Management Fee" means, for each calendar year commencing with the year in which the closing date occurs a portion of the Management Costs referred to in clause (iv) of the definition thereof in an amount equal to $1,500,000 (inflated annually commencing on January 1, 1999 and adjusted ratably for each partial calendar year in which the Project Securities are outstanding). "Substitute Debt Service Coverage Ratio" means, for any period, the ratio of (a) the sum of (i) Operating Cash Flow for such period plus (ii) the balance held in the Partnership Suspense Fund as of the date of determination of the Substitute Debt Service Coverage Ratio to (b) Mandatory Debt Service for such period. "Substitute Letter of Credit" means an irrevocable standby letter of credit (a) issued by a commercial bank whose long-term unsecured debt obligations are rated (or whose bank holding company has long-term unsecured debt obligations rated) at least "A" by S&P, "A2" by Moody's or "A" by Fitch (or an equivalent rating by another nationally recognized credit rating agency of similar standing if two or more of such corporations are not in the business of rating long-term obligations of commercial banks) at the time of issuance, (b) in a form reasonably acceptable to the Project Trustee, (c) with a minimum term of one year (or shorter period ending on or after the final maturity date of the Project Securities), (d) for the benefit of the Project Trustee, (e) which shall not be a Debt of either ESI Tractebel Funding or either Partnership and shall not be secured by or otherwise encumber any of the Project Collateral and (f) providing for the amount thereof to be available to the Project Trustee in multiple drawings, including a final drawing at any time within 30 days prior to the expiration of such letter of credit for the full face amount thereof in the event such letter of credit is not renewed or substituted with one or more other Substitute Letters of Credit at such time, conditioned only upon presentation of sight drafts accompanied by the applicable certificate in the form attached to such letter of credit (and reasonably acceptable in form to the Project Trustee). "Substitute Letter of Credit Bank" means BankBoston, Bank Brussels Lambert or any other financial institutions providing a Substitute Letter of Credit. 110 "Swap Banks" means the financial institutions that are parties to the Swaps. "Swaps" means (i) the interest rate exchange agreements entered into by the Partnerships with various financial institutions in connection with the Original Project Credit Agreement and (ii) the interest rate exchange agreements entered into by the Partnerships on December 1, 1994, in connection with the issuance of the Original Project Securities. "Tax Requirements," as defined in the Project Indenture, means, for each Quarterly Tax Payment Date, the aggregate amount of Federal, New Jersey (in the case of a partner of NJEA) and Massachusetts (in the case of a partner of NEA) income taxes (including estimated tax payments thereof) estimated to be payable by the partners on such Quarterly Tax Payment Date, computed based upon and in accordance with the following assumptions: (a) each partner shall be considered an unmarried individual without dependents subject to tax on all income at the highest marginal rate of Federal and, as applicable, New Jersey and/or Massachusetts income taxes whose only asset and only source of income, gain, loss, deduction or credit is the Partnership(s) (taking into account net operating loss, capital loss and any other loss or credit carryforwards or carrybacks that would be available to such partner, and that arise solely as a result of the income, gains, losses, deductions and credits of the Partnerships and the deductibility of state income taxes for Federal income tax purposes); (b) all income of the Partnerships subject to Massachusetts income tax shall be treated as ordinary income, interest income, dividend income or net capital gain in accordance with the relevant provisions of Massachusetts income tax law; and (c) except as otherwise contemplated pursuant to the next succeeding sentence, each partner pays its taxes for a given calendar year in quarterly installments on the applicable Quarterly Tax Payment Date; provided, that any such computation shall not give effect to, and the term "Tax Requirements" shall not include, any income taxes payable as a result of a dissolution of one or both Partnerships to the extent that such income taxes exceed the amount of income taxes which would have been payable if such dissolution had not occurred. The Tax Requirements, as of any date of determination (the "Tax Determination Date"), shall be increased or reduced, as the case may be, to reflect any difference between (x) the Tax Requirements for any preceding Quarterly Tax Payment Date as originally computed (after giving effect to any previous increase or reduction relating thereto) and (y) the Tax Requirements for such preceding Quarterly Tax Payment Date as recomputed at the Tax Determination Date to reflect any change in the original computation, including, on an annual basis, any differences between any estimates of Partnership income and expenses for any fiscal year (or any period during such fiscal year) utilized in such computations and the actual Partnership income and expenses for such fiscal year. In the case of a reduction that exceeds the Tax Requirements amount calculated before giving effect to such reduction, each subsequent Tax Requirements amount shall be reduced to the extent of such excess until such excess has been fully offset against subsequent Tax Requirements. At any time during which either NJEA, NEA or any Permitted Successor (as defined in the Project Indenture) is itself an entity subject to Federal or, in the case of NJEA, New Jersey, or in the case of NEA, Massachusetts, income or franchise or similar taxes, the Tax Requirements attributable to NJEA, NEA or such Permitted Successor (as defined in the Project Indenture), as the case may be, shall be reduced by the amount of such Federal, New Jersey and Massachusetts taxes payable by NJEA, NEA or such successor entity; provided, however, that in the case of any such tax payable to New Jersey or Massachusetts, no 111 such reduction to the applicable Tax Requirements shall occur if the entity on which the tax is imposed is treated as a pass-through entity in such jurisdiction. "Texas Eastern" means Texas Eastern Transmission Line Corporation, a Delaware corporation. "Tractebel Belgium" means Tractebel S.A., a company organized under the laws of Belgium. "Tractebel GP" means Tractebel Northeast Generation GP, Inc., a Delaware corporation. "Tractebel LP" means Tractebel Associates Northeast LP, Inc., a Delaware corporation. "Tractebel Power" means Tractebel Power, Inc., a Delaware corporation. "Tractebel" means Tractebel, Inc., a Delaware corporation. "TransCanada" means Trans Canada Pipelines Limited, an Ontario corporation. "Transco" means Transcontinental Gas Pipe Line Corporation, a Delaware corporation. "Transco Agreement Expiration Date" means, with respect to each Transco Agreement, the later of (a) October 31, 2006, and (b) the scheduled expiration date of such Transco Agreement after giving effect to any Partial Transportation Extension Events with respect to such Transco Agreement (it being understood that, in the event of the continuance of such Transco Agreement on terms not constituting a Partial Transportation Extension Event, the scheduled expiration date of such Transco Agreement for purposes of this clause (b) shall be deemed to be the last day through which such Transco Agreement was extended on terms constituting a Partial Transportation Extension Event. "Transco Agreements" means the Firm Gas Transportation Agreement for Rate Schedule X-320 dated February 27, 1991 between Transco and NEA and the Firm Gas Transportation Agreement for Rate Schedule X-319 dated February 27, 1991 between Transco and NJEA. "Transco Extension Event" means the occurrence of each of the following with respect to a Transco Agreement: (a) the extension of the term of such Transco Agreement resulting in a scheduled expiration date therefor that is on or after the final maturity date of the Project Securities and otherwise on substantially the same terms and conditions contained in such agreement on December 1, 1994, except for any changes to the charges for transportation service applicable to the period of any such extension; and (b) the receipt by the Project Trustee of a certificate of the Independent Gas Consultant to the effect of (a) above. "Transco Substitution Event" means the occurrence of each of the following: (a) the execution by each Partnership and one or more third parties of one or more gas transportation agreements providing for firm gas transportation service to the Partnerships by such third party(ies) in substitution of the firm transportation service provided to the Partnerships by Transco under the Transco Agreements, which substitute firm gas transportation service shall (i) be furnished during the period form the expiration date of the Transco Agreements through a date no earlier than the 112 final maturity date of the Project Securities, (ii) cover volumes of gas for each Partnership not less than those covered on December 1, 1994 under the Transco Agreements to which such Partnership is (or was) party, and (iii) be on terms generally no less favorable to each Partnership than those contained on December 1, 1994 in the Transco Agreement to which such Partnership is (or was) party, except for changes to the charges for transportation service; and (b) the receipt by the Project Trustee of a certificate of the Independent Gas Consultant to the effect of (a) above (other than with respect to (a)(iii) above). "Voting Stock" as defined in the Project Indenture means the Capital Stock of any Person as of any date that such Person is at the time entitled to vote in the election of the Board of Directors of such Person. "Westinghouse Electric" means Westinghouse Electric Corporation, a Pennsylvania corporation. "Westinghouse Services" means Westinghouse Operating Services Company, a Delaware corporation and a subsidiary of Westinghouse Electric. "Working Capital Banks" means the financial institutions from time to time parties to a Working Capital Facility. "Working Capital Facility" means any agreement or agreements from time to time in effect among the Partnerships and the Working Capital Banks providing for the availability of working capital loans to the Partnerships in an aggregate principal amount not to exceed $20 million. "Working Capital Fund" means the Fund entitled "Working Capital Fund" established and maintained by the Project Trustee pursuant to the Project Indenture. "Working Capital Loans" means loans provided under the Working Capital Facility. 113 Index to Financial Statements - --------------------------------------------------------------------------------
Page ---- Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Report of Independent Accountants................................................................... F-2 Combined Balance Sheet at December 31, 1996 and 1997................................................ F-3 Combined Statement of Operations for the years ended December 31, 1995, 1996 and 1997 ...................................................................................... F-4 Combined Statement of Partners' Deficit for the years ended December 31, 1995, 1996 and 1997 ...................................................................................... F-5 Combined Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997 ...................................................................................... F-6 Notes to Combined Financial Statements.............................................................. F-8 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Report of Independent Accountants .................................................................. F-22 Balance Sheet at December 31, 1996 and 1997......................................................... F-23 Statement of Operations for the years ended December 31, 1995, 1996 and 1997........................ F-24 Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997........................ F-25 Notes to Financial Statements....................................................................... F-26
Report of Independent Accountants To the Partners of Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of partners' deficit and of cash flows present fairly, in all material respects, the financial position of Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership, at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnerships' managements; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts March 24, 1998 F-2 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Balance Sheet - --------------------------------------------------------------------------------
December 31, 1996 1997 ---------- ---------- (In thousands) Assets Current assets: Cash and cash equivalents $ 49,861 $ 61,203 Accounts receivable 43,671 34,036 Fuel inventories 5,410 4,752 Prepaid expenses and other current assets 2,566 3,052 ------------ ------------ Total current assets 101,508 103,043 ------------ ------------ Cogeneration facilities and carbon dioxide facility (net of accumulated depreciation of $129,068,000 and $153,963,000 at December 31, 1996 and 1997, respectively) 373,781 349,365 Other fixed assets (net of accumulated depreciation of $438,000 and $535,000 at December 31, 1996 and 1997, respectively) 304 181 Unamortized financing costs 17,837 15,674 Other assets 3,806 4,012 Restricted cash 69,156 69,156 ------------ ------------ Total non-current assets 464,884 438,388 ------------ ------------ Total assets $ 566,392 $ 541,431 ============ ============ Liabilities and Partners' Deficit Current liabilities: Current portion of loans payable - ESI Tractebel Funding Corp. $ 24,075 $ 21,563 (formerly IEC Funding Corp.) Accounts payable 14,528 15,450 Other accrued expenses 2,037 1,426 Future obligations under interest rate swap agreements 2,022 889 ------------- ------------ Total current liabilities 42,662 39,328 ------------ ------------ Loans payable - ESI Tractebel Funding Corp. 490,287 468,724 (formerly IEC Funding Corp.) Amounts due utilities for energy bank balances 220,922 230,565 ------------ ------------ Total non-current liabilities 711,209 699,289 ------------ ------------ Total liabilities 753,871 738,617 ------------ ------------ Partners' deficit: General partner (4,616) (4,714) Limited partners (182,863) (192,472) ------------ ------------ Total partners' deficit (187,479) (197,186) ------------ ------------ Commitments and contingencies (Note 6) - - ------------ ------------ Total liabilities and partners' deficit $ 566,392 $ 541,431 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Operations - --------------------------------------------------------------------------------
For the year ended December 31, 1995 1996 1997 ----------- ----------- ----------- (In thousands) Revenue: Power sales to utilities $ 276,022 $ 267,789 $ 307,530 Steam sales 4,527 4,473 4,624 ----------- ----------- ----------- Total revenue 280,549 272,262 312,154 ----------- ----------- ----------- Costs and expenses: Cost of power and steam sales 132,839 138,727 151,476 Operation and maintenance 24,699 22,854 25,689 Depreciation 24,904 24,978 24,992 General and administrative expenses 12,010 14,424 15,984 ----------- ----------- ----------- Total costs and expenses 194,452 200,983 218,141 ----------- ----------- ----------- Operating income 86,097 71,279 94,013 ----------- ----------- ----------- Other expenses (income): Amortization of financing costs 2,305 2,373 2,163 Interest expense 50,930 49,841 47,673 Interest expense on energy bank balances 16,657 19,675 17,435 Interest income (10,652) (10,534) (9,931) ----------- ----------- ----------- Total other expenses, net 59,240 61,355 57,340 ----------- ----------- ----------- Net income $ 26,857 $ 9,924 $ 36,673 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Partners' Deficit - --------------------------------------------------------------------------------
Total General Limited Partners' Partner Partners Deficit ------- -------- ------- (In thousands) Balance at December 31, 1994 $ (3,670) $ (89,258) $ (92,928) Net income 268 26,589 26,857 Distribution to partners (645) (63,861) (64,506) ----------- ----------- ----------- Balance at December 31, 1995 (4,047) (126,530) (130,577) Net income 99 9,825 9,924 Distribution to partners (668) (66,158) (66,826) ----------- ----------- ----------- Balance at December 31, 1996 (4,616) (182,863) (187,479) Net income 366 36,307 36,673 Distribution to partners (464) (45,916) (46,380) ----------- ----------- ----------- Balance at December 31, 1997 $ (4,714) $ (192,472) $ (197,186) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-5 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Cash Flows - --------------------------------------------------------------------------------
For the year ended December 31, Increase (Decrease) in Cash and Cash Equivalents 1995 1996 1997 ------------ ------------ ----------- (In thousands) Cash flows from operating activities: Cash received from utilities and other customers $ 287,638 $ 294,942 $ 314,293 Cash paid to suppliers (164,875) (170,531) (184,234) Interest paid (53,869) (51,435) (48,794) Bank commitment fees paid (38) (38) (37) Interest received 8,854 10,807 9,602 Cash payments to general partner for operating activities (2,914) (5,031) (4,897) Cash payments to owners/management (3,566) (3,688) (3,758) ------------ ------------ ------------ Net cash provided by operating activities 71,230 75,026 82,175 ------------ ------------ ------------ Cash flows from investing activities: Net expenditures for facilities (1,885) (808) (334) Expenditures for other fixed assets (76) (16) (44) Decrease in restricted cash 3,432 9,412 - ------------ ------------ ------------ Net cash provided by (used for) investing activities 1,471 8,588 (378) ------------ ------------ ------------ Cash flows from financing activities: Principal payments on debt (20,434) (25,204) (24,075) Payment of financing costs (5,739) - - Distributions to partners (64,506) (66,826) (46,380) ------------ ------------ ------------ Net cash used for financing activities (90,679) (92,030) (70,455) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (17,978) (8,416) 11,342 Cash and cash equivalents at beginning of year 76,255 58,277 49,861 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 58,277 $ 49,861 $ 61,203 ============ ============ ============
Non-cash Investing Activities In 1996 and 1997, total capitalized facility costs which were accrued at year end for payment were approximately $165,000 and $240,000, respectively. The accompanying notes are an integral part of these financial statements. F-6 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Cash Flows (continued) - --------------------------------------------------------------------------------
For the year ended December 31, Increase (Decrease) in Cash and Cash Equivalents 1995 1996 1997 - ------------------------------------------------ --------- -------- -------- (In thousands) Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income $ 26,857 $ 9,924 $ 36,673 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 24,904 24,978 24,992 Amortization of financing costs 2,305 2,373 2,163 (Increase) decrease in accounts receivable (11,346) 7,794 9,635 (Increase) decrease in fuel inventories - (894) 658 (Increase) decrease in prepaid expenses and other current assets (1,765) 347 (486) Increase in accounts payable 633 129 847 Increase (decrease) in other accrued expenses 651 (67) (611) (Decrease) in future obligations under interest rate swap agreements (2,771) (1,632) (1,133) Increase in amounts due utilities for energy bank balances 32,557 32,869 9,643 (Increase) in other assets (795) (795) (206) ----------- ----------- ----------- Net cash provided by operating activities $ 71,230 $ 75,026 $ 82,175 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-7 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- 1. Nature of Business The enactment in 1978 of the Public Utility Regulatory Policies Act ("PURPA") and the adoption of the regulations thereunder by the Federal Energy Regulatory Commission ("FERC") provided incentives for the independent development of power production facilities, such as cogeneration, by requiring electric utilities to purchase power generated by qualifying facilities. Northeast Energy Associates, A Limited Partnership, ("NEA") and North Jersey Energy Associates, A Limited Partnership, ("NJEA") (or together, the "Partnerships") operate in the independent power industry. The Partnerships were organized to develop, finance, construct, own, manage and operate two 300 megawatt ("MW") natural gas-fueled cogeneration facilities, one in Bellingham, Massachusetts and one in Sayreville, New Jersey. The Partnerships have been granted permission by FERC to operate the cogeneration facilities as qualifying facilities defined in PURPA and as defined in federal regulations. Through January 14, 1998, the general partner of each of the Partnerships was Intercontinental Energy Corporation ("IEC"), a Massachusetts corporation. IEC owned a one percent interest in each partnership and the individual stockholders of the general partner collectively owned the majority of the remaining partnership interests. On January 14, 1998, all of the partner interests in the Partnerships were acquired (Note 10). The partners share profits and losses and have interests in assets and liabilities and cash flows in proportion to their tax basis capital accounts. Distributions to the partners may be made only after all required funds and subfunds have been fully funded, as described in the trust indenture (Note 5). Cash Allocations Upon Disposition or Refinancing In the absence of any dissolution events, the Partnerships shall continue in existence until December 31, 2025 or thereafter, if so determined by the majority of partners. Proceeds upon liquidation or refinancing of partnership property would be apportioned on the following basis: 1. Expenses of liquidation; 2. Third party debts and obligations; 3. To partners in proportion to their designated interests in the Partnerships. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying combined financial statements include the accounts of NEA and NJEA and are combined based on common ownership. All transactions between NEA and NJEA have been eliminated in these combined financial statements. F-8 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------- Cogeneration Facilities and Carbon Dioxide Facility The cogeneration facilities and the carbon dioxide facility are stated at cost. Cost includes initial acquisition costs increased by subsequent development and construction costs, including developer fees and construction management fees, interest expense and amortization of project loan acquisition costs incurred during the construction period, and continuing facility improvements. Capitalized facility costs are being depreciated using the straight-line method over the estimated useful life of each facility of 20 years. Unamortized Financing Costs Unamortized financing costs consist primarily of investment banking fees, legal fees and other costs associated with the placement of securities (Note 5). In May 1995, the Partnerships paid a $5,600,000 restructuring fee, out of excess cash flow, to the general partner in connection with the refinancing (Note 5) equal to 1% of the total refinancing. These costs are being amortized over the approximate 15-year term of the securities using the interest method. Unamortized financing costs are net of accumulated amortization of $4,845,000 and $7,008,000 at December 31, 1996 and 1997, respectively. Other Fixed Assets Other fixed assets consist primarily of furniture, office equipment and leasehold improvements and are depreciated using the straight-line method over estimated useful lives ranging from 3-7 years. Inventories Inventories consist of natural gas and fuel oil and are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. Interest Rate Swap Agreements Notional principal amounts in contracts and related settlement gains and losses on interest rate swap agreements are allocated to the Partnerships based on the relative amounts of outstanding borrowings of each partnership on the date on which the swap agreements were contracted. Prior to the refinancing (Note 5), gains and losses, based on the amount the Partnerships were entitled to receive or required to pay for additional interest, were determined at each calendar quarter-end based on the outstanding notional balance and the amount by which the contractual fixed rate exceeded or was less than the contractual variable rate. Such gains and losses were recognized as adjustments to interest expense. Subsequent to the refinancing (Note 5), the net payments required pursuant to all swap agreements and the change in the fair value of the swap agreements are recognized as adjustments to interest expense. The fair value of the swap agreements is recorded as a current liability. See Notes 5 and 9 for further disclosure regarding interest rate swap agreements. Natural Gas Hedging Instruments Premiums paid for natural gas call options are deferred within other current assets and are accounted for in conjunction with the underlying natural gas purchases at which point the premiums are written off to, and any resultant gains credited to, cost of power and steam sales. Gains and losses on natural gas purchase swap agreements are recognized as adjustments to cost of power and steam sales at monthly settlement dates. Purchases of natural gas under forward purchase agreements are accounted for as cost of power and steam sales at their contract price at the time of delivery. See Note 9 for further disclosure regarding natural gas hedging instruments. F-9 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- Revenue Recognition Revenue from power sales is recognized in accordance with Emerging Issues Task Force Issue No. 91-6, "Revenue Recognition of Long-Term Power Sales Contacts." Revenue is recognized based on power delivered at rates stipulated in power sales agreements, except that revenue is deferred to the extent that stipulated rates are in excess of amounts, either scheduled or specified, in the agreements. The excess amounts deferred are accumulated in energy banks and are reflected as amounts due utilities for energy bank balances on the combined balance sheet. Revenue from steam sales is recognized upon delivery of the steam. Income Taxes The partners are required to report their respective shares of the Partnerships' taxable income or losses in their income tax returns and are liable for any related taxes thereon. Accordingly, no provision for income taxes is made in the combined financial statements of the Partnerships. The Partnerships' net assets and liabilities for financial reporting purposes exceeded the net assets and liabilities for tax purposes by approximately $41.6 million and $41.5 million at December 31, 1996 and 1997, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Cash and Cash Equivalents and Restricted Cash The Partnerships consider all investments purchased with an original maturity of three months or less to be cash equivalents. The Partnerships invest excess cash in high grade money market accounts and commercial paper with original maturities less than three months. Accordingly, the investments are subject to minimal credit and market risk and are considered by the Partnerships to be cash equivalents. At December 31, 1996 and 1997, all of the Partnerships' cash equivalents are classified as held-to-maturity and recorded at amortized cost, which approximates fair value. Restricted cash at December 31, 1996 and 1997 represents cash reserved as collateral for letters of credit related to energy bank balances (Note 6). This cash is invested with a bank in a fixed-rate investment agreement. Subsequent to the acquisition on January 14, 1998 of all of the partner interests in the Partnerships, the cash collateral requirement related to the energy bank balances was terminated in exchange for the guarantee of one of the acquiring entities (Note 10). 4. Cogeneration Facilities and Carbon Dioxide Facility Cogeneration Facilities Cogeneration facilities consist of costs incurred to develop and construct two gas-fueled cogeneration plants with maximum output capacities of any combination of electricity and steam equivalent to approximately 600 MW in the aggregate. F-10 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------- Facility Sites The facility owned by NEA is constructed on four parcels of land of approximately 44 acres in Bellingham, Massachusetts. Three of the parcels were acquired under various purchase and sale agreements. The remaining parcel of land was acquired under a 26-year operating lease agreement entered into in 1986 between NEA and a local developer. The lease may be extended for another 25 years at the option of NEA. The agreement provides for an annual lease payment of $60,000 from the date of the agreement increasing annually thereafter by $12,000 (Note 6). The facility owned by NJEA is constructed on two parcels of land of approximately 49 acres acquired under various purchase and sale agreements. Power Sale Agreements Commencing in 1986, NEA entered into five power sale agreements with three major Massachusetts utilities to sell approximately 290 MW at initial floor prices per kilowatt hour ("Kwh"), subject to adjustment based on actual volumes of electricity purchased, escalation factors and other conditions. Performance under certain of these power sale agreements is secured by a second mortgage on the Bellingham facility. In 1987, NJEA entered into an agreement with a major New Jersey utility to sell 250 MW at an initial fixed price per Kwh subject to adjustments, as defined in the agreement. These power sale agreements have terms ranging from 20 to 30 years. All of the Partnerships' power sales to utilities are generated through these arrangements. As such, the Partnerships are directly affected by changes in the power generation industry. Substantially all of the Partnerships' accounts receivable are with utilities located in the Northeast portion of the United States. The Partnerships do not require collateral or other security to support their receivables. However, management does not believe significant credit risk exists at December 31, 1997. Sales to significant customers are as follows: During the year ended December 31, 1995, revenue from two different utilities totaled approximately $132.1 million and $118.3 million, or approximately 47% and 42% of revenue, respectively. During the year ended December 31, 1996, revenue from two different utilities totaled approximately $122.3 million and $121.5 million, or approximately 45% and 44% of revenue, respectively. During the year ended December 31, 1997, revenue from two different utilities totaled approximately $142.4 million and $123.6 million, or approximately 46% and 40% of revenue, respectively. Certain agreements require the establishment of suspense accounts ("energy banks") to record cumulative payments made by the utilities in excess of avoided cost rates scheduled or specified in such agreements. Some energy banks bear interest at various rates specified in the agreements. A positive energy bank balance represents a liability of the applicable Partnership to the applicable power purchaser which will be reduced by subsequent sales of electric power to such power purchaser to the extent that in later periods the avoided cost rates scheduled or specified in such agreements rise above contract rates. For certain agreements requiring the establishment of energy banks, the Partnerships are required to provide collateral based on energy bank balances (Note 6). F-11 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- On November 25, 1997, the Massachusetts legislature passed a comprehensive electric deregulation bill, the purpose of which is to establish a comprehensive framework for the restructuring of the electric utility industry. Additionally, industry efforts are also underway in New Jersey. While the Partnerships' do not expect electric utility industry restructuring to result in material adverse changes to the Partnerships' Power Purchase Agreements, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. Steam Sales Agreements and Carbon Dioxide Facility In order for the Partnerships' facilities to maintain the status as qualifying facilities under PURPA, the facilities are required to generate five percent of total energy output as steam for sale to unrelated third parties. In 1989, NEA entered into a 25-year steam sales contract with a processor and seller of carbon dioxide. Pursuant to this agreement, NEA sells all the steam generated by the Bellingham facility at a price which fluctuates based on changes in the price of a specified grade of fuel oil. This agreement can be extended at the option of the steam user. In conjunction with this contract, NEA has constructed a carbon dioxide facility and, in 1989, entered into a 15-year agreement to lease the facility to the steam user. Base rent under the terms of the lease is $100,000 per month, adjusted by the operating results of the carbon dioxide facility for each month as outlined in the lease agreement. Additionally, NEA pays the steam user $100,000 annually for administrative services rendered related to the operation of the carbon dioxide facility. NEA does not operate the carbon dioxide facility. In 1989, NJEA entered into a 20-year steam sales contract with a steam user adjacent to the Sayreville facility. Under the terms of this agreement, NJEA sells a specified maximum quantity of steam at a floor price which can increase based on changes in prices of coal. This agreement automatically renews for two consecutive five year terms unless either party gives notice not to renew two years before the expiration of each of the prior terms. Fuel Supply, Transportation and Storage Agreements Natural gas is provided to the facilities primarily under long-term contracts for supply, transportation and storage. The remaining fuel requirements of the facilities are provided under short-term "spot" arrangements. The long-term natural gas supply is provided under contracts with ProGas Limited ("ProGas"), a Canadian gas marketing company, and Public Service Electric and Gas Company ("PSE&G"), a domestic retail gas distribution company. Transportation of the natural gas is provided by various pipeline companies, including CNG Transmission Company ("CNG"), Transcontinental Gas Pipe Line Corporation ("Transco") and Algonquin Gas Transmission Company ("Algonquin"). Gas storage agreements provide contractual arrangements for the storage of limited volumes of natural gas with third parties for future delivery to the projects. The ProGas contracts commenced in 1991. The initial terms of these contracts of 15 years were extended an additional seven years effective in 1994. Under the ProGas contracts, ProGas is required to arrange for the aggregation, gathering and transportation of gas from Alberta, Canada to the U.S. pipeline at Niagara, New York. The maximum total volumes of gas to be delivered under these contracts are approximately 48,800 and 22,000 MMBtu per day for NEA and NJEA, F-12 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- respectively. The contract price of the ProGas supply delivered to the import point, inclusive of transportation costs to that point, is determined with reference to a "base price" in 1990, redetermined annually thereafter based on specified inflation indices. The PSE&G contract commenced in 1991. Under the PSE&G agreement, PSE&G will sell and deliver to NJEA up to 25,000 MMBtu per day of gas for a term of 20 years. The contract price of the PSE&G fuel is established monthly using a contractually specified mechanism. With the exception of the PSE&G arrangement, all of the Partnerships' long-term contractual arrangements call for monthly "demand charge" payments. These demand charge payments, which are to reserve certain pipeline transportation capacity, are made regardless of the facilities' specific fuel requirements in any month and regardless of whether the facilities utilize the capacity reserved under the contracts. These demand charges totaled approximately $49 million, $48 million and $46 million in 1995, 1996 and 1997, respectively, and total payments under such contracts were approximately $98.3 million, $100.5 million and $112.5 million in 1995, 1996 and 1997, respectively, inclusive of demand charges. Under 1997 pricing conditions, the demand charge payments would be approximately $46 million under these contracts for each of the next five years and approximately $723 million over the remaining life of these contracts. Total charges under the contract with PSE&G, including transportation costs, during 1995, 1996 and 1997, were approximately $24.3 million , $32.4 million and $28.1 million, respectively. In the event that the available capacity under these agreements is not utilized by the operations of the facilities, the Partnerships have the opportunity under certain of these contractual agreements to sell unused capacity to third parties, but have not yet done so. NEA's facility also has the capability to burn #2 fuel oil. Fuel oil was obtained and is stored on site for contingency supply for the facility. 5. Loans Payable In 1989, as amended in 1990, 1991 and 1992, the Partnerships, together with the general partner, executed a project loan and credit agreement with a group of banks for a maximum commitment of $600,000,000 for the construction and development of the Bellingham and Sayreville facilities and initial working capital and letters of credit facility. On December 1, 1994, the Partnerships refinanced their existing borrowings by means of a placement of securities to qualified institutional investors as defined in Rule 144A of the Securities Act of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
December 31, 1996 1997 ------------ ------------- 8.43% Senior Secured Notes Due 2000 $ 95,482,000 $ 71,407,000 9.16% Senior Secured Notes Due 2002 31,500,000 31,500,000 9.32% Senior Secured Bonds Due 2007 215,740,000 215,740,000 9.77% Senior Secured Bonds Due 2010 171,640,000 171,640,000 ------------ ------------- $514,362,000 $490,287,000 ============ ============
F-13 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- The above securities were issued through a special purpose funding corporation, IEC Funding Corp., established solely for the purpose of issuing the securities, and are unconditionally guaranteed, jointly and severally, by the Partnerships. Effective February 10, 1995, IEC Funding Corp. filed a Registration Statement on Form S-4 with the Securities and Exchange Commission for purposes of effecting a public exchange offer whereby the securities listed above were exchanged for a new issue of securities (the "Securities"). The Securities have terms identical to the securities issued in accordance with Rule 144A. Subsequent to the acquisition discussed in Note 10, IEC Funding Corp. changed its name to ESI Tractebel Funding Corp. Interest on the Securities is payable semiannually on each June 30 and December 30, commencing December 30, 1994. Principal repayments, which commenced on June 30, 1995, are made semiannually in amounts stipulated in the trust indenture. Future principal payments are as follows: Year ending December 31, 1998 $ 21,563,000 1999 23,511,000 2000 26,333,000 2001 20,160,000 2002 22,688,000 Thereafter 376,032,000 ------------ $490,287,000 ============ The Securities are not subject to optional redemption but are subject to mandatory redemption in certain limited circumstances involving the occurrence of an event of loss, as defined in the trust indenture, for which the Partnerships fail to or are unable to restore a facility. Additionally, the Partnerships may, at their option, repurchase all or part of the Securities with proceeds received from the release of cash collateral maintained as security for letters of credit (Note 6). The proceeds of the Securities were used (a) to purchase the notes outstanding under the original loan and credit agreement and (b) to make loans to the Partnerships. In connection with these two transactions, the notes outstanding under the loan and credit agreement were surrendered and new notes of the Partnerships were issued to ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) in an aggregate principal amount equal to the aggregate principal amount of the Securities (the "New Notes") and the loan and credit agreement was assigned to ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) and amended and restated (the "Amended and Restated Credit Agreement"). Borrowings are secured by a lien on, and a security interest in, substantially all of the assets of the Partnerships. Under the Amended and Restated Credit Agreement, the Partnerships are jointly and severally required to make scheduled payments on the New Notes on dates and in amounts identical to the scheduled payments of principal and interest on the Securities. The Securities, the guarantees thereon provided by the Partnerships and the New Notes are nonrecourse to the partners of the Partnerships and are payable solely from the collateral pledged as security. F-14 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- Under the terms of the trust indenture governing the Securities, the Partnerships are required to establish certain funds and subfunds, which must be fully funded before any distributions can be made to partners. The funding requirements of these funds are defined in the trust indenture. Cash within these funds can be drawn currently if funds in the Partnerships' other cash accounts are insufficient to meet operational cash requirements. The order in which these funds may be drawn is described in the trust indenture. Funds available for distribution to partners as of December 31, 1997 have been paid. The trust indenture contains certain restrictions on certain activities of the Partnerships, including the incurrence of additional indebtedness or liens, the payment of distributions to the partners, the cancellation of power sale and fuel supply agreements, the use of proceeds from the issuance of the Securities and the execution of mergers, consolidations and sales of assets. The trust indenture allows the Partnerships to enter into revolving credit agreements of up to $20 million in order to provide for working capital requirements. The Partnerships have entered into an initial working capital facility of $15 million with a bank. Available borrowings under the working capital facility are calculated based on outstanding receivables and fuel inventories. The Partnerships are required to pay an annual agency fee of $25,000 and quarterly commitment fees at an annual rate of .25% on the unused portion of the facility. At December 31, 1996 and 1997, no borrowings were outstanding under this working capital facility. Subsequent to the acquisition on January 14, 1998 of all of the partner interests in the Partnerships, this working capital facility was terminated (Note 10). Under the terms of the original loan and credit agreement, the Partnerships were required to enter into interest rate swap agreements ("Swaps") with certain financial institutions, providing for payments thereunder on a notional principal amount of indebtedness to be made by the Partnerships at fixed interest rates in exchange for payments to be made by such financial institutions at floating interest rates. Such existing Swaps remained in effect after the issuance of the Securities. In connection with the issuance of the Securities, the Partnerships entered into counter swap agreements in order to hedge the obligations of the Partnerships under such existing Swaps. As a result of the foregoing arrangements, after giving effect to the net payments to be made and received by the Partnerships pursuant to all of the Swaps, the Partnerships' net payments pursuant to the Swaps were equivalent to a fixed net interest rate of approximately 1.35% on the original specified notional principal amount, which was scheduled to decline periodically until the scheduled expiration of the Swaps in 1999. The Partnerships are jointly and severally liable under these agreements. The Partnerships' exposure to interest rate fluctuations could increase in the event of nonperformance by the bank who is party to the interest rate swap agreements; however, the Partnerships do not anticipate nonperformance by the bank. See Note 9 for additional information regarding interest rate swap agreements. As a result of the refinancing described above, the original Swaps no longer qualify as hedges and, therefore, must be recorded at fair value. Changes in fair value are recognized in the combined statement of operations. See Note 9 for information regarding fair value of financial instruments. F-15 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- 6. Commitments and Contingencies See Note 4 for information regarding additional commitments and contingencies. Energy Bank Collateral Under the terms of the trust indenture, the Partnerships are required to maintain a letter of credit facility to secure obligations for energy bank balances under the various power purchase agreements (Note 4). During December 1994, the Partnerships entered into an agreement with a bank for a letter of credit facility to issue up to an aggregate amount of $82 million in letters of credit. This facility contains a cross-default provision to the trust indenture, as well as a payment default under the working capital facility (Note 5). The Partnerships pay quarterly fees on this letter of credit facility at an annual rate of .30% on outstanding letters of credit and unused commitments to issue letters of credit. As of December 31, 1996 and 1997, the Partnerships' obligation for letters of credit outstanding under this facility is $68,656,000 and $67,656,000, respectively. The Partnerships are required to provide cash collateral for the maximum amount of obligations allowed under the terms of this facility. As of December 31, 1996 and 1997, the Partnerships reserved $69,156,000 in cash as collateral for such obligations (Note 3). Subsequent to the acquisition on January 14, 1998 of all of the partner interests in the Partnerships, the cash collateral requirement was terminated in exchange for the guarantee of one of the acquiring entities; also, the letters of credit facility was replaced with letters of credit from other financial institutions (Note 10). Operation and Maintenance of the Cogeneration Facilities In 1989, the Partnerships entered into two separate ten year operation and maintenance agreements with the same contractor responsible for constructing and installing the combined-cycle cogeneration plants for both facilities for an aggregate annual consideration of approximately $11,100,000 subject to changes in specified indices. The agreements commenced during 1991 after the facilities became operational. The Partnerships each have an option to enter into a successor operation and maintenance agreement with the contractor for a ten year term following the expiration of the term of the original agreement, on either a cost plus payment basis or a fixed fee payment basis to be negotiated at the time of the operation exercise. Under the terms of these agreements, the Partnerships are required to pay the operation and maintenance contractor a bonus payable annually over the term of the agreement, based on operating performance for each year ending on the anniversary of the respective commencement of operations (September 1, 1991 for NJEA and October 1, 1991 for NEA). The Partnerships incurred $5,375,000, $3,482,000 and $5,823,000 related to this bonus in 1995, 1996 and 1997, respectively. During 1993, the Partnerships entered into a revised ten year heat rate bonus agreement with the operation and maintenance contractor. Under the terms of this agreement, the total bonus to be earned over the ten year period is $11 million, subject to the continued satisfaction of specified minimum performance standards. The agreement provides that this amount will be paid to the contractor over the first five years of the agreement. The agreement also provides that amounts paid under the former heat rate bonus agreement during 1992 would be applied as payments under the revised agreement. Total payments made under this agreement were $1,854,000 in each of 1995, 1996 and 1997. Amounts expensed under this heat rate bonus agreement were $1,060,000 in each of 1995, 1996 and 1997. F-16 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- Operating Lease Lease payments under the operating lease for the land in Bellingham, Massachusetts (Note 4) are as follows: Year ending December 31, 1998 $ 189,000 1999 201,000 2000 213,000 2001 225,000 2002 237,000 Thereafter 2,760,000 ---------- $3,825,000 ========== During 1995, 1996 and 1997, NEA paid and expensed $153,000, $165,000 and $177,000, respectively, under this agreement. 7. Employee Savings Plan Effective January 1, 1991, the general partner (IEC) adopted a defined contribution employee savings plan qualifying under Section 401(k) of the Internal Revenue Code. Pursuant to the plan, the general partner fully matches contributions made by eligible employees to the plan up to 5% of an employee's base compensation. Contributions made by the general partner become fully vested after four years of continuous service. In addition, employees may contribute up to an additional 5% of base compensation which is not matched by the general partner. During 1995, 1996 and 1997, the Partnerships were charged $78,000, $90,000 and $156,000, respectively, for their shares of contributions made by the general partner to this plan (Note 8). 8. Other Related Party Transactions Subsequent to the commencement of operations of the Partnerships, the general partner began to pay certain expenses as a convenience for the Partnerships. These expenses are reimbursed to the general partner at cost. The following represents the activity between the Partnerships and the general partner for the years ended December 31, 1995, 1996 and 1997: F-17 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
For the year ended December 31, 1995: NEA NJEA ------------- ------------- Expenses paid by the general partner Payroll and related expenses $ 1,053,000 $ 878,000 Travel 76,000 76,000 Office space and utilities 126,000 125,000 Professional fees, insurance and other 424,000 413,000 ------------- ------------- 1,679,000 1,492,000 Payments to the general partner 1,457,000 1,457,000 ------------- ------------- Payments in excess of expenses (222,000) (35,000) Due from (to) general partner, December 31, 1994 133,000 13,000 ------------- ------------- Due from (to) general partner, December 31, 1995 $ (89,000) $ (22,000) ============= ============= For the year ended December 31, 1996: NEA NJEA ------------- ------------- Expenses paid by the general partner Payroll and related expenses $ 1,364,000 $ 1,311,000 Travel 95,000 95,000 Office space and utilities 128,000 128,000 Professional fees, insurance and other 827,000 830,000 ------------- ------------- 2,414,000 2,364,000 Payments to the general partner 2,541,000 2,490,000 ------------- ------------- Payments in excess of expenses 127,000 126,000 Due from (to) general partner, December 31, 1995 (89,000) (22,000) ------------- ------------- Due from (to) general partner, December 31, 1996 $ 38,000 $ 104,000 ============= =============
F-18 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - --------------------------------------------------------------------------------
For the year ended December 31, 1997: NEA NJEA ------------ ----------- Expenses paid by the general partner Payroll and related expenses $ 1,402,000 $ 1,332,000 Travel 88,000 88,000 Office space and utilities 168,000 168,000 Professional fees, insurance and other 934,000 816,000 ------------ ------------ 2,592,000 2,404,000 Payments to the general partner 2,483,000 2,414,000 ------------ ------------ Payments in excess of expenses (109,000) 10,000 Due from (to) general partner, December 31, 1996 38,000 104,000 ------------ ------------ Due from (to) general partner, December 31, 1997 $ (71,000) $ 114,000 ------------ ------------
9. Financial Instruments The Partnerships have made use of derivative financial instruments to hedge their exposure to fluctuations in both interest rates and the purchase price of natural gas. Under the project loan and credit agreement, the Partnerships were required to enter into fixed interest rate swap agreements as a means of managing exposure to the variable rate interest of the original Partnerships borrowings. In conjunction with the refinancing, the Partnerships entered into counter swap agreements so that the Partnerships would no longer be exposed to changes in interest rates (Note 5). The prices received by the Partnerships for power sales under their long-term sales contracts do not move precisely in tandem with the prices paid by the Partnerships for natural gas. In order to mitigate the price risk associated with purchases of natural gas, the Partnerships may, from time to time, enter into certain hedging transactions either through public exchanges such as the NYMEX, or by means of over-the-counter transactions with specific counterparties. The Partnerships hedge purchases of natural gas through the use of (a) natural gas call options that give the Partnerships the right, but not the obligation, to purchase specified quantities of natural gas at a pre-determined price; (b) natural gas purchase swap agreements that require the Partnerships to pay a price, fixed absolutely or within a specified range, in return for a variable price on a notional specified quantity of natural gas; and (c) forward purchases of natural gas. The Partnerships control the credit risk arising from these instruments through credit approvals, limits and monitoring procedures. There are no significant concentrations of credit risk. The Partnerships do not normally require collateral or other security to support financial instruments with credit risks. F-19 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- The following table sets forth the contract or notional amounts of these financial instruments. While indicating the size of the transaction entered into, the amounts do not represent the Partnerships' exposure to loss in the event of nonperformance by the counterparties involved. The Partnerships do not anticipate nonperformance by the counterparties.
Contract or Contract or notional amount notional amount at December 31, at December 31, 1996 1997 --------------------------- ---------------------------- $ MMBtu $ MMBtu ---------- ----------- ---------- ----------- Interest rate swap agreements 20,335,000 - 12,940,000 - Gas purchase swap agreements - 28,600,000 - 21,920,000 Gas forward purchases - 418,000 - -
The net effect on interest expense due to the interest rate swap agreements and the net gain/(loss) included in cost of power and steam sales resulting from the gas purchase options, swap agreements and forward purchases is as follows:
For the year ended December 31, 1995 1996 1997 ------------ ------------- ------------- Net effect on interest expense - (decrease) increase $ (486,000) $ 137,000 $ 103,000 Net (loss)/gain included in cost of power and steam sales (448,000) 5,246,000 3,990,000
The estimated fair value and related carrying amounts of certain financial instruments is as follows:
December 31, 1996 December 31, 1997 ----------------------------- --------------------------------- Related Related Fair carrying Fair carrying value amount value amount $ $ $ $ ------------ ------------ ------------ ------------ Loans payable (564,075,000) (514,362,000) (526,010,000) (490,287,000) Restricted cash 69,156,000 69,156,000 69,156,000 69,156,000 Interest rate swap agreements (2,022,000) (2,022,000) (889,000) (889,000) Gas purchase swap agreements 1,671,000 - 2,527,000 - Gas forward purchases (143,000) - - -
The estimated fair values may not be representative of actual values of the financial instruments that could have been realized as of year end or that will be realized in the future. F-20 Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - ------------------------------------------------------------------------------- The following methods and assumptions were used to estimate the fair values of certain instruments: Loans payable - The fair value of loans payable at December 31, 1996 was estimated by an independent third party valuation based on the fixed nature of the loans, the credit risk associated with such loans and the current borrowing environment available to the Partnerships. The estimated fair value of the loans payable at December 31, 1997 has been determined based upon the borrowing rate (8%) currently available to the Partnerships for debt instruments with similar terms and average maturities. Restricted cash - The fair value of restricted cash is estimated based upon the fixed yield and term of the investment and rates currently available to the Partnerships for deposits of similar maturities. Interest rate swap agreements - The fair value of interest rate swap agreements is the estimated amount that the banks would receive to terminate the swap agreements, taking into account current interest rates and the creditworthiness of the swap counterparties. Natural gas hedging instruments - The fair value of natural gas hedging instruments is based upon the amounts the Partnerships would be entitled to receive or required to pay if the contracts were terminated at the reporting date, taking into account the forward prices of natural gas on the reporting date, the fixed purchase prices of the contracts and the exercise dates of the contracts. 10. Subsequent Events On January 14, 1998, pursuant to the purchase agreement dated as of November 21, 1997, all of the partner interests in the Partnerships were acquired by Tractebel, S.A. and FPL Group, Inc., through their wholly owned subsidiaries, for approximately $533 million in cash and the assumption of the Partnerships' outstanding debt. The acquisition will be accounted for under the purchase method; accordingly, the carrying value of the assets acquired and liabilities assumed of the Partnerships will be adjusted based upon the final purchase price allocation. Concurrent with and related to the acquisition of the Partnerships, IEC Funding Corp. was also acquired and its name changed to ESI Tractebel Funding Corp. Subsequent to the acquisition, the working capital facility was terminated and the letters of credit facility and the Debt Service Reserve Fund were replaced with new letter of credit arrangements (Notes 5 and 6) and the cash collateral requirement related to the energy bank balances was eliminated in exchange for the guarantee of one of the acquiring entities (Note 6). F-21 Report of Independent Accountants To the Stockholders of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) In our opinion, the accompanying balance sheet and the related statements of operations and of cash flows present fairly, in all material respects, the financial position of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) (the Company) at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts March 24, 1998 F-22 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Balance Sheet - -------------------------------------------------------------------------------
December 31, -------------------------- 1996 1997 ----------- ------------ (In thousands) Assets Current assets: Cash $ 1 $ 1 Current portion of notes receivable from the Partnerships 24,075 21,563 ----------- ----------- Total current assets 24,076 21,564 Notes receivable from Partnerships 490,287 468,724 ----------- ----------- Total assets $ 514,363 $ 490,288 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Current portion of securities payable $ 24,075 $ 21,563 ----------- ----------- Total current liabilities 24,075 21,563 Securities payable 490,287 468,724 ----------- ----------- Total liabilities 514,362 490,287 Stockholders' equity: Common stock, no par value, 10,000 shares authorized, issued and outstanding 1 1 ----------- ----------- Total liabilities and stockholders' equity $ 514,363 $ 490,288 =========== ===========
The accompanying notes are an integral part of these financial statements. F-23 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Statement of Operations - ------------------------------------------------------------------------------- For the year ended December 31, ------------------------------------------------- 1995 1996 1997 ---- ---- ---- (In thousands) Interest income $ 51,084 $ 49,404 $ 47,303 Interest expense (51,084) (49,404) (47,303) ------------ --------------- -------------- Net income $ -- $ -- $ -- ------------ --------------- -------------- The accompanying notes are an integral part of these financial statements. F-24 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Statement of Cash Flows - -------------------------------------------------------------------------------
For the year ended December 31, ---------------------------------------------- 1995 1996 1997 ---- ---- ---- (In thousands) Increase (Decrease) in Cash Cash flows from operating activities: Interest received from Partnerships $ 51,084 $ 49,404 $ 47,303 Interest paid (51,084) (49,404) (47,303) ------------ ------------ ----------- Net cash provided by operating activities -- -- -- ------------ ------------ ----------- Cash flows from financing activities: Principal received from Partnerships 20,434 25,204 24,075 Principal payments on debt (20,434) (25,204) (24,075) ------------ ------------ ----------- Net cash provided by financing activities -- -- -- ------------ ------------ ----------- Net increase in cash -- -- -- Cash at beginning of year 1 1 1 ------------ ------------ ----------- Cash at end of year $ 1 $ 1 $ 1 ============ ============ ===========
The accompanying notes are an integral part of these financial statements. F-25 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Notes to Financial Statements - ------------------------------------------------------------------------------- 1. Nature of Business IEC Funding Corp. (the "Company") is a Delaware corporation that was established as a special purpose funding corporation for the purpose of issuing the Securities described in Note 3. A majority of the common stock of the Company is owned by the partners of Northeast Energy Associates, a Limited Partnership, and North Jersey Energy Associates, a Limited Partnership (the "Partnerships"). The Company acts as agent of the Partnerships with respect to the Securities and holds itself out as the agent of the Partnerships in all dealings with third parties relating to the Securities. Subsequent to the acquisition discussed in Note 4, the Company changed its name to ESI Tractebel Funding Corp. The enactment in 1978 of the Public Utility Regulatory Policies Act ("PURPA") and the adoption of the regulations thereunder by the Federal Energy Regulatory Commission ("FERC") provided incentives for the development of power production facilities, such as cogeneration, by requiring electric utilities to purchase power generated by qualifying facilities. The Partnerships were organized in 1986 to develop, finance, construct, own, manage and operate two 300 megawatt gas-fueled cogeneration facilities, one in Bellingham, Massachusetts and one in Sayreville, New Jersey. During 1986, the Partnerships were granted permission by FERC to operate the proposed cogeneration facilities as qualifying facilities defined in PURPA and as defined in federal regulations. 2. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Placement of Securities On December 1, 1994, the Company executed a placement of securities to qualified institutional investors as defined in Rule 144A of the Securities Act of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
December 31, -------------------------------- 1996 1997 ---- ---- 8.43% Senior Secured Notes Due 2000 $ 95,482,000 $ 71,407,000 9.16% Senior Secured Notes Due 2002 31,500,000 31,500,000 9.32% Senior Secured Bonds Due 2007 215,740,000 215,740,000 9.77% Senior Secured Bonds Due 2010 171,640,000 171,640,000 -------------- -------------- $ 514,362,000 $ 490,287,000 ============== ==============
F-26 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Notes to Financial Statements - ------------------------------------------------------------------------------- Effective February 10, 1995, the Company filed a Registration Statement on Form S-4 with the Securities and Exchange Commission for purposes of effecting a public exchange offer whereby the securities listed above were exchanged for a new issue of securities (the "Securities"). The Securities have terms identical to the securities issued in accordance with Rule 144A. Interest on the above securities is payable semiannually on each June 30 and December 30, commencing December 30, 1994. Principal repayments are made semiannually commencing on June 30, 1995 and are in amounts stipulated in the trust indenture. Future principal payments are as follows: 1998 $ 21,563,000 1999 23,511,000 2000 26,333,000 2001 20,160,000 2002 22,688,000 Thereafter 376,032,000 ------------- $ 490,287,000 ============= The Securities are not subject to optional redemption but are subject to mandatory redemption in certain limited circumstances involving the occurrence of an event of loss, as defined in the trust indenture, for which the Partnerships fail to or are unable to restore a facility. Additionally, the Partnerships may, at their option, repurchase all or part of the Securities with proceeds received from the release of cash collateral maintained as security for letters of credit. The proceeds of the Securities were used (a) to purchase the notes outstanding under the loan and credit agreement of the Partnerships and (b) to make loans to the Partnerships. In connection with these two transactions, the notes outstanding under the loan and credit agreement of the Partnerships were surrendered and new notes of the Partnerships were issued to the Company in an aggregate principal amount equal to the aggregate principal amount of the Securities (the "New Notes") and the loan and credit agreement of the Partnerships was assigned to the Company and amended and restated (the "Amended and Restated Credit Agreement"). The Securities are unconditionally guaranteed, jointly and severally, by the Partnerships and are secured by a lien on, and a security interest in, substantially all of the assets of the Partnerships. Under the Amended and Restated Credit Agreement, the Partnerships are jointly and severally required to make scheduled payments on the New Notes on dates and in amounts identical to the scheduled payments of principal and interest on the Securities. The Securities, the guarantees thereon provided by the Partnerships and the New Notes are nonrecourse to the partners of the Partnerships and are payable solely from the collateral pledged as security. The trust indenture governing the Securities contains certain restrictions on certain activities of the Partnerships, including the incurrence of additional indebtedness or liens, the payment of distributions to the partners, the cancellation of power sale and fuel supply agreements, the use of proceeds from the issuance of the Securities and the execution of mergers, consolidations and sales of assets. F-27 ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Notes to Financial Statements - ------------------------------------------------------------------------------- The fair value of the Securities and the notes receivable from the Partnerships at December 31, 1997 is estimated to be $526,010,000. The fair value of the Securities and the notes receivable from the Partnerships at December 31, 1996 was estimated to be $564,075,000. The fair value of the Securities and the notes receivable has been estimated based on the fixed nature of the Securities and the notes receivable, the credit risk associated with the Securities and the notes receivable, and the current borrowing environment available to the Company. 4. Subsequent Events On January 14, 1998, pursuant to the purchase agreement dated as of November 21, 1997, all of the partner interests in the Partnerships were acquired by Tractebel, S.A. and FPL Group, Inc. through their wholly owned subsidiaries, for approximately $533 million in cash and the assumption of the Partnerships' outstanding debt. The acquisition will be accounted for under the purchase method; accordingly, the carrying value of the assets acquired and liabilities assumed of the Partnerships will be adjusted based upon the final purchase price allocation. Concurrent with and related to the acquisition of the Partnerships, IEC Funding Corp. was also acquired and its name changed to ESI Tractebel Funding Corp. Subsequent to the acquisition, the working capital facility was terminated and the letters of credit facility and the Debt Service Reserve Fund were replaced with new letter of credit arrangements and the cash collateral requirement related to the energy bank balances was eliminated in exchange for the guarantee of one of the acquiring entities. The financial statements of the Partnerships are included on pages F-2 through F-21. F-28 EX-3.1.1 2 CERTIFICATE OF AMENDMENT EXHIBIT 3.1.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF IEC FUNDING CORP. * * * * January 30, 1998 IEC FUNDING CORP., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: FIRST: That the Board of Directors of said corporation, by the unanimous written consent of its members, filed with the minutes of the Board, adopted resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: RESOLVED, that the Certificate of Incorporation of IEC Funding Corp. be amended by changing Article First thereof so that, as amended, said Article shall be and read as follows: ARTICLE FIRST The Name of the Corporation is ESI Tractebel Funding Corp. (the "Corporation"). SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware by the written consent of a majority of the holders of common stock of the Corporation. [Remainder of this page intentionally left blank] 2 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of Certificate of Incorporation to be signed as of the date first above written by its Vice President, who hereby affirms and acknowledges, under the penalty of perjury, that this certificate is the act and deed of the Corporation and that the facts stated herein are true. IEC FUNDING CORP. By: /s/ Glenn E. Smith ----------------------------- Name: Glenn E. Smith Title: Vice President [Signature page to Certificate of Amendment of Certificate of Incorporation of IEC Funding Corp.] EX-3.2 3 BY-LAWS OF ESI TRACTEBEL FUNDING CORP. EXHIBIT 3.2 BY-LAWS OF ESI TRACTEBEL FUNDING CORP. -------------------- ARTICLE I OFFICES 1.1. Registered Office: The registered office shall be established and maintained at and shall be the registered agent of the Corporation in charge hereof. 1.2. Other Offices: The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require, provided, however, that the corporation's books and records shall be maintained at such place within the continental United States as the Board of Directors shall from time to time designate. ARTICLE II STOCKHOLDERS 2.1. Place of Stockholders' Meetings: All meetings of the stockholders of the corporation shall be held at such place or places, within or outside the State of Delaware as may be fixed by the Board of Directors from time to time or as shall be specified in the respective notices thereof. 2.2. Date and Hour of Annual Meetings of Stockholders: An annual meeting of stockholders shall be held each year within five months after the close of the fiscal year of the Corporation. 2.3. Purpose of Annual Meetings: At each annual meeting, the stockholders shall elect the members of the Board of Directors for the succeeding year. At any such annual meeting any further proper business may be transacted. 2.4. Special Meetings of Stockholders: Special meetings of the stockholders or of any class or series thereof entitled to vote may be called by the President or by the Chairman of the Board of Directors, or at the request in writing by stockholders of record owning at least fifty (50%) percent of the issued and outstanding voting shares of common stock of the corporation. By-Laws-1 2.5. Notice of Meetings of Stockholders: Except as otherwise expressly required or permitted by law, not less than ten days nor more than sixty days before the date of every stockholders' meeting the Secretary shall give to each stockholder of record entitled to vote at such meeting, written notice, served personally by mail or by telegram, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Such notice, if mailed shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address for notices to such stockholder as it appears on the records of the corporation. 2.6. Quorum of Stockholders: Unless otherwise provided by the Certificate of Incorporation or by law, at any meeting of the stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall constitute a quorum. The withdrawal of any shareholder after the commencement of a meeting shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. (b) At any meeting of the stockholders at which a quorum shall be present, a majority of voting stockholders, present in person or by proxy, may adjourn the meeting from time to time without notice other than announcement at the meeting. In the absence of a quorum, the officer presiding thereat shall have power to adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting, other than announcement at the meeting, shall not be required to be given except as provided in paragraph (d) below and except where expressly required by law. (c) At any adjourned session at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof, unless a new record date is fixed by the Board of Directors. (d) If an adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.7. Chairman and Secretary of Meeting: The President, shall preside at meetings of the stockholders. The Secretary shall act as secretary of the meeting or if he is not present, then the presiding officer may appoint a person to act as secretary of the meeting. 2.8. Voting by Stockholders: Except as may be otherwise provided by the Certificate of Incorporation or these by-laws, at every meeting of the stockholders each stockholder shall be entitled to one vote for each share of voting stock standing in his name on the books of the corporation on the record date for the meeting. Except as otherwise provided by these by-laws, all elections and questions shall be decided by the vote of a majority in interest of the stockholders present in person or represented by proxy and entitled to vote at the meeting. By-Laws-2 2.9. Proxies: Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy. Every proxy shall be in writing, subscribed by the stockholder or his duly authorized attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged. 2.10. Inspectors: The election of directors and any other vote by ballot at any meeting of the stockholders shall be supervised by at least two inspectors. Such inspectors may be appointed by the presiding officer before or at the meeting; or if one or both inspectors so appointed shall refuse to serve or shall not be present, such appointment shall be made by the officer presiding at the meeting. 2.11. List of Stockholders: At least ten days before every meeting of stockholders, the Secretary shall prepare and make a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. (b) During ordinary business hours, for a period of at least ten days prior to the meeting, such list shall be open to examination by any stockholder for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. (c) The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and it may be inspected by any stockholder who is present. (d) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section 2.11 or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. 2.12. Procedure at Stockholders' Meetings: Except as otherwise provided by these by-laws or any resolutions adopted by the stockholders or Board of Directors, the order of business and all other matters of procedure at every meeting of stockholders shall be determined by the presiding officer. 2.13. Action By Consent Without Meeting: Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. By-Laws-3 ARTICLE III DIRECTORS 3.1. Powers of Directors: The property, business and affairs of the corporation shall be managed by its Board of Directors which may exercise all the powers of the corporation except such as are by the law of the State of Delaware or the Certificate of Incorporation or these by-laws required to be exercised or done by the stockholders. 3.2. Number, Method of Election, Terms of Office of Directors: The number of directors which shall constitute the Board of Directors shall be ( 4 ) unless and until otherwise determined by a vote of a majority of the entire Board of Directors. Each Director shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified, provided, however, that a director may resign at any time. Directors need not be stockholders. 3.3. Vacancies on Board of Directors; Removal: Any director may resign his office at any time by delivering his resignation in writing to the Chairman of the Board or to the President. It will take effect at the time specified therein or, if no time is specified, it will be effective at the time of its receipt by the corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. (b) Any vacancy in the authorized number of directors may be filled by majority vote of the stockholders and any director so chosen shall hold office until the next annual election of directors by the stockholders and until his successor is duly elected and qualified or until his earlier resignation or removal. (c) Any director may be removed with or without cause at any time by the majority vote of the stockholders given at a special meeting of the stockholders called for that purpose. 3.4. Meetings of the Board of Directors: The Board of Directors may hold their meetings, both regular and special, either within or outside the State of Delaware. (b) Regular meetings of the Board of Directors may be held at such time and place as shall from time to time be determined by resolution of the Board of Directors. No notice of such regular meetings shall be required. If the date designated for any regular meeting be a legal holiday, then the meeting shall be held on the next day which is not a legal holiday. (c) The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders for the election of officers and the transaction of such other business as may come before it. If such meeting is held at the place of the stockholders' meeting, no notice thereof shall be required. By-Laws-4 (d) Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board or the President or at the written request of any one director. (e) The Secretary shall give notice to each director of any special meeting of the Board of Directors by mailing the same at least three days before the meeting or by telegraphing, telexing, or delivering the same not later than the date before the meeting. Unless required by law, such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Any and all business may be transacted at any meeting of the Board of Directors. No notice of any adjourned meeting need be given. No notice to or waiver by any director shall be required with respect to any meeting at which the director is present. 3.5. Quorum and Action: Unless provided otherwise by law or by the Certificate of Incorporation or these by-laws, a majority of the Directors shall constitute a quorum for the transaction of business; but if there shall be less than a quorum at any meeting of the Board, a majority of those present may adjourn the meeting from time to time. The vote of a majority of the Directors present at any meeting at which a quorum is present shall be necessary to constitute the act of the Board of Directors. 3.6. Presiding Officer and Secretary of the Meeting: The President, or, in his absence a member of the Board of Directors selected by the members present, shall preside at meetings of the Board. The Secretary shall act as secretary of the meeting, but in his absence the presiding officer may appoint a secretary of the meeting. 3.7. Action by Consent Without Meeting: Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the Board or committee. 3.8. Action by Telephonic Conference: Members of the Board of Directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. 3.9. Committees: The Board of Directors shall, by resolution or resolutions passed by a majority of Directors designate one or more committees, each of such committees to consist of one or more Directors of the Corporation, for such purposes as the Board shall determine. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. By-Laws-5 3.10. Compensation of Directors: Directors shall receive such reasonable compensation for their service on the Board of Directors or any committees thereof, whether in the form of salary or a fixed fee for attendance at meetings, or both, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any Director from serving in any other capacity and receiving compensation therefor. ARTICLE IV OFFICERS 4.1. Officers, Title, Elections, Terms: (a) The elected officers of the corporation shall be a President, a Treasurer and a Secretary, and such other officers as the Board of Directors shall deem advisable. The officers shall be elected by the Board of Directors at its annual meeting following the annual meeting of the stockholders, to serve at the pleasure of the Board or otherwise as shall be specified by the Board at the time of such election and until their successors are elected and qualified. (b) The Board of Directors may elect or appoint at any time, and from time to time, additional officers or agents with such duties as it may deem necessary or desirable. Such additional officers shall serve at the pleasure of the Board or otherwise as shall be specified by the Board at the time of such election or appointment. Two or more offices may be held by the same person. (c) Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors. (d) Any officer may resign his office at any time. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time has been specified, at the time of its receipt by the corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. (e) The salaries of all officers of the corporation shall be fixed by the Board of Directors. 4.2. Removal of Elected Officers: Any elected officer may be removed at any time, either with or without cause, by resolution adopted at any regular or special meeting of the Board of Directors by a majority of the Directors then in office. 4.3. Duties: President: The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall supervise and control all the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect (unless any such order or resolution shall provide otherwise), and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time. By-Laws-6 (b) Treasurer: The Treasurer shall (1) have charge and custody of and be responsible for all funds and securities of the Corporation; (2) receive and give receipts for moneys due and payable to the corporation from any source whatsoever; (3) deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositories as shall be selected by resolution of the Board of Directors; and (4) in general perform all duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. He shall, if required by the Board of Directors, give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. (c) Secretary: The Secretary shall (1) keep the minutes of the meetings of the stockholders, the Board of Directors, and all committees, if any, of which a secretary shall not have been appointed, in one or more books provided for that purpose; (2) see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; (3) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal, is duly authorized; (4) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (5) have general charge of stock transfer books of the Corporation; and (6) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. ARTICLE V CAPITAL STOCK 5.1. Stock Certificates: Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the President and by the Treasurer or the Secretary, certifying the number of shares owned by him. (b) If such certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employee, the signatures of the officers of the corporation may be facsimiles, and, if permitted by law, any other signature may be a facsimile. (c) In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. By-Laws-7 (d) Certificates of stock shall be issued in such form not inconsistent with the Certificate of Incorporation as shall be approved by the Board of Directors, and shall be numbered and registered in the order in which they were issued. (e) All certificates surrendered to the corporation shall be canceled with the date of cancellation, and shall be retained by the Secretary, together with the powers of attorney to transfer and the assignments of the shares represented by such certificates, for such period of time as shall be prescribed from time to time by resolution of the Board of Directors. 5.2. Record Ownership: A record of the name and address of the holder of such certificate, the number of shares represented thereby and the date of issue thereof shall be made on the corporation's books. The corporation shall be entitled to treat the holder of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by law. 5.3. Transfer of Record Ownership: Transfers of stock shall be made on the books of the corporation only by direction of the person named in the certificate or his attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the corporation for transfer, both the transferor and the transferee request the corporation to do so. 5.4. Lost, Stolen or Destroyed Certificates: Certificates representing shares of the stock of the corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed in such manner and on such terms and conditions as the Board of Directors from time to time may authorize. 5.5. Transfer Agent; Registrar; Rules Respecting Certificates: The corporation may maintain one or more transfer offices or agencies where stock of the corporation shall be transferable. The corporation may also maintain one or more registry offices where such stock shall be registered. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates. 5.6. Fixing Record Date for Determination of Stockholders of Record: The Board of Directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of the stockholders or any adjournment thereof, or the stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or to express consent to corporate action in writing without a meeting, or in order to make a determination of the stockholders for the purpose of any other lawful action. Such record date in any case shall be not more than sixty days nor less than ten days before the date of a meeting of the stockholders, nor more than sixty days prior to any other action requiring such determination of the stockholders. A determination of By-Laws-8 stockholders of record entitled to notice or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 5.7. Dividends: Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the Board of Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors shall deem conducive to the interests of the corporation. ARTICLE VI SECURITIES HELD BY THE CORPORATION 6.1. Voting: Unless the Board of Directors shall otherwise order, the President, the Secretary or the Treasurer shall have full power and authority, on behalf of the corporation, to attend, act and vote at any meeting of the stockholders of any corporation in which the corporation may hold stock, and at such meeting to exercise any or all rights and powers incident to the ownership of such stock, and to execute on behalf of the corporation a proxy or proxies empowering another or others to act as aforesaid. The Board of Directors from time to time may confer like powers upon any other person or persons. 6.2. General Authorization to Transfer Securities Held by the Corporation: Any of the following officers, to wit: the President and the Treasurer shall be, and they hereby are, authorized and empowered to transfer, convert, endorse, sell, assign, set over and deliver any and all shares of stock, bonds, debentures, notes, subscription warrants, stock purchase warrants, evidence of indebtedness, or other securities now or hereafter standing in the name of or owned by the corporation, and to make, execute and deliver, under the seal of the corporation, any and all written instruments of assignment and transfer necessary or proper to effectuate the authority hereby conferred. (b) Whenever there shall be annexed to any instrument of assignment and transfer executed pursuant to and in accordance with the foregoing paragraph (a), a certificate of the Secretary of the corporation in office at the date of such certificate setting forth the provisions of this Section 6.2 and stating that they are in full force and effect and setting forth the names of persons who are then officers of the corporation, then all persons to whom such instrument and annexed certificate shall thereafter come, shall be entitled, without @er inquiry or investigation and regardless of the date of such certificate, to assume and to act in reliance upon the assumption that the shares of stock or other securities named in such instrument were theretofore duly and properly transferred, endorsed, sold, assigned, set over and delivered By-Laws-9 by the corporation, and that with respect to such securities the authority of these provisions of the by-laws and of such officers is still in full force and effect. ARTICLE VII MISCELLANEOUS 7.1. Signatories: All checks, drafts or other orders for the payment of money, notes or other evidences of 'indebtedness issued in the name of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. 7.2. Seal: The seal of the corporation shall be in such form and shall have such content as the Board of Directors shall from time to time determine. 7.3. Notice and Waiver of Notice: Whenever any notice of the time, place or purpose of any meeting of the stockholders, directors or a committee is required to be given under the law of the State of Delaware, the Certificate of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the holding thereof, or actual attendance at the meeting in person or, in the case of any stockholder, by his attorney-in-fact, shall be deemed equivalent to the giving of such notice to such persons. 7.4. Indemnity: The corporation shall indemnify its directors, officers and employees to the fullest extent allowed by law, provided, however, that it shall be within the discretion of the Board of Directors whether to advance any funds in advance of disposition of any action, suit or proceeding, and provided further that nothing in this section 7.4 shall be deemed to obviate the necessity of the Board of Directors to make any determination that indemnification of the director, officer or employee is proper under the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of Section 145 of the Delaware General Corporation Law. 7.5. Fiscal Year: Except as from time to time otherwise determined by the Board of Directors, the fiscal year of the corporation shall end on By-Laws-10 EX-3.3 4 AMENDED AND RESTATED CERTIFICATE EXHIBIT 3.3 AMENDED AND RESTATED CERTIFICATE OF LIMITED PARTNERSHIP NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP 1. The name of the limited partnership is "Northeast Energy Associates, A Limited Partnership", which was formed on March 31, 1986. 2. The character of the Partnership's business is to acquire and/or construct, and to own and lease a cogeneration plant. 3. The address of the office of the Partnership at which its records are maintained is 92 Bay Depot Street, Bellingham, Massachusetts 02019. The resident agent for service of process is CT Corporation System, 2 Oliver Street, Boston, MA 02109. 4. The name and business address of each Partner and a designation of which are General Partners and which are Limited Partners are as set forth in Schedule A hereto. 5. The amounts of the percent of ownership of each partner are as set forth on Schedule A hereto. 6. There is no right of a Limited Partner to assign his Partnership interest and to substitute an assignee. 7. No specific time has been agreed upon when a partner may terminate his membership in the Partnership. 8. No partner shall be entitled to receive distributions which constitute a return of capital without the consent of the majority of the partners. 9. The term of the Partnership will commence upon the filing of this Certificate with the Secretary of State of Massachusetts and shall continue in full force and effect until December 31, 2025, unless sooner terminated prior to such date by consent of the majority of the partners. 10. The successor General Partner will have the right to continue the business of the Partnership on the happening of an event of withdrawal of the General Partner. IN WITNESS WHEREOF, the undersigned have hereunto set their hands, as of the 16th day of February, 1998. GENERAL PARTNER NORTHEAST ENERGY, LP By: ESI Northeast Energy GP, Inc. General Partner By: /s/ Glenn E. Smith -------------------------- Name: Glenn E. Smith Title: Vice President 2 SCHEDULE A GENERAL PERCENTAGE OF PARTNER OWNERSHIP ------- --------- Northeast Energy, LP 1.0% c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, FL 33408 LIMITED PARTNERS - ---------------- Northeast Energy, LP 98.0% c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, FL 33408 Northeast Energy, LLC 1.0% c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, FL 33408 TOTAL 100.0% 3 EX-3.4 5 AMENDED AND RESTATED CERTIFICATE EXHIBIT 3.4 AMENDED AND RESTATED CERTIFICATE OF LIMITED PARTNERSHIP NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP 1. The name of the limited partnership is "North Jersey Energy Associates, A Limited Partnership", which was formed on November 3, 1986. 2. The character of the Partnership's business is to acquire and/or construct, and to own and lease a cogeneration plant. 3. The address of the registered office of the Partnership is Jernees Mill Road, Sayreville, New Jersey 08872. The address of the registered office of the Partnership immediately prior to the filing of this certificate was c/o Intercontinental Energy Corp., Box 220, 87 Elm Street, Cohasset, MA 02025. The general partner is Northeast Energy, LP, whose address is c/o ESI Energy, Inc., 11760 US Highway One, Suite 600, North Palm Beach, FL 33408. The resident agent for service of process is The Corporation Trust Company, 820 Bear Tavern Road, West Trenton, NJ, 08628. 4. The name and business address of each Partner and a designation of which are General Partners and which are Limited Partners are as set forth in Schedule A hereto. 5. The amounts of the percent of ownership of each partner are as set forth on Schedule A hereto. The aggregate amount of cash contributed by all partners is $100,000.00. 6. There is no right of a Limited Partner to assign his Partnership interest and to substitute an assignee. 7. No specific time has been agreed upon when a partner may terminate his membership in the Partnership. 8. No partner shall be entitled to receive distributions which constitute a return of capital without the consent of the majority of the partners. 9. The term of the Partnership will commence upon the filing of this Certificate with the Secretary of State of New Jersey and shall continue in full force and effect until December 31, 2025, unless sooner terminated prior to such date by consent of the majority of the partners. 10. The successor General Partner will have the right to continue the business of the Partnership on the happening of an event of withdrawal of the General Partner. IN WITNESS WHEREOF, the undersigned have hereunto set their hands, as of the 16th day of February, 1998. GENERAL PARTNER NORTHEAST ENERGY, LP By: ESI Northeast Energy GP, Inc. General Partner By: /s/ Glenn E. Smith ------------------------- Name: Glenn E. Smith Title: Vice President SCHEDULE A GENERAL PERCENTAGE OF PARTNER OWNERSHIP ------- --------- Northeast Energy, LP 1.0% c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, FL 33408 LIMITED PARTNERS Northeast Energy, LP 98.0% c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, FL 33408 Northeast Energy, LLC 1.0% c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, FL 33408 TOTAL 100.0% EX-3.7 6 AGREEMENT OF LIMITED PARTNERSHIP EXHIBIT 3.7 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP a Massachusetts limited partnership TABLE OF CONTENTS
Page ---- Article I. Defined Terms............................................. 3 Article II Formation and Name; Office; Purpose; Term.................................. 7 2.1 Formation and Continuation.................................................................... 7 2.2 Name of the Partnership....................................................................... 7 2.3 Purpose....................................................................................... 7 2.4 Term.......................................................................................... 7 2.5 Registered Office............................................................................. 7 2.6 Partners...................................................................................... 7 2.7 Qualification in Other Jurisdictions.......................................................... 7 2.8 Agent for Service of Process.................................................................. 8 Article III. Partners' Capital; Capital Accounts..................................... 8 3.1 Capital Accounts.............................................................................. 8 3.2 Capital Contributions......................................................................... 8 3.3 No Interest on Contributions.................................................................. 8 3.4 Return of Contributions....................................................................... 8 3.5 [Intentionally Omitted]....................................................................... 8 3.6 Loans and Other Business Transactions......................................................... 8 Article IV. Profit, Loss, and Distributions....................................... 9 4.1 [Purposely Omitted]........................................................................... 9 4.2 Distribution of Cash Flow..................................................................... 9 4.3 Allocation of Profit or Loss.................................................................. 9 4.4 Liquidation and Dissolution................................................................... 9 4.5 General....................................................................................... 9 4.6 Restricted Distributions...................................................................... 9 Article V. General Partner Obligations......................................... 10 5.1 General Partner; General Partner; Meetings; Minutes........................................... 10 5.2 Duties of General Partner..................................................................... 10 5.3 Compensation.................................................................................. 10 5.4 Provision of Services......................................................................... 11 5.5 Indemnification of General Partner............................................................ 11 Article VI. Limited Partners............................................... 12 6.1 No Liability of or Control by Limited Partners................................................ 12
i Article VII. Transfer of Partner Interests and Withdrawals of Partners.......................... 12 7.1 Transfers..................................................................................... 12 7.2 Admission of Transferee as Additional or Substitute Partner................................... 12 7.3 Pledges; Foreclosures......................................................................... 13 Article VIII. [Purposely Omitted]............................................. 13 Article IX. Dissolution, Liquidation, and Termination of the Partnership......................... 13 9.1 Right to Cause Dissolution; Events of Dissolution............................................. 13 9.2 Procedure for Winding Up and Dissolution...................................................... 13 9.3 Filing of Certificate of Cancellation......................................................... 14 Article X. Books, Records, Accounting, and Tax Elections................................ 14 10.1 Bank Accounts................................................................................. 14 10.2 Maintenance of Books and Records.............................................................. 14 10.3 Purposely Omitted............................................................................. 15 10.4 Right to Inspect Books and Records; Receive Information....................................... 15 10.5 Annual Accounting Period...................................................................... 15 10.6 GAAP Allocations.............................................................................. 15 Article XI. Representations and Warranties........................................ 16 11.1 Representations and Warranties of the Partners................................................ 16 Article XII. General Provisions.............................................. 16 12.1 Assurances.................................................................................... 16 12.2 Notifications................................................................................. 16 12.3 Specific Performance.......................................................................... 17 12.4 Complete Agreement............................................................................ 17 12.5 Applicable Law................................................................................ 17 12.6 Section Titles................................................................................ 17 12.7 Binding Provisions............................................................................ 18 12.8 Terms......................................................................................... 18 12.9 Separability of Provisions.................................................................... 18 12.10 Counterparts.................................................................................. 18 12.11 Estoppel Certificate.......................................................................... 18 12.12 Non-Disclosure................................................................................ 18 12.13 Waiver........................................................................................ 18
ii AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited partnership This Amended and Restated Agreement of Limited Partnership (the "Agreement"1. of Northeast Energy Associates, a Limited Partnership, a Massachusetts limited partnership (the "Partnership"), is entered into as of November 21, 1997, by and among Northeast Energy, LP, a Delaware limited partnership ("NE, LP") as a general partner and as a limited partner, and Northeast Energy, LLC, a Delaware limited liability company, ("NE, LLC") as a limited partner, with reference to the following recitals of fact: R E C I T A L S A. The Original Partners of the Partnership hereinafter described formed the Partnership as a Massachusetts limited partnership on March 31, 1986 (the "Original Effective Date") by filing on such date the Certificate of Limited Partnership of the Partnership in the Office of the Secretary of State of the Commonwealth of Massachusetts, and subsequent thereto such parties amended such certificate and entered into an Agreement of Limited Partnership of the Partnership dated as of October 15, 1996 (the "Original Partnership Agreement"). B. The Partnership was established for the purposes of (a) developing, financing, constructing, owning, managing, maintaining, operating, encumbering, exchanging, disposing of and otherwise dealing with (i) the Partnership's natural gas-fired electrical and steam generating plant located on an approximately 44-acre site on the upper Charles River in the town of Bellingham, Massachusetts (the "Project Site"), including without limitation, all electrical and steam generating components and all electrical steam and natural gas interconnection facilities and structures, associated materials handling and environmental control equipment and ancillary structures, equipment and systems (the "Bellingham Facility"); (ii) all easements, rights-of-way and rights required to provide the Partnership with access to the Project Site or required to provide the fuel, water, transportation, utilities and other services at or from the Project Site necessary for the operation and maintenance of the Bellingham Facility (the "Bellingham Easements"); and (iii) the carbon dioxide production facility located adjacent to the Bellingham Facility on the Project Site and all equipment and facilities ancillary thereto (the "CO2 Facility" and together with the Bellingham Site, the Bellingham Facility and the Bellingham Easements, the "Project") or any part thereof; (b) contracting with third parties to construct, maintain or operate the Project; and (c) selling the electricity and steam produced by the Project. C. Pursuant to a Purchase Agreement, NE, LP and NE, LLC have acquired all of the Interests of the Original Partners. D. NE, LP and NE, LLC desire to amend and restate the Original Partnership Agreement in its entirety. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, NE, LP and NE, LLC hereby agree to amend and restate the Original Partnership Agreement in its entirety as of the Effective Date (as defined in Article I) to read as follows: Article I. Defined Terms The following capitalized terms shall have the respective meanings specified in this Article I. Capitalized terms not defined in this Agreement shall have the meaning specified in the Act. "Acquisition" means the acquisitions by NE, LP and NE, LLC of all of the Interests of the Original Partners, pursuant to the Purchase Agreement. "Acquisition Date" means January 2, 1998 or, if the closing of the Acquisition shall not have occurred on such date, such later date on which such closing occurs. "Act" means the Revised Uniform Limited Partnership Act of the Commonwealth of Massachusetts, as amended from time to time, or any corresponding provision or provisions of any succeeding or successor law of the Commonwealth of Massachusetts. "Affected Party" shall have the meaning ascribed thereto in Section 12.12. "Affiliate" of any person, entity or group means any person, entity or group (presently existing or hereafter created or acquired) controlling, controlled by or under common control with, the specified person, entity or group, and "control" of a person, entity or group (including, with correlative meaning, the terms "controlled by" and "under common control with") means the power to direct or cause the direction of the management, policies or affairs of the controlled person or entity, whether through ownership of securities or partnership or other ownership interests, directly or indirectly, by contract or otherwise. "Agreement" means this Amended and Restated Agreement of Limited Partnership of the Partnership, including all schedules, exhibits and appendices hereto, as originally executed and as amended or restated in writing from time to time, as the context requires. "Bankruptcy" or "Bankrupt" means, with respect to any Person, such Person's becoming subject to any bankruptcy, insolvency, reorganization or similar proceeding, or admitting in writing its inability to pay its debts as they mature, or making an assignment for the benefit of creditors. "Banks" means the banks named in the Credit Agreement. "Buyers" shall have the meaning ascribed thereto in the Purchase Agreement. 2 "Cash Flow" means all cash or other funds received by the Partnership with respect to a calendar month (including interest received on, and any release of, reserves) and distributable to the Partners without reduction for any non-cash charges, but less (i) cash used to pay, with respect to such calendar month, current operating expenses and (ii) cash used to pay or establish reasonable reserves for future expenses, debt payments, capital improvements, and replacements as determined by the General Partner. "Certificate of Limited Partnership" means the Certificate of Limited Partnership for the Partnership filed with the Office of the Secretary of State of the Commonwealth of Massachusetts, as amended from time to time. "Code" means the U.S. Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law. "Confidential Information" means any information, technical data, or know-how of a Partner or any Affiliate thereof relating to the Project, including but not limited to, information relating to such Partner's or its Affiliate's services, development, marketing or finances, which shall be disclosed by such Partner or Affiliate in writing or otherwise. The term "Confidential Information" does not include information, technical data, or know-how which at the time such information, technical data, or know-how is disclosed to the receiving Partner or its Affiliates (the "Recipient") by another party hereto or an Affiliate thereof (i) is available to the Recipient from a source other than a party hereto or its Affiliates if the Recipient has no knowledge that such source, by disclosing such information, would be in violation of any confidentiality agreement to which it is a party; (ii) is or becomes published or otherwise available in the public domain without violation of this Agreement; or (iii) is approved for release by written authorization of the Partners hereto or their Affiliates from which such information, technical data or know-how originated. The term "Confidential Information" includes the terms of this Agreement. "Consent" means the prior written consent of the Person at issue, which consent may be withheld by such Person in its sole discretion. "Contribution" means any money, property or other binding obligation to contribute money or property, as permitted in this Agreement or by law, which a Partner contributes to the Partnership as capital in that Partner's capacity as a Partner pursuant to this Agreement. "Credit Agreement" means the Credit Agreement, dated as of December 1, 1994 among the Partnership, North Jersey Energy Associates, A Limited Partnership, each of the Banks and The Sanwa Bank, Limited, New York Branch, as issuing bank and as agent for such banks. "Debt Service Reserve Fund" shall have the meaning ascribed to it in the Trust Indenture. "Effective Date" means the Acquisition Date. "ESI" means ESI Energy, Inc., a Florida corporation. 3 "Fuel Management Agreement" means the Fuel Management Agreement, dated as of November 21, 1997, by and between NE, LP and ESI Northeast Fuel Management, Inc., as assigned by NE, LP to the Partnership on the Acquisition Date. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis. "General Partner" means NE, LP or any Person who, at the time of the reference thereto, has been admitted to the Partnership as a successor to the duties or interest of NE, LP or as a replacement general partner as provided herein, in any such Person's capacity as a general partner, in any case, so long as such Person has not ceased to be a General Partner hereunder. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any government. "Interest" means, in the context of a "Partner's Interest," the entire legal and equitable ownership interest of a Partner in the Partnership at any particular time, including any right to vote or, with respect to a general partner, to participate in management, and any right to information concerning the business and affairs of the Partnership. When used in the context of a General Partner, "Interest" means the Interest held by the Partner in its capacity as a General Partner. When used in the context of a Limited Partner, "Interest" means the Interest held by the Partner in its capacity as a Limited Partner. "Interest" includes, without limitation the right of such Partner to participate in Partnership Profits and Losses, Cash Flow, and any and all benefits to which a Partner may be entitled as provided in this Agreement and the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement. "Letters of Credit" shall have the meaning ascribed to it in the Trust Indenture. "Limited Partner" means each of NE, LLC and NE, LP and/or any Person who has been admitted to the Partnership as a limited partner in accordance with the terms of this Agreement, at the time of reference thereto, in such Person's capacity as a limited partner for so long as such Person has not ceased to be a Limited Partner hereunder. "NE, LLC" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "NE, LP" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "Notice" means a notice in writing delivered in accordance with the provisions of Section 12.2. 4 "O&M Agreement" means the Operations and Maintenance Agreement, dated as of November 21, 1997, by and between NE, LP and ESI Operating Services, Inc., with respect to the Bellingham Facility. "Original Effective Date" shall have the meaning set forth in the Recitals hereto. "Original Partners" means, collectively, the partners and the assignees named in the Original Partnership Agreement and their successors or assigns immediately prior to the date hereof. "Original Partnership Agreement" shall have the meaning set forth in the Recitals hereto. "Partner" means any General Partner or any Limited Partner. "Percentage" means 1% in the case of NE, LLC; 98% in the case of NE, LP, in its capacity as a Limited Partner; and 1% in the case of NE, LP, in its capacity as the General Partner. "Permitted Investments" shall have the meaning ascribed to it in the Trust Indenture. "Person" means any individual, any partnership, any corporation, any limited liability company, any business trust, any joint stock company, any trust, any unincorporated association, any joint venture, any Governmental Authority or any other entity of whatever nature. "Profit" or "Loss" means, for each taxable year of the Partnership (or other period for which Profit or Loss must be computed), the Partnership's taxable income or loss as determined under Code Section 703(a) including items separately stated pursuant to Section 703(a)(1). "Project" shall have the meaning set forth in the Recitals hereto. "Purchase Agreement" means the Purchase Agreement, dated as of November 21, 1997, by and among NE, LP, LP, NE, LLC, LLC, and the other Buyers listed on Schedule I attached thereto, and the Original Partners. "Secretary of State" means the Secretary of State of the Commonwealth of Massachusetts. "Transferor" means the Partner making a Transfer pursuant to Section 7.1. "Transfer" means the transfer, assignment, pledge or grant of a security interest by a Partner or its Affiliate of all or any part of its direct or indirect (i) Partner's Interest or (ii) any other interest or rights in or granted by this Agreement. "Trust Indenture" means the Trust Indenture, dated as of November 15, 1994, among IEC Funding Corp., the Partnership, North Jersey Energy Associates, a Limited Partnership, and State Street Bank and Trust Company, as trustee, as amended and supplemented from time to time in accordance with the terms thereof. "Voluntary Withdrawal" means a Partner's disassociation from the Partnership. 5 Article II. Formation and Name; Office; Purpose; Term 2.1 Formation and Continuation. The Partnership was formed as a Massachusetts limited partnership pursuant to Section 8 of the Act by filing the Certificate of Limited Partnership of the Partnership in the Office of the Secretary of State on the Original Effective Date. The Partners hereby agree to continue the Partnership as a limited partnership, and upon the execution hereof, NE, LP shall be admitted as and become the General Partner and each of NE, LP and NE, LLC shall be admitted as and become a Limited Partner. The rights and liabilities of the Partners shall be determined pursuant to the Act and this Agreement, and to the extent that the rights or obligations of any Partner are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 2.2 Name of the Partnership. The name of the Partnership is Northeast Energy Associates, a Limited Partnership. 2.3 Purpose. The sole purpose of the Partnership is to acquire, hold, protect, operate, manage, maintain, encumber, exchange, finance, refinance and dispose of the Project and all replacements, substitutions and additions thereof and thereto and to engage in any and all activities necessary, advisable or incidental thereto. 2.4 Term. The term of this Agreement commenced on the Original Effective Date and shall continue until December 31, 2048, unless sooner dissolved as provided by this Agreement or the Act. The existence of the Partnership as a separate legal entity shall continue until the cancellation of the Certificate of Limited Partnership of the Partnership in the manner required by the Act. 2.5 Registered Office. The Partnership shall continuously maintain a registered office and registered agent in the Commonwealth of Massachusetts. The principal office of the Partnership shall be determined by the General Partner. The registered agent in Massachusetts shall be as stated in the Certificate of Limited Partnership or as otherwise determined by the General Partner. 2.6 Partners. The name, present mailing address and (if applicable) taxpayer identification number of each Partner shall be kept with the records of the Partnership maintained in accordance with Section 10.2. 6 2.7 Qualification in Other Jurisdictions. The General Partner shall cause the Partnership to be qualified, formed or registered under assumed or fictitious name statutes or similar laws in any jurisdiction in which the Partnership transacts business. The General Partner shall have the power to execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Partnership to qualify to do business in a jurisdiction in which the Partnership may wish to conduct business. 2.8 Agent for Service of Process. The agent for service of process on the Partnership in Massachusetts shall be such eligible individual resident or corporation qualified to act as an agent for service of process as the General Partner shall designate. Article III. Partners' Capital; Capital Accounts 3.1 Capital Accounts. The Partners acknowledge, that as of the Effective Date, the Partnership is no longer properly treated for Federal income tax purposes as a partnership but is, instead, properly treated as a non-entity and that the Acquisition is properly treated for Federal income tax purposes as an acquisition by the General Partner of all of the assets of the Partnership (rather than an acquisition by NE, LLC and NE, LP of interests in the Partnership). Accordingly, the Partnership shall not file any Federal income tax returns for the period after the Effective Date and shall not maintain any capital accounts (notwithstanding any provision to the contrary contained in this Agreement) unless and until the Partnership is properly characterized as a partnership for Federal income tax purposes. 3.2 Capital Contributions. No Partner shall be required to make any Contributions to the Partnership subsequent to the Effective Date. 3.3 No Interest on Contributions. No Partner shall be paid interest with respect to its Contributions. 3.4 Return of Contributions. No Partner shall have the right to receive the return of any Contribution from the Partnership. 3.5 [Intentionally Omitted]. 3.6 Loans and Other Business Transactions. A Partner or an Affiliate thereof may make a loan to the Partnership only with the consent of the General Partner and then in such amount and on those terms upon which the General Partner and such Partner or Affiliate agree. Partners or Affiliates thereof may also transact other business with the Partnership with the approval of the General Partner and, in doing so, they shall have the same rights and be subject to the same obligations arising out of any such business transaction as would be enjoyed by and imposed upon any Person, not a Partner, engaged in a similar business transaction with the Partnership. Any business transacted by a Partner or its Affiliate with the Partnership shall be on terms no less favorable than would be available from third parties in an arm's length transaction. The Partners acknowledge that all documents executed by the Partnership with a Partner or with any Affiliate of a Partner prior to or contemporaneously with the execution of this Agreement conform to the requirements of the preceding sentence. 7 Article IV. Profit, Loss, and Distributions 4.1 [Purposely Omitted.] 4.2 Distribution of Cash Flow. Subject to Section 4.4 hereof, Cash Flow for each taxable year of the Partnership shall be distributed to the Partners in proportion to their Percentages at such times as determined by the General Partner. 4.3 Allocation of Profit or Loss. Profit and Loss shall be allocated to the Partners in proportion to their Percentages. 4.4 Liquidation and Dissolution. 4.4.1 Upon liquidation of the Partnership, the assets of the Partnership shall be distributed to the Partners in accordance with their Percentages. 4.4.2 Except as required by applicable law, no Partner shall be obligated at any time to restore any deficit balance in its capital account. 4.5 General. 4.5.1 Except as otherwise provided for in this Agreement, the timing and amount of all distributions shall be determined by the General Partner. If any assets of the Partnership are distributed in kind to the Partners, those assets shall be valued on the basis of their fair market value, and any Partner entitled to any interest in those assets shall receive that interest as a tenant-in-common with all other Partners so entitled. Unless the General Partner otherwise determines, the fair market value of the assets shall be determined by an independent appraiser who shall be selected by the General Partner. The Profit or Loss for each unsold asset shall be determined as if the asset had been sold at its fair market value, and the Profit or Loss shall be allocated as provided in Section 4.3 and shall be properly credited or charged to the capital accounts of the Partners prior to the distribution of the assets in liquidation pursuant to Section 4.4. 4.5.2 In connection with any Transfer of an Interest, the General Partner may adopt such conventions as it deems appropriate or advisable for allocating Profit and Loss between the transferor and transferee of the Interest. 4.6 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner 8 on behalf of the Partnership, shall not be required to make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate the provisions of the Act or other applicable law. Article V. General Partner Obligations 5.1 General Partner; General Partner; Meetings; Minutes. 5.1.1 General. The management of the Partnership shall be directed and controlled by the General Partner which, except as otherwise expressly provided in this Agreement, shall have all rights, powers and authority permitted a general partner under Section 24 of the Act with respect to such direction and control. 5.2 Duties of General Partner. 5.2.1 Nothing in this Agreement shall be deemed to restrict in any way the rights of any Partner, or of any other person or entity whether or not an Affiliate of any Partner, to conduct any other business or activity whatsoever, and no Partner (an Affiliate thereof) shall be accountable to the Partnership or to any other Partner with respect to that business or activity even if the business or activity owns and/or operates property within the same or any other geographic area or competes with the Partnership's business. The organization of the Partnership shall be without prejudice to the Partners' respective rights (or the rights of any other person or entity whether or not an Affiliate of any Partner) to maintain, expand or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Partner waives any rights the Partner might otherwise have to share or participate in such other interests, activities, assets or profits of any other Partner or of any other person or entity in any way affiliated with any Partner, whether or not an Affiliate of any Partner. 5.2.2 To the fullest extent permitted by Section 24 of the Act, the only fiduciary duties a General Partner owes to the Partnership and the other Partners are the duty of loyalty and the duty of care set forth in subdivisions 5.2.2.1, 5.2.2.2 and 5.2.2.3 below. It is the intent of the Partners hereby to restrict the duties (including fiduciary duties) of the General Partner to the extent permitted by the Act. 5.2.2.1 The General Partner owes a duty of loyalty to the Partnership and to the other Partners with respect to the business of the Partnership. 5.2.2.2 The General Partner must act in a commercially reasonable manner whenever it or its Affiliates provides, or has provided by any other Person, services to the Partnership. 5.2.2.3 The General Partner's duty of care to the Partnership in each case is to exercise its reasonable business judgment with regard to all decisions it makes on behalf of the Partnership. 9 5.3 Compensation. 5.3.1 Each month, the Partnership shall pay to NE, LP, for acting as the General Partner of the Partnership, the amount described in clause (iv) of the definition of "Management Costs" that is set forth in the Trust Indenture, as and when distributed to the Partnership during such year in accordance with Section 4.5 of the Trust Indenture. 5.3.2 The Partnership shall reimburse the General Partner for all ordinary and necessary out-of-pocket expenses incurred by the General Partner on behalf of the Partnership in accordance with, and upon the schedule set forth in, the budget of the General Partner. Such reimbursement shall be treated as an expense of the Partnership that shall be deducted in computing the Cash Flow and shall not be deemed to constitute a distributive share of Profits or a distribution or return of capital to the General Partner. 5.3.3 If a Partner or an Affiliate of a Partner provides services to the Partnership pursuant to a separate written agreement, such Partner or Affiliate shall be reimbursed for such services in accordance with such written agreement. 5.4 Provision of Services. No General Partner shall be required to perform services for the Partnership solely by virtue of being a General Partner. 5.5 Indemnification of General Partner. 5.5.1 The General Partner shall not be liable, responsible, or accountable, in damages or otherwise, to any other Partner or to the Partnership for any act performed by the General Partner with respect to Partnership matters, and within the standard of care specified in Section 5.2.2.3 unless such act constitutes grossly negligent or reckless conduct, intentional misconduct, a knowing violation of law, or the breach of any representation or warranty or covenant contained in this Agreement. Each General Partner shall, to the maximum extent permitted by law, indemnify and hold harmless the Partnership, the other Partners and their Affiliates from or against any direct or indirect liability, damage, loss, cost or expense (including without limitation reasonable attorneys' fees and disbursements) suffered or incurred by the indemnified Person arising out of or related to the breach of any representation or warranty or covenant contained in this Agreement. 5.5.2 The Partnership shall indemnify the General Partner and each partner of the General Partner for any act performed by the General Partner with respect to Partnership matters, and within the standard of care specified in Section 5.2.2.3 unless such act constitutes grossly negligent or reckless conduct, intentional misconduct, the knowing violation of law or the breach of any representation or warranty or covenant contained in this Agreement. 5.5.3 Nothing contained in this Section 5.5 shall be deemed to supersede the indemnification provisions contained in any agreement between the Partnership and a Partner or an Affiliate of a Partner, and any such indemnification provisions shall exclusively govern any such agreement. The agreements contained in this Section 5.5 shall survive the withdrawal of any Partner or any termination or dissolution of the Partnership. 10 Article VI. Limited Partners 6.1 No Liability of or Control by Limited Partners. 6.1.1 No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership in excess of the amount of such Limited Partner's unpaid contribution or except as expressly required by the Act. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of any other Partner. 6.1.2 No Limited Partner shall (i) have the authority or power to participate in the management or control of the Partnership's business, (ii) have the authority or power in its capacity as a Limited Partner to act as agent for or on behalf of the Partnership or any other Partner, to do any act which would be binding on the Partnership or any other Partner, or to incur any expenditures on behalf of or with respect to the Partnership, (iii) have any right to demand or receive property other than money upon distribution from the Partnership, or (iv) be compelled to accept a distribution of any asset in kind from the Partnership in lieu of a proportionate distribution of money being made to other Partners. 6.1.3 Except as expressly provided in this Agreement, the Limited Partners shall have no voting or consent rights, including with respect to actions to be taken by the General Partner. Article VII. Transfer of Partner Interests and Withdrawals of Partners 7.1 Transfers. Each Partner may freely sell, assign, gift, hypothecate, pledge, transfer or otherwise dispose ("Transfer") of its Interest. Additionally a Partner may assign its interest in Cash Flow and Profit and Loss. Except as provided in Section 7.2, an assignee of any Interest or portion thereof shall not become a Partner or have any of the rights conferred upon a Partner by the Act (other than its assigned share of allocable items). 7.2 Admission of Transferee as Additional or Substitute Partner. Any person to whom any Interest or portion thereof is Transferred ("Transferee") shall be entitled to be admitted as a substitute Partner and to have all of the rights herein conferred upon a Partner only if: (i) such Transferee's admission as a Partner will not violate, nor cause the Partnership to violate, any applicable laws, rules or regulations, including federal and state securities laws, and either such Transferee shall have delivered an opinion of counsel satisfactory to the Partnership or counsel for the Partnership shall have delivered an opinion, to such effect; and 11 (ii) such Transferee qualifies and becomes a Partner within the meaning of the Act by the procedures set forth in the Act. 7.3 Pledges; Foreclosures. Any Partner may mortgage, pledge or otherwise encumber all or any part of its Interest in the Partnership at any time, provided, that, in the event of any foreclosure upon the Partner's Interest in the Partnership (or any part thereof) by a creditor of the Partnership such foreclosure shall not operate as a dissolution of the Partnership or relieve the Partner of any of its obligations hereunder, and the party acquiring such Interest at any sale upon such foreclosure shall not thereby become a Partner, nor have any of the rights herein conferred upon the Partner, except that such party shall be entitled to receive the share of Cash Flow and Profits or Losses which the Partner would have been entitled to receive under the terms of this Agreement and, upon the dissolution of the Partnership, the share of the net assets of the Partnership which the Partner would have been entitled to receive upon such dissolution under the terms of this Agreement and, provided further, such party may become a Partner upon compliance with the provisions of the Act and in accordance with Section 7.2 hereof. Article VIII. [Purposely Omitted] Article IX. Dissolution, Liquidation, and Termination of the Partnership 9.1 Right to Cause Dissolution; Events of Dissolution. 9.1.1 Notwithstanding any agreement herein to the contrary, no Partner shall have the right, and each Partner hereby agrees not, to cause the winding up of, or to dissolve, terminate or liquidate the Partnership, or to petition a court for the winding up, dissolution, termination or liquidation of the Partnership. The Partnership shall not be dissolved by the admission of additional Partners or substitute Partners in accordance with the terms of this Agreement. 9.1.2 The Partnership shall be dissolved automatically and its affairs wound up, without further act, upon the happening of the first to occur of the following: (a) December 31, 2048, (b) the written consent of all of the Partners or (c) the entry of a decree of judicial dissolution under the Act, unless the remaining Partners vote to continue the Partnership. 9.2 Procedure for Winding Up and Dissolution. If the Partnership is dissolved, the General Partner shall wind up its affairs. On winding up of the Partnership, the assets of the Partnership shall be distributed, first to creditors of the Partnership, including Partners who are creditors, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof and including the satisfaction of all contingent, conditional and unmatured liabilities of the Partnership), and then to the Partners in accordance with Section 4.4 of this Agreement. 12 9.3 Filing of Certificate of Cancellation. Upon completion of winding up the affairs of the Partnership, the General Partner shall promptly cause to be filed the Certificate of Cancellation of Certificate of Limited Partnership with the Secretary of State of the State of Massachusetts. Article X. Books, Records, Accounting, and Tax Elections 10.1 Bank Accounts. All funds of the Partnership shall be deposited in a bank account or accounts opened in the Partnership's name. The bank accounts will be maintained in Florida, or elsewhere as determined by the General Partner from time to time. The General Partner shall determine the financial institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein. 10.2 Maintenance of Books and Records. 10.2.1 The General Partner, as the Partner responsible for administrative matters, shall keep or cause to be kept, at its offices in North Palm Beach, Florida, or at such other place as it shall designate in a Notice to the Partners, complete and accurate books, records, and financial statements of the Partnership and supporting documentation of transactions with respect to the conduct of the Partnership's business. The books, records, and financial statements of the Partnership shall be maintained on the accrual basis in accordance with GAAP. Such books, records, financial statements, and documents shall include, but not be limited to, the following: 10.2.1.1 a current register of each of the Partners and Partners indicating for each such Person its (i) full name, (ii) last known business or residence address, (iii) Contributions, and (iv) share in profits and losses, and also indicating each Transfer of an Interest permitted by Article VII hereof, including the name and address of the transferor and transferee of such Interest and the Percentage Interest of the Transferee attributable to the Interest so transferred; 10.2.1.2 the Certificate of Limited Partnership, including all amendments; and any powers of attorney under which the Certificate of Limited Partnership or amendments were executed; 10.2.1.3 federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; 13 10.2.1.4 this Agreement and any amendments, and any powers of attorney under which this Agreement or amendments were executed; 10.2.1.5 financial statements for the six most recent years; 10.2.1.6 internal books and records for the current and four most recent years which shall, among other things, reflect all capital accounts; and 10.2.1.7 a true copy of relevant records indicating the amount and cost of all property the Partnership owns, claims, possesses, or controls. 10.3 Purposely Omitted. 10.4 Right to Inspect Books and Records; Receive Information. 10.4.1 Upon the request of a Partner, the Partnership shall promptly deliver to the requesting Partner at the expense of the Partnership a copy of this Agreement, as well as the information required to be maintained by the Partnership under subparagraphs (1) and (3) of Section 10.2.1. 10.4.2 Each Partner has the right upon not less than 24 hours notice, and for purposes reasonably related to the interest of that Partner or the Partnership, to do the following: 10.4.2.1 to inspect and copy, or cause its agents or representatives to inspect any copy, during normal business hours any of the records required to be maintained by the Partnership under Section 10.2.1 of this Agreement; and 10.4.2.2 to obtain from the Partnership promptly after becoming available, a copy of the Partnership's federal, state, and local income tax or information returns for each year (if any). 10.4.3 Unless otherwise expressly provided in this Agreement, the inspecting or requesting Partner shall reimburse the Partnership for all reasonable costs and expenses incurred by the Partnership in connection with such inspection and copying of the Partnership's books and records and the production and delivery of any other books or records. 10.5 Annual Accounting Period. The annual accounting period of the Partnership shall be the calendar year. 10.6 GAAP Allocations. All items of income and expense calculated and reported in accordance with GAAP shall be allocated to each Partner based on each Partner's Percentage. 14 Article XI. Representations and Warranties 11.1 Representations and Warranties of the Partners. Each Partner hereby represents and warrants as of the Effective Date that: 11.1.1 It is duly formed, validly existing and in good standing under the jurisdiction of its formation, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; 11.1.2 It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; 11.1.3 Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable law, regulation, rule, ordinance, order, judgment or decree; and 11.1.4 It has acted in full compliance with all laws, statutes, ordinances, rules and regulations in connection with the execution hereof. Article XII. General Provisions 12.1 Assurances. Each Partner shall execute all certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Partners deem appropriate to comply with the requirements of law for the formation and operation of the Partnership and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Partnership. 12.2 Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively a "Notice") required or permitted under this Agreement must be in writing and shall be deemed to have been duly given and received (i) on the date of service, if a business day, when served personally or sent by facsimile transmission to the party to whom notice is to be given, otherwise on the next business day, or (ii) on the fourth (4th) day after mailing, if mailed by first class registered or certified mail if mailed nationally, or by registered airmail if mailed internationally, postage prepaid, and addressed to the party to whom notice is to be given at the address set forth below or at the most recent address 15 specified by written notice given to the other Party hereto, or (iii) on the next business day if sent by a nationally or internationally recognized courier for next day service and so addressed and if there is evidence of acceptance by receipt. To NE, LP: Northeast Energy, LP - --------- c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attention: President Telecopier: (561) 691-3615 To NE, LLC: Northeast Energy, LLC - ---------- c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attention: President Telecopier: (561) 691-3615 12.3 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach. 12.4 Complete Agreement. This Agreement constitutes the complete and exclusive statement of the agreement among the Partners. It supersedes all prior written and oral agreements and statements, including the Original Partnership Agreement and any prior representation, statement, condition, or warranty. Except as expressly provided otherwise herein, this Agreement may not be amended without the written consent of all of the Partners. 12.5 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflicts of laws. 12.6 Section Titles. The headings herein are inserted as a matter of convenience only and do not define, limit, or describe the scope of this Agreement or the intent of the provisions hereof. 16 12.7 Binding Provisions. This Agreement is binding upon, and to the limited extent specifically provided herein, inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and assigns. 12.8 Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the Person may in the context require. 12.9 Separability of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid. 12.10 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 12.11 Estoppel Certificate. Each Partner shall, within ten (10) days after written request by any Partner, deliver to the requesting Person a certificate stating, to the Partner's knowledge, that: (a) this Agreement is in full force and effect; (b) this Agreement has not been modified except by any instrument or instruments identified in the certificate; and (c) there is no default hereunder by the requesting Person, or if there is a default, the nature or extent thereof. 12.12 Non-Disclosure. Each Partner hereto agrees that it will, and will cause its officers, other personnel and authorized representatives to, hold in strict confidence all Confidential Information disclosed by the other Partners and will ensure that such other persons do not, disclose such information to others without the prior written consent of the Partners hereto to which such Confidential Information relates (the "AFFECTED PARTY"); provided, that each Partner hereto may provide such data and information (i) to its outside lenders, consultants, accountants, investors and advisers; provided, that, such parties remain legally obligated (by contract or otherwise) to maintain the confidentiality of such information, and (ii) in response to legal process or applicable government regulations, but only that portion of the data and information which, in the written opinion of counsel for such Partner, is legally required to be furnished and further provided that such Party notifies the Affected Party to protect the confidentiality of such data and information pursuant to applicable law. Notwithstanding the foregoing, each Party hereto may disclose the terms of this Agreement in connection with any Transfer provided that the potential purchaser executes appropriate confidentiality agreements. 12.13 Waiver. No failure on the part of any Partner to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Any waiver to be effective shall be in writing signed by the waiving Partner. 17 IN WITNESS WHEREOF, the parties have executed, or caused this Amended and Restated Agreement of Limited Partnership of Northeast Energy Associates, a Limited Partnership, to be executed, as of the Effective Date. NORTHEAST ENERGY, LLC, a Delaware limited liability company, as Limited Partner By: Northeast Energy, LP, Member and Manager By: ESI Northeast Energy GP, Inc., General Partner By: /s/ Glenn E. Smith ---------------------- Name: Glenn E. Smith Title: Vice President By: Tractebel Northeast Generation GP, Inc., General Partner By: /s/ Timothy R. Dunne ---------------------- Name: Timothy R. Dunne Title: Vice President [Counterpart Signature Page to Amended and Restated Agreement of Limited Partnership] EX-3.8 7 AGREEMENT OF LIMITED PARTNERSHIP EXHIBIT 3.8 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP a New Jersey limited partnership TABLE OF CONTENTS
Page ---- Article I. Defined Terms................................................ 3 Article II. Formation and Name; Office; Purpose; Term.................................. 7 2.1 Formation and Continuation.................................................................... 7 2.2 Name of the Partnership....................................................................... 7 2.3 Purpose....................................................................................... 7 2.4 Term.......................................................................................... 7 2.5 Registered Office............................................................................. 7 2.6 Partners...................................................................................... 7 2.7 Qualification in Other Jurisdictions.......................................................... 7 2.8 Agent for Service of Process.................................................................. 8 Article III. Partners' Capital; Capital Accounts..................................... 8 3.1 Capital Accounts.............................................................................. 8 3.2 Capital Contributions......................................................................... 8 3.3 No Interest on Contributions.................................................................. 8 3.4 Return of Contributions....................................................................... 8 3.5 [Intentionally Omitted]....................................................................... 8 3.6 Loans and Other Business Transactions......................................................... 8 Article IV. Profit, Loss, and Distributions....................................... 9 4.1 [Purposely Omitted]........................................................................... 9 4.2 Distribution of Cash Flow..................................................................... 9 4.3 Allocation of Profit or Loss.................................................................. 9 4.4 Liquidation and Dissolution................................................................... 9 4.5 General....................................................................................... 9 4.6 Restricted Distributions...................................................................... 9 Article V. General Partner Obligations......................................... 10 5.1 General Partner; General Partner; Meetings; Minutes........................................... 10 5.2 Duties of General Partner..................................................................... 10 5.3 Compensation.................................................................................. 10 5.4 Provision of Services......................................................................... 11 5.5 Indemnification of General Partner............................................................ 11 Article VI. Limited Partners............................................... 12 6.1 No Liability of or Control by Limited Partners................................................ 12
i Article VII. Transfer of Partner Interests and Withdrawals of Partners.......................... 12 7.1 Transfers..................................................................................... 12 7.2 Admission of Transferee as Additional or Substitute Partner................................... 12 7.3 Pledges; Foreclosures......................................................................... 13 Article VIII. [Purposely Omitted]............................................. 13 Article IX. Dissolution, Liquidation, and Termination of the Partnership......................... 13 9.1 Right to Cause Dissolution; Events of Dissolution............................................. 13 9.2 Procedure for Winding Up and Dissolution...................................................... 13 9.3 Filing of Certificate of Cancellation......................................................... 14 Article X. Books, Records, Accounting, and Tax Elections................................ 14 10.1 Bank Accounts................................................................................. 14 10.2 Maintenance of Books and Records.............................................................. 14 10.3 Purposely Omitted............................................................................. 15 10.4 Right to Inspect Books and Records; Receive Information....................................... 15 10.5 Annual Accounting Period...................................................................... 15 10.6 GAAP Allocations.............................................................................. 15 Article XI. Representations and Warranties........................................ 16 11.1 Representations and Warranties of the Partners................................................ 16 Article XII. General Provisions.............................................. 16 12.1 Assurances.................................................................................... 16 12.2 Notifications................................................................................. 16 12.3 Specific Performance.......................................................................... 17 12.4 Complete Agreement............................................................................ 17 12.5 Applicable Law................................................................................ 17 12.6 Section Titles................................................................................ 17 12.7 Binding Provisions............................................................................ 18 12.8 Terms......................................................................................... 18 12.9 Separability of Provisions.................................................................... 18 12.10 Counterparts.................................................................................. 18 12.11 Estoppel Certificate.......................................................................... 18 12.12 Non-Disclosure................................................................................ 18 12.13 Waiver........................................................................................ 18
ii AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a New Jersey limited partnership This Amended and Restated Agreement of Limited Partnership (the "Agreement") of North Jersey Energy Associates, a Limited Partnership, a New Jersey limited partnership (the "Partnership"), is entered into as of November 21, 1997, by and among Northeast Energy, LP, a Delaware limited partnership ("NE, LP") as a general partner and as a limited partner, and Northeast Energy, LLC, a Delaware limited liability company, ("NE, LLC") as a limited partner, with reference to the following recitals of fact: R E C I T A L S A. The Original Partners of the Partnership hereinafter described formed the Partnership as a New Jersey limited partnership on November 3, 1986 (the "Original Effective Date") by filing on such date the Certificate of Limited Partnership of the Partnership in the Office of the Secretary of State of the State of New Jersey, and subsequent thereto such parties amended such certificate and entered into an Agreement of Limited Partnership of the Partnership dated as of October 15, 1996 (the "Original Partnership Agreement"). B. The Partnership was established for the purposes of (a) developing, financing, constructing, owning, managing, maintaining, operating, encumbering, exchanging, disposing of and otherwise dealing with (i) the Partnership's natural gas-fired electrical and steam generating plant located on an approximately ___-acre site in the town of Sayreville, New Jersey (the "Project Site"), including without limitation, all electrical and steam generating components and all electrical steam and natural gas interconnection facilities and structures, associated materials handling and environmental control equipment and ancillary structures, equipment and systems (the "Sayreville Facility"); and (ii) all easements, rights-of-way and rights required to provide the Partnership with access to the Project Site or required to provide the fuel, water, transportation, utilities and other services at or from the Project Site necessary for the operation and maintenance of the Sayreville Facility (the "Sayreville Easements"; and together with the Sayreville Site and the Sayreville Facility, the "Project") or any part thereof; (b) contracting with third parties to construct, maintain or operate the Project; and (c) selling the electricity and steam produced by the Project. C. Pursuant to a Purchase Agreement, NE, LP and NE, LLC have acquired all of the Interests of the Original Partners. D. NE, LP and NE, LLC desire to amend and restate the Original Partnership Agreement in its entirety. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, NE, LP and NE, LLC hereby agree to amend and restate the Original Partnership Agreement in its entirety as of the Effective Date (as defined in Article I) to read as follows: Article I. Defined Terms The following capitalized terms shall have the respective meanings specified in this Article I. Capitalized terms not defined in this Agreement shall have the meaning specified in the Act. "Acquisition" means the acquisitions by NE, LP and NE, LLC of all of the Interests of the Original Partners, pursuant to the Purchase Agreement. "Acquisition Date" means January 2, 1998 or, if the closing of the Acquisition shall not have occurred on such date, such later date on which such closing occurs. "Act" means the Uniform Limited Partnership Law (1976) of the State of New Jersey, as amended from time to time, or any corresponding provision or provisions of any succeeding or successor law of the State of New Jersey. "Affected Party" shall have the meaning ascribed thereto in Section 12.12. "Affiliate" of any person, entity or group means any person, entity or group (presently existing or hereafter created or acquired) controlling, controlled by or under common control with, the specified person, entity or group, and "control" of a person, entity or group (including, with correlative meaning, the terms "controlled by" and "under common control with") means the power to direct or cause the direction of the management, policies or affairs of the controlled person or entity, whether through ownership of securities or partnership or other ownership interests, directly or indirectly, by contract or otherwise. "Agreement" means this Amended and Restated Agreement of Limited Partnership of the Partnership, including all schedules, exhibits and appendices hereto, as originally executed and as amended or restated in writing from time to time, as the context requires. "Bankruptcy" or "Bankrupt" means, with respect to any Person, such Person's becoming subject to any bankruptcy, insolvency, reorganization or similar proceeding, or admitting in writing its inability to pay its debts as they mature, or making an assignment for the benefit of creditors. "Banks" means the banks named in the Credit Agreement. "Buyers" shall have the meaning ascribed thereto in the Purchase Agreement. 2 "Cash Flow" means all cash or other funds received by the Partnership with respect to a calendar month (including interest received on, and any release of, reserves) and distributable to the Partners without reduction for any non-cash charges, but less (i) cash used to pay, with respect to such calendar month, current operating expenses and (ii) cash used to pay or establish reasonable reserves for future expenses, debt payments, capital improvements, and replacements as determined by the General Partner. "Certificate of Limited Partnership" means the Certificate of Limited Partnership for the Partnership filed with the Office of the Secretary of State of the State of New Jersey, as amended from time to time. "Code" means the U.S. Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law. "Confidential Information" means any information, technical data, or know-how of a Partner or any Affiliate thereof relating to the Project, including but not limited to, information relating to such Partner's or its Affiliate's services, development, marketing or finances, which shall be disclosed by such Partner or Affiliate in writing or otherwise. The term "Confidential Information" does not include information, technical data, or know-how which at the time such information, technical data, or know-how is disclosed to the receiving Partner or its Affiliates (the "Recipient") by another party hereto or an Affiliate thereof (i) is available to the Recipient from a source other than a party hereto or its Affiliates if the Recipient has no knowledge that such source, by disclosing such information, would be in violation of any confidentiality agreement to which it is a party; (ii) is or becomes published or otherwise available in the public domain without violation of this Agreement; or (iii) is approved for release by written authorization of the Partners hereto or their Affiliates from which such information, technical data or know-how originated. The term "Confidential Information" includes the terms of this Agreement. "Consent" means the prior written consent of the Person at issue, which consent may be withheld by such Person in its sole discretion. "Contribution" means any money, property or other binding obligation to contribute money or property, as permitted in this Agreement or by law, which a Partner contributes to the Partnership as capital in that Partner's capacity as a Partner pursuant to this Agreement. "Credit Agreement" means the Credit Agreement, dated as of December 1, 1994 among the Partnership, Northeast Energy Associates, A Limited Partnership, each of the Banks and The Sanwa Bank, Limited, New York Branch, as issuing bank and as agent for such banks. "Debt Service Reserve Fund" shall have the meaning ascribed to it in the Trust Indenture. "Effective Date" means the Acquisition Date. "ESI" means ESI Energy, Inc., a Florida corporation. 3 "Fuel Management Agreement" means the Fuel Management Agreement, dated as of November 21, 1997, by and between NE, LP and ESI Northeast Fuel Management, Inc., as assigned by NE, LP to the Partnership on the Acquisition Date. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis. "General Partner" means NE, LP or any Person who, at the time of the reference thereto, has been admitted to the Partnership as a successor to the duties or interest of NE, LP or as a replacement general partner as provided herein, in any such Person's capacity as a general partner, in any case, so long as such Person has not ceased to be a General Partner hereunder. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any government. "Interest" means, in the context of a "Partner's Interest," the entire legal and equitable ownership interest of a Partner in the Partnership at any particular time, including any right to vote or, with respect to a general partner, to participate in management, and any right to information concerning the business and affairs of the Partnership. When used in the context of a General Partner, "Interest" means the Interest held by the Partner in its capacity as a General Partner. When used in the context of a Limited Partner, "Interest" means the Interest held by the Partner in its capacity as a Limited Partner. "Interest" includes, without limitation the right of such Partner to participate in Partnership Profits and Losses, Cash Flow, and any and all benefits to which a Partner may be entitled as provided in this Agreement and the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement. "Letters of Credit" shall have the meaning ascribed to it in the Trust Indenture. "Limited Partner" means each of NE, LLC and NE, LP and/or any Person who has been admitted to the Partnership as a limited partner in accordance with the terms of this Agreement, at the time of reference thereto, in such Person's capacity as a limited partner for so long as such Person has not ceased to be a Limited Partner hereunder. "NE, LLC" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "NE, LP" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "Notice" means a notice in writing delivered in accordance with the provisions of Section 12.2. 4 "O&M Agreement" means the Operations and Maintenance Agreement, dated as of November 21, 1997, by and between NE, LP and ESI Operating Services, Inc., with respect to the Sayreville Facility. "Original Effective Date" shall have the meaning set forth in the Recitals hereto. "Original Partners" means, collectively, the partners and the assignees named in the Original Partnership Agreement and their successors or assigns immediately prior to the date hereof. "Original Partnership Agreement" shall have the meaning set forth in the Recitals hereto. "Partner" means any General Partner or any Limited Partner. "Percentage" means 1% in the case of NE, LLC; 98% in the case of NE, LP, in its capacity as a Limited Partner; and 1% in the case of NE, LP, in its capacity as the General Partner. "Permitted Investments" shall have the meaning ascribed to it in the Trust Indenture. "Person" means any individual, any partnership, any corporation, any limited liability company, any business trust, any joint stock company, any trust, any unincorporated association, any joint venture, any Governmental Authority or any other entity of whatever nature. "Profit" or "Loss" means, for each taxable year of the Partnership (or other period for which Profit or Loss must be computed), the Partnership's taxable income or loss as determined under Code Section 703(a) including items separately stated pursuant to Section 703(a)(1). "Project" shall have the meaning set forth in the Recitals hereto. "Purchase Agreement" means the Purchase Agreement, dated as of November 21, 1997, by and among NE, LP, NE, LLC, and the other Buyers listed on Schedule I attached thereto, and the Original Partners. "Secretary of State" means the Secretary of State of the State of New Jersey. "Transferor" means the Partner making a Transfer pursuant to Section 7.1. "Transfer" means the transfer, assignment, pledge or grant of a security interest by a Partner or its Affiliate of all or any part of its direct or indirect (i) Partner's Interest or (ii) any other interest or rights in or granted by this Agreement. "Trust Indenture" means the Trust Indenture, dated as of November 15, 1994, among IEC Funding Corp., the Partnership, Northeast Energy Associates, a Limited Partnership, and State Street Bank and Trust Company, as trustee, as amended and supplemented from time to time in accordance with the terms thereof. "Voluntary Withdrawal" means a Partner's disassociation from the Partnership. 5 Article II. Formation and Name; Office; Purpose; Term 2.1 Formation and Continuation. The Partnership was formed as a New Jersey limited partnership pursuant to Section 2A-15 of the Act by filing the Certificate of Limited Partnership of the Partnership in the Office of the Secretary of State on the Original Effective Date. The Partners hereby agree to continue the Partnership as a limited partnership, and upon the execution hereof, NE, LP shall be admitted as and become the General Partner and each of NE, LP and NE, LLC shall be admitted as and become a Limited Partner. The rights and liabilities of the Partners shall be determined pursuant to the Act and this Agreement, and to the extent that the rights or obligations of any Partner are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 2.2 Name of the Partnership. The name of the Partnership is North Jersey Energy Associates, a Limited Partnership. 2.3 Purpose. The sole purpose of the Partnership is to acquire, hold, protect, operate, manage, maintain, encumber, exchange, finance, refinance and dispose of the Project and all replacements, substitutions and additions thereof and thereto and to engage in any and all activities necessary, advisable or incidental thereto. 2.4 Term. The term of this Agreement commenced on the Original Effective Date and shall continue until December 31, 2048, unless sooner dissolved as provided by this Agreement or the Act. The existence of the Partnership as a separate legal entity shall continue until the cancellation of the Certificate of Limited Partnership of the Partnership in the manner required by the Act. 2.5 Registered Office. The Partnership shall continuously maintain a registered office and registered agent in the State of New Jersey. The principal office of the Partnership shall be determined by the General Partner. The registered agent in New Jersey shall be as stated in the Certificate of Limited Partnership or as otherwise determined by the General Partner. 2.6 Partners. The name, present mailing address and (if applicable) taxpayer identification number of each Partner shall be kept with the records of the Partnership maintained in accordance with Section 10.2. 2.7 Qualification in Other Jurisdictions. The General Partner shall cause the Partnership to be qualified, formed or registered under assumed or fictitious name statutes or similar laws in any jurisdiction in which the Partnership transacts business. The General Partner shall have the power to execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Partnership to qualify to do business in a jurisdiction in which the Partnership may wish to conduct business. 6 2.8 Agent for Service of Process. The agent for service of process on the Partnership in New Jersey shall be such eligible individual resident or corporation qualified to act as an agent for service of process as the General Partner shall designate. Article III. Partners' Capital; Capital Accounts 3.1 Capital Accounts. The Partners acknowledge, that as of the Effective Date, the Partnership is no longer properly treated for Federal income tax purposes as a partnership but is, instead, properly treated as a non-entity and that the Acquisition is properly treated for Federal income tax purposes as an acquisition by the General Partner of all of the assets of the Partnership (rather than an acquisition by NE, LLC and NE, LP of interests in the Partnership). Accordingly, the Partnership shall not file any Federal income tax returns for the period after the Effective Date and shall not maintain any capital accounts (notwithstanding any provision to the contrary contained in this Agreement) unless and until the Partnership is properly characterized as a partnership for Federal income tax purposes. 3.2 Capital Contributions. No Partner shall be required to make any Contributions to the Partnership subsequent to the Effective Date. 3.3 No Interest on Contributions. No Partner shall be paid interest with respect to its Contributions. 3.4 Return of Contributions. No Partner shall have the right to receive the return of any Contribution from the Partnership. 3.5 [Intentionally Omitted]. 3.6 Loans and Other Business Transactions. A Partner or an Affiliate thereof may make a loan to the Partnership only with the consent of the General Partner and then in such amount and on those terms upon which the General Partner and such Partner or Affiliate agree. Partners or Affiliates thereof may also transact other business with the Partnership with the approval of the General Partner and, in doing so, they shall have the same rights and be subject to the same obligations arising out of any such business transaction as would be enjoyed by and imposed upon any Person, not a Partner, engaged in a similar business transaction with the Partnership. Any business transacted by a Partner or its Affiliate with the Partnership shall be on terms no less favorable than would be available from third parties in an arm's length transaction. The Partners acknowledge that all documents executed by the Partnership with a Partner or with any Affiliate of a Partner prior to or contemporaneously with the execution of this Agreement conform to the requirements of the preceding sentence. 7 Article IV. Profit, Loss, and Distributions 4.1 [Purposely Omitted.] 4.2 Distribution of Cash Flow. Subject to Section 4.4 hereof, Cash Flow for each taxable year of the Partnership shall be distributed to the Partners in proportion to their Percentages at such times as determined by the General Partner. 4.3 Allocation of Profit or Loss. Profit and Loss shall be allocated to the Partners in proportion to their Percentages. 4.4 Liquidation and Dissolution. 4.4.1 Upon liquidation of the Partnership, the assets of the Partnership shall be distributed to the Partners in accordance with their Percentages. 4.4.2 Except as required by applicable law, no Partner shall be obligated at any time to restore any deficit balance in its capital account. 4.5 General. 4.5.1 Except as otherwise provided for in this Agreement, the timing and amount of all distributions shall be determined by the General Partner. If any assets of the Partnership are distributed in kind to the Partners, those assets shall be valued on the basis of their fair market value, and any Partner entitled to any interest in those assets shall receive that interest as a tenant-in-common with all other Partners so entitled. Unless the General Partner otherwise determines, the fair market value of the assets shall be determined by an independent appraiser who shall be selected by the General Partner. The Profit or Loss for each unsold asset shall be determined as if the asset had been sold at its fair market value, and the Profit or Loss shall be allocated as provided in Section 4.3 and shall be properly credited or charged to the capital accounts of the Partners prior to the distribution of the assets in liquidation pursuant to Section 4.4. 4.5.2 In connection with any Transfer of an Interest, the General Partner may adopt such conventions as it deems appropriate or advisable for allocating Profit and Loss between the transferor and transferee of the Interest. 4.6 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on behalf of the Partnership, shall not be required to make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate the provisions of the Act or other applicable law. 8 Article V. General Partner Obligations 5.1 General Partner; General Partner; Meetings; Minutes. 5.1.1 General. The management of the Partnership shall be directed and controlled by the General Partner which, except as otherwise expressly provided in this Agreement, shall have all rights, powers and authority permitted a general partner under Section 2A-32 of the Act with respect to such direction and control. 5.2 Duties of General Partner. 5.2.1 Nothing in this Agreement shall be deemed to restrict in any way the rights of any Partner, or of any other person or entity whether or not an Affiliate of any Partner, to conduct any other business or activity whatsoever, and no Partner (an Affiliate thereof) shall be accountable to the Partnership or to any other Partner with respect to that business or activity even if the business or activity owns and/or operates property within the same or any other geographic area or competes with the Partnership's business. The organization of the Partnership shall be without prejudice to the Partners' respective rights (or the rights of any other person or entity whether or not an Affiliate of any Partner) to maintain, expand or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Partner waives any rights the Partner might otherwise have to share or participate in such other interests, activities, assets or profits of any other Partner or of any other person or entity in any way affiliated with any Partner, whether or not an Affiliate of any Partner. 5.2.2 To the fullest extent permitted by Section 2A-32 of the Act, the only fiduciary duties a General Partner owes to the Partnership and the other Partners are the duty of loyalty and the duty of care set forth in subdivisions 5.2.2.1, 5.2.2.2 and 5.2.2.3 below. It is the intent of the Partners hereby to restrict the duties (including fiduciary duties) of the General Partner to the extent permitted by the Act. 5.2.2.1 The General Partner owes a duty of loyalty to the Partnership and to the other Partners with respect to the business of the Partnership. 5.2.2.2 The General Partner must act in a commercially reasonable manner whenever it or its Affiliates provides, or has provided by any other Person, services to the Partnership. 5.2.2.3 The General Partner's duty of care to the Partnership in each case is to exercise its reasonable business judgment with regard to all decisions it makes on behalf of the Partnership. 9 5.3 Compensation. 5.3.1 Each month, the Partnership shall pay to NE, LP, for acting as the General Partner of the Partnership, the amount described in clause (iv) of the definition of "Management Costs" that is set forth in the Trust Indenture, as and when distributed to the Partnership during such year in accordance with Section 4.5 of the Trust Indenture. 5.3.2 The Partnership shall reimburse the General Partner for all ordinary and necessary out-of-pocket expenses incurred by the General Partner on behalf of the Partnership in accordance with, and upon the schedule set forth in, the budget of the General Partner. Such reimbursement shall be treated as an expense of the Partnership that shall be deducted in computing the Cash Flow and shall not be deemed to constitute a distributive share of Profits or a distribution or return of capital to the General Partner. 5.3.3 If a Partner or an Affiliate of a Partner provides services to the Partnership pursuant to a separate written agreement, such Partner or Affiliate shall be reimbursed for such services in accordance with such written agreement. 5.4 Provision of Services. No General Partner shall be required to perform services for the Partnership solely by virtue of being a General Partner. 5.5 Indemnification of General Partner. 5.5.1 The General Partner shall not be liable, responsible, or accountable, in damages or otherwise, to any other Partner or to the Partnership for any act performed by the General Partner with respect to Partnership matters, and within the standard of care specified in Section 5.2.2.3 unless such act constitutes grossly negligent or reckless conduct, intentional misconduct, a knowing violation of law, or the breach of any representation or warranty or covenant contained in this Agreement. Each General Partner shall, to the maximum extent permitted by law, indemnify and hold harmless the Partnership, the other Partners and their Affiliates from or against any direct or indirect liability, damage, loss, cost or expense (including without limitation reasonable attorneys' fees and disbursements) suffered or incurred by the indemnified Person arising out of or related to the breach of any representation or warranty or covenant contained in this Agreement. 5.5.2 The Partnership shall indemnify the General Partner and each partner of the General Partner for any act performed by the General Partner with respect to Partnership matters, and within the standard of care specified in Section 5.2.2.3 unless such act constitutes grossly negligent or reckless conduct, intentional misconduct, the knowing violation of law or the breach of any representation or warranty or covenant contained in this Agreement. 5.5.3 Nothing contained in this Section 5.5 shall be deemed to supersede the indemnification provisions contained in any agreement between the Partnership and a Partner or an Affiliate of a Partner, and any such indemnification provisions shall exclusively govern any such agreement. The agreements contained in this Section 5.5 shall survive the withdrawal of any Partner or any termination or dissolution of the Partnership. 10 Article VI. Limited Partners 6.1 No Liability of or Control by Limited Partners. 6.1.1 No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership in excess of the amount of such Limited Partner's unpaid contribution or except as expressly required by the Act. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of any other Partner. 6.1.2 No Limited Partner shall (i) have the authority or power to participate in the management or control of the Partnership's business, (ii) have the authority or power in its capacity as a Limited Partner to act as agent for or on behalf of the Partnership or any other Partner, to do any act which would be binding on the Partnership or any other Partner, or to incur any expenditures on behalf of or with respect to the Partnership, (iii) have any right to demand or receive property other than money upon distribution from the Partnership, or (iv) be compelled to accept a distribution of any asset in kind from the Partnership in lieu of a proportionate distribution of money being made to other Partners. 6.1.3 Except as expressly provided in this Agreement, the Limited Partners shall have no voting or consent rights, including with respect to actions to be taken by the General Partner. Article VII. Transfer of Partner Interests and Withdrawals of Partners 7.1 Transfers. Each Partner may freely sell, assign, gift, hypothecate, pledge, transfer or otherwise dispose ("Transfer") of its Interest. Additionally a Partner may assign its interest in Cash Flow and Profit and Loss. Except as provided in Section 7.2, an assignee of any Interest or portion thereof shall not become a Partner or have any of the rights conferred upon a Partner by the Act (other than its assigned share of allocable items). 7.2 Admission of Transferee as Additional or Substitute Partner. Any person to whom any Interest or portion thereof is Transferred ("Transferee") shall be entitled to be admitted as a substitute Partner and to have all of the rights herein conferred upon a Partner only if: (i) such Transferee's admission as a Partner will not violate, nor cause the Partnership to violate, any applicable laws, rules or regulations, including federal and state securities laws, and either such Transferee shall have delivered an opinion of counsel satisfactory to the Partnership or counsel for the Partnership shall have delivered an opinion, to such effect; and 11 (ii) such Transferee qualifies and becomes a Partner within the meaning of the Act by the procedures set forth in the Act. 7.3 Pledges; Foreclosures. Any Partner may mortgage, pledge or otherwise encumber all or any part of its Interest in the Partnership at any time, provided, that, in the event of any foreclosure upon the Partner's Interest in the Partnership (or any part thereof) by a creditor of the Partnership such foreclosure shall not operate as a dissolution of the Partnership or relieve the Partner of any of its obligations hereunder, and the party acquiring such Interest at any sale upon such foreclosure shall not thereby become a Partner, nor have any of the rights herein conferred upon the Partner, except that such party shall be entitled to receive the share of Cash Flow and Profits or Losses which the Partner would have been entitled to receive under the terms of this Agreement and, upon the dissolution of the Partnership, the share of the net assets of the Partnership which the Partner would have been entitled to receive upon such dissolution under the terms of this Agreement and, provided further, such party may become a Partner upon compliance with the provisions of the Act and in accordance with Section 7.2 hereof. Article VIII. [Purposely Omitted] Article IX. Dissolution, Liquidation, and Termination of the Partnership 9.1 Right to Cause Dissolution; Events of Dissolution. 9.1.1 Notwithstanding any agreement herein to the contrary, no Partner shall have the right, and each Partner hereby agrees not, to cause the winding up of, or to dissolve, terminate or liquidate the Partnership, or to petition a court for the winding up, dissolution, termination or liquidation of the Partnership. The Partnership shall not be dissolved by the admission of additional Partners or substitute Partners in accordance with the terms of this Agreement. 9.1.2 The Partnership shall be dissolved automatically and its affairs wound up, without further act, upon the happening of the first to occur of the following: (a) December 31, 2048, (b) the written consent of all of the Partners or (c) the entry of a decree of judicial dissolution under the Act, unless the remaining Partners vote to continue the Partnership. 9.2 Procedure for Winding Up and Dissolution. If the Partnership is dissolved, the General Partner shall wind up its affairs. On winding up of the Partnership, the assets of the Partnership shall be distributed, first to creditors of the Partnership, including Partners who are creditors, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof and including the satisfaction of all contingent, conditional and unmatured liabilities of the Partnership), and then to the Partners in accordance with Section 4.4 of this Agreement. 12 9.3 Filing of Certificate of Cancellation. Upon completion of winding up the affairs of the Partnership, the General Partner shall promptly cause to be filed the Certificate of Cancellation of Certificate of Limited Partnership with the Secretary of State of the State of New Jersey. Article X. Books, Records, Accounting, and Tax Elections 10.1 Bank Accounts. All funds of the Partnership shall be deposited in a bank account or accounts opened in the Partnership's name. The bank accounts will be maintained in Florida, or elsewhere as determined by the General Partner from time to time. The General Partner shall determine the financial institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein. 10.2 Maintenance of Books and Records. 10.2.1 The General Partner, as the Partner responsible for administrative matters, shall keep or cause to be kept, at its offices in North Palm Beach, Florida, or at such other place as it shall designate in a Notice to the Partners, complete and accurate books, records, and financial statements of the Partnership and supporting documentation of transactions with respect to the conduct of the Partnership's business. The books, records, and financial statements of the Partnership shall be maintained on the accrual basis in accordance with GAAP. Such books, records, financial statements, and documents shall include, but not be limited to, the following: 10.2.1.1 a current register of each of the Partners and Partners indicating for each such Person its (i) full name, (ii) last known business or residence address, (iii) Contributions, and (iv) share in profits and losses, and also indicating each Transfer of an Interest permitted by Article VII hereof, including the name and address of the transferor and transferee of such Interest and the Percentage Interest of the Transferee attributable to the Interest so transferred; 10.2.1.2 the Certificate of Limited Partnership, including all amendments; and any powers of attorney under which the Certificate of Limited Partnership or amendments were executed; 10.2.1.3 federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; 13 10.2.1.4 this Agreement and any amendments, and any powers of attorney under which this Agreement or amendments were executed; 10.2.1.5 financial statements for the six most recent years; 10.2.1.6 internal books and records for the current and four most recent years which shall, among other things, reflect all capital accounts; and 10.2.1.7 a true copy of relevant records indicating the amount and cost of all property the Partnership owns, claims, possesses, or controls. 10.3 Purposely Omitted. 10.4 Right to Inspect Books and Records; Receive Information. 10.4.1 Upon the request of a Partner, the Partnership shall promptly deliver to the requesting Partner at the expense of the Partnership a copy of this Agreement, as well as the information required to be maintained by the Partnership under subparagraphs (1) and (3) of Section 10.2.1. 10.4.2 Each Partner has the right upon not less than 24 hours notice, and for purposes reasonably related to the interest of that Partner or the Partnership, to do the following: 10.4.2.1 to inspect and copy, or cause its agents or representatives to inspect any copy, during normal business hours any of the records required to be maintained by the Partnership under Section 10.2.1 of this Agreement; and 10.4.2.2 to obtain from the Partnership promptly after becoming available, a copy of the Partnership's federal, state, and local income tax or information returns for each year (if any). 10.4.3 Unless otherwise expressly provided in this Agreement, the inspecting or requesting Partner shall reimburse the Partnership for all reasonable costs and expenses incurred by the Partnership in connection with such inspection and copying of the Partnership's books and records and the production and delivery of any other books or records. 10.5 Annual Accounting Period. The annual accounting period of the Partnership shall be the calendar year. 10.6 GAAP Allocations. All items of income and expense calculated and reported in accordance with GAAP shall be allocated to each Partner based on each Partner's Percentage. 14 Article XI. Representations and Warranties 11.1 Representations and Warranties of the Partners. Each Partner hereby represents and warrants as of the Effective Date that: 11.1.1 It is duly formed, validly existing and in good standing under the jurisdiction of its formation, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; 11.1.2 It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; 11.1.3 Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable law, regulation, rule, ordinance, order, judgment or decree; and 11.1.4 It has acted in full compliance with all laws, statutes, ordinances, rules and regulations in connection with the execution hereof. Article XII. General Provisions 12.1 Assurances. Each Partner shall execute all certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Partners deem appropriate to comply with the requirements of law for the formation and operation of the Partnership and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Partnership. 12.2 Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively a "Notice") required or permitted under this Agreement must be in writing and shall be deemed to have been duly given and received (i) on the date of service, if a business day, when served personally or sent by facsimile transmission to the party to whom notice is to be given, otherwise on the next business day, or (ii) on the fourth (4th) day after mailing, if mailed by first class registered or certified mail if mailed nationally, or by registered airmail if mailed internationally, postage prepaid, and addressed to the party to whom notice is to be given at the address set forth below or at the most recent address specified by written notice given to the other Party hereto, or (iii) on the next business day if sent by a nationally or internationally recognized courier for next day service and so addressed and if there is evidence of acceptance by receipt. 15 To NE, LP: Northeast Energy, LP - --------- c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attention: President Telecopier: (561) 691-3615 To NE, LLC: Northeast Energy, LLC - ---------- c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attention: President Telecopier: (561) 691-3615 12.3 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach. 12.4 Complete Agreement. This Agreement constitutes the complete and exclusive statement of the agreement among the Partners. It supersedes all prior written and oral agreements and statements, including the Original Partnership Agreement and any prior representation, statement, condition, or warranty. Except as expressly provided otherwise herein, this Agreement may not be amended without the written consent of all of the Partners. 12.5 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to principles of conflicts of laws. 12.6 Section Titles. The headings herein are inserted as a matter of convenience only and do not define, limit, or describe the scope of this Agreement or the intent of the provisions hereof. 16 12.7 Binding Provisions. This Agreement is binding upon, and to the limited extent specifically provided herein, inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and assigns. 12.8 Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the Person may in the context require. 12.9 Separability of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid. 12.10 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 12.11 Estoppel Certificate. Each Partner shall, within ten (10) days after written request by any Partner, deliver to the requesting Person a certificate stating, to the Partner's knowledge, that: (a) this Agreement is in full force and effect; (b) this Agreement has not been modified except by any instrument or instruments identified in the certificate; and (c) there is no default hereunder by the requesting Person, or if there is a default, the nature or extent thereof. 12.12 Non-Disclosure. Each Partner hereto agrees that it will, and will cause its officers, other personnel and authorized representatives to, hold in strict confidence all Confidential Information disclosed by the other Partners and will ensure that such other persons do not, disclose such information to others without the prior written consent of the Partners hereto to which such Confidential Information relates (the "Affected Party"); provided, that each Partner hereto may provide such data and information (i) to its outside lenders, consultants, accountants, investors and advisers; provided, that, such parties remain legally obligated (by contract or otherwise) to maintain the confidentiality of such information, and (ii) in response to legal process or applicable government regulations, but only that portion of the data and information which, in the written opinion of counsel for such Partner, is legally required to be furnished and further provided that such Party notifies the Affected Party to protect the confidentiality of such data and information pursuant to applicable law. Notwithstanding the foregoing, each Party hereto may disclose the terms of this Agreement in connection with any Transfer provided that the potential purchaser executes appropriate confidentiality agreements. 12.13 Waiver. No failure on the part of any Partner to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Any waiver to be effective shall be in writing signed by the waiving Partner. 17 IN WITNESS WHEREOF, the parties have executed, or caused this Amended and Restated Agreement of Limited Partnership of North Jersey Energy Associates, a Limited Partnership, to be executed, as of the Effective Date. NORTHEAST ENERGY, LLC, a Delaware limited liability company, as Limited Partner By: Northeast Energy, LP, Member and Manager By: ESI Northeast Energy GP, Inc., General Partner By: /s/ Glenn E. Smith ---------------------- Name: Glenn E. Smith Title: Vice President By: Tractebel Northeast Generation GP, Inc., General Partner By: /s/ Timothy R. Dunne ---------------------- Name: Timothy R. Dunne Title: Vice President [Counterpart Signature Page to Amended and Restated Agreement of Limited Partnership] EX-3.9 8 CERTIFICATE OF LIMITED PARTNERSHIP EXHIBIT 3.9 CERTIFICATE OF LIMITED PARTNERSHIP OF NORTHEAST ENERGY, LP The undersigned, desiring to form a limited partnership pursuant to the Delaware revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17, do hereby certify as follows: I. The name of the limited partnership is Northeast Energy, LP. II. The address of the Partnership's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle. The name of the Partnership's registered agent for service of process in the State of Delaware at such address is The Corporation Trust Company. III. The name and mailing address of each general partner is as follows: Name Mailing Address - ---- --------------- ESI Northeast Energy GP, Inc. c/o ESI Energy, Inc. 11760 US Highway 1 Suite 600 North Palm Beach, Florida 33408 Tractebel Northeast Generation GP, Inc. c/o Tractebel Power, Inc. 1177 West Loop South Suite 900 Houston, Texas 77027 IN WITNESS WHEREOF, the undersigned have executed this Certificate of Limited Partnership of Northeast Energy, LP, as of November 21, 1997. ESI NORTHEAST ENERGY GP, INC., General Partner By: /s/ Glenn E. Smith ------------------------- Name: Glenn E. Smith Title: Vice President TRACTEBEL NORTHEAST GENERATION GP, INC., General Partner By: /s/ Timothy R. Dunne ------------------------- Name: Timothy R. Dunne Title: Vice President EX-3.10 9 AGREEMENT OF LIMITED PARTNERSHIP EXHIBIT 3.10 AGREEMENT OF LIMITED PARTNERSHIP OF NORTHEAST ENERGY, LP a Delaware limited partnership TABLE OF CONTENTS Page ---- Article I . . . . . . . . . . . . . . 1 Article II. Formation and Name; Office; Purpose; Term. . . . . 9 2.1 Formation and Continuation. . . . . . . . . . . . . . 9 2.2 Name of the Partnership . . . . . . . . . . . . . . . 9 2.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . 9 2.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . 9 2.5 Registered Office . . . . . . . . . . . . . . . . . . 9 2.6 Partners. . . . . . . . . . . . . . . . . . . . . . . 10 2.7 Qualification in Other Jurisdictions. . . . . . . . . 10 2.8 Agent for Service of Process. . . . . . . . . . . . . 10 Article III. Partners' Capital; Capital Accounts. . . . . . . . 10 3.1 Capital Contributions; Capital Account Balances . . . 10 3.2 No Additional Contributions Required. . . . . . . . . 10 3.3 No Interest on Contributions. . . . . . . . . . . . . 10 3.4 Return of Contributions . . . . . . . . . . . . . . . 10 3.5 Capital Accounts. . . . . . . . . . . . . . . . . . . 10 3.6 Loans and Other Business Transactions . . . . . . . . 11 Article IV. Profit, Loss and Distributions . . . . . . . . . . 11 4.1 Payment of Certain Funds. . . . . . . . . . . . . . . 11 4.2 Distribution of Cash Flow . . . . . . . . . . . . . . 13 4.3 Allocation of Profit or Loss. . . . . . . . . . . . . 13 4.4 Regulatory Allocations. . . . . . . . . . . . . . . . 13 4.5 Liquidation and Dissolution . . . . . . . . . . . . . 15 4.6 General . . . . . . . . . . . . . . . . . . . . . . . 16 4.7 Restricted Distributions. . . . . . . . . . . . . . . 16 Article V . . . . . . . . . . . . . . 16 5.1 Management Committee; Meetings; Minutes . . . . . . . 16 5.2 Duties of General Partners. . . . . . . . . . . . . . 19 5.3 Compensation. . . . . . . . . . . . . . . . . . . . . 20 5.4 Provision of Services . . . . . . . . . . . . . . . . 21 5.5 Indemnification of General Partners . . . . . . . . . 21 i 5.6 Sharing of Information. . . . . . . . . . . . . . . . 22 5.7 Rule 144A Financing . . . . . . . . . . . . . . . . . 22 5.8 Authorization of Project Documents. . . . . . . . . . 22 Article VI. Limited Partners; General Partner Meetings . . . . 22 6.1 No Liability of or Control by Limited Partners. . . . 22 Article VII. Transfer of Partner Interests and Withdrawals of Partners . . . . . . . . . . . . . . . . . . 23 7.1 Transfers. . . . . .. . . . . . . . . . . . . . . . . 23 7.2 Voluntary Withdrawal. . . . . . . . . . . . . . . . . 26 7.3 Special Rules With Respect to General Partners. . . . 26 Article VIII. Dispute Resolutions; Arbitration . . . . . . . . . 26 8.1 Dispute Resolution. . . . . . . . . . . . . . . . . . 26 8.2 Arbitration . . . . . . . . . . . . . . . . . . . . . 27 Article IX. Dissolution, Liquidation, and Termination of the Partnership. . . . . . . . . . . . . . . . . . . 28 9.1 Right to Cause Dissolution; Events of Dissolution . . 28 9.2 Procedure for Winding Up and Dissolution. . . . . . . 28 9.3 Filing of Certificate of Cancellation . . . . . . . . 28 Article X. Books, Records, Accounting, and Tax Elections. . . 28 10.1 Bank Accounts . . . . . . . . . . . . . . . . . . . . 28 10.2 Maintenance of Books and Records. . . . . . . . . . . 29 10.3 Financial Statements and Reports. . . . . . . . . . . 29 10.4 Right to Inspect Books and Records; Receive Information . . . . . . . . . . . . . . . . . . . . 29 10.5 Annual Accounting Period. . . . . . . . . . . . . . . 29 10.6 Tax Matters . . . . . . . . . . . . . . . . . . . . . 29 10.7 GAAP Allocations. . . . . . . . . . . . . . . . . . . 30 Article XI. Representations and Warranties . . . . . . . . . . 30 11.1 Representations and Warranties of the Partners. . . . 30 11.2 Representations and Warranties of ESI Partners. . . . 30 Article XII. True-Up of Stream of Benefits. . . . . . . . . . . 30 12.1 True-Up . . . . . . . . . . . . . . . . . . . . . . . 30 ii Article XIII. General Provisions . . . . . .. . . . . . . . . . 32 13.1 Assurances.. . . . . . . . . . . . . . . . . . . . . 33 13.2 Notifications. . . . . . . . . . . . . . . . . . . . 33 13.3 Specific Performance.. . . . . . . . . . . . . . . . 33 13.4 Complete Agreement.. . . . . . . . . . . . . . . . . 34 13.5 Applicable Law.. . . . . . . . . . . . . . . . . . . 34 13.6 Section Titles.. . . . . . . . . . . . . . . . . . . 34 13.7 Binding Provisions.. . . . . . . . . . . . . . . . . 34 13.8 Terms. . . . . . . . . . . . . . . . . . . . . . . . 34 13.9 Separability of Provisions.. . . . . . . . . . . . . 34 13.10 Counterparts.. . . . . . . . . . . . . . . . . . . . 34 13.11 Estoppel Certificate.. . . . . . . . . . . . . . . . 34 13.12 Non-Disclosure.. . . . . . . . . . . . . . . . . . . 34 13.13 Waiver.. . . . . . . . . . . . . . . . . . . . . . . 35 iii AGREEMENT OF LIMITED PARTNERSHIP OF NORTHEAST ENERGY, LP, a Delaware limited partnership This Agreement of Limited Partnership (the "Agreement") of NORTHEAST ENERGY, LP, a Delaware limited partnership (the "Partnership"), is entered into as of November 21, 1997, by and among ESI NORTHEAST ENERGY GP, INC., a Florida corporation ("ESI GP") as a general partner, ESI NORTHEAST ENERGY LP, INC., a Florida corporation ("ESI Sub") as a limited partner, TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation ("Tractebel GP") as a general partner, and TRACTE BEL ASSOCIATES NORTHEAST LP, INC., a Delaware corporation, ("Tractebel Sub") as a limited partner. In consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ESI GP, ESI Sub, Tractebel GP and Tractebel Sub hereby agree as follows: Article I. Defined Terms The following capitalized terms shall have the respective meanings specified in this Article I. Capitalized terms not defined in this Agreement shall have the meaning specified in the Act. "Acquisition" means the acquisitions by the Partnership and NE, LLC of all of the interests of the Original Partners in and to the Project Partnerships, pursuant to the Purchase Agreement. "Acquisition Date" means January 2, 1998 or, if the closing of the Acquisition shall not have occurred on such date, such later date on which such closing occurs. "Act" means the Revised Uniform Limited Partnership Act of the State of Delaware, as amended from time to time, or any corresponding provision or provisions of any succeeding or successor law of the State of Delaware. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in the Partner's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (a) the deficit shall be decreased by the amounts which the Partner is obligated to restore or is deemed obligated to restore pursuant to Regulation Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5); and (b) the deficit shall be increased by the items described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4),(5), and (6). This definition is intended to comply with the provisions of Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith. "Additional Required Capital" means aggregate capital contributions equal to all amounts payable by the Buyers (excluding the Initial Required Capital) in connection with the Acquisition and the Rule 144A Financing, including fees and expenses. "Administrative Services Agreement" means the Administrative Service Agreement by and between the Partnership and ESI GP, dated November 21, 1997, as amended from time to time, and any replacement administrative services agreement entered into upon termination thereof and which the General Partners specify as the "Administrative Services Agreement" for purposes hereof. "Affected Party" shall have the meaning ascribed thereto in Section 13.12. "Affiliate" of any person, entity or group means any person, entity or group (presently existing or hereafter created or acquired) controlling, controlled by or under common control with, the specified person, entity or group, and "control" of a person, entity or group (including, with correlative meaning, the terms "controlled by" and "under common control with") means the power to direct or cause the direction of the management, policies or affairs of the controlled person or entity, whether through ownership of securities or partnership or other ownership interests, directly or indirectly, by contract or otherwise. "Agreement" means this Agreement of Limited Partnership of the Partnership, including all schedules, exhibits and appendices hereto, as originally executed and as amended or restated in writing from time to time, as the context requires. "Arbitration Rules" shall have the meaning set forth in Section 8.1. "Back-up Letter of Credit" shall have the meaning specified in the Trust Indenture. "Bankruptcy" or "Bankrupt" means, with respect to any Person, such Person's becoming subject to any bankruptcy, insolvency, reorganization or similar proceeding, or admitting in writing its inability to pay its debts as they mature, or making an assignment for the benefit of creditors. "Budget" means the combined operating and capital budget of the Partnership, NE, LLC and the Project Partnerships, to be prepared by the Manager and approved by the Management Committee, as such budget is amended from time to time with the approval of the Management Committee. The Budget shall be prepared by the Manager in accordance with the guidelines set forth in the Administrative Services Agreement. 2 "Buyers" shall have the meaning ascribed thereto in the Purchase Agreement. "Capital Account" means the account to be maintained by the Partnership for each Partner in accordance with the following provisions: (a) a Partner's Capital Account shall be credited with the amount of money and the fair market value of any property contributed to the Partnership (net of liabilities secured by such property that the Partnership either assumes or to which such property is subject), the amount of any Partnership unsecured liabilities assumed by the Partner and the Partner's distributive share of Profit and any item in the nature of income or gain allocated to the Partner pursuant to the provisions of Section 4.4 (oth er than Section 4.4.3); and (b) a Partner's Capital Account shall be debited with the amount of money and the fair market value of any Partnership property (valued in the manner set forth in Section 4.6.1) distributed to the Partner (net of liabilities secured by such distributed property that the Partner either assumes or to which such property is subject), the amount of any unsecured liabilities of the Partner assumed by the Partnership, and the Partner's distributive share of Loss and any item in the nature of expenses or los ses allocated to the Partner pursuant to the provisions of Section 4.4 (other than Section 4.4.3). When Partnership property is distributed in kind (whether in connection with liquidation and dissolution or otherwise), the Capital Accounts of the Partners shall first be adjusted to reflect the manner in which the unrealized income, gain, loss and deduction inherent in such property (that has not been reflected in the Capital Account previously) would be allocated among the Partners if there were a taxable disposition of such property for the fair market value of such property (taking into account s ection 7701(g) of the Code) on the date of distribution. If any Interest is transferred pursuant to the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent the Capital Account is attributable to the transferred Interest. If the book value of Partnership property is adjusted pursuant to Section 4.4.3, the Capital Account of each Partner shall be adjusted to reflect the aggregate adjustment in the same manner as if the Partnership had recognized gain or loss equal to the amount of such aggregate adjust ment. It is intended that the Capital Accounts of all Partners shall be maintained in compliance with the provisions of Regulation Section 1.704-1(b), and all provisions of this Agreement relating to the maintenance of Capital Accounts shall be interpreted and applied in a manner consistent with that Regulation. "Cash Flow" means all cash or other funds received by the Partnership with respect to a calendar month and distributable to the Partners (including interest received on, and release of, reserves and the proceeds of the Rule 144A Financing, but excluding the releases of cash contemplated by Section 4.1 hereof) without reduction for any non-cash charges, but less (i) cash used to pay, with respect to such calendar month, current operating expenses (including fees payable by the Partnership under the Adm inistrative Services Agreement and the O&M Agreement) and (ii) cash used to pay or establish reasonable reserves for future expenses and debt payments as determined by the Management Committee. 3 "Certificate of Limited Partnership" means the Certificate of Limited Partnership for the Partnership filed with the Office of the Secretary of State of Delaware, as amended from time to time. "Code" means the U.S. Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law. "Confidential Information" means any information, technical data, or know-how of a Partner or any Affiliate thereof relating to the Projects, including but not limited to, information relating to such Partner's or its Affiliate's services, development, marketing or finances, which shall be disclosed by such Partner or Affiliate in writing or otherwise. The term "Confidential Information" does not include information, technical data, or know-how which at the time such information, technical data, or k now-how is disclosed to the receiving Partner or its Affiliates (the "Recipient") by another party hereto or an Affiliate thereof (i) is available to the Recipient from a source other than a party hereto or its Affiliates if the Recipient has no knowledge that such source, by disclosing such information, would be in violation of any confidentiality agreement to which it is a party; (ii) is or becomes published or otherwise available in the public domain without violation of this Agreement; or (iii) is appr oved for release by written authorization of the Partners hereto or their Affiliates from which such information, technical data or know-how originated. The term "Confidential Information" includes the terms of this Agreement. "Consent" means the prior written consent of the Person at issue, which consent may be withheld by such Person in its sole discretion. "Contribution" means any money, property or other binding obligation to contribute money or property, as permitted in this Agreement or by law, which a Partner contributes to the Partnership as capital in that Partner's capacity as a Partner pursuant to this Agreement. "Debt Service Reserve Fund" shall have the meaning specified in the Trust Indenture. "Effective Date" means the Acquisition Date. "ESI GP" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "ESI Partners" means, collectively, ESI GP and ESI Sub. "ESI Release Percentage" means a percentage (expressed as a decimal) calculated on the Acquisition Date equal to one minus the Tractebel Release Percentage. "ESI Sub" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "Fuel Management Agreements" means (i) the fuel management agreement dated November 21, 1997 between ESI Northeast Fuel Management, Inc. and the Partnership, which agreement 4 shall be assigned by the Partnership to NEA on the Acquisition Date and (ii) the fuel management agreement dated November 21, 1997 between ESI Northeast Fuel Management, Inc. and the Partnership, which agreement shall be assigned by the Partnership to NJEA on the Acquisition Date. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis. "General Partner" means ESI GP or Tractebel GP or any Person who, at the time of the reference thereto, has been admitted to the Partnership as a successor to the duties or interest of ESI GP or Tractebel GP or as a replacement general partner as provided herein, in any such Person's capacity as a general partner, in any case, so long as such Person has not ceased to be a General Partner hereunder. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any government. "Initial Required Capital" means aggregate capital contributions equal to (i) the Initial Payment (as defined in the Purchase Agreement), plus interest thereon as provided in the Purchase Agreement, plus all costs and expenses of Buyers to the Acquisition Date in connection with the Acquisition. "Interest" means, in the context of a "Partner's Interest," the entire legal and equitable ownership interest of a Partner in the Partnership at any particular time, including any right to vote or, with respect to a general partner, to participate in management, and any right to information concerning the business and affairs of the Partnership. When used in the context of a General Partner, "Interest" means the Interest held by the Partner in its capacity as a General Partner. When used in the cont ext of a Limited Partner, "Interest" means the Interest held by the Partner in its capacity as a Limited Partner. "Interest" includes, without limitation the right of such Partner to participate in Partnership Profits and Losses, Cash Flow, and any and all benefits to which a Partner may be entitled as provided in this Agreement and the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement. "Letter of Credit Facility" shall have the meaning specified in the Trust Indenture. "Limited Partner" means Tractebel Sub, ESI Sub and/or any Person who has been admitted to the Partnership as a limited partner in accordance with the terms of this Agreement, at the time of reference thereto, in such Person's capacity as a limited partner for so long as such Person has not ceased to be a Limited Partner hereunder. "Management Committee" shall have the meaning ascribed to it in Section 5.1.1 hereof. "Manager" shall have the meaning set forth in the Administrative Services Agreement. 5 "Negative Capital Account" means a Capital Account with a balance of less than zero. "Nonrecourse Deductions" has the meaning set forth in Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year of the Partnership equals the net increase, if any, in the amount of Partnership Minimum Gain during that taxable year, determined according to the provisions of Regulation Section 1.704-2(c). "NE, LLC" means Northeast Energy, LLC, a Delaware limited liability company having the Partnership as its sole member. "NEA" means Northeast Energy Associates, a Limited Partnership, a Massachusetts limited partnership. "NEA Facility" means the 300 megawatt gas-fired combined cycle cogeneration plant located in Bellingham, Massachusetts. "NJEA" means North Jersey Energy Associates, a Limited Partnership, a New Jersey limited partnership. "NJEA Facility" means the 300 megawatt gas-fired combined cycle cogeneration plant, located in Sayreville, New Jersey. "Nonrecourse Liability" has the meaning set forth in Regulation Section 1.704-2(b)(3). "Non-Reimbursable Expenses" has the meaning set forth in the Administrative Services Agreement. "Notice" means a notice in writing delivered in accordance with the provisions of Section 13.2. "O&M Agreements" means (i) the Operation and Maintenance Agreement, dated as of November 21, 1997, by and between the Partnership and ESI Operating Services, Inc. for the NEA Facility, which agreement shall be assigned by the Partnership to NEA on the Operating Period Commencement Date, as defined in such Agreement and (ii) the Operation and Maintenance Agreement, dated as of November 21, 1997, by and between the Partnership and ESI Operating Services, Inc. for the NJEA Facility, which agreement shall be assigned by the Partnership to NJEA on the Operating Period Commencement Date, as defined in such agreement. "Original Effective Date" means March 31, 1986. "Original Partners" means, collectively, the partners named in the partnership agreement for each of the Project Partnerships and their successors or assigns immediately prior to the date hereof. 6 "Parent Guaranty" shall mean any corporate guaranty of an Affiliate of any of the Partners that is permitted under the terms of the Trust Indenture (as amended from time to time) to be provided in substitution for a Back-up Letter of Credit. "Partner" means any General Partner or any Limited Partner. "Partner Loan Nonrecourse Deductions" means any Partnership deductions that would be Nonrecourse Deductions if they were not attributable to a loan as to which a Partner bears the economic risk of loss within the meaning of Regulation Section 1.704-2(i). "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(i)(3). "Partnership Minimum Gain" has the meaning set forth in Regulation Section 1.704-2(d). Partnership Minimum Gain shall be computed separately for each Partner in a manner consistent with the Regulations under Code Section 704(b). "Percentage" means 1% in the case of each of ESI GP and Tractebel GP and 49% in the case of each of ESI Sub and Tractebel Sub. "Permitted Investments" shall have the meaning ascribed to it in the Trust Indenture. "Person" means any individual, any partnership, any corporation, any limited liability company, any business trust, any joint stock company, any trust, any unincorporated association, any joint venture, any Governmental Authority or any other entity of whatever nature. "Profit" or "Loss" means, for each taxable year of the Partnership (or other period for which Profit or Loss must be computed), the Partnership's taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments: (a) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss; (b) any tax-exempt income of the Partnership, not otherwise taken into account in computing Profit or Loss, shall be included in computing taxable income or loss; (c) any expenditures of the Partnership described in Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from taxable income or loss; (d) gain or loss resulting from any taxable disposition of Partnership property shall be computed by reference to the book value as adjusted under Regulation Section 1.704-1(b) ("adjusted book value") of the property disposed of, notwithstanding the fact that the adjusted book value differs from the adjusted basis of the property for federal income tax purposes; 7 (e) in lieu of the depreciation, amortization or cost recovery deductions allowable in computing taxable income or loss, there shall be taken into account the depreciation computed based upon the adjusted book value of the asset; and (f) notwithstanding any other provision of this definition, any items that are allocated pursuant to Section 4.4 shall not be taken into account in computing Profit or Loss. "Project Documents" means the documents listed in Part A of Schedule 1 to the Trust Indenture other than any of such documents that have been terminated or that expired on or prior to the date hereof. "Project Partnerships" means NEA and NJEA. "Project Partnership Agreements" mean the Amended and Restated Agreement of Limited Partnership of Northeast Energy Associates, a Limited Partnership, a Massachusetts limited partnership, dated as of November 21, 1997 and the Amended and Restated Agreement of Limited Partnership of North Jersey Energy Associates, a Limited Partnership, a New Jersey limited partnership, dated as of November 21, 1997. "Purchase Agreement" means the Purchase Agreement, dated as of November 21, 1997 by and among the Partnership, NE, LLC and the Original Partners. "PURPA" has the meaning set forth in Section 12.1.1 hereof. "Regulation" means the income tax regulations, including any temporary regulations, from time to time promulgated under the Code. "Rule 144A Financing" means the offering and sale of bonds by ESI Tractebel Acquisition Corp., as agent and nominee for the Partnership. "Secretary of State" means the Secretary of State of Delaware. "Substitute Letter of Credit" shall have the meaning specified in the Trust Indenture. "Tractebel GP" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "Tractebel Partners" means, collectively, Tractebel GP and Tractebel Sub. "Tractebel Release Percentage" means a percentage (expressed as a decimal) calculated on the Acquisition Date equal to (i) 50% of the funds deposited to the Debt Service Reserve Fund that are the property of NJEA (which 50% is projected to be $6,903,500 as of the Acquisition Date), divided by (ii) the sum of the amounts available to be released from the Debt Service Reserve Fund (projected to be $33,270,000 as of the Acquisition Date). 8 "Tractebel Sub" shall have the meaning ascribed to it in the opening paragraph of this Agreement. "Transfer" means the transfer, assignment, pledge or grant of a security interest by a Partner or its Affiliate of all or any part of its direct or indirect (i) Partner's Interest or (ii) any other interest or rights in or granted by this Agreement. "Transferor" means the Partner making a Transfer pursuant to Section 7.1. "Trust Indenture" means the Trust Indenture, dated as of November 15, 1994, among IEC Funding Corp., each of the Project Partnerships, and State Street Bank and Trust Company, as trustee, as amended and supplemented from time to time in accordance with the terms thereof. "Voluntary Withdrawal" means a Partner's disassociation from the Partnership. Article II. Formation and Name; Office; Purpose; Term 2.1 Formation and Continuation. The Partnership was formed as a Delaware limited partnership by filing the Certificate of Limited Partnership in the Office of the Secretary of State on November 21, 1997. Each of ESI GP and Tractebel GP shall be the initial General Partners and each of ESI Sub and Tractebel Sub shall be the initial Limited Partners of the Partnership. The rights and liabilities of the Partners shall be determined pursuant to the Act and this Agreement, and to the extent that the ri ghts or obligations of any Partner are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 2.2 Name of the Partnership. The name of the Partnership is Northeast Energy, LP. 2.3 Purpose. The sole purpose of the Partnership is to acquire, hold, protect, manage, encumber, exchange, finance, refinance and dispose of interests in NE, LLC and the Project Partnerships, and to engage in any and all activities necessary, advisable or incidental thereto. 2.4 Term. The term of this Agreement commenced on the Original Effective Date and shall continue until December 31, 2048, unless sooner dissolved as provided by this Agreement or the Act. The existence of the Partnership as a separate legal entity shall continue until the cancellation of the Certificate of Limited Partnership of the Partnership in the manner required by the Act. 2.5 Registered Office. The Partnership shall continuously maintain a registered office and registered agent in the State of Delaware. The principal office of the Partnership shall be determined by the Management Committee. The registered agent in Delaware shall be as stated in the Certificate of Limited Partnership or as otherwise determined by the Management Committee. 9 2.6 Partners. The name, present mailing address and taxpayer identification number of each Partner shall be kept with the records of the Partnership maintained in accordance with Section 10.2. 2.7 Qualification in Other Jurisdictions. The Management Committee shall cause the Partnership to be qualified, formed or registered under assumed or fictitious name statutes or similar laws in any jurisdiction in which the Partnership transacts business. The Management Committee shall have the power to execute, deliver and file any certificates (and any amendments and/or restatements thereof) necessary for the Partnership to qualify to do business in a jurisdiction in which the Partnership may wis to conduct business. 2.8 Agent for Service of Process. The agent for service of process on the Partnership in Delaware shall be such eligible individual resident or corporation qualified to act as an agent for service of process as the Management Committee shall designate. Article III. Partners' Capital; Capital Accounts 3.1 Capital Contributions; Capital Account Balances. On the Effective Date, ESI GP, ESI Sub, Tractebel GP and Tractebel Sub shall make cash contributions to the Partnership, pro rata according to their respective Percentages, in an aggregate amount equal to the Initial Required Capital, which amounts shall be credited to the Partners' respective Capital Accounts. In addition, ESI GP, ESI Sub, Tractebel GP and Tractebel Sub shall make additional cash contributions to the Partnership, pro rata accordi ng to their respective Percentages, in an aggregate amount equal to the Additional Required Capital, which capital contributions shall be made at such times as may be determined by the Management Committee, with such amounts to be credited to the Partners' respective Capital Accounts. Simultaneously with the execution of this Agreement, ESI Energy, Inc., a Florida corporation, and Tractebel Power, Inc., a Delaware corporation, shall deliver to the Partnership and each of the Partners, a guaranty of the ob ligations of their respective Affiliates to contribute the Initial Required Capital and the Additional Required Capital. 3.2 No Additional Contributions Required. No Partner shall be required to make any Contributions to the Partnership other than as set forth in Section 3.1. 3.3 No Interest on Contributions. No Partners shall be paid interest with respect to Contributions. 3.4 Return of Contributions. No Partner shall have the right to receive the return of any Contribution from the Partnership. 3.5 Capital Accounts. A separate Capital Account shall be maintained for each Partner. 3.6 Loans and Other Business Transactions. A Partner may make a loan to the Partnership only with the consent of the Management Committee and then in such amount and on 10 those terms upon which the Management Committee and the Partner agree. Partners may also transact other business with the Partnership with the approval of the Management Committee and, in doing so, they shall have the same rights and be subject to the same obligations arising out of any such business transaction as would be enjoyed b y and imposed upon any Person, not a Partner, engaged in a similar business transaction with the Partnership. Any business transacted by a Partner or its Affiliate with the Partnership shall be on terms no less favorable to the Partnership than would be available from third parties in an arms-length transaction. The Partners acknowledge that all documents executed by the Partnership with a Partner or with any Affiliate of a Partner prior to or contemporaneously with the execution of this Agreement confor m to the requirements of the preceding sentence. Article IV. Profit, Loss and Distributions 4.1 Payment of Certain Funds. 4.1.1 On the Acquisition Date or such other date as may be specified by the Management Committee and to the extent permitted under the Trust Indenture and the Letter of Credit Facility, the ESI Partners shall provide a Back-up Letter of Credit or Parent Guaranty for the cash and Permitted Investments backing the Letters of Credit (as defined in the Trust Indenture), and the ESI Partners shall receive the corresponding amount of cash released as a special payment under this Agreement (with any interest earned on such cash from the date the Back-up Letters of Credit or Parent Guaranty are provided to the date the amounts are released to the Project Partnerships, as contemplated by this Section 4.1.1, being also distributed to the ESI Partners), with the payment made to the ESI Partners to be split between ESI GP and ESI Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages (with the cash being paid pursuant to this sentence being treated as though (a) it had been received by the applicable Project Partnership; (b) the Project Partnerships had distributed this cash to NE, LLC and the Partnership in accordance with their respective percentage interests in the Project Partnerships; (c) NE, LLC had distributed the cash it had received in accordance with the foregoing to the Partnership; and (d) the Partnership made the payments to the ESI Partners that are provided for in this sentence). 4.1.2 On the Acquisition Date or such other date as may be specified by the Management Committee, (i) the ESI Partners shall provide a Substitute Letter of Credit for the ESI Release Percentage times the amount in the Debt Service Reserve Fund, (ii) the Tractebel Partners shall provide a Substitute Letter of Credit for the Tractebel Release Percentage times the amount in the Debt Service Reserve Fund, and (iii) the ESI Partners and the Tractebel Partners shall each receive the corresponding amount of cash released from the Debt Service Reserve Fund as a special payment under this Agreement (with any interest earned on such cash from the date the Substitute Letters of Credit are provided to the date the amounts are released to the Project Partnerships, as contemplated by this Section 4.1.2, being also distributed to the ESI Partners and the Tractebel Partners in accordance with the ESI Release Percentage and the Tractebel Release Percentage, respectively), with the payment made to the ESI Partners to be split between ESI GP 11 and ESI Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages and with the payment to the Tractebel Partners to be split between Tractebel GP and Tractebel Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages (with the cash being paid pursuant to this sentence being treated as though (a) it had been received by the applicable Project Partnership; (b) the applicable Project Partnership had distributed this cash to NE, LLC and the Partnership in accordance with their respective percentage interests in the applicable Project Partnership; (c) NE, LLC had distributed the cash it had received in accordance with the foregoing to the Partnership; and (d) the Partnership made payment to the Tractebel Partners of 50% of the Debt Service Reserve Fund that is the property of NJEA and to the ESI Partners of 50% of the Debt Service Reserve Fund that is the property of NJEA and 100% of the Debt Service Reserve Fund that is the property of NEA. Each such Substitute Letter of Credit will provide, among other things, that draws must be made simultaneously, with the total under both drawn in the ratio of the ESI Release Percentage to the Tractebel Release Percentage. 4.1.3 At any time that the balance required to be maintained in the Debt Service Reserve Fund is increased to an amount greater than $33.270 million, the ESI Partners and the Tractebel Partners shall each provide a Substitute Letter of Credit for 50% of the amount of the excess above $33.270 million and shall each receive the corresponding amount of cash released from the Debt Service Reserve Fund as a special payment under this Agreement, with the payment made to the ESI Partners to be split between ESI GP and ESI Sub in accordance the ratio of each of their Percentages to the sum of their Percentages and with the payment to the Tractebel Partners to be split between Tractebel GP and Tractebel Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages (with the cash being paid pursuant to this sentence being treated as though (a) it had been received by the applicable Project Partnership; (b) the applicable Project Partnership had distributed this cash to NE, LLC and the Partnership in accordance with their respective percentage interests in the applicable Project Partnership; (c) NE, LLC had distributed the cash it had received in accordance with the foregoing to the Partnership; and (d) as though the Partnership made the payments to the ESI Partners that are provided for in this sentence. Each such Substitute Letter of Credit will provide, among other things, that draws must be made simultaneously, with the total under both drawn in a fifty-fifty ratio, and draws u nder either Substitute Letter of Credit may be made only after complete drawdown of the Substitute Letters of Credit described in subsection 4.1.2 above. 4.1.4 If at any time funds are drawn by the Trustee (as defined in the Trust Indenture) under the Substitute Letters of Credit, thereafter as sufficient funds are deposited to the Debt Service Reserve Fund so as to permit the substitution of one or more Substitute Letters of Credit, as to the first $33.270 million the ESI Partners and Tractebel Partners shall provide Substitute Letters of Credit as provided in subsection 4.1.2 above and each shall receive the corresponding amount of cash released from the Debt Service Reserve Fund as a special payment under this Agreement, and as to any replenishment of the Debt Service Reserve Fund in excess of $33.270 million, the ESI Partners and the Tractebel Partners shall provide Substitute Letters of Credit as provided in subsection 4.1.3 above and each shall receive the corresponding amount of cash released from the Debt Service Reserve Fund as a special payment under this Agreement, with any payments to the ESI Partners pursuant to this Section 4.1.4 to be split between ESI GP 12 and ESI Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages and with any payments to the Tractebel Partners pursuant to this Section 4.1.4 to be split between Tractebel GP and Tractebel Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages (with the cash being paid pursuant to this sentence being treated as though (a) it had been received by the applicable Project Partnership; (b) the applicable Project Part nership had distributed this cash to NE, LLC and the Partnership in accordance with their respective percentage interests in the applicable Project Partnership; (c) NE, LLC had distributed the cash it had received in accordance with the foregoing to the Partnership; and (d) the Partnership made the payments to the ESI Partners and Tractebel Partners that are provided for in this sentence). 4.1.5 If at any time or from time to time the Indenture permits a reduction in the amounts available under the Substitute Letters of Credit, the reduction shall be made simultaneously under each Substitute Letter of Credit provided in accordance with Section 4.1.3, with the total reduction under both in a fifty-fifty ratio, until such substitute Letters of Credit are reduced to zero, and thereafter the reduction shall be made simultaneously under each Substitute Letter of Credit provided in accordance with Section 4.1.2, with the total reduction under both in the ratio of the ESI Release Percentage to the Tractebel Release Percentage. 4.1.6 On or as soon as practicable following the closing of the Rule 144A Financing and at any time thereafter when there are funds in the debt service reserve fund in connection with such financing, each of ESI GP and Tractebel GP shall provide a letter of credit or corporate guaranty for 50% of the amount in such debt service reserve fund, and each shall receive the corresponding amount of cash released from the debt service reserve fund as a special distribution under this Agreement, with the payme nt made to the ESI Partners to be split between ESI GP and ESI Sub in accordance the ratio of each of their Percentages to the sum of their Percentages and with the payment to the Tractebel Partners to be split between Tractebel GP and Tractebel Sub in accordance with the ratio of each of their Percentages to the sum of their Percentages. Each such letter of credit will provide, among other things, that draws must be made simultaneously, with the total under both drawn in a fifty-fifty ratio. 4.2 Distribution of Cash Flow. Subject to Section 4.5 hereof, Cash Flow for each taxable year of the Partnership shall be distributed to the Partners in proportion to their Percentages at such times as determined by the Management Committee. 4.3 Allocation of Profit or Loss. After giving effect to the allocations set forth in Section 4.4, for any taxable year of the Partnership, Profit and Loss shall be allocated to the Partners in proportion to their Percentages; provided, however, that on a liquidation of the Partnership, Profits or Loss shall be allocated in such proportions and in such amounts so as to cause the Partner's Capital Account balances to be in the ratio of the Partners' Percentages and provided further, that the amount of any depreciation recapture included within the Profit or Loss otherwise allocated to a Partner pursuant to the terms of this Agreement shall be determined in accordance with Treasury Regulations ss. 1.1245-1(e)(2) and (3). 13 4.4 Regulatory Allocations. 4.4.1 Impermissible Deficits and Qualified Income Offset. No Partner shall be allocated Losses or deductions if the allocation causes the Partner to have an Adjusted Capital Account Deficit; instead, such items shall be allocated to the other Partners. If a Partner for any reason has an Adjusted Capital Account Deficit at the end of any taxable year, all items of income and gain of the Partnership for that taxable year (consisting of a pro rata portion of each item of Partnership income, including g ross income and gain) shall be allocated to that Partner in the amount required to eliminate the excess as quickly as possible, provided, however, that an allocation pursuant to this sentence shall be made if and only to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Agreement had been tentatively made as if this sentence were not contained in the Agreement. This Section 4.4.1 is intended to comply with, and shall be interpreted consistently with, the "alternate test for economic effect" and "qualified income offset" provisions of the regulations promulgated under Code Section 704(b). 4.4.2 Minimum Gain Chargebacks. In order to comply with the "minimum gain chargeback" requirements of Regulation Sections 1.704-2(f)(1) and 1.704-2(i)(4), and notwithstanding any other provision of this Agreement to the contrary, in the event there is a net decrease in a Partner's share of Partnership Minimum Gain and/or Partner Nonrecourse Debt Minimum Gain during a Partnership taxable year, such Partner shall be allocated items of income and gain for that year (and if necessary, other years) as requ ired by and in accordance with Regulation Sections 1.704-2(f)(1) and 1.704-2(i)(4) before any other allocation is made. It is the intent of the parties hereto that any allocation pursuant to this Section 4.4.2 shall constitute a "minimum gain chargeback" under Regulation Section 1.704-2(f) and 1.704-2(i)(4). 4.4.3 Contributed Property and Book-Ups. In accordance with Code Section 704(c) and the Regulations thereunder, including Regulation Section 1.704-l(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any property contributed (or deemed contributed) to 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 the property to the Partnership for Federal income tax purposes and its fair market valu e at the date of Contribution (or deemed Contribution). If the adjusted book value of any Partnership asset is adjusted under Regulation Section 1.704-1(b)(2)(iv)(f), subsequent allocations of income, gain, loss, and deduction with respect to the asset shall take into account any variation between the adjusted basis of the asset for federal income tax purposes and its adjusted book value in the manner required under Code Section 704(c) and the regulations thereunder. The parties hereto agree to use the c urative method, as described in Regulation Section 1.704-3, for making Code Section 704(c) allocations. Except as required by Sections 704(b) and 704(c) of the Code and the regulations thereunder, the Partnership shall allocate items for tax purposes in the same manner that it allocates items for book (as defined in Section 704(c)) purposes. 4.4.4 Tax Elections. At the direction of the Management Committee, ESI GP, as Tax Matters Partner, shall make an election pursuant to Section 754 of the Code, to adjust the basis of the Partnership's property as permitted by Sections 734 and 743 of the Code and shall make or refrain from making any other tax elections available to the Partnership. 14 4.4.5 Nonrecourse Deductions. Nonrecourse Deductions for a taxable year or other period shall be allocated among the Partners in proportion to their Percentages. 4.4.6 Recourse Deductions and Partner Loan Nonrecourse Deductions. Any Partner Loan Nonrecourse Deductions for any taxable year or other period shall be allocated to the Partner who bears the economic risk of loss with respect to the loan to which the Partner Loan Nonrecourse Deductions are attributable in accordance with Regulation Section 1.704-2(i). Items of deduction and loss attributable to any recourse liabilities of the Partnership, within the meaning of Treasury Regulation ss.1.752-2, shall e allocated among the Partners in the ratio in which the Partners share the economic risk of loss for such liabilities (in accordance with Revenue Ruling 97-38). 4.4.7 Guaranteed Payments. To the extent any compensation paid to any Partner by the Partnership is determined by the Internal Revenue Service not to be a guaranteed payment under Code Section 707(c) or is not paid to the Partner other than in the Person's capacity as a "partner" within the meaning of Code Section 707(a), the Partner shall be allocated gross income in an amount equal to the amount of that compensation prior to making any allocations under Section 4.4. 4.4.8 Loans. Subject to the other provisions of this Section 4.4, if and to the extent that any Partner is deemed to recognize income as a result of any loans pursuant to Section 1272, 1273, 1274, 7872 or 482 of the Code or any similar provision of law, any corresponding resulting deduction of the Partnership shall be allocated to the Partner who is charged with the income. Subject to the other provisions of this Section 4.4, if and to the extent that the Partnership is deemed to recognize income a a result of any loans pursuant to Section 1272, 1273, 1274, 7872 or 482 of the Code or any similar provision of law, such income shall be allocated to the Partner who is deemed to have paid such income to the Partnership. 4.4.9 Withholding. All amounts required to be withheld pursuant to Code Section 1446 or any other provision of federal, state, local or foreign tax law shall be treated as amounts actually distributed to the affected Partners for all purposes under this Agreement. 4.5 Liquidation and Dissolution. 4.5.1 Upon liquidation of the Partnership, the assets of the Partnership shall be distributed to the Partners in accordance with their positive balances in their respective Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods. Distributions to the Partners pursuant to this Section 4.5.1 shall be made in accordance with Regulation Section 1.704-1(b)(2)(ii)(b)(2). 4.5.2 No Limited Partner shall ever be obligated to restore a Negative Capital Account. Similarly, except as required by applicable law, no General Partner shall ever be obligated to restore a Negative Capital Account. 15 4.6 General. 4.6.1 Except as otherwise provided for in this Agreement, the timing and amount of all distributions shall be determined by the Management Committee. If any assets of the Partnership are distributed in kind to the Partners, those assets shall be valued on the basis of their fair market value, and any Partner entitled to any interest in those assets shall receive that interest as a tenant-in-common with all other Partners so entitled. Unless the Management Committee otherwise determines, the fair mar ket value of the assets shall be determined by an independent appraiser who shall be selected by the Management Committee. The Profit or Loss for each unsold asset shall be determined as if the asset had been sold at its fair market value, and the Profit or Loss shall be allocated as provided in Section 4.3 and shall be properly credited or charged to the Capital Accounts of the Partners prior to the distribution of the assets in liquidation pursuant to Section 4.5. 4.6.2 In connection with any Transfer of an Interest, the Management Committee may adopt such conventions as it deems appropriate or advisable for allocating Profit and Loss between the transferor and transferee of the Interest. 4.6.3 Solely for purposes of determining a Partner's proportionate share of "excess nonrecourse liabilities" of the Partnership within the meaning of Regulation Section 1.752-3(a)(3), the Partners' interest in Partnership profits shall be based on their respective Percentages. 4.6.4 The Partners are aware of the income tax consequences of this Article IV and agree to be bound by these provisions in reporting their shares of Profit, Losses, and other items for Federal and State income tax purposes. 4.7 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the Management Committee on behalf of the Partnership, shall not be required to make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate the provisions of the Act or other applicable law. Article V. Management and General Partner Obligations 5.1 Management Committee; Meetings; Minutes. 5.1.1 General. The management of the Partnership shall be directed and controlled by the management committee of the Partnership (the "Management Committee") which, except as otherwise expressly provided in this Agreement, shall have all rights, powers and authority permitted a general partner under Section 17-403 of the Act with respect to such direction and control. Except as authorized in writing by the Management Committee or as set forth in this Agreement or in the Budget, no Partner shall have any right or authority to take any 16 action on behalf of the Partnership or to bind or commit the Partnership with respect to third parties. 5.1.2 Membership. The Management Committee shall consist of four representatives, two appointed by each of the General Partners. Each General Partner may remove or replace its representatives on the Management Committee, with or without cause, by Notice to the other General Partner, and in the absence of a General Partner's representative such General Partner may designate by Notice to the other General Partner an alternate to act for the absent representative. Vacancies on the Management Committee shall be filled by the General Partner who appointed the Management Committee representative previously holding the position that is vacant. Each General Partner hereby represents and warrants that its representatives on the Management Committee are and shall be fully authorized to provide any consent or approval that may be required of such General Partner or of the Management Committee hereunder. 5.1.3 Regular and Special Meetings. The Management Committee will hold regular quarterly meetings. Special meetings may be called at any time by any representative on the Management Committee upon reasonable prior notice to the other representative. Minutes of each meeting will be kept and distributed to each member of the Management Committee. 5.1.4 Telephonic Meetings. Any meeting of the Management Committee may be held by conference telephone call or through similar communications equipment by means of which the representatives of the General Partners on the Management Committee participating in the meeting can hear each other. Participation in a telephonic meeting held pursuant to this Section 5.1.4 shall constitute presence in person at such meeting. 5.1.5 Approval Requirements. The unanimous affirmative vote of the representatives on the Management Committee shall be required for any act or decision of the Management Committee. Any action required or permitted to be taken by the Management Committee may be taken without a meeting, if the representatives consent in writing to such action. With respect to those actions requiring approval by the Management Committee, the Management Committee shall use all reasonable efforts to indicate its approv al or disapproval of such action within ten (10) business days after receiving a written request therefor from either of the General Partners. If one representative of a General Partner on the Management Committee is absent, but the other representative of such General Partner is present, then the present representative shall have the power to vote (at a meeting or by written consent) on behalf of both of the representatives of such General Partner. 17 5.1.6 Annual Budget. The Manager shall cause an annual Budget to be prepared each year in accordance with the terms of the Administrative Services Agreement. 5.1.7 Enumerated Management Committee Powers. Without limiting the power and authority of the Management Committee to control the Partnership, the following shall require the prior approval of the Management Committee: 5.1.7.1 the adoption or amendment of the Budget; 5.1.7.2 the admission to the Partnership of a new Partner (other than pursuant to Section 7.1.5), the Transfer by a Partner of all or any portion of its Interest (unless the consent of the Management Committee is not required with respect to the Transfer under Article VII hereof) or the transfer of any interest in NE, LLC or any of the Project Partnerships; 5.1.7.3 except as set forth in or contemplated by the annual Budget, including any amendment thereto, the taking of any of the following actions with respect to the Partnership: 5.1.7.3.1 entering into, executing, acknowledging, delivering, modifying or amending any contract, agreement or other instrument to which the Partnership is a party which individually or in the aggregate could involve amounts to be paid to or by the Partnership in excess of $250,000 per annum; 5.1.7.3.2 mortgaging, pledging or otherwise encumbering any assets of the Partnership or disposing of any assets of the Partnership; 5.1.7.3.3 commencing, settling, compromising or abandoning any claim, action or proceeding of the Partnership that is in excess of $100,000; 5.1.7.3.4 allowing any Person other than the General Partners and their Affiliates to possess any assets of the Partnership; 5.1.7.3.5 engaging in any business activities other than as contemplated by Section 2.3; 5.1.7.3.6 approval of any plan of liquidation of the Partnership; 5.1.7.3.7 waiving any condition to closing under the Purchase Agreement; 5.1.7.3.8 permitting the sale by the Project Partnerships of any power on a merchant basis; and 5.1.7.3.9 entering into any contract or agreement with an Affiliate of a Partner (except as provided in Section 5.8). 18 5.1.7.3.10 taking any action in its capacity as member or manager of NEA LLC or as general partner of the Project Partnerships, except for such actions which the Manager is expressly authorized to take on behalf of the Partnership in the Administrative Services Agreement. 5.1.7.3.11 the failure of ESI GP or its Affiliates to object to any proposed contract under Section 4(j)(vii) of the Purchase Agreement. 5.1.7.3.12 the taking of any action by ESI GP or its Affiliates under Section 5(b) or (8(c) of the Purchase Agreement (except, in the case of Section 8(c), for any release or announcement that may be required by law or the rules or regulations of any securities exchange). 5.1.8 Sole General Partner. If there remains only one General Partner of the Partnership with a representative on the Management Committee because all of the other General Partners have ceased to be General Partners pursuant to Section 7.3.2 (other than pursuant to a permitted Transfer which permits the transferee to appoint a replacement member of the Management Committee), then the responsibilities and duties of the Management Committee under this Agreement shall be assumed by such remaining Genera l Partner and the Management Committee shall cease to exist. 5.2 Duties of General Partners. 5.2.1 Each representative of a General Partner on the Management Committee shall devote such time to the business and affairs of the Partnership as is reasonably necessary to carry out the duties of the Management Committee as set forth in this Agreement. 5.2.2 [Intentionally omitted] 5.2.3 Nothing in this Agreement shall be deemed to restrict in any way the rights of any Partner, or of any other person or entity whether or not an Affiliate of any Partner, to conduct any other business or activity whatsoever, and no Partner or Affiliate thereof shall be accountable to the Partnership or to any other Partner with respect to that business or activity even if the business or activity owns and/or operates property within the same or any other geographic area or competes with the Partne rship's business. The organization of the Partnership shall be without prejudice to the Partners' respective rights (or the rights of any other person or entity whether or not an Affiliate of any Partner) to maintain, expand or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Partner waives any rights the Partner might otherwise have to share or participate in such other interests, activities, assets or profits of any other Partner or of any o ther person or entity in any way affiliated with any Partner, whether or not an Affiliate of any Partner. 5.2.4 To the fullest extent permitted by Section 17-403 of the Act, the only fiduciary duties a General Partner owes to the Partnership and the other Partners are the duty of loyalty and the duty of care set forth in subdivisions 5.2.4.1, 5.2.4.2 and 5.2.4.3 below. It is the 19 intent of the Partners hereby to restrict the duties (including fiduciary duties) of the General Partners and the Management Committee to the extent permitted by the Act. 5.2.4.1 The Management Committee and the General Partners owe a duty of loyalty to the Partnership and to the other Partners with respect to the business of the Partnership. 5.2.4.2 The Management Committee, the General Partners must act in a commercially reasonable manner whenever any of them or their Affiliates provides, or has provided by any other Person, services to the Partnership. 5.2.4.3 The Management Committee's duty of care to the Partnership in each case is to exercise its reasonable business judgment with regard to all decisions it makes on the behalf of the Partnership. 5.2.5 Subject to the direction and control of the Management Committee, the Manager shall be responsible for (i) the management of the day-to-day affairs of the Partnership and (ii) such other matters as are set forth in the Administrative Services Agreement, in accordance with the terms thereof. If ESI GP transfers its General Partner Interest in the Partnership (other than to an Affiliate) in compliance with Section 7.1.2 hereof or otherwise in compliance with this Agreement then, if the Tractebel GP so elects, Tractebel GP or its Affiliate shall have the right to become the Manager (and ESI GP shall cause the Manager to transfer to Tractebel GP all of its right, title and interest in and to the Administrative Services Agreement) in place of the Manager. 5.2.6 Subject to the direction and control of the Management Committee, if an ESI Partner or an Affiliate thereof, or a Tractebel Partner or an Affiliate thereof (the "Partner Affiliate"), provides or proposes to provide goods or services to the Partnership, NE, LLC or either or both of the Project Partnerships pursuant to a contract or other agreement (a "Partner Affiliate Agreement"), the other Partner (the "Non-Affiliate Partner") shall be responsible for representing the Partnership, NE, LLC or th e applicable Project Partnership, as the case may be, in connection with the negotiation of the terms of such Partner Affiliate Agreement. Subject to the direction and control of the Management Committee, upon the execution of any Partner Affiliate Agreement (which shall be subject to the approval of the Management Committee except as provided in Section 5.8), the Manager shall be responsible for representing the Partnership with respect to the management of the day-to-day affairs thereunder in accordance with the terms of the Administrative Services Agreement. In the event of any dispute, breach or alleged breach of a Partner Affiliate Agreement, the Non-Affiliate Partner shall have the right to represent the Partnership with respect to such dispute, breach or alleged breach (including any litigation relating thereto); provided, that the Non-Affiliate Partner may not terminate the Partner Affiliate Agreement without the approval of the Management Committee or incur expenditures on behalf of the Partnersh ip with respect to any such dispute, breach or alleged breach in excess of $100,000 without the approval of the Management Committee. 20 5.3 Compensation. 5.3.1 [Intentionally omitted]. 5.3.2 The Partnership shall reimburse all General Partners for all ordinary and necessary out-of-pocket expenses incurred by the General Partners on behalf of the Partnership in accordance with, and upon the schedule set forth in, the Budget (but excluding Non- Reimbursable Expenses). Such reimbursement shall be treated as an expense of the Partnership that shall be deducted in computing the Cash Flow and shall not be deemed to constitute a distributive share of Profits or a distribution or return of capital to the General Partners. Any expenditures, by any Partner, that are not provided for in the Budget or approved by the Management Committee and for which reasonably detailed documentation is not submitted to the Partnership are not subject to reimbursement, except as provided in Section 5.2.5. 5.3.3 If a Partner or an Affiliate of a Partner provides services to the Partnership pursuant to a separate written agreement, such Partner or Affiliate shall be reimbursed for such services in accordance with such written agreement. 5.3.4 The Partners acknowledge that ESI GP and Tractebel GP have incurred and will incur certain due diligence and other related costs in connection with the transactions associated with the Acquisition and the Rule 144A Financing. Subject to the submission of reasonably detailed documentation, the Management Committee shall cause ESI GP and Tractebel GP to be reimbursed for such costs at the time of the Rule 144A Financing or out of the initial funds that would otherwise be available for distribution by the Project Partnerships (excluding, however, the payments described in Sections 4.1.1 and 4.1.2), whichever first occurs. 5.4 Provision of Services. No General Partner shall be required to perform services for the Partnership solely by virtue of being a General Partner. Except as set forth in Section 5.3 or pursuant to a contract with the Partnership, or approved by the Management Committee in the Budget or otherwise, no General Partner shall be entitled to compensation for services performed for the Partnership, reimbursement for expenses incurred, or advances of funds made. 5.5 Indemnification of General Partners. 5.5.1 None of the General Partners or members of the Management Committee shall be liable, responsible, or accountable, in damages or otherwise, to any other Partner or to the Partnership for any act performed by such General Partner or member of the Management Committee with respect to Partnership matters, and within the standard of care specified in Section 5.2.4.3 unless such act constitutes grossly negligent or reckless conduct, intentional misconduct, a knowing violation of law, or the breach of any representation or warranty or covenant contained in this Agreement. Each General Partner shall, to the maximum extent permitted by law, indemnify and hold harmless the Partnership, the other Partners and their Affiliates from or against any direct or indirect liability, damage, loss, cost or expense (including without limitation reasonable attorneys' fees and disbursements) suffered or incurred by the indemnified Person arising out of or related to the breach of any representation or warranty or coven ant contained in this Agreement. 21 5.5.2 The Partnership shall indemnify each General Partner and each member of the Management Committee for any act performed by the General Partner or a member of the Management Committee with respect to Partnership matters, and within the standard of care specified in Section 5.2.4.3 unless such act constitutes grossly negligent or reckless conduct, intentional misconduct, the knowing violation of law or the breach of any representation or warranty or covenant contained in this Agreement. 5.5.3 Nothing contained in this Section 5.5 shall be deemed to supersede the indemnification provisions contained in any agreement between the Partnership and a Partner or an Affiliate of a Partner, and any such indemnification provisions shall exclusively govern any such agreement. The agreements contained in this Section 5.5 shall survive the withdrawal of any Partner or any termination or dissolution of the Partnership. 5.6 Sharing of Information. If either of Tractebel GP or ESI GP at any time receives information that such General Partner believes may be material to the prospects of the business of the Partnership and which such General Partner believes is not known to the other Partners, then such General Partner will promptly disclose such information to the other Partners. 5.7 Rule 144A Financing. The Partners agree that they will use their commercially reasonable best efforts to effect the Rule 144A Financing as soon as possible following the Acquisition Date. 5.8 Authorization of Project Documents. The Partnership is hereby authorized and directed to enter into the Administrative Services Agreement, the O&M Agreements and the Fuel Management Agreements; provided, that such agreements shall be held in escrow until execution and delivery of the Purchase Agreement. 5.9 Delivery of No Knowledge Agreement. The Partners agree to enter an agreement in the form attached hereto as Exhibit A immediately prior to the closing of the Acquisition. Article VI. Limited Partners; General Partner Meetings 6.1 No Liability of or Control by Limited Partners. 6.1.1 No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of the Partnership in excess of the amount of such Limited Partner's unpaid contribution or except as expressly required by the Act. No Limited Partner shall be liable for any debts, liabilities, contracts or obligations of any other Partner. 6.1.2 No Limited Partner shall (i) have the authority or power to participate in the management or control of the Partnership's business, (ii) have the authority or power in its capacity as a Limited Partner to act as agent for or on behalf of the Partnership or any other Partner, to do any act which would be binding on the Partnership or any other Partner, or to incur any expenditures on behalf of or with respect to the Partnership, (iii) have any right to demand or 22 receive property other than money upon distribution from the Partnership, or (iv) be compelled to accept a distribution of any asset in kind from the Partnership in lieu of a proportionate distribution of money being made to other Partners. 6.1.3 The Limited Partners shall have no voting or consent rights, including with respect to actions to be taken by the Management Committee or the General Partners. Article VII. Transfer of Partner Interests and Withdrawals of Partners 7.1 Transfers. 7.1.1 General Prohibition on Transfers. Except as set forth in Sections 7.1.2 and 7.1.3 below, no Partner may Transfer all or any part of its Interest to any other Person without the consent of the Management Committee, such approval to be given or withheld in the Management Committee's sole discretion. Each Partner hereby acknowledges the reasonableness of this prohibition in view of the purposes of the Partnership and the relationship of the Partners. For the purposes of this Section, a Transfer of a Partner Interest shall be deemed to include a sale, transfer or assignment (other than as collateral) of the stock, partnership interest or other equity ownership of the entity or entities (an "Upper Tier Entity") that directly or through one or more intervening subsidiaries own or have ownership interests in a Partner such that, after giving effect to such sale, transfer or assignment ESI Energy, Inc. or Tractebel Power, Inc., as the case may be (or a permitted transferee of their respective Partner Interests under Section 7.1.2, 7.1.3.1 or 7.1.3.2), or their respective Affiliates, fail to own 100% of the equity ownership in such Upper Tier Entities and to have voting and control rights in such Upper Tier Entities commensurate with such ownership. The attempted Transfer by a Partner of any portion or all of its Interest in violation of the prohibition contained in this Section 7.1.1 shall be deemed invalid, null and void, and of no force or effect, except any Transfer mandated by operation of law and then only to the extent necessary to give effect to such Transfer by operation of law. 7.1.2 Transfers of Interests. Subject to compliance with Section 7.1.4, the ESI Partners and Tractebel Partners may Transfer all (but not less than all) of their respective Interests in the Partnership (both as a General Partner and as a Limited Partner) to a bona fide third party (the "Potential Purchaser") without the consent of the Management Committee, provided however that, prior to making any such Transfer, Tractebel Partners or the ESI Partners desiring to Transfer their Interests, as the case may be (the "Transferring Partners"), shall notify the ESI Partners or Tractebel Partners, as the case may be (the "Remaining Partners"), of the material terms and conditions on which the Potential Purchaser has agreed to purchase all the Interests of the Transferring Partners (and shall provide the Remaining Partners with such documentation relating to its agreement with the Potential Purchaser as reasonably requested by the Remaining Partners) and, within sixty days of such notification, the Remaining P artners shall give Notice to the Transferring Partners that it or they intend to purchase the Interests of the Transferring Partners on the same terms and conditions (including price) as agreed to by the Potential Purchaser; provided, however, that any Remaining Partner that has been a Partner for a longer 23 period of time than any other Remaining Partner shall have the right and option, but not the obligation, prior and senior to the right or option of each such other Remaining Partner, to purchase 100%, or less than 100%, at such senior Remaining Partners' sole and absolute discretion, of the Interests of the Transferring Partners. Remaining Partners equal in seniority shall be entitled to purchase Interests of the Transferring Partners in the ratio of such Remaining Partners' Interests immediately prior to such purchase (subject to the right granted above to the Senior Remaining Partners), provided, that if any such Remaining Partner purchases less than its proportionate share of Interests of the Transfer ring Partners, the resulting excess portion of Interests shall be allocated equally to the other Remaining Partners that are equal in right of seniority. If all of the Remaining Partners shall fail to give such Notice within such sixty day period or if the Interests which the Remaining Partners indicate they wish to purchase is less than 100% of the Interests of the Transferring Partners, the Transferring Partners shall thereafter be free for a 180-day period, subject to compliance with Section 7.1.4, to Transfer their entire Interests to the Potential Purchaser on the same terms and conditions that had been agreed to by the Potential Purchaser. If any Remaining Partners give timely Notice of their intent to purchase the Interests of the Transferring Partners, then the Transferring Partners shall be obligated to consummate such purchase within the longer of 90 days or such time as the Potential Purchaser shall have had to consummate such purchase. Any Transfer to Remaining Partners pursuant to this Secti on 7.1.2 shall only be permitted if the Transferring Partners (i) represent and warrant to the Remaining Partners that they are transferring their Interests free and clear of any encumbrance, security interest, mortgage, lien, pledge, charge, easement, reservation, guarantee, option, restriction, or similar right of any third party, and (ii) delivers any agreements, certificates, opinions or any other documents, and takes such further actions as shall be reasonably necessary, in the Remaining Partners' sol e and absolute discretion, to consummate the Transfer. 7.1.3 Permitted Transfers. Notwithstanding Section 7.1.1 above (but subject to Section 7.1.4), a General Partner may Transfer: 7.1.3.1 All, or any portion of, such Partner's Interest to any Affiliate, in which case such Affiliate will become a General Partner in place of the transferring Partner without any further action on the part of the Partnership or any other Partner and, except as expressly provided otherwise in this Agreement, shall be entitled to all of the rights previously held by the General Partner (including the right to appoint representatives to the Management Committee); provided, that, such Affiliate assumes all of the liabilities and obligations of such transferring Partner arising from this Agreement; 7.1.3.2 All, or any portion of, such Partner's Interest to any Person with the unanimous approval of all of the General Partners, such approval to be given or withheld in each General Partner's sole discretion; and 7.1.3.3 All, or any portion of, such Partner's Interest in the form of a collateral assignment of such Interest, but only if and to the extent approved by the Management Committee and required in connection with the Rule 144A Financing for security purposes. 24 7.1.4 Conditions on Transfer. Any Transfer described and permitted in this Section 7.1 shall only be permitted if: 7.1.4.1 such Transfer is accomplished in compliance with all applicable securities laws and regulations; 7.1.4.2 the effect of the Transfer will not be to terminate the Partnership pursuant to Code Section 708(b) or any similar successor provision of the Code, or otherwise to adversely affect the Partnership or any other Partner under the Code, or any other laws of any taxing jurisdiction to which the Partnership is subject, or result in the imposition of a transfer tax on the Partnership or any other Partner, in each case, unless indemnified against by the Transferor or its transferee in a manner reason ably acceptable to each affected Partner; 7.1.4.3 the Transfer does not result in a default under, breach of any material obligation contained in, or cause the failure of a material condition contained in, any material agreement (including any Financing Document) to which the Partnership is a party or, if it does so result, a consent to or waiver of such default, breach or failure has been obtained from the other party to such agreement; 7.1.4.4 the Transferor and/or the transferee bears all reasonable costs of the Partnership and of the other Partners in connection with the Transfer, including costs incurred in amending this Agreement; 7.1.4.5 the Partnership has received the written opinion, prepared and delivered to the Partnership at the Transferor's expense prior to the effectiveness of the Transfer, of counsel selected by the Transferor that the conditions specified in clauses 7.1.4.1 and 7.1.4.2 above and 7.1.4.9 below are satisfied (such counsel and opinion to be reasonably acceptable to the Management Committee); provided, that, the opinion with respect to the matters described in Sections 7.1.4.2 and 7.1.4.9 need only be ba sed on the knowledge of such counsel and need not address any indemnification provided and provided further, no opinion need be provided in connection with a Transfer for security purposes of any portion of an Interest to a lender; 7.1.4.6 the Transfer does not result in the Partnership being treated as an association taxable as a corporation, or as a publicly traded partnership taxable as provided in Code Section 7704, or otherwise as an entity not taxable as a partnership for U.S. federal income tax purposes or for the purposes of any other laws of any taxing jurisdiction to which the Partnership is subject; 7.1.4.7 if the Transfer is to an Affiliate of the Transferor pursuant to Section 7.1.3.1 above (a) the Transferor has given thirty (30) days' prior written notice to the other Partners identifying such Affiliate, and (b) the Transferor remains liable to the other Partners for the performance of the Transferor's obligations under this Agreement and any related agreement or contract to which the Transferor is a party; 25 7.1.4.8 the transferee executes an agreement agreeing to be bound by the terms and conditions of this Agreement and any other relevant document, which agreement shall contain representations and warranties of the transferee in substantially the same form as contained in Article XI; provided, that, the condition set forth in this subsection 7.1.4.8 shall not apply to the Transfer of any portion of a Partner's Interest but shall apply to an Assignee becoming a substitute Limited Partner; 7.1.4.9 such Transfer shall not adversely affect the classification of each Project as a "Qualifying Facility" under PURPA, or the regulations of the Federal Energy Regulatory Commission thereunder, or adversely affect the Partnership's entitlement to the exemptions contained in 18 C.F.R. ss.ss. 292.601(c) and 292.607. 7.1.5 Corresponding Changes to Agreement. If, pursuant to the provisions of this Section 7.1, a Partner Transfers, in whole or in part, any of its Partner Interest in a permitted manner, then the Partners and the transferee shall, at the reasonable request of any Partner, amend this Agreement to reflect such event. If an Interest shall be transferred in a permitted manner, the transferee shall be admitted into the Partnership as a substitute partner. 7.2 Voluntary Withdrawal. No Partner shall have the right or power to Voluntarily Withdraw from the Partnership. 7.3 Special Rules With Respect to General Partners. 7.3.1 Events of Cessation. A General Partner shall cease to be a general partner of the Partnership upon the earliest to happen of the following events: 7.3.1.1 [Intentionally omitted] 7.3.1.2 the Transfer of all of the General Partner's Interest as a general partner in the Partnership; 7.3.1.3 the Bankruptcy of a General Partner or any other event which causes a General Partner to cease to be a general partner; provided, that if a General Partner ceases to be a general partner in the Partnership pursuant to this Section 7.3.2.2, the General Partner Interest of such General Partner shall be converted to a Limited Partner Interest, such that such Partner shall be deemed admitted solely as a Limited Partner in the Partnership with all of the rights and subject to all of the limitations of a Limited Partner hereunder, retaining its Capital Account and its Interest. Article VIII. Dispute Resolutions; Arbitration 8.1 Dispute Resolution. If a dispute arises among the Partners, or between any of them, regarding the conduct of the business of the Partnership or the interpretation of any provision of 26 this Agreement or any other matter with respect to the Partnership or its operations, an aggrieved Partner shall give a Notice of such dispute (a "Dispute Notice") to the other Partners. Within fifteen (15) days after such Dispute Notice, the President or an Executive Vice President of each of the companies which owns a controlling interest in each General Partner shall confer with each other to seek with diligence and in good faith to resolve such dispute. If such officers are unable to resolve such dispute within forty-five days after such Dispute Notice, then the parties shall be bound to arbitrate such dispute in accordance with Section 8.2. 8.2 Arbitration. To the fullest extent permitted by law, any dispute between the Partners regarding the business of the Partnership, the interpretation of any provision of this Agreement or any other matter with respect to the partnership and its operations, if not resolved by negotiation by the Partners within 45 days after the Dispute Notice, shall be resolved exclusively by binding arbitration between the Partners pursuant to the Rules of the American Arbitration Association for Commercial Dispute s (the "Arbitration Rules"). Arbitration shall be administered by the American Arbitration Association. Any Partner may institute arbitration proceedings at any time by delivering written Notice demanding arbitration to the other Partners in the manner described in Section 13.2. 8.2.1 Within 20 days after receipt of a written demand for arbitration, the General Partners shall each appoint one arbitrator. Within 15 days of the expiration of that 20 day period, the two arbitrators so appointed shall appoint a third arbitrator. If any Partner shall fail to appoint an arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator, the American Arbitration Association shall make that selection within 10 days of a Partner's request. The arbitrators shall meet th qualifications and abide by the Code of Ethics for arbitrators in commercial disputes of the American Arbitration Association. The arbitrators shall have knowledge of and experience in the power generation and project financing business. 8.2.2 To the fullest extent permitted by law, the arbitration shall be conducted in accordance with the procedures set forth in the Arbitration Rules. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. They shall not have the power to add to, modify or change any of the provisions of this Agreement. The Partners shall exercise all commercially reasonable efforts in good faith to cause a h earing to be held within 90 days after the date upon which the last arbitrator is appointed and to conclude all hearings within 30 days after the first hearing date. The arbitrators shall only grant a Partner's request for postponement of the hearing upon a showing of good cause as determined by the arbitrators. Within 30 days of the last hearing date, the arbitrators shall issue a written decision setting forth their analysis and ruling. The arbitrators shall determine in what proportion the Partners s hall bear the fees and expenses of the arbitrators. Each Partner shall bear the fees and expenses of its own counsel and other consultants. All arbitration proceedings shall be subject to the choice of law provisions set forth in Section 13.5, and shall be held at a location agreed to by the parties, or if the parties cannot agree, then in Atlanta, Georgia. 27 8.2.3 The Partners acknowledge and agree that any arbitral award shall be final, binding and conclusive upon the Partners and may be confirmed or embodied in any order of any court having jurisdiction. 8.2.4 To the fullest extent permitted by law, service of any matters referenced in this Article VIII shall be given in the manner described in Section 13.2 or as permitted by the rules of the American Arbitration Association. 8.2.5 Notwithstanding anything to the contrary contained in this Article VIII, if, due to a breach or threatened breach or default or threatened default, a Partner is suffering irreparable harm for which monetary damages are inadequate, such Partner may petition a court of competent jurisdiction for injunctive relief, specific performance or other equitable relief. Article IX. Dissolution, Liquidation, and Termination of the Partnership 9.1 Right to Cause Dissolution; Events of Dissolution. 9.1.1 Notwithstanding any agreement herein to the contrary, no Partner shall have the right, and each Partner hereby agrees not, to cause the winding up of, or to dissolve, terminate or liquidate the Partnership, or to petition a court for the winding up, dissolution, termination or liquidation of the Partnership. The Partnership shall not be dissolved by the admission of additional Partners or substitute Partners in accordance with the terms of this Agreement. 9.1.2 The Partnership shall be dissolved automatically and its affairs wound up, without further act, upon the happening of the first to occur of the following: (a) December 31, 2048, (b) the written consent of all of the Partners or (c) the entry of a decree of judicial dissolution under the Act. 9.2 Procedure for Winding Up and Dissolution. If the Partnership is dissolved, the Management Committee shall wind up its affairs. On winding up of the Partnership, the assets of the Partnership shall be distributed, first to creditors of the Partnership, including Partners who are creditors, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof and including the satisfaction of all contingent, conditional and unmatured l abilities of the Partnership), and then to the Partners in accordance with Section 4.6 of this Agreement. 9.3 Filing of Certificate of Cancellation. Upon completion of winding up the affairs of the Partnership, the Management Committee shall promptly cause to be filed the Certificate of Cancellation of Certificate of Limited Partnership with the Secretary of State. 28 Article X. Books, Records, Accounting, and Tax Elections 10.1 Bank Accounts. All funds of the Partnership shall be deposited in a bank account or accounts opened in the Partnership's name. The bank accounts will be maintained in Florida, or elsewhere as determined by the Management Committee from time to time. The Management Committee shall determine the financial institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein. 10.2 Maintenance of Books and Records. 10.2.1 The Manager shall maintain such books and records as required under the Administrative Services Agreement. 10.3 Financial Statements and Reports. The Manager shall provide such financial statements and reports to the Partners as required under the Administrative Services Agreement. 10.4 Right to Inspect Books and Records; Receive Information. 10.4.1 Upon the request of a General Partner, the Partnership shall promptly deliver to the requesting Partner at the expense of the Partnership a copy of this Agreement, as well as the information required to be maintained by the Manager under the Administrative Services Agreement. 10.4.2 Each Partner has the right upon not less than 24 hours prior notice, and for purposes reasonably related to the interest of that Partner or the Partnership, to do the following: 10.4.2.1 to inspect and copy, or cause its agents or representatives to inspect and copy, during normal business hours any of the records required to be maintained by the Manager under the Administrative Services Agreement; and 10.4.2.2 to obtain from the Partnership promptly after becoming available, a copy of the Partnership's federal, state, and local income tax or information returns for each year. 10.4.3 Unless otherwise expressly provided in this Agreement, the inspecting or requesting Partner shall reimburse the Partnership for all reasonable costs and expenses incurred by the Partnership in connection with such inspection and copying of the Partnership's books and records and the production and delivery of any other books or records. 10.5 Annual Accounting Period. The annual accounting period of the Partnership shall be its taxable year. The Partnership's taxable year shall be the calendar year. 29 10.6 Tax Matters. ESI GP shall be the "Tax Matters Partner" for the purposes of Code Section 6231. Unless otherwise agreed to by the Management Committee, the Tax Matters Partner shall not elect for the Partnership to be treated as other than a partnership for tax purposes; shall treat NE, LLC and the Project Partnerships as non-entities for Federal income tax purposes (unless and until NE, LLC and/or the Project Partnerships shall have more than one equity owner for such purposes); and shall treat the Acquisition as the acquisition by the Partnership of all of the assets of the Project Partnerships (rather than an acquisition by the Partnership and NE, LLC of interests in the Project Partnerships). Except as provided in the preceding sentence, the Tax Matters Partner shall not make any material decisions or take any material actions in its capacity as such without the prior consent of the Management Committee. 10.7 GAAP Allocations. All items of income and expense calculated and reported in accordance with GAAP shall be allocated to each Partner based on each Partner's Percentage. Article XI. Representations and Warranties 11.1 Representations and Warranties of the Partners. Each Partner hereby represents and warrants as of the Effective Date that: 11.1.1 It is duly formed, validly existing and in good standing under the jurisdiction of its formation, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; 11.1.2 It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; 11.1.3 Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable law, regulation, rule, ordinance, order, judgment or decree; and 11.1.4 It has acted in full compliance with all laws, statutes, ordinances, rules and regulations in connection with the execution hereof. 11.2 Representations and Warranties of ESI Partners. The ESI Partners hereby represent and warrant that, as of the Effective Date, to the best of their knowledge the stream of benefits analysis attached hereto as Schedule 11.2 is true, accurate and complete, and has been prepared in accordance with the guidance provided in applicable FERC proceedings and decisions. 30 Article XII. True-Up of Stream of Benefits 12.1 True-Up. 12.1.1 Dissolution. Not later than ninety (90) days after the dissolution of the Partnership pursuant to Article IX, ESI GP shall calculate, as of the date of the dissolution of the Partnership, (a) the sum of (i) the present value of the proposed distribution or allocation to the ESI Partners in connection with the proposed dissolution plus (ii) the present value of all prior benefits which have been distributed or allocated to the ESI Partners (the "Utility Affiliate Share of Benefits"); and (b) t he sum of (i) the present value of the proposed distributions or allocations to all the Partners in connection with the dissolution; plus (ii) all prior benefits which have been distributed or allocated to all the Partners (including predecessors in interest) pursuant to this Agreement and any prior agreement of the Partnership (without duplication thereof) (the "Total Benefits"), excluding from each calculation in (i) and (ii) all distributions or allocations in an amount equal to the capital contribution s made by the Partners. If the calculation demonstrates that the Utility Affiliate Share of Benefits exceeds fifty (50) percent of the Total Benefits, then the ESI Partners shall promptly make a payment to the other Partners in an amount necessary to reduce the Utility Affiliate Share of Benefits to fifty (50) percent of the Total Benefits. As used herein, the "Utility Affiliate Share of Benefits" and "Total Benefits" shall be limited to the stream of benefits indicated under FERC restrictions for determ ining whether the Project is or has been a qualifying facility under the Public Utility Regulatory Policy Act of 1978, as amended ("PURPA"). Notwithstanding anything set forth above to the contrary, as used herein, the "Utility Affiliate Share of Benefits" and "Total Benefits" shall be calculated in conformance with guidance in FERC Qualifying Facility decisions issued through the date of calculation, including but not limited to guidance concerning appropriate discount rates and the types of benefits to be included in the stream of benefits (it being agreed that the Total Benefits shall include benefits received by the prior owners of the Project Partnerships unless the FERC or a federal court has issued an order or ruling finding that such benefits received by the prior owners should not be included in such calculation or the FERC has issued an order or ruling or a federal court has rendered a decision, in either case making a similar finding with respect to a facility other than the Projects based on facts pertaining to the FERC's qualifying facility ownership criteria under PURPA ("Ownership Criteria") that are similar to those presented by the ownership of the Project Partnerships from the Original Effective Date). 12.1.2 Transfer of Interests. Not later than ninety (90) days after the sale or other transfer of any interest in the Partnership which is owned by an ESI Partner, ESI GP shall calculate, as of the date of the sale or other transfer of the Partnership, (a) the present value of the benefit to the ESI Partners from the sale or transfer of such interest and all prior benefits which have been distributed or allocated to the ESI Partners (the "Utility Affiliate Share of Benefits") and (b) the present val ue of the retained interests in the Partnership, if any, as of the transfer date and all prior benefits which have been distributed or allocated to all the Partners (including predecessors in interest) pursuant to this Agreement and any prior agreement of the Partnership (without duplication thereof) (the "Total Benefits"), excluding from each calculation in (a) and (b) all distributions or allocations in an amount equal to the capital contributions made by the Partners. If the calculation demonstrates that the Utility Affiliate Share of Benefits exceeds fifty 31 (50) percent of the Total Benefits, then the ESI Partners shall promptly make a payment to the other Partners in an amount necessary to reduce the Utility Affiliate Share of Benefits to fifty (50) percent of the Total Benefits. As used herein, the "Utility Affiliate Share of Benefits" and "Benefits" shall be limited to the stream of benefits indicated under FERC restrictions for determining whether the Project is or has been a qualifying facility un der PURPA. Notwithstanding anything set forth above to the contrary, as used herein, the "Utility Affiliate Share of Benefits" and "Total Benefits" shall be calculated in conformance with guidance in FERC Qualifying Facility decisions issued through the date of calculation, including but not limited to guidance concerning appropriate discount rates and the types of benefits to be included in the stream of benefits (it being agreed that the Total Benefits shall include benefits received by the prior owners of the Project Partnerships unless the FERC or a federal court has issued an order or ruling finding that such benefits received by the prior owners should not be included in such calculation or the FERC has issued an order or ruling or a federal court has rendered a decision, in either case making a similar finding with respect to a facility other than the Projects based on facts pertaining to the Ownership Criteria that are similar to those presented by the ownership of the Project Partnerships from the Original Effective Date). 12.1.3 FERC Action. If at any time the FERC or a federal court issues an order or ruling ("Order") (i) finding that the ESI Partners' equity interest in the Partnership exceeds a level that is permitted under the Ownership Criteria, or (ii) making a similar finding with respect to a facility other than the Project based on facts pertaining to the Ownership Criteria that are similar to those presented by this Agreement inclusive of the terms hereof from the Original Effective Date and, as a result, an y Partner requests the Partnership to obtain from the law firm of Reid & Priest (or if such firm is no longer in existence, from other nationally recognized FERC counsel) ("FERC Counsel") an unqualified opinion dated, as of a then current date, to the same effect as the opinion dated November 22, 1997 from Reid & Priest but such FERC Counsel is unwilling to provide such opinion, then, in either such case, not later than ninety (90) days after the issuance of the Order, the ESI Partners shall take such acti on as is necessary to cause the FERC to rescind the Order or otherwise to comply with the Ownership Criteria (including, without limitation, reducing the Percentages of the ESI Partners, paying to the Tractebel Partners an amount necessary to reduce the Utility Affiliate Share of Total Benefits received by the prior owners to fifty percent (50%) of the Total Benefits calculated in accordance with Section 12.1.2 hereof, transferring all or a portion of the Partnership Interests of the ESI Partners to the Tr actebel Partners or to some third party, or any combination of such actions) to meet the Ownership Criteria. 12.1.4 Change in Regulation. The foregoing requirements contained in this Article 12 shall no longer apply or be effective in the event that (1) such provisions are no longer required in order to comply with the ownership criteria applicable to qualifying facilities under PURPA, and the rules, regulations and orders issued thereunder by the FERC; and (2) the Partnership is no longer required to maintain its status as a qualifying facility (i) under the express terms of any agreement to which the Partnership or either of the Project Partnerships is a party; (ii) in order to avoid any material adverse effect under any agreement to which the Partnership or Project Partnerships is a party; and (iii) in order to be eligible for exemption from the Public Utility Holding Company Act of 1935, as amended, and from the financial, organizational or rate 32 regulations imposed upon electric utilities, public utilities or similar entities by any governmental authority. Article XIII. General Provisions 13.1 Assurances. Each Partner shall execute all certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Partners deem appropriate to comply with the requirements of law for the formation and operation of the Partnership and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Partnership. 13.2 Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively a "Notice") required or permitted under this Agreement must be in writing and shall be deemed to have been received only upon actual receipt thereof. To Tractebel GP: c/o Tractebel Power, Inc. 1177 West Loop South Suite 900 Houston, Texas 77027 Attention: General Counsel Telecopier: (713) 552-2364 To Tractebel Sub: c/o Tractebel Power, Inc. 1177 West Loop South Suite 900 Houston, Texas 77027 Attention: General Counsel Telecopier: (713) 552-2364 To ESI GP: c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attention: President Telecopier: (561) 691-3615 33 To ESI Sub: c/o ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attention: President Telecopier: (561) 691-3615 13.3 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach. 13.4 Complete Agreement. This Agreement constitutes the complete and exclusive statement of the agreement among the Partners. It supersedes all prior written and oral agreements and statements, and any prior representation, statement, condition, or warranty. Except as expressly provided otherwise herein, this Agreement may not be amended without the written consent of all of the Partners. 13.5 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Delaware without regard to principles of conflicts of laws. 13.6 Section Titles. The headings herein are inserted as a matter of convenience only and do not define, limit, or describe the scope of this Agreement or the intent of the provisions hereof. 13.7 Binding Provisions. This Agreement is binding upon, and to the limited extent specifically provided herein, inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and assigns. 13.8 Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the Person may in the context require. 13.9 Separability of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid. 13.10 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 34 13.11 Estoppel Certificate. Each Partner shall, within ten (10) days after written request by any Partner, deliver to the requesting Person a certificate stating, to the Partner's knowledge, that: (a) this Agreement is in full force and effect; (b) this Agreement has not been modified except by any instrument or instruments identified in the certificate; and (c) there is no default hereunder by the requesting Person, or if there is a default, the nature or extent thereof. 13.12 Non-Disclosure. Each Partner hereto agrees that it will, and will cause its officers, other personnel and authorized representatives to, hold in strict confidence all Confidential Information disclosed by the other Partners and will ensure that such other persons do not, disclose such information to others without the prior written consent of the Partners hereto to which such Confidential Information relates (the "Affected Party"); provided, that each Partner hereto may provide such data and in formation (i) to its outside lenders, consultants, accountants, investors and advisers; provided, that, such parties remain legally obligated (by contract or otherwise) to maintain the confidentiality of such information, and (ii) in response to legal process or applicable government regulations, but only that portion of the data and information which, in the written opinion of counsel for such Partner, is legally required to be furnished and further provided that such Party notifies the Affected Party to protect the confidentiality of such data and information pursuant to applicable law. Notwithstanding the foregoing, each Party hereto may disclose the terms of this Agreement in connection with any Transfer provided that the potential purchaser executes appropriate confidentiality agreements. 13.13 Waiver. No failure on the part of any Partner to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Any waiver to be effective shall be in writing signed by the waiving Partner. 35 IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to be executed, as of the Effective Date. ESI NORTHEAST ENERGY GP, INC., a Florida corporation By: /s/ Glenn E. Smith -------------------------- Name: Glenn E. Smith Title: Vice President ESI NORTHEAST ENERGY LP, INC., a Florida corporation By: /s/ Glenn E. Smith -------------------------- Name: Glenn E. Smith Title: Vice President TRACTEBEL NORTHEAST GENERATION GP, INC. a Delaware corporation By: /s/ Timothy R. Dunne -------------------------- Name: Timothy R. Dunne Title: Vice President TRACTEBEL ASSOCIATES NORTHEAST LP, INC. a Delaware corporation By: /s/ Charles Vetters -------------------------- Name: Charles Vetters Title: Vice President [Signature Page to Agreement of Limited Partnership] Exhibit A NO KNOWLEDGE AGREEMENT This AGREEMENT is dated as of [The Acquisition Date] among ESI NORTHEAST ENERGY GP, INC., a Florida corporation, and ESI NORTHEAST ENERGY LP, INC., a Florida corporation (the "ESI Partners"); and TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation and TRACTEBEL ASSOCIATES NORTHEAST LP, INC., a Delaware corporation (collectively, the "Tractebel Partners"). The ESI Partners and the Tractebel Partners are the partners of Northeast Energy, LP (the "Partnership") under the Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership (the "Partnership Agreement"). All capitalized terms used herein shall have the meaning set forth in the Partnership Agreement unless otherwise herein defined. The ESI Partners and the Tractebel Partners hereby agree as follows: 1. ESI Partners Knowledge. Except as set forth in Schedule 1 hereto, the ESI Partners have no knowledge of any breach by any "Seller" (as defined in the Purchase Agreement) of any representations or warranties made by such Seller in the Purchase Agreement. 2. Tractebel Partners Knowledge. Except as set forth in Schedule 2 hereto, the Tractebel Partners have no knowledge of any breach by any Seller of any representations or warranties made by such Seller in the Purchase Agreement. 3. ESI Indemnity. The ESI Partners hereby agree to indemnify and hold harmless the Tractebel Partners from and against fifty percent (50%) of any loss, damage, cost or expense suffered or incurred by the Partnership as a result of the Partnership's inability to recover against the Sellers under Section 11 of the Purchase Agreement for breach of representation or warranty by the Sellers, to the extent such inability is a result of the successful assertion by the Sellers of the defense that such recover y is barred because the ESI Partners had knowledge of such breach at the time of Closing (as defined in the Purchase Agreement). 4. Tractebel Indemnity. The Tractebel Partners hereby agree to indemnify and hold harmless the ESI Partners from and against fifty percent (50%) of any loss, damage, cost or expense suffered or incurred by the Partnership as a result of the Partnership's inability to recover under Section 11 of the Purchase Agreement for breach of representation or warranty by the Sellers, to the extent such inability is a result of the successful assertion by the Sellers of the defense that such recovery is barred be cause the Tractebel Partners had knowledge of such breach at the time of Closing. 5. Waiver. No failure or delay by the Partners or the Partnership to exercise any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise of such right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. 6. Amendments. This Agreement may be amended but only by an instrument in writing signed by the Partners. 7. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. 8. Notices. Any notice hereunder shall be in writing and shall be personally delivered or delivered by an internationally recognized courier service such as DHL or Federal Express, addressed to the party receiving such notice at the following address: If to the ESI Partners to: ESI Energy, Inc. 11760 US Highway One Suite 600 North Palm Beach, Florida 33408 Attn:President If to the Tractebel Partners to: Tractebel Power, Inc. 1177 West Loop South Suite 900 Houston, Texas 77027 Attn: General Counsel or at such other address as a party may by notice specify to the other party. Notices shall be deemed effective upon confirmed receipt of delivery. 9. Severability. If any term contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any applicable law, the remaining terms hereof shall not in any way be affected or impaired. 10. Continuing Obligations. The obligations of the Partners hereunder shall continue in full force and effect until all of such obligations have been fully paid or performed. 11. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract.IN WITNESS WHEREOF, the Partners have executed, or caused this Agreement to be executed, as of the Acquisition Date. A-2 IN WITNESS WHEREOF, the Partners have executed, or caused this Agreement to be executed, as of the Acquisition Date. ESI NORTHEAST ENERGY GP, INC., a Florida corporation By: ----------------------------- Name: Title: ESI NORTHEAST ENERGY LP, INC., a Florida corporation By: ----------------------------- Name: Title: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation By: ----------------------------- Name: Title: TRACTEBEL ASSOCIATES NORTHEAST LP, INC., a Delaware corporation By: ----------------------------- Name: Title: A-3 EX-4.22 10 SECOND SUPPLEMENTAL TRUST INDENTURE EXHIBIT 4.22 ================================================================================ EXECUTION COPY ----------------- SECOND SUPPLEMENTAL TRUST INDENTURE Dated as of January 14, 1998 to TRUST INDENTURE Dated as of November 15, 1994 as supplemented by FIRST SUPPLEMENTAL TRUST INDENTURE Dated as of November 15, 1994 ----------------- among IEC FUNDING CORP., NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, and STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE ------------------ ================================================================================ SECOND SUPPLEMENTAL TRUST INDENTURE (this "Second Supplemental Indenture"), dated as of January 14, 1998, by and among IEC FUNDING CORP., a Delaware corporation (together with its successors and assigns, the "Company"), its executive office and mailing address being at 350 Lincoln Place, Hingham, Massachusetts 02043, NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited partnership ("NEA"), its executive office and mailing address being at 350 Lincoln Place, Hingham, Massachusetts 02043, NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP ("NJEA," and together with NEA, the "Partnerships"), its executive office and mailing address being at 350 Lincoln Place, Hingham, Massachusetts 02043, and STATE STREET BANK AND TRUST COMPANY, as trustee (the "Trustee"), its corporate trust office and mailing address being at 2 International Place, Boston, Massachusetts 02110, Attention: Corporation Trust Department, to the Trust indenture (the "Original Indenture"), as supplemented by the First Supplemental Indenture (the "First Supplemental Indenture"), each dated as of November 15, 1994, by and among the Company, the Partnerships and the Trustee relating to the Company's 8.43% Senior Secured Notes due 2000, 9.16% Senior Secured Notes due 2002, 9.32% Senior Secured Bonds due 2007 and 9.77% Senior Secured Bonds due 2010, in the aggregate principal amount of $560,000,000 (collectively, the "Bonds"). Capitalized terms used herein without definition shall have the meanings assigned thereto in the Original Indenture. WITNESSETH: WHEREAS, Intercontinental Energy Corporation, a Delaware corporation and the sole general partner of each Partnership ("IEC"), and the limited partners of each Partnership, as sellers (collectively, the "Sellers"), and Northeast Energy, LP, a Delaware limited partnership ("NE LP"), Northeast Energy, LLC, a Delaware limited liability company ("NE LLC"), ESI Northeast Energy Funding, Inc., a Florida corporation ("ESI Funding") and Tractebel Power, Inc. ("Tractebel"), a Delaware corporation, as buyers (collectively, the "Buyers") have entered into the Purchase Agreement dated as of November 21, 1997 (the "Purchase Agreement"), pursuant to which NE LP and NE LLC agreed to purchase from the Sellers (upon the satisfaction of the conditions set forth in the Purchase Agreement) all of the general and limited partnership interests in the Partnerships and ESI Funding and Tractebel agreed to purchase (upon the satisfaction of the conditions set forth in the Purchase Agreement) 7,500 issued and outstanding shares of common stock of the Company (the "Acquisition"). WHEREAS, in connection with the Acquisition and as a condition precedent to the consummation thereof, the Company, the Partnerships and the Trustee wish to enter into this Second Supplemental Indenture in order to implement certain amendments to the Original 1 Indenture, which, among other things, (a) permit IEC and the persons who, prior to the consummation of the Acquisition, are the limited partners of NEA and NJEA (the "Original Limited Partners") to sell to one more of the Buyers all of their general and limited partnership interests in the Partnerships and all of their shares of common stock of the Company, (b) permit the substitution for the cash collateral that secures the Partnerships' obligations relating to the Letters of Credit of one or more guarantees (the "FPL Capital Guarantees") of FPL Group Capital Inc., an affiliate of ESI Energy, Inc. (instead of or together with one or more Back-up Letters of Credit currently permitted by the Original Indenture to be substituted for such cash collateral), (c) permit the immediate release to the General Partner or at the direction of the General Partner of such cash collateral upon the substitution for such cash collateral of one or more Back-up Letters of Credit and/or one or more FPL Capital Guarantees, (d) permit the immediate release to the General Partner or at the direction of the General Partner of any cash released from the Debt Service Reserve Fund upon a substitution therefor, in accordance with the Original Indenture, of one or more Substitute Letters of Credit, and (e) permit the payment as an Operating Expense of fuel management fees to be paid under a Fuel Management Agreement to ESI Northeast Fuel Management, Inc., an affiliate of ESI Energy, Inc. WHEREAS, the Consent Solicitation Statement dated as of December 4, 1997 (the "Consent Solicitation Statement") stated that the requisite Holders' consent to any of the proposed amendments described therein will be deemed to constitute (i) a waiver of any other provisions of the Original Indenture, as supplemented by the First Supplemental Indenture, and of any related financing documents that may be inadvertently breached as a result of the Acquisition and (ii) an authorization and a direction to the Trustee to execute all of the related amendments to the Transaction Documents; WHEREAS, Section 13.2 of the Original Indenture provides that with the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding, considered as one class, by Act of said Holders delivered to the Company and the Partnerships and the Trustee, the Company and the Partnerships may, upon authorization evidenced by a resolution of the Company's Board of Directors or a resolution of the Management Committee of the General Partner, on behalf of the Partnerships, as the case may be, and the Trustee shall, subject to certain conditions set forth in Sections 13.3 and 13.4 of the Original Indenture, enter into an indenture or indentures supplemental thereto for the purpose of adding any provisions to or changing in any manner or eliminating or waiving any of the provisions of the Original Indenture; WHEREAS, the written consents of the Holders (other than Affiliates of the Company) of 99.56% in aggregate principal amount outstanding of the Bonds, treated as one class, have been delivered to the Trustee in accordance with Sections 1.4 and 13.2 of the Original Indenture 2 and the documents described in Section 1.2, 13.2 and 13.4 of the Original Indenture have been provided to the Trustee; WHEREAS, the Company and the Partnerships desire to implement the proposed amendments in respect of which, pursuant to the Consent Solicitation Statement, the requisite Holders have given their consent, and have requested that the Trustee join them in the execution of this Second Supplemental Indenture; WHEREAS, the Board of Directors of the Company and the Management Committee of the General Partner of the Partnerships have authorized the execution of this Second Supplemental Indenture; WHEREAS, all action on the part of the Company and the Partnerships necessary to amend the Original Indenture and execute and deliver this Second Supplemental Indenture (the Original Indenture, as supplemented by the First Supplemental Indenture and as supplemented and amended by this Second Supplemental Indenture, being hereinafter referred to as the "Indenture") have been duly taken by each of the Company and the Partnerships, and each of the Company and the Partnerships, in the exercise of the legal right and power vested in it, is executing this Second Supplemental Indenture. NOW, THEREFORE, the Trustee hereby joins the Company and the Partnerships in the execution and delivery of this Second Supplemental Indenture in order to amend the Original Indenture as follows: ARTICLE I AMENDMENTS SECTION 1.1 Amendments to Provisions. The Original Indenture, as supplemented by the First Supplemental Indenture, is hereby amended as follows: (a) Definitions; Construction. Section 1.1(g) of the Original Indenture is hereby amended by inserting after the word "supplemented", which appears in the fifth line thereof, and before the word "or", which appears in the sixth line thereof, the word "assigned". (b) Debt Service Reserve Fund. Section 4.10(b) of the Original Indenture is hereby amended by inserting after the words "upon any Substitute Letter of Credit", which appear at the end thereof, the following language: 3 Notwithstanding any provision of the Indenture to the contrary, in the event that a Substitute Letter of Credit is issued to replace cash or Permitted Investments then on deposit in the Debt Service Reserve Fund (and if, upon the issuance of such Substitute Letter of Credit, the Debt Service Reserve Fund will be fully funded with cash, Permitted Investments and/or Substitute Letters of Credit in an aggregate amount equal to the then current Debt Service Reserve Requirement), the Trustee shall, promptly upon the receipt of such Substitute Letter of Credit accompanied by the written request of the Company, release and pay an amount of cash and/or Permitted Investments equal to the amount of such Substitute Letter of Credit directly to or as directed by the General Partner. (c) Restricted Payments. Section 7.18(a) of the Original Indenture is hereby amended by replacing the words "Sponsor Family Member, IEC or any Affiliate of IEC", which appear in the seventh and the eighth lines thereof, by the words "Affiliate of the Sponsors". (d) Letter of Credit Obligations. Section 7.23 of the Original Indenture is hereby amended as follows: (i) by replacing the words "the Back-up Letter of Credit", which appear in clause (y) thereof in the tenth and eleventh lines from the end of that Section, by the words "one or more Back-up Letters of Credit and/or FPL Capital Guarantees"; (ii) by replacing the words "the Back-up Letter of Credit", which appear in clause (y) thereof in the ninth and tenth lines from the end of that Section, with the words "any such Back-up Letters of Credit or FPL Capital Guarantees"; (iii) by inserting after the words "Cash Collateral Proceeds; provided that", and before the words "the Letters of Credit", which appear in the seventh and eighth lines from the end of that Section, the following language: , notwithstanding any provision of this Indenture to the contrary, if one or more Back-up Letters of Credit or FPL Capital Guarantees are provided to replace all or portion of the cash or Permitted Investments referred to in clause (x) (and if, upon the issuance of such Back-up Letters of Credit and/or FPL Capital Guarantees, the Letters of Credit shall be fully collateralized with any combination 4 of cash, Permitted Investments, Back-up Letters of Credit or FPL Capital Guarantees in an amount equal to the Letter of Credit Maximum Amount), the Letter of Credit Banks or an agent or a trustee thereof shall promptly, upon its receipt of such Back-up Letters of Credit or FPL Capital Guarantees and the written request of the Company, release and pay an amount of cash and/or Permitted Investments equal to the amount of such Back-up Letters of Credit and/or the amount of the guaranteed obligations under such FLP Capital Guarantees directly to or as directed by the General Partner; and provided, further, that (e) Certain Required Contributions to Revenue Fund. Section 7.26 of the Original Indenture is hereby amended as follows: (i) by inserting after the words "pursuant to Section 7.23" and before the words "(whether as a result of)", which appear in the fourth and fifth lines thereof, the following language: , such Released Letter of Credit Collateral (other than any Released Letter of Credit Collateral included in clause (ii) of the definition thereof) shall be deposited into the Revenue Fund. "Released Letter of Credit Collateral" shall mean any cash or Permitted Investments which collateralize the Letters of Credit or constitute Substitute LOC Collateral and which are released from the collateral required pursuant to Section 7.23. (ii) by replacing the words "a Back-up Letter of Credit", which appear in the seventh and eighth lines thereof, with the words "one or more Back-up Letters of Credit and/or FLP Capital Guarantees as contemplated by the first proviso of the last sentence of Section 7.23,"; (iii) by inserting after the words "in accordance with the", which appear in the tenth line thereof, the word "second"; (iv) by deleting the following language, which appears in the last three lines of that Section: (such cash or Permitted Investments being referred to as "Released Letter of Credit Collateral") such released cash or Permitted Investments shall be deposited into the Revenue Fund. 5 (f) Events of Default. Section 10.1 of the Original Indenture is hereby amended as follows: (i) by replacing the word "IEC", which appears in the second, twentieth and twenty-six lines of Section 10.1(b), with the word "NE LP"; (ii) by replacing the word "IEC", which appears in the first and the fourteenth lines of Section 10.1(d), with the word "NE LP"; (iii) by (i) replacing the words "the Sponsor Control Group shall cease to own and", which appear in the first and second lines of Section 10.1(n), with the words "neither Sponsor, alone or together with the other Sponsor, shall own or"; (ii) by inserting after the words "each Project," and before the words "(ii) 51% of the Voting", which appear in the third line of Section 10(b), the word "or"; and (iii) by replacing the word "IEC", which appears in the fourth line of Section 10.1(n), with the words "the general partner of each Partnership"; (iv) by deleting Section 10.1(o) in its entirety and replacing it with the following language: any Person other than a Sponsor or an Affiliate of a Sponsor shall hold any general partnership interest in either Partnership. SECTION 1.2 Amendments to Definitions. Appendix A to the Original Indenture is hereby amended as follows: (a) The following definitions are hereby inserted in Appendix A of the Original Indenture, in alphabetical order: "FPL Capital Guarantee" shall mean one or more corporate guarantees in form and substance satisfactory to the Letter of Credit Banks issued by FPL Group Capital Inc in favor of the Letter of Credit Banks in accordance with Section 7.23. "FPL Group Capital Inc" shall mean FPL Group Capital Inc, a subsidiary of FPL Group, Inc. "NE LP" shall mean Northeast Energy, LP, a Delaware limited partnership. 6 "Second Supplemental Indenture" shall mean the Supplemental Indenture dated as of January 14, 1998 among the IEC Funding, the Partnerships and the Trustee. (b) The definitions of "Sponsor Control Group" and "Sponsor Family Members" are hereby deleted in their entirety from Appendix A of the Original Indenture. (c) Each reference to "IEC", wherever it appears, in the definitions of "Authorized Representative", "Collateral", "Outstanding", "Partners" and "Prestwich Letter of Credit", is hereby deleted and replaced with the words "NE LP": (d) The following definitions set forth in Appendix A to the Original Indenture are hereby amended as follows: (i) The definition of "General Partner" is hereby amended by replacing the word "IEC", which appears in the first line thereof, with the words "each of NE LP"; (ii) The definition of "Management Costs" is hereby amended by: (1) replacing the word "IEC", which appears in the second and tenth lines thereof, with the words "NE LP"; (ii) replacing the word "IEC", which appears in the fourth and fifteenth lines thereof after the words "or a vice president of" and before the words "and in an Officers' Certificate", with the words "a general partner of NE LP"; and (iii) deleting the words "that are not related by blood or marriage to the Sponsors", which appear in clause (iii) in the thirteenth and fourteenth lines thereof. (iii) The definition of "Operating Expenses" is hereby amended by: (i) inserting after the words "storage, transportation" and before the words "and associated costs", which appear in the ninth line thereof, the word "management"; and (ii) replacing the word "IEC", which appears in clause (e) in the seventh line from the end of the definition of "Operating Expenses", with the words "NE LP"; (iv) the definition of "Related Party" is hereby amended by deleting the words "Family Member", which appear in the second line thereof; and 7 (v) the definition of "Sponsors" is hereby amended by replacing the words "the Sponsor Family Members (other than executors, legal representatives and administrators);" which appear in the first and second lines thereof, with the words "ESI Energy, Inc. and Tractebel Power, Inc." ARTICLE II CONDITIONS TO EFFECTIVENESS This Second Supplemental Indenture shall become effective on the date (the "Closing Date") on which each of the following conditions shall have been satisfied (which date shall have occurred on or prior to March 31, 1998): (a) Each of the conditions set forth in the Purchase Agreement shall have been satisfied or waived by the parties thereto and the Acquisition shall have been consummated; (b) The Trustee shall have received certificates, each dated as of the Closing Date, of the Secretary or Assistant Secretary of the Company and of the General Partner of each Partnership (a) attaching a true and complete copy of the resolutions of the Board of Directors of the Company and the resolutions of the Management Committee of the General Partner of each Partnership, respectively, and of all documents evidencing other necessary corporate or partnership action taken by the Company and each Partnership to authorize this Second Supplemental Indenture and all of the Related Amendments to the other Transaction Documents being amended in connection herewith and the transactions contemplated herein and therein, and (b) setting forth the incumbency and authority of its officer or officers or, in the case of each Partnership, of the officer or officers of the General Partner, who may sign this Second Supplemental Indenture and all of the related amendments to the other Transaction Documents being amended in connection herewith, including therein a signature specimen of such officer or officers; (c) All conditions precedent to the effectiveness of the related amendments to the other Transaction Documents being amended in connection herewith shall have been satisfied or waived by the parties thereto; (d) The Trustee shall have received counterparts of this Second Supplemental Indenture signed by each of the parties hereto (or the Trustee shall have received from a party hereto a facsimile signature page signed by such party, which party shall have agreed to promptly provide the Trustee with originally executed counterparts hereof); and 8 (e) The Trustee shall have received a favorable opinion of Orrick, Herrington & Sutcliffe LLP a form and substance reasonably satisfactory to the Trustee, stating, among other things, that the execution of this Second Supplemental Indenture is authorized or permitted by the Original Indenture, as amended by the First Supplemental Indenture. ARTICLE III MISCELLANEOUS SECTION 3.1 Execution of Supplemental Indenture. This Second Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture, as supplemented by the First Supplemental Indenture, and, as provided in the Original Indenture, this Second Supplemental Indenture forms a part thereof. SECTION 3.2 Concerning the Trustee. The recitals contained herein shall be taken as the statements of the Company, NEA and NJEA, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture. SECTION 3.3 Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 3.4 Severability. Any provision of the Second Supplemental Indenture 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. SECTION 3.5 Section Headings. Section headings have been inserted in this Second Supplemental Indenture as a matter of convenience for reference only and it is agreed that such section headings are not a part of this Second Supplemental Indenture and shall not be used in the interpretation of any provision of this Second Supplemental Indenture. SECTION 3.6 Reference to and Effect on the Transaction Documents. (a) Upon the effectiveness of this Second Supplemental Indenture, on and after the date hereof, each reference in the Original Indenture to "this Indenture", "hereunder", "hereof", "herein", or words of like import, and each reference in the other Transaction Documents to the Indenture, shall mean and be a reference to the Original Indenture as amended by the First Supplemental Indenture and hereby. 9 (b) Exception as specifically amended or waived above, the Original Indenture, as supplemented by the First Supplemental Indenture, shall remain in full force and effect and is hereby ratified and confirmed. SECTION 3.7 Waivers. The execution, delivery and effectiveness of this Second Supplemental Indenture shall operate as a consent and a waiver by the Holders of any other provision of the Original Indenture which might have been inadvertently breached as a result of the Acquisition and the execution of the related amendments to the other Transaction Documents being amended in connection herewith had therewith. Except as set forth in the preceding sentence, the execution, delivery and effectiveness of this Second Supplemental Indenture shall not operate as a waiver of any right, power or remedy of any of the Holders or the Trustee under any of the Transaction Documents, nor constitute a waiver of any provision of any of the Transaction Documents. SECTION 3.8 GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. [Signature page follows] 10 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date and year first written above. COMPANY IEC FUNDING CORP. By: /s/ Glenn E. Smith ---------------------------- Name: Glenn E. Smith Title: Vice President PARTNERSHIPS NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: NORTHEAST ENERGY, LP. its sole general partner By: ESI NORTHEAST ENERGY GP. INC., as a general partner By: /s/ Glenn E. Smith ---------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERAL GP. INC., as general partner By: /s/ Timothy R. Dunne ---------------------------- Name: Timothy R. Dunne Title: Vice President Address for Notices: c/o ESI Energy, Inc. 11760 U.S. Highway 1, Suite 600 North Palm Beach, FL 33408 Execution Copy EX-4.23 11 AMENDMENT TO AMENDED AND RESTATED ASSIGNMENT EXHIBIT 4.23 AMENDMENT TO AMENDED AND RESTATED ASSIGNMENT AND SECURITY AGREEMENT THIS AMENDMENT TO AMENDED AND RESTATED ASSIGNMENT AND SECURITY AGREEMENT is made and entered into as of January 14, 1998, by and between NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited partnership ("NEA"), NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a New Jersey limited partnership ("NJEA"), (NEA and NJEA are individually referred to as a "Borrower" and collectively referred to as the "Borrowers"), INTERCONTINENTAL ENERGY CORPORATION ("IEC") Northeast Energy, LP, a Delaware limited partnership ("NE LP") and STATE STREET BANK AND TRUST COMPANY as "Collateral Agent" under the Collateral Agency Agreement referred to below (in such capacity, the "Collateral Agent"). R E C I T A L S: A. The Borrowers, the Collateral Agent and IEC have entered into the Amended and Restated Assignment and Security Agreement dated as of December 1, 1994 (the "Amended and Restated Assignment and Security Agreement") pursuant to which IEC granted to the Collateral Agent a security interest in all of the Collateral (as such term is defined in the Amended and Restated Assignment and Security Agreement). B. Pursuant to and subject to the terms and conditions of the Credit Agreement dated as of December 1, 1994 (as amended, the "Credit Agreement") among the Borrowers and The Sanwa Bank Limited, the New York Branch ("Sanwa"), as issuing bank (in such capacity, the "Issuing Bank"), as a "Bank" (in such capacity, the "Bank") and as agent for the Bank and the Issuing Bank (in such capacity, the "Agent"), the Issuing Bank has agreed to issue and renew letters of credit (the "Letters of Credit") in support of certain obligations of the Borrowers under the Power Purchase Agreements referred to therein as well as certain other obligations referred to therein. C. IEC Funding Corp., a Delaware corporation (the "Issuer"), has entered into the trust indenture, dated as of November 15, 1994, as supplemented by the first supplemental trust indenture, dated as of November 15, 1994 (the "Indenture"), with the Borrowers and State Street Bank and Trust Company ("State Street"), as Trustee (in such capacity, the "Trustee"), pursuant to which the Issuer's 8.43% Senior Secured Notes due 2000, 9.16% Senior Secured Notes due 2002, 9.32% Senior Secured Bonds due 2007 and 9.77% Senior Secured Bonds due 2010, in the aggregate principal amount outstanding as of the date hereof of $490,286,720, were issued. D. In connection with the Credit Agreement and the Indenture, and as a condition to the obligations of the Issuing Bank to issue or renew the Letters of Credit and of the Bank to make working capital loans to the Borrowers, the Borrowers, Sanwa Bank Trust Company of New York, as Trustee and the Collateral Agent entered into a Pledge, Trust & Intercreditor Agreement dated as of December 1, 1994 (the "Pledge, Trust & Intercreditor Agreement"). E. In connection with the Indenture and certain other agreements, the Borrowers and the Secured Parties (as defined in the Collateral Agency Agreement) have entered into the Collateral Agency Agreement dated as of December 1, 1994 (the "Collateral Agency Agreement") which provides, among other things, for (a) the exercise of certain rights and remedies under the Amended and Restated Assignment and Security Agreement and certain other Security Documents (the "Security Documents") referred to therein, by the Collateral Agent and (b) the priority of their respective security interests created by the Security Documents. F. Pursuant to the Purchase Agreement dated as of November 21, 1997 (the "Purchase Agreement") among Intercontinental Energy Corporation, a Delaware corporation and the sole general partner of each Borrower, and the limited partners of each Borrower, as sellers (the "Sellers"), NE LP, Northeast Energy, LLC, a Delaware limited liability company ("NE LLC"), ESI Northeast Energy Funding, Inc. a Florida corporation ("ESI Funding") and Tractebel Power, Inc. ("Tractebel"), a Delaware corporation, as buyers (collectively, the "Buyers") pursuant to which (i) NE LP and NE LLC shall purchase from the Sellers all of the general and limited partnership interests in the Borrowers and (ii) ESI Funding and Tractebel shall purchase 7,500 issued and outstanding shares of Common stock of the Issuer (the "Acquisition"). G. Upon the consummation of the Acquisition, the general partner of the Borrowers will be NE LP, which is directly or indirectly wholly-owned by special purpose subsidiaries of ESI Energy, Inc. and Tractebel Power, Inc. H. In connection with the Acquisition, the Borrowers, the Grantor and the Collateral Agent have agreed to enter into this Amendment in order to implement an amendment to the Amended and Restated Assignment and Security Agreement, which amendment permits the Grantor to, among other things, (i) sell, assign or otherwise dispose of its general partnership interest in the Borrowers pursuant to the Purchase Agreement, (ii) admit NE LP as a general partner to each Borrower pursuant to the Purchase Agreement, (iii) enter into certain amendments and restatements of the Partnership Agreement and (iv) consummate certain transactions not constituting certain Events of Default under the Indenture. I. Further, in connection with the Acquisition, the Issuer, the Borrowers and the Trustee are executing and delivering concurrently herewith a Second Supplemental Trust Indenture to the Indenture (the "Second Supplemental Indenture") in order to implement, among other things, certain of the proposed amendments described in the preceding paragraph. NOW, THEREFORE, the Borrowers, IEC, NE LP and the Collateral Agent hereby agree as follows: 1. Terms. Capitalized terms not defined herein shall have the meaning given such terms in the Amended and Restated Assignment and Security Agreement. 2. Amendments. 2.1 Section 3 of the Amended and Restated Assignment and Security Agreement is hereby amended to read in its entirety as follows: (b) So long as the Secured Obligations have not been satisfied or performed or paid in full, as the case may be, the Grantor will not, except as otherwise permitted under the Indenture, (i) cancel or terminate the Partnership Agreement or consent to or accept any cancellation or termination thereof, (ii) sell, assign or otherwise dispose of (by operation of law or otherwise) any part of its general partnership interest in the Borrowers (other than pursuant to the Purchase Agreement dated as of November 21, 1997 (the "Purchase Agreement") among the parties identified on Schedule I thereto), (iii) admit any other partner to either Borrower as a general partner (other than NE LP, as contemplated in the Purchase Agreement) or (iv) amend, supplement or otherwise modify the Partnership Agreement (as in effect on the date hereof) in a manner that would materially and adversely affect the rights of the Grantor as a general partner thereunder, provided that the foregoing shall not be construed to preclude (i) entry into amendments and restatements of the Partnership Agreement simultaneously with closing of the transactions contemplated by the Purchase Agreement, or (ii) the consummation of any transaction (A) not constituting an Event of Default under Section 10.1(n) or 10.1(o) of the Indenture (in each case as amended by the Second Supplemental Indenture dated as of January 14, 1998 among IEC Funding, the Partnerships and the Trustee), or (B) permitted under the Indenture resulting in a Permitted Successor to either Borrower in accordance with the Indenture. The Grantor at the Borrowers' expense will perform and comply in all material respects with all terms and provisions of the Partnership Agreement required to be complied with by the Grantor. 2.2 The addresses for notices specified on the signature pages hereof shall supersede any prior addresses designated pursuant to the Amended and Restated Assignment and Security Agreement. 2.3 It is acknowledged and agreed that (a) NE LP is hereby substituted for IEC as the Grantor under the Amended and Restated Assignment and Security Agreement, and (b) IEC shall cease to be a party thereto. 3. Conditions to Effectiveness. This Amendment shall become effective on the date on which each of the conditions specified in Article II of the Second Supplemental Indenture shall have been satisfied. 4. Successors and Assignees. This Amendment shall be binding upon and inure to the benefit of the Borrowers, the Grantor and the Collateral Agent and their respective successors and assigns. 5. Counterparts. This Amendment may be executed in any number of counterparts and each such counterpart shall be deemed to constitute but one and the same instrument. 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 7. No Other Changes. Except as modified and amended pursuant to the terms of this Amendment, the terms and conditions of the Amended and Restated Assignment and Security Agreement shall remain in full force and effect in accordance with its terms, and the Borrowers, the Grantor and the Collateral Agent hereby ratify, confirm and reaffirm the terms and conditions of the Amended and Restated Assignment and Security Agreement as modified and amended hereby. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. INTERCONTINENTAL ENERGY CORPORATION, By: /s/ James Blakey ------------------------ Name: James Blakey Title: Vice President NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: Intercontinental Energy Corporation, By: /s/ James Blakey ------------------------ Name: James Blakey Title: Vice President Address for Notices: c/o ESI Energy, Inc. 11760 U.S. Highway 1, Suite 600 North Palm Beach, FL 33408 NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: Intercontinental Energy Corporation, By: /s/ James Blakey ------------------------- Name: James Blakey Title: Vice President Address for Notices: c/o ESI Energy, Inc. 11760 U.S. Highway 1, Suite 600 North Palm Beach, FL 33408 STATE STREET BANK AND TRUST COMPANY, as Collateral Agent By: /s/ Paul D. Allen Name: Paul D. Allen Title: Vice President NORTHEAST ENERGY, LP, By: ESI Northeast Energy GP, Inc., General Partner By: /s/ Glenn E. Smith ----------------- Name: Glenn E. Smith Title: Vice President By: Tractebel Northeast Generation GP, Inc., General Partner By: /s/ Charles Vetters ------------------- Name: Charles Vetters Title: Vice President EX-4.24 12 TERMINATION OF PLEDGE, TRUST AND INTERCREDITOR EXHIBIT 4.24 TERMINATION OF PLEDGE, TRUST AND INTERCREDITOR AGREEMENT TERMINATION OF PLEDGE, TRUST AND INTERCREDITOR AGREEMENT, dated as of January 30, 1998 (this "Termination Agreement"), among NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a New Jersey limited partnership ("NJEALP"), NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited partnership ("NEALP" and, together with NJEALP, the "Pledgors"), THE SANWA BANK, LIMITED, NEW YORK BRANCH, as "Bank Agent," as a "Bank" and as the "Letter of Credit Bank" (each as defined in the Pledge Agreement referred to below), SANWA BANK TRUST COMPANY OF NEW YORK, in its capacity as trustee (together with its successors in such capacity, the "Trustee") for the benefit of the Secured Parties (as defined in the Pledge Agreement), STATE STREET BANK AND TRUST COMPANY, in its capacity as "Collateral Agent" (as defined in the Pledge Agreement) under the Collateral Agency Agreement referred to below, and STATE STREET BANK AND TRUST COMPANY, in its capacity as "Bond Trustee" under the Bond Indenture referred to below. WHEREAS, pursuant to the Credit Agreement, dated as of December 1, 1994 (as amended, the "Credit Agreement"), among the Pledgors, the Bank Agent, the Bank and the Letter of Credit Bank, the Letter of Credit Bank agreed to issue and renew letters of credit (the "Letters of Credit") in support of certain obligations of the Pledgors under the Power Purchase Agreements referred to therein as well as certain other obligations referred to therein; WHEREAS, IEC Funding Corp., a Delaware corporation (the "Issuer"), entered into the trust indenture, dated as of November 15, 1994, as supplemented by the first supplemental trust indenture, dated as of November 15, 1994 (the "Original Bond Indenture"), with the Pledgors and the Bond Trustee, pursuant to which the Issuer's 8.43% Senior Secured Notes due 2000, 9.16% Senior Secured Notes due 2002, 9.32% Senior Secured Bonds due 2007 and 9.77% Senior Secured Bonds due 2010, currently outstanding in the aggregate principal amount of $490,286,720, were issued; WHEREAS, in connection with the Credit Agreement and with the Original Bond Indenture, and as a condition to the obligations of the Letter of Credit Bank to issue and to renew the Letters of Credit and of the Banks to make working capital loans to the Pledgors, the Pledgors, the Bank Agent, the Letter of Credit Bank, the Trustee, the Collateral Agent and the Bond Trustee entered into the Pledge, Trust & Intercreditor Agreement dated as of December 1, 1994 (the "Pledge Agreement"); WHEREAS, in connection with the Bond Indenture and certain other agreements, the Pledgors and the Secured Parties (as such term is defined in the Collateral Agency Agreement) entered into the Collateral Agency Agreement, dated as of December 1, 1994 (the "Collateral Agency Agreement"), which provides, among other things, for (a) the exercise by the Collateral Agent of certain rights and remedies under the Amended and Restated Assignment and Security Agreement and under certain other Security Documents (the "Security Documents") referred to therein and (b) the priority of their respective security interests created by the Security Documents; WHEREAS, pursuant to the Purchase Agreement, dated as of November 21, 1997 (the "Purchase Agreement"), among Intercontinental Energy Corporation, a Delaware corporation and the sole general partner of each of NJEALP and NEALP, and the limited partners of each of NJEALP and NEALP, as sellers (the "Sellers"), and Northeast Energy, L.P., a Delaware limited partnership ("NE LP"), Northeast Energy, LLC, a Delaware limited liability company ("NE LLC"), ESI Northeast Energy Funding, Inc. a Florida corporation ("ESI Funding") and Tractebel Power, Inc. ("Tractebel"), a Delaware corporation, as buyers (collectively, the "Buyers"), on January 14, 1998 (i) NE LP and NE LLC purchased from the Sellers all of the general and limited partnership interests in the Pledgors and (ii) ESI Funding and Tractebel purchased 7,500 issued and outstanding shares of Common stock of the Issuer (the "Acquisition"); WHEREAS, after the consummation of the Acquisition, the sole partners of both Pledgors are NE LP and NE LLC, which are directly or indirectly wholly-owned by special purpose subsidiaries of ESI Energy, Inc. and Tractebel Power, Inc.; WHEREAS, in connection with the Acquisition, (i) the Issuer, the Pledgors and the Bond Trustee executed and delivered a Second Supplemental Trust Indenture, which amends and supplements the Original Bond Indenture (the "Second Supplemental Bond Indenture" and together with the Original Bond Indenture, the "Bond Indenture"), and (ii) the Pledgors and the other parties to the Credit Agreement executed and delivered an amendment to the Credit Agreement (the "Credit Agreement Amendment") to reflect, among other things, the Acquisition;and WHEREAS, following the Acquisition, the Pledgors arranged for the delivery to the Power Purchasers of new letters of credit in substitution for the Letters of Credit issued by the Letter of Credit Bank and for the delivery to the issuers of such new letters of credit of a guaranty in lieu of the Pledged Deposits and Pledged Investments required by the Pledge Agreement; NOW, THEREFORE, in consideration of the premises and as provided in the Credit Agreement and the Pledge Agreement, the parties hereto hereby agree as follows: Section 1. Definitions. All capitalized terms not defined herein shall have the meanings assigned thereto in the Pledge Agreement. Terms defined in the introductory paragraph or in the preambles or other provisions hereof shall have the meanings assigned therein. Section 2. Termination Date and Withdrawal of Collateral. The Pledgors hereby notify the Bank Agent that, effective as of the date hereof, they are terminating in entirety (a) the Working Capital Loan Commitment (as defined in the Credit Agreement) and (b) the L/C Commitment (as defined in the Credit Agreement). The Bank Agent hereby waives any further or additional notice of such termination and the parties confirm that such Working Capital Loan Commitment and L/C Commitment are hereby terminated in their entirety. Subject to the payment to the Bank Agent of any fees, expenses, reimbursements or other amounts due to it under the Credit Agreement, including without limitation, any fees due under Section 4.1 or Section 7 of the Credit Agreement and the reimbursement of costs and expenses under Section 13 of the Credit Agreement, and except as provided in Section 14.7 of the Credit Agreement, the Bank Agent hereby confirms that no Bank Obligations are outstanding under the Credit Agreement. Subject to receipt by the Letter of Credit Bank of the original of each outstanding Letter of Credit for cancellation and the written confirmation thereof from each beneficiary to each Letter of Credit reasonably satisfactory to the Letter of Credit Bank, the parties agree that the Termination Date is January 30, 1998. As provided in subsection 3.4(d) of the Pledge Agreement, the Bank Agent hereby directs the Trustee to withdraw the Pledged Deposits deposited in the Accounts and to liquidate the Pledged Investments credited to the Accounts and, upon written confirmation from the Bank Agent that all amounts due to it under the Credit Agreement have been paid in full and from the issuers of the new letters of credit that such issuers have received an FPL Capital Guarantee (as defined in the Bond Indenture), to pay over to or at the direction of the General Partner of the Pledgors all of such proceeds and deposits, after deducting for its own account any amounts due to it under Section 7.1 and Section 7.18 of the Pledge Agreement. Each of the parties hereto agrees that upon such payment of such proceeds and deposits by the Trustee, the Trustee shall be released and discharged from its duties and responsibilities under the Pledge Agreement or with respect to the Collateral. Section 3. Joinder and Release. Each of the Collateral Agent and the Bond Trustee joins in the request and direction of the Bank Agent to the Trustee set forth in Section 2 hereof and each party to this Termination Agreement agrees that the Pledgors shall be released from their obligations under the Pledge Agreement, that the Collateral shall be released and that the Collateral and the proceeds thereof shall be paid over to or at the direction of the General Partner of the Pledgors. Section 4. Counterparts. This Termination Agreement may be executed in any number of counterparts and each such counterpart shall be deemed to constitute but one and the same instrument. Section 4. Governing Law. This Termination Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the 30th day of January, 1998. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: NORTHEAST ENERGY, LP, its sole general partner By: ESI Northeast Energy GP, Inc., General Partner By: /s/ Glenn E. Smith ----------------- Name: Glenn E. Smith Title: Vice President By: Tractebel Northeast Generation GP, Inc., General Partner By: /s/ Charles Vetters -------------------- Name: Charles Vetters Title: Vice President NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: NORTHEAST ENERGY, LP, its sole general partner By: ESI Northeast Energy GP, Inc., General Partner By: /s/ Glenn E. Smith Name: Glenn E. Smith Title: Vice President By: Tractebel Northeast Generation GP, Inc., General Partner By: /s/ Charles Vetters Name: Charles Vetters Title: Vice President THE SANWA BANK, LIMITED, NEW YORK BRANCH, as Bank Agent, as Bank and as Letter of Credit Bank By: /s/ Thomas R. Cantello ---------------------- Name: Thomas R. Cantello Title: Vice President SANWA BANK AND TRUST COMPANY OF NEW YORK, as Trustee By: /s/ Peter P. Kearns Name: Peter P. Kearns Title: Vice President STATE STREET BANK AND TRUST COMPANY, as Collateral Agent and Bond Trustee By: /s/ Paul D. Allen -------------------------- Name: Paul D. Allen Title: Vice President EX-10.16 13 OPERATION AND MAINTENANCE AGREEMENT EXHIBIT 10.16 ================================================================================ OPERATION AND MAINTENANCE AGREEMENT for the Bellingham Cogeneration Plant at Bellingham, Massachusetts between Northeast Energy, LP and ESI Operating Services, Inc. ================================================================================ TABLE OF CONTENTS Page No. -------- ARTICLE I. DEFINITIONS................................1 ARTICLE II. SCOPE OF SERVICES.............................2 Section 2.01 Oversight Services......................................2 Section 2.02 Transition Services.....................................2 Section 2.03 Operator Services.......................................2 Section 2.04 Agency..................................................2 Section 2.05 Operator Notices........................................3 ARTICLE III. RESPONSIBILITIES OF OWNER........................3 Section 3.01 Responsibilities of Owner...............................3 Section 3.02 Owner Notices...........................................3 ARTICLE IV. PROCEDURES, PLANS AND RECORDS......................3 Section 4.01 Plant Manual............................................3 Section 4.02 Transition Plan.........................................4 Section 4.03 Annual Plan.............................................5 Section 4.04 Emergencies.............................................7 Section 4.05 Right of Owner to Inspect Records.......................7 Section 4.06 Capital Improvements....................................7 ARTICLE V. COMPENSATION, COSTS AND REIMBURSEMENTS..................8 Section 5.01 Costs and Expenses......................................8 Section 5.02 Operating Fee...........................................8 Section 5.03 O&M Operating Account...................................9 Section 5.04 Late Payments...........................................9 (i) Page No. -------- ARTICLE VI. TERM AND TERMINATION...........................9 Section 6.01 Term....................................................9 Section 6.02 Termination upon Notice by Owner........................9 Section 6.03 Termination upon Notice by Operator....................10 Section 6.04 Termination for Insolvency.............................10 Section 6.05 Termination Upon Certain Other Events..................10 Section 6.06 Duties Upon Termination................................10 Section 6.07 Effect of Termination..................................11 Section 6.08 Termination Payment....................................11 ARTICLE VII. LIMITATION OF LIABILITY.......................11 Section 7.01 No Consequential Damages..............................11 Section 7.02 Limitation of Aggregate Liability.....................12 ARTICLE VIII. INDEMNIFICATION, INSURANCE BY OPERATOR................12 Section 8.01 Indemnification.......................................12 Section 8.02 Insurance Coverage....................................12 ARTICLE IX. INDEMNIFICATION, INSURANCE BY OWNER................13 Section 9.01 Indemnification.......................................13 Section 9.02 Procedure.............................................13 Section 9.03 Insurance Coverage....................................14 ARTICLE X. FORCE MAJEURE.............................14 Section 10.01 Force Majeure.........................................14 Section 10.02 Notice................................................14 ARTICLE XI. (ii) Page No. -------- RELATIONSHIP OF THE PARTIES.....................15 ARTICLE XII. REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE...........15 Section 12.01 Representations and Warranties of Owner...............15 Section 12.02 Representations and Warranties of Operator............16 Section 12.03 Standard of Care......................................16 ARTICLE XIII. NOTICES...............................16 ARTICLE XIV. ASSIGNMENTS AND SUBCONTRACTING....................17 Section 14.01 Assignments...........................................17 Section 14.02 Assignment by Owner to NEA............................17 Section 14.03 Security Interest.....................................18 Section 14.04 Cooperation in Financing..............................18 Section 14.05 Subcontracting........................................18 ARTICLE XV. LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES...........18 Section 15.01 Limitation on Authority...............................18 Section 15.02 No Liens or Encumbrances..............................19 ARTICLE XVI. DISPUTE RESOLUTION AND ARBITRATION...................19 Section 16.01 Dispute Resolution....................................19 Section 16.02 Arbitration...........................................19 Section 16.03 Survival..............................................20 ARTICLE XVII. MISCELLANEOUS............................21 (iii) Page No. -------- Section 17.01 Severability..........................................21 Section 17.02 Governing Law.........................................21 Section 17.03 Entire Agreement......................................21 Section 17.04 Captions..............................................21 Section 17.05 Counterparts..........................................21 Section 17.06 No Third Party Beneficiaries..........................21 Section 17.07 Further Assurances....................................21 Section 17.08 No Implied Waiver.....................................21 Section 17.09 Amendments............................................22 Section 17.10 Confidentiality.......................................22 Section 17.11 Decision-Making by Parties............................22 Section 17.12 Schedules.............................................22 (iv) OPERATION AND MAINTENANCE AGREEMENT This OPERATION AND MAINTENANCE AGREEMENT (this "Agreement") is made as of the 21st day of November, 1997, between NORTHEAST ENERGY, LP, a Delaware limited partnership ("Owner"), and ESI OPERATING SERVICES, INC., a Florida corporation ("Operator"). Owner and Operator are sometimes referred to individually as a "party," and collectively, the "parties". RECITALS WHEREAS, Northeast Energy Associates, a Limited Partnership ("NEA"), is the owner of a 300 megawatt gas-fuel combined cycle cogeneration plant located in Bellingham, Massachusetts (the "Facility"); WHEREAS, NEA has entered into that certain Second Amended and Restated Operation and Maintenance Agreement, dated as of June 28, 1989 (the "Westinghouse O&M Agreement"), with Westinghouse Electric Corporation, a corporation organized under the laws of the Commonwealth of Pennsylvania; WHEREAS, Owner indirectly holds 100% of the partnership interests in NEA; WHEREAS, subject to the terms and conditions of this Agreement, Owner desires to retain, effective as of the expiration or early termination of the Westinghouse O&M Agreement, Operator to operate and maintain the Facility and Operator is willing to perform the services described in this Agreement; and WHEREAS, until such time, Operator is willing, subject to the terms and conditions in this Agreement, to perform the Oversight Services and the Transition Services described herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, Owner and Operator, intending to be legally bound, agree as follows: ARTICLE I. DEFINITIONS As used in this Agreement, capitalized terms shall have the definitions set forth in Schedule 1.01. ARTICLE II. SCOPE OF SERVICES Section 2.01 Oversight Services. From the Effective Date through the day immediately preceding the Transition Period Commencement Date (the "Oversight Period"), Operator shall provide the services listed on Schedule 2.01 (the "Oversight Services"). Such services shall be conducted in a manner so as to minimize disruption of operation and maintenance of the Facility. During the Oversight Period, Operator shall not be responsible for operation or maintenance of the Facility. Section 2.02 Transition Services. From the Transition Period Commencement Date through the day immediately preceding the Operating Period Commencement Date (the "Transition Period"), Operator shall review existing maintenance and operation records and perform all activities necessary to mobilize its personnel (the "Transition Services"), including without limitation, the services listed on Schedule 2.02. Such review and mobilization efforts shall be conducted in a manner so as to minimize disruption of operation and maintenance of the Facility. During the Transition Period, Operator shall not be responsible for operation or maintenance of the Facility. Section 2.03 Operator Services. From the Operating Period Commencement Date through the termination, of this Agreement, Operator shall perform all activities necessary to operate and maintain the Facility (the "O&M Services"), including without limitation, the services listed on Schedule 2.03. The O&M Services shall not include, and Operator shall not be responsible for, supplying water, natural gas, appropriate distillate fuel oil or start up electrical power for the Facility, securing or maintaining Owner Permits, arranging for the sale of steam or electricity, except as specifically required by this Agreement maintaining the insurance required by the Indenture, or the services described in Schedule 3.01; provided, however, that the foregoing shall not limit Operator's obligation to coordinate and/or arrange for the supply of such services as set forth herein. Section 2.04 Agency. (a) To the extent expressly set forth in the Approved Transition Plan, Operator is hereby authorized by Owner to enter into, on behalf of Owner and as agent of Owner, purchase orders and service agreements in connection with the Transition Services. (b) Subject to the Approved Annual Plan, the administrative procedures set forth in the Approved Plant Manual and Article XI hereof, Operator is hereby authorized by Owner to enter into, on behalf of Owner and as agent of Owner, purchase orders and service agreements in connection with the O&M Services. (c) Operator shall not claim title to any supplies, consumables, tools, office equipment or furniture acquired on behalf of Owner. Notwithstanding anything herein to the contrary, title to any software developed or modified specifically for the Facility, whether by 2 Owner, Operator or a third-party contractor, shall vest in Owner. Operator may retain title to any commercially available software or equipment purchased by Operator or its Affiliates with its own funds; provided, however, all records with respect to the operation and maintenance of the Facility maintained with such software shall be the property of Owner. Section 2.05 Operator Notices. Operator shall provide to Owner copies of all notices from third parties received by Operator in connection with Operator's performance of its responsibilities under this Article II. Operator shall designate in writing to Owner an individual who will act on behalf of Operator with respect to communicating decisions and directions to Owner under this Agreement. Such individual shall also be available at reasonable times to receive communications from Owner and provide appropriate responses to Owner. ARTICLE III. RESPONSIBILITIES OF OWNER Section 3.01 Responsibilities of Owner. From the Effective Date to the end of the term of this Agreement, Owner shall provide, at Owner's sole cost and expense, and in addition to the other services specifically set forth in this Agreement, the services listed on Schedule 3.01. Section 3.02 Owner Notices. Owner shall give Operator at least 120 days prior written notice of an early termination of the Westinghouse Agreement. Owner shall also provide to Operator copies of all notices from third parties received by Owner in connection with Owner's performance of its responsibilities under this Article III. Owner shall designate in writing to Operator an individual who will act on behalf of Owner with respect to communicating decisions and directions to Operator under this Agreement. Such individual shall also be available at reasonable times to receive communications from Operator and provide appropriate responses to Operator. ARTICLE IV. PROCEDURES, PLANS AND RECORDS Section 4.01 Plant Manual. During the Transition Period, Operator shall review the existing plant operating, maintenance and safety procedures (the "Existing Plant Procedures") currently in use at the Facility and sixty (60) days before the Operating Period Commencement Date, submit to Owner a report outlining the proposed scope of and schedule for revision and the incorporation of the Existing Plant Procedures into a plant manual (the "Plant Manual"). The Plant Manual shall be consistent with applicable Law, the Project Documents and the original equipment manufacturers manuals. All safety, environmental and administrative-related revisions shall be scheduled for implementation as of the Operating Period Commencement Date. Operator's report shall address, at a minimum, the following plans and procedures: 3 (a) staffing plan; (b) spare parts program; (c) administrative procedures; (d) operating procedures; (e) maintenance program; (f) safety and security program; (g) accounting procedures; (h) environmental procedures; (i) record-keeping and reporting procedures; (j) procurement procedures; and (k) outage planning procedures. Thereafter, Owner and Operator shall meet to resolve any differences with respect to the Existing Plant Procedures and to agree on a Plant Manual and a plan for revision of the Plant Manual, if necessary; provided, however, that if Owner and Operator are unable to agree, the decision of Owner shall be binding on the parties unless patently unreasonable or contrary to this Agreement or applicable Law. Owner and Operator shall seek diligently to agree on the Plant Manual and the plan for revision of the Plant Manual, if necessary, no later than twenty (20) days before the Operating Period Commencement Date. The approved Plant Manual shall remain in effect for the term of this Agreement, subject to revision and amendment as may be proposed by Owner or Operator and consented to in writing by both parties. The Plant Manual and all revisions approved pursuant to this section shall be the "Approved Plant Manual." Operator shall be responsible for maintenance and update of the Approved Plant Manual, shall conduct an annual review of the Approved Plant Manual and shall make such changes to the Approved Plant Manual as Owner shall reasonably request, except as required by applicable Law or this Agreement. All costs associated with developing the Approved Plant Manual and any revisions thereof shall be deemed O&M Expenses. Section 4.02 Transition Plan. (a) Eighty (80) days before the Operating Period Commencement Date, Operator shall prepare and submit to Owner a proposed plan for orderly transition of the operation and maintenance responsibilities for the Facility to Operator (the "Transition Plan"). The Transition Plan shall describe, in detail reasonably acceptable to Owner, anticipated schedule, objectives, staffing plans, equipment acquisitions, spare parts and Consumables inventories (including a 4 breakdown of capital items and expense items), schedules of subcontractor services, and such other matters as Owner may reasonably require. Any actions proposed under the Transition Plan shall be consistent with Prudent Industry Practices and this Agreement. The Transition Plan shall contain a proposed budget for the Transition Period that shall describe, in detail reasonably acceptable to Owner, the estimated cost, based on time and materials and all fees, for any anticipated Transition Services to be provided by Operator during Transition Period and the assumptions used in developing such budget. When approved pursuant to Section 4.02(b) below, the Transition Plan shall be an "Approved Transition Plan." (b) Owner shall give its written approval or disapproval of the Transition Plan no later than 30 days after receipt thereof from Operator. If Owner disapproves all or any portion of the proposed Transition Plan, Owner and Operator shall make all reasonable efforts to agree upon the items and associated costs to be included in the Transition Plan. If Owner and Operator cannot agree on the Transition Plan, those elements of the Transition Plan that are in dispute shall be revised in accordance with the reasonable specifications of Owner, however, in no event shall the Transition Plan require Operator to (i) deviate from its practices regarding salary administration, compensation and personnel practices, except as required by Laws or Prudent Industry Practices or (ii) perform services that might conflict with Operator's duties under this Agreement or applicable Laws. (c) An Approved Transition Plan shall constitute authorization for Operator to incur costs and expenses as agent on behalf of Owner to the extent set forth in the budget contained in Approved Transition Plan. Operator shall notify Owner as soon as reasonably possible of any anticipated monetary variances in estimated expenses for the Transition Period. (d) If either party desires to request an amendment to the Approved Transition Plan, Owner and Operator shall make all reasonable efforts to agree upon any proposed changes to the Approved Transition Plan. Once approved, the revised Transition Plan shall supersede the then current Approved Transition Plan. Section 4.03 Annual Plan. (a) Sixty (60) days before the Operating Period Commencement Date and ninety (90) days before the first day of each Operating Year commencing thereafter, Operator shall prepare and submit to Owner a proposed operating and maintenance plan for the upcoming Operating Year (the "Operating Plan"). The Operating Plan shall describe, in detail reasonably acceptable to Owner, anticipated maintenance and overhaul schedules, performance objectives, predictive and preventative maintenance programs or plans, Planned Outages, staffing plans, equipment acquisitions, spare parts and Consumables inventories (including a breakdown of capital items and expense items), schedules of subcontractor services, plant performance data regarding required environmental performance, and such other matters as Owner may reasonably require. Any actions proposed under the Operating Plan shall be consistent with the Approved Plant Manual, Prudent Industry Practices and this Agreement. Together with the Operating Plan, Operator shall submit to Owner for its review and written approval a proposed budget for operating and maintaining the Facility during the upcoming Operating Year pursuant to the 5 Operating Plan and Prudent Industry Practices (the "Operating Budget") that shall describe, in detail reasonably acceptable to Owner, the estimated cost, based on time and materials and all fees, for all anticipated O&M Services to be provided by Operator during each month of the upcoming Operating Year and the assumptions used in developing the Operating Budget. (The Operating Plan and the Operating Budget for the upcoming Operating Year are sometimes collectively referred to as the "Annual Plan"). When approved pursuant to Section 4.03(b) below, the Annual Plan shall be an "Approved Annual Plan" and shall consist of an "Approved Operating Plan" and an "Approved Operating Budget." (b) Owner shall give its written approval or disapproval of the Annual Plan no later than 60 days after receipt thereof from Operator. If the Annual Plan is not approved or disapproved within such 60-day period, the Annual Plan for the previous year shall remain in effect until a new Annual Plan has been approved by Owner. If Owner disapproves all or any portion of the proposed Annual Plan, Owner shall provide the reasons for such disapproval in writing and Owner and Operator shall make all reasonable efforts to agree upon the items and associated costs to be included in the Annual Plan. If Owner and Operator cannot agree on the Annual Plan, those elements of the Annual Plan that are in dispute shall be revised on an interim basis in accordance with the reasonable specifications of Owner. Owner and Operator agree to proceed pursuant to such revised Annual Plan pending the final resolution of their disagreement. The Owner-specified Operating Budget or Operating Plan will be deemed an Approved Operating Budget or an Approved Operating Plan until such resolution. However, in no event shall such revised Annual Plan require Operator to (i) deviate from its practices regarding salary administration, compensation and personnel practices, except as required by Laws or to comply with Prudent Industry Practices or (ii) perform services that might conflict with Operator's duties under this Agreement or applicable Laws. Facility staffing levels shall be adjusted to appropriately respond to any material and sustained changes in the operation of the Facility required by changes to the Project Documents, or as mutually agreed upon by Owner and Operator. (c) An Approved Annual Plan shall constitute authorization for Operator to incur costs and expenses as agent on behalf of Owner to operate and maintain the Facility in accordance with such Approved Operating Budget. Operator shall notify Owner if Operator reasonably believes that expenses anticipated to be incurred would exceed the O&M Expenses projected to be incurred as set forth in the Approved Operating Budget for the applicable Operating Year. Operator shall follow Owner's instructions regarding further expenditures on Owner's behalf with respect to such variances. Unless and until Owner approves additional expenditures, Operator shall, subject to Section 4.04 below, not incur expenses on behalf of Owner in excess of the projected O&M Expenses in the Approved Operating Budget, and any expenses so incurred shall not be deemed to be O&M Expenses. (d) If either party desires to request an amendment to an Approved Annual Plan at any time during the Operating Year, such party shall submit a proposed revised Annual Plan for the other party's consideration, including the basis for the adjustment, and such other party shall approve or disapprove the proposed revised Annual Plan in writing within 30 days after submission thereof. If the proposed revised Annual Plan is not approved within such 30-day 6 period, it shall be deemed to have been disapproved. If the proposed revised Annual Plan is disapproved within such 30 day period, the disapproving party shall furnish the other party with the reasons for such disapproval in writing and shall immediately begin good faith discussions in an effort to reach a mutually agreeable revised Annual Plan. Operator shall not, except in an emergency as described in Section 4.04 hereof, act outside of the Approved Annual Plan for such Operating Year without the prior written consent of Owner. Once approved, the revised Annual Plan shall supersede the then current Approved Annual Plan. Section 4.04 Emergencies. In the event of an emergency involving the Facility or any adjoining property on or after the Operating Period Commencement Date and Owner is unavailable or there is insufficient time to reach Owner, Operator shall be authorized, without the necessity of obtaining any approvals from Owner that might otherwise be required hereunder, to take any action (including making payments and incurring expenses on behalf of Owner in the nature of capital or operating expenses or otherwise) deemed by Operator to be reasonably necessary or advisable under the circumstances to prevent, avoid or mitigate injury, damage or loss to persons or property or loss of Owner's revenue from the Facility; provided, however, that Operator shall not make any such expenditures if the aggregate amount for any incident is estimated by Operator to exceed $50,000 unless Owner has approved the same or the same is made in accordance with the following sentence. If there is an emergency resulting in, or imminently threatening, injury, damage or loss of life to persons, or environmental damage and Operator has been unable to contact Owner notwithstanding its diligent efforts to do so, Operator shall be authorized to make such emergency expenditures in excess of $50,000, provided that Operator continues its diligent efforts to contact Owner regarding any such expenditure. Operator shall notify Owner of any emergency as soon as practicable. If, as a result of action taken in response to such an emergency, Operator properly incurs costs or expenses in connection therewith and provides Owner with justification and invoices therefor, the Approved Annual Plan shall be revised to properly incorporate and reflect such costs and expenses, and adequate funds shall be deposited by Owner into the Operating Account in accordance therewith. Section 4.05 Right of Owner to Inspect Records. Owner shall have the right, at its own expense, throughout the term of this Agreement and for a period of two years following termination of this Agreement, to inspect and/or audit Operator's records of operation, permit compliance, past maintenance and scheduled maintenance for the Facility, as well as procurement, expenditure and cost records and supporting data (excluding the underlying basis for the rates for Home Office Personnel) and all other books and records maintained by Operator with respect to the Facility or the operation and maintenance thereof. Upon reasonable prior notice, Operator hereby agrees to make all such records maintained by Operator available, subject to Operator's record retention policy as set forth in the Approved Plant Manual, for inspection or audit by Owner or any third party reasonably designated by Owner and to cooperate with Owner and Owner's designated auditor with respect to any audit or review. Neither the third party nor the auditor shall be a direct competitor of Operator. Any audit or review shall be conducted in a manner so as to minimize disruption of Operator's business. Section 4.06 Capital Improvements. Owner and Operator shall develop a capital authorization procedure agreeable to both parties that provides for proper Owner approval prior 7 to implementation. No capital expenditures will be made by Operator unless the same is specifically included in both the Approved Operating Budget and the Approved Operating Plan or have otherwise been approved in accordance with procedures adopted by Owner, and any such capital expenses incurred without Owner's approval shall be at the sole expense of Operator. ARTICLE V. COMPENSATION, COSTS AND REIMBURSEMENTS Section 5.01 Costs and Expenses. (a) Owner shall pay all properly incurred costs and expenses of performing the Transitional Services, including without limitation the applicable costs and expenses listed on Schedule 5.01 to the extent in the budget contained in the Approved Transition Plan, and all costs and expenses (whether or not on Schedule 5.01) approved by Owner and incurred during the Transition Period. Acting on behalf of Owner as agent, Operator shall incur expenses during the Transition Period only to the extent the nature and amount of such costs and expenses are included in the Approved Transition Plan or are otherwise approved by Owner. Payment of such expenses shall be made by Owner within thirty (30) days of Operator's submission of an invoice therefor; provided, however, that Owner may defer payment until the Operating Period Commencement Date set forth in the notice by Owner pursuant to Section 3.02. (b) Subject to the provisions of this Section 5.01(b), Owner shall pay all properly incurred costs and expenses of performing the O&M Services (collectively, the "O&M Expenses"), including without limitation the costs and expenses listed on Schedule 5.01. Acting on behalf of Owner as agent, Operator shall incur O&M Expenses only to the extent the nature and amount of such costs and expenses (i) are included within the Approved Operating Budget (it being agreed that Operator may exceed the budget amount for any line item so long as the overall budget amount has not been exceeded) or are otherwise approved by Owner, (ii) are incurred in connection with the performance of any Unscheduled Maintenance as approved in writing by Owner, or (iii) are incurred in connection with an emergency as provided under Section 4.04 hereof. Operator shall be responsible for paying all expenses not incurred in accordance with this Agreement. Payment of O&M Expenses by Owner shall be made from the O&M Operating Account, which is more particularly described in Section 5.03. Except as specifically provided herein, Operator shall not incur on Owner's behalf any O&M Expenses. All O&M Expenses, except the Labor Costs of Operator's personnel, the cost of services provided by Operator's Affiliates and items purchased with petty cash, shall be incurred in the name of Owner. Section 5.02 Operating Fee. (a) From the Effective Date until this Agreement is terminated, Operator shall receive a fee (the "Operating Fee") of $750,000 per annum, as adjusted in accordance with this Section 5.02. The Operating Fee shall be paid in monthly installments and shall be due on the first 8 Business Day of each month for the preceding month. The Operating Fee for any partial month shall be pro rated to cover the actual portion of such month that this Agreement was in effect. (b) As of January 1 of each year, commencing January 1, 1999, the Operating Fee shall be adjusted upwards or downwards by multiplying the Operating Fee for the prior year by a fraction the numerator of which will be the Index for the immediately preceding December and the denominator of which will be the Index for the month of December one year earlier; provided, that in no event shall the Operating Fee be decreased below $750,000. This adjusted Operating Fee shall be the Operating Fee for the current Operating Year and the basis for calculation of the Operating Fee for the next Operating Year. Section 5.03 O&M Operating Account. Owner shall establish and maintain an O&M operating account ("O&M Operating Account") and will designate Operator as an additional signatory on the account, subject to the restrictions set forth in the Approved Plant Manual. Owner will deposit into the O&M Operating Account on or before the 15th day of each month an amount equal to (a) the amount of O&M Expenses in the Approved Operating Budget for the next month, plus (b) any amount reasonably expected by Operator, as communicated to Owner in writing by the 10th day of the month, to be required for costs and expenses relating to emergencies or approved Unscheduled Maintenance, plus or minus (c) the difference between the amounts deposited in the O&M Operating Account in the preceding month and the actual amount of O&M Expenses incurred in that month. On or before the 10th day of each month, Operator shall deliver to Owner an accounting report that reflects all O&M Expenses for the preceding month, reconciled against the amounts deposited to the O&M Operating Account and against the amounts projected in the Approved Operating Budget for such preceding month. Section 5.04 Late Payments. If any amounts owing under this Agreement are not paid to Operator or Owner, as applicable, when due, the same shall bear interest at the Late Payment Rate from the due date until paid. ARTICLE VI. TERM AND TERMINATION Section 6.01 Term. Unless terminated as provided in Article VI or Article X, this Agreement shall continue in effect for the period commencing on the Effective Date and ending on the 18th anniversary of the Effective Date (the "Initial Term"), unless the parties shall at least six (6) months prior to the expiration of the Initial Term agree in writing to an extension. Section 6.02 Termination upon Notice by Owner. If (a) prior to the Operating Period Commencement Date an Independent Engineer has not certified that Operator is capable of operating the Facility in accordance with Prudent Industry Practices, (b) if the Purchase Agreement terminates in accordance with Section 15 thereof, or (c) Operator defaults in the performance of any material term, covenant or obligation contained in this Agreement and does not remedy such default within 30 days after Operator's receipt of Owner's written notice thereof 9 to Operator (or as soon as possible thereafter but in any event within 180 days, if it cannot be reasonably accomplished in such 30 day period and Operator shall have commenced all actions required to remedy such default within such 30 day period and diligently thereafter pursues the same to completion), Owner may, by written notice to Operator, terminate this Agreement and Owner shall pay to Operator all amounts due and not previously paid to Operator for services performed in accordance with this Agreement up until the effective date of such termination. All such amounts will be paid to Operator within 30 days of the effective termination date or within 30 days of receipt of an invoice from Operator for any amounts not invoiced prior to the effective termination date, provided that Owner shall have the right to offset the amounts of any damages owing by Operator under this Agreement against any such amounts due and not previously paid to Operator by Owner. Section 6.03 Termination upon Notice by Operator. If Owner (a) fails to make any payment hereunder within 5 days after the same shall have become due, or (b) defaults in the performance of any material term, covenant or agreement contained in this Agreement and does not remedy such default within 30 days after Owner's receipt of Operator's written notice thereof to Owner (or as soon as possible thereafter but in any event within 180 days, if it cannot be reasonably accomplished in such 30 day period and Owner shall have commenced all actions required to remedy such default within such 30 day period and diligently thereafter pursues the same to completion), Operator may, by written notice to Owner, terminate this Agreement. Section 6.04 Termination for Insolvency. Either party may terminate this Agreement by written notice to the other party (but only with the concurrence of the Agent in the case of termination by Owner) if: (a) the other party (i) makes a general assignment for the benefit of creditors, (ii) institutes proceedings in any court of competent jurisdiction or takes any other steps to subject itself to the laws of any jurisdiction to which it may be subject providing for it to be wound up or adjudicating it to be bankrupt or insolvent or (iii) takes or consents to the institution of any bankruptcy or insolvency proceedings which relate to any reorganization, arrangement or compromise of its debts; (b) any proceedings are commenced or steps taken whether by way of private appointment, seizure, court proceedings or otherwise for the appointment of a receiver, custodian, liquidator, trustee or similar person with respect to all or a substantial portion of the other party's property; or (c) any proceedings are commenced or steps taken by any creditor, regulatory agency or other person relating to the reorganization, arrangement, adjustment composition, liquidation, dissolution, winding up, custodianship or other similar relief with respect to such other party. Section 6.05 Termination Upon Certain Other Events. Either party may terminate this Agreement by written notice to the other party if: (a) the Facility is destroyed or suffers damage in excess of $100,000,000 and is not rebuilt and in commercial operation within 24 months after such damage or destruction, (b) the Facility cannot be operated for a period of at least 18 consecutive months as a result of a Force Majeure event, (c) loss of "qualifying facility" status, or (d) Owner determines to permanently shut down the Facility. Section 6.06 Duties Upon Termination. Upon termination or expiration of this Agreement: 10 (a) At the request of Owner, and provided that Owner is not in default of any material provision of this Agreement, Operator shall have the obligation to assist in making, at Owner's expense, a smooth transition to a new operator (including training new operating personnel); (b) Operator shall provide to Owner all books and records relating to the Facility or the operation or maintenance thereof (other than Operator's own internal accounting records), including, without limitation, the Approved Plant Manual, provided that Operator may retain a copy of such records at its own expense; (c) Operator shall provide Owner with a current inventory record of the assets at the Site and a reconciliation of inventory balances of such assets; and (d) Operator shall provide to Owner at the Site all tools and Consumables purchased by Operator on behalf of Owner pursuant to this Agreement. This Section 6.06 shall survive termination of this Agreement. Section 6.07 Effect of Termination. On the effective date of termination, Owner shall assume and become responsible for all operation and maintenance of the Facility, including, but not limited to, obligations under outstanding contracts and commitments relating to the operation and maintenance of the Facility and the purchase of equipment for the Facility. Notwithstanding such termination, neither party shall be relieved from any obligations or liabilities that accrued prior to the effective date of termination. The applicable provisions of this Agreement will continue in effect after termination of this Agreement to the extent necessary to provide for final payments, payment adjustments and any other final expense reimbursements, and with respect to liability and indemnification payments and expense reimbursements from acts or events that occurred prior to the date of termination of this Agreement. Section 6.08 Termination Payment. In the event of a termination of this Agreement by Operator other than pursuant to Section 6.02, Operator shall be entitled, in addition to all other amounts due hereunder as of the date of termination, to a demobilization and cancellation payment equal to (a) the total of all costs and expenses incurred by Operator as a direct result of such termination, including all relocation, severance and outplacement costs incurred with respect to, and any other termination benefits due, Operator's employees, which costs Operator is at such time contractually or legally obligated to pay to its employees, or which are incurred with the prior written approval of Owner or in accordance with any established cancellation costs incurred with respect to third parties, plus (b) in the case of a termination by Operator pursuant to Section 6.03, $1,500,000. Subject to Owner's rights to conduct a subsequent audit and review pursuant to Section 4.05, such amounts shall be due and payable by Owner within thirty (30) days of Operator's submission of an invoice therefor. 11 ARTICLE VII. LIMITATION OF LIABILITY Section 7.01 No Consequential Damages. With respect to claims arising under this Agreement or out of performance or non-performance of the services and obligations under this Agreement, neither Operator, its Affiliates nor their respective employees or agents shall be liable to Owner, its Affiliates or their respective employees, agents or subcontractors and neither Owner, its Affiliates nor their respective employees, agents or subcontractors shall be liable to Operator, whether based in contract, in tort (including negligence and strict liability), under warranty, or otherwise, for any special, indirect, incidental, exemplary or consequential loss or damage whatsoever, including without limitation, loss of use, opportunity or profits, damages to good will or reputation or punitive damages. Section 7.02 Limitation of Aggregate Liability. The total annual aggregate liability of Operator with respect to this Agreement under any theory of recovery, whether based in contract, in tort (including negligence and strict liability), under warranty, or otherwise, and notwithstanding any other provision of this Agreement, shall be limited in any Operating Year to the Operating Fee for such Operating Year. Section 7.03 NonRecourse Obligations. Notwithstanding any other provision of this Agreement to the contrary, the obligations of Owner hereunder are recourse only to the assets of Owner and neither the partners of Owner nor any shareholder, director, officer, agent or affiliate of Owner or any partner of Owner, shall have any personal responsibility or liability for any payment obligations of Owner hereunder, or otherwise for any breach in performance or observance of the covenants, representations, or obligations of Owner hereunder. ARTICLE VIII. INDEMNIFICATION, INSURANCE BY OPERATOR Section 8.01 Indemnification. Subject to the limitations set forth in Article VII hereof, Operator hereby agrees to indemnify, defend and hold harmless Owner, all partners of Owner, Lender and each of their respective officers, directors, shareholders, agents, Affiliates and employees (collectively, "Owner's Indemnitee") from and against all losses, liabilities (including environmental liabilities), damages, demands, claims, suits, actions, judgments or causes of action, assessments, interest, penalties, costs and expenses (including the costs of reperforming any services or work), including, without limitation, attorneys' fees, and expenses (whether suit is instituted or not and, if instituted, whether at trial or appellate levels) (collectively "Damages") asserted against, resulting to, imposed upon, or incurred or suffered by Owner's Indemnitee, directly or indirectly, whether raised by Owner's Indemnitee or a third party, arising out of, caused by or resulting from the performance by Operator of Operator's duties hereunder to the extent that any such Damages are caused in whole or in part by (i) Operator's failure to perform under this Agreement in accordance with the terms of this Agreement, including Section 12.03 12 hereof, or (ii) the negligence or willful misconduct of Operator or its agents, any subcontractor of Operator, anyone employed by any of them or anyone for whose acts any of them is liable. Section 9.02 shall apply to any claim for indemnity pursuant to this Section 8.01. Section 8.02 Insurance Coverage. During the term of this Agreement, Operator shall maintain the insurance coverage listed on Schedule 8.02. Operator shall deliver certificates of insurance evidencing such coverages to Owner on or before the Operating Period Commencement Date and shall thereafter deliver to Owner evidence of appropriate renewal and continuance of such policies on an annual basis. ARTICLE IX. INDEMNIFICATION, INSURANCE BY OWNER Section 9.01 Indemnification. Subject to the limitations set forth in Article VII hereof, Owner shall indemnify, defend and hold harmless Operator, and its officers, directors, shareholders, agents, Affiliates and employees (collectively, "Operator's Indemnitee") from and against all Damages asserted against, resulting to, imposed upon, or incurred or suffered by Operator's Indemnitee, directly or indirectly, whether raised by Operator's Indemnitee or a third party, arising out of or resulting from (a) Owner's ownership or use of the Facility or the Site, (b) the performance by Owner of Owner's duties hereunder, or (c) matters relating to any environmental laws, regulations or orders ("Environmental Laws"), provided that such environmental indemnification does not apply to the extent that the Damages arise from (i) Operator's violation of Environmental Laws or (ii) Operator's negligence or willful misconduct in its activities at the Facility or the Site. Owner waives and releases and will require its insurers waive and release Operator from damage to or risk of loss of Owner's property or property for which Owner or Operator has assumed liability (but excluding Operator's property), howsoever such damage or loss is caused. Section 9.02 Procedure. If any person or entity not a party to this Agreement shall make any demand or claim or file or threaten to file or continue any lawsuit, which demand, claim or lawsuit may result in Damages to any party pursuant to the indemnification provisions of this Agreement, then, in any such event, within 10 days after notice by the indemnified party (the "Notice") to the indemnifying party of such demand, claim or lawsuit (provided, however, that the failure to give the Notice shall not relieve the indemnifying party of its obligations under this Agreement unless, and only to the extent that, such failure caused the Damages for which the indemnifying party is obligated to be greater than they would otherwise have been had the indemnified party given prompt notice under this Agreement), the indemnifying party shall have the option, at its sole cost and expense, to retain counsel for the indemnified party (which counsel shall be selected by or be reasonably satisfactory to the indemnified party), to defend any such demand, claim or lawsuit. Thereafter, the indemnified party shall be permitted to participate in such defense at its own expense, provided that, if the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party or if the indemnifying party proposes that the same counsel represent both the indemnified party and the indemnifying party 13 and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the indemnified party shall have the right to retain its own counsel at the cost and expense of the indemnifying party. If the indemnifying party shall fail to respond within 10 days after receipt of the Notice, the indemnified party may retain counsel and conduct the defense of such demand, claim or lawsuit, as it may in its sole discretion deem proper, at the sole cost and expense of the indemnifying party. (a) The indemnified party shall provide reasonable assistance to the indemnifying party and provide access to its books, records and personnel as the indemnifying party reasonably requests in connection with the investigation or defense of the indemnified Damage. The indemnifying party shall promptly upon receipt of reasonable supporting documentation reimburse the indemnified party for out-of-pocket costs and expenses incurred by the latter in providing the requested assistance. (b) With regard to claims for which indemnification is payable under this Agreement, such indemnification shall be paid by the indemnifying party upon: (i) the entry of a judgment against the indemnified party and the expiration of any applicable appeal period; (ii) the entry of an unappealable judgment or final appellate decision against the indemnified party; or (iii) a settlement with the consent of the indemnifying party, which consent shall not be unreasonably withheld, provided that no such consent need be obtained if the indemnifying party fails to respond to the Notice as provided in this Section 9.02. Notwithstanding the foregoing, provided that there is no dispute as to the applicability of indemnification, expenses of counsel to the indemnified party shall be reimbursed on a current basis by the indemnifying party if such expenses are a liability of the indemnifying party. Section 9.03 Insurance Coverage. During the term of this Agreement, Owner shall maintain at least the insurance coverage listed on Schedule 9.03. Owner shall deliver certificates of insurance evidencing such coverages to Operator on or before the Effective Date and shall thereafter deliver to Operator evidence of appropriate renewal and continuance of such policies on an annual basis. ARTICLE X. FORCE MAJEURE Section 10.01 Force Majeure. Any delay in or failure of performance of either party (other than delay or failure to pay a monetary obligation when due) shall not constitute a default hereunder or give rise to any claim for damage if and to the extent such delay or failure is caused by "Force Majeure," and the party claiming the benefit of Force Majeure shall use all reasonable efforts to minimize the period of such delay or failure and the effects thereof. Section 10.02 Notice. Either party claiming Force Majeure shall give the other party (a) notice of such Force Majeure event as soon as practicable, but in any event within three days 14 after its occurrence and (b) a complete description of such Force Majeure event within fourteen days after its occurrence. ARTICLE XI. RELATIONSHIP OF THE PARTIES Owner hereby engages Operator, as an independent contractor, to maintain and operate the Facility according to the terms of this Agreement. Subject to the terms of this Agreement, Operator shall determine the means, manner and methods by which Operator shall perform its services under this Agreement. Operator and Owner acknowledge that, except as otherwise expressly provided in this Agreement, Owner shall not have any control over Operator or the means, manner or methods of its performance under this Agreement. All personnel involved in the operation of the Facility shall be employees of Operator or its Affiliates or independent contractors that have contracted with Operator or its Affiliates and shall not for any purposes be deemed employees or independent contractors of Owner. Nothing in this Agreement or the arrangement for which it is written shall constitute or create a joint venture, partnership, or any other similar arrangement between Owner and Operator. Neither party is authorized to act as agent for the other party, except as expressly stated in this Agreement. ARTICLE XII. REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE Section 12.01 Representations and Warranties of Owner. Owner hereby represents and warrants as of the Effective Date that: (a) It is duly formed, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; (b) It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; (c) Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable Law, order, judgment or decree; and 15 (d) There is no pending or, to the knowledge of Owner, threatened actions, suit, investigation or proceeding against Owner before any governmental authority which, if determined adverse to it, would materially adversely affect Owner's ability to perform its obligations under this Agreement. Section 12.02 Representations and Warranties of Operator. Operator hereby represents and warrants as of the Effective Date that: (a) It is duly formed, validly existing and in good standing under the laws of the State of Florida, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; (b) It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; (c) Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable Law, order, judgment or decree; (d) There is no pending or, to the knowledge of Operator, threatened actions, suit, investigation or proceeding against Operator before any governmental authority which, if determined adverse to it, would materially adversely affect Operator's ability to perform its obligations under this Agreement; (e) It has the necessary training, experience and capability to operate and maintain the Facility and to perform its obligations under this Agreement; and (f) It has or will, as of the Operating Period Commencement Date, have all permits and licenses required by applicable Law (other than Owner's Permits or permits and licenses relating to the Facility) for the performance by Operator of the Operating Services and its other obligations under this Agreement. Section 12.03 Standard of Care. Operator covenants and agrees that it will perform its duties hereunder in accordance with the Approved Operating Budget, the Approved Operating Plan and Prudent Industry Practice. 16 ARTICLE XIII. NOTICES Any notice to either party required or permitted hereunder shall be in writing and shall be given by personal delivery or by commercial courier or by certified mail, return receipt requested, postage prepaid, or by telecopier with confirmed receipt, addressed as follows: If to Owner: Northeast Energy, LP ----------- c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President with a copy to: Tractebel Power, Inc. 1177 West Loop South, Suite 900 Houston, Texas 77027 Telecopier: (713) 552-2364 Attention: General Counsel If to Operator: ESI Operating Services, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopy: (561) 691-3615 Attention: President or to such other address as Owner or Operator may have specified in a notice duly given as provided herein to the other party. All notices given in the foregoing manner shall be effective when received, except that a notice sent by telecopier and received after normal business hours shall be deemed to be received the following Business Day. ARTICLE XIV. ASSIGNMENTS AND SUBCONTRACTING Section 14.01 Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (b) Except as otherwise provided in this Agreement, neither party may assign or otherwise convey any of its rights, title or interest under this Agreement, without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld). Section 14.02 Assignment by Owner to NEA. Upon the later to occur of (i) the Operating Period Commencement Date and (ii) the execution and delivery by NEA of a counterpart hereof to Owner and Operator (such later date being the "Dropdown Date"), but 17 without any further action by any Person, all rights, title and interest of Owner hereunder shall be assigned to, and all of Owner's obligations, liabilities and duties whether past, present or future, arising under, in or in connection with this Agreement shall be assumed by NEA. By executing and delivering the counterpart hereof, NEA shall be deemed, as of the Dropdown Date, to be making the representations and warranties in Section 12.01 of this Agreement as if such representations and warranties related to NEA. Section 14.03 Security Interest. Operator acknowledges that Owner's interest in and to this Agreement will be subject to the security interest in favor of the Trustee and the Agent pursuant to the Security Documents and agrees that the Trustee and the Agent may assign such interest in and to this Agreement to any subsequent assignee in connection with the sale, transfer, or exchange of its rights in this Agreement or for the purpose of operating the Facility pursuant to such assignment upon and after the exercise of its rights and enforcement of its remedies against the Facility under any deed of trust or other security instrument creating a lien in its favor. Section 14.04 Cooperation in Financing. Operator agrees to cooperate with Owner in negotiation and execution of any reasonable amendment or addition to this Agreement required by the Trustee or the Agent, which does not result in a material adverse change in Operator's rights or obligations hereunder. For avoidance of doubt, Operator will, if required by the Trustee or the Agent, enter into consents typical for project financings, or substantially similar to those required of the project parties under the existing financing for the Facility. Section 14.05 Subcontracting. Operator may subcontract any of its duties or obligations hereunder to a non-affiliate with the prior written consent (which may be in the Approved Annual Plan) of Owner to the subcontractor and subcontract, which consent shall not be unreasonably withheld; provided, that no such written consent of Owner shall be required for subcontracting to any Affiliate of Operator which is qualified to operate, or capable of operating, in accordance with Prudent Industry Practice. Owner shall not direct Operator to, and Operator shall not, enter into any subcontract with any contractor if entering into such contract will result in loss of "qualifying facility" status for the Facility. No subcontract shall relieve Operator of its duties and obligations hereunder. ARTICLE XV. LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES Section 15.01 Limitation on Authority. Unless specifically approved in the Annual Plan or approved in writing by Owner, Operator shall not have the authority to take the following actions: (a) The sale, lease, pledge, mortgage, conveyance, license, exchange or other transfer or disposition of any property or assets of Owner, including any tangible personal property acquired by Operator under this Agreement. The proceeds of any sales of scrap shall 18 inure to the benefit of Owner and Operator shall hold the proceeds in trust for Owner and immediately forward such proceeds to Owner; (b) Subject to Section 2.03, making, entering into, executing, amending, waiving any rights under, modifying or supplementing any contract or agreement on behalf of, binding upon, or in the name of Owner, including the Project Documents; (c) The settling, compromising, assigning, pledging, transferring, releasing or consenting to the same of any claim, suit, debt, demand or judgment against or due by Owner, or submitting any such claim, dispute or controversy to arbitration or judicial process or stipulating to a judgment, or consent to do same. Operator agrees that Owner shall retain control of any such claim suit, debt or demand and any other litigation regarding the Facility, except as to Operator's individual liability; (d) Agreeing to any penalty for violation of any governmental license or permit; (e) Make any expenditures or use any of Owner's funds, or make commitments of same, except in accordance with Articles IV and V of this Agreement; (f) Commit Owner to be liable for obligations of others as guarantor, surety, or otherwise; and (g) Enter into, without the consent of Owner (which may be in the Approved Annual Plan), any agreement with any Affiliate of Operator in connection with the performance of its obligations under this Agreement, which is on the whole less favorable to Owner than similar agreements reasonably available from unrelated third parties or if not so available, other than on an arm's length basis. Section 15.02 No Liens or Encumbrances. Operator shall keep and maintain the Facility free and clear of all liens and encumbrances resulting from the acts or omissions of Operator or work done at request of Operator, except such liens or encumbrances resulting directly from nonpayment of any amount due and owing to Operator under this Agreement. ARTICLE XVI. DISPUTE RESOLUTION AND ARBITRATION Section 16.01 Dispute Resolution. If a dispute arises between the parties regarding the application or interpretation of any provision of this Agreement, the aggrieved party shall give a notice of such dispute (a "Dispute Notice") to the other parties. Within fifteen (15) days after such Dispute Notice, the President or an Executive Vice President of each of the parties shall confer with each other to seek with diligence and in good faith to resolve such dispute. If such officers are unable to resolve such dispute within forty-five days after such Dispute Notice, then the parties shall be bound to arbitrate such dispute in accordance with Section 16.02. 19 Section 16.02 Arbitration. To the fullest extent permitted by law, any dispute between the parties regarding the application or interpretation of any provision of this Agreement, if not resolved by negotiation by the parties within 45 days after the Dispute Notice, shall be resolved exclusively by binding arbitration between the parties pursuant to the Rules of the American Arbitration Association for Commercial Disputes (the "Arbitration Rules"). Arbitration shall be administered by the American Arbitration Association. Either party may institute arbitration proceedings at any time by delivering written notice demanding arbitration to the other party in the manner described in Article XIII. (a) Within 20 days after receipt of a written demand for arbitration, the parties shall each appoint one arbitrator. Within 15 days of the expiration of that 20 day period, the two arbitrators so appointed shall appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator, the American Arbitration Association shall make that selection within 10 days of a party's request. The arbitrators shall meet the qualifications and abide by the Code of Ethics for arbitrators in commercial disputes of the American Arbitration Association. The arbitrators shall have knowledge of and experience in the power generation and project financing business. (b) To the fullest extent permitted by law, the arbitration shall be conducted in accordance with the procedures set forth in the Arbitration Rules. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. They shall not have the power to add to, modify or change any of the provisions of this Agreement. The parties shall exercise all commercially reasonable efforts in good faith to cause a hearing to be held within 90 days after the date upon which the last arbitrator is appointed and to conclude all hearings within 30 days after the first hearing date. The arbitrators shall only grant a party's request for postponement of the hearing upon a showing of good cause as determined by the arbitrators. Within 30 days of the last hearing date, the arbitrators shall issue a written decision setting forth their analysis and ruling. The arbitrators shall determine in what proportion the parties shall bear the fees and expenses of the arbitrators. Each party shall bear the fees and expenses of its own counsel and other consultants. All arbitration proceedings shall be subject to the choice of law provisions set forth in Section 17.02, and shall be held at a location agreed to by the parties, or if the parties cannot agree, then in Atlanta, Georgia. (c) The parties acknowledge and agree that any arbitral award shall be final, binding and conclusive upon the parties and may be confirmed or embodied in any order of any court having jurisdiction. (d) To the fullest extent permitted by law, service of any matters referenced in this Article XVI shall be given in the manner described in Article XIII or as permitted by the rules of the American Arbitration Association. Section 16.03 Survival. This Article XVI shall survive expiration or termination of this Agreement. 20 ARTICLE XVII. MISCELLANEOUS Section 17.01 Severability. If any provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable, such circumstances shall not affect the validity of any other provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted. Section 17.02 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Section 17.03 Entire Agreement. This Agreement constitutes the entire final understanding and agreement of the parties with respect to its subject matter, and there are no agreements, understandings, restrictions, representations or warranties among the parties other than those set forth in this Agreement. By execution of this Agreement, each of the parties represents and warrants that it has relied on no oral or written statements, promises, inducements, representations or warranties to enter into this Agreement except for those expressly set forth herein. The parties agree that the inclusion of this provision evidences the intent of the parties that no parole evidence shall be admissible to alter or vary the terms of this Agreement. Section 17.04 Captions. The captions or headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall have no effect upon the construction or interpretation of any part of this Agreement. Section 17.05 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. Section 17.06 No Third Party Beneficiaries. Except as expressly set forth herein, the terms of this Agreement are for the sole benefit of Owner and Operator and their respective successors and permitted assigns and not for any third party whatsoever. Section 17.07 Further Assurances. If either party reasonably determines or is reasonably advised that any further instruments or any other things are necessary or desirable to carry out the terms of this Agreement, the other party shall execute and deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this Agreement. Section 17.08 No Implied Waiver. Failure of either party to exercise any right to enforce any provision, or to require strict performance by the other party of any provision, shall 21 not release the other party from any of its obligations under this Agreement and shall not operate as a waiver of any right to insist upon strict performance, or of either party's rights or remedies under this Agreement or at law. Section 17.09 Amendments. No amendment, waiver or modification of any provision of this Agreement shall be effective unless made in writing and signed by both parties. Section 17.10 Confidentiality. Except to the extent expressly authorized herein including, without limitation, in connection with a proposed assignment of this Agreement or a proposed financing transaction entered into by Owner, in which case disclosure of the terms hereof shall be limited to the extent reasonably practicable, each of the parties agree that neither it nor its attorneys, agents or representatives shall reveal to anyone any of the terms of this Agreement or any of the terms of the documents executed pursuant hereto, including, without limitation, the amount, terms or conditions of payment hereunder, other than (i) as may be hereafter mutually agreed to in writing, (ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors, officers, employees, representatives, advisors, consultants and attorneys, and the directors, officers, employees, representatives, advisors, consultants and attorneys of affiliated companies who need to know such information, and (iv) to the extent required to be disclosed by applicable law or legal process. Section 17.11 Decision-Making by Parties. Except where this Agreement expressly provides for a different standard and/or time period, whenever this Agreement provides for a determination, decision, permission, consent or approval of a party, the party shall promptly make such determination, decision, grant or withholding of consent or approval in a commercially reasonable manner and without unreasonable delay. Any denial of consent required to be made in a commercially reasonable manner shall include in reasonable detail the reason for denial or aspect of the request that was not acceptable. Section 17.12 Schedules. The attached Schedules that are referred to in this Agreement are incorporated by reference and made a part of this Agreement. [Remainder of Page Intentionally Left Blank] 22 IN WITNESS WHEREOF, the parties have executed multiple originals of this Agreement as of the date first written above. OWNER: NORTHEAST ENERGY, LP, a Delaware limited partnership By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith ------------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST ------------------------------- GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Charles Vetters ------------------------------- Name: Charles Vetters Title: Vice President OPERATOR: ESI OPERATING SERVICES, INC., a Florida corporation By: /s/ Glenn E. Smith ------------------------------- Name: Glenn E. Smith Title: Vice President [Signature Page to Bellingham O&M Agreement] 23 ASSIGNEE: NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited partnership By: NORTHEAST ENERGY, LP, a Delaware limited partnership, a general partner By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith ------------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Charles Vetters ------------------------------- Name: Charles Vetters Title: Vice President [Signature Page to Bellingham O&M Agreement] 24 SCHEDULE 1.01 DEFINITIONS "Acquisition Date" shall have the meaning set forth in the Partnership Agreement. "Affiliate" shall mean any Person that, directly or indirectly, controls, is controlled by, or is under common control with, another Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or by contract or otherwise. "Agent" shall mean Sanwa Bank, Limited, New York Branch, as agent for the Lenders under the Credit Agreement, together with its successors in such capacity. "Agreement" shall have the meaning set forth in the preamble hereof. "Annual Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Annual Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Operating Budget" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Operating Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Plant Manual" shall have the meaning set forth in Section 4.01 of the Agreement. "Arbitration Rules" shall have the meaning set forth in Section 16.02 of the Agreement. "BEC" shall mean Boston Edison Company, a Massachusetts corporation, and its successors and permitted assigns. "Bondholders" shall mean the holder of bonds issued by Owner under the Indenture. "Business Day" shall mean a calendar day other than Saturday, Sunday or a statutory holiday in the Commonwealth of Massachusetts. "Carbon Dioxide Facility" shall mean the carbon dioxide facility owned by NEA and located adjacent to the Facility, and all equipment and facilities ancillary thereto. "CEC" shall mean Commonwealth Electric Company, a Massachusetts corporation, and its successors and permitted assigns. "Consumables" shall mean collectively all chemicals, water, fuel, lubricants, laboratory supplies, office supplies and other items to be used up during the normal operation of the Facility. "Credit Agreement" means the Credit Agreement dated as of December 1, 1994 among NEA, NJEA, the Lenders and Agent, as amended, modified and supplemented and in effect from time to time. "Damages" shall have the meaning set forth in Section 8.01 of the Agreement. "Debt Agreements" shall mean the Indenture, the Credit Agreement and the Rule 144A Indenture. "Debt Holders" shall mean the Lenders, Bondholders and the Rule 144A Bondholders. "Dispute Notice" shall have the meaning set forth in Section 16.01 of the Agreement. "Dropdown Date" shall have the meaning set forth in Section 14.02 of the Agreement. "Effective Date" shall mean the later to occur of (i) the date the Agreement shall be executed and delivered and (ii) the Acquisition Date. "Existing Plant Procedures" shall have the meaning set forth in Section 4.01 of the Agreement. "Facility" shall have the meaning set forth in recitals to the Agreement. "Force Majeure" shall mean any cause beyond the reasonable control of and without the fault, negligence, or willful misconduct of the party claiming Force Majeure. Such causes shall include, but not be limited to, acts of God, fires, floods, storms, earthquakes, strikes, labor disputes, riots, insurrections, acts of war, actions or inactions of any government or governmental agency or a material change in applicable statutory, regulatory, administrative or other relevant law that prohibits the operation of the Facility; provided, however, that lack of money or changes in operating costs shall not constitute Force Majeure. "Home Office Personnel" means personnel based in Operator's home office, whether employees of Operator or its parent compan(ies). "IEC" shall mean International Energy Corporation, a Massachusetts corporation and its successors and permitted assigns. 2 "Indenture" shall mean the Trust Indenture dated as of November 15, 1994 among IEC, NEA, NJEA and the Trustee, as amended, modified and supplemented and in effect from time to time. "Independent Engineer" shall have the meaning set forth in the Appendix A to the Indenture. "Initial Term" shall have the meaning set forth in Section 6.01 of the Agreement. "Index" shall mean the Department of Labor, Bureau of Labor Statistics, Producer Price Index for All Commodities (1982=100). If the Index ceases to be published or is otherwise unavailable, Index shall mean an index that Owner and Operator shall mutually determine in good faith to be most nearly comparable to the foregoing. "Labor Costs" means all fully burdened labor costs, including overtime, bonuses, vacation, holidays, sick leave, approved paid leave of absence, insurance, retirement benefits, taxes, recruiting costs, relocation costs and all other benefits. "Late Payment Rate" shall mean a per annum rate of interest equal to the rate announced from time to time in the Wall Street Journal as the prime commercial lending rate of national commercial banks plus two percent (2%), but in no event more than the maximum rate permitted under applicable law. "Laws" shall mean any applicable federal, state or local statute, law, ordinance, rule or regulation. "Lenders" shall mean the lenders under the Credit Agreement. "MEC" shall mean Montaup Electric Company, a Massachusetts corporation, and its successors and permitted assigns. "NEA" shall have the meaning set forth in the first recital to the Agreement. "NJEA" shall mean North Jersey Energy Associates, A Limited Partnership, a New Jersey limited partnership, and its successors and permitted assigns. "O&M Expenses" shall have the meaning set forth in Section 5.01(b) of the Agreement. "O&M Operating Account" shall have the meaning set forth in Section 5.03 of the Agreement. "O&M Services" shall have the meaning set forth in Section 2.03 of the Agreement. 3 "On-Site Personnel" means all personnel regularly on-Site, including the plant manager and the administrative supervisor, although some On-Site Personnel may be employees or Affiliates of Operator. "Operating Budget" shall have the meaning set forth in Section 4.03 of the Agreement. "Operating Fee" shall have the meaning set forth in Section 5.02 of the Agreement. "Operating Period Commencement Date" shall mean the day following the day on which the Westinghouse Agreement shall terminate or expire. "Operating Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Operating Year" shall mean the twelve (12) month period beginning on the Commencement Date and each successive twelve (12) month period beginning on the consecutive dates thereof. "Operator" shall have the meaning set forth in the preamble hereof. "Oversight Services" shall have the meaning set forth in Section 2.01 of the Agreement. "Oversight Period" shall have the meaning set forth in Section 2.01 of the Agreement. "Owner" shall have the meaning set forth in the preamble hereof. "Owner Permits" shall mean those approvals, certificates, permits and licenses required for Owner to operate the Facility, including, without limitation, any permits required for disposal of waste generated by the Facility. "Partnership Agreement" shall mean that certain Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc., Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and Tractebel Associates Northeast LP, Inc. "Person" shall mean any individual, partnership, corporation, trust, unincorporated association, joint venture or any other entity. "Planned Outage" shall mean the cessation of operation of the Facility for Scheduled Maintenance or any other scheduled outage. "Plant Manual" shall have the meaning set forth in Section 4.01 of the Agreement. 4 "Power Purchase Agreements" shall mean (i) the Power Purchase Agreement dated April 1, 1986 between NEA and BEC, (ii) the Power Purchase Agreement dated January 28, 1988 between NEA and BEC, (iii) the Power Purchase Agreement dated October 17, 1986 between Owner and MEC, (iv) the Power Sale Agreement dated November 26, 1986 between CEC and NEA, and (v) the Power Sale Agreement dated August 15, 1988 between CEC and NEA, all as amended. "Project Documents" shall mean the Agreement, the Power Purchase Agreements, any additional power purchase agreements between NEA and any Purchasing Utility entered into after the execution of the Agreement, any gas purchase, storage and transportation agreements entered into by or on behalf of NEA for the acquisition, storage or transportation of gas to be used at the Facility, any steam and energy agreements entered into by NEA with the purchasers of steam generated at the Facility and any other agreements, in all cases as amended, affecting the maintenance or operation of the Facility and reasonably designated by Owner in writing to Operator as a Project Document. "Prudent Industry Practices" shall mean the practices, methods and standards generally followed by the independent power industry with respect to the design, construction, operation and maintenance of electric generating equipment of the type applicable to the Facility, and which practices, methods and standards generally conform to operation and maintenance standards recommended by the Facility's equipment suppliers and manufacturers. "Purchasing Utilities" shall mean BEC, CEC and MEC as purchasers of electricity generated by the Facility pursuant to the Power Purchase Agreements and any other purchasers of electricity generated by the Facility. "Rule 144A Bondholders" shall mean the holders of the bonds issued under the Rule 144A Indenture. "Rule 144A Indenture" shall mean the indenture to be entered into by the Partnership and certain other parties in connection with the financing of the acquisition of NEA and NJEA. "Security Documents" shall have the meaning set forth in the Credit Agreement. "Scheduled Maintenance" shall mean those maintenance and repair activities contemplated, either generally or specifically, in the Approved Annual Plan, or any approved revision thereof, for such Operating Year. "Site" shall mean the tract of land on which the Facility is located, and all easements of Owner or easements held for the benefit of Owner appurtenant thereto. "Steam Purchasers" shall mean the purchaser(s) of export steam generated by the Facility pursuant to a steam purchase agreement or agreements. 5 "Technical Support Service" shall have the meaning set forth in Section 7 of Schedule 2.03. "Transaction Documents" shall mean, collectively, the Project Documents and each of the documents entered into by NEA, Owner or Operator in connection with NEA's debt financing of its assets. "Transition Period" shall have the meaning set forth in Section 2.02 of the Agreement. "Transition Plan" shall have the meaning set forth in Section 4.02 of the Agreement. "Transition Services" shall have the meaning set forth in Section 2.02 of the Agreement. "Transition Period Commencement Date" shall mean the day ninety (90) days prior to the scheduled Operating Period Commencement Date. "Trustee" shall mean State Street Bank and Trust Company as trustee under the Indenture. "Unscheduled Maintenance" shall mean any and all maintenance, repair and replacement requirements of the Facility during a Operating Year, other than Scheduled Maintenance. "Westinghouse O&M Agreement" shall have the meaning set forth in the second recital hereto. 6 SCHEDULE 2.01 OVERSIGHT SERVICES 1. Review quarterly reports delivered pursuant to Section 4.5 of the Westinghouse O&M Agreement; 2. Assess general Site condition on a quarterly basis; 3. Review all changes in procedures proposed by the operator under the Westinghouse O&M Agreements; 4. Review annual generation forecast pursuant to Section 4.8 of the Westinghouse O&M Agreement; 5. Assess operators' personnel, policies, and procedures yearly; 6. Analyze all proposed capital expenditures at the Facility; 7. Review facility performance data; 8. Review of operating logs and records of unplanned outages; 9. Provide such technical support as Owner may reasonably request; 10. Review environmental and safety performance and compliance reports by the operator on a quarterly basis; and 11. Monitor operator's activities during major scheduled outages and major equipment overhauls. 12. Report to the Management Committee with respect to the foregoing. SCHEDULE 2.02 TRANSITION SERVICES 1. Mobilizing Personnel. Operator shall provide the necessary staff to operate and maintain the Facility on the Operating Period Commencement Date. In connection therewith, Operator will, in accordance with the Agreement, the Transition Plan and the budget included therein: (a) Continue to provide the Oversight Services set forth on Schedule 2.01; (b) Review qualifications and fitness for duty testing of personnel; (c) Relocate personnel, as necessary; (d) Recruit, hire and train personnel to meet the applicable staffing requirements; and (e) Train personnel on Operator's policies and benefits. Hiring will be completed and personnel relocated five (5) days prior to the Operating Period Commencement Date. 2. Reporting and Coordination. Operator shall: (a) Review Existing Plant Procedures, prior operation and maintenance records and other relevant material to prepare the report required by Section 4.01 of the Agreement; (b) Develop the Transition Plan and budget contained therein for submission to Owner pursuant to Section 4.02 of the Agreement; (c) Develop the initial Operating Plan and the initial Operating Budget for submission to Owner pursuant to Section 4.03 of the Agreement; and (d) Develop and submit for Owner's approval format of monthly reports to be delivered by Operator pursuant to paragraph 4(g) of Schedule 2.03 of the Agreement. The draft monthly report shall be submitted to Owner for approval not less than 20 days prior to the Operating Period Commencement Date. 3. Other Transition Services. Operator shall, in accordance with the Agreement, the Transition Plan and the budget included therein: (a) Develop the necessary programs and procedures to perform the operation and maintenance of the Facility in accordance with the initial Operating Plan and the initial Operating Budget; (b) Identify and procure as Owner's agent necessary tools, equipment, goods, and other items and materials that are necessary to operate and maintain the Facility in accordance with the initial Operating Plan and the initial Operating Budget; and (c) Review regulatory and legal filings (EPA, FERC, etc.), and complete regulatory filings (other than Owner Permits) as required by law, or if not specified, 30 days prior to the Operating Period Commencement Date. 8 SCHEDULE 2.03 O&M SERVICES 1. Personnel. Operator shall make available qualified labor and professional, supervisory and managerial personnel reasonably necessary to perform the O&M Services. To the extent set forth in the Approved Operating Plan and the Approved Operating Budget, personnel shall be available 24 hours a day, 7 days a week, 365 days a year. Except for subcontractors pursuant to Section 13.04 of the Agreement, all individuals providing the O&M Services shall be employees or independent contractors of Operator or its Affiliates. Operator shall comply with all applicable federal and state labor and employment laws and shall exercise control over labor relations in a reasonable manner consistent with the intent and purpose of the Agreement. Operator shall appoint the plant manager which shall be reasonably acceptable to Owner. Operator may replace such plan manager for any reason provided the replacement plant manager is reasonably acceptable to Owner. Operator shall, at the request of Owner, replace the plant manager for cause. Operator shall have sole authority, control, and responsibility with respect to labor matters in connection with the performance of the services hereunder. Notwithstanding the foregoing, Operator acknowledges and agrees that Operator shall not enter into any contracts or collective bargaining agreements with respect to labor matters that purport to bind or otherwise obligate Owner, and Operator shall seek advice of Owner in the event Operator is notified of any effort to establish collective bargaining or labor representation at the Facility. 2. Compliance. Operator shall: (a) Operate and maintain the Facility in compliance with all present and future (once enacted and operative) Laws and permits applicable to the operation and maintenance of the Facility and the Site (including monitoring and sampling) and shall assist Owner in securing and maintaining all permits necessary to perform its obligations under the Agreement and in filing all reports relating to the Facility; (b) Operate and maintain the Facility in accordance with Prudent Industry Practices, the Approved Annual Plan, the Project Documents (including the Power Purchase Agreements) and the Approved Plant Manual, and in such a manner as to cause the Facility to supply steam and electricity requested by Owner and Owner's customers or required to be delivered by Owner from time to time, in all cases within the rated design and test capacity of the Facility and subject to the production targets set forth in the Approved Annual Plan; provided, that the foregoing shall not constitute a covenant or guarantee of electricity production and delivery; (c) Operate and maintain the Facility in compliance with the efficiency requirements set forth in 18 C.F.R. ss. 292.205 (assuming steam is used in the manner required by 18 C.F.R. ss. 292.205); provided, that the foregoing shall not constitute a guaranty thereof; (d) Seek appropriate warranties from vendors and maintain all vendor's warranties in effect; and (e) Procure and maintain the insurance required by Section 8.02 of the Agreement. 3. Operations and Maintenance. Operator shall: (a) Perform yearly capability audits under the power purchase agreements; (b) Dispose of waste products from the Facility in compliance with all applicable Laws and permits and the Approved Plant Manual; (c) Respond to emergencies pertaining to the Facility or the Site promptly and effectively, in accordance with Section 4.04 of the Agreement; (d) Perform or cause to be performed all services and make or cause to be made all repairs and replacements at the Facility as are required due to Unscheduled Maintenance. Operator shall promptly notify Owner of the need for such Unscheduled Maintenance and thereupon request an adjustment to the Approved Annual Plan in accordance with Section 4.03(d). Operator shall perform any such Unscheduled Maintenance in a timely and cost effective fashion upon satisfaction of the requirements of Section 5.01; (e) Establish and maintain a proactive maintenance program; (f) Perform operations and maintenance accounting functions, including the processing and paying of bills at the home office, and to the extent set forth in the Approved Annual Budget maintain a bookkeeper part time at the Facility to perform day-to-day bookkeeping, processing of purchase orders and similar matters; (g) Perform all project purchasing functions pursuant to the Annual Plan; (h) Design, document, implement and periodically evaluate a system of internal control; and (i) Prepare and document accounting policies and procedures. 4. Reporting and Coordination. Operator shall: (a) Coordinate with Owner, affected parties, and Purchasing Utilities as required when generation of electricity or steam is to be initiated, interrupted or 2 curtailed. Operator shall make all reasonable efforts to schedule any outages at the Facility having the effect of reducing the electricity or steam output of the Facility in advance and at the most appropriate times for Owner, Operator, and Purchasing Utilities in accordance with the Project Documents, and in a manner that will minimize any profit loss to Owner; (b) Coordinate with Owner, Purchasing Utilities and Steam Purchasers regarding the various activities and duties related to the operation of the Facility to be performed under the provisions of the Power Purchase Agreement and under the provisions of any steam purchase agreement then in effect; (c) In the case of unplanned interruptions or curtailments of electric power production or delivery, provide Owner or Purchasing Utilities, as applicable, with notice thereof as soon as practicable, which notice shall state the reason therefor and the probable duration thereof and shall also contain any other information necessary for the notice to conform to the requirements of the Power Purchase Agreement; (d) Prepare, in accordance with Section 4.03 of the Agreement, the Annual Plan; (e) Report to Owner promptly any (i) material failure or reasonably anticipated material failure to operate and maintain the Facility in accordance with any Laws or permits applicable to the operation and maintenance of the Facility, (ii) actual or reasonably anticipated material disruption in supplies to the Facility, (iii) actual or reasonably anticipated disputes with Purchasing Utilities, regulatory agencies, local officials or parties to the Project Documents, (iv) actual or reasonably anticipated labor disorders, (v) actual or threatened litigation relative to the Facility of which Operator becomes aware, (vi) actual or reasonably anticipated lien filings made against the Facility of which Operator becomes aware, and (vii) actual or reasonably anticipated lapse of, modification to or refusal to renew any permit for the Facility of which Operator becomes aware; (f) Coordinate on-Site actions with regard to and document support for any and all warranty and other claims against suppliers of materials and equipment to the Facility, and any claims against any insurance carriers for payment of claims, liabilities or losses in connection with the Facility or its operation covered by such insurance, all as may be from time to time requested by Owner; (g) Provide a monthly report to Owner by the 10th Business Day of each month, reporting in reasonably specific detail and in a form reasonably acceptable to Owner the results of operations for the preceding month, calendar quarter and Operating Year. Such reports shall address the following issues as appropriate: safety; environmental; instances of Force Majeure, if any; availability; staffing changes and community relations activities; outage summary; compliance with 3 requirements for "qualifying facilities"; electric production; operations summary; maintenance summary; production summary; variance from year-to-date budget by more than +/-5% of total budget, +/-20% by category or +/-50% by line item over $5,000, if any; projected schedule for the current month; evaluations of key plant performance and financial indicators with recommendations for improvement, if any; and a forecast of key upcoming events at the Site; and (h) Perform physical inventories of all Consumables, equipment, furniture and fixtures in accordance with the Approved Plant Manual and deliver copies of the inventory reports to Owner. 5. Records. Operator shall: (a) Maintain records of electricity delivered to Purchasing Utilities and steam delivered to Steam Purchasers; (b) Maintain records of all maintenance that has been performed and is scheduled to be performed, subject to Operator's record retention policy set forth in the Approved Plant Manual; (c) Maintain appropriate records for, and with Owner's approval, prepare, present and prosecute applications for all permits, licenses and approvals (or renewals thereof) required for operation and maintenance of the Facility; (d) Maintain adequate records of any accidents that occur at the Facility or the Site, including the frequency, cause, severity and corrective action taken with respect thereto; (e) Maintain adequate records of emissions data for the Facility as required by environmental control agencies and the Approved Plant Manual and furnish to Owner and any applicable governmental agencies (if so directed by Owner and on behalf of Owner) any reports and other information required to comply with applicable Laws and permits, with any such reports and information maintained by Operator being the property of Owner and being transferred to Owner upon termination of the Agreement; (f) Maintain financial records sufficient to enable Owner to verify the accuracy of costs and expenses incurred in the operation and maintenance of the Facility in accordance with the terms hereof; (g) Maintain and update, as needed, as-built drawings of the Facility; and (h) Maintain all records required by Laws, under any of the Project Documents or as reasonably requested by Owner. 4 6. Procurement. Subject to the limitations of the Approved Operating Budget, Operator shall maintain an inventory of tools, equipment, goods, and other items and materials owned by Owner that are necessary to operate and maintain the Facility in accordance with Prudent Industry Practices and the Project Documents. 7. Technical Support Services. Operator will provide the following technical support services ("Technical Support Services") with respect to the Facility: (a) Strategic planning reviews to include evaluation of the Operating Plan, performance indicator targets, and long-range planning. (b) O&M reviews to include general assessment of power generating equipment, recommendations to improve equipment reliability and availability, and review of the preventive and routine maintenance program. (c) Safety reviews to include evaluation and update of the safety program to ensure compliance with latest rules and regulations and plant inspection. (d) Environmental reviews to include evaluation and update of the environmental compliance program to ensure latest regulatory requirements are incorporated and review of noncompliance. (e) Human Resources support including benefits assistance, merit review, and incidental support as required. (f) Home office support including evaluation of special projects, projects benefit analysis, and other support activities as required. (g) Review condition of power generating equipment. Make recommendations to improve equipment reliability and availability. Establish preventive and routine maintenance program. (h) Review outage plans for scope, schedule and cost justification. Make recommendations pertaining to pre-outage, outage and start-up schedules. (i) Perform services described in Section 4.01 of the Agreement with respect to the Existing Plant Procedures and plant manual, including implementing revision plan. 5 SCHEDULE 3.01 OWNER SERVICES 1. From the Effective Date through the Transition Period Commencement Date, Owner shall: (a) Provide to Operator current copies of all existing regulatory and governmental permits, operating licenses and authorizations (including such permits, licenses and authorizations required by additional regulations or changes to regulations); (b) To the extent available to Owner, provide to Operator (i) the most up to date as-built drawings of the Facility, (ii) copies of all quarterly reports delivered pursuant to Section 4.5 of the Westinghouse O&M Agreement, (iii) current copies of all Project Documents (except the Agreement), as amended from time to time, (iv) the most recent inventory list provided by the operator under the Westinghouse O&M Agreement, (v) the Existing Plant Procedures, and (vi) such other information with respect to the operation and maintenance of the Facility as Operator may reasonably request; (c) Provide rights of ingress to and egress from the Site and access to the Facility and all components thereof, to the extent reasonably necessary for the performance by Operator of the Oversight Services; and (d) At the request of Operator, cooperate with Operator in its efforts to obtain certification from an Independent Engineer that Operator is capable of operating the Facility. 2. During the Transition Period, Owner shall: (a) Provide to Operator current copies of all existing regulatory and governmental permits, operating licenses and authorizations (including such permits, licenses and authorizations required by additional regulations or changes to regulations); (b) To the extent available to Owner, provide to Operator (i) the most up to date as-built drawings of the Facility, (ii) copies of all quarterly reports delivered pursuant to Section 4.5 of the Westinghouse O&M Agreement, (iii) current copies of all Project Documents (except the Agreement), as amended from time to time, (iv) the most recent inventory list provided by the operator under the Westinghouse O&M Agreement, (v) the Existing Plant Procedures, and (vi) such other information with respect to the operation and maintenance of the Facility as Operator may reasonably request; 6 (c) Provide rights of ingress to and egress from the Site and access to the Facility and all components thereof, to the extent reasonably necessary for the performance by Operator of the Transition Services; (d) Coordinate and arrange the turnover of the Facility to Operator in a timely manner on the Operating Period Commencement Date; (e) Reimburse Operator for costs and expenses in accordance with Section 5.01(a); and (f) At the request of Operator, cooperate with Operator in its efforts to obtain certification from an Independent Engineer that Operator is capable of operating the Facility. 3. From the Operating Period Commencement Date through the termination of the Agreement, Owner shall: (a) Provide Operator rights of ingress to and egress from the Site and full access to the Facility and all components thereof; (b) Investigate, determine, and seek to secure and maintain and pay for all Owner Permits, and any renewal and updating thereof; provided that Operator shall prepare and submit to Owner (or to such other party as Owner may designate on behalf of Owner) such existing pertinent data and information as Owner or such other party may reasonably request in order to obtain, renew and update the Owner Permits; (c) Provide an O&M Operating Account that shall contain adequate funds to pay Operator in full and in a timely fashion for all costs and expenses, as more particularly described in Section 5.03 of the Agreement; (d) Manage and control accounting functions and cash flow of Owner; (e) Review and approve or disapprove the Annual Plan as provided in Section 4.03 of the Agreement; (f) Approve disposal of all regulated (hazardous waste) from the Facility; (g) Procure and maintain insurance for the Facility as provided in Section 9.03 of the Agreement; (h) Pay all taxes relating to the Facility and the maintenance and operation of the Facility, except for Operator's income tax; and 2 (i) At the request of Operator, take reasonable steps to allow the Facility to meet the operating standards set forth under 18 C.F.R. ss. 292.205. 3 SCHEDULE 5.01 O&M EXPENSES The following, to the extent properly incurred pursuant to the terms of the Agreement: 1. The Labor Costs for all On-Site Personnel. The Labor Cost for On-Site Personnel will be charged based on actual costs. 2. Operator will be reimbursed for reasonable out-of-pocket expenses of Home Office Personnel incurred in accordance with the Approved Annual Plan. 3. Costs of training On-Site Personnel, including travel. 4. Reasonable travel costs and related expenses for On-Site Personnel. 5. The delivered costs, including any air freight or expediting fee, of special order parts, rental equipment, tools, office equipment, and furniture. 6. The costs of suppliers, subcontractors, attorneys, certified public accountants and other third party advisors to the extent of work performed specifically for the Facility. 7. All utility costs. 8. Waste disposal costs. 9. Costs and expenses incurred pursuant to Section 6.08(c) of the Agreement. 10. The cost and expenses of services requested or approved in writing by Owner (whether or not included within the scope of services provided by Operator pursuant to the Agreement). SCHEDULE 8.02 OPERATOR INSURANCE* 1. Statutory Workers's Compensation Insurance, including coverage for Longshoremen's and Federal Harbor Workers Act and with minimum Employer Liability limits of One Million Dollars ($1,000,000) with "all states" endorsements. 2. Comprehensive Automobile Liability Insurance for bodily injury and death or property damage arising out of the use of all owned, non-owned and hired motor vehicles, including loading and unloading in a minimum amount of $1,000,000 per occurrence. 3. Comprehensive General Liability Insurance with minimum limits of $1,000,000 per occurrence. 4. Operator shall assume, and at its election shall insure, all risk of loss or damage to Operator's property at the Facility site. Operator hereby releases and waives any rights it may have against Owner in connection with such loss or damage. - ----------------- * Operator hereby waives and agrees to require the issuers of the insurance policies required by the Agreement to waive any rights of subrogation against Owner for any loss or damage however caused. SCHEDULE 9.03 OWNER INSURANCE* 1. Comprehensive General Liability Insurance with minimum limits of $10,000,000 per occurrence including premises/operations, explosion, collapse and underground hazards, broad form contractual, products/completed operations and personal injury. The policies for the foregoing coverage shall include Operator as an additional named insured with respect to the performance by Operator of its obligations under this Agreement and be endorsed to be primary to any coverage maintained by or on behalf of Operator. Any deductible shall be the responsibility of Owner except to the extent the Operator is responsible under Section 8.01. 2. Comprehensive Automobile Liability Insurance for bodily injury and death or property damage arising out of the use of all owned, non-owned and hired vehicles in a minimum amount of $1,000,000 per occurrence. The policy shall name Owner and Operator as named insureds in connection with the performance by Operator of its obligations under the Agreement and be primary to any other coverage which might be maintained by Operator. Any deductible shall be the responsibility of Owner except to the extent Operator is responsible under Section 8.01. 3. The Physical Damage Insurance (as defined in Section 7.4(v) of the Indenture) for the Facility required by Section 7.4(v) of the Indenture.** - ------------------- * Owner hereby waives and agrees to require the issuers of the insurance policies required by the Agreement to waive any rights of subrogations against the Operator for any loss or damage however caused. ** Operator acknowledges that the Physical Damage Insurance provided by Owner does not cover personal property belonging to Operator located at the Site. EX-10.17 14 OPERATION AND MAINTENANCE AGREEMENT EXHIBIT 10.17 ================================================================================ OPERATION AND MAINTENANCE AGREEMENT for the Sayreville Cogeneration Plant at Sayreville, New Jersey between Northeast Energy, LP and ESI Operating Services, Inc. ================================================================================ 1 TABLE OF CONTENTS Page No. -------- ARTICLE I. DEFINITIONS.......................... 1 ARTICLE II. SCOPE OF SERVICES....................... 2 Section 2.01 Oversight Services.......................................... 2 Section 2.02 Transition Services......................................... 2 Section 2.03 Operator Services........................................... 2 Section 2.04 Agency...................................................... 2 Section 2.05 Operator Notices............................................ 3 ARTICLE III. RESPONSIBILITIES OF OWNER................... 3 Section 3.01 Responsibilities of Owner................................... 3 Section 3.02 Owner Notices............................................... 3 ARTICLE IV. PROCEDURES, PLANS AND RECORDS................. 3 Section 4.01 Plant Manual................................................ 3 Section 4.02 Transition Plan............................................. 4 Section 4.03 Annual Plan................................................. 5 Section 4.04 Emergencies................................................. 7 Section 4.05 Right of Owner to Inspect Records........................... 7 Section 4.06 Capital Improvements........................................ 7 ARTICLE V. COMPENSATION, COSTS AND REIMBURSEMENTS............. 8 Section 5.01 Costs and Expenses.......................................... 8 Section 5.02 Operating Fee............................................... 8 Section 5.03 O&M Operating Account....................................... 9 Section 5.04 Late Payments............................................... 9 (i) ARTICLE VI. TERM AND TERMINATION...................... 9 Section 6.01 Term........................................................ 9 Section 6.02 Termination upon Notice by Owner............................ 9 Section 6.03 Termination upon Notice by Operator......................... 10 Section 6.04 Termination for Insolvency.................................. 10 Section 6.05 Termination Upon Certain Other Events....................... 10 Section 6.06 Duties Upon Termination..................................... 10 Section 6.07 Effect of Termination....................................... 11 Section 6.08 Termination Payment......................................... 11 ARTICLE VII. LIMITATION OF LIABILITY.................... 11 Section 7.01 No Consequential Damages.................................... 11 Section 7.02 Limitation of Aggregate Liability........................... 12 ARTICLE VIII. INDEMNIFICATION, INSURANCE BY OPERATOR............. 12 Section 8.01 Indemnification............................................. 12 Section 8.02 Insurance Coverage.......................................... 12 ARTICLE IX. INDEMNIFICATION, INSURANCE BY OWNER.............. 13 Section 9.01 Indemnification............................................. 13 Section 9.02 Procedure................................................... 13 Section 9.03 Insurance Coverage.......................................... 14 ARTICLE X. FORCE MAJEURE......................... 14 Section 10.01 Force Majeure............................................... 14 Section 10.02 Notice...................................................... 14 ARTICLE XI. RELATIONSHIP OF THE PARTIES.................. 15 (ii) ARTICLE XII. REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE........ 15 Section 12.01 Representations and Warranties of Owner..................... 15 Section 12.02 Representations and Warranties of Operator.................. 16 Section 12.03 Standard of Care............................................ 16 ARTICLE XIII. NOTICES............................ 16 ARTICLE XIV. ASSIGNMENTS AND SUBCONTRACTING................. 17 Section 14.01 Assignments................................................. 17 Section 14.02 Assignment by Owner to NJEA................................. 17 Section 14.03 Security Interest........................................... 18 Section 14.04 Cooperation in Financing.................................... 18 Section 14.05 Subcontracting.............................................. 18 ARTICLE XV. LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES........ 18 Section 15.01 Limitation on Authority..................................... 18 Section 15.02 No Liens or Encumbrances.................................... 19 ARTICLE XVI. DISPUTE RESOLUTION AND ARBITRATION............... 19 Section 16.01 Dispute Resolution.......................................... 19 Section 16.02 Arbitration................................................. 19 Section 16.03 Survival.................................................... 20 (iii) ARTICLE XVII. MISCELLANEOUS......................... 21 Section 17.01 Severability................................................ 21 Section 17.02 Governing Law............................................... 21 Section 17.03 Entire Agreement............................................ 21 Section 17.04 Captions.................................................... 21 Section 17.05 Counterparts................................................ 21 Section 17.06 No Third Party Beneficiaries................................ 21 Section 17.07 Further Assurances.......................................... 21 Section 17.08 No Implied Waiver........................................... 21 Section 17.09 Amendments.................................................. 22 Section 17.10 Confidentiality............................................. 22 Section 17.11 Decision-Making by Parties.................................. 22 Section 17.12 Schedules................................................... 22 (iv) OPERATION AND MAINTENANCE AGREEMENT This OPERATION AND MAINTENANCE AGREEMENT (this "Agreement") is made as of the 21st day of November, 1997, between NORTHEAST ENERGY, LP, a Delaware limited partnership ("Owner"), and ESI OPERATING SERVICES, INC., a Florida corporation ("Operator"). Owner and Operator are sometimes referred to individually as a "party," and collectively, the "parties". RECITALS WHEREAS, North Jersey Energy Associates, a Limited Partnership ("NJEA"), is the owner of a 300 megawatt gas-fuel combined cycle cogeneration plant located in Sayreville, New Jersey (the "Facility"); WHEREAS, NJEA has entered into that certain Second Amended and Restated Operation and Maintenance Agreement, dated as of June 28, 1989 (the "Westinghouse O&M Agreement"), with Westinghouse Electric Corporation, a corporation organized under the laws of the Commonwealth of Pennsylvania; WHEREAS, Owner indirectly holds 100% of the partnership interests in NJEA; WHEREAS, subject to the terms and conditions of this Agreement, Owner desires to retain, effective as of the expiration or early termination of the Westinghouse O&M Agreement, Operator to operate and maintain the Facility and Operator is willing to perform the services described in this Agreement; and WHEREAS, until such time, Operator is willing, subject to the terms and conditions in this Agreement, to perform the Oversight Services and the Transition Services described herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, Owner and Operator, intending to be legally bound, agree as follows: ARTICLE I. DEFINITIONS As used in this Agreement, capitalized terms shall have the definitions set forth in Schedule 1.01. ARTICLE II. SCOPE OF SERVICES Section 2.01 Oversight Services. From the Effective Date through the day immediately preceding the Transition Period Commencement Date (the "Oversight Period"), Operator shall provide the services listed on Schedule 2.01 (the "Oversight Services"). Such services shall be conducted in a manner so as to minimize disruption of operation and maintenance of the Facility. During the Oversight Period, Operator shall not be responsible for operation or maintenance of the Facility. Section 2.02 Transition Services. From the Transition Period Commencement Date through the day immediately preceding the Operating Period Commencement Date (the "Transition Period"), Operator shall review existing maintenance and operation records and perform all activities necessary to mobilize its personnel (the "Transition Services"), including without limitation, the services listed on Schedule 2.02. Such review and mobilization efforts shall be conducted in a manner so as to minimize disruption of operation and maintenance of the Facility. During the Transition Period, Operator shall not be responsible for operation or maintenance of the Facility. Section 2.03 Operator Services. From the Operating Period Commencement Date through the termination, of this Agreement, Operator shall perform all activities necessary to operate and maintain the Facility (the "O&M Services"), including without limitation, the services listed on Schedule 2.03. The O&M Services shall not include, and Operator shall not be responsible for, supplying water, natural gas or start up electrical power for the Facility, securing or maintaining Owner Permits, arranging for the sale of steam or electricity, except as specifically required by this Agreement maintaining the insurance required by the Indenture, or the services described in Schedule 3.01; provided, however, that the foregoing shall not limit Operator's obligation to coordinate and/or arrange for the supply of such services as set forth herein. Section 2.04 Agency. (a) To the extent expressly set forth in the Approved Transition Plan, Operator is hereby authorized by Owner to enter into, on behalf of Owner and as agent of Owner, purchase orders and service agreements in connection with the Transition Services. (b) Subject to the Approved Annual Plan, the administrative procedures set forth in the Approved Plant Manual and Article XI hereof, Operator is hereby authorized by Owner to enter into, on behalf of Owner and as agent of Owner, purchase orders and service agreements in connection with the O&M Services. (c) Operator shall not claim title to any supplies, consumables, tools, office equipment or furniture acquired on behalf of Owner. Notwithstanding anything herein to the contrary, title to any software developed or modified specifically for the Facility, whether by Owner, Operator or a 2 third-party contractor, shall vest in Owner. Operator may retain title to any commercially available software or equipment purchased by Operator or its Affiliates with its own funds; provided, however, all records with respect to the operation and maintenance of the Facility maintained with such software shall be the property of Owner. Section 2.05 Operator Notices. Operator shall provide to Owner copies of all notices from third parties received by Operator in connection with Operator's performance of its responsibilities under this Article II. Operator shall designate in writing to Owner an individual who will act on behalf of Operator with respect to communicating decisions and directions to Owner under this Agreement. Such individual shall also be available at reasonable times to receive communications from Owner and provide appropriate responses to Owner. ARTICLE III. RESPONSIBILITIES OF OWNER Section 3.01 Responsibilities of Owner. From the Effective Date to the end of the term of this Agreement, Owner shall provide, at Owner's sole cost and expense, and in addition to the other services specifically set forth in this Agreement, the services listed on Schedule 3.01. Section 3.02 Owner Notices. Owner shall give Operator at least 120 days prior written notice of an early termination of the Westinghouse Agreement. Owner shall also provide to Operator copies of all notices from third parties received by Owner in connection with Owner's performance of its responsibilities under this Article III. Owner shall designate in writing to Operator an individual who will act on behalf of Owner with respect to communicating decisions and directions to Operator under this Agreement. Such individual shall also be available at reasonable times to receive communications from Operator and provide appropriate responses to Operator. ARTICLE IV. PROCEDURES, PLANS AND RECORDS Section 4.01 Plant Manual. During the Transition Period, Operator shall review the existing plant operating, maintenance and safety procedures (the "Existing Plant Procedures") currently in use at the Facility and sixty (60) days before the Operating Period Commencement Date, submit to Owner a report outlining the proposed scope of and schedule for revision and the incorporation of the Existing Plant Procedures into a plant manual (the "Plant Manual"). The Plant Manual shall be consistent with applicable Law, the Project Documents and the original equipment manufacturers manuals. All safety, environmental and administrative-related revisions shall be scheduled for implementation as of the Operating Period Commencement Date. Operator's report shall address, at a minimum, the following plans and procedures: (a) staffing plan; 3 (b) spare parts program; (c) administrative procedures; (d) operating procedures; (e) maintenance program; (f) safety and security program; (g) accounting procedures; (h) environmental procedures; (i) record-keeping and reporting procedures; (j) procurement procedures; and (k) outage planning procedures. Thereafter, Owner and Operator shall meet to resolve any differences with respect to the Existing Plant Procedures and to agree on a Plant Manual and a plan for revision of the Plant Manual, if necessary; provided, however, that if Owner and Operator are unable to agree, the decision of Owner shall be binding on the parties unless patently unreasonable or contrary to this Agreement or applicable Law. Owner and Operator shall seek diligently to agree on the Plant Manual and the plan for revision of the Plant Manual, if necessary, no later than twenty (20) days before the Operating Period Commencement Date. The approved Plant Manual shall remain in effect for the term of this Agreement, subject to revision and amendment as may be proposed by Owner or Operator and consented to in writing by both parties. The Plant Manual and all revisions approved pursuant to this section shall be the "Approved Plant Manual." Operator shall be responsible for maintenance and update of the Approved Plant Manual, shall conduct an annual review of the Approved Plant Manual and shall make such changes to the Approved Plant Manual as Owner shall reasonably request, except as required by applicable Law or this Agreement. All costs associated with developing the Approved Plant Manual and any revisions thereof shall be deemed O&M Expenses. Section 4.02 Transition Plan. (a) Eighty (80) days before the Operating Period Commencement Date, Operator shall prepare and submit to Owner a proposed plan for orderly transition of the operation and maintenance responsibilities for the Facility to Operator (the "Transition Plan"). The Transition Plan shall describe, in detail reasonably acceptable to Owner, anticipated schedule, objectives, staffing plans, equipment acquisitions, spare parts and Consumables inventories (including a breakdown of capital items and expense items), schedules of subcontractor services, and such other matters as Owner may reasonably require. Any actions proposed under the Transition Plan shall be consistent with Prudent Industry Practices and this Agreement. The Transition Plan shall contain a proposed budget for the Transition Period that shall describe, in detail reasonably acceptable to Owner, the estimated cost, based on time and materials and all fees, for any anticipated Transition Services to be provided by Operator during Transition Period and the assumptions used in developing such budget. When approved pursuant to Section 4.02(b) below, the Transition Plan shall be an "APPROVED TRANSITION PLAN." 4 (b) Owner shall give its written approval or disapproval of the Transition Plan no later than 30 days after receipt thereof from Operator. If Owner disapproves all or any portion of the proposed Transition Plan, Owner and Operator shall make all reasonable efforts to agree upon the items and associated costs to be included in the Transition Plan. If Owner and Operator cannot agree on the Transition Plan, those elements of the Transition Plan that are in dispute shall be revised in accordance with the reasonable specifications of Owner, however, in no event shall the Transition Plan require Operator to (i) deviate from its practices regarding salary administration, compensation and personnel practices, except as required by Laws or Prudent Industry Practices or (ii) perform services that might conflict with Operator's duties under this Agreement or applicable Laws. (c) An Approved Transition Plan shall constitute authorization for Operator to incur costs and expenses as agent on behalf of Owner to the extent set forth in the budget contained in Approved Transition Plan. Operator shall notify Owner as soon as reasonably possible of any anticipated monetary variances in estimated expenses for the Transition Period. (d) If either party desires to request an amendment to the Approved Transition Plan, Owner and Operator shall make all reasonable efforts to agree upon any proposed changes to the Approved Transition Plan. Once approved, the revised Transition Plan shall supersede the then current Approved Transition Plan. Section 4.03 Annual Plan. (a) Sixty (60) days before the Operating Period Commencement Date and ninety (90) days before the first day of each Operating Year commencing thereafter, Operator shall prepare and submit to Owner a proposed operating and maintenance plan for the upcoming Operating Year (the "OPERATING PLAN"). The Operating Plan shall describe, in detail reasonably acceptable to Owner, anticipated maintenance and overhaul schedules, performance objectives, predictive and preventative maintenance programs or plans, Planned Outages, staffing plans, equipment acquisitions, spare parts and Consumables inventories (including a breakdown of capital items and expense items), schedules of subcontractor services, plant performance data regarding required environmental performance, and such other matters as Owner may reasonably require. Any actions proposed under the Operating Plan shall be consistent with the Approved Plant Manual, Prudent Industry Practices and this Agreement. Together with the Operating Plan, Operator shall submit to Owner for its review and written approval a proposed budget for operating and maintaining the Facility during the upcoming Operating Year pursuant to the Operating Plan and Prudent Industry Practices (the "OPERATING BUDGET") that shall describe, in detail reasonably acceptable to Owner, the estimated cost, based on time and materials and all 5 fees, for all anticipated O&M Services to be provided by Operator during each month of the upcoming Operating Year and the assumptions used in developing the Operating Budget. (The Operating Plan and the Operating Budget for the upcoming Operating Year are sometimes collectively referred to as the "Annual Plan"). When approved pursuant to Section 4.03(b) below, the Annual Plan shall be an "APPROVED ANNUAL PLAN" and shall consist of an "APPROVED OPERATING PLAN" and an "APPROVED OPERATING BUDGET." (b) Owner shall give its written approval or disapproval of the Annual Plan no later than 60 days after receipt thereof from Operator. If the Annual Plan is not approved or disapproved within such 60-day period, the Annual Plan for the previous year shall remain in effect until a new Annual Plan has been approved by Owner. If Owner disapproves all or any portion of the proposed Annual Plan, Owner shall provide the reasons for such disapproval in writing and Owner and Operator shall make all reasonable efforts to agree upon the items and associated costs to be included in the Annual Plan. If Owner and Operator cannot agree on the Annual Plan, those elements of the Annual Plan that are in dispute shall be revised on an interim basis in accordance with the reasonable specifications of Owner. Owner and Operator agree to proceed pursuant to such revised Annual Plan pending the final resolution of their disagreement. The Owner-specified Operating Budget or Operating Plan will be deemed an Approved Operating Budget or an Approved Operating Plan until such resolution. However, in no event shall such revised Annual Plan require Operator to (i) deviate from its practices regarding salary administration, compensation and personnel practices, except as required by Laws or to comply with Prudent Industry Practices or (ii) perform services that might conflict with Operator's duties under this Agreement or applicable Laws. Facility staffing levels shall be adjusted to appropriately respond to any material and sustained changes in the operation of the Facility required by changes to the Project Documents, or as mutually agreed upon by Owner and Operator. (c) An Approved Annual Plan shall constitute authorization for Operator to incur costs and expenses as agent on behalf of Owner to operate and maintain the Facility in accordance with such Approved Operating Budget. Operator shall notify Owner if Operator reasonably believes that expenses anticipated to be incurred would exceed the O&M Expenses projected to be incurred as set forth in the Approved Operating Budget for the applicable Operating Year. Operator shall follow Owner's instructions regarding further expenditures on Owner's behalf with respect to such variances. Unless and until Owner approves additional expenditures, Operator shall, subject to Section 4.04 below, not incur expenses on behalf of Owner in excess of the projected O&M Expenses in the Approved Operating Budget, and any expenses so incurred shall not be deemed to be O&M Expenses. (d) If either party desires to request an amendment to an Approved Annual Plan at any time during the Operating Year, such party shall submit a proposed revised Annual Plan for the other party's consideration, including the basis for the adjustment, and such other party shall approve or disapprove the proposed revised Annual Plan in writing within 30 days after submission thereof. If the proposed revised Annual Plan is not approved within such 30-day period, it shall be deemed to have been disapproved. If the proposed revised Annual Plan is disapproved within such 30 day period, the disapproving party shall furnish the other party with the reasons for such disapproval in writing and shall immediately begin good faith discussions in an effort to reach a mutually agreeable revised Annual Plan. Operator shall not, except in an 6 emergency as described in Section 4.04 hereof, act outside of the Approved Annual Plan for such Operating Year without the prior written consent of Owner. Once approved, the revised Annual Plan shall supersede the then current Approved Annual Plan. Section 4.04 Emergencies. In the event of an emergency involving the Facility or any adjoining property on or after the Operating Period Commencement Date and Owner is unavailable or there is insufficient time to reach Owner, Operator shall be authorized, without the necessity of obtaining any approvals from Owner that might otherwise be required hereunder, to take any action (including making payments and incurring expenses on behalf of Owner in the nature of capital or operating expenses or otherwise) deemed by Operator to be reasonably necessary or advisable under the circumstances to prevent, avoid or mitigate injury, damage or loss to persons or property or loss of Owner's revenue from the Facility; provided, however, that Operator shall not make any such expenditures if the aggregate amount for any incident is estimated by Operator to exceed $50,000 unless Owner has approved the same or the same is made in accordance with the following sentence. If there is an emergency resulting in, or imminently threatening, injury, damage or loss of life to persons, or environmental damage and Operator has been unable to contact Owner notwithstanding its diligent efforts to do so, Operator shall be authorized to make such emergency expenditures in excess of $50,000, provided that Operator continues its diligent efforts to contact Owner regarding any such expenditure. Operator shall notify Owner of any emergency as soon as practicable. If, as a result of action taken in response to such an emergency, Operator properly incurs costs or expenses in connection therewith and provides Owner with justification and invoices therefor, the Approved Annual Plan shall be revised to properly incorporate and reflect such costs and expenses, and adequate funds shall be deposited by Owner into the Operating Account in accordance therewith. Section 4.05 Right of Owner to Inspect Records. Owner shall have the right, at its own expense, throughout the term of this Agreement and for a period of two years following termination of this Agreement, to inspect and/or audit Operator's records of operation, permit compliance, past maintenance and scheduled maintenance for the Facility, as well as procurement, expenditure and cost records and supporting data (excluding the underlying basis for the rates for Home Office Personnel) and all other books and records maintained by Operator with respect to the Facility or the operation and maintenance thereof. Upon reasonable prior notice, Operator hereby agrees to make all such records maintained by Operator available, subject to Operator's record retention policy as set forth in the Approved Plant Manual, for inspection or audit by Owner or any third party reasonably designated by Owner and to cooperate with Owner and Owner's designated auditor with respect to any audit or review. Neither the third party nor the auditor shall be a direct competitor of Operator. Any audit or review shall be conducted in a manner so as to minimize disruption of Operator's business. Section 4.06 Capital Improvements. Owner and Operator shall develop a capital authorization procedure agreeable to both parties that provides for proper Owner approval prior to implementation. No capital expenditures will be made by Operator unless the same is specifically included in both the Approved Operating Budget and the Approved Operating Plan or have 7 otherwise been approved in accordance with procedures adopted by Owner, and any such capital expenses incurred without Owner's approval shall be at the sole expense of Operator. ARTICLE V. COMPENSATION, COSTS AND REIMBURSEMENTS Section 5.01 Costs and Expenses. (a) Owner shall pay all properly incurred costs and expenses of performing the Transitional Services, including without limitation the applicable costs and expenses listed on Schedule 5.01 to the extent in the budget contained in the Approved Transition Plan, and all costs and expenses (whether or not on Schedule 5.01) approved by Owner and incurred during the Transition Period. Acting on behalf of Owner as agent, Operator shall incur expenses during the Transition Period only to the extent the nature and amount of such costs and expenses are included in the Approved Transition Plan or are otherwise approved by Owner. Payment of such expenses shall be made by Owner within thirty (30) days of Operator's submission of an invoice therefor; provided, however, that Owner may defer payment until the Operating Period Commencement Date set forth in the notice by Owner pursuant to Section 3.02. (b) Subject to the provisions of this Section 5.01(b), Owner shall pay all properly incurred costs and expenses of performing the O&M Services (collectively, the "O&M Expenses"), including without limitation the costs and expenses listed on Schedule 5.01. Acting on behalf of Owner as agent, Operator shall incur O&M Expenses only to the extent the nature and amount of such costs and expenses (i) are included within the Approved Operating Budget (it being agreed that Operator may exceed the budget amount for any line item so long as the overall budget amount has not been exceeded) or are otherwise approved by Owner, (ii) are incurred in connection with the performance of any Unscheduled Maintenance as approved in writing by Owner, or (iii) are incurred in connection with an emergency as provided under Section 4.04 hereof. Operator shall be responsible for paying all expenses not incurred in accordance with this Agreement. Payment of O&M Expenses by Owner shall be made from the O&M Operating Account, which is more particularly described in Section 5.03. Except as specifically provided herein, Operator shall not incur on Owner's behalf any O&M Expenses. All O&M Expenses, except the Labor Costs of Operator's personnel, the cost of services provided by Operator's Affiliates and items purchased with petty cash, shall be incurred in the name of Owner. Section 5.02 Operating Fee. (a) From the Effective Date until this Agreement is terminated, Operator shall receive a fee (the "Operating Fee") of $750,000 per annum, as adjusted in accordance with this Section 5.02. The Operating Fee shall be paid in monthly installments and shall be due on the first Business Day of each month 8 for the preceding month. The Operating Fee for any partial month shall be pro rated to cover the actual portion of such month that this Agreement was in effect. (b) As of January 1 of each year, commencing January 1, 1999, the Operating Fee shall be adjusted upwards or downwards by multiplying the Operating Fee for the prior year by a fraction the numerator of which will be the Index for the immediately preceding December and the denominator of which will be the Index for the month of December one year earlier; provided, that in no event shall the Operating Fee be decreased below $750,000. This adjusted Operating Fee shall be the Operating Fee for the current Operating Year and the basis for calculation of the Operating Fee for the next Operating Year. Section 5.03 O&M Operating Account. Owner shall establish and maintain an O&M operating account ("O&M Operating Account") and will designate Operator as an additional signatory on the account, subject to the restrictions set forth in the Approved Plant Manual. Owner will deposit into the O&M Operating Account on or before the 15th day of each month an amount equal to (a) the amount of O&M Expenses in the Approved Operating Budget for the next month, plus (b) any amount reasonably expected by Operator, as communicated to Owner in writing by the 10th day of the month, to be required for costs and expenses relating to emergencies or approved Unscheduled Maintenance, plus or minus (c) the difference between the amounts deposited in the O&M Operating Account in the preceding month and the actual amount of O&M Expenses incurred in that month. On or before the 10th day of each month, Operator shall deliver to Owner an accounting report that reflects all O&M Expenses for the preceding month, reconciled against the amounts deposited to the O&M Operating Account and against the amounts projected in the Approved Operating Budget for such preceding month. Section 5.04 Late Payments. If any amounts owing under this Agreement are not paid to Operator or Owner, as applicable, when due, the same shall bear interest at the Late Payment Rate from the due date until paid. ARTICLE VI. TERM AND TERMINATION Section 6.01 Term. Unless terminated as provided in Article VI or Article X, this Agreement shall continue in effect for the period commencing on the Effective Date and ending on the 18th anniversary of the Effective Date (the "INITIAL TERM"), unless the parties shall at least six (6) months prior to the expiration of the Initial Term agree in writing to an extension. Section 6.02 Termination upon Notice by Owner. If (a) prior to the Operating Period Commencement Date an Independent Engineer has not certified that Operator is capable of operating the Facility in accordance with Prudent Industry Practices, (b) if the Purchase Agreement terminates in accordance with Section 15 thereof, or (c) Operator defaults in the performance of any material term, covenant or obligation contained in this Agreement and does not remedy such default within 30 days after Operator's receipt of Owner's written notice thereof to Operator (or as soon as possible thereafter but in any event within 180 days, if it cannot be reasonably accomplished in such 30 day period and Operator shall have commenced all actions required to remedy such default within such 30 day period and diligently thereafter pursues the same to completion), 9 Owner may, by written notice to Operator, terminate this Agreement and Owner shall pay to Operator all amounts due and not previously paid to Operator for services performed in accordance with this Agreement up until the effective date of such termination. All such amounts will be paid to Operator within 30 days of the effective termination date or within 30 days of receipt of an invoice from Operator for any amounts not invoiced prior to the effective termination date, provided that Owner shall have the right to -------- offset the amounts of any damages owing by Operator under this Agreement against any such amounts due and not previously paid to Operator by Owner. Section 6.03 Termination upon Notice by Operator. If Owner (a) fails to make any payment hereunder within 5 days after the same shall have become due, or (b) defaults in the performance of any material term, covenant or agreement contained in this Agreement and does not remedy such default within 30 days after Owner's receipt of Operator's written notice thereof to Owner (or as soon as possible thereafter but in any event within 180 days, if it cannot be reasonably accomplished in such 30 day period and Owner shall have commenced all actions required to remedy such default within such 30 day period and diligently thereafter pursues the same to completion), Operator may, by written notice to Owner, terminate this Agreement. Section 6.04 Termination for Insolvency. Either party may terminate this Agreement by written notice to the other party (but only with the concurrence of the Agent in the case of termination by Owner) if: (a) the other party (i) makes a general assignment for the benefit of creditors, (ii) institutes proceedings in any court of competent jurisdiction or takes any other steps to subject itself to the laws of any jurisdiction to which it may be subject providing for it to be wound up or adjudicating it to be bankrupt or insolvent or (iii) takes or consents to the institution of any bankruptcy or insolvency proceedings which relate to any reorganization, arrangement or compromise of its debts; (b) any proceedings are commenced or steps taken whether by way of private appointment, seizure, court proceedings or otherwise for the appointment of a receiver, custodian, liquidator, trustee or similar person with respect to all or a substantial portion of the other party's property; or (c) any proceedings are commenced or steps taken by any creditor, regulatory agency or other person relating to the reorganization, arrangement, adjustment composition, liquidation, dissolution, winding up, custodianship or other similar relief with respect to such other party. Section 6.05 Termination Upon Certain Other Events. Either party may terminate this Agreement by written notice to the other party if: (a) the Facility is destroyed or suffers damage in excess of $100,000,000 and is not rebuilt and in commercial operation within 24 months after such damage or destruction, (b) the Facility cannot be operated for a period of at least 18 consecutive months as a result of a Force Majeure event, (c) loss of "qualifying facility" status, or (d) Owner determines to permanently shut down the Facility. Section 6.06 Duties Upon Termination. Upon termination or expiration of this Agreement: (a) At the request of Owner, and provided that Owner is not in default of any material provision of this Agreement, 10 Operator shall have the obligation to assist in making, at Owner's expense, a smooth transition to a new operator (including training new operating personnel); (b) Operator shall provide to Owner all books and records relating to the Facility or the operation or maintenance thereof (other than Operator's own internal accounting records), including, without limitation, the Approved Plant Manual, provided that Operator may retain a copy of such records at its own expense; (c) Operator shall provide Owner with a current inventory record of the assets at the Site and a reconciliation of inventory balances of such assets; and (d) Operator shall provide to Owner at the Site all tools and Consumables purchased by Operator on behalf of Owner pursuant to this Agreement. This Section 6.06 shall survive termination of this Agreement. Section 6.07 Effect of Termination. On the effective date of termination, Owner shall assume and become responsible for all operation and maintenance of the Facility, including, but not limited to, obligations under outstanding contracts and commitments relating to the operation and maintenance of the Facility and the purchase of equipment for the Facility. Notwithstanding such termination, neither party shall be relieved from any obligations or liabilities that accrued prior to the effective date of termination. The applicable provisions of this Agreement will continue in effect after termination of this Agreement to the extent necessary to provide for final payments, payment adjustments and any other final expense reimbursements, and with respect to liability and indemnification payments and expense reimbursements from acts or events that occurred prior to the date of termination of this Agreement. Section 6.08 Termination Payment. In the event of a termination of this Agreement by Operator other than pursuant to Section 6.02, Operator shall be entitled, in addition to all other amounts due hereunder as of the date of termination, to a demobilization and cancellation payment equal to (a) the total of all costs and expenses incurred by Operator as a direct result of such termination, including all relocation, severance and outplacement costs incurred with respect to, and any other termination benefits due, Operator's employees, which costs Operator is at such time contractually or legally obligated to pay to its employees, or which are incurred with the prior written approval of Owner or in accordance with any established cancellation costs incurred with respect to third parties, plus (b) in the case of a termination by Operator pursuant to Section 6.03, $1,500,000. Subject to Owner's rights to conduct a subsequent audit and review pursuant to Section 4.05, such amounts shall be due and payable by Owner within thirty (30) days of Operator's submission of an invoice therefor. 11 ARTICLE VII. LIMITATION OF LIABILITY Section 7.01 No Consequential Damages. With respect to claims arising under this Agreement or out of performance or non-performance of the services and obligations under this Agreement, neither Operator, its Affiliates nor their respective employees or agents shall be liable to Owner, its Affiliates or their respective employees, agents or subcontractors and neither Owner, its Affiliates nor their respective employees, agents or subcontractors shall be liable to Operator, whether based in contract, in tort (including negligence and strict liability), under warranty, or otherwise, for any special, indirect, incidental, exemplary or consequential loss or damage whatsoever, including without limitation, loss of use, opportunity or profits, damages to good will or reputation or punitive damages. Section 7.02 Limitation of Aggregate Liability. The total annual aggregate liability of Operator with respect to this Agreement under any theory of recovery, whether based in contract, in tort (including negligence and strict liability), under warranty, or otherwise, and notwithstanding any other provision of this Agreement, shall be limited in any Operating Year to the Operating Fee for such Operating Year. Section 7.03 NonRecourse Obligations. Notwithstanding any other provision of this Agreement to the contrary, the obligations of Owner hereunder are recourse only to the assets of Owner and neither the partners of Owner nor any shareholder, director, officer, agent or affiliate of Owner or any partner of Owner, shall have any personal responsibility or liability for any payment obligations of Owner hereunder, or otherwise for any breach in performance or observance of the covenants, representations, or obligations of Owner hereunder. ARTICLE VIII. INDEMNIFICATION, INSURANCE BY OPERATOR Section 8.01 Indemnification. Subject to the limitations set forth in Article VII hereof, Operator hereby agrees to indemnify, defend and hold harmless Owner, all partners of Owner, Lender and each of their respective officers, directors, shareholders, agents, Affiliates and employees (collectively, "Owner's Indemnitee") from and against all losses, liabilities (including environmental liabilities), damages, demands, claims, suits, actions, judgments or causes of action, assessments, interest, penalties, costs and expenses (including the costs of reperforming any services or work), including, without limitation, attorneys' fees, and expenses (whether suit is instituted or not and, if instituted, whether at trial or appellate levels) (collectively "Damages") asserted against, resulting to, imposed upon, or incurred or suffered by Owner's Indemnitee, directly or indirectly, whether raised by Owner's Indemnitee or a third party, arising out of, caused by or resulting from the performance by Operator of Operator's duties hereunder to the extent that any such Damages are caused in whole or in part by (i) Operator's failure to perform 12 under this Agreement in accordance with the terms of this Agreement, including Section 12.03 hereof, or (ii) the negligence or willful misconduct of Operator or its agents, any subcontractor of Operator, anyone employed by any of them or anyone for whose acts any of them is liable. Section 9.02 shall apply to any claim for indemnity pursuant to this Section 8.01. Section 8.02 Insurance Coverage. During the term of this Agreement, Operator shall maintain the insurance coverage listed on Schedule 8.02. Operator shall deliver certificates of insurance evidencing such coverages to Owner on or before the Operating Period Commencement Date and shall thereafter deliver to Owner evidence of appropriate renewal and continuance of such policies on an annual basis. ARTICLE IX. INDEMNIFICATION, INSURANCE BY OWNER Section 9.01 Indemnification. Subject to the limitations set forth in Article VII hereof, Owner shall indemnify, defend and hold harmless Operator, and its officers, directors, shareholders, agents, Affiliates and employees (collectively, "OPERATOR'S INDEMNITEE") from and against all Damages asserted against, resulting to, imposed upon, or incurred or suffered by Operator's Indemnitee, directly or indirectly, whether raised by Operator's Indemnitee or a third party, arising out of or resulting from (a) Owner's ownership or use of the Facility or the Site, (b) the performance by Owner of Owner's duties hereunder, or (c) matters relating to any environmental laws, regulations or orders ("ENVIRONMENTAL LAWS"), provided that such environmental indemnification does not apply to the extent that the Damages arise from (i) Operator's violation of Environmental Laws or (ii) Operator's negligence or willful misconduct in its activities at the Facility or the Site. Owner waives and releases and will require its insurers waive and release Operator from damage to or risk of loss of Owner's property or property for which Owner or Operator has assumed liability (but excluding Operator's property), howsoever such damage or loss is caused. Section 9.02 Procedure. If any person or entity not a party to this Agreement shall make any demand or claim or file or threaten to file or continue any lawsuit, which demand, claim or lawsuit may result in Damages to any party pursuant to the indemnification provisions of this Agreement, then, in any such event, within 10 days after notice by the indemnified party (the "NOTICE") to the indemnifying party of such demand, claim or lawsuit (provided, however, that the failure to give the Notice shall not relieve the indemnifying party of its obligations under this Agreement unless, and only to the extent that, such failure caused the Damages for which the indemnifying party is obligated to be greater than they would otherwise have been had the indemnified party given prompt notice under this Agreement), the indemnifying party shall have the option, at its sole cost and expense, to retain counsel for the indemnified party (which counsel shall be selected by or be reasonably satisfactory to the indemnified party), to defend any such demand, claim or lawsuit. Thereafter, the indemnified party shall be permitted to participate in such defense at its own expense, provided that, if the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party 13 and the indemnified party or if the indemnifying party proposes that the same counsel represent both the indemnified party and the indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the indemnified party shall have the right to retain its own counsel at the cost and expense of the indemnifying party. If the indemnifying party shall fail to respond within 10 days after receipt of the Notice, the indemnified party may retain counsel and conduct the defense of such demand, claim or lawsuit, as it may in its sole discretion deem proper, at the sole cost and expense of the indemnifying party. (a) The indemnified party shall provide reasonable assistance to the indemnifying party and provide access to its books, records and personnel as the indemnifying party reasonably requests in connection with the investigation or defense of the indemnified Damage. The indemnifying party shall promptly upon receipt of reasonable supporting documentation reimburse the indemnified party for out-of-pocket costs and expenses incurred by the latter in providing the requested assistance. (b) With regard to claims for which indemnification is payable under this Agreement, such indemnification shall be paid by the indemnifying party upon: (i) the entry of a judgment against the indemnified party and the expiration of any applicable appeal period; (ii) the entry of an unappealable judgment or final appellate decision against the indemnified party; or (iii) a settlement with the consent of the indemnifying party, which consent shall not be unreasonably withheld, provided that no such consent need be obtained if the indemnifying party fails to respond to the Notice as provided in this Section 9.02. Notwithstanding the foregoing, provided that there is no dispute as to the applicability of indemnification, expenses of counsel to the indemnified party shall be reimbursed on a current basis by the indemnifying party if such expenses are a liability of the indemnifying party. Section 9.03 Insurance Coverage. During the term of this Agreement, Owner shall maintain at least the insurance coverage listed on Schedule 9.03. Owner shall deliver certificates of insurance evidencing such coverages to Operator on or before the Effective Date and shall thereafter deliver to Operator evidence of appropriate renewal and continuance of such policies on an annual basis. ARTICLE X. FORCE MAJEURE Section 10.01 Force Majeure. Any delay in or failure of performance of either party (other than delay or failure to pay a monetary obligation when due) shall not constitute a default hereunder or give rise to any claim for damage if and to the extent such delay or failure is caused by "Force Majeure," and the party claiming the benefit of Force Majeure shall use all reasonable efforts to minimize the period of such delay or failure and the effects thereof. Section 10.02 Notice. Either party claiming Force Majeure shall give the other party (a) notice of such Force Majeure event as soon as practicable, but in any event within three days after its occurrence and (b) a complete description of such Force Majeure event within fourteen days after its occurrence. 14 ARTICLE XI. RELATIONSHIP OF THE PARTIES Owner hereby engages Operator, as an independent contractor, to maintain and operate the Facility according to the terms of this Agreement. Subject to the terms of this Agreement, Operator shall determine the means, manner and methods by which Operator shall perform its services under this Agreement. Operator and Owner acknowledge that, except as otherwise expressly provided in this Agreement, Owner shall not have any control over Operator or the means, manner or methods of its performance under this Agreement. All personnel involved in the operation of the Facility shall be employees of Operator or its Affiliates or independent contractors that have contracted with Operator or its Affiliates and shall not for any purposes be deemed employees or independent contractors of Owner. Nothing in this Agreement or the arrangement for which it is written shall constitute or create a joint venture, partnership, or any other similar arrangement between Owner and Operator. Neither party is authorized to act as agent for the other party, except as expressly stated in this Agreement. ARTICLE XII. REPRESENTATIONS, WARRANTIES AND STANDARD OF CARE Section 12.01 Representations and Warranties of Owner. Owner hereby represents and warrants as of the Effective Date that: (a) It is duly formed, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; (b) It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; (c) Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable Law, order, judgment or decree; and 15 (d) There is no pending or, to the knowledge of Owner, threatened actions, suit, investigation or proceeding against Owner before any governmental authority which, if determined adverse to it, would materially adversely affect Owner's ability to perform its obligations under this Agreement. Section 12.02 Representations and Warranties of Operator. Operator hereby represents and warrants as of the Effective Date that: (a) It is duly formed, validly existing and in good standing under the laws of the State of Florida, with full power and authority to enter into and perform its obligations under this Agreement and has duly authorized the execution, delivery and performance of this Agreement; (b) It has validly executed this Agreement, and upon delivery this Agreement shall be a binding obligation of such party, enforceable against such party in accordance with its terms except insofar as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles; (c) Its entry into this Agreement and the performance of its obligations hereunder will not require the approval of any governmental body or regulatory authority and will not violate, conflict with, or cause a default under any of its organizational documents, any contractual covenant or restriction by which such party is bound, or any applicable Law, order, judgment or decree; (d) There is no pending or, to the knowledge of Operator, threatened actions, suit, investigation or proceeding against Operator before any governmental authority which, if determined adverse to it, would materially adversely affect Operator's ability to perform its obligations under this Agreement; (e) It has the necessary training, experience and capability to operate and maintain the Facility and to perform its obligations under this Agreement; and (f) It has or will, as of the Operating Period Commencement Date, have all permits and licenses required by applicable Law (other than Owner's Permits or permits and licenses relating to the Facility) for the performance by Operator of the Operating Services and its other obligations under this Agreement. Section 12.03 Standard of Care. Operator covenants and agrees that it will perform its duties hereunder in accordance with the Approved Operating Budget, the Approved Operating Plan and Prudent Industry Practice. 16 ARTICLE XIII. NOTICES Any notice to either party required or permitted hereunder shall be in writing and shall be given by personal delivery or by commercial courier or by certified mail, return receipt requested, postage prepaid, or by telecopier with confirmed receipt, addressed as follows: If to Owner: Northeast Energy, LP ----------- c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President with a copy to: Tractebel Power, Inc. 1177 West Loop South, Suite 900 Houston, Texas 77027 Telecopier: (713) 552-2364 Attention: General Counsel If to Operator: ESI Operating Services, Inc. --------------- 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopy: (561) 691-3615 Attention: President or to such other address as Owner or Operator may have specified in a notice duly given as provided herein to the other party. All notices given in the foregoing manner shall be effective when received, except that a notice sent by telecopier and received after normal business hours shall be deemed to be received the following Business Day. ARTICLE XIV. ASSIGNMENTS AND SUBCONTRACTING Section 14.01 Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (b) Except as otherwise provided in this Agreement, neither party may assign or otherwise convey any of its rights, title or interest under this Agreement, without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld). Section 14.02 Assignment by Owner to NJEA. Upon the later to occur of (i) the Operating Period Commencement Date and (ii) the execution and delivery by NJEA of a counterpart hereof to Owner and Operator (such later date 17 being the "Dropdown Date"), but without any further action by any Person, all rights, title and interest of Owner hereunder shall be assigned to, and all of Owner's obligations, liabilities and duties whether past, present or future, arising under, in or in connection with this Agreement shall be assumed by NJEA. By executing and delivering the counterpart hereof, NJEA shall be deemed, as of the Dropdown Date, to be making the representations and warranties in Section 12.01 of this Agreement as if such representations and warranties related to NJEA. Section 14.03 Security Interest. Operator acknowledges that Owner's interest in and to this Agreement will be subject to the security interest in favor of the Trustee and the Agent pursuant to the Security Documents and agrees that the Trustee and the Agent may assign such interest in and to this Agreement to any subsequent assignee in connection with the sale, transfer, or exchange of its rights in this Agreement or for the purpose of operating the Facility pursuant to such assignment upon and after the exercise of its rights and enforcement of its remedies against the Facility under any deed of trust or other security instrument creating a lien in its favor. Section 14.04 Cooperation in Financing. Operator agrees to cooperate with Owner in negotiation and execution of any reasonable amendment or addition to this Agreement required by the Trustee or the Agent, which does not result in a material adverse change in Operator's rights or obligations hereunder. For avoidance of doubt, Operator will, if required by the Trustee or the Agent, enter into consents typical for project financings, or substantially similar to those required of the project parties under the existing financing for the Facility. Section 14.05 Subcontracting. Operator may subcontract any of its duties or obligations hereunder to a non-affiliate with the prior written consent (which may be in the Approved Annual Plan) of Owner to the subcontractor and subcontract, which consent shall not be unreasonably withheld; provided, that no such written consent of Owner shall be required for subcontracting to any Affiliate of Operator which is qualified to or capable of operating in accordance with Prudent Industry Practice. Owner shall not direct Operator to, and Operator shall not, enter into any subcontract with any contractor if entering into such contract will result in loss of "qualifying facility" status for the Facility. No subcontract shall relieve Operator of its duties and obligations hereunder. ARTICLE XV. LIMITATIONS OF AUTHORITY; LIENS AND ENCUMBRANCES Section 15.01 Limitation on Authority. Unless specifically approved in the Annual Plan or approved in writing by Owner, Operator shall not have the authority to take the following actions: (a) The sale, lease, pledge, mortgage, conveyance, license, exchange or other transfer or disposition of any property or assets of Owner, including any tangible personal property acquired by Operator under this 18 Agreement. The proceeds of any sales of scrap shall inure to the benefit of Owner and Operator shall hold the proceeds in trust for Owner and immediately forward such proceeds to Owner; (b) Subject to Section 2.03, making, entering into, executing, amending, waiving any rights under, modifying or supplementing any contract or agreement on behalf of, binding upon, or in the name of Owner, including the Project Documents; (c) The settling, compromising, assigning, pledging, transferring, releasing or consenting to the same of any claim, suit, debt, demand or judgment against or due by Owner, or submitting any such claim, dispute or controversy to arbitration or judicial process or stipulating to a judgment, or consent to do same. Operator agrees that Owner shall retain control of any such claim suit, debt or demand and any other litigation regarding the Facility, except as to Operator's individual liability; (d) Agreeing to any penalty for violation of any governmental license or permit; (e) Make any expenditures or use any of Owner's funds, or make commitments of same, except in accordance with Articles IV and V of this Agreement; (f) Commit Owner to be liable for obligations of others as guarantor, surety, or otherwise; and (g) Enter into, without the consent of Owner (which may be in the Approved Annual Plan), any agreement with any Affiliate of Operator in connection with the performance of its obligations under this Agreement, which is on the whole less favorable to Owner than similar agreements reasonably available from unrelated third parties or if not so available, other than on an arm's length basis. Section 15.02 No Liens or Encumbrances. Operator shall keep and maintain the Facility free and clear of all liens and encumbrances resulting from the acts or omissions of Operator or work done at request of Operator, except such liens or encumbrances resulting directly from nonpayment of any amount due and owing to Operator under this Agreement. ARTICLE XVI. DISPUTE RESOLUTION AND ARBITRATION Section 16.01 Dispute Resolution. If a dispute arises between the parties regarding the application or interpretation of any provision of this Agreement, the aggrieved party shall give a notice of such dispute (a "Dispute Notice") to the other parties. Within fifteen (15) days after such Dispute Notice, the President or an Executive Vice President of each of the parties shall confer with each other to seek with diligence and in good faith to resolve such dispute. If such officers are unable to resolve such dispute within forty-five days after such Dispute Notice, then the parties shall be bound to arbitrate such dispute in accordance with Section 16.02. 19 Section 16.02 Arbitration. To the fullest extent permitted by law, any dispute between the parties regarding the application or interpretation of any provision of this Agreement, if not resolved by negotiation by the parties within 45 days after the Dispute Notice, shall be resolved exclusively by binding arbitration between the parties pursuant to the Rules of the American Arbitration Association for Commercial Disputes (the "Arbitration Rules"). Arbitration shall be administered by the American Arbitration Association. Either party may institute arbitration proceedings at any time by delivering written notice demanding arbitration to the other party in the manner described in Article XIII. (a) Within 20 days after receipt of a written demand for arbitration, the parties shall each appoint one arbitrator. Within 15 days of the expiration of that 20 day period, the two arbitrators so appointed shall appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator, the American Arbitration Association shall make that selection within 10 days of a party's request. The arbitrators shall meet the qualifications and abide by the Code of Ethics for arbitrators in commercial disputes of the American Arbitration Association. The arbitrators shall have knowledge of and experience in the power generation and project financing business. (b) To the fullest extent permitted by law, the arbitration shall be conducted in accordance with the procedures set forth in the Arbitration Rules. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. They shall not have the power to add to, modify or change any of the provisions of this Agreement. The parties shall exercise all commercially reasonable efforts in good faith to cause a hearing to be held within 90 days after the date upon which the last arbitrator is appointed and to conclude all hearings within 30 days after the first hearing date. The arbitrators shall only grant a party's request for postponement of the hearing upon a showing of good cause as determined by the arbitrators. Within 30 days of the last hearing date, the arbitrators shall issue a written decision setting forth their analysis and ruling. The arbitrators shall determine in what proportion the parties shall bear the fees and expenses of the arbitrators. Each party shall bear the fees and expenses of its own counsel and other consultants. All arbitration proceedings shall be subject to the choice of law provisions set forth in Section 17.02, and shall be held at a location agreed to by the parties, or if the parties cannot agree, then in Atlanta, Georgia. (c) The parties acknowledge and agree that any arbitral award shall be final, binding and conclusive upon the parties and may be confirmed or embodied in any order of any court having jurisdiction. (d) To the fullest extent permitted by law, service of any matters referenced in this Article XVI shall be given in the manner described in Article XIII or as permitted by the rules of the American Arbitration Association. Section 16.03 Survival. This Article XVI shall survive expiration or termination of this Agreement. 20 ARTICLE XVII. MISCELLANEOUS Section 17.01 Severability. If any provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable, such circumstances shall not affect the validity of any other provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted. Section 17.02 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Section 17.03 Entire Agreement. This Agreement constitutes the entire final understanding and agreement of the parties with respect to its subject matter, and there are no agreements, understandings, restrictions, representations or warranties among the parties other than those set forth in this Agreement. By execution of this Agreement, each of the parties represents and warrants that it has relied on no oral or written statements, promises, inducements, representations or warranties to enter into this Agreement except for those expressly set forth herein. The parties agree that the inclusion of this provision evidences the intent of the parties that no parole evidence shall be admissible to alter or vary the terms of this Agreement. Section 17.04 Captions. The captions or headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall have no effect upon the construction or interpretation of any part of this Agreement. Section 17.05 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. Section 17.06 No Third Party Beneficiaries. Except as expressly set forth herein, the terms of this Agreement are for the sole benefit of Owner and Operator and their respective successors and permitted assigns and not for any third party whatsoever. Section 17.07 Further Assurances. If either party reasonably determines or is reasonably advised that any further instruments or any other things are necessary or desirable to carry out the terms of this Agreement, the other party shall execute and deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this Agreement. Section 17.08 No Implied Waiver. Failure of either party to exercise any right to enforce any provision, or to require strict performance by the other party of any provision, shall not release the other party from any of its obligations under this Agreement and shall not operate as a waiver of any right to insist upon strict performance, or of either party's rights or remedies under this Agreement or at law. 21 Section 17.09 Amendments. No amendment, waiver or modification of any provision of this Agreement shall be effective unless made in writing and signed by both parties. Section 17.10 Confidentiality. Except to the extent expressly authorized herein including, without limitation, in connection with a proposed assignment of this Agreement or a proposed financing transaction entered into by Owner, in which case disclosure of the terms hereof shall be limited to the extent reasonably practicable, each of the parties agree that neither it nor its attorneys, agents or representatives shall reveal to anyone any of the terms of this Agreement or any of the terms of the documents executed pursuant hereto, including, without limitation, the amount, terms or conditions of payment hereunder, other than (i) as may be hereafter mutually agreed to in writing, (ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors, officers, employees, representatives, advisors, consultants and attorneys, and the directors, officers, employees, representatives, advisors, consultants and attorneys of affiliated companies who need to know such information, and (iv) to the extent required to be disclosed by applicable law or legal process. Section 17.11 Decision-Making by Parties. Except where this Agreement expressly provides for a different standard and/or time period, whenever this Agreement provides for a determination, decision, permission, consent or approval of a party, the party shall promptly make such determination, decision, grant or withholding of consent or approval in a commercially reasonable manner and without unreasonable delay. Any denial of consent required to be made in a commercially reasonable manner shall include in reasonable detail the reason for denial or aspect of the request that was not acceptable. Section 17.12 Schedules. The attached Schedules that are referred to in this Agreement are incorporated by reference and made a part of this Agreement. [Remainder of Page Intentionally Left Blank] 22 IN WITNESS WHEREOF, the parties have executed multiple originals of this Agreement as of the date first written above. OWNER: NORTHEAST ENERGY, LP, a Delaware limited partnership By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith ---------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Charles Vetters ---------------------- Name: Charles Vetters Title: Vice President OPERATOR: ESI OPERATING SERVICES, INC., a Florida corporation By: /s/ Glenn E. Smith Name: Glenn E. Smith Title: Vice President [Signature Page to Sayreville O&M Agreement] 23 ASSIGNEE: NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a New Jersey limited partnership By: NORTHEAST ENERGY, LP, a Delaware limited partnership, a general partner By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith ---------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Charles Vetters ---------------------- Name: Charles Vetters Title: Vice President [Signature Page to Sayreville O&M Agreement] 24 SCHEDULE 1.01 DEFINITIONS "Acquisition Date" shall have the meaning set forth in the Partnership Agreement. "Affiliate" shall mean any Person that, directly or indirectly, controls, is controlled by, or is under common control with, another Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or by contract or otherwise. "Agent" shall mean Sanwa Bank, Limited, New York Branch, as agent for the Lenders under the Credit Agreement, together with its successors in such capacity. "Agreement" shall have the meaning set forth in the preamble hereof. "Annual Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Annual Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Operating Budget" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Operating Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Approved Plant Manual" shall have the meaning set forth in Section 4.01 of the Agreement. "Arbitration Rules" shall have the meaning set forth in Section 16.02 of the Agreement. "Bondholders" shall mean the holder of bonds issued by Owner under the Indenture. "Business Day" shall mean a calendar day other than Saturday, Sunday or a statutory holiday in the Commonwealth of New Jersey. "Carbon Dioxide Facility" shall mean the carbon dioxide facility owned by NJEA and located adjacent to the Facility, and all equipment and facilities ancillary thereto. "Consumables" shall mean collectively all chemicals, water, fuel, lubricants, laboratory supplies, office supplies and other items to be used up during the normal operation of the Facility. "Credit Agreement" means the Credit Agreement dated as of December 1, 1994 among NJEA, NEA, the Lenders and Agent, as amended, modified and supplemented and in effect from time to time. "Debt Agreements" shall mean the Indenture, the Credit Agreement and the Rule 144A Indenture. "Debt Holders" shall mean the Lenders, Bondholders and the Rule 144A Bondholders. "Dispute Notice" shall have the meaning set forth in Section 16.01 of the Agreement. "Dropdown Date" shall have the meaning set forth in Section 14.02 of the Agreement. "Effective Date" shall mean the later to occur of (i) the date the Agreement shall be executed and delivered and (ii) the Acquisition Date. "Existing Plant Procedures" shall have the meaning set forth in Section 4.01 of the Agreement. "Facility" shall have the meaning set forth in recitals to the Agreement. "Force Majeure" shall mean any cause beyond the reasonable control of and without the fault, negligence, or willful misconduct of the party claiming Force Majeure. Such causes shall include, but not be limited to, acts of God, fires, floods, storms, earthquakes, strikes, labor disputes, riots, insurrections, acts of war, actions or inactions of any government or governmental agency or a material change in applicable statutory, regulatory, administrative or other relevant law that prohibits the operation of the Facility; provided, however, that lack of money or changes in operating costs shall not constitute Force Majeure. "Home Office Personnel" means personnel based in Operator's home office, whether employees of Operator or its parent compan(ies). "IEC" shall mean International Energy Corporation, a Massachusetts corporation and its successors and permitted assigns. "Indenture" shall mean the Trust Indenture dated as of November 15, 1994 among IEC, NJEA, NEA and the Trustee, as amended, modified and supplemented and in effect from time to time. 2 "Independent Engineer" shall have the meaning set forth in the Appendix A to the Indenture. "Initial Term" shall have the meaning set forth in Section 6.01 of the Agreement. "Index" shall mean the Department of Labor, Bureau of Labor Statistics, Producer Price Index for All Commodities (1982=100). If the Index ceases to be published or is otherwise unavailable, Index shall mean an index that Owner and Operator shall mutually determine in good faith to be most nearly comparable to the foregoing. "Labor Costs" means all fully burdened labor costs, including overtime, bonuses, vacation, holidays, sick leave, approved paid leave of absence, insurance, retirement benefits, taxes, recruiting costs, relocation costs and all other benefits. "Late Payment Rate" shall mean a per annum rate of interest equal to the rate announced from time to time in the Wall Street Journal as the prime commercial lending rate of national commercial banks plus two percent (2%), but in no event more than the maximum rate permitted under applicable law. "Laws" shall mean any applicable federal, state or local statute, law, ordinance, rule or regulation. "Lenders" shall mean the lenders under the Credit Agreement. "NEA" shall mean Northeast Energy Associates, A Limited Partnership, a Massachusetts limited partnership, and its successors and permitted assigns. "NJEA" shall have the meaning set forth in the first recital to the Agreement. "O&M Expenses" shall have the meaning set forth in Section 5.01(b) of the Agreement. "O&M Operating Account" shall have the meaning set forth in Section 5.03 of the Agreement. "O&M Services" shall have the meaning set forth in Section 2.03 of the Agreement. "On-Site Personnel" means all personnel regularly on-Site, including the plant manager and the administrative supervisor, although some On-Site Personnel may be employees or Affiliates of Operator. "Operating Budget" shall have the meaning set forth in Section 4.03 of the Agreement. "Operating Fee" shall have the meaning set forth in Section 5.02 of the Agreement. 3 "Operating Period Commencement Date" shall mean the day following the day on which the Westinghouse Agreement shall terminate or expire. "Operating Plan" shall have the meaning set forth in Section 4.03 of the Agreement. "Operating Year" shall mean the twelve (12) month period beginning on the Commencement Date and each successive twelve (12) month period beginning on the consecutive dates thereof. "Operator" shall have the meaning set forth in the preamble hereof. "Oversight Services" shall have the meaning set forth in Section 2.01 of the Agreement. "Oversight Period" shall have the meaning set forth in Section 2.01 of the Agreement. "Owner" shall have the meaning set forth in the preamble hereof. "Owner Permits" shall mean those approvals, certificates, permits and licenses required for Owner to operate the Facility, including, without limitation, any permits required for disposal of waste generated by the Facility. "Partnership Agreement" shall mean that certain Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc., Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and Tractebel Associates Northeast LP, Inc. "Person" shall mean any individual, partnership, corporation, trust, unincorporated association, joint venture or any other entity. "Planned Outage" shall mean the cessation of operation of the Facility for Scheduled Maintenance or any other scheduled outage. "Plant Manual" shall have the meaning set forth in Section 4.01 of the Agreement. "Power Purchase Agreement" shall mean the Power Purchase Agreement dated October 22, 1987 between NJEA and Jersey Central Power & Light Company, as amended. "Project Documents" shall mean the Agreement, the Power Purchase Agreement, any additional power purchase agreements between NJEA and any Purchasing Utility entered into after the execution of the Agreement, any gas purchase, storage and transportation agreements entered into by or on behalf of NJEA for the acquisition, storage or transportation of gas to be used at the Facility, any steam and energy agreements entered into by NJEA with the purchasers of steam generated at the Facility and any other agreements, in all cases as amended, affecting the maintenance or operation of the Facility and reasonably designated by Owner in writing to Operator as a Project Document. 4 "Prudent Industry Practices" shall mean the practices, methods and standards generally followed by the independent power industry with respect to the design, construction, operation and maintenance of electric generating equipment of the type applicable to the Facility, and which practices, methods and standards generally conform to operation and maintenance standards recommended by the Facility's equipment suppliers and manufacturers. "Purchasing Utilities" shall mean Jersey Central Power & Light Company, as purchasers of electricity generated by the Facility pursuant to the Power Purchase Agreement and any other purchasers of electricity generated by the Facility. "Rule 144A Bondholders" shall mean the holders of the bonds issued under the Rule 144A Indenture. "Rule 144A Indenture" shall mean the indenture to be entered into by the Partnership and certain other parties in connection with the financing of the acquisition of NJEA and NEA. "Security Documents" shall have the meaning set forth in the Credit Agreement. "Scheduled Maintenance" shall mean those maintenance and repair activities contemplated, either generally or specifically, in the Approved Annual Plan, or any approved revision thereof, for such Operating Year. "Site" shall mean the tract of land on which the Facility is located, and all easements of Owner or easements held for the benefit of Owner appurtenant thereto. "Steam Purchasers" shall mean the purchaser(s) of export steam generated by the Facility pursuant to a steam purchase agreement or agreements. "Technical Support Service" shall have the meaning set forth in Section 7 of Schedule 2.03. "Transaction Documents" shall mean, collectively, the Project Documents and each of the documents entered into by NJEA, Owner or Operator in connection with NJEA's debt financing of its assets. "Transition Period" shall have the meaning set forth in Section 2.02 of the Agreement. "Transition Plan" shall have the meaning set forth in Section 4.02 of the Agreement. "Transition Services" shall have the meaning set forth in Section 2.02 of the Agreement. 5 "Transition Period Commencement Date" shall mean the day ninety (90) days prior to the scheduled Operating Period Commencement Date. "Trustee" shall mean State Street Bank and Trust Company as trustee under the Indenture. "Unscheduled Maintenance" shall mean any and all maintenance, repair and replacement requirements of the Facility during a Operating Year, other than Scheduled Maintenance. "Westinghouse O&M Agreement" shall have the meaning set forth in the second recital hereto. 6 SCHEDULE 2.01 OVERSIGHT SERVICES 1. Review quarterly reports delivered pursuant to Section 4.5 of the Westinghouse O&M Agreement; 2. Assess general Site condition on a quarterly basis; 3. Review all changes in procedures proposed by the operator under the Westinghouse O&M Agreements; 4. Review annual generation forecast pursuant to Section 4.8 of the Westinghouse O&M Agreement; 5. Assess operators' personnel, policies, and procedures yearly; 6. Analyze all proposed capital expenditures at the Facility; 7. Review facility performance data; 8. Review of operating logs and records of unplanned outages; 9. Provide such technical support as Owner may reasonably request; 10. Review environmental and safety performance and compliance reports by the operator on a quarterly basis; and 11. Monitor operator's activities during major scheduled outages and major equipment overhauls. 12. Report to the Management Committee with respect to the foregoing. SCHEDULE 2.02 TRANSITION SERVICES 1. Mobilizing Personnel. Operator shall provide the necessary staff to operate and maintain the Facility on the Operating Period Commencement Date. In connection therewith, Operator will, in accordance with the Agreement, the Transition Plan and the budget included therein: (a) Continue to provide the Oversight Services set forth on Schedule 2.01; (b) Review qualifications and fitness for duty testing of personnel; (c) Relocate personnel, as necessary; (d) Recruit, hire and train personnel to meet the applicable staffing requirements; and (e) Train personnel on Operator's policies and benefits. Hiring will be completed and personnel relocated five (5) days prior to the Operating Period Commencement Date. 2. Reporting and Coordination. Operator shall: (a) Review Existing Plant Procedures, prior operation and maintenance records and other relevant material to prepare the report required by Section 4.01 of the Agreement; (b) Develop the Transition Plan and budget contained therein for submission to Owner pursuant to Section 4.02 of the Agreement; (c) Develop the initial Operating Plan and the initial Operating Budget for submission to Owner pursuant to Section 4.03 of the Agreement; and (d) Develop and submit for Owner's approval format of monthly reports to be delivered by Operator pursuant to paragraph 4(g) of Schedule 2.03 of the Agreement. The draft monthly report shall be submitted to Owner for approval not less than 20 days prior to the Operating Period Commencement Date. 3. Other Transition Services. Operator shall, in accordance with the Agreement, the Transition Plan and the budget included therein: 2 (a) Develop the necessary programs and procedures to perform the operation and maintenance of the Facility in accordance with the initial Operating Plan and the initial Operating Budget; (b) Identify and procure as Owner's agent necessary tools, equipment, goods, and other items and materials that are necessary to operate and maintain the Facility in accordance with the initial Operating Plan and the initial Operating Budget; and (c) Review regulatory and legal filings (EPA, FERC, etc.), and complete regulatory filings (other than Owner Permits) as required by law, or if not specified, 30 days prior to the Operating Period Commencement Date. 3 SCHEDULE 2.03 O&M SERVICES 1. Personnel. Operator shall make available qualified labor and professional, supervisory and managerial personnel reasonably necessary to perform the O&M Services. To the extent set forth in the Approved Operating Plan and the Approved Operating Budget, personnel shall be available 24 hours a day, 7 days a week, 365 days a year. Except for subcontractors pursuant to Section 13.04 of the Agreement, all individuals providing the O&M Services shall be employees or independent contractors of Operator or its Affiliates. Operator shall comply with all applicable federal and state labor and employment laws and shall exercise control over labor relations in a reasonable manner consistent with the intent and purpose of the Agreement. Operator shall appoint the plant manager which shall be reasonably acceptable to Owner. Operator may replace such plan manager for any reason provided the replacement plant manager is reasonably acceptable to Owner. Operator shall, at the request of Owner, replace the plant manager for cause. Operator shall have sole authority, control, and responsibility with respect to labor matters in connection with the performance of the services hereunder. Notwithstanding the foregoing, Operator acknowledges and agrees that Operator shall not enter into any contracts or collective bargaining agreements with respect to labor matters that purport to bind or otherwise obligate Owner, and Operator shall seek advice of Owner in the event Operator is notified of any effort to establish collective bargaining or labor representation at the Facility. 2. Compliance. Operator shall: (a) Operate and maintain the Facility in compliance with all present and future (once enacted and operative) Laws and permits applicable to the operation and maintenance of the Facility and the Site (including monitoring and sampling) and shall assist Owner in securing and maintaining all permits necessary to perform its obligations under the Agreement and in filing all reports relating to the Facility; (b) Operate and maintain the Facility in accordance with Prudent Industry Practices, the Approved Annual Plan, the Project Documents (including the Power Purchase Agreement) and the Approved Plant Manual, and in such a manner as to cause the Facility to supply steam and electricity requested by Owner and Owner's customers or required to be delivered by Owner from time to time, in all cases within the rated design and test capacity of the Facility and subject to the production targets set forth in the Approved Annual Plan; provided, that the foregoing shall not constitute a covenant or guarantee of electricity production and delivery; (c) Operate and maintain the Facility in compliance with the efficiency requirements set forth in 18 C.F.R. ss. 292.205 (assuming steam is used in the manner required by 18 C.F.R. ss. 292.205); provided, that the foregoing shall not constitute a guaranty thereof; (d) Seek appropriate warranties from vendors and maintain all vendor's warranties in effect; and (e) Procure and maintain the insurance required by Section 8.02 of the Agreement. 3. Operations and Maintenance. Operator shall: (a) Perform yearly capability audits under the power purchase agreements; (b) Dispose of waste products from the Facility in compliance with all applicable Laws and permits and the Approved Plant Manual; (c) Respond to emergencies pertaining to the Facility or the Site promptly and effectively, in accordance with Section 4.04 of the Agreement; (d) Perform or cause to be performed all services and make or cause to be made all repairs and replacements at the Facility as are required due to Unscheduled Maintenance. Operator shall promptly notify Owner of the need for such Unscheduled Maintenance and thereupon request an adjustment to the Approved Annual Plan in accordance with Section 4.03(d). Operator shall perform any such Unscheduled Maintenance in a timely and cost effective fashion upon satisfaction of the requirements of Section 5.01; (e) Establish and maintain a proactive maintenance program; (f) Perform operations and maintenance accounting functions, including the processing and paying of bills at the home office, and to the extent set forth in the Approved Annual Budget maintain a bookkeeper part time at the Facility to perform day-to-day bookkeeping, processing of purchase orders and similar matters; (g) Perform all project purchasing functions pursuant to the Annual Plan; (h) Design, document, implement and periodically evaluate a system of internal control; and (i) Prepare and document accounting policies and procedures. 4. Reporting and Coordination. Operator shall: (a) Coordinate with Owner, affected parties, and Purchasing Utilities as required when generation of electricity or steam is to be initiated, interrupted or curtailed. Operator shall make all reasonable efforts to schedule any outages at the 2 Facility having the effect of reducing the electricity or steam output of the Facility in advance and at the most appropriate times for Owner, Operator, and Purchasing Utilities in accordance with the Project Documents, and in a manner that will minimize any profit loss to Owner; (b) Coordinate with Owner, Purchasing Utilities and Steam Purchasers regarding the various activities and duties related to the operation of the Facility to be performed under the provisions of the Power Purchase Agreement and under the provisions of any steam purchase agreement then in effect; (c) In the case of unplanned interruptions or curtailments of electric power production or delivery, provide Owner or Purchasing Utilities, as applicable, with notice thereof as soon as practicable, which notice shall state the reason therefor and the probable duration thereof and shall also contain any other information necessary for the notice to conform to the requirements of the Power Purchase Agreement; (d) Prepare, in accordance with Section 4.03 of the Agreement, the Annual Plan; (e) Report to Owner promptly any (i) material failure or reasonably anticipated material failure to operate and maintain the Facility in accordance with any Laws or permits applicable to the operation and maintenance of the Facility, (ii) actual or reasonably anticipated material disruption in supplies to the Facility, (iii) actual or reasonably anticipated disputes with Purchasing Utilities, regulatory agencies, local officials or parties to the Project Documents, (iv) actual or reasonably anticipated labor disorders, (v) actual or threatened litigation relative to the Facility of which Operator becomes aware, (vi) actual or reasonably anticipated lien filings made against the Facility of which Operator becomes aware, and (vii) actual or reasonably anticipated lapse of, modification to or refusal to renew any permit for the Facility of which Operator becomes aware; (f) Coordinate on-Site actions with regard to and document support for any and all warranty and other claims against suppliers of materials and equipment to the Facility, and any claims against any insurance carriers for payment of claims, liabilities or losses in connection with the Facility or its operation covered by such insurance, all as may be from time to time requested by Owner; (g) Provide a monthly report to Owner by the 10th Business Day of each month, reporting in reasonably specific detail and in a form reasonably acceptable to Owner the results of operations for the preceding month, calendar quarter and Operating Year. Such reports shall address the following issues as appropriate: safety; environmental; instances of Force Majeure, if any; availability; staffing changes and community relations activities; outage summary; compliance with requirements for 3 "qualifying facilities"; electric production; operations summary; maintenance summary; production summary; variance from year-to-date budget by more than +/-5% of total budget, +/-20% by category or +/-50% by line item over $5,000, if any; projected schedule for the current month; evaluations of key plant performance and financial indicators with recommendations for improvement, if any; and a forecast of key upcoming events at the Site; and (h) Perform physical inventories of all Consumables, equipment, furniture and fixtures in accordance with the Approved Plant Manual and deliver copies of the inventory reports to Owner. 5. Records. Operator shall: (a) Maintain records of electricity delivered to Purchasing Utilities and steam delivered to Steam Purchasers; (b) Maintain records of all maintenance that has been performed and is scheduled to be performed, subject to Operator's record retention policy set forth in the Approved Plant Manual; (c) Maintain appropriate records for, and with Owner's approval, prepare, present and prosecute applications for all permits, licenses and approvals (or renewals thereof) required for operation and maintenance of the Facility; (d) Maintain adequate records of any accidents that occur at the Facility or the Site, including the frequency, cause, severity and corrective action taken with respect thereto; (e) Maintain adequate records of emissions data for the Facility as required by environmental control agencies and the Approved Plant Manual and furnish to Owner and any applicable governmental agencies (if so directed by Owner and on behalf of Owner) any reports and other information required to comply with applicable Laws and permits, with any such reports and information maintained by Operator being the property of Owner and being transferred to Owner upon termination of the Agreement; (f) Maintain financial records sufficient to enable Owner to verify the accuracy of costs and expenses incurred in the operation and maintenance of the Facility in accordance with the terms hereof; (g) Maintain and update, as needed, as-built drawings of the Facility; and (h) Maintain all records required by Laws, under any of the Project Documents or as reasonably requested by Owner. 4 6. Procurement. Subject to the limitations of the Approved Operating Budget, Operator shall maintain an inventory of tools, equipment, goods, and other items and materials owned by Owner that are necessary to operate and maintain the Facility in accordance with Prudent Industry Practices and the Project Documents. 7. Technical Support Services. Operator will provide the following technical support services ("Technical Support Services") with respect to the Facility: (a) Strategic planning reviews to include evaluation of the Operating Plan, performance indicator targets, and long-range planning. (b) O&M reviews to include general assessment of power generating equipment, recommendations to improve equipment reliability and availability, and review of the preventive and routine maintenance program. (c) Safety reviews to include evaluation and update of the safety program to ensure compliance with latest rules and regulations and plant inspection. (d) Environmental reviews to include evaluation and update of the environmental compliance program to ensure latest regulatory requirements are incorporated and review of noncompliance. (e) Human Resources support including benefits assistance, merit review, and incidental support as required. (f) Home office support including evaluation of special projects, projects benefit analysis, and other support activities as required. (g) Review condition of power generating equipment. Make recommendations to improve equipment reliability and availability. Establish preventive and routine maintenance program. (h) Review outage plans for scope, schedule and cost justification. Make recommendations pertaining to pre-outage, outage and start-up schedules. (i) Perform services described in Section 4.01 of the Agreement with respect to the Existing Plant Procedures and plant manual, including implementing revision plan. 5 SCHEDULE 3.01 OWNER SERVICES 1. From the Effective Date through the Transition Period Commencement Date, Owner shall: (a) Provide to Operator current copies of all existing regulatory and governmental permits, operating licenses and authorizations (including such permits, licenses and authorizations required by additional regulations or changes to regulations); (b) To the extent available to Owner, provide to Operator (i) the most up to date as-built drawings of the Facility, (ii) copies of all quarterly reports delivered pursuant to Section 4.5 of the Westinghouse O&M Agreement, (iii) current copies of all Project Documents (except the Agreement), as amended from time to time, (iv) the most recent inventory list provided by the operator under the Westinghouse O&M Agreement, (v) the Existing Plant Procedures, and (vi) such other information with respect to the operation and maintenance of the Facility as Operator may reasonably request; (c) Provide rights of ingress to and egress from the Site and access to the Facility and all components thereof, to the extent reasonably necessary for the performance by Operator of the Oversight Services; and (d) At the request of Operator, cooperate with Operator in its efforts to obtain certification from an Independent Engineer that Operator is capable of operating the Facility. 2. During the Transition Period, Owner shall: (a) Provide to Operator current copies of all existing regulatory and governmental permits, operating licenses and authorizations (including such permits, licenses and authorizations required by additional regulations or changes to regulations); (b) To the extent available to Owner, provide to Operator (i) the most up to date as-built drawings of the Facility, (ii) copies of all quarterly reports delivered pursuant to Section 4.5 of the Westinghouse O&M Agreement, (iii) current copies of all Project Documents (except the Agreement), as amended from time to time, (iv) the most recent inventory list provided by the operator under the Westinghouse O&M Agreement, (v) the Existing Plant Procedures, and (vi) such other information with respect to the operation and maintenance of the Facility as Operator may reasonably request; (c) Provide rights of ingress to and egress from the Site and access to the Facility and all components thereof, to the extent reasonably necessary for the performance by Operator of the Transition Services; (d) Coordinate and arrange the turnover of the Facility to Operator in a timely manner on the Operating Period Commencement Date; (e) Reimburse Operator for costs and expenses in accordance with Section 5.01(a); and (f) At the request of Operator, cooperate with Operator in its efforts to obtain certification from an Independent Engineer that Operator is capable of operating the Facility. 3. From the Operating Period Commencement Date through the termination of the Agreement, Owner shall: (a) Provide Operator rights of ingress to and egress from the Site and full access to the Facility and all components thereof; (b) Investigate, determine, and seek to secure and maintain and pay for all Owner Permits, and any renewal and updating thereof; provided that Operator shall prepare and submit to Owner (or to such other party as Owner may designate on behalf of Owner) such existing pertinent data and information as Owner or such other party may reasonably request in order to obtain, renew and update the Owner Permits; (c) Provide an O&M Operating Account that shall contain adequate funds to pay Operator in full and in a timely fashion for all costs and expenses, as more particularly described in Section 5.03 of the Agreement; (d) Manage and control accounting functions and cash flow of Owner; (e) Review and approve or disapprove the Annual Plan as provided in Section 4.03 of the Agreement; (f) Approve disposal of all regulated (hazardous waste) from the Facility; (g) Procure and maintain insurance for the Facility as provided in Section 9.03 of the Agreement; (h) Pay all taxes relating to the Facility and the maintenance and operation of the Facility, except for Operator's income tax; and 2 (i) At the request of Operator, take reasonable steps to allow the Facility to meet the operating standards set forth under 18 C.F.R. ss. 292.205. 3 SCHEDULE 5.01 O&M EXPENSES The following, to the extent properly incurred pursuant to the terms of the Agreement: 1. The Labor Costs for all On-Site Personnel. The Labor Cost for On-Site Personnel will be charged based on actual costs. 2. Operator will be reimbursed for reasonable out-of-pocket expenses of Home Office Personnel incurred in accordance with the Approved Annual Plan. 3. Costs of training On-Site Personnel, including travel. 4. Reasonable travel costs and related expenses for On-Site Personnel. 5. The delivered costs, including any air freight or expediting fee, of special order parts, rental equipment, tools, office equipment, and furniture. 6. The costs of suppliers, subcontractors, attorneys, certified public accountants and other third party advisors to the extent of work performed specifically for the Facility. 7. All utility costs. 8. Waste disposal costs. 9. Costs and expenses incurred pursuant to Section 6.08(c) of the Agreement. 10. The cost and expenses of services requested or approved in writing by Owner (whether or not included within the scope of services provided by Operator pursuant to the Agreement). SCHEDULE 8.02 OPERATOR INSURANCE 1. Statutory Workers's Compensation Insurance, including coverage for Longshoremen's and Federal Harbor Workers Act and with minimum Employer Liability limits of One Million Dollars ($1,000,000) with "all states" endorsements. 2. Comprehensive Automobile Liability Insurance for bodily injury and death or property damage arising out of the use of all owned, non-owned and hired motor vehicles, including loading and unloading in a minimum amount of $1,000,000 per occurrence. 3. Comprehensive General Liability Insurance with minimum limits of $1,000,000 per occurrence. - -------- * Operator hereby waives and agrees to require the issuers of the insurance policies required by the Agreement to waive any rights of subrogation against Owner for any loss or damage however caused. SCHEDULE 9.03 OWNER INSURANCE 1. Comprehensive General Liability Insurance with minimum limits of $10,000,000 per occurrence including premises/operations, explosion, collapse and underground hazards, broad form contractual, products/completed operations and personal injury. The policies for the foregoing coverage shall include Operator as an additional named insured with respect to the performance by Operator of its obligations under this Agreement and be endorsed to be primary to any coverage maintained by or on behalf of Operator. Any deductible shall be the responsibility of Owner. 2. Comprehensive Automobile Liability Insurance for bodily injury and death or property damage arising out of the use of all owned, non-owned and hired vehicles in a minimum amount of $1,000,000 per occurrence. The policy shall name Owner and Operator as named insureds in connection with the performance by Operator of its obligations under the Agreement and be primary to any other coverage which might be maintained by Operator. Any deductible shall be the responsibility of Owner. 3. The Physical Damage Insurance (as defined in Section 7.4(v) of the Indenture) for the Facility required by Section 7.4(v) of the Indenture. - -------- * Owner hereby waives and agrees to require the issuers of the insurance policies required by the Agreement to waive any rights of subrogation against the Operator for any loss or damage however caused. ** Operator acknowledges that the Physical Damage Insurance provided by Owner does not cover personal property belonging to Operator located at the Site. EX-10.18 15 FUEL MANAGEMENT AGREEMENT EXHIBIT 10.18 ================================================================================ FUEL MANAGEMENT AGREEMENT dated as of January 20, 1998 for the Bellingham Cogeneration Plant at Bellingham, Massachusetts between Northeast Energy, LP and ESI Northeast Fuel Management, Inc. ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITION OF TERMS................................. 1 ARTICLE II. FUEL MANAGEMENT SERVICES............................ 5 2.01 Transition Services................................................. 5 2.02 Fuel Management Services............................................ 6 2.03 Supply and Transportation Portfolio Planning........................ 6 2.04 Fuel Supply Plan.................................................... 7 2.05 Replacement Fuel.................................................... 8 2.06 Replacement Transportation Services................................. 9 2.07 Sale of Excess Fuel................................................. 9 2.08 Appointment of Fuel Manager as Owner's Agent........................ 10 ARTICLE III. NOMINATION, COORDINATION AND OPTIONAL SERVICES...... 10 3.01 90-Day Nomination................................................... 10 3.02 30-Day Nomination................................................... 10 3.03 Daily Confirmation with Facility.................................... 11 3.04 Notification by Owner............................................... 11 3.05 Supply of Gas and Oil by Fuel Manager............................... 11 3.06 Substitute Gas and Oil Transactions................................. 11 3.07 Other Services...................................................... 11 ARTICLE IV. PAYMENTS, COMPENSATION AND EXPENSES................. 11 4.01 Payments to Suppliers, Transporters and Storage Operators........... 11 4.02 Management Fee...................................................... 12 4.03 Expenses............................................................ 12 4.04 Late Payments....................................................... 12 ARTICLE V. LIABILITY, INDEMNITY AND GUARANTY................... 12 5.01 Indemnification by Fuel Manager..................................... 12 5.02 Indemnification by Owner............................................ 13 5.03 No Consequential Damages............................................ 13 i Page ---- 5.04 Limitation of Aggregate Liability................................... 13 5.05 Non-Recourse Obligations............................................ 13 5.06 Guaranty............................................................ 14 ARTICLE VI. ASSIGNMENT.......................................... 14 6.01 Assignments......................................................... 14 6.02 Assignment by Owner to NEA.......................................... 14 6.03 Subcontracting...................................................... 14 ARTICLE VII. NOTICES............................................. 14 ARTICLE VIII. FORCE MAJEURE....................................... 16 8.01 Suspension of Obligation............................................ 16 8.02 Definition.......................................................... 16 ARTICLE IX. TERM AND TERMINATION................................ 16 9.01 Term................................................................ 16 9.02 Termination upon Notice by Fuel Manager............................. 16 9.03 Termination upon Notice by Owner.................................... 17 9.04 Termination Upon Certain Other Events............................... 17 9.05 Effect on Termination............................................... 17 ARTICLE X. LIMITATIONS ON AGENCY............................... 17 ARTICLE XI. DISPUTE, RESOLUTION AND ARBITRATION................. 18 11.01 Dispute Resolution.................................................. 18 11.02 Arbitration......................................................... 18 11.03 Survival............................................................ 19 ii ARTICLE XII. GENERAL PROVISIONS.................................. 19 12.01 Severability........................................................ 19 12.02 Governing Law....................................................... 19 12.03 Entire Agreement.................................................... 19 12.04 Captions............................................................ 20 12.05 Counterparts........................................................ 20 12.06 No Third Party Beneficiaries........................................ 20 12.07 Further Assurances.................................................. 20 12.08 No Implied Waiver................................................... 20 12.09 Amendments.......................................................... 20 12.10 Confidentiality..................................................... 20 12.11 Decision-Making by Parties.......................................... 20 Attachments: - ------------ Exhibit A - Existing Agreements Exhibit B - Form of Guaranty Schedule 1 - Oil Specifications iii FUEL MANAGEMENT AGREEMENT This FUEL MANAGEMENT AGREEMENT (this "Agreement"), is made as of the 20th day of January, 1998, between NORTHEAST ENERGY, LP, a Delaware limited partnership ("Owner") and ESI NORTHEAST FUEL MANAGEMENT, INC., a Florida corporation ("Fuel Manager"). Owner and Fuel Manager are sometimes referred to individually as a "party" and collectively, the "parties". WITNESSETH THAT: WHEREAS, on the Commencement Date Owner will indirectly hold 100% of the partnership interests in Northeast Energy Associates, A Limited Partnership ("NEA"), the owner of the 300 megawatt combined cycle cogeneration plant located in Bellingham, Massachusetts (the "Facility"); and WHEREAS, the Facility is fueled by natural gas or fuel oil; and WHEREAS, NEA currently purchases approximately 80% of the natural gas that fuels the Facility from gas suppliers pursuant to long-term gas supply agreements; and WHEREAS, Owner desires that Fuel Manager manage on behalf of Owner, all gas supply, transportation and storage agreements and any agreements with respect to the purchase, transportation and storage of fuel oil; and WHEREAS, to the extent the gas and fuel oil supplied under such agreements are not sufficient to meet Owner's fuel requirements, Owner desires that Fuel Manager locate and purchase as Owner's agent natural gas and/or fuel oil in such quantities and on such terms and conditions as Owner may request; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, Fuel Manager and Owner, intending to be legally bound, agree as follows: ARTICLE I. DEFINITION OF TERMS Except where the context requires another meaning, the following terms shall be construed to have the following meanings: "Additional Agreements" shall mean the Additional Gas Supply Agreements, the Additional Gas Transportation Agreements, the Additional Gas Storage Agreements, the Oil Supply Agreements, the Oil Transportation Agreements and the Oil Storage Agreements. "Additional Gas Storage Agreements" shall mean the contracts and agreements entered into by or on behalf of NEA after the Effective Date relating to the storage of Gas to be used by the Facility, as amended from time to time. "Additional Gas Supply Agreements" shall mean the contracts, purchase orders and other agreements (including hedging contracts) entered into by or on behalf of NEA after the Effective Date relating to the supply of Gas to the Facility, as amended from time to time. "Additional Gas Transportation Agreements" shall mean the contracts and agreements entered into by or on behalf of NEA after the Effective Date relating to the transportation of Gas to be used by the Facility, as amended from time to time. "Affiliate" shall mean any person that, directly or indirectly, controls, is controlled by, or is under common control with, another person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any person, means, the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities or by contract or otherwise. "Agency Designation Agreements" shall have the meaning set forth in Section 2.08 hereof. "Agreement" shall have the meaning set forth in the preamble hereto, and include all exhibits and schedules attached hereto. All exhibits and schedules referenced in this Agreement are incorporated herein for all purposes and shall be updated by the parties as necessary. "Alternative Transportation" shall have the meaning set forth in Section 2.06 hereof. "Arbitration Rules" shall have the meaning set forth in Section 11.02 hereof. "Business Day" shall mean a calendar day other than a Saturday, Sunday or a statutory holiday in the State of Massachusetts. "Commencement Date" shall mean the Acquisition Date as defined in the Partnership Agreement. "Damages" shall have the meaning set forth in Section 5.01 hereof. "Dispute Notice" shall have the meaning set forth in Section 11.01 hereof. "Effective Date" shall mean January 14, 1998. "Excess Fuel" shall have the meaning set forth in Section 2.07 hereof. 2 "Existing Agreements" shall mean the Gas Supply Agreements, the Gas Transportation Agreements and the Gas Storage Agreements. As of the Effective Date, there are no agreements for the supply of Oil to, or the transportation or storage of any Oil to be used at, the Facility. "Facilities Purchase Agreement" shall mean the Purchase Agreement as defined in the Partnership Agreement. "Facility" shall have the meaning in the first recital hereto. "FERC" shall mean the Federal Energy Regulatory Commission. "Force Majeure" shall have the meaning set forth in Section 8.02 hereof. "Fuel Management Services" shall have the meaning set forth in Section 2.02 hereof. "Fuel Manager" shall have the meaning set forth in the preamble hereof. "Fuel Manager's Indemnitees" shall have the meaning set forth in Section 5.02 hereof. "Fuel Period" shall mean a Summer Fuel Period or a Winter Fuel Period. "Fuel Supply Plan" shall have the meaning set forth in Section 2.04 hereof. "Gas" shall mean natural gas conforming to the specifications provided for by the FERC approved tariff of the Algonquin Gas Transmission Company. "Gas Day" shall mean the 24 hour period commencing at 10:00 a.m. eastern standard time on any calendar day and ending at 9:59 a.m. eastern standard time on the succeeding calendar day. "Gas Storage Agreements" shall mean the contracts and agreements entered into by NEA before the Effective Date with respect to the storage of Gas to be used by the Facility, as such contracts and agreements are listed on Exhibit A hereto, as amended from time to time. "Gas Suppliers" shall mean the suppliers of Gas used at the Facility pursuant to the Gas Supply Agreements or the Additional Gas Supply Agreements. "Gas Supply Agreements" shall mean the contracts, purchase orders and other agreements (including hedging contracts) entered into by NEA before the Effective Date with respect to the supply of Gas to the Facility, as such contracts, purchase orders and other agreements are listed on Exhibit A hereto, as amended from time to time. 3 "Gas Transportation Agreements" shall mean the contracts and agreements entered into by NEA before the Effective Date with respect to the transportation of Gas to be used by the Facility, as such contracts and agreements are listed on Exhibit A hereto, as amended from time to time. "Indemnitees" shall have the meaning set forth in Section 5.01 hereof. "Late Payment Rate" shall mean a per annum rate of interest equal to the rate announced from time to time in the Wall Street Journal as the prime commercial lending rate of national commercial banks plus two percent (2%), but in no event more than the maximum rate permitted under applicable law. "Laws" shall mean any applicable federal, state or local statute, law, ordinance, rule or regulation. "Management Fee" shall have the meaning set forth in Section 4.02 hereof. "NEA" shall have the meaning set forth in the first recital hereto. "Oil" shall mean fuel oil meeting the specifications set forth in Schedule 1 hereto. "Oil Storage Agreements" shall mean the contracts and agreements entered into by or on behalf of NEA after the Effective Date relating to the storage of Oil to be used at the Facility, as amended from time to time. "Oil Suppliers" shall mean the suppliers of Oil used at the Facility pursuant to the Oil Supply Agreements. "Oil Supply Agreements" shall mean the contracts, purchase orders and other agreements entered into by or on behalf of NEA after the Effective Date relating to the supply of Oil to the Facility, as amended from time to time. "Oil Transportation Agreements" shall mean the contracts and agreements entered into by or on behalf of NEA after the Effective Date relating to the transportation of Oil to the Facility, as amended from time to time. "Operator" shall mean Westinghouse Electric Corporation until such time as it no longer serves as Operator of the Facility, then it shall mean ESI Operating Services, Inc., or such other person or entity who may be acting as operator of the Facility. "Owner" shall have the meaning set forth in the preamble hereof. "Owner's Fuel Requirements" shall mean the aggregate total supply of Gas and Oil required during a specified period by Owner in connection with the operation of the Facility for such specified period. 4 "party" and "parties" shall have the meanings set forth in the preamble hereof. "Partnership Agreement" shall mean that certain Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc., Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and Tractebel Associates Northeast LP, Inc. "PPI Index" shall mean the Department of Labor, Bureau of Labor Statistics, Producer Price Index for All Commodities (1982=100). If the PPI Index ceases to be published or is otherwise unavailable, "PPI Index" shall mean an index that Owner and Fuel Manager shall mutually determine in good faith to be most nearly comparable to the foregoing. "Project Year" shall mean the twelve (12) month period beginning on the Commencement Date and each successive twelve (12) month period beginning on the anniversary dates thereof. "Replacement Fuel" shall have the meaning set forth in Section 2.05 hereof. "Summer Fuel Period" shall mean the seven-month period commencing April 1 of any year ending on October 31 of such year. "Winter Fuel Period" shall mean the five-month period commencing on November 1 of any year and ending on March 31 of the next succeeding year. "30-Day Nomination" shall have the meaning set forth in Section 3.02 hereof. "90-Day Nomination" shall have the meaning set forth in Section 3.01 hereof. ARTICLE II. FUEL MANAGEMENT SERVICES 2.01 Transition Services. From the Effective Date through the Commencement Date, Fuel Manager shall provide each of the following services: (a) review existing fuel management procedures for the Facility and all relevant records, documents and materials relating to such procedures; (b) review existing fuel supply, transportation and storage arrangements in effect on the Effective Date and update Exhibit A accordingly; (c) prepare and submit the initial Fuel Supply Plan to Owner as soon as reasonably practicable after the Effective Date, but in no event later than January 30, 1998; 5 (d) update the initial Fuel Supply Plan to reflect any changes requested by Owner (provided that no revision to the initial Fuel Supply Plan shall require Fuel Manager to perform services which might conflict with Fuel Manager's duties under this Agreement or applicable Laws); (e) develop the necessary programs and procedures to perform the Fuel Management Services in accordance with the initial Fuel Supply Plan; and (f) such other services as are necessary and incidental to the performance of the foregoing services. 2.02 Fuel Management Services. From the Commencement Date through the termination of this Agreement, Fuel Manager shall furnish to Owner the following services in connection with the supply, transportation and storage of Gas and Oil to be used by the Facility (the "Fuel Management Services"): (a) preparation and modification of the Fuel Supply Plans in accordance with Section 2.04; (b) transportation scheduling; transportation balancing; transportation imbalance reconciliation; proposals for and, if Owner so approves, utilization of excess transportation capacity through scheduling and relinquishment and through sales to third parties at alternate delivery points; compliance with pipeline operational orders; general operational and planning advice; and attendance at such Partnership meetings as the parties deem appropriate for Fuel Manager to fully represent the interests of Owner, as contemplated by this Agreement; (c) monitoring of pipeline tariff filings in consultation with Owner, consultants and legal counsel and intervention, at the request and expense of Owner, in the applicable FERC hearings and provision of testimony; and (d) such other services as are necessary and incidental to performance of the foregoing Fuel Management Services. 2.03 Supply and Transportation Portfolio Planning. In connection with the preparation of the Fuel Supply Plan and the performance of its obligations under Section 2.02, and using information made available by Owner and such other information as it deems necessary, Fuel Manager shall: (a) analyze Owner's Fuel Requirements in light of the amount of Gas and Oil then being supplied under the Existing Agreements and the Additional Agreements then in effect; 6 (b) analyze regional Gas and Oil supply and demand, sources, transportation, delivery, supply mechanisms and the regulatory structure with respect to additional Gas and Oil required by the Facility; (c) prequalify Gas and Oil suppliers, obtain and evaluate proposals, and recommend proposals to Owner for Additional Gas Supply Agreements and Oil Supply Agreements, and if such proposals are approved by Owner (which approval may be in the Fuel Supply Plan), negotiate and obtain Additional Gas Supply Agreements and Oil Supply Agreements for the Facility on behalf of Owner; (d) evaluate price risk management proposals, make recommendations to Owner with respect to price risk management, and if such recommendations are approved by Owner (which approval may be in the Fuel Supply Plan), negotiate and enter into such risk management arrangements on behalf of Owner; (e) review existing and potential arrangements for transportation and storage of the Gas and Oil to be acquired in accordance with the Fuel Supply Plan, make recommendations to Owner with respect to such arrangements, and if such recommendations are approved by Owner (which approval may be in the Fuel Supply Plan), negotiate and obtain necessary Additional Gas Transportation Agreements, Oil Transportation Agreements, Additional Gas Storage Agreements and/or Oil Storage Agreements on behalf of Owner; and (f) to the extent known, advise Owner of changes and anticipated changes in cost, reliability, interruption or other factors affecting the current or anticipated future supply of Gas and Oil to the Facility, make recommendations to Owner with respect to alternate supplies or transportation mechanisms, and if such recommendations are approved by Owner (which approval may be in the Fuel Supply Plan), implement those recommendations deemed desirable by Owner. All Additional Agreements shall be entered into by Owner; provided, however, that upon the approval of Owner (which approval may be contained in the Fuel Supply Plan), Fuel Manager will enter into any such contract in its capacity as agent for Owner. In connection with the services provided by Fuel Manager under Article II of this Agreement, Fuel Manager will, except as otherwise agreed by the parties, provide Owner with copies of all reasonable proposals it receives from third parties for the supply, transportation, or storage of Gas or Oil for the Facility and such other relevant information in Fuel Manager's possession as Owner may reasonably request from time to time. 2.04 Fuel Supply Plan. Fuel Manager shall furnish to Owner at least forty-five (45) days prior to the first full Fuel Period after the Commencement Date and each Fuel Period thereafter, a fuel, transportation and storage supply plan (the "Fuel Supply Plan"). Fuel Manager's analysis and strategy shall incorporate a least-cost optimization of the available options 7 to develop a Fuel Supply Plan designed to provide Owner with a low-cost Gas and Oil supply portfolio that is highly flexible and secure. Owner shall give its written approval or disapproval of the Fuel Supply Plan no later than thirty (30) days after receipt thereof from Fuel Manager. If the Fuel Supply Plan is not approved or disapproved within such 30-day period, Fuel Manager shall, in the absence of instructions to the contrary from Owner, purchase Gas and Oil in the 30-day spot market in the quantities specified by Owner's nominations pursuant to Article III, to the extent required by the Facility but not covered by Existing Agreements and Additional Agreements until such time as the Fuel Supply Plan is approved. If Owner disapproves all or any portion of the proposed Fuel Supply Plan, Owner shall provide the reasons for such disapproval in writing and Owner and Fuel Manager shall make reasonable efforts to agree on a Fuel Supply Plan. If Owner and Fuel Manager cannot agree on the Fuel Supply Plan, those elements of the Fuel Supply Plan that are in dispute shall be revised in accordance with the recommendations of Owner. However, in no event shall such revised Fuel Supply Plan require Fuel Manager to perform services that might conflict with Fuel Manager's duties under this Agreement or applicable Laws. An approved Fuel Supply Plan shall constitute authorization for Fuel Manager to enter into the transactions and agreements contemplated therein as agent on behalf of Owner in accordance with such approved Fuel Supply Plan. If Fuel Manager desires to request an amendment to an approved Fuel Supply Plan at any time, Fuel Manager shall submit a proposed revised Fuel Supply Plan for Owner's consideration, including the basis for the amendment, and Owner shall approve or disapprove the proposed revised Fuel Supply Plan in writing within thirty (30) days after submission thereof. If the proposed revised Fuel Supply Plan is not approved within such 30-day period, it shall be deemed to have been disapproved. If the proposed revised Fuel Supply Plan is disapproved within such 30-day period, Owner shall furnish Fuel Manager with the reasons for such disapproval in writing and, if appropriate, Fuel Manager shall update and resubmit the proposed revised Fuel Supply Plan for approval by Owner. Once approved by Owner, the revised Fuel Supply Plan shall supersede the then current approved Fuel Supply Plan. If Owner requests an amendment, Fuel Manager shall revise the Fuel Supply Plan to reflect any changes requested by Owner; provided, however, that in no event shall such revised Fuel Supply Plan require Fuel Manager to perform services that might conflict with Fuel Manager's duties under this Agreement or applicable Laws. Fuel Manager shall not, except as described in Section 2.05 or 2.06 hereof, act outside of the approved Fuel Supply Plan without the prior written consent of Owner. 2.05 Replacement Fuel. If for any reason (including Force Majeure), a Gas Supplier or Oil Supplier fails to deliver Gas or Oil to Owner, Fuel Manager shall promptly upon obtaining actual knowledge thereof notify Owner. If Owner is unavailable or, in the reasonable judgment of Fuel Manager, there is insufficient time to reach Owner and insure the adequate supply of Gas and Oil to the Facility for any of the next thirty (30) days, Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to locate and acquire Gas or Oil ("Replacement Fuel") to replace any Gas or Oil not delivered to Owner; provided that Fuel Manager shall not without the prior written consent of Owner enter into any agreement for the 8 supply of Gas or Oil with a term in excess of 30 days. Fuel Manager shall seek to locate and acquire Replacement Fuel under substantially similar terms and conditions and with equivalent economic ramifications to Owner as those applicable to the lost Gas and Oil supply, but if it is unable to do so, Fuel Manager shall nevertheless use commercially reasonable efforts to locate and acquire other Replacement Fuel. Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to minimize the cost of Replacement Fuel by choosing among available Replacement Fuel supplies that which is most cost-efficient, taking into consideration dependability, safety, transportation cost, and the anticipated extent and duration of the interruption in supply of the Gas or Oil that would have been provided under the existing arrangements. Fuel Manager shall promptly notify Owner after Fuel Manager's acquisition, as agent of Owner, of Replacement Fuel pursuant to this Section 2.05 and the price of such Replacement Fuel. If Fuel Manager determines it is not able to acquire Replacement Fuel, Fuel Manager shall promptly notify Owner and prepare and submit to Owner a plan to address such unavailability of Replacement Fuel. 2.06 Replacement Transportation Services. If for any reason (including Force Majeure), Gas or Oil is not being transported pursuant to any Gas Transportation Agreement, any Additional Gas Transportation Agreement or any Oil Transportation Agreement, Fuel Manager shall promptly upon obtaining actual knowledge thereof notify Owner. If Owner is unavailable or, in the reasonable judgment of Fuel Manager, there is insufficient time to reach Owner and insure the adequate supply of Gas and Oil to the Facility for any of the next thirty (30) days, Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to arrange for alternative transportation arrangements to replace the transportation services which are no longer available ("Alternative Transportation"). Fuel Manager shall seek to arrange Alternative Transportation under substantially similar terms and conditions and with equivalent economic ramifications to Owner as those applicable to the lost transportation services, but if it is unable to do so, Fuel Manager shall nevertheless use commercially reasonable efforts to arrange Alternative Transportation. Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to minimize the costs of Alternative Transportation by choosing among available transportation alternatives that which is most cost-efficient, taking into consideration dependability, safety, and the anticipated duration of the interruption in transportation services that would have been provided under the Existing Gas Transportation Agreements, Additional Gas Transportation Agreements or Oil Transportation Agreements. Fuel Manager shall promptly notify Owner after Fuel Manager's arranging for Alternative Transportation, as agent of Owner, pursuant to this Section 2.06 and the price of such Alternative Transportation. If Fuel Manager determines it is not able to arrange Alternative Transportation, Fuel Manager shall promptly notify Owner and prepare and submit to Owner a plan to address such unavailability of Alternative Transportation. 2.07 Sale of Excess Fuel. If at any time the Fuel Manager believes or anticipates that the Facility will not require any of the Gas or Oil purchased under the Existing Agreements or the Additional Agreements or procured on Owner's behalf by Fuel Manager (either pursuant to a Fuel Supply Plan or by express instruction of Owner to procure such Gas or Oil) (the "Excess Fuel"), Fuel Manager shall promptly notify Owner and, upon Owner's request, shall use reasonable efforts to market for sale and arrange for delivery of such Excess Fuel to a third party buyer at the best available prices possible given the then current conditions in the market. Any 9 amount received over the price originally paid by Owner for such Excess Fuel shall belong to the Owner and Owner shall bear any loss incurred should the amount received for such Excess Fuel be less than that originally paid by Owner. 2.08 Appointment of Fuel Manager as Owner's Agent. Subject to the limitations set forth in Article X, Owner hereby appoints Fuel Manager (and any permitted subcontractor) as its agent solely for the following purposes: (a) to act on Owner's behalf and for Owner's benefit in submitting nominations to the Gas Suppliers pursuant to Article III hereof; (b) to act on Owner's behalf and for Owner's benefit, for purposes set forth in any Agency Designation Agreement entered into by Owner pursuant to this Section 2.08; and (c) to negotiate and, upon the approval of Owner (which approval may be in the Fuel Supply Plan), enter into Additional Agreements as agent of Owner for the purchase, storage or transportation of Gas or Oil on the terms and subject to such conditions as Owner may approve (which approval may be in the Fuel Supply Plan). Owner and Fuel Manager shall notify all existing and future Gas Suppliers and Oil Suppliers and all applicable transportation and storage providers of the foregoing agency promptly after the Commencement Date and shall, to the extent required by such suppliers or operators, enter into an agency designation agreement in form and substance reasonably acceptable to Owner and Fuel Manager confirming such agency for purposes of any Existing Agreement or Additional Agreement (the "Agency Designation Agreements"). Owner and Fuel Manager shall, immediately upon expiration or early termination of the Agreement, notify the applicable entities that such agency has terminated. The Agency Designation Agreements and any notice to Gas Suppliers, Oil Suppliers and others of the existence of the agency shall state that either Owner or Fuel Manager, acting alone, may give notice to such party terminating the agency. The appointment of Fuel Manager (and any permitted subcontractor) as agent shall terminate automatically and without prior notice upon termination of this Agreement for whatever reason. ARTICLE III. NOMINATION, COORDINATION AND OPTIONAL SERVICES 3.01 90-Day Nomination. Within 15 days of Fuel Manager's written request, which request may be made once each quarter, Owner shall provide to Fuel Manager a 90-day nomination (the "90-Day Nomination") setting forth on a daily basis Owner's anticipated need for the procurement, transportation and storage of Gas and Oil. 10 3.02 30-Day Nomination. At least 15 days prior to the end of each month, Owner shall provide to Fuel Manager a 30-day nomination (the "30-Day Nomination") setting forth on a daily basis Owner's anticipated need for the procurement, transportation and storage of Gas and Oil for the subsequent month. 3.03 Daily Confirmation with Facility. Fuel Manager shall call the Facility each day by 8:00 a.m. to confirm with Operator the Facility's requirements for Gas and Oil for such Gas Day and the estimated requirements for the following Gas Day and for Fuel Manager to confirm the availability of Gas and Oil for such Gas Day pursuant to the applicable Fuel Supply Plan and the applicable 30-Day Nomination. Fuel Manager shall confirm to Owner and Operator by hand delivery or by facsimile the information confirmed by such call. 3.04 Notification by Owner. Owner shall use all reasonable efforts to provide Fuel Manager with prompt notice of all information regarding startups or shutdowns of the Facility, including, but not limited to (A) maintenance not scheduled or included as part of the applicable Fuel Supply Plan; (B) forced outages, (C) scheduled outages, and (D) any other relevant information or event which may impact the quantities of Gas and Oil to be provided to the Facility pursuant to the applicable Fuel Supply Plan or 30-Day Nomination. 3.05 Supply of Gas and Oil by Fuel Manager. Fuel Manager may, but is not obligated to, offer to supply Gas or Oil to Owner at a price and on terms to be determined by Fuel Manager in its sole and absolute discretion. Owner may, in its sole and absolute discretion, accept or reject Fuel Manager's offer to supply such Gas or Oil. In connection therewith, Owner will, at the request of Fuel Manager, negotiate in good faith an enabling agreement for the sale of Gas and Oil by Fuel Manager to Owner, to be used in the event the parties agree to consummate such transactions. 3.06 Substitute Gas and Oil Transactions. Fuel Manager may, but is not obligated to, propose transactions to Owner pursuant to which Fuel Manager or a third party (which may be an Affiliate of Fuel Manager) will take delivery of a volume of Gas or Oil equal to all or any part of the Gas or Oil to be supplied by any Gas Supplier or Oil Supplier for all or any portion of the term of the applicable supply contract and substitute Gas or Oil from another source therefor. Owner may, in its sole and absolute discretion, accept or reject Fuel Manager's proposals. If Owner and Fuel Manager decide to proceed with any such transaction, they will enter into a separate agreement with respect thereto. 3.07 Other Services. All other services not within the scope of this Agreement, which may be requested by Owner shall be handled by separate agreement and compensation. 11 ARTICLE IV. PAYMENTS, COMPENSATION AND EXPENSES 4.01 Payments to Suppliers, Transporters and Storage Operators. Owner shall be responsible for remitting payment to all Gas Suppliers, Oil Suppliers and any and all pipeline and other transporters or storage operators utilized hereunder to serve the Facility. In connection therewith, Fuel Manager shall review and approve invoices from all such suppliers and operators. 4.02 Management Fee. Fuel Manager shall receive a management fee for each Project Year (the "Management Fee") of $450,000 per annum, as adjusted in accordance with this Section 4.02. The Management Fee shall be paid in monthly installments and shall be due on the first Business Day of each month for the preceding month. The Management Fee for any partial month shall be pro rated to cover the actual portion of such month that this Agreement was in effect. As of January 1 of each year, commencing January 1, 1999, the Management Fee shall be adjusted upwards or downwards by multiplying the Management Fee for the prior year by a fraction the numerator of which will be the PPI Index for immediately preceding December and the denominator of which will be the PPI Index for the month of December one year earlier; provided, that in no event shall the Management Fee be decreased below $450,000. This adjusted Management Fee shall be the Management Fee for the current Project Year and the basis for calculation of the Management Fee for the next Project Year. 4.03 Expenses. Fuel Manager shall submit for Owner's approval any out-of-pocket expenses that Fuel Manager anticipates will be incurred in the performance of its obligations hereunder or any services requested by Owner. Fuel Manager shall only incur expenses, and Owner is only obligated to reimburse Fuel Manager for expenses, to the extent such expenses are (i) approved in advance by Owner (as part of an approved Fuel Supply Plan or otherwise) or (ii) incurred in accordance with the terms of Section 2.05 or 2.06. Owner's reimbursement of Fuel Manager for such out-of-pocket expenses shall be in addition to the compensation set forth in Section 4.02. 4.04 Late Payments. If any amounts owing under this Agreement are not paid to Fuel Manager or Owner, as applicable, when due, the same shall bear interest at the Late Payment Rate from the due date until paid. 12 ARTICLE V. LIABILITY, INDEMNITY AND GUARANTY 5.01 Indemnification by Fuel Manager. Subject to the limitations in this Article V, Fuel Manager hereby agrees to indemnify, defend and hold harmless Owner, all partners of Owner, and each of their respective officers, directors, shareholders, agents, Affiliates and employees (collectively, the "Indemnitees") from and against all losses, liabilities, damages, demands, claims, suits, actions, judgments or causes of action, assessments, interest, penalties, costs and expenses, including, without limitation, attorney's fees, and expenses (whether suit is instituted or not and, if instituted, whether at trial or appellate levels) (collectively "Damages") asserted against, resulting to, imposed upon, or incurred or suffered by any of the Indemnitees, directly or indirectly, whether raised by an Indemnitee or a third party, arising out of, caused by or resulting from the performance or non-performance by Fuel Manager of its duties hereunder, to the extent that any such Damages are caused in whole or in part by (a) any agreement, contract or arrangement executed by Fuel Manager in the name of (and without the written consent of) the Owner which is prohibited by this Agreement or beyond the scope of its authority, or (b) the negligence or willful misconduct of Fuel Manager. 5.02 Indemnification by Owner. Subject to the limitations set forth in this Article V, Owner shall indemnify, defend and hold harmless Fuel Manager, any subcontractor and their respective officers, directors, shareholders, agents, Affiliates and employees (collectively, "Fuel Manager's Indemnitees") from and against all Damages asserted against, resulting to, imposed upon, or incurred or suffered by any of the Fuel Manager's Indemnitees, directly or indirectly, whether raised by Fuel Manager's Indemnitees or a third party, to the extent arising out of or resulting from the performance or non-performance by Owner of its duties hereunder or under any Existing Agreement or Additional Agreement; provided, however, that such indemnification does not apply to the extent that the Damages arise from (a) Fuel Manager's negligence or willful misconduct in connection with the performance of its duties hereunder, or (b) any Existing Agreement or Additional Agreement which was executed by Fuel Manager in the name of Owner which is prohibited by this Agreement or is outside of the authority granted to Fuel Manager by Owner under or pursuant to this Agreement. 5.03 No Consequential Damages. With respect to claims arising under this Agreement or out of performance or non-performance of the services and obligations under this Agreement, neither Fuel Manager, any subcontractor nor their respective officers, directors, shareholders, agents, Affiliates or employees shall be liable to Owner, any Partner of Owner, nor their respective officers, directors shareholders, agents, Affiliates or employees, and neither Owner, any Partner of Owner, nor their respective officers, directors, shareholders, agents, Affiliates or employees shall be liable to Fuel Manager, any subcontractor, or any of their respective officers, directors, shareholders, agents, Affiliates or employees, whether based in contract, in tort (including negligence and strict liability), under warranty, or otherwise, for any special indirect, incidental, exemplary or consequential loss or damage whatsoever, including without limitation, loss of use, opportunity or profits, damages to good will or reputation or punitive damages; provided, however, that this limitation on liability shall not apply to Fuel Manager's actions under Section 5.01(a) unless the Fuel Manager has acted in good faith and with a reasonable basis for believing that such actions were permitted by this Agreement and were within the scope of its authority. 13 5.04 Limitation of Aggregate Liability. The total annual aggregate liability of Fuel Manager with respect to this Agreement under any theory of recovery, whether based in contract, in tort (including negligence and strict liability), under warranty or otherwise, and notwithstanding any other provision of this Agreement, shall be limited in any Project Year to the Management Fee for such Project Year; provided, however, that this limitation on liability shall not apply to Fuel Manager's actions under Section 5.01(a) unless the Fuel Manager has acted in good faith and with a reasonable basis for believing that such actions were permitted by this Agreement and were within the scope of its authority. 5.05 Non-Recourse Obligations. Notwithstanding any other provision of this Agreement to the contrary, the obligations of Owner hereunder are recourse only to the assets of Owner and neither the partners of Owner nor any shareholder, director, officer, agent, Affiliate or employee of Owner or any partner of Owner, shall have any personal responsibility or liability for any payment obligations of Owner hereunder, or otherwise for any breach in performance or observance of the covenants, representations, or obligations of Owner hereunder. 5.06 Guaranty. Prior to the Commencement Date, Fuel Manager shall cause ESI Energy, Inc. to execute and deliver to Owner a guaranty of Fuel Manager's obligations under Section 5.01 in substantially the form attached hereto as Exhibit B. ARTICLE VI. ASSIGNMENT 6.01 Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (b) Except as otherwise provided in this Agreement, neither party may assign or otherwise convey any of its rights, title or interest under this Agreement, without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld); provided, however, that either party may collaterally assign its interests in this Agreement as security for debt, with notice to, but without need for the consent of, the other party. 6.02 Assignment by Owner to NEA. Upon the later to occur of (i) the Commencement Date and (ii) the execution and delivery by NEA of a counterpart hereof to Owner and Fuel Manager, but without any further action by any Person, all right, title and interest of Owner hereunder shall be assigned to, and all of Owner's obligations, liabilities and duties 14 whether past, present or future, arising under, in or in connection with this Agreement, including Owner's obligations under Section 4.02 hereof, shall be assumed by, NEA. 6.03 Subcontracting. Fuel Manager may, without the consent of the Owner, subcontract any of its duties or obligations hereunder to one of its Affiliates. Fuel Manager may not subcontract any of its duties or obligations hereunder to a non-affiliate without the prior written consent (which consent may be in the Fuel Supply Plan) of Owner to the subcontractor and subcontract, which consent shall not be unreasonably withheld. No subcontract shall relieve Fuel Manager of its duties and obligations hereunder. ARTICLE VII. NOTICES Any notice to either party required or permitted hereunder shall be in writing and shall be given by personal delivery or by commercial courier or by certified mail, return receipt requested, postage prepaid, or by telecopier with confirmed receipt, addressed as follows: If to Owner: ------------ Prior to assignment to NEA: Northeast Energy, LP c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President After assignment to NEA: Northeast Energy Associates, A Limited Partnership c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President 15 with, in either case, a copy to: Tractebel Power, Inc. 1177 West Loop South, Suite 900 Houston, Texas 77027 Telecopier: (713) 552-2364 Attention: General Counsel If to Fuel Manager: ------------------- Northeast Fuel Management, Inc. c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President or to such other address as Owner or Fuel Manager may have specified in a notice duly given as provided herein to the other party. All notices given in the foregoing manner shall be effective when received, except that a notice sent by telecopier and received after normal business hours shall be deemed to be received the following Business Day. ARTICLE VIII. FORCE MAJEURE 8.01 Suspension of Obligation. If either party hereto is rendered unable, wholly or in part, by Force Majeure to carry out its obligations under this Agreement, other than to make payments on obligations due hereunder, it is agreed that upon such party giving notice and full particulars of such Force Majeure to the other party as soon as possible after the occurrence of the cause relied on, the obligations of the party(ies), only insofar as they are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused, but for no longer period. Such cause shall, as far as possible, be remedied with all reasonable dispatch, except that settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty. 8.02 Definition. The term "Force Majeure" as used herein shall mean an occurrence not within the reasonable control of a party and without the fault, negligence or willful misconduct of such party claiming Force Majeure and shall include, but not be limited to: acts of God, epidemics, landslides, lightning, earthquakes, fires, storms, hurricanes, floods, and washouts; strikes, lockouts, and other industrial disturbances; civil disturbances, acts of the public enemy, wars, blockades, insurrections, riots, sabotage, and arrests and restraints of governments and people, or actions or inactions of any government or governmental agency or changes in the law or applicable regulations subsequent to the date hereof preventing performance, or the inability 16 despite due diligence to obtain or renew required licenses; provided, however, that lack of money or changes in market considerations shall not constitute "Force Majeure." ARTICLE IX. TERM AND TERMINATION 9.01 Term. This Agreement shall be in effect from the Effective Date for a primary term ending on the twenty-fifth (25th) anniversary of the Commencement Date, unless terminated earlier as provided herein. 9.02 Termination upon Notice by Fuel Manager. If Owner (a) fails to make any payment due to Fuel Manager hereunder within ten (10) days after such payment shall have become due or (b) fails, for reasons other than Force Majeure, to perform any of the material covenants or obligations imposed upon it under and by virtue of this Agreement and in the case of a default under (b) does not remedy or cure such default (and the effects thereof) within thirty (30) days after receipt of written notice thereof from Fuel Manager (or within ninety (90) days after receipt of such notice, in the case of defaults not susceptible of cure within thirty (30) days; provided, however, that Owner commences and diligently seeks to cure such default within such thirty (30) day period), then Fuel Manager may, by written notice to Owner, terminate this Agreement. 9.03 Termination upon Notice by Owner. If Fuel Manager (a) acts, in a material way, outside of the authority granted to it by Owner in this Agreement or (b) fails, for reasons other than Force Majeure, to perform any of the material covenants or obligations imposed upon it under and by virtue of this Agreement and in the case of a default under (b) does not remedy or cure such default (and the effects thereof) within thirty (30) days after receipt of written notice thereof from Owner (or within ninety (90) days after receipt of such notice, in the case of defaults not susceptible of cure within thirty (30) days; provided, however, that Fuel Manager commences and diligently seeks to cure such default within such thirty (30) day period), then Owner may, by written notice to Fuel Manager, terminate this Agreement. 9.04 Termination Upon Certain Other Events. Either party may terminate this Agreement by written notice to the other party if (a) the Facility is destroyed or suffers damage in excess of $100,000,000 and is not rebuilt and in commercial operation within twenty-four (24) months after such damage or destruction, (b) the Facility cannot be operated for a period of at least eighteen (18) consecutive months as a result of a Force Majeure event, (c) loss of "qualifying facility" status, (d) Owner determines to permanently shut down the Facility, or (e) if the Facilities Purchase Agreement shall terminate pursuant to Section 15 thereof. 9.05 Effect on Termination. Any termination of this Agreement pursuant to provisions of this Article IX shall be without prejudice to the right of Fuel Manager to collect any amounts then due for services rendered prior to the time of termination, and without waiver of any 17 and all other remedies, including rights of set-off, to which the party not in default may be entitled for violations of this Agreement by the defaulting party. ARTICLE X. LIMITATIONS ON AGENCY Except with respect to the acquisition of Replacement Fuel and Alternative Transportation as permitted by Section 2.05 or 2.06 or the sale of Excess Fuel pursuant to Section 2.07, Fuel Manager is not authorized to, and shall not, without prior written consent of Owner (which consent may be contained in the Fuel Supply Plan): (a) Enter into any agreements for the sale of Gas or the transportation or storage of such sold Gas on behalf of or in the name of Owner; (b) Enter into any hedging transaction or any unhedged future contracts, or otherwise assume unhedged trading positions, on behalf of or in the name of Owner; (c) Enter into any agreements or transactions on behalf of Owner not contemplated by the Fuel Supply Plan; (d) Agree to any amendment or modification to any provision in the Existing Agreements or any Additional Agreements or other agreements to which Owner is a party; (e) Enter into any agreement or any amendment, supplement or modification of any agreement, in any manner inconsistent with or in violation of this Agreement, applicable Law or the Trust Indenture; or (f) Grant or create any lien or other encumbrance on any of Owner's Gas or Oil or any of the Existing Agreements or the Additional Agreements. ARTICLE XI. DISPUTE, RESOLUTION AND ARBITRATION 11.01 Dispute Resolution. If a dispute arises among the parties, or between any of them, regarding the application or the interpretation of any provision of this Agreement or any other matter with respect to the Fuel Management Services, an aggrieved party shall give a notice of such dispute (a "Dispute Notice") to the other party. Within fifteen (15) days after such Dispute Notice, a senior officer of each of the companies shall confer with each other to seek with diligence and in good faith to resolve such dispute. If such officers are unable to resolve such dispute within forty-five (45) days after such Dispute Notice, then the parties shall be bound to arbitrate such dispute in accordance with Section 11.02. 18 11.02 Arbitration. To the fullest extent permitted by law, any dispute between the parties regarding the interpretation of any provision of this Agreement, if not resolved by negotiation by the parties within forty-five (45) days after the Dispute Notice, shall be resolved exclusively by binding arbitration between the parties pursuant to the Rules of the American Arbitration Association for Commercial Disputes (the "Arbitration Rules"). Arbitration shall be administered by the American Arbitration Association. Any Party may institute arbitration proceedings at any time by delivering written notice demanding arbitration to the parties in the manner described in Article VII. (a) Within twenty (20) days after receipt of a written demand for arbitration, each party shall appoint one arbitrator. Within fifteen (15) days of the expiration of that 20-day period, the two arbitrators so appointed shall appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator, the American Arbitration Association shall make the selection within ten (10) days of a party's request. The arbitrators shall meet the qualifications and abide by the Code of Ethics for arbitrators in commercial disputes of the American Arbitration Association. The arbitrators shall have knowledge of and experience in the gas and oil supply industry. (b) To the fullest extent permitted by law, the arbitration shall be conducted in accordance with the procedures set forth in the Arbitration Rules. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. They shall not have the power to add to, modify or change any of the provisions of this Agreement. The parties shall exercise all commercially reasonable efforts in good faith to cause a hearing to be held within ninety (90) days after the date upon which the last arbitrator is appointed and to conclude all hearings within thirty (30) days after the first hearing date. The arbitrators shall only grant a party's request for postponement of the hearing upon a showing of good cause as determined by the arbitrators. Within thirty (30) days of the last hearing date, the arbitrators shall issue a written decision setting forth their analysis and ruling. The arbitrators shall determine in what proportion the parties shall bear the fees and expenses of the arbitrators. Each party shall bear the fees and expenses of its own counsel and other consultants. All arbitration proceedings shall be subject to the choice of law provisions set forth in Section 12.02 hereof, and shall be held at a location agreed to by the parties, or if the parties cannot agree, then in Atlanta, Georgia. (c) The parties acknowledge and agree that any arbitral award shall be final, binding and conclusive upon the parties and may be confirmed or embodied in any order of any court having jurisdiction. (d) To the fullest extent permitted by law, service of any matters referenced in this Article XI shall be given in the manner described in Article VII or as permitted by the rules of the American Arbitration Association. 11.03 Survival. This Article XI shall survive expiration or termination of this Agreement. 19 ARTICLE XII. GENERAL PROVISIONS 12.01 Severability. If any provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable, such circumstances shall not affect the validity of any other provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted. 12.02 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. 12.03 Entire Agreement. This Agreement and related schedules constitutes the entire final understanding and agreement of the parties with respect to its subject matter, and there are no agreements, understandings, restrictions, representations or warranties among the parties other than those set forth in this Agreement. By execution of this Agreement, each of the parties represents and warrants that it has not relied on any oral or written statements, promises, inducements, representations or warranties to enter into this Agreement except for those expressly set forth herein. The parties agree that the inclusion of this provision evidences the intent of the parties that no parole evidence shall be admissible to alter or vary the terms of this Agreement. 12.04 Captions. The captions or headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall have no effect upon the construction or interpretation of any part of this Agreement. 12.05 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. 12.06 No Third Party Beneficiaries. Except as expressly set forth herein, the terms of this Agreement are for the sole benefit of Owner and Fuel Manager and their respective successors and permitted assigns and not for any third party whatsoever. 12.07 Further Assurances. If either party reasonably determines or is reasonably advised that any further instruments or any other things are necessary or desirable to carry out the terms of this Agreement, the other party shall execute and deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this Agreement. 20 12.08 No Implied Waiver. Failure of either party to exercise any right to enforce any provision, or to require strict performance by the other party of any provision, shall not release the other party from any of its obligations under this Agreement and shall not operate as a waiver of any right to insist upon strict performance, or of either party's rights or remedies under this Agreement or at law. 12.09 Amendments. No amendment, waiver or modification of any provision of this Agreement shall be effective unless made in writing and signed by both parties. 12.10 Confidentiality. Except to the extent expressly authorized herein including, without limitation, in connection with a proposed assignment of this Agreement or a proposed financing transaction entered into by Owner, in which case disclosure of the terms hereof shall be limited to the extent reasonably practicable, each of the parties agree that neither it nor its attorneys, agents or representatives shall reveal to anyone any of the terms of this Agreement or any of the terms of the documents executed pursuant hereto, including, without limitation, the amount, terms or conditions of payment hereunder, other than (i) as may be hereafter mutually agreed to in writing, (ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors, officers, employees, representatives, advisors, consultants and attorneys, and the directors, officers, employees, representatives, advisors, consultants and attorneys of affiliated companies who need to know such information, and (iv) to the extent required to be disclosed by applicable law or legal process. 12.11 Decision-Making by Parties. Except where this Agreement expressly provides for a different standard and/or time period, whenever this Agreement provides for a determination, decision, permission, consent or approval of a party, the party shall promptly make such determination, decision, grant or withholding of consent or approval in a commercially reasonable manner and without unreasonable delay. Any denial of consent required to be made in a commercially reasonable manner shall include in reasonable detail the reason for denial or aspect of the request that was not acceptable. [Remainder Of Page Intentionally Left Blank] 21 IN WITNESS WHEREOF, the parties hereto executed multiple originals of this Agreement as of the date first written above. OWNER: NORTHEAST ENERGY, LP, a Delaware limited partnership By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith -------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Timothy R. Dunne -------------------------- Name: Timothy R. Dunne Title: Vice President FUEL MANAGER: ESI NORTHEAST FUEL MANAGEMENT, INC., a Florida corporation By: /s/ Glenn E. Smith -------------------------- Name: Glenn E. Smith Title: Vice President [Signature Page to Bellingham Fuel Management Agreement] 22 ASSIGNEE: NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a Massachusetts limited partnership By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith -------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Timothy R. Dunne -------------------------- Name: Timothy R. Dunne Title: Vice President [Signature Page to Bellingham Fuel Management Agreement] EXHIBIT A Existing Agreements ------------------- A-1 EXHIBIT B Form of Guaranty ---------------- B-1 SCHEDULE 1 Oil Specifications ------------------ [Attach Oil Specifications from Westinghouse O&M Contract.] S1-1 EX-10.19 16 FUEL MANAGEMENT AGREEMENT EXHIBIT 10.19 ================================================================================ FUEL MANAGEMENT AGREEMENT dated as of January 20, 1998 for the Sayreville Cogeneration Plant at Sayreville, New Jersey between Northeast Energy, LP and ESI Northeast Fuel Management, Inc. ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITION OF TERMS................................................................................. 1 ARTICLE II. FUEL MANAGEMENT SERVICES............................................................................ 5 2.01 Transition Services........................................................................... 5 2.02 Fuel Management Services...................................................................... 5 2.03 Supply and Transportation Portfolio Planning.................................................. 6 2.04 Fuel Supply Plan.............................................................................. 7 2.05 Replacement Fuel.............................................................................. 8 2.06 Replacement Transportation Services........................................................... 8 2.07 Sale of Excess Fuel........................................................................... 9 2.08 Appointment of Fuel Manager as Owner's Agent.................................................. 9 ARTICLE III. NOMINATION, COORDINATION AND OPTIONAL SERVICES...................................................... 10 3.01 90-Day Nomination............................................................................. 10 3.02 30-Day Nomination............................................................................. 10 3.03 Daily Confirmation with Facility.............................................................. 10 3.04 Notification by Owner......................................................................... 10 3.05 Supply of Gas by Fuel Manager................................................................. 10 3.06 Substitute Gas Transactions................................................................... 10 3.07 Other Services................................................................................ 11 ARTICLE IV. PAYMENTS, COMPENSATION AND EXPENSES................................................................. 11 4.01 Payments to Suppliers, Transporters and Storage Operators..................................... 11 4.02 Management Fee................................................................................ 11 4.03 Expenses...................................................................................... 11 4.04 Late Payments................................................................................. 12 ARTICLE V. LIABILITY, INDEMNITY AND GUARANTY................................................................... 12 5.01 Indemnification by Fuel Manager............................................................... 12 5.02 Indemnification by Owner...................................................................... 12 5.03 No Consequential Damages...................................................................... 12 5.04 Limitation of Aggregate Liability............................................................. 13
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Page ---- 5.05 Non-Recourse Obligations...................................................................... 13 5.06 Guaranty...................................................................................... 13 ARTICLE VI. ASSIGNMENT.......................................................................................... 13 6.01 Assignments................................................................................... 13 6.02 Assignment by Owner to NJEA................................................................... 14 6.03 Subcontracting................................................................................ 14 ARTICLE VII. NOTICES............................................................................................. 14 ARTICLE VIII. FORCE MAJEURE....................................................................................... 15 8.01 Suspension of Obligation...................................................................... 15 8.02 Definition.................................................................................... 15 ARTICLE IX. TERM AND TERMINATION................................................................................ 16 9.01 Term.......................................................................................... 16 9.02 Termination upon Notice by Fuel Manager....................................................... 16 9.03 Termination upon Notice by Owner.............................................................. 16 9.04 Termination Upon Certain Other Events......................................................... 16 9.05 Effect on Termination......................................................................... 16 ARTICLE X. LIMITATIONS ON AGENCY............................................................................... 17 ARTICLE XI. DISPUTE, RESOLUTION AND ARBITRATION................................................................. 17 11.01 Dispute Resolution............................................................................ 17 11.02 Arbitration................................................................................... 17 11.03 Survival...................................................................................... 18 ARTICLE XII. GENERAL PROVISIONS.................................................................................. 19 12.01 Severability.................................................................................. 19 12.02 Governing Law................................................................................. 19
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Page ---- 12.03 Entire Agreement.............................................................................. 19 12.04 Captions...................................................................................... 19 12.05 Counterparts.................................................................................. 19 12.06 No Third Party Beneficiaries.................................................................. 19 12.07 Further Assurances............................................................................ 19 12.08 No Implied Waiver............................................................................. 19 12.09 Amendments.................................................................................... 20 12.10 Confidentiality............................................................................... 20 12.11 Decision-Making by Parties.................................................................... 20 Attachments: - ------------ Exhibit A - Existing Agreements Exhibit B - Form of Guaranty
iii FUEL MANAGEMENT AGREEMENT This FUEL MANAGEMENT AGREEMENT (this "Agreement"), is made as of the 20th day of January, 1998, between NORTHEAST ENERGY, LP, a Delaware limited partnership ("Owner") and ESI NORTHEAST FUEL MANAGEMENT, INC., a Florida corporation ("Fuel Manager"). Owner and Fuel Manager are sometimes referred to individually as a "party" and collectively, the "parties". WITNESSETH THAT: WHEREAS, on the Commencement Date Owner will indirectly hold 100% of the partnership interests in New Jersey Energy Associates, A Limited Partnership ("NJEA"), the owner of the 300 megawatt combined cycle cogeneration plant located in Sayreville, New Jersey (the "Facility"); and WHEREAS, the Facility is fueled by natural gas; and WHEREAS, NJEA currently purchases approximately 80% of the natural gas that fuels the Facility from gas suppliers pursuant to long-term gas supply agreements; and WHEREAS, Owner desires that Fuel Manager manage on behalf of Owner, all gas supply, transportation and storage agreements; and WHEREAS, to the extent the gas supplied under such agreements are not sufficient to meet Owner's fuel requirements, Owner desires that Fuel Manager locate and purchase as Owner's agent natural gas in such quantities and on such terms and conditions as Owner may request; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, Fuel Manager and Owner, intending to be legally bound, agree as follows: ARTICLE I. DEFINITION OF TERMS Except where the context requires another meaning, the following terms shall be construed to have the following meanings: "Additional Agreements" shall mean the Additional Gas Supply Agreements, the Additional Gas Transportation Agreements and the Additional Gas Storage Agreements. "Additional Gas Storage Agreements" shall mean the contracts and agreements entered into by or on behalf of NJEA after the Effective Date relating to the storage of Gas to be used by the Facility, as amended from time to time. "Additional Gas Supply Agreements" shall mean the contracts, purchase orders and other agreements (including hedging contracts) entered into by or on behalf of NJEA after the Effective Date relating to the supply of Gas to the Facility, as amended from time to time. "Additional Gas Transportation Agreements" shall mean the contracts and agreements entered into by or on behalf of NJEA after the Effective Date relating to the transportation of Gas to be used by the Facility, as amended from time to time. "Affiliate" shall mean any person that, directly or indirectly, controls, is controlled by, or is under common control with, another person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any person, means, the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities or by contract or otherwise. "Agency Designation Agreements" shall have the meaning set forth in Section 2.08 hereof. "Agreement" shall have the meaning set forth in the preamble hereto, and include all exhibits and schedules attached hereto. All exhibits and schedules referenced in this Agreement are incorporated herein for all purposes and shall be updated by the parties as necessary. "Alternative Transportation" shall have the meaning set forth in Section 2.06 hereof. "Arbitration Rules" shall have the meaning set forth in Section 11.02 hereof. "Business Day" shall mean a calendar day other than a Saturday, Sunday or a statutory holiday in the State of New Jersey. "Commencement Date" shall mean the Acquisition Date as defined in the Partnership Agreement. "Damages" shall have the meaning set forth in Section 5.01 hereof. "Dispute Notice" shall have the meaning set forth in Section 11.01 hereof. "Effective Date" shall mean January 14, 1998. "Excess Fuel" shall have the meaning set forth in Section 2.07 hereof. 2 "Existing Agreements" shall mean the Gas Supply Agreements, the Gas Transportation Agreements and the Gas Storage Agreements. "Facilities Purchase Agreement" shall mean the Purchase Agreement as defined in the Partnership Agreement. "Facility" shall have the meaning in the first recital hereto. "FERC" shall mean the Federal Energy Regulatory Commission. "Force Majeure" shall have the meaning set forth in Section 8.02 hereof. "Fuel Management Services" shall have the meaning set forth in Section 2.02 hereof. "Fuel Manager" shall have the meaning set forth in the preamble hereof. "Fuel Manager's Indemnitees" shall have the meaning set forth in Section 5.02 hereof. "Fuel Period" shall mean a Summer Fuel Period or a Winter Fuel Period. "Fuel Supply Plan" shall have the meaning set forth in Section 2.04 hereof. "Gas" shall mean natural gas conforming to the specifications provided for by the FERC approved tariff of the Algonquin Gas Transmission Company. "Gas Day" shall mean the 24 hour period commencing at 10:00 a.m. eastern standard time on any calendar day and ending at 9:59 a.m. eastern standard time on the succeeding calendar day. "Gas Storage Agreements" shall mean the contracts and agreements entered into by NJEA before the Effective Date with respect to the storage of Gas to be used by the Facility, as such contracts and agreements are listed on Exhibit A hereto, as amended from time to time. "Gas Suppliers" shall mean the suppliers of Gas used at the Facility pursuant to the Gas Supply Agreements or the Additional Gas Supply Agreements. "Gas Supply Agreements" shall mean the contracts, purchase orders and other agreements (including hedging contracts) entered into by NJEA before the Effective Date with respect to the supply of Gas to the Facility, as such contracts, purchase orders and other agreements are listed on Exhibit A hereto, as amended from time to time. "Gas Transportation Agreements" shall mean the contracts and agreements entered into by NJEA before the Effective Date with respect to the transportation of Gas to be 3 used by the Facility, as such contracts and agreements are listed on Exhibit A hereto, as amended from time to time. "Indemnitees" shall have the meaning set forth in Section 5.01 hereof. "Late Payment Rate" shall mean a per annum rate of interest equal to the rate announced from time to time in the Wall Street Journal as the prime commercial lending rate of national commercial banks plus two percent (2%), but in no event more than the maximum rate permitted under applicable law. "Laws" shall mean any applicable federal, state or local statute, law, ordinance, rule or regulation. "Management Fee" shall have the meaning set forth in Section 4.02 hereof. "NJEA" shall have the meaning set forth in the first recital hereto. "Operator" shall mean Westinghouse Electric Corporation until such time as it no longer serves as Operator of the Facility, then it shall mean ESI Operating Services, Inc., or such other person or entity who may be acting as operator of the Facility. "Owner" shall have the meaning set forth in the preamble hereof. "Owner's Fuel Requirements" shall mean the aggregate total supply of Gas required during a specified period by Owner in connection with the operation of the Facility for such specified period. "party" and "parties" shall have the meanings set forth in the preamble hereof. "Partnership Agreement" shall mean that certain Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, dated as of November 21, 1997, by and among ESI Northeast Energy GP, Inc., Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and Tractebel Associates Northeast LP, Inc. "PPI Index" shall mean the Department of Labor, Bureau of Labor Statistics, Producer Price Index for All Commodities (1982=100). If the PPI Index ceases to be published or is otherwise unavailable, "PPI Index" shall mean an index that Owner and Fuel Manager shall mutually determine in good faith to be most nearly comparable to the foregoing. "Project Year" shall mean the twelve (12) month period beginning on the Commencement Date and each successive twelve (12) month period beginning on the anniversary dates thereof. "Replacement Fuel" shall have the meaning set forth in Section 2.05 hereof. 4 "Summer Fuel Period" shall mean the seven-month period commencing April 1 of any year ending on October 31 of such year. "Winter Fuel Period" shall mean the five-month period commencing on November 1 of any year and ending on March 31 of the next succeeding year. "30-Day Nomination" shall have the meaning set forth in Section 3.02 hereof. "90-Day Nomination" shall have the meaning set forth in Section 3.01 hereof. ARTICLE II. FUEL MANAGEMENT SERVICES 2.01 Transition Services. From the Effective Date through the Commencement Date, Fuel Manager shall provide each of the following services: (a) review existing fuel management procedures for the Facility and all relevant records, documents and materials relating to such procedures; (b) review existing fuel supply, transportation and storage arrangements in effect on the Effective Date and update Exhibit A accordingly; (c) prepare and submit the initial Fuel Supply Plan to Owner as soon as reasonably practicable after the Effective Date, but in no event later than January 30, 1998; (d) update the initial Fuel Supply Plan to reflect any changes requested by Owner (provided that no revision to the initial Fuel Supply Plan shall require Fuel Manager to perform services which might conflict with Fuel Manager's duties under this Agreement or applicable Laws); (e) develop the necessary programs and procedures to perform the Fuel Management Services in accordance with the initial Fuel Supply Plan; and (f) such other services as are necessary and incidental to the performance of the foregoing services. 2.02 Fuel Management Services. From the Commencement Date through the termination of this Agreement, Fuel Manager shall furnish to Owner the following services in connection with the supply, transportation and storage of Gas to be used by the Facility (the "Fuel Management Services"): (a) preparation and modification of the Fuel Supply Plans in accordance with Section 2.04; 5 (b) transportation scheduling; transportation balancing; transportation imbalance reconciliation; proposals for and, if Owner so approves, utilization of excess transportation capacity through scheduling and relinquishment and through sales to third parties at alternate delivery points; compliance with pipeline operational orders; general operational and planning advice; and attendance at such Partnership meetings as the parties deem appropriate for Fuel Manager to fully represent the interests of Owner, as contemplated by this Agreement; (c) monitoring of pipeline tariff filings in consultation with Owner, consultants and legal counsel and intervention, at the request and expense of Owner, in the applicable FERC hearings and provision of testimony; and (d) such other services as are necessary and incidental to performance of the foregoing Fuel Management Services. 2.03 Supply and Transportation Portfolio Planning. In connection with the preparation of the Fuel Supply Plan and the performance of its obligations under Section 2.02, and using information made available by Owner and such other information as it deems necessary, Fuel Manager shall: (a) analyze Owner's Fuel Requirements in light of the amount of Gas then being supplied under the Existing Agreements and the Additional Agreements then in effect; (b) analyze regional Gas supply and demand, sources, transportation, delivery, supply mechanisms and the regulatory structure with respect to additional Gas required by the Facility; (c) prequalify Gas suppliers, obtain and evaluate proposals, and recommend proposals to Owner for Additional Gas Supply Agreements and if such proposals are approved by Owner (which approval may be in the Fuel Supply Plan), negotiate and obtain Additional Gas Supply Agreements for the Facility on behalf of Owner; (d) evaluate price risk management proposals, make recommendations to Owner with respect to price risk management, and if such recommendations are approved by Owner (which approval may be in the Fuel Supply Plan), negotiate and enter into such risk management arrangements on behalf of Owner; (e) review existing and potential arrangements for transportation and storage of the Gas to be acquired in accordance with the Fuel Supply Plan, make recommendations to Owner with respect to such arrangements, and if such recommendations are approved by Owner (which approval may be in the Fuel Supply Plan), negotiate and obtain necessary Additional Gas Transportation Agreements and/or Additional Gas Storage Agreements on behalf of Owner; and 6 (f) to the extent known, advise Owner of changes and anticipated changes in cost, reliability, interruption or other factors affecting the current or anticipated future supply of Gas to the Facility, make recommendations to Owner with respect to alternate supplies or transportation mechanisms, and if such recommendations are approved by Owner (which approval may be in the Fuel Supply Plan), implement those recommendations deemed desirable by Owner. All Additional Agreements shall be entered into by Owner; provided, however, that upon the approval of Owner (which approval may be contained in the Fuel Supply Plan), Fuel Manager will enter into any such contract in its capacity as agent for Owner. In connection with the services provided by Fuel Manager under Article II of this Agreement, Fuel Manager will, except as otherwise agreed by the parties, provide Owner with copies of all reasonable proposals it receives from third parties for the supply, transportation, or storage of Gas for the Facility and such other relevant information in Fuel Manager's possession as Owner may reasonably request from time to time. 2.04 Fuel Supply Plan. Fuel Manager shall furnish to Owner at least forty-five (45) days prior to the first full Fuel Period after the Commencement Date and each Fuel Period thereafter, a fuel, transportation and storage supply plan (the "Fuel Supply Plan"). Fuel Manager's analysis and strategy shall incorporate a least-cost optimization of the available options to develop a Fuel Supply Plan designed to provide Owner with a low-cost Gas supply portfolio that is highly flexible and secure. Owner shall give its written approval or disapproval of the Fuel Supply Plan no later than thirty (30) days after receipt thereof from Fuel Manager. If the Fuel Supply Plan is not approved or disapproved within such 30-day period, Fuel Manager shall, in the absence of instructions to the contrary from Owner, purchase Gas in the 30-day spot market in the quantities specified by Owner's nominations pursuant to Article III, to the extent required by the Facility but not covered by Existing Agreements and Additional Agreements until such time as the Fuel Supply Plan is approved. If Owner disapproves all or any portion of the proposed Fuel Supply Plan, Owner shall provide the reasons for such disapproval in writing and Owner and Fuel Manager shall make reasonable efforts to agree on a Fuel Supply Plan. If Owner and Fuel Manager cannot agree on the Fuel Supply Plan, those elements of the Fuel Supply Plan that are in dispute shall be revised in accordance with the recommendations of Owner. However, in no event shall such revised Fuel Supply Plan require Fuel Manager to perform services that might conflict with Fuel Manager's duties under this Agreement or applicable Laws. An approved Fuel Supply Plan shall constitute authorization for Fuel Manager to enter into the transactions and agreements contemplated therein as agent on behalf of Owner in accordance with such approved Fuel Supply Plan. If Fuel Manager desires to request an amendment to an approved Fuel Supply Plan at any time, Fuel Manager shall submit a proposed revised Fuel Supply Plan for Owner's consideration, including the basis for the amendment, and Owner shall approve or disapprove the proposed revised Fuel Supply Plan in writing within thirty (30) days after submission 7 thereof. If the proposed revised Fuel Supply Plan is not approved within such 30-day period, it shall be deemed to have been disapproved. If the proposed revised Fuel Supply Plan is disapproved within such 30-day period, Owner shall furnish Fuel Manager with the reasons for such disapproval in writing and, if appropriate, Fuel Manager shall update and resubmit the proposed revised Fuel Supply Plan for approval by Owner. Once approved by Owner, the revised Fuel Supply Plan shall supersede the then current approved Fuel Supply Plan. If Owner requests an amendment, Fuel Manager shall revise the Fuel Supply Plan to reflect any changes requested by Owner; provided, however, that in no event shall such revised Fuel Supply Plan require Fuel Manager to perform services that might conflict with Fuel Manager's duties under this Agreement or applicable Laws. Fuel Manager shall not, except as described in Section 2.05 or 2.06 hereof, act outside of the approved Fuel Supply Plan without the prior written consent of Owner. 2.05 Replacement Fuel. If for any reason (including Force Majeure), a Gas Supplier fails to deliver Gas to Owner, Fuel Manager shall promptly upon obtaining actual knowledge thereof notify Owner. If Owner is unavailable or, in the reasonable judgment of Fuel Manager, there is insufficient time to reach Owner and insure the adequate supply of Gas to the Facility for any of the next thirty (30) days, Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to locate and acquire Gas ("Replacement Fuel") to replace any Gas not delivered to Owner; provided that Fuel Manager shall not without the prior written consent of Owner enter into any agreement for the supply of Gas with a term in excess of 30 days. Fuel Manager shall seek to locate and acquire Replacement Fuel under substantially similar terms and conditions and with equivalent economic ramifications to Owner as those applicable to the lost Gas supply, but if it is unable to do so, Fuel Manager shall nevertheless use commercially reasonable efforts to locate and acquire other Replacement Fuel. Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to minimize the cost of Replacement Fuel by choosing among available Replacement Fuel supplies that which is most cost-efficient, taking into consideration dependability, safety, transportation cost, and the anticipated extent and duration of the interruption in supply of the Gas that would have been provided under the existing arrangements. Fuel Manager shall promptly notify Owner after Fuel Manager's acquisition, as agent of Owner, of Replacement Fuel pursuant to this Section 2.05 and the price of such Replacement Fuel. If Fuel Manager determines it is not able to acquire Replacement Fuel, Fuel Manager shall promptly notify Owner and prepare and submit to Owner a plan to address such unavailability of Replacement Fuel. 2.06 Replacement Transportation Services. If for any reason (including Force Majeure), Gas is not being transported pursuant to any Gas Transportation Agreement or any Additional Gas Transportation Agreement, Fuel Manager shall promptly upon obtaining actual knowledge thereof notify Owner. If Owner is unavailable or, in the reasonable judgment of Fuel Manager, there is insufficient time to reach Owner and insure the adequate supply of Gas to the Facility for any of the next thirty (30) days, Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to arrange for alternative transportation arrangements to replace the transportation services which are no longer available ("Alternative Transportation"). Fuel Manager shall seek to arrange Alternative Transportation under substantially similar terms and conditions and with equivalent economic ramifications to Owner as those applicable to the lost transportation services, but if it is unable to do so, Fuel Manager shall nevertheless use 8 commercially reasonable efforts to arrange Alternative Transportation. Fuel Manager shall, as agent for Owner, use commercially reasonable efforts to minimize the costs of Alternative Transportation by choosing among available transportation alternatives that which is most cost- efficient, taking into consideration dependability, safety, and the anticipated duration of the interruption in transportation services that would have been provided under the Existing Gas Transportation Agreements or Additional Gas Transportation Agreements. Fuel Manager shall promptly notify Owner after Fuel Manager's arranging for Alternative Transportation, as agent of Owner, pursuant to this Section 2.06 and the price of such Alternative Transportation. If Fuel Manager determines it is not able to arrange Alternative Transportation, Fuel Manager shall promptly notify Owner and prepare and submit to Owner a plan to address such unavailability of Alternative Transportation. 2.07 Sale of Excess Fuel. If at any time the Fuel Manager believes or anticipates that the Facility will not require any of the Gas purchased under the Existing Agreements or the Additional Agreements or procured on Owner's behalf by Fuel Manager (either pursuant to a Fuel Supply Plan or by express instruction of Owner to procure such Gas) (the "Excess Fuel"), Fuel Manager shall promptly notify Owner and, upon Owner's request, shall use reasonable efforts to market for sale and arrange for delivery of such Excess Fuel to a third party buyer at the best available prices possible given the then current conditions in the market. Any amount received over the price originally paid by Owner for such Excess Fuel shall belong to the Owner and Owner shall bear any loss incurred should the amount received for such Excess Fuel be less than that originally paid by Owner. 2.08 Appointment of Fuel Manager as Owner's Agent. Subject to the limitations set forth in Article X, Owner hereby appoints Fuel Manager (and any permitted subcontractor) as its agent solely for the following purposes: (a) to act on Owner's behalf and for Owner's benefit in submitting nominations to the Gas Suppliers pursuant to Article III hereof; (b) to act on Owner's behalf and for Owner's benefit, for purposes set forth in any Agency Designation Agreement entered into by Owner pursuant to this Section 2.08; and (c) to negotiate and, upon the approval of Owner (which approval may be in the Fuel Supply Plan), enter into Additional Agreements as agent of Owner for the purchase, storage or transportation of Gas on the terms and subject to such conditions as Owner may approve (which approval may be in the Fuel Supply Plan). Owner and Fuel Manager shall notify all existing and future Gas Suppliers and all applicable transportation and storage providers of the foregoing agency promptly after the Commencement Date and shall, to the extent required by such suppliers or operators, enter into an agency designation agreement in form and substance reasonably acceptable to Owner and Fuel Manager confirming such agency for purposes of any Existing Agreement or Additional Agreement (the "Agency Designation Agreements"). Owner and Fuel Manager shall, immediately upon expiration or early termination of the Agreement, notify the applicable entities 9 that such agency has terminated. The Agency Designation Agreements and any notice to Gas Suppliers and others of the existence of the agency shall state that either Owner or Fuel Manager, acting alone, may give notice to such party terminating the agency. The appointment of Fuel Manager (and any permitted subcontractor) as agent shall terminate automatically and without prior notice upon termination of this Agreement for whatever reason. ARTICLE III. NOMINATION, COORDINATION AND OPTIONAL SERVICES 3.01 90-Day Nomination. Within 15 days of Fuel Manager's written request, which request may be made once each quarter, Owner shall provide to Fuel Manager a 90-day nomination (the "90-Day Nomination") setting forth on a daily basis Owner's anticipated need for the procurement, transportation and storage of Gas. 3.02 30-Day Nomination. At least 15 days prior to the end of each month, Owner shall provide to Fuel Manager a 30-day nomination (the "30-Day Nomination") setting forth on a daily basis Owner's anticipated need for the procurement, transportation and storage of Gas for the subsequent month. 3.03 Daily Confirmation with Facility. Fuel Manager shall call the Facility each day by 8:00 a.m. to confirm with Operator the Facility's requirements for Gas for such Gas Day and the estimated requirements for the following Gas Day and for Fuel Manager to confirm the availability of Gas for such Gas Day pursuant to the applicable Fuel Supply Plan and the applicable 30-Day Nomination. Fuel Manager shall confirm to Owner and Operator by hand delivery or by facsimile the information confirmed by such call. 3.04 Notification by Owner. Owner shall use all reasonable efforts to provide Fuel Manager with prompt notice of all information regarding startups or shutdowns of the Facility, including, but not limited to (A) maintenance not scheduled or included as part of the applicable Fuel Supply Plan; (B) forced outages, (C) scheduled outages, and (D) any other relevant information or event which may impact the quantities of Gas to be provided to the Facility pursuant to the applicable Fuel Supply Plan or 30-Day Nomination. 3.05 Supply of Gas by Fuel Manager. Fuel Manager may, but is not obligated to, offer to supply Gas to Owner at a price and on terms to be determined by Fuel Manager in its sole and absolute discretion. Owner may, in its sole and absolute discretion, accept or reject Fuel Manager's offer to supply such Gas. In connection therewith, Owner will, at the request of Fuel Manager, negotiate in good faith an enabling agreement for the sale of Gas by Fuel Manager to Owner, to be used in the event the parties agree to consummate such transactions. 3.06 Substitute Gas Transactions. Fuel Manager may, but is not obligated to, propose transactions to Owner pursuant to which Fuel Manager or a third party (which may be 10 an Affiliate of Fuel Manager) will take delivery of a volume of Gas equal to all or any part of the Gas to be supplied by any Gas Supplier for all or any portion of the term of the applicable supply contract and substitute Gas from another source therefor. Owner may, in its sole and absolute discretion, accept or reject Fuel Manager's proposals. If Owner and Fuel Manager decide to proceed with any such transaction, they will enter into a separate agreement with respect thereto. 3.07 Other Services. All other services not within the scope of this Agreement, which may be requested by Owner shall be handled by separate agreement and compensation. ARTICLE IV. PAYMENTS, COMPENSATION AND EXPENSES 4.01 Payments to Suppliers, Transporters and Storage Operators. Owner shall be responsible for remitting payment to all Gas Suppliers and any and all pipeline and other transporters or storage operators utilized hereunder to serve the Facility. In connection therewith, Fuel Manager shall review and approve invoices from all such suppliers and operators. 4.02 Management Fee. Fuel Manager shall receive a management fee for each Project Year (the "Management Fee") of $450,000 per annum, as adjusted in accordance with this Section 4.02. The Management Fee shall be paid in monthly installments and shall be due on the first Business Day of each month for the preceding month. The Management Fee for any partial month shall be pro rated to cover the actual portion of such month that this Agreement was in effect. As of January 1 of each year, commencing January 1, 1999, the Management Fee shall be adjusted upwards or downwards by multiplying the Management Fee for the prior year by a fraction the numerator of which will be the PPI Index for immediately preceding December and the denominator of which will be the PPI Index for the month of December one year earlier; provided, that in no event shall the Management Fee be decreased below $450,000. This adjusted Management Fee shall be the Management Fee for the current Project Year and the basis for calculation of the Management Fee for the next Project Year. 4.03 Expenses. Fuel Manager shall submit for Owner's approval any out-of-pocket expenses that Fuel Manager anticipates will be incurred in the performance of its obligations hereunder or any services requested by Owner. Fuel Manager shall only incur expenses, and Owner is only obligated to reimburse Fuel Manager for expenses, to the extent such expenses are (i) approved in advance by Owner (as part of an approved Fuel Supply Plan or otherwise) or (ii) incurred in accordance with the terms of Section 2.05 or 2.06. Owner's reimbursement of Fuel Manager for such out-of-pocket expenses shall be in addition to the compensation set forth in Section 4.02. 11 4.04 Late Payments. If any amounts owing under this Agreement are not paid to Fuel Manager or Owner, as applicable, when due, the same shall bear interest at the Late Payment Rate from the due date until paid. ARTICLE V. LIABILITY, INDEMNITY AND GUARANTY 5.01 Indemnification by Fuel Manager. Subject to the limitations in this Article V, Fuel Manager hereby agrees to indemnify, defend and hold harmless Owner, all partners of Owner, and each of their respective officers, directors, shareholders, agents, Affiliates and employees (collectively, the "Indemnitees") from and against all losses, liabilities, damages, demands, claims, suits, actions, judgments or causes of action, assessments, interest, penalties, costs and expenses, including, without limitation, attorney's fees, and expenses (whether suit is instituted or not and, if instituted, whether at trial or appellate levels) (collectively "Damages") asserted against, resulting to, imposed upon, or incurred or suffered by any of the Indemnitees, directly or indirectly, whether raised by an Indemnitee or a third party, arising out of, caused by or resulting from the performance or non-performance by Fuel Manager of its duties hereunder, to the extent that any such Damages are caused in whole or in part by (a) any agreement, contract or arrangement executed by Fuel Manager in the name of (and without the written consent of) the Owner which is prohibited by this Agreement or beyond the scope of its authority, or (b) the negligence or willful misconduct of Fuel Manager. 5.02 Indemnification by Owner. Subject to the limitations set forth in this Article V, Owner shall indemnify, defend and hold harmless Fuel Manager, any subcontractor and their respective officers, directors, shareholders, agents, Affiliates and employees (collectively, "Fuel Manager's Indemnitees") from and against all Damages asserted against, resulting to, imposed upon, or incurred or suffered by any of the Fuel Manager's Indemnitees, directly or indirectly, whether raised by Fuel Manager's Indemnitees or a third party, to the extent arising out of or resulting from the performance or non-performance by Owner of its duties hereunder or under any Existing Agreement or Additional Agreement; provided, however, that such indemnification does not apply to the extent that the Damages arise from (a) Fuel Manager's negligence or willful misconduct in connection with the performance of its duties hereunder, or (b) any Existing Agreement or Additional Agreement which was executed by Fuel Manager in the name of Owner which is prohibited by this Agreement or is outside of the authority granted to Fuel Manager by Owner under or pursuant to this Agreement. 5.03 No Consequential Damages. With respect to claims arising under this Agreement or out of performance or non-performance of the services and obligations under this Agreement, neither Fuel Manager, any subcontractor nor their respective officers, directors, shareholders, agents, Affiliates or employees shall be liable to Owner, any Partner of Owner, nor their respective officers, directors shareholders, agents, Affiliates or employees, and neither Owner, any Partner of Owner, nor their respective officers, directors, shareholders, agents, Affiliates or employees shall be liable to Fuel Manager, any subcontractor, or any of their respective officers, directors, shareholders, agents, Affiliates or employees, whether based in 12 contract, in tort (including negligence and strict liability), under warranty, or otherwise, for any special indirect, incidental, exemplary or consequential loss or damage whatsoever, including without limitation, loss of use, opportunity or profits, damages to good will or reputation or punitive damages; provided, however, that this limitation on liability shall not apply to Fuel Manager's actions under Section 5.01(a) unless the Fuel Manager has acted in good faith and with a reasonable basis for believing that such actions were permitted by this Agreement and were within the scope of its authority. 5.04 Limitation of Aggregate Liability. The total annual aggregate liability of Fuel Manager with respect to this Agreement under any theory of recovery, whether based in contract, in tort (including negligence and strict liability), under warranty or otherwise, and notwithstanding any other provision of this Agreement, shall be limited in any Project Year to the Management Fee for such Project Year; provided, however, that this limitation on liability shall not apply to Fuel Manager's actions under Section 5.01(a) unless the Fuel Manager has acted in good faith and with a reasonable basis for believing that such actions were permitted by this Agreement and were within the scope of its authority. 5.05 Non-Recourse Obligations. Notwithstanding any other provision of this Agreement to the contrary, the obligations of Owner hereunder are recourse only to the assets of Owner and neither the partners of Owner nor any shareholder, director, officer, agent, Affiliate or employee of Owner or any partner of Owner, shall have any personal responsibility or liability for any payment obligations of Owner hereunder, or otherwise for any breach in performance or observance of the covenants, representations, or obligations of Owner hereunder. 5.06 Guaranty. Prior to the Commencement Date, Fuel Manager shall cause ESI Energy, Inc. to execute and deliver to Owner a guaranty of Fuel Manager's obligations under Section 5.01 in substantially the form attached hereto as Exhibit B. ARTICLE VI. ASSIGNMENT 6.01 Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (b) Except as otherwise provided in this Agreement, neither party may assign or otherwise convey any of its rights, title or interest under this Agreement, without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld); provided, however, that either party may collaterally assign its interests in this Agreement as security for debt, with notice to, but without need for the consent of, the other party. 13 6.02 Assignment by Owner to NJEA. Upon the later to occur of (i) the Commencement Date and (ii) the execution and delivery by NJEA of a counterpart hereof to Owner and Fuel Manager, but without any further action by any Person, all right, title and interest of Owner hereunder shall be assigned to, and all of Owner's obligations, liabilities and duties whether past, present or future, arising under, in or in connection with this Agreement, including Owner's obligations under Section 4.02 hereof, shall be assumed by, NJEA. 6.03 Subcontracting. Fuel Manager may, without the consent of the Owner, subcontract any of its duties or obligations hereunder to one of its Affiliates. Fuel Manager may not subcontract any of its duties or obligations hereunder to a non-affiliate without the prior written consent (which consent may be in the Fuel Supply Plan) of Owner to the subcontractor and subcontract, which consent shall not be unreasonably withheld. No subcontract shall relieve Fuel Manager of its duties and obligations hereunder. ARTICLE VII. NOTICES Any notice to either party required or permitted hereunder shall be in writing and shall be given by personal delivery or by commercial courier or by certified mail, return receipt requested, postage prepaid, or by telecopier with confirmed receipt, addressed as follows: If to Owner: Prior to assignment to NJEA: Northeast Energy, LP c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President After assignment to NJEA: New Jersey Energy Associates, A Limited Partnership c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President 14 with, in either case, a copy to: Tractebel Power, Inc. 1177 West Loop South, Suite 900 Houston, Texas 77027 Telecopier: (713) 552-2364 Attention: General Counsel If to Fuel Manager: Northeast Fuel Management, Inc. c/o ESI Energy, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopier: (561) 691-3615 Attention: President or to such other address as Owner or Fuel Manager may have specified in a notice duly given as provided herein to the other party. All notices given in the foregoing manner shall be effective when received, except that a notice sent by telecopier and received after normal business hours shall be deemed to be received the following Business Day. ARTICLE VIII. FORCE MAJEURE 8.01 Suspension of Obligation. If either party hereto is rendered unable, wholly or in part, by Force Majeure to carry out its obligations under this Agreement, other than to make payments on obligations due hereunder, it is agreed that upon such party giving notice and full particulars of such Force Majeure to the other party as soon as possible after the occurrence of the cause relied on, the obligations of the party(ies), only insofar as they are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused, but for no longer period. Such cause shall, as far as possible, be remedied with all reasonable dispatch, except that settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty. 8.02 Definition. The term "Force Majeure" as used herein shall mean an occurrence not within the reasonable control of a party and without the fault, negligence or willful misconduct of such party claiming Force Majeure and shall include, but not be limited to: acts of God, epidemics, landslides, lightning, earthquakes, fires, storms, hurricanes, floods, and washouts; strikes, lockouts, and other industrial disturbances; civil disturbances, acts of the public enemy, wars, blockades, insurrections, riots, sabotage, and arrests and restraints of governments and people, or actions or inactions of any government or governmental agency or changes in the law or applicable regulations subsequent to the date hereof preventing performance, or the inability despite due diligence to obtain or renew required licenses; 15 provided, however, that lack of money or changes in market considerations shall not constitute "Force Majeure." ARTICLE IX. TERM AND TERMINATION 9.01 Term. This Agreement shall be in effect from the Effective Date for a primary term ending on the twenty-fifth (25th) anniversary of the Commencement Date, unless terminated earlier as provided herein. 9.02 Termination upon Notice by Fuel Manager. If Owner (a) fails to make any payment due to Fuel Manager hereunder within ten (10) days after such payment shall have become due or (b) fails, for reasons other than Force Majeure, to perform any of the material covenants or obligations imposed upon it under and by virtue of this Agreement and in the case of a default under (b) does not remedy or cure such default (and the effects thereof) within thirty (30) days after receipt of written notice thereof from Fuel Manager (or within ninety (90) days after receipt of such notice, in the case of defaults not susceptible of cure within thirty (30) days; provided, however, that Owner commences and diligently seeks to cure such default within such thirty (30) day period), then Fuel Manager may, by written notice to Owner, terminate this Agreement. 9.03 Termination upon Notice by Owner. If Fuel Manager (a) acts, in a material way, outside of the authority granted to it by Owner in this Agreement or (b) fails, for reasons other than Force Majeure, to perform any of the material covenants or obligations imposed upon it under and by virtue of this Agreement and in the case of a default under (b) does not remedy or cure such default (and the effects thereof) within thirty (30) days after receipt of written notice thereof from Owner (or within ninety (90) days after receipt of such notice, in the case of defaults not susceptible of cure within thirty (30) days; provided, however, that Fuel Manager commences and diligently seeks to cure such default within such thirty (30) day period), then Owner may, by written notice to Fuel Manager, terminate this Agreement. 9.04 Termination Upon Certain Other Events. Either party may terminate this Agreement by written notice to the other party if (a) the Facility is destroyed or suffers damage in excess of $100,000,000 and is not rebuilt and in commercial operation within twenty-four (24) months after such damage or destruction, (b) the Facility cannot be operated for a period of at least eighteen (18) consecutive months as a result of a Force Majeure event, (c) loss of "qualifying facility" status, (d) Owner determines to permanently shut down the Facility, or (e) if the Facilities Purchase Agreement shall terminate pursuant to Section 15 thereof. 9.05 Effect on Termination. Any termination of this Agreement pursuant to provisions of this Article IX shall be without prejudice to the right of Fuel Manager to collect any amounts then due for services rendered prior to the time of termination, and without waiver of any and all other remedies, including rights of set-off, to which the party not in default may be entitled for violations of this Agreement by the defaulting party. 16 ARTICLE X. LIMITATIONS ON AGENCY Except with respect to the acquisition of Replacement Fuel and Alternative Transportation as permitted by Section 2.05 or 2.06 or the sale of Excess Fuel pursuant to Section 2.07, Fuel Manager is not authorized to, and shall not, without prior written consent of Owner (which consent may be contained in the Fuel Supply Plan): (a) Enter into any agreements for the sale of Gas or the transportation or storage of such sold Gas on behalf of or in the name of Owner; (b) Enter into any hedging transaction or any unhedged future contracts, or otherwise assume unhedged trading positions, on behalf of or in the name of Owner; (c) Enter into any agreements or transactions on behalf of Owner not contemplated by the Fuel Supply Plan; (d) Agree to any amendment or modification to any provision in the Existing Agreements or any Additional Agreements or other agreements to which Owner is a party; (e) Enter into any agreement or any amendment, supplement or modification of any agreement, in any manner inconsistent with or in violation of this Agreement, applicable Law or the Trust Indenture; or (f) Grant or create any lien or other encumbrance on any of Owner's Gas or any of the Existing Agreements or the Additional Agreements. ARTICLE XI. DISPUTE, RESOLUTION AND ARBITRATION 11.01 Dispute Resolution. If a dispute arises among the parties, or between any of them, regarding the application or the interpretation of any provision of this Agreement or any other matter with respect to the Fuel Management Services, an aggrieved party shall give a notice of such dispute (a "Dispute Notice") to the other party. Within fifteen (15) days after such Dispute Notice, a senior officer of each of the companies shall confer with each other to seek with diligence and in good faith to resolve such dispute. If such officers are unable to resolve such dispute within forty-five (45) days after such Dispute Notice, then the parties shall be bound to arbitrate such dispute in accordance with Section 11.02. 11.02 Arbitration. To the fullest extent permitted by law, any dispute between the parties regarding the interpretation of any provision of this Agreement, if not resolved by 17 negotiation by the parties within forty-five (45) days after the Dispute Notice, shall be resolved exclusively by binding arbitration between the parties pursuant to the Rules of the American Arbitration Association for Commercial Disputes (the "Arbitration Rules"). Arbitration shall be administered by the American Arbitration Association. Any Party may institute arbitration proceedings at any time by delivering written notice demanding arbitration to the parties in the manner described in Article VII. (a) Within twenty (20) days after receipt of a written demand for arbitration, each party shall appoint one arbitrator. Within fifteen (15) days of the expiration of that 20-day period, the two arbitrators so appointed shall appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator, the American Arbitration Association shall make the selection within ten (10) days of a party's request. The arbitrators shall meet the qualifications and abide by the Code of Ethics for arbitrators in commercial disputes of the American Arbitration Association. The arbitrators shall have knowledge of and experience in the gas supply industry. (b) To the fullest extent permitted by law, the arbitration shall be conducted in accordance with the procedures set forth in the Arbitration Rules. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. They shall not have the power to add to, modify or change any of the provisions of this Agreement. The parties shall exercise all commercially reasonable efforts in good faith to cause a hearing to be held within ninety (90) days after the date upon which the last arbitrator is appointed and to conclude all hearings within thirty (30) days after the first hearing date. The arbitrators shall only grant a party's request for postponement of the hearing upon a showing of good cause as determined by the arbitrators. Within thirty (30) days of the last hearing date, the arbitrators shall issue a written decision setting forth their analysis and ruling. The arbitrators shall determine in what proportion the parties shall bear the fees and expenses of the arbitrators. Each party shall bear the fees and expenses of its own counsel and other consultants. All arbitration proceedings shall be subject to the choice of law provisions set forth in Section 12.02 hereof, and shall be held at a location agreed to by the parties, or if the parties cannot agree, then in Atlanta, Georgia. (c) The parties acknowledge and agree that any arbitral award shall be final, binding and conclusive upon the parties and may be confirmed or embodied in any order of any court having jurisdiction. (d) To the fullest extent permitted by law, service of any matters referenced in this Article XI shall be given in the manner described in Article VII or as permitted by the rules of the American Arbitration Association. 11.03 Survival. This Article XI shall survive expiration or termination of this Agreement. 18 ARTICLE XII. GENERAL PROVISIONS 12.01 Severability. If any provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable, such circumstances shall not affect the validity of any other provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted. 12.02 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. 12.03 Entire Agreement. This Agreement and related schedules constitutes the entire final understanding and agreement of the parties with respect to its subject matter, and there are no agreements, understandings, restrictions, representations or warranties among the parties other than those set forth in this Agreement. By execution of this Agreement, each of the parties represents and warrants that it has not relied on any oral or written statements, promises, inducements, representations or warranties to enter into this Agreement except for those expressly set forth herein. The parties agree that the inclusion of this provision evidences the intent of the parties that no parole evidence shall be admissible to alter or vary the terms of this Agreement. 12.04 Captions. The captions or headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall have no effect upon the construction or interpretation of any part of this Agreement. 12.05 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. 12.06 No Third Party Beneficiaries. Except as expressly set forth herein, the terms of this Agreement are for the sole benefit of Owner and Fuel Manager and their respective successors and permitted assigns and not for any third party whatsoever. 12.07 Further Assurances. If either party reasonably determines or is reasonably advised that any further instruments or any other things are necessary or desirable to carry out the terms of this Agreement, the other party shall execute and deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this Agreement. 12.08 No Implied Waiver. Failure of either party to exercise any right to enforce any provision, or to require strict performance by the other party of any provision, shall not 19 release the other party from any of its obligations under this Agreement and shall not operate as a waiver of any right to insist upon strict performance, or of either party's rights or remedies under this Agreement or at law. 12.09 Amendments. No amendment, waiver or modification of any provision of this Agreement shall be effective unless made in writing and signed by both parties. 12.10 Confidentiality. Except to the extent expressly authorized herein including, without limitation, in connection with a proposed assignment of this Agreement or a proposed financing transaction entered into by Owner, in which case disclosure of the terms hereof shall be limited to the extent reasonably practicable, each of the parties agree that neither it nor its attorneys, agents or representatives shall reveal to anyone any of the terms of this Agreement or any of the terms of the documents executed pursuant hereto, including, without limitation, the amount, terms or conditions of payment hereunder, other than (i) as may be hereafter mutually agreed to in writing, (ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors, officers, employees, representatives, advisors, consultants and attorneys, and the directors, officers, employees, representatives, advisors, consultants and attorneys of affiliated companies who need to know such information, and (iv) to the extent required to be disclosed by applicable law or legal process. 12.11 Decision-Making by Parties. Except where this Agreement expressly provides for a different standard and/or time period, whenever this Agreement provides for a determination, decision, permission, consent or approval of a party, the party shall promptly make such determination, decision, grant or withholding of consent or approval in a commercially reasonable manner and without unreasonable delay. Any denial of consent required to be made in a commercially reasonable manner shall include in reasonable detail the reason for denial or aspect of the request that was not acceptable. [Remainder Of Page Intentionally Left Blank] 20 IN WITNESS WHEREOF, the parties hereto executed multiple originals of this Agreement as of the date first written above. OWNER: NORTHEAST ENERGY, LP, a Delaware limited partnership By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith ---------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Timothy R. Dunne ---------------------------- Name: Timothy R. Dunne Title: Vice President FUEL MANAGER: ESI NORTHEAST FUEL MANAGEMENT, INC., a Florida corporation By: /s/ Glenn E. Smith ---------------------------- Name: Glenn E. Smith Title: Vice President [Signature Page to Sayreville Fuel Management Agreement] 21 ASSIGNEE: NEW JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, a New Jersey limited partnership By: ESI NORTHEAST ENERGY GP, INC., a Florida corporation, a general partner By: /s/ Glenn E. Smith ---------------------------- Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a Delaware corporation, a general partner By: /s/ Timothy R. Dunne ---------------------------- Name: Timothy R. Dunne Title: Vice President [Signature Page to Sayreville Fuel Management Agreement] 22 EXHIBIT A Existing Agreements ------------------- A-1 EXHIBIT B Form of Guaranty ---------------- B-1 EX-10.20 17 ADMINISTRATIVE SERVICES AGREEMENT EXHIBIT 10.20 ================================================================================ ADMINISTRATIVE SERVICES AGREEMENT between Northeast Energy, LP and ESI Northeast Energy GP, Inc. ================================================================================ TABLE OF CONTENTS
Page No. -------- ARTICLE I. DEFINITIONS.................................... 2 ARTICLE II. SCOPE OF SERVICES AND POWER OF ATTORNEY...................... 4 Section 2.01 Manager Services........................................................ 4 Section 2.02 Agency.................................................................. 7 Section 2.03 Manager Notices......................................................... 7 ARTICLE III. COMPENSATION, COSTS AND REIMBURSEMENTS....................... 7 Section 3.01 Costs and Expenses...................................................... 7 Section 3.02 Administration Fee...................................................... 7 Section 3.03 Administrative Operating Account........................................ 8 Section 3.04 Late Payments........................................................... 8 ARTICLE IV. TERM AND TERMINATION ............................... 8 Section 4.01 Term.................................................................... 8 Section 4.02 Termination upon Default by Manager..................................... 8 Section 4.03 Termination upon Default by the Partnership............................. 9 Section 4.04 Termination for Insolvency.............................................. 9 Section 4.05 Duties Upon Termination................................................. 9 Section 4.06 Effect of Termination................................................... 9 ARTICLE V. LIMITATION OF LIABILITY.............................. 10 Section 5.01 No Consequential Damages................................................ 10 Section 5.02 Non-Recourse Obligations................................................ 10 ARTICLE VI. [Intentionally Deleted].............................. 10
(i)
Page ---- ARTICLE VII. INDEMNIFICATION BY THE PARTNERSHIP......................... 10 Section 7.01 Indemnification......................................................... 10 Section 7.02 Procedure............................................................... 11 ARTICLE VIII. FORCE MAJEURE................................... 12 Section 8.01 Force Majeure........................................................... 12 Section 8.02 Notice.................................................................. 12 ARTICLE IX. RELATIONSHIP OF THE PARTIES............................ 12 ARTICLE X. NOTICES...................................... 12 ARTICLE XI. ASSIGNMENTS AND SUBCONTRACTING........................... 13 Section 11.01 Assignments............................................................. 13 Section 11.02 Subcontracting.......................................................... 13 ARTICLE XII. LIMITATIONS OF AUTHORITY.............................. 14 ARTICLE XIII. DISPUTE RESOLUTION AND ARBITRATION......................... 14 Section 13.01 Dispute Resolution...................................................... 14 Section 13.02 Arbitration............................................................. 14 Section 13.03 Survival................................................................ 15 ARTICLE XIV. MISCELLANEOUS................................... 15 Section 14.01 Severability............................................................ 15 Section 14.02 Governing Law........................................................... 16 Section 14.03 Entire Agreement........................................................ 16
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Page ---- Section 14.04 Captions................................................................ 16 Section 14.05 Counterparts............................................................ 16 Section 14.06 No Third Party Beneficiaries............................................ 16 Section 14.07 Further Assurances...................................................... 16 Section 14.08 No Implied Waiver....................................................... 16 Section 14.09 Amendments.............................................................. 16 Section 16.10 Confidentiality......................................................... 17 Section 16.11 Decision-Making by Parties.............................................. 17
(iii) ADMINISTRATIVE SERVICES AGREEMENT This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made as of the 21 day of November, 1997, between NORTHEAST ENERGY, LP, a Delaware limited partnership (the "Partnership"), and ESI NORTHEAST ENERGY GP, INC., a Florida corporation ("Manager"). The Partnership and Manager are sometimes referred to individually as a "party," and collectively, the "parties". RECITALS WHEREAS, the Partnership is the direct or indirect owner of (i) Northeast Energy Associates, a Limited Partnership ("NEA"), which in turn owns a 300 megawatt gas-fuel combined cycle cogeneration plant (the "NEA Facility") and a carbon dioxide facility located in Bellingham, Massachusetts and (ii) North Jersey Energy Associates, a Limited Partnership ("NJEA") which in turn owns a 300 megawatt gas-fuel combined cycle cogeneration plant located in Sayreville, New Jersey (the"NJEA Facility") (NEA and NJEA being referred to collectively as the "Project Partnerships" and the NEA Facility and the NJEA Facilities being referred to collectively as the "Facilities"). WHEREAS, the Partnership has entered into two Operation and Maintenance Agreements relating to the Facilities dated as of November 21, 1997 (the "O&M Agreements"), entered into by and between the Partnership and ESI Operating Services, Inc. (the "Operator"), which O&M Agreements shall be assigned by the Partnership to the respective Project Partnerships on the Operating Period Commencement Date, as defined in each O&M Agreement. WHEREAS, the Partnership has entered into two Fuel Management Agreements relating to the Facilities dated as of November 21, 1997 (the "Fuel Management Agreements"), entered into by and between the Partnership and ESI Northeast Fuel Management, Inc. (the "Fuel Manager"), which Fuel Management Agreements shall be assigned by the Partnership to the respective Project Partnerships on the Acquisition Date, as defined in the Fuel Management Agreements; WHEREAS, pursuant to the terms of the Partnership Agreement the affairs of the Partnership and the Project Partnerships are to be administered by the Management Committee; and WHEREAS, subject to the terms and conditions of this Agreement, the Partnership desires to retain Manager and Manager is willing to perform the services described in this Agreement to assist the Management Committee with the management and administration of the Partnership; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, the Partnership and Manager, intending to be legally bound, agree as follows: ARTICLE I. DEFINITIONS All capitalized terms used, but not otherwise defined herein, shall have the meanings provided in the Partnership Agreement. "Administration Fee" shall have the meaning set forth in Section 3.02 hereof. "Administration Operating Account" shall have the meaning set forth in Section 3.03 hereof. "Administrative Expenses" shall have the meaning set forth in Section 3.01 hereof. "Administrative Services" shall have the meaning set forth in Section 2.01 hereof. "Affiliate" shall mean any entity or person that, directly or indirectly, controls, is controlled by, or is under common control with, another entity or person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any entity or person, means the power to direct or cause the direction of the management and policies of such entity or person, directly or indirectly, whether through the ownership of voting securities or by contract or otherwise. "Agreement" shall have the meaning set forth in the preamble hereof. "Arbitration Rules" shall have the meaning set forth in Section 13.02 hereof. "Budget" shall mean each annual budget of the Partnership, NEA, LLC and the Project Partnerships. "Business Day" shall mean a calendar day other than Saturday, Sunday or a statutory holiday in the Commonwealth of Massachusetts. "Damages" shall mean all losses, liabilities, damages, demands, claims, suits, actions, judgments or causes of action, assessments, interest, penalties, costs and expenses, including, without limitation, attorneys' fees, and expenses (whether suit is instituted or not and, if instituted, whether at trial or appellate levels). "Dispute Notice" shall have the meaning set forth in Section 13.01 hereof. 2 "Effective Date" shall mean the date on which the Partnership and NEA, LLC acquire all of the partnership interests in NEA and NJEA. "Facilities" shall have the meaning set forth in recitals to this Agreement. "Force Majeure" shall mean any cause beyond the reasonable control of and without the fault, negligence, or willful misconduct of the party claiming Force Majeure. Such causes shall include, but not be limited to, acts of God, fires, floods, storms, earthquakes, strikes, labor disputes, riots, insurrections, acts of war, actions or inactions of any government or governmental agency or a material change in applicable statutory, regulatory, administrative or other relevant law that prohibits the operation of the Facility; provided, however, that lack of money or changes in operating costs shall not constitute Force Majeure. "Fuel Management Agreements" shall have the meaning set forth in recitals to this Agreement. "Fuel Manager" shall have the meaning set forth in recitals to this Agreement. "Late Payment Rate" shall mean a per annum rate of interest equal to the rate announced from time to time in the Wall Street Journal as the prime commercial lending rate of national commercial banks plus two percent (2%), but in no event more than the maximum rate permitted under applicable law. "Laws" shall mean any applicable federal, state or local statute, law, ordinance, rule or regulation. "Manager" shall have the meaning set forth in the preamble hereof. "Manager's Indemnitee" shall have the meaning set forth in Section 7.01 hereof. "NEA" shall have the meaning set forth in recitals to this Agreement. "NJEA" shall have the meaning set forth in recitals to this Agreement. "Notice" shall have the meaning set forth in Section 7.02 hereof. "Operator" shall have the meaning set forth in recitals to this Agreement. "O&M Agreements" shall have the meaning set forth in recitals to this Agreement. "Partnership" shall have the meaning set forth in the preamble hereof. "Partnership Agreement" shall mean that certain Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited Partnership, dated as of November 21, 1997, entered 3 into by and among ESI Northeast Energy GP, Inc., Tractebel Northeast Generation GP, Inc., ESI Northeast Energy LP, Inc., and Tractebel Associates Northeast LP, Inc. "Producer Price Index" means the Producer Price Index for all commodities (1982=100), as reported by the Department of Labor Bureau of Labor Statistics for the immediately preceding year. If the Producer Price Index ceases to be published or is otherwise unavailable, Producer Price Index shall mean an index that the Partnership and the Manager shall mutually determine in good faith to be most nearly comparable to the foregoing. "Project Partnerships" shall have the meaning set forth in recitals to this Agreement. ARTICLE II. SCOPE OF SERVICES AND POWER OF ATTORNEY Section 2.01 Manager Services. Commencing on the Effective Date and continuing through the end of the term of this Agreement, the Partnership hereby employs Manager and Manager hereby accepts the employment on the terms and conditions hereinafter set forth to provide the following administrative services (the "Administrative Services"), subject to the direction and control of the Management Committee: (a) General Duties/Emergency Action. Manager will be responsible for the negotiation and administration of all contracts to which the Partnership, NEA and NJEA are parties (except that the Manager shall not be responsible for contracts with Affiliates of the Manager to the extent provided in Section 5.2.6 of the Partnership Agreement), the implementation of the Budget and of other policies and directions given by the Management Committee, the management of the affairs of the Partnership and the Project Partnerships and the administration and coordination of any financing to which the Partnership is a party. In the event of explosion, fire, flood or other emergency, or malfunction or threatened malfunction of machinery or equipment, or any emergency actions required to comply with any government rule or order and if Manager is unable to consult with the Management Committee, Manager may make any expenditures it deems advisable to protect and safeguard life and property with respect to the Facilities, regardless of whether such expenditures are authorized in the then current Budget. (b) Administration of Fuel Management Agreements/Supervision of Fuel Manager. Manager shall administer the Fuel Management Agreements on behalf of the Partnership and the Project Partnerships and monitor and supervise the Fuel Manager's compliance therewith. (c) Administration of O&M Agreements/Supervision of Operator. Manager shall administer the O&M Agreements on behalf of the Partnerships and the Project Partnerships and monitor and supervise the Operator's compliance therewith. 4 (d) Preparation of Initial and Annual Budgets. The initial annual Budget for 1998 will be prepared by Manager and adopted by the Management Committee as soon as reasonably practicable after the execution of this Agreement. Thereafter, Manager shall cause an annual Budget to be prepared by October 1st of each year preceding the year for which the Budget shall be applied, and the Management Committee shall review and approve the annual Budget prior to the commencement of such next calendar year, which the Partnership shall endeavor to adopt not later than December 1st. The proposed annual Budget for the Partnership shall include, without limitation, all line items that are required from time to time by the Management Committee, including in reasonable detail the anticipated receipts and expenditures of the Partnership, NEA, LLC and the Project Partnerships for the coming calendar year and the succeeding four years (provided, however, the approved annual Budget shall not be deemed to include approval of expenditures for any year other than the current year). In the event that the Management Committee does not approve the annual Budget or any individual line items therein prior to the beginning of the applicable year, the annual Budget or the individual line items for the preceding year, as the case may be, shall remain in effect until the new annual Budget or such line items are approved. (e) Recommendations Regarding Annual Budget. At each meeting of the Management Committee, Manager shall report on the receipts and expenditures of the Partnership, NEA, LLC and the Project Partnerships as of a date reasonably close to the date of the meeting and will recommend to the Management Committee any changes in the annual Budget which it considers necessary or appropriate. (f) Maintenance of Books and Records. Manager shall keep or cause to be kept, at its offices, or at such other place as it shall designate in a notice to the Partners, complete and accurate books, records, and financial statements of the Partnership and supporting documentation of transactions with respect to the conduct of the Partnership's business. The books, records, and financial statements of the Partnership shall be maintained on the accrual basis in accordance with GAAP. Such books, records, financial statements, and documents shall include, but not be limited to, the following: 1. Partner Register. A current register of each of the Partners indicating for each such Person its (i) full name, (ii) last known business or residence address, (iii) Contributions, and (iv) share in profits and losses, and also indicating each Transfer of an Interest permitted by Article VII of the Partnership Agreement, including the name and address of the transferor and transferee of such Interest and the units of the Transferee attributable to the Interest so transferred; 2. Certificate of LP. The Partnership's Certificate of Limited Partnership, including all amendments; and any powers of attorney under which the Certificate of Limited Partnership or amendments were executed; 3. Tax Information. Federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; 5 4. Partnership Agreement and Related Information. The Partnership Agreement and any amendments, and any powers of attorney under which the Partnership Agreement or amendments were executed; 5. Financial Information. Financial statements for the six most recent years; 6. Books and Records. The internal books and records of the Partnership for the current and four most recent years which shall, among other things, reflect all Capital Accounts; and 7. Property Records. A true copy of relevant records indicating the amount and cost of all property the Partnership owns, claims, possesses, or controls. (g) Financial Statements and Reports. Manager shall provide the following financial statements and reports to the Partners: 1. Unaudited Balance Sheet. Within forty-five (45) days after the end of each fiscal quarter, and the fiscal year, an unaudited closing balance sheet as of the end of such fiscal quarter or fiscal year, as the case may be, and related statements of operations for such fiscal quarter or fiscal year prepared in accordance with GAAP; 2. Audited Financial Reports. As soon as available but in any event not later than 90 days after the end of the fiscal year, audited financial reports, including the detailed balance sheet of the Partnership as of the end of the preceding fiscal year and related statements of income, cash flow and Partners' capital and changes in financial position for the fiscal year, accompanied by an opinion of the Partnership's independent public accountants stating that the financial statements have been prepared according to GAAP; 3. Form K-1 and Other Forms. As soon as practicable after the end of each fiscal year, Form K-1 or any similar form as may be required by the Code or the Internal Revenue Service, as well as any similar form which may be required by any state or local taxing authority; 4. Tax Returns and Tax Preparation Forms. On a timely basis, all federal, state and local tax returns and statements (including Capital Accounts and Balance Sheets), if any, which must be filed on behalf of the Partnership with any taxing Governmental Authority, all of which shall be prepared on a tax basis, including all supporting information provided with such returns. In addition, Manager shall cause to be furnished to each Partner a report for each fiscal year setting forth all data and information regarding the business of the Partnership as may be necessary to enable the Partnership and each Partner to prepare its federal, state and local tax returns; 6 5. Cash Distributions. At any time a cash distribution is made by the Partnership, a statement in form acceptable to the Partners which indicates in detail the calculation of such distribution by the Partnership; 6. Monthly Financial Statements. Within forty-five (45) days after the end of each month, a balance sheet and statement of operations for the Partnership along with any supporting detail that may be required by the Partners; and 7. Budget Variance Reports. Within forty-five (45) days after the end of each calendar quarter, a report in form acceptable to the Partners that shows budgeted versus actual revenues and expenditures on a monthly basis and a year-to-date basis for the Partnership. Section 2.02 Agency. Commencing on the Effective Date, the Partnership hereby makes, constitutes, and appoints Manager to be its true and lawful attorney-in-fact and in the Partnership's name, place, and stead, and on the Partnership's behalf, and solely for its use and benefit to carry out the Administrative Services. Section 2.03 Manager Notices. Manager shall provide to the Partnership all notices from third parties received by Manager in connection with the Partnership, the Project Partnerships, the Facilities or the Manager's performance of its responsibilities under this Article II. Manager shall designate in writing to the Partnership an individual who will act on behalf of Manager with respect to communicating decisions and directions to the Partnership under this Agreement. Such individual shall also be available at reasonable times to receive communications from the Partnership and provide appropriate responses to the Partnership. ARTICLE III. COMPENSATION, COSTS AND REIMBURSEMENTS Section 3.01 Costs and Expenses. Subject to the provisions of this Section 3.01, the Partnership shall pay all out-of-pocket costs and expenses of performing the Administrative Services (collectively, the "Administrative Expenses"). Acting on behalf of the Partnership and the Project Partnerships as agent, Manager shall incur Administrative Expenses to the extent the nature and amount of such costs and expenses (i) are included within the Budget or are otherwise approved by the Partnership, or (ii) are incurred in connection with an emergency. Payment of Administrative Expenses shall be made from the Administrative Operating Account, which is more particularly described in Section 3.03. All Administrative Expenses, except the labor costs of Manager's personnel, the cost of services provided by Manager's Affiliates and items purchased with petty cash, shall be incurred in the name of the Partnership. Section 3.02 Administration Fee. The Partnership shall pay annually to Manager, as compensation for its services, beginning on the Acquisition Date, a fee, payable monthly, equal to $600,000 per annum (the "Administration Fee"), as adjusted in accordance with this Section 7 3.02. As of January 1 of each year, commencing January 1, 1999, the Administration Fee shall be adjusted upwards or downwards by multiplying the Administration Fee for the prior year by a fraction the numerator of which will be the Producer Price Index for the immediately preceding December and the denominator of which will be the Producer Price Index for the month of December one year earlier; provided, that in no event shall the Administration Fee be decreased below $600,000. This adjusted Administration Fee shall be the Administration Fee for the current year and the basis for calculation of the Administration Fee for the next year. Section 3.03 Administrative Operating Account. The Partnership shall establish and maintain an administrative operating account ("Administrative Operating Account") and will designate Manager as an additional signatory on the account. The Partnership will deposit into the Administrative Operating Account on or before the 15th day of each month an amount equal to (a) the amount of Administrative Expenses in the Budget for the next month, plus (b) any amount reasonably expected by Manager, as communicated to the Partnership in writing by the 10th day of the month, to be required for costs and expenses relating to emergencies or other approved expenditures, plus or minus (c) the difference between the amounts deposited in the Administrative Operating Account in the preceding month and the actual amount of Administrative Expenses incurred in that month. On or before the 10th day of each month, Manager shall deliver to the Partnership an accounting report that reflects all Administrative Expenses for the preceding month, reconciled against the amounts deposited to the Administrative Operating Account and against the amounts projected in the Budget for such preceding month. Section 3.04 Late Payments. If any amounts owing under this Agreement are not paid to Manager or the Partnership, as applicable, when due, the same shall bear interest at the Late Payment Rate from the due date until paid. ARTICLE IV. TERM AND TERMINATION Section 4.01 Term. Unless terminated as provided in this Article IV or Article VIII, this Agreement shall continue in effect for the period commencing on the Effective Date and ending on the twentieth (20th) anniversary of the Effective Date. Notwithstanding the foregoing, if ESI Northeast Energy GP, Inc. transfers its general partnership interest in the Partnership (other than to an Affiliate), the Partnership shall have the right to terminate this Agreement upon 30 days notice to manager. Section 4.02 Termination upon Default by Manager. If Manager materially defaults in the performance of any material term, covenant or obligation contained in this Agreement and does not remedy such default within thirty (30) days after Manager's receipt of the Partnership's written notice thereof to Manager (or within 180 days, if it cannot be reasonably accomplished in such thirty (30) day period and Manager shall diligently take all appropriate actions to remedy such default as soon as commercially practicable within such thirty (30) day period), the Partnership may, by written notice to Manager, terminate this Agreement and the Partnership shall 8 pay to Manager all amounts due and not previously paid to Manager for services performed in accordance with this Agreement up until the effective date of such termination. All such amounts will be paid to Manager within thirty (30) days of the effective termination date or within thirty (30) days of receipt of an invoice from Manager for any amounts not invoiced prior to the effective termination date, provided that the Partnership shall have the right to offset the amounts of any damages owing by Manager under this Agreement against any such amounts due and not previously paid to Manager by the Partnership. Section 4.03 Termination upon Default by the Partnership. If the Partnership (a) fails to make any payment hereunder within 5 days after the same shall have become due, or (b) materially defaults in the performance of any material term, covenant or agreement contained in this Agreement and does not remedy such default within thirty (30) days after the Partnership's receipt of Manager's written notice thereof to the Partnership (or within 180 days, if it cannot be reasonably accomplished in such thirty (30) day period and the Partnership shall have commenced all actions required to remedy such default within such thirty (30) day period), Manager may, by written notice to the Partnership, terminate this Agreement. Section 4.04 Termination for Insolvency. Either party may terminate this Agreement by written notice to the other party (but only with the concurrence of the Manager in the case of termination by the Partnership) if: (a) the other party (i) makes a general assignment for the benefit of creditors, (ii) institutes proceedings in any court of competent jurisdiction or takes any other steps to subject itself to the laws of any jurisdiction to which it may be subject providing for it to be wound up or adjudicating it to be bankrupt or insolvent or (iii) takes or consents to the institution of any bankruptcy or insolvency proceedings which relate to any reorganization, arrangement or compromise of its debts; (b) any proceedings are commenced or steps taken whether by way of private appointment, seizure, court proceedings or otherwise for the appointment of a receiver, custodian, liquidator, trustee or similar person with respect to all or a substantial portion of the other party's property; or (c) any proceedings are commenced or steps taken by any creditor, regulatory agency or other person relating to the reorganization, arrangement, adjustment composition, liquidation, dissolution, winding up, custodianship or other similar relief with respect to such other party. Section 4.05 Duties Upon Termination. Upon termination or expiration of this Agreement: (a) At the request of the Partnership, and provided that the Partnership is not in default of any material provision of this Agreement, Manager shall have the obligation to assist in making, at the Partnership's expense, a smooth transition to a new manager; and (b) Manager shall continue to be reimbursed for expenses incurred by it and compensated in accordance with the provisions of this Agreement, provided that Manager continues to perform services under and in accordance with this Agreement. Section 4.06 Effect of Termination. On the effective date of termination, the Partnership shall assume and become responsible for all management obligations of the 9 Partnership. Notwithstanding such termination, neither party shall be relieved from any obligations or liabilities that accrued prior to the effective date of termination. The applicable provisions of this Agreement will continue in effect after termination of this Agreement to the extent necessary to provide for final payments, payment adjustments and any other final expense reimbursements, and with respect to liability and indemnification payments and expense reimbursements from acts or events that occurred prior to the date of termination of this Agreement. ARTICLE V. LIMITATION OF LIABILITY Section 5.01 No Consequential Damages. Neither Manager, its Affiliates nor their respective employees or agents shall be liable to the Partnership, its Affiliates or their respective employees, agents or subcontractors or either of the Project Partnerships or their respective employees, agents or subcontractors, and neither the Partnership, its Affiliates nor their respective employees, agents or subcontractors nor either of the Project Partnerships or their respective employees, agents or subcontractors, shall be liable to Manager, whether based in contract, in tort (including negligence and strict liability), under warranty, or otherwise, for any special, indirect, incidental, exemplary or consequential loss or damage whatsoever, including without limitation, loss of use, opportunity or profits, damages to good will or reputation or punitive damages. Section 5.02 Non-Recourse Obligations. Notwithstanding any other provision of this Agreement to the contrary, the obligations of the Partnership hereunder are recourse only to the assets of Partnership and neither the partners of the Partnership nor any shareholder, director, officer, agent or affiliate of Partnership or any partner of the Partnership, shall have any personal responsibility or liability for any payment obligations of the Partnership hereunder, or otherwise for any breach in performance or observance of the covenants, representations, or obligations of the Partnership hereunder. ARTICLE VI. [Intentionally Deleted] ARTICLE VII. INDEMNIFICATION BY THE PARTNERSHIP Section 7.01 Indemnification. Subject to the limitations set forth in Article V hereof, the Partnership shall indemnify and hold harmless Manager, and its officers, directors, shareholders, agents, Affiliates and employees (collectively, "Manager's Indemnitee") from and against all Damages asserted against, resulting to, imposed upon, or incurred or suffered by 10 Manager's Indemnitee, directly or indirectly, whether raised by Manager's Indemnitee or a third party, arising out of or resulting from (a) the Project Partnerships' ownership or use of the Facilities, or (b) the performance by the Partnership of the Partnership's duties hereunder. Section 7.02 Procedure. If any person or entity not a party to this Agreement shall make any demand or claim or file or threaten to file or continue any lawsuit, which demand, claim or lawsuit may result in Damages to any party pursuant to the indemnification provisions of this Agreement, then, in any such event, within 10 days after notice by the indemnified party (the "Notice") to the indemnifying party of such demand, claim or lawsuit (provided, however, that the failure to give the Notice shall not relieve the indemnifying party of its obligations under this Agreement unless, and only to the extent that, such failure caused the Damages for which the indemnifying party is obligated to be greater than they would otherwise have been had the indemnified party given prompt notice under this Agreement), the indemnifying party shall have the option, at its sole cost and expense, to retain counsel for the indemnified party (which counsel shall be selected by or be reasonably satisfactory to the indemnified party), to defend any such demand, claim or lawsuit. Thereafter, the indemnified party shall be permitted to participate in such defense at its own expense, provided that, if the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party or if the indemnifying party proposes that the same counsel represent both the indemnified party and the indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the indemnified party shall have the right to retain its own counsel at the cost and expense of the indemnifying party. If the indemnifying party shall fail to respond within 10 days after receipt of the Notice, the indemnified party may retain counsel and conduct the defense of such demand, claim or lawsuit, as it may in its sole discretion deem proper, at the sole cost and expense of the indemnifying party. (a) The indemnified party shall provide reasonable assistance to the indemnifying party and provide access to its books, records and personnel as the indemnifying party reasonably requests in connection with the investigation or defense of the indemnified Damage. The indemnifying party shall promptly upon receipt of reasonable supporting documentation reimburse the indemnified party for out-of-pocket costs and expenses incurred by the latter in providing the requested assistance. (b) With regard to claims for which indemnification is payable under this Agreement, such indemnification shall be paid by the indemnifying party upon: (i) the entry of a judgment against the indemnified party and the expiration of any applicable appeal period; (ii) the entry of an unappealable judgment or final appellate decision against the indemnified party; or (iii) a settlement with the consent of the indemnifying party, which consent shall not be unreasonably withheld, provided that no such consent need be obtained if the indemnifying party fails to respond to the Notice as provided in this Section 7.02. Notwithstanding the foregoing, provided that there is no dispute as to the applicability of indemnification, expenses of counsel to the indemnified party shall be reimbursed on a current basis by the indemnifying party if such expenses are a liability of the indemnifying party. 11 ARTICLE VIII. FORCE MAJEURE Section 8.01 Force Majeure. Any delay in or failure of performance of either party (other than delay or failure to pay a monetary obligation when due) shall not constitute a default hereunder or give rise to any claim for damage if and to the extent such delay or failure is caused by "Force Majeure," and the party claiming the benefit of Force Majeure shall use all reasonable efforts to minimize the period of such delay or failure and the effects thereof. Section 8.02 Notice. Either party claiming Force Majeure shall give the other party (a) notice of such Force Majeure event as soon as practicable, but in any event within three (3) days after its occurrence and (b) a complete description of such Force Majeure event within fourteen (14) days after its occurrence. ARTICLE IX. RELATIONSHIP OF THE PARTIES The Partnership hereby engages Manager, as an independent contractor, to manage and administer the affairs of the Partnership and the Project Partnerships according to the terms of this Agreement. Subject to the terms of this Agreement, Manager shall determine the means, manner and methods by which Manager shall perform its services under this Agreement. Manager and the Partnership acknowledge that, except as otherwise expressly provided in this Agreement, the Partnership shall not have any control over Manager or the means, manner or methods of its performance under this Agreement. All personnel involved in the management and administration of the Partnership and the Project Partnerships shall be employees of Manager or its Affiliates or independent contractors that have contracted with Manager or its Affiliates and shall not for any purposes be deemed employees or independent contractors of the Partnership or the Project Partnerships. Nothing in this Agreement or the arrangement for which it is written shall constitute or create a joint venture, partnership, or any other similar arrangement between the Partnership or the Project Partnerships and Manager. Neither party is authorized to act as agent for the other party, except as expressly stated in this Agreement. ARTICLE X. NOTICES Any notice to either party required or permitted hereunder shall be in writing and shall be given by personal delivery or by commercial courier or by certified mail, return receipt requested, postage prepaid, or by telecopier with confirmed receipt, addressed as follows: 12 If to Partnership: Northeast Energy, LP ----------------- c/o ESI Northeast Energy GP, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopy: (561) 691-3615 Attention: President with a copy to: Tractebel Power, Inc. 1177 West Loop South, Suite 900 Houston, Texas 77027 Telecopier: (713) 552-2364 Attention: General Counsel If to Manager: ESI Northeast Energy GP, Inc. 11760 U.S. Highway One, Suite 600 North Palm Beach, Florida 33408 Telecopy: (561) 691-3615 Attention: President or to such other address as the Partnership or Manager may have specified in a notice duly given as provided herein to the other party. All notices given in the foregoing manner shall be effective when received, except that a notice sent by telecopier and received after normal business hours shall be deemed to be received the following Business Day. ARTICLE XI. ASSIGNMENTS AND SUBCONTRACTING Section 11.01 Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. (b) Except as otherwise provided in this Agreement, neither party may assign or otherwise convey any of its rights, title or interest under this Agreement, without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld). Section 11.02 Subcontracting. Manager may subcontract any of its duties or obligations hereunder to a non-affiliate with the prior written consent of the Partnership to the subcontractor and subcontract, which consent shall not be unreasonably withheld; provided, that no such written consent of the Partnership shall be required for subcontracting to any Affiliate of Manager. No subcontract shall relieve Manager of its duties and obligations hereunder. 13 ARTICLE XII. LIMITATIONS OF AUTHORITY Unless specifically approved in writing by the Partnership, Manager shall not have the authority to take the following actions: (a) The sale, lease, pledge, mortgage, conveyance, license, exchange or other transfer or disposition of any property or assets of the Partnership or the Project Partnerships, including any tangible personal property acquired by Manager under this Agreement; (b) Subject to Section 2.01, making, entering into, executing, amending, waiving any rights under, modifying or supplementing any contract or agreement on behalf of, binding upon, or in the name of the Partnership or the Project Partnerships; (c) The settling, compromising, assigning, pledging, transferring, releasing or consenting to the same of any claim, suit, debt, demand or judgment against or due by the Partnership or the Project Partnerships, or submitting any such claim, dispute or controversy to arbitration or judicial process or stipulating to a judgment, or consent to do same. Manager agrees that the Partnership shall retain control of any such claim suit, debt or demand and any other litigation regarding the management of the Partnership and the Project Partnerships, except as to Manager's individual liability; and (d) Taking any action requiring unanimous consent of the Management Committee pursuant to Section 5.1.7 of the Partnership Agreement. ARTICLE XIII. DISPUTE RESOLUTION AND ARBITRATION Section 13.01 Dispute Resolution. If a dispute arises among the parties, or between any of them, regarding the interpretation of any provision of this Agreement or any other matter herein, an aggrieved party shall give a notice of such dispute (a "Dispute Notice") to the other parties. Within fifteen (15) days after such Dispute Notice, senior officers of each of the companies shall confer with each other to seek with diligence and in good faith to resolve such dispute. If such officers are unable to resolve such dispute within forty-five (45) days after such Dispute Notice, then the parties shall be bound to arbitrate such dispute in accordance with Section 13.02. Section 13.02 Arbitration. To the fullest extent permitted by law, any dispute between the parties regarding the interpretation of any provision of this Agreement or any other matter herein, if not resolved by negotiation by the parties within forth-five (45) days after the Dispute Notice, shall be resolved exclusively by binding arbitration between the parties pursuant to the Rules of the American Arbitration Association for Commercial Disputes (the "Arbitration 14 Rules"). Arbitration shall be administered by the American Arbitration Association. Any party may institute arbitration proceedings at any time by delivering written Notice demanding arbitration to the other parties in the manner described in Article X. (a) Within twenty (20) days after receipt of a written demand for arbitration, each party shall appoint one arbitrator. Within fifteen (15) days of the expiration of that twenty (20) day period, the two arbitrators so appointed shall appoint a third arbitrator. If any party shall fail to appoint an arbitrator, or if the two arbitrators shall fail to appoint a third arbitrator, the American Arbitration Association shall make that selection within ten (10) days of a party's request. The arbitrators shall meet the qualifications and abide by the Code of Ethics for arbitrators in commercial disputes of the American Arbitration Association. The arbitrators shall have knowledge of and experience in the power generation and project financing business. (b) To the fullest extent permitted by law, the arbitration shall be conducted in accordance with the procedures set forth in the Arbitration Rules. In determining any question, matter or dispute before them, the arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. They shall not have the power to add to, modify or change any of the provisions of this Agreement. The parties shall exercise all commercially reasonable efforts in good faith to cause a hearing to be held within ninety (90) days after the date upon which the last arbitrator is appointed and to conclude all hearings within thirty (30) days after the first hearing date. The arbitrators shall only grant a party's request for postponement of the hearing upon a showing of good cause as determined by the arbitrators. Within thirty (30) days of the last hearing date, the arbitrators shall issue a written decision setting forth their analysis and ruling. The arbitrators shall determine in what proportion the parties shall bear the fees and expenses of the arbitrators. Each party shall bear the fees and expenses of its own counsel and other consultants. All arbitration proceedings shall be subject to the choice of law provisions set forth in Section 14.02, and shall be held at a location agreed to by the parties, or if the parties cannot agree, then in Atlanta, Georgia. (c) The parties acknowledge and agree that any arbitral award shall be final, binding and conclusive upon the parties and may be confirmed or embodied in any order of any court having jurisdiction. (d) To the fullest extent permitted by law, service of any matters referenced in this Article XIII shall be given in the manner described in Article X or as permitted by the rules of the American Arbitration Association. Section 13.03 Survival. This Article XIII shall survive cancellation, expiration, completion or termination of this Agreement. 15 ARTICLE XIV. MISCELLANEOUS Section 14.01 Severability. If any provision of this Agreement shall be held or deemed to be invalid, inoperative or unenforceable, such circumstances shall not affect the validity of any other provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted. Section 14.02 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Section 14.03 Entire Agreement. This Agreement constitutes the entire final understanding and agreement of the parties with respect to its subject matter, and there are no agreements, understandings, restrictions, representations or warranties among the parties other than those set forth in this Agreement. By execution of this Agreement, each of the parties represents and warrants that it has relied on no oral or written statements, promises, inducements, representations or warranties to enter into this Agreement except for those expressly set forth herein. The parties agree that the inclusion of this provision evidences the intent of the parties that no parole evidence shall be admissible to alter or vary the terms of this Agreement. Section 14.04 Captions. The captions or headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall have no effect upon the construction or interpretation of any part of this Agreement. Section 14.05 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. Section 14.06 No Third Party Beneficiaries. Except as expressly set forth herein, the terms of this Agreement are for the sole benefit of the Partnership and Manager and their respective successors and permitted assigns and not for any third party whatsoever. Section 14.07 Further Assurances. If either party reasonably determines or is reasonably advised that any further instruments or any other things are necessary or desirable to carry out the terms of this Agreement, the other party shall execute and deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this Agreement. Section 14.08 No Implied Waiver. Failure of either party to exercise any right to enforce any provision, or to require strict performance by the other party of any provision, shall 16 not release the other party from any of its obligations under this Agreement and shall not operate as a waiver of any right to insist upon strict performance, or of either party's rights or remedies under this Agreement or at law. Section 14.09 Amendments. No amendment, waiver or modification of any provision of this Agreement shall be effective unless made in writing and signed by both parties. Section 14.10 Confidentiality. Except to the extent expressly authorized herein including, without limitation, in connection with a proposed assignment of this Agreement or a proposed financing transaction entered into by the Partnership, in which case disclosure of the terms hereof shall be limited to the extent reasonably practicable, each of the parties agree that neither it nor its attorneys, agents or representatives shall reveal to anyone any of the terms of this Agreement or any of the terms of the documents executed pursuant hereto, including, without limitation, the amount, terms or conditions of payment hereunder, other than (i) as may be hereafter mutually agreed to in writing, (ii) as ordered by a judicial tribunal, (iii) to any of such parties' directors, officers, employees, representatives, advisors, consultants and attorneys, and the directors, officers, employees, representatives, advisors, consultants and attorneys of affiliated companies who need to know such information, and (iv) to the extent required to be disclosed by applicable law or legal process. Section 14.11 Decision-Making by Parties. Except where this Agreement expressly provides for a different standard and/or time period, whenever this Agreement provides for a determination, decision, permission, consent or approval of a party, the party shall promptly make such determination, decision, grant or withholding of consent or approval in a commercially reasonable manner and without unreasonable delay. Any denial of consent required to be made in a commercially reasonable manner shall include in reasonable detail the reason for denial or aspect of the request that was not acceptable. [Remainder of Page Intentionally Left Blank] 17 IN WITNESS WHEREOF, the parties have executed multiple originals of this Agreement as of the date first written above. The Partnership: NORTHEAST ENERGY, LP a Delaware limited partnership By: ESI NORTHEAST ENERGY GP, INC., a general partner By: /s/ Glenn E. Smith ------------------------------ Name: Glenn E. Smith Title: Vice President By: TRACTEBEL NORTHEAST GENERATION GP, INC., a general partner By: /s/ Timothy R. Dunne ------------------------------- Name: Timothy R. Dunne Title: Vice President The Manager: ESI NORTHEAST ENERGY GP, INC., a Florida corporation By: /s/ Glenn E. Smith ------------------------------- Name: Glenn E. Smith Title: Vice President [Signature Page to Administrative Services Agreement] EX-27.1 18 FINANCIAL DATA SCHEDULE
5 (Replace this text with the legend) 0000934665 ESI Tractebel Funding Corp. 1,000 U.S. Dollars YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1.000 1 0 21,563 0 0 21,564 0 0 490,288 21,563 468,724 0 0 0 1 490,288 0 0 0 0 0 0 47,303 0 0 0 0 0 0 0 0 0
EX-27.2 19 FINANCIAL DATA SCHEDULE
5 (Replace this text with the legend) 0000934667 Northeast Energy Associates 1,000 USD Year DEC-31-1997 JAN-01-1997 DEC-31-1997 1.000 61,203 0 34,036 0 4,752 103,043 504,044 154,498 541,431 39,328 468,724 0 0 0 (197,186) 541,431 312,154 312,154 0 202,157 18,147 0 65,108 36,673 0 36,673 0 0 0 36,673 0 0 Includes depreciation of $24,992
EX-27.3 20 FINANCIAL DATA SCHEDULE
5 (Replace this text with the legend) 0000934666 North Jersey Energy Associates 1,000 USD Year DEC-31-1997 JAN-01-1997 DEC-31-1997 1.000 61,203 0 34,036 0 4,752 103,043 504,044 154,498 541,431 39,328 468,724 0 0 0 (197,186) 541,431 312,154 312,154 0 202,157 18,147 0 65,108 36,673 0 36,673 0 0 0 36,673 0 0 Includes depreciation of $24,992
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