Exhibit 10.3

AMENDMENT NO. 2 TO DISBURSEMENT AGREEMENT

AMENDMENT NO. 2, dated as of December 11, 2006, among Scrubgrass Generating
Company, L.P., a limited partnership duly organized and validly existing under
the laws of the State of Delaware, as Lessor (the “Lessor”), Buzzard Power
Corporation, a Delaware corporation, as Lessee (the “Lessee”), Deutsche Bank
Trust Company Americas (formerly known as Bankers Trust Company), a banking
corporation organized and existing under the laws of the State of New York, as
Disbursement Agent (the “Disbursement Agent”), and Calyon New York Branch as
successor to Credit Lyonnais, New York Branch in its capacity as agent for the
Banks and the Bond LOC Issuer as described more specifically in the Amended and
Restated Reimbursement Agreement referred to below (the “Agent”). (All
capitalized terms used herein shall, unless the context otherwise requires or
unless they are otherwise defined herein, have the meanings assigned to such
terms in the Amended and Restated Disbursement Agreement, as hereinafter
defined.)

WHEREAS, the Borrower, the Banks, the Agent, the Bond LOC Issuer (as defined in
the Amended and Restated Reimbursement Agreement referred to below) and the
Contract LOC Issuer (as so defined), are parties to an Amended and Restated
Reimbursement and Loan Agreement dated December 22, 1995 (as heretofore modified
and supplemented and in effect on the date hereof, the “Amended and Restated
Reimbursement Agreement”);

WHEREAS, the Lessor, the Lessee, the Disbursement Agent and the Agent have
entered into an Amended and Restated Disbursement and Security Agreement, dated
as of December 22, 1995 (as amended and supplemented and in effect on the date
hereof, the “Amended and Restated Disbursement Agreement”);

WHEREAS, the Lessor, the Lessee, the Agent, the Disbursement Agent, Deutsche
Bank Trust Company Americas (formerly known as Bankers Trust Company) in its
capacity as bond trustee (in such capacity, the “Bond Trustee”) and
Environmental Power Corporation, a Delaware corporation (“EPC”) have entered
into an Amended and Restated Participation Agreement dated as of December 22,
1995 (as amended and supplemented and in effect on the date hereof, the “Amended
and Restated Participation Agreement”); and

WHEREAS, the Borrower has requested that the Banks agree, among other things, to
extend the LOC Expiration Date, extend the maturity date of certain loans and
increase the Working Capital Loan Commitment (as such terms are defined in the
Amended and Restated Reimbursement Agreement), and the Banks are willing to do
so as set forth in Amendment No. 6 dated as of December 11, 2006 to the Amended
and Restated Reimbursement Agreement (“Amendment No. 6”); and

WHEREAS, it is a condition precedent to the effectiveness of Amendment No. 6
that the Lessor, the Lessee, the Agent and the Disbursement Agent amend the
Amended and Restated Disbursement Agreement as hereinafter provided.

NOW, THEREFORE, in consideration of the premises and of the agreements contained
herein, the parties hereto agree as follows:

Section 1. Definitions. Capitalized terms used herein shall, unless the context
otherwise requires or they are otherwise defined herein, have the meanings set
forth in the Amended and Restated Participation Agreement.

 

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In addition, the following term shall have the following meaning when used in
this Amendment No. 2:

“Amendment No. 6 Effective Date” shall mean the date upon which each of the
conditions precedent set forth in Section 3 of Amendment No. 6 shall have been
satisfied as notified by the Agent to the Disbursement Agent.

Section 2. Amendments. Effective on and as of the Amendment No. 6 Effective
Date:

(a) The heading of Section 2.02(b) of the Amended and Restated Disbursement
Agreement is hereby deleted in its entirety and replaced with the words
“Amortization Account,” and the last two sentences of Section 2.02(b) of the
Amended and Restated Disbursement Agreement are hereby deleted in their
entirety.

(b) Clauses “Fifth” through “Tenth” of Section 5.02(a)(Y) of the Amended and
Restated Disbursement Agreement are hereby deleted and replaced in their
entirety with the following:

“Fifth to the Remarketing Agent, remarketing fees, if any, in respect of the
Bonds;

Sixth, (a) to the payment of any Debt Service (Tranche A) Loan, if necessary, to
reduce such loan balance to the Required Maximum Debt Service (Tranche A) Loan
Amount for such Payment Date, and (b) then to the payment of any outstanding
Debt Service (Tranche B) Loan; provided, however, that in the event that the
Required Maximum Debt Service (Tranche A) Loan Amount has been reduced to zero
(0) under clauses (a)(ii) or (a)(iii) of the definition thereof, then amounts
under this clause Sixth shall be applied to the payment of outstanding Debt
Service (Tranche A) Loans and outstanding Debt Service (Tranche B) Loans, pro
rata based on the proportions that the principal amount of Debt Service (Tranche
A) Loans and principal amount of Debt Service (Tranche B) Loans, respectively,
bear to the aggregate outstanding principal amount of Debt Service (Tranche A)
Loans and Debt Service (Tranche B) Loans;

Seventh, in the following order of priority:

(i) to the Maintenance Reserve Account, the amount required or permitted by
Section 13.01(e) of the Amended and Restated Reimbursement Agreement to be
deposited in the Maintenance Reserve Account, as described in Schedule 1 to such
Disbursement Certificate and then

(ii) if required by Section 13.01(i) of the Amended and Restated Reimbursement
Agreement, then 100% of the balance remaining in the Operating Account shall be
deposited into the Hedge Account;

Eighth to Agent on behalf of Lessor, an amount, as determined by Lessee and
communicated to Lessor, up to the outstanding principal, if any, of any Lessee
Working Capital Loans, as described in Schedule 1 to such Disbursement
Certificate (to be applied by Agent to the payment of outstanding Working
Capital Loans and by Lessor to the payment of outstanding Lessee Working Capital
Loans);

 

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Ninth to Lessor, an amount equal to the installment of Basic Rent (Equity) due
on such Payment Date, as set forth in Schedule IV hereto (as such schedule may
be amended from time to time) and as described in Schedule 1 to such
Disbursement Certificate, unless the restrictions set forth in Section 11.08 of
the Amended and Restated Reimbursement Agreement shall apply, then such amount
shall be deposited in the Rent Suspense Account, in either case as set forth in
paragraph 4 of such Disbursement Certificate;

Tenth if the restrictions set forth in Section 11.08 of the Amended and Restated
Reimbursement Agreement shall apply, then 100% of the balance remaining in the
Operating Account shall be deposited into the Available Cash Flow Account;”

(c) Section 5.02(b) of the Amended and Restated Disbursement Agreement is hereby
amended by deleting the reference to “clause ‘Sixth’” and inserting in lieu
thereof the words “clause ‘Ninth’”.

(d) Section 5.02(d) of the Amended and Restated Disbursement Agreement is hereby
amended by deleting the words “and 5.02(a)(Y) clauses ‘Fifth’, ‘Sixth’, ‘Ninth’
and ‘Eleventh’ through ‘Seventeenth’ (without any application as provided in any
other clause of Section 5.02)” and inserting in lieu thereof the words “and
5.02(a)(Y) clauses ‘Fifth’, ‘Seventh’, ‘Ninth’, and ‘Eleventh’ through
‘Seventeenth’ (without any application as provided in any other clause of
Section 5.02).”

(e) Section 6.01 of the Amended and Restated Disbursement Agreement is hereby
amended by deleting the words “clauses ‘Sixth’ and ‘Eighth’, respectively” and
inserting in lieu thereof the words “clauses ‘Ninth’ and ‘Tenth’, respectively”.

(f) Sections 8.01 and 8.02(c) of the Amended and Restated Disbursement Agreement
are hereby amended by deleting the words “clause ‘Ninth’” and inserting in lieu
thereof the words “clause ‘Seventh’.”

(g) Section 20.01 of the Amended and Restated Disbursement Agreement is hereby
amended by deleting the words “clause ‘Ninth’” and inserting in lieu thereof the
words “clause ‘Seventh’”.

(h) Section 20.02 of the Amended and Restated Disbursement Agreement is hereby
amended by deleting the words “clauses Tenth through Seventeenth of
Section 5.02(a)(Y)” and inserting in lieu thereof the words “clauses ‘Eighth’
and ‘Eleventh’ through ‘Seventeenth’ of Section 5.02(a)(Y)”.

(i) Article XXI of the Amended and Restated Disbursement Agreement is hereby
deleted in its entirety and replaced with the words “ARTICLE XXI [intentionally
deleted].”

(j) Exhibit 5.02(a)(1) of the Amended and Restated Disbursement Agreement is
hereby amended by deleting the words “clauses Tenth through Seventeenth of
Section 5.02(a)(Y)” in the bracketed paragraph concerning the Hedge Account and
inserting in lieu thereof the words “clauses ‘Eighth’ and ‘Eleventh’ through
‘Seventeenth’ of Section 5.02(a)(Y)”.

 

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(k) Schedule I to the Amended and Restated Disbursement Agreement is hereby
deleted and replaced in its entirety with Schedule I attached hereto.

Section 3. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of this Amendment No. 2, each reference in the Amended and
Restated Disbursement Agreement to “this Agreement”, “hereunder”, “hereof”,
“herein”, or words of like import, and each reference in the Notes and the other
Loan Documents to the Amended and Restated Disbursement Agreement, shall mean
and be a reference to the Amended and Restated Disbursement Agreement as amended
hereby and as the same may be further amended, supplemented and otherwise
modified and in effect from time to time.

(b) Except as expressly provided herein, the Amended and Restated Disbursement
Agreement shall remain unchanged and in full force and effect.

(c) The execution, delivery and effectiveness of this Amendment No. 2 shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Bank or the Agent under any of the Loan Documents nor constitute a
waiver of any provision of any of the Loan Documents.

Section 4. Execution in Counterparts. This Amendment No. 2 may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
instrument.

Section 5. Expenses. Without limiting its obligations under Article XV of the
Amended and Restated Reimbursement Agreement, the Borrower agrees to pay, on
demand, all reasonable out-of-pocket costs and expenses of the Agent, the
Disbursement Agent and the Banks (including, without limitation, the reasonable
fees and disbursements of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Agent) incurred in connection with the negotiation, preparation,
execution and delivery of this Amendment No. 2.

Section 6. Headings. Section headings in this Amendment No. 2 are included
herein for convenience of reference only and shall not constitute a part of this
Amendment No. 2 for any other purpose.

Section 7. Binding Effect. This Amendment No. 2 shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.

Section 8. GOVERNING LAW. THIS AMENDMENT NO. 2 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO THE PRINCIPLES THEREOF RELATING TO THE CONFLICTS OF LAW EXCEPT SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND ANY SUCCESSOR STATUTE
THERETO).

The next page is the signature page.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be
executed by their respective duly authorized officers as of the date first above
written.

 

LESSOR

SCRUBGRASS GENERATING COMPANY, L.P.

By:

 

/s/ John W. O’Connor

Name:

  John W. O’Connor

Title:

  President

AGENT

CALYON NEW YORK BRANCH

By:

 

/s/ Robert G. Colvin

Name:

  Robert G. Colvin

Title:

  Director

DISBURSEMENT AGENT

DEUTSCHE BANK TRUST COMPANY AMERICAS

By:

 

/s/ Michele L. Russo

Name:

  Michele L. Russo

Title:

  Assistant Vice President

By:

 

/s/ Evangelos Ntavos

Name:

  Evangelos Ntavos

Title:

  Assistant Vice President

LESSEE

BUZZARD POWER CORPORATION

By:

 

/s/ Jimmy Chow

Name:

  Jimmy Chow

Title:

  Controller

 

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