Exhibit 10.18




This
Lease Agreement has been filed to provide investors with information regarding
its terms.  It is not intended to provide any other factual
information about the Tennessee Valley Authority.  The representations
and warranties of the parties in this Lease Agreement were made to, and solely
for the benefit of, the other party to this Lease Agreement.  The
assertions embodied in the representations and warranties may be qualified by
information included in schedules, exhibits, or other materials exchanged by the
parties that may modify or create exceptions to the representations and
warranties.  Accordingly, investors should not rely on the
representations and warranties as characterizations of the actual state of facts
at the time they were made or otherwise.











TVA
Contract No. 00072495




















LEASE
AGREEMENT






Dated
September 30, 2008






between






SEVEN
STATES SOUTHAVEN, LLC




and






TENNESSEE
VALLEY AUTHORITY











Southaven
Power Plant


An 810 MW
(nominal) Gas-Fired Combined Cycle Electric Generating Facility


Located
In DeSoto County, Mississippi










ARTICLE
      1
                DEFINITIONS
                2ARTICLE
      2
                LEASE
      OF THE LEASED PREMISES
                242.1
                Lease
                242.2
                Representations
      and Warranties
                242.3
                Compliance
                26ARTICLE
      3
                LEASE
      TERM, OPTION, AND RENT
                273.1
                Lease
      Term
                273.2
                Initial
      Rent
                273.3
                Basic
      Rent
                273.4
                Supplemental
      Rent
                283.5
                Manner
      of Payments; Late Payments
                283.6
                Impositions
                293.7
                Payment
      of Taxes Received by Seven States
                293.8
                Apportionment
      of Impositions
                303.9
                Tax
      Contest
                303.10
                No
      Offset
                30ARTICLE
      4
                DISCLAIMER
      OF WARRANTIES; RIGHT OF QUIET ENJOYMENT
                314.1
                Disclaimer
      of Warranties
                314.2
                Quiet
      Enjoyment
                314.3
                Use
      of Ground Interest
                32ARTICLE
      5
                NO
      RETURN OF LEASED PREMISES; EXERCISE OF BUY-BACK OPTION
                32ARTICLE
      6
                LIENS
                32ARTICLE
      7
                OPERATION
      AND MAINTENANCE; REPLACEMENT OF COMPONENTS; ENVIRONMENTAL
      MATTERS
                337.1
                Operation
      and Maintenance
                337.2
                Replacement
      of Components
                357.3
                Environmental
      Matters
                367.4
                Non-Interference;
      Purchased Assets Security
                37

















7.5
                Transmission
      and Interconnection
                38ARTICLE
      8
                MODIFICATIONS
                388.1
                Required
      Modifications
                388.2
                Optional
      Modifications
                388.3
                Title
      to Modifications
                398.4
                Cost
      Responsibility for Capitalized Modifications
                39ARTICLE
      9
                EVENTS
      OF LOSS
                409.1
                TVA
      Obligation to Restore
                409.2
                Application
      of Proceeds
                419.3
                Major
      Condemnation
                419.4
                Minor
      Condemnation
                419.5
                Temporary
      Condemnation
                429.6
                TVA’s
      Waiver
                429.7
                Right
      of Compensation
                439.8
                Effect
      of Default
                439.9
                Appearance
                439.10
                Prompt
      Notice
                43ARTICLE
      10
                INSURANCE
                44ARTICLE
      11
                INSPECTION
                44ARTICLE
      12
                EVENTS
      OF DEFAULT; REMEDIES
                4412.1
                Events
      of Default
                4512.2
                Remedies
      for Event of Default
                4912.3
                Right
      to Cure
                5012.4
                Waiver
      of Outside Cure Periods
                5112.5
                Force
      Majeure
                51ARTICLE
      13
                INDEMNIFICATION
                5213.1
                By
      TVA to Seven States
                5213.2
                By
      Seven States to TVA
                53












ARTICLE
      14
                MISCELLANEOUS
                5314.1
                Assignment
                5314.2
                Amendments
      and Waivers
                5614.3
                Notices
                5714.4
                Survival
                5814.5
                Successors
      and Assigns
                5814.6
                Governing
      Law
                5814.7
                Consent
      to Jurisdiction; Waiver of Trial by Jury
                5814.8
                Merger
                5914.9
                Severability
                6014.10
                Counterparts
                6014.11
                Headings
      and Table of Contents
                6114.12
                Further
      Assurances
                6114.13
                Effectiveness
                6114.14
                Entire
      Agreement
                6114.15
                No
      Partnership, Etc
                6114.16
                Memorandum
      of Lease
                6214.17
                Estoppel
      Certificates
                6214.18
                Consent
      and Waiver
                6214.19
                Seven
      States Required Federal Contracting Covenants
                6314.20
                Waiver
      of Partition
                6314.21
                Interpretation
                6314.22
                TVA’s
      Access to Seven States’ Financial Statements
                6514.23
                Fees
      and Expenses
                6514.24
                Dispute
      Resolution
                65EXHIBIT
      A — Legal DescriptionEXHIBIT
      B — TVA’s People with Actual Knowledge















EXHIBIT C
— Seven States’ People with Actual Knowledge




SCHEDULE
10.1 — Insurance Requirements

















LEASE
AGREEMENT


This
LEASE AGREEMENT, dated September 30, 2008 (Lease), is entered into by and
between SEVEN STATES SOUTHAVEN, LLC (Seven States), a limited liability company
formed and existing under the Laws of the State of Delaware, as owner and
lessor, and TENNESSEE VALLEY AUTHORITY (TVA), a corporate agency and
instrumentality of the United States Government created and existing under and
by virtue of the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C.
§§ 831-831ee (2006), and acting as to real property as agent and in the name of
the United States of America, as lessee.





W I T N E S S E T H :


WHEREAS,
TVA generates and transmits electric power and energy to Distributors, who
resell that power and energy to consumers in portions of seven states in and
around the Tennessee River Valley watershed; and


WHEREAS, through the Tennessee Valley
Public Power Association (TVPPA), substantially all of the Distributors formed
Seven States Power Corporation (Seven States Parent) for various purposes, among
which is obtaining ownership interests in generating facilities jointly with
TVA; and


WHEREAS, TVA and Seven States Parent
have entered into that certain Joint Ownership Agreement, dated as of April 30,
2008, as amended and supplemented (the Joint Ownership Agreement);
and


WHEREAS, pursuant to the Joint
Ownership Agreement, Seven States Parent has designated Seven States as the
“Designated Entity” for purposes of the Section 1 of the Joint Ownership
Agreement and has exercised its option to obtain a specified undivided
ownership


–1–


share in
the Purchased Assets from TVA, and TVA has agreed to sell such ownership share
to Seven States at the Seven States Closing; and


WHEREAS, in connection with the Seven
States Closing, the Parties desire to enter into this Lease whereby TVA will
lease Seven States’ ownership interest in the Purchased Assets so that TVA may
utilize the Purchased Assets while Long-Term Arrangements described in the Joint
Ownership Agreement are being developed; and


WHEREAS,
pursuant to the Assignment and Assumption Agreement, on the Lease Commencement
Date, Seven States desires to assign the Project Document Interest to TVA for
the Lease Term and TVA desires to assume and accept the same, subject to the
terms and conditions set forth herein;


NOW,
THEREFORE, for and in consideration of the premises, the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:





ARTICLE
1.  DEFINITIONS.


Capitalized terms used in this Lease,
including the foregoing recitals, and not otherwise defined herein have the
respective meanings set forth in this Article 1.  The rules of
interpretation and the other general provisions of Section 14.21 shall apply to
the terms used in this Lease.


“Accumulated Amortization Costs” has
the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Actual Knowledge” means:


(a) with
respect to TVA, actual knowledge of


–2–





(i) each
individual set forth on ExhibitB (or successors or
replacements of each such individual), in each case with respect to the period
specified therein, or


(ii) an
Authorized Officer of TVA (or successors or replacements of each such
individual) who, in the ordinary performance of such individual’s duties or
activities, has substantial responsibility for management or administration
of


(1) the
operation and maintenance of the Purchased Assets, or


(2) the
preparation of TVA’s compliance matters with respect thereto; and


(b) with
respect to Seven States, actual knowledge of each individual set forth on ExhibitC (or successors or
replacements of such individual), in each case with respect to the period
specified therein, and


(c) with
respect to any other Person, actual knowledge of an Authorized Officer of such
Person who, in the ordinary performance of such individual’s duties or
activities, has substantial responsibility for management or administration
of


(i) the
operation and maintenance of the Purchased Assets, or


(ii) the
preparation of such Person’s tax returns or compliance matters with respect
thereto.


(d)  Any
Person shall in any event be deemed to have actual knowledge of any matter as to
which such Person has been given notice (i) pursuant to and in accordance with
the provisions of the Lease to which such Person is a party or (ii) from any
Governmental Authority.


“Administrative
and General Expenses” has the meaning generally applied in the electric utility
industry as implemented by the Federal Energy Regulatory Commission’s
Uniform


–3–


System of
Accounts, 18 C.F.R. Part 101, including accounts 920 (salaries), 921 (office
supplies and expenses), 923 (outside services employed), 924 (property
insurance), 926 (employee pensions and benefits), 931 (rents), and 933
(transportation expenses).


“Affiliate” of any specified Person
means any other Person that, directly or indirectly, controls, is controlled by,
or is under common control with such Person.  For purposes of this
definition, “control” when used with respect to any particular Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise, and the terms “controlling,” “controlled,” and “under common control”
have meanings correlative to the foregoing; provided, however, that any
Person owning, directly or indirectly, ten percent (10%) or more of the
securities having ordinary voting power for the election of directors or other
members of the governing body of a corporation, or ten percent (10%) or more of
the partnership or other ownership interests of any other Person, is deemed to
control such corporation or other Person; and provided further that any
Federal Governmental Authority shall not be deemed to be an Affiliate of the
Tennessee Valley Authority.


“Appurtenant
Rights” has the meaning specified in Section 2.1.


“Assignment
and Assumption Agreement” means the Assignment and Assumption Agreement, dated
as of the date of this Lease, by and between TVA and Seven
States.


“Authorized
Officer” means, with respect to any Person:  its chairman of the
board, its chief executive officer, its president, any of its executive vice
presidents, any of its senior vice presidents, its chief financial officer, any
of its vice presidents, its treasurer, or any other similar senior management
employee (i) that has the power to take the action in question and has been
authorized, directly or indirectly, by the governing body of such Person, (ii)
working under the


–4–


direct
supervision of such chairman of the board, chief executive officer, president,
executive vice president, senior vice president, chief financial officer, vice
president, or treasurer, or (iii) whose responsibilities include the
administration of the transactions and agreements contemplated under this
Lease.


“Bankruptcy
Event” means that which occurs with respect to any Person if:


(a) that Person institutes a voluntary
case seeking liquidation or reorganization under the Bankruptcy Law, or consents
to the institution of an involuntary case thereunder against it; or


(b) such Person files a petition or
consent or shall otherwise institute any similar proceeding under any other
applicable Federal or state Law, or consents thereto; or


(c) such Person applies for, or
consents or acquiesces to, the appointment of a receiver, administrator,
administrative receiver, liquidator, sequestrator, trustee, or other officer
with similar powers for itself or any substantial part of its assets;
or


(d) such Person makes a general
assignment for the benefit of its creditors; or


(e) such Person admits in writing its
inability to pay its debts generally as they become due; or


(f) an involuntary case is commenced
seeking liquidation or reorganization of such Person under the Bankruptcy Law or
any similar proceedings are commenced against such Person under any other
applicable Federal or state Law and


(1) the petition commencing the
involuntary case is not timely disputed, or


(2) the petition commencing the
involuntary case is not dismissed within sixty (60) days of its filing,
or


–5–





(3) an interim trustee is appointed to
take possession of all or a portion of the property, or to operate all or any
part of the business of such Person and such appointment is not vacated within
sixty (60) days of the involuntary case filing, or


(4) an order for relief has been issued
or entered therein; or


(g) a decree or order of a court having
jurisdiction over the Leased Premises for the appointment of a receiver,
administrator, administrative receiver, liquidator, sequestrator, trustee, or
other officer having similar powers, over such Person or all or a part of its
property has been entered; or


(h) any other similar relief is granted
against such Person under any applicable Bankruptcy Law.


“Bankruptcy
Law” means Title 11, United States Code, and any other state or Federal
insolvency, reorganization, moratorium, receivership, or similar Law for
the relief of debtors, or any successor statute.


“Basic
Rent” has the meaning specified in Section 3.3.


“Borrowing
Cost Rate” has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Business Day” has the meaning
specified in Section 1 of the Joint Ownership Agreement.


“Buy-Back Closing” has the meaning
specified in Section 1 of the Joint Ownership Agreement.


“Buy-Back Option” means the options
described in Section 5 of the Joint Ownership Agreement.


–6–





“Buy-Back Period” has the meaning
specified in Section 1 of the Joint Ownership Agreement.


“Buy-Back
Price” has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Capitalized
Modification” has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Capitalized Replacement Components”
has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Casualty”
means any event of damage, destruction, or other casualty relating to the
Purchased Assets or any part thereof.


“Casualty
Insurance Proceeds” means any and all proceeds of any insurance, indemnity,
warranty, or guaranty payable from time to time with respect to any Casualty,
including the insurance required by Section 10.1.


“Certifying
Party” has the meaning specified in Section 14.17.


“Change
in Law” means:


(a) any material change in, or the
adoption, effectiveness, or phase-in of any applicable Law; or


(b) any material change in the
interpretation or application of any applicable Law; or


(c) any new request or directive
(whether or not having the force of law) of any Governmental
Authority;


any of
which (a), (b), and (c) are made subsequent to the execution of this
Lease.


–7–





“Claim”
means any asserted liability (including liability with respect to negligence
(whether passive or active), strict or absolute liability in tort or otherwise,
warranty, latent or other defects (regardless of whether or not discoverable),
statutory liability, property damage, bodily injury, or death), obligation,
loss, settlement, damage, penalty, claim (including any claim related to an
Environmental Liability of TVA that relates to the Purchased Assets), action,
suit, judicial or administrative proceeding (whether civil or criminal), order,
judgment, penalty, fine, or other legal or administrative sanction, cost,
expense, or disbursement, including reasonable legal, investigation, and expert
fees, expenses, and related charges of whatsoever kind and nature.


“Commercially
Reasonable” has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Component” means any appliance, part,
instrument, appurtenance, accessory, furnishing, equipment, or other property of
whatever nature that may from time to time be incorporated in the Purchased
Assets, except to the extent constituting spare parts being held for future
use.


“Condemnation”
means a seizure, condemnation, confiscation, or other taking of, or requisition
of title to or use of, the Purchased Assets, or any part thereof by any
Governmental Authority (or other Person acting under color of Governmental
Authority).


“Condemnation
Proceeds” means any and all payments (in any form whatsoever) made or due and
payable from time to time in connection with any Condemnation.


“Designated
Entity” has the meaning specified in Section 1 of the Joint Ownership
Agreement.


–8–





“Defaulting Party” has the meaning
specified in Section 12.2.


“Distributor” has the meaning specified
in Section 1 of the Joint Ownership Agreement.


“Dollars” and the symbol “$” means
lawful money of the United States of America.


“Elected Percentage” has the meaning
specified in Section 1 of the Joint Ownership Agreement.


“Emissions Allowances” means any
emission credits, emission allowances, or other appropriate entitlements issued
pursuant to applicable Environmental Laws that have been allocated to the
Purchased Assets by any Governmental Authority.


“Environmental
Condition” means any event or condition, including the presence or Release of
any Hazardous Material at, into, on, or under any land, water, air, or otherwise
within or into the environment or within any structure, or the presence of
wetlands or protected species or organism that does or reasonably
could:  (i) require assessment, investigation, monitoring, abatement,
correction, clean-up, mitigation, removal, remediation, or any other response;
(ii) give rise to an Environmental Liability or any obligation or liability of
any nature (whether civil or criminal, arising under a theory of negligence,
strict liability, or otherwise) under or relating to any Environmental Law;
(iii) create or constitute a public or private nuisance or trespass; (iv)
constitute a violation of or non-compliance with any Environmental Law; (v)
result in or contribute to the actual or threatened loss of or damage to any
property, natural resources, wildlife, or environmental media, or the death of
or injury to any Person from an Environmental Liability; or (vi) result in
limitations under Environmental Law on the development or use of the
Property.


–9–





“Environmental
Laws” means all Federal, state, and local statutes, Laws, ordinances, codes,
rules, regulations, consent decrees, administrative orders, administrative
directives, injunctions, deed restrictions, judgments, and any other legally
enforceable requirements, in each case, of any Governmental Authority relating
to, regulating, or imposing liability or mandatory standards of conduct
concerning public health, safety, or the environment or natural resources, as
each may from time to time be amended, supplemented, or supplanted as the
context in any Project Document may require (including specifically the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
§§ 9601 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.; the Federal Water
Pollution Control Act, 33 U.S.C. §§ 1251 et seq.; the Clean Air Act,
42 U.S.C. §§ 7401 et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1471 et seq.; the Toxic Substances
Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. §§
2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. §§ 11001 et seq.; the Safe Drinking
Water Act, 42 U.S.C. §§ 300 et
seq.; and all other applicable statutes, rules, or regulations of the
Federal government or the State of Mississippi that govern the management of
hazardous materials or the environment and all amendments thereto, and
regulations implementing any of the foregoing).


“Environmental
Liability” means any administrative, regulatory, or judicial action, fee, cause
of action, obligation, suit, liability (including but not limited to any
contingent liability), loss, damage, proceeding, decree, judgment, penalty,
fine, demand, demand letter, order, directive, claim (including any claim
involving liability in tort:  strict, absolute, or otherwise), lien,
sanction, notice of noncompliance or violation, legal or consultant fee or
expense, or cost of


–10–


investigation,
remediation, or proceeding (Liabilities), relating in any way to any
Environmental Law, or arising from the actual or alleged presence or Release of
any Hazardous Material or the generation, use, handling, treatment, removal,
storage, cleanup, remediation, transport, or disposal of Hazardous Material
including, but not limited to, and regardless of the merit of such Liability,
any and all Liabilities for:  (i) investigation, delineation,
assessment, abatement, correction, enforcement, mitigation, corrective action,
cleanup, removal, response, remediation, or other activities related to the
actual or alleged presence or Release of Hazardous Material; (ii) damages,
contribution, indemnification, cost recovery, compensation, mitigation, or
injunctive or declaratory relief related to violations of or noncompliance with
Environmental Laws or the actual or alleged presence or Release of Hazardous
Material or the generation, use, handling, treatment, removal, storage, cleanup,
remediation, transport, or disposal of Hazardous Material; (iii) any alleged or
actual injury or threat of injury to human health, safety, natural resources,
property, or the environment (including protection of flora and fauna) in
connection with a violation of or noncompliance with Environmental Law or the
actual or alleged presence or Release of or exposure to or threat of exposure to
Hazardous Material or the generation, use, handling, treatment, removal,
storage, cleanup, remediation, transport, or disposal of Hazardous Material; or
(iv) any failure or alleged failure to obtain or comply with any Governmental
Approval required by any Environmental Law for the construction, operation, or
maintenance of the Purchased Assets.


“Equipment”
means all equipment, apparatus, furnishings, fittings, and personal property of
every kind and nature whatsoever purchased, leased, or otherwise acquired by
Seven States or TVA or both and now or subsequently attached to, contained in,
or used or usable in any way in connection with any operation or letting of the
Leased Premises together with any Replacement


–11–


Components
and any Modifications, including all storm doors and windows, shelving,
furniture, furnishings, heating, electrical, switch gear, uninterrupted power
supply, mechanical equipment, lighting, switchboards, plumbing, ventilation, air
conditioning and air-cooling apparatus, refrigerating equipment, incinerating
equipment, escalators, generators, elevators, loading and unloading equipment
and systems, stoves, ranges, laundry equipment, cleaning systems, telephones,
communications systems, televisions, computers, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security systems, motors,
engines, machinery, pipes, pumps, tanks, conduits, appliances, and fittings of
every kind and description.


“Estoppel
Certificate” means a statement, addressed to the Requesting Party or as the
Requesting Party shall direct, containing statements to the following effect
(identifying in reasonable detail any exceptions that may exist at the time), as
requested by the Requesting Party:  (a) this Lease has not been
amended, constitutes the entire agreement between the Parties relating to the
Leased Premises, and is in full force and effect; (b) neither Party is, to the
best of the Certifying Party’s knowledge, in default under this Lease and to the
best of the Certifying Party’s knowledge no facts or circumstances exist that,
with the passage of time or the giving of notice or both, would constitute an
Event of Default under this Lease by either Party; (c) TVA has paid all Rent to
date; (d) the Lease Commencement Date and any other then-ascertainable dates
relevant to this Lease but not expressly set forth in the text of this Lease,
and the basis for such date; (e) the Certifying Party is not, to the best of its
knowledge, entitled to any defenses, offsets, claims, counterclaims, or rights
of recoupment against its obligations under this Lease; (f) the current Base
Rent; (g) the Certifying Party’s address for notices; and (h) such other matters
as either Party shall reasonably request.


–12–





“Event
of Abandonment” means at any time on or after the Lease Commencement Date, TVA
shall announce that it is abandoning the Purchased Assets or the Purchased
Assets shall be abandoned or operation of the Purchased Assets shall be
suspended for any reason for a period of fifteen (15) consecutive days and Seven
States has given written notice to TVA of such suspension of operation after
such fifteen (15) -day period has expired, and an additional fifteen (15) days
have passed after such notice from Seven States and no resumption of operation
has occurred; provided,
however, that none of
(i) scheduled maintenance of the Purchased Assets, (ii) repairs to the Purchased
Assets, whether scheduled or not scheduled, (iii) a forced outage (including as
a result of Force Majeure) or scheduled outage of the Purchased Assets, or (iv)
non-operation of the Purchased Assets as the result of economics or failure to
dispatch by TVA for any other business reason, shall constitute abandonment or
suspension of operations of the Purchased Assets, and, in the case of suspension
of operation of the Purchased Assets as a result of a forced outage (including
as a result of Force Majeure), or in the case of unscheduled repairs to the
Purchased Assets, so long as TVA is diligently attempting to end such suspension
of operation.


“Event
of Default” has the meaning set forth in Section 12.1.


“Fair
Market Value” means with respect to any Property or services as of any date, the
cash rent or cash price obtainable in an arm’s length lease or sale
contract, respectively, between an informed and willing lessee or purchaser
under no compulsion to lease or purchase and an informed and willing lessor or
seller under no compulsion to lease or sell the Property or services in
question, and shall, in the case of the Purchased Assets, be determined (except
as otherwise provided herein) on the basis, as applicable, that (i) the
conditions contained in Articles 6


–13–


through 8
have been complied with in all material respects, (ii) the Purchased Assets are
free and clear of all Liens (other than Seven States’ Liens), and (iii) in the
case of the Fair Market Value for purposes of lease rental, taking into
account the terms of the Lease.  If, with respect to lease rental, the
Fair Market Value of the Purchased Assets is to be determined during the
continuance of an Event of Default or in connection with the exercise of
remedies by Seven States pursuant to Article 12 of the Lease, such value shall
be determined by an appraiser appointed solely by Seven States on an “as-is,”
“where-is,” and “with all faults” basis and shall take into account all Liens
(other than Seven States’ Liens).


“Force
Majeure” has the meaning set forth in Section 12.5.


“GAAP”
means generally accepted accounting principles in the United States as in effect
from time to time.


“Generating
Facility” means the Southaven Power Plant, an 810 megawatt (nominal) gas-fired
combined cycle electric generating facility located on the Site, and all
Equipment, buildings, structures, fixtures, and other improvements acquired by
TVA from Seller.


“Good Utility Practice” means any of
the practices, methods, and acts engaged in or approved, as the same may change
from time to time, by a significant portion of the electric utility industry
during the relevant time period, or practices, methods, and acts that, in the
exercise of reasonable judgment in light of the facts known at the time the
decision was made, could have been expected to accomplish the desired result at
a reasonable cost consistent with good business practices, reliability, safety,
and expedition.  Good Utility Practice is not intended to be limited
to any particular set of optimum practices, methods, or acts to the exclusion of
all others, but rather is intended to encompass a broad spectrum of acceptable
practices, methods, and acts.




–14–







“Governmental Approvals” means any and
all permits, acceptances, authorizations, certificates, registrations, consents,
approvals, waivers, exceptions, variances, orders, judgments, binding written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any applicable Law, and shall include any and all such environmental
and operating permits, licenses, and other approvals that are required for the
construction, use, occupancy, zoning, operation, and maintenance of the
Purchased Assets.


“Governmental
Authority” means any nation or government, any state, provincial, or other
political subdivision thereof (whether Federal, state, or local), any court, and
any administrative agency or other regulatory body, instrumentality, authority,
or entity (other than TVA) exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to
government.


“Ground
Interest” means the Site and the Appurtenant Rights.


“Hazardous
Material” means:


(i)  any
“hazardous substance,” as defined by any Environmental Law;


(ii) any
“solid waste” or “hazardous waste,” as defined by any Environmental
Law;


(iii) any
petroleum product or petroleum (including crude oil or any fraction
thereof);


(iv) any
coal waste or coal combustion waste; or


(v) any
pollutant or contaminant or hazardous, dangerous, or toxic chemical, material,
or other substance (including polychlorinated biphenyls, urea formaldehyde
insulation, asbestos, asbestos-containing material, mold, mercury, or
radioactive materials) the use


–15–


or
Release of which is regulated, prohibited, or restricted pursuant to any
Environmental Laws or that could otherwise result in any Environmental
Liability.


“Impositions”
means all Taxes (other than any excluded taxes), water and sewer rents, rates
and charges, excises, levies, license and permit fees, fines, penalties, and
other Governmental Authority charges and any interest or costs with respect
thereto, charges for any easement or agreement maintained for the benefit of the
Purchased Assets, and charges for public and private utilities (including gas,
electricity, light, heat, air conditioning, power, and telephone and other
communication services), general and special, ordinary and extraordinary,
foreseen and unforeseen, of any kind and nature whatsoever which at any time
prior to or during the Lease Term and applicable to the Lease Term or any part
thereof may be assessed, levied, confirmed, imposed upon, or become due and
payable out of or with respect to, or charged with respect to, or become a lien
on the Purchased Assets.


“Initial
Rent” has the meaning specified in Section 3.2, below.


“Insurance Requirements” means, as the
case may be, the terms and conditions of any insurance policy required by
Section 10.1 to be maintained by TVA or to be maintained or arranged, on behalf
of Seven States, by TVA, and all requirements of the issuer of any such policy,
as set forth on Schedule 10.1.


“Joint
Ownership Agreement” means that certain agreement bearing that name between
Seven States and TVA dated as of April 30, 2008 as amended and
supplemented.


“Law” has the meaning specified in
Section 1 of the Joint Ownership Agreement.


“Lease” means this lease
agreement.


“Lease
Commencement Date” means the date  of the  Seven States
Closing.


“Lease
Term” has the meaning specified in Section 3.1, below.


–16–





“Leased
Premises” means Seven States’ ownership interest and rights in the Purchased
Assets.


“Leasehold
Interest” means all the estate, right, title, and interest of TVA in and to the
Leased Premises.


“Lender” has  the
meaning specified in Section 1 of  the Joint Ownership
Agreement.


“Liability” has the meaning specified
within the definition of “Environmental Liability.”


“Lien”
means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit
arrangement, easement, encumbrance, lien (statutory or other), charge, lease, or
other security interest, or any preference, priority, or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any lease
having substantially the same economic effect as any of the
foregoing).


“Long-Term Arrangements” has the
meaning specified in Section 1 of the Joint Ownership Agreement.


“Major Condemnation” means a
Condemnation of all, or substantially all, of the Purchased Assets or that
prevents TVA from operating or maintaining all, or substantially all, of the
Purchased Assets following exhaustion of all permitted appeals or an election by
TVA not to pursue such appeals; provided, however, that no such contest
shall extend beyond the date that is one (1) year after the loss of such
title.


“Material
Adverse Effect” means a material adverse change in or material adverse effect on
(i) the business, operations, Property, condition (financial or otherwise),
economic prospects, or results of operations (including net cash flows) of the
applicable Party, the operation of the Purchased Assets, or the
then-current or residual Fair Market Value, utility, or useful life of
the


–17–


Purchased
Assets, (ii) the ability of the Parties to perform or comply with its
obligations hereunder, or (iii) the validity or enforceability of the Lease or
the rights, interests, and remedies of the Parties.


“Minor
Condemnation” means a Condemnation that is not a Major
Condemnation.


“Modification”
has the meaning specified in Section 1 of the Joint Ownership
Agreement.




“Monthly Amortization Costs” has the
meaning specified in Section 1 of the Joint Ownership Agreement.




“Monthly Borrowing Costs” has the
meaning specified in Section 1 of the Joint Ownership Agreement.


“Non-Defaulting Party” has the meaning
specified in Section 12.2.


“Officer’s
Certificate” means with respect to any Person, a certificate signed by any
Authorized Officer of such Person.


“Optional
Modification” has the meaning specified in Section 8.2.


“Overdue
Rate” means the interest rate equal to the rate provided under the Prompt
Payment Act, 31 U.S.C. §§ 3901-07, which is adjusted by the United States
Secretary of the Treasury semiannually.


“Party”
has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Permitted Liens” means:  (i)
the interests of Seven States under the Lease; (ii) Liens for (A) Taxes not yet
due and payable or (B) Taxes being contested in good faith, if the Party
responsible for such taxes has established (and is maintaining in
accordance with GAAP) adequate reserves for such taxes; (iii) suppliers’,
vendors’, workmen’s, repairmen’s, employees’, mechanics’, materialmen’s, or
other like Liens arising in the ordinary course of business for


–18–


amounts
the payment of which is either (A) not yet delinquent or (B) being contested in
good faith, if (1) the Party responsible for such taxes has established
(and is maintaining in accordance with GAAP) adequate reserves for the discharge
of such Lien and (2) such proceedings do not involve a material risk of the
sale, forfeiture, or loss of the Purchased Assets (or any material part of any
thereof) or are bonded for the amount required under applicable Law to release
any such Lien; (iv) pre-judgment Liens for claims that are being diligently
contested in good faith and liens arising out of judgments or awards with
respect to which an appeal or proceeding for review is being prosecuted in good
faith and to which a stay of execution has been obtained pending such appeal or
review and so long as such proceedings do not involve a material risk of the
sale, forfeiture, or loss of the Purchased Assets (or any material part of any
thereof) or are bonded for the amount required under applicable Law to release
any such Lien; (v) pledges or deposits to secure statutory obligations; (vi)
good faith deposits in connection with bids, tenders, or contracts, including
rent security deposits; and (vii) any first mortgage that may now or hereafter
be placed upon the Leased Premises or portion thereof by Seven States, as well
as any junior mortgage to the extent such junior mortgage is approved by the
applicable first mortgagee.


“Person”
has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Project
Document Interest” means all right, title, and interest of Seven States in and
to all Project Documents.


“Project
Documents” means the following documents assigned by Seller to TVA and assumed
by TVA at the closing of the TVA Purchase Agreement, collectively and as
amended, restated, or otherwise modified from time to time:


1.           Facility
Letter Agreement,  by and between Texas Gas Transmission Corporation
and Seller, dated as of October 23, 2000


–19–





2.           Amendment
to Facility Letter Agreement, by and between Texas Gas Transmission Corporation
and Cogentrix Energy, LLC, dated as of January 31, 2001





3.           License
and Indemnity Agreement, by and between Texas Gas Transmission Corporation and
Seller, dated as of March 27, 2002





4.           Gas
Metering Agreement, between Texas Gas Transmission Corporation and Seller, dated
as of June 1, 2000





5.           Interconnection
Agreement OOPAP-263655, between TVA and Seller, dated as of October 10,
2000





6.           Amended
and Restated Interconnection and Operating Agreement, by and between Seller and
Entergy Mississippi, Inc., dated as of October 20, 2000





7.           Long
Term Service Agreement, by and between Seller and General Electric
International, Inc., dated as of October 1, 2001, effective October 21,
2002





8.           Parts
Sharing Agreement, by and between Cogentrix Parts Company, Inc. and Various
Project Affiliates, dated as of October 1, 2001





9.           Amended
and Restated Sewer Agreement, between the City of Southaven and Seller, dated as
of August 23, 2000





10.           Municipal
Development Agreement, by and between the City of Southaven, Mississippi, and
Cogentrix Energy, LLC, dated as of June 7, 1999





11.           General
Warranty Deed, by and between H&M Properties (Grantor) and Seller (Grantee),
dated as of December 12, 2000





12.                      General
Warranty Deed, by and between P&W Properties, LLC (Grantor) and Seller
(Grantee), dated as of December 12, 2000





13.                      General
Warranty Deed, by and between Seller (Grantor) and P&W Properties, LLC
(Grantee), dated as of December 12, 2000





14.                      General
Warranty Deed, by and between P&W Partners (Grantor) and Cogentrix Southaven
Properties, LLC (Grantee), dated as of December 12, 2000





15.                      General
Warranty Deed, by and between City of Southaven, Mississippi (Grantor), and
Cogentrix Southaven Properties, LLC (Grantee), dated as of December 12,
2000





16.           Corrected
Quit Claim Deed, by and between P&W Properties, LLC (Grantor) and Seller
(Grantee), dated as of September 26, 2002


–20–








17.           Special
Warranty Deed, by and between Southaven Properties, LLC (Grantor), and Tennessee
Valley Authority (Grantee), dated as of May 9, 2008, as to certain Mississippi
property





18.           Special
Warranty Deed, by and between Southaven Properties, LLC (Grantor), and Tennessee
Valley Authority (Grantee), dated as of May 9, 2008, as to certain Tennessee
property





19.           Special
Warranty Deed, by and between Cogentrix Southaven Properties, LLC (Grantor), and
Tennessee Valley Authority (Grantee), dated as of May 9, 2008, as to certain
Mississippi property





20.           Special
Warranty Deed, by and between Cogentrix Southaven Properties, LLC (Grantor), and
Tennessee Valley Authority (Grantee), dated as of May 9, 2008, as to certain
Tennessee property





and any
replacement or substitute agreement for any of the foregoing.


“Property”
means any right or interest in or to property or asset of any kind whatsoever,
whether real, personal, or mixed and whether tangible or intangible, including
the capital stock of any Person.


“Purchase Price” has the meaning
specified in Section 1 of the Joint Ownership Agreement.


“Purchased
Assets” has the meaning specified in the TVA Purchase Agreement.


“Qualified Appraiser” means a
nationally recognized third-party appraiser that shall (a) be qualified to
appraise independent electric generating businesses, (b) have been engaged in
the appraisal or business valuation and consulting business for a period of not
less than five (5) years, and (c) not be associated with Seven States, TVA, or
any of their respective Affiliates.


“Release”
means the actual or threatened release, deposit, disposal, or leakage of any
Hazardous Material at, into, upon, from, or under any land, water, or air, or
otherwise into the environment or within any structure, including by means of
burial, disposal, discharge, emission,


–21–


injection,
spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping,
emptying, and placement.


“Rent”
means Initial Rent, Basic Rent, and Supplemental Rent,
collectively.


“Rent
Payment Date” means the last Business Day of each calendar month.


“Replacement
Component” has the meaning specified in Section 7.2(a).


“Requesting
Party” has the meaning specified in Section 14.17.


“Required
Modification” has the meaning specified in Section 8.1.


“Restoration” means,
upon a Casualty or Condemnation, the safeguarding, clearing, repair,
restoration, alteration, replacement, rebuilding, and reconstruction of the
damaged or remaining improvements to a state substantially similar to the
Purchased Assets prior to any such Casualty or Condemnation, subject to
applicable Law.


“Seller”
has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Seven
States” means Seven States Southaven, LLC, a Delaware limited liability
company.


“Seven
States Closing” has the meaning specified in Section 1 of the Joint Ownership
Agreement.


“Seven States’ Liens” means any Lien
other than a Permitted Lien on the Purchased Assets or any part thereof arising
from and after consummation of the transaction contemplated hereunder on the
Lease Commencement Date as a result of (i) Claims against or any act or omission
of Seven States or any of its respective Affiliates that are not related to or
that are in violation of the Lease or that are in breach of any covenant or
agreement of Seven States specified herein or (ii) Taxes and excluded taxes
imposed upon Seven States or any of its


–22–


respective
Affiliates that are not indemnified against by TVA pursuant to the Lease or are
not related to or that are in violation of the Lease or the transactions
contemplated hereby.


“Seven States Parent” means Seven
States Power Corporation, a not-for-profit mutual benefit corporation created
and existing under the laws of the State of Tennessee.


“Seven States Parties” has the meaning
specified in Section 13.2.


“Site” means the parcels of real
property described in Exhibit
A.


“Statement”
has the meaning specified in Section 3.7.


“Supplemental
Rent” means any and all amounts, liabilities, indemnities, and monetary
obligations (other than Initial Rent and Basic Rent) that this Lease requires
TVA to pay (whether or not specifically identified as Supplemental Rent) to
Seven States or any other Person.


“Tax”
means all fees (including license, documentation, and registration fees), taxes
(including receipts, gross receipts, transaction, rental, turn-over,
excise, sales, use, stamp, value-added, ad valorem, and property
taxes (personal and real, tangible and intangible), and payments made in lieu of
such taxes, but excluding income, profits, or similar taxes), license, levies,
exports, duties, recording charges or fees, assessments, withholdings, and other
charges and impositions of any nature, plus all related interest, penalties,
fines, and additions to tax, now or hereafter imposed by any Federal, state,
local, or foreign government or other taxing authority, relating to the Leased
Premises.


“Temporary
Condemnation” means a Condemnation of the right to use or occupy the Purchased
Assets or any part of the Purchased Assets for a limited period of
time.


“Transfer” has the meaning specified in
Section 14.1(a).


“Transferee”
means any Person to whom a Transferring Party or its assignee effects a
Transfer.


–23–





“Transferring Party” means a Party who
effects a Transfer to a Transferee.


“TVA” means the Tennessee Valley
Authority, a corporate agency and instrumentality of the United States
Government created and existing under and by virtue of the Tennessee Valley
Authority Act of 1933, as
amended, 16 U.S.C. §§ 831-831ee (2006).  With respect to
interests in real property, TVA shall be deemed to be acting as agent for and in
the name of the United States of America.


“TVA Parties” has the meaning specified
in Section 13.1.


“United
States” or “U.S.” means the United States of America.







ARTICLE
2.  LEASE OF
THE LEASED PREMISES.




2.1  Lease.  On
the Lease Commencement Date, subject to all of the terms and conditions of this
Lease, the Joint Ownership Agreement, and the Assignment and Assumption
Agreement, Seven States shall demise, license, and lease to TVA and as of the
Lease Commencement Date demises, licenses, and leases to TVA Seven States’
ownership interest and rights in the Purchased Assets, which
includes:


(a) the Site; and


(b) all agreements, easements,
servitudes, rights of way or use, rights of ingress or egress, privileges,
appurtenances, tenements, hereditaments, prescriptions, advantages, and other
rights and benefits at any time belonging or pertaining to the Site, the use of
any streets, ways, alleys, vaults, or strips of land adjoining, abutting,
adjacent, or contiguous to the Site, and all Governmental Approvals (to the
extent permitted by applicable Law and the terms of such Governmental Approvals)
and rights, whether or not of record, appurtenant to the Site (Appurtenant
Rights); and


–24–





(c) the Generating
Facility.


TVA shall
lease, license from, hire, and take, and as of the Lease Commencement Date
leases, licenses from, hires, and takes, the Leased Premises from Seven States,
for the Lease Term.  Seven States and TVA acknowledge and agree that
legal fee title to the Leased Premises remains vested in Seven States at all
times.


2.2  Representations and
Warranties.


2.2(a)  For
the purpose of inducing Seven States to enter into this Lease, TVA represents
and warrants to Seven States that:


2.2(a)(i)  Neither
the execution and delivery of this Lease by TVA nor the performance of the
obligations contemplated hereby shall result in any breach or violation of or
default under any judgment, decree, order, mortgage, lease, agreement,
indenture, or other instrument to which TVA is a party;


2.2(a)(ii)  TVA
has full power and authority to execute this Lease and to perform all of the
obligations of TVA as provided for in this Lease, and this Lease is binding and
enforceable against TVA; and


2.2(a)(iii)  TVA
is a corporate agency and instrumentality of the United States Government
created and existing under and by virtue of the Tennessee Valley Authority Act
of 1933, as amended, 16
U.S.C. §§ 831-831ee (2006).  Each individual signing this Lease on
behalf of TVA is fully authorized and empowered to sign this Lease on TVA’s
behalf. The Lease is duly authorized, executed, and delivered by TVA; such
execution or delivery has been duly


–25–


authorized
by all necessary official action of TVA; and constitutes the legal, valid, and
binding obligation of TVA, enforceable in accordance with its
terms.


2.2(b)
For the purpose of inducing TVA to enter into this Lease, Seven States
represents and warrants to TVA that:


2.2(b)(i)  neither
the execution and delivery of this Lease by Seven States nor the performance of
the obligations contemplated hereby shall result in any breach or violation of
or default under any judgment, decree, order, mortgage, lease, agreement,
indenture, or other instrument to which Seven States is a party or under the
charter or by-laws of Seven States;


2.2(b)(ii)  there
is no material case, suit, action, cause of action, claim, inquiry,
investigation or proceeding, whether pending or threatened, against Seven States
or the Leased Premises;


2.2(b)(iii)  any
consents or approvals necessary for the valid authorization, delivery, and
implementation of this Lease and the consummation of the transactions
contemplated thereunder have been made or obtained and are in full force and
effect;


2.2(b)(iv)  Seven
States is the sole owner of fee title to the Leased Premises, subject only to
Permitted Liens and other matters of record;


2.2(b)(v)  Seven
States has full power and authority to execute this Lease and to perform all of
the obligations of Seven States as provided for in this Lease, and this Lease is
binding and enforceable against Seven States; and


2.2(b)(vi)  Seven
States is a limited liability company formed and validly existing in good
standing under the Law of the State of Delaware with all due


–26–


power and
authority to transact business and own and lease property in the State of
Tennessee and the State of Mississippi.  The individual signing this
Lease on behalf of Seven States is fully authorized and empowered to sign this
Lease on Seven States’ behalf.  The Lease is each duly authorized,
executed, and delivered by Seven States; such execution or delivery has been
duly authorized by all necessary corporate action of Seven States; and
constitutes the legal, valid, and binding obligation of Seven States,
enforceable in accordance with its terms.


2.3  Compliance.  TVA
and Seven States shall during the Lease Term observe and comply with all
applicable Law affecting the Leased Premises, including procuring and complying
with necessary Governmental Approvals.  Each Party shall promptly
provide to the other Party a copy of any notice or correspondence relating to
the Leased Premises, any Impositions (including any bill or statement), or any
notice of nonrenewal or threatened nonrenewal of any Governmental Approvals from
any Governmental Authority, utility company, insurance carrier, insurance rating
bureau, or other agency or authority relating to the Leased Premises or this
Lease.







ARTICLE
3.  LEASE
TERM, OPTION, AND RENT.




3.1  Lease
Term.  The term of this Lease (Lease Term) shall commence on
the Lease Commencement Date and shall expire on the earliest to occur
of:  (a) completion of the Buy-Back Closing, without regard to the
provision under which the Buy-Back Option was exercised; or (b) the execution
and delivery by Seven States and TVA of Long-Term Arrangements.


3.2  Initial
Rent.  TVA hereby agrees to pay to Seven States as Initial Rent
a one-time payment, due on the Lease Commencement Date, in the amount of
$804,000.


–27–





3.3  Basic
Rent.  TVA hereby agrees to pay to Seven States as Basic Rent
each month an amount equal to the sum of:


(a)
$100,000 for the month’s Administrative and General Expenses, provided, however, that each
month said amount for Administrative and General Expenses shall be:


(i)
increased by the amount equal to any amount by which Seven States’ actual
Administrative and General Expenses were greater than $100,000 for the preceding
month, or


(i)
decreased by the amount equal to any amount by which Seven States’ actual
Administrative and General Expenses were less than $100,000 for the preceding
month;


plus


(b) an
additional dollar amount calculated each month as follows:


Monthly
      Amortization Costs + Monthly Borrowing
Costs.


TVA shall
pay the Basic Rent in arrears on each Rent Payment Date during the Lease Term as
provided in Section 3.5.  All Basic Rent shall be payable to Seven
States in the manner set forth in Section 3.5.


3.4  Supplemental
Rent.  TVA agrees to pay to Seven States or to any other Person
entitled thereto as expressly provided herein, any and all Supplemental Rent,
promptly as the same shall become due and owing, or where no due date is
specified, promptly after demand by the Person entitled thereto.  TVA
shall also pay as Supplemental Rent, to the extent permitted by applicable Law,
an amount equal to interest at the Overdue Rate on any part of any payment
of


–28–


Basic
Rent not paid when due for any period for which the same shall be overdue and on
any Supplemental Rent not paid when due (whether promptly after demand or
otherwise) for the period from such due date until the same shall be
paid.  All Supplemental Rent to be paid pursuant to this Section 3.4
shall be payable in the manner set forth in Section 3.5.


3.5  Manner of Payments; Late
Payments.


3.5(a)  All
Rent shall be paid in arrears by TVA in Dollars in immediately available funds
to the recipient on the date due.  TVA shall pay all Rent payable to
Seven States to an account that Seven States designates in writing.


3.5(b)  If
any installment of Rent is paid more than five (5) Business Days after the Rent
Payment Date, it shall bear interest from the due date at the Overdue Rate,
which interest shall be immediately due and payable as further Supplemental
Rent.


3.6  Impositions.  During
the Lease Term, TVA shall pay and discharge as Supplemental Rent all
Impositions.  TVA shall also pay all interest and penalties assessed
by any Governmental Authority on account of late payment of any Imposition,
except (a) late payment caused by Seven States’ failure to remit an Imposition
(paid to Seven States by TVA) in accordance with TVA’s reasonable instructions
(provided that such involve only ministerial functions) or (b) if applicable,
Seven States’ failure to forward promptly to TVA a copy of a tax bill or other
bill relating to any Imposition received by Seven States.


3.7  Payment of Taxes Received by
Seven States.  Seven States shall advise TVA, by a written
statement, of any Taxes (Statement) at least thirty (30) days prior to the date
when the same shall be payable by TVA.  The Taxes or installment
thereof shall be due and payable to Seven States not less than ten (10) days
prior to the last date on which Seven States may make such payment to the
appropriate taxing authority without the imposition of any fine, penalty,
or


–29–


interest,
provided that the Statement has been received by TVA at least thirty (30) days
prior to such ten (10) -day period.  If Seven States shall not have
received a bill for any Taxes at the time Seven States desires to deliver the
Statement, the Statement may be based upon Seven States’ good faith estimate of
such Tax.  If a Statement is furnished to TVA after the date on which
an installment of any Tax was due hereunder, TVA shall, within fifteen (15) days
thereafter, pay to Seven States an amount equal to the amount of any
underpayment of such Tax and, in the event of any overpayment, Seven States
shall credit against subsequent payments of Base Rent and Supplemental Rent
under this Lease, the amount of TVA’s overpayment.  If there shall be
any increase or decrease in Taxes for any period, whether during or after such
period, Seven States may furnish a revised Statement for such period, and such
Tax shall be adjusted and paid or credited substantially in the same manner as
provided in the preceding sentence.


3.8  Apportionment of
Impositions.  Any Imposition relating to the Leased Premises
(whether or not such Imposition shall be assessed, levied, confirmed, imposed
upon, or in respect of, or become a lien upon, the Leased Premises, or become
payable, during the Lease Term) relating to a fiscal period of the applicable
taxing authority, a part of which is included within the Lease Term and a part
of which is included in the period of time before the commencement or after the
expiration of the Lease Term, shall be apportioned between Seven States and TVA
as of the commencement or expiration, as applicable, of the Lease Term so that
TVA shall pay that portion of such Imposition which that part of such fiscal
period included in the period of the Lease Term bears to the fiscal period of
the applicable taxing authority.


3.9  Tax
Contest.  Seven States has the right to seek reductions in the
valuation of the Leased Premises assessed for Tax purposes and to prosecute any
action or proceeding in connection therewith by appropriate proceedings in
accordance with applicable Laws.  Seven


–30–


States
agrees that during the Lease Term TVA may participate in any negotiations,
renegotiations, and proceedings concerning payments made to the appropriate
state or local governments for Taxes.  If Seven States has not elected
to seek any such reduction for any particular tax year, TVA may request that
Seven States seek such reduction, and in such event Seven States shall, at TVA’s
expense, seek such reduction accordingly.


3.10.  No
Offset.  Neither Party shall offset any amount owed to the
other Party under this Lease against any amount owed by the other Party under
any other agreement.





ARTICLE
4.  DISCLAIMER OF WARRANTIES;
RIGHT OF QUIET ENJOYMENT.


4.1  Disclaimer of
Warranties.


4.1(a)  TVA
acknowledges that it is familiar with the Leased Premises as of the date of this
Lease.  Seven States expressly disclaims any warranties as to the
condition of the Leased Premises, including implied warranties of
merchantability or fitness for any particular use or purpose.


4.1(b)  During
the Lease Term, so long as no Event of Default has occurred and is continuing,
Seven States hereby appoints irrevocably and constitutes TVA its agent and
attorney-in-fact, coupled with an interest, to assert and enforce, from time to
time, in the name and for the account of Seven States and TVA, as their
interests may appear, whatever claims and rights Seven States may have with
respect to the Purchased Assets or any Component against any manufacturer,
vendor, warrantor, or contractor, or under any express or implied warranties
relating to the Purchased Assets or any Component thereof.  TVA agrees
to assert and enforce the foregoing warranty claims, and Seven States agrees to
execute and deliver such further documents and take such further
action


–31–


(including
the assignment of warranty claims) as may be reasonably requested by TVA in
order to obtain such warranty service as may be furnished for the Purchased
Assets or any Component by any warrantors.


4.2  Quiet
Enjoyment.  Seven States covenants and agrees that,
notwithstanding any other provision of the Assignment and Assumption Agreement
or any of the Project Documents, so long as TVA is paying Rent and performing
its covenants and agreements set forth in this Lease , TVA shall peaceably and
quietly have, hold, and enjoy the Leased Premises for the term hereof without
hindrance or molestation from Seven States subject to the terms and provisions
of this Lease, and neither Seven States nor any Person acting by, through, or
under Seven States shall interfere with or interrupt TVA’s peaceful and quiet
enjoyment of the use, operation, and possession of the Leased Premises under
this Lease and the benefits accruing to TVA hereunder.  Upon a breach
of this covenant of quiet enjoyment, which breach continues for a period of more
than fifteen (15) days, TVA shall have the right to exercise its Buy-Back
Option.


4.3  Use of Ground
Interest.  The Ground Interest shall be used by TVA for the
operation, maintenance, repair, replacement, improvement, and use of the
Purchased Assets under this Lease, and for any and all activities directly or
indirectly associated therewith, whether functionally or incidentally related
thereto.





ARTICLE
5.  NO
RETURN OF LEASED PREMISES; EXERCISE OF BUY-BACK OPTION.


It
is recognized that if the parties do not agree on Long-Term Arrangements, under
the provisions of Section 5 (Buy-Back) of the Joint Ownership Agreement,
ownership of the Leased Premises will be conveyed to TVA at the end of the
Lease.  Accordingly there is no provision in the Lease for return of
the Leased Premises.  Further, Seven States, TVA, and the Lenders
may


–32–


each
cause this Lease to be terminated through exercise of the Buy-Back Option at any
time such exercise is permitted by it under the Joint Ownership Agreement or
under the separate Buy-Back Arrangements between TVA and the Lenders, regardless
of whether at the time of such exercise an Event of Default exists under the
Lease, or a Casualty or Condemnation has occurred.





ARTICLE
6.  LIENS.


TVA
hereby covenants that it will not create, incur, assume, or suffer to exist any
Lien (other than Permitted Liens) on or with respect to Seven States’ interest
in the  Purchased Assets on Seven States’ interest in or under the
Lease, and TVA shall promptly notify Seven States of the imposition of any Lien
(other than Permitted Liens) of which TVA has Actual Knowledge and shall
promptly, at its sole cost and expense, take such action as may be necessary to
discharge or release fully any Lien (other than Permitted Liens).  TVA
may contest the amount or validity of imposition of any Lien by appropriate
proceedings diligently conducted in good faith.





ARTICLE
7.  OPERATION AND MAINTENANCE;
REPLACEMENT OF COMPONENTS; ENVIRONMENTAL MATTERS.


7.1  Operation and
Maintenance.


7.1(a)  TVA
shall:  (i) operate, maintain, provide fuel for, and generate power at
the Leased Premises in a manner materially consistent with Good Utility Practice
and established TVA maintenance and repair programs for facilities similar to
the Generating Facility owned, leased, or operated by TVA, so as to keep the
Leased Premises in good working order and in such condition that the Leased
Premises will have the capacity and


–33–


functional
ability to perform, in normal commercial operation, the functions and at the
levels of performance (subject to curtailments due to system power demands,
dispatch decisions, maintenance requirements, or Force Majeure) provided in the
Project Documents; (ii) operate and maintain the Leased Premises so as to be in
material compliance with contractors’ and manufacturers’ warranty requirements
in effect; (iii) operate and maintain the Leased Premises in material compliance
with the Assignment and Assumption Agreement, the Project Documents, and all
other material, relevant agreements to which TVA is a party or that pertain to
or otherwise affect the Leased Premises, and perform in a timely manner all
material obligations under the Project Documents assigned or delegated to it;
(iv) maintain the Leased Premises in at least as good an operating condition as
the Leased Premises is in on the Lease Commencement Date, ordinary wear and tear
and degradation from normal operations excepted; (v) operate and maintain the
Leased Premises in compliance with all applicable Law and the requirements of
any applicable insurance policy; and (vi) maintain the Leased Premises including
all appurtenances in substantially the same condition and repair as the same are
delivered on the date hereof, ordinary wear and tear and degradation from normal
operations excepted.


7.1(b)  At
the Site TVA shall maintain operating logs in a manner consistent with TVA’s
ordinary operating practices showing the production of the Generating Facility,
and such other periodic reports or logs as are consistent with TVA’s ordinary
operating practices.  At the Site TVA shall keep maintenance and
repair reports for the Generating Facility in a manner consistent with TVA’s
ordinary operating practices and in reasonably sufficient detail to indicate the
nature and date of major work done.  At the


–34–


Site TVA
shall maintain current operating manuals (including training, maintenance, and
technology manuals) and a complete set of plans of the Generating Facility in
sufficient detail to enable an engineer not otherwise familiar with the
Generating Facility to locate and identify the various items of property
comprising the Generating Facility, in each case in accordance with the
standards set forth above; provided, however, that any
or all of such logs and reports (but not such manuals and plans) may be
destroyed periodically in accordance with TVA’s normal document retention
practice applicable to the Generating Facility and comparable facilities in the
TVA system.  Notwithstanding the above, TVA may keep any such reports
and documentation at a location other than the Site provided that all such
reports and documentation shall be made available for inspection at the Site
promptly upon reasonable notice from Seven States.


7.2  Replacement of
Components.


7.2(a)  In the ordinary
course of maintenance, service, repair, or testing of the Purchased Assets or
any Component, TVA, at no cost to Seven States, may remove or cause to be
removed from the Purchased Assets any Component; provided, however, that TVA
(1) shall cause such Component to be replaced by a replacement Component of like
utility that shall be free and clear of all Liens (except Permitted Liens) and
shall be in as good operating condition consistent with Good Utility Practice as
that of the Component replaced, assuming such replaced Component was maintained
in accordance with the terms of this Lease, and (2) shall cause such replacement
to be performed in a manner that (i) does not diminish the current Fair Market
Value, residual value, utility, or remaining useful life of the Purchased Assets
by more than a de
minimis amount (individually or in the aggregate), and (ii) is reasonably
expected to have no material


–35–


adverse
effect on the Purchased Assets or the operation thereof (each such replacement
Component being herein referred to as a Replacement Component).  Each
Component at any time removed from the Purchased Assets shall remain subject to
this Lease, wherever located, until such time as such Component shall be
replaced by a Replacement Component that has been incorporated in the Purchased
Assets and that meets the requirements for Replacement Components specified
above.


7.2(b)  If during the Lease
Term TVA undertakes a project by which TVA installs on the Leased Premises
Replacement Components having a cost of one hundred thousand dollars ($100,000)
or more (Capitalized Replacement Components), then TVA shall calculate Seven
States’ ownership share of the cost of such Capitalized Replacement Components
by multiplying the Elected Percentage by such cost and submit an invoice
therefor to Seven States, which shall pay promptly that amount to TVA, no later
than thirty (30) days after receipt of the invoice.  Once Seven States
has paid said invoice, the Basic Rent under this Lease shall be adjusted to
reflect this Elected Percentage of the cost of the Capitalized Replacement
Components as described in Section 3.3.2, above.


7.3  Environmental
Matters.  TVA shall comply with all applicable Environmental
Laws pertaining to TVA’s use and operation of the Leased Premises and shall not
cause or permit to occur on, under, or at the Leased Premises during the Lease
Term:  (a) any violation of any applicable Environmental Laws; or (b)
the use, generation, Release, manufacture, refining, production, processing,
storage, or disposal of any Hazardous Material, or the transportation to or from
the Leased Premises of any Hazardous Material, except (i) as is incidental to
and customary for the operation or maintenance of the Leased Premises for the
uses permitted under this Lease and (ii) in compliance with all applicable
Environmental Laws.  TVA shall make all


–36–


submissions
to, provide all information required by, and otherwise fully comply with the
requirements of any Governmental Authority arising under applicable
Environmental Laws pertaining to TVA’s use and operation of the Leased Premises
to include ownership and maintenance of any permits and licenses that may be
necessary, required, or appropriate under the applicable Environmental
Laws.  If any Governmental Authority requires any clean-up plan or
clean-up measures, under applicable Environmental Laws, on account of a Release
or other Environmental Condition, TVA shall promptly provide Seven States with
reasonable written notice thereof and prepare and submit the required plans
(with copies to Seven States) and all related bonds and other financial
assurances and shall promptly and diligently carry out all such clean-up
plans.  TVA shall, promptly upon completion, deliver to Seven States,
true, correct, and complete copies of any and all environmental audits or
related reports that TVA causes to be produced.  TVA shall promptly
provide Seven States with written notice regarding any Release or Environmental
Condition on the Leased Premises, or any other notices, correspondence, or
information (whether written or unwritten) regarding any investigations, any
Claim, any threat of any Claim, or any notice by any Person relating to any
Environmental Laws or any Environmental Condition.  TVA acknowledges
that all Emission Allowances issued pursuant to applicable Environmental Laws
are and will remain the property of Seven States to the extent of its interest
therein; but may be used by TVA to the extent required in the operation of the
Purchased Assets.  Any such Emission Allowances not so used may be
sold or transferred by Seven States as it may elect.  If such Emission
Allowances shall at any time be insufficient to permit the operation of the
Purchased Assets, TVA shall obtain Emission Allowances to the extent reasonably
required.


7.4  Non-Interference; Purchased
Assets Security.


–37–





7.4(a)  TVA
shall be designated with the SERC Reliability Corporation as the “Generator
Operator” and “Generator Owner” and, as applicable, as the “Transmission Owner”
and “Transmission Operator” and shall file such reports with the SERC
Reliability Corporation as may be applicable in connection with such
designations.  TVA shall be solely responsible for the Purchased
Assets’ dispatch, power sales, and power deliveries.  Seven States
shall not attempt to sell, or effect the sale of, or control or set any price or
terms of sale or transmission or delivery of any power from the Purchased
Assets, notwithstanding any Event of Default by TVA.


7.4(b)  During
the Lease Term, other than as may be expressly provided in this Lease, all
requests for access to the Purchased Assets shall be subject to TVA’s review and
shall be subject to TVA’s security requirements, to be granted in its sole
discretion.


7.5  Transmission and
Interconnection.  TVA certifies that during the Lease Term
Seven States has no duties or obligations to TVA with respect to transmission of
power from the Purchased Assets or with respect to interconnection of the
Purchased Assets except as expressly provided in Section 7.4 above.





ARTICLE
8.  MODIFICATIONS.


8.1  Required
Modifications.  TVA shall make or cause to be made any
Modifications to the Purchased Assets as required by applicable Law or any
Governmental Authority of competent jurisdiction (each, a Required
Modification); provided,
however, that TVA may in good faith and by appropriate proceedings,
diligently contest the validity or application of any applicable Law in any
reasonable manner.  TVA shall promptly provide notice to Seven States
of any such requirement for a Required Modification, upon obtaining Actual
Knowledge thereof.  TVA shall keep Seven States reasonably informed of
TVA’s plans with respect to the implementation of any Required Modification, and
shall provide Seven States with any additional information that Seven States
reasonably requests in connection with any such Required
Modification.


8.2  Optional
Modifications.  TVA at any time may make or cause to be made
any Modification to the Purchased Assets (that is not a Required Modification)
as TVA considers in its discretion to be necessary or desirable in the proper
conduct of its business (any such non-Required Modification being referred to as
an Optional Modification); provided, however, that TVA
shall make or cause to be made such Optional Modification only in accordance
with applicable Law and Governmental Approvals.  TVA shall promptly
provide notice to Seven States, and keep Seven States reasonably informed, of
TVA’s plans with respect to the implementation of any Optional Modification, and
shall provide Seven States with any additional information that Seven States
reasonably requests in connection with any such Optional
Modification.


8.3  Title to
Modifications.  Title to all Modifications shall automatically
vest in both Seven States and TVA in proportion to their percentage ownership
interests in the Purchased Assets upon being affixed to or incorporated into the
Purchased Assets and such Modifications shall immediately (i) become subject to
this Lease, (ii) be deemed part of the Purchased Assets for all purposes of this
Lease and the Assignment and Assumption Agreement, and (iii) be deemed to be
included in any reference to “Purchased Assets” under this Lease.  TVA
shall take such steps as Seven States may reasonably require from time to time,
confirm that such title has vested in Seven States, and that such title is
subject to this Lease.


–38–





8.4  Cost Responsibility for
Capitalized Modifications.  TVA and Seven States shall bear the
cost of each Required Modification and each Optional Modification that costs one
hundred thousand dollars ($100,000) or more (Capitalized Modification), in
proportion to their percentage ownership interests in the Purchased
Assets.  TVA shall calculate Seven States’ ownership share of the cost
of such Capitalized Modifications by multiplying the Elected Percentage by such
cost and submit an invoice therefor to Seven States, which shall pay promptly
that amount to TVA, no later than thirty (30) days after receipt of the
invoice.  Once Seven States has paid said invoice, the Basic Rent
under this Lease shall be adjusted to reflect this Elected Percentage of the
cost of the Capitalized Modification as described in Section 3.3,
above.





ARTICLE
9.  EVENTS
OF LOSS.


9.1  TVA Obligation to
Restore.  If a Casualty occurs, then not later than ninety (90)
days after such Casualty TVA shall notify Seven States of such Casualty in
writing of TVA’s election, in TVA’s discretion, either (a) to repair and restore
the Leased Premises at TVA’s expense, or (b) TVA may exercise its Buy-Back
Option.  Should TVA elect to repair and restore the Leased Premises,
TVA shall complete Restoration within the following period after adjustment of
the loss and initial disbursement of insurance proceeds (or, if no insurance
proceeds are available, then after the date three months after the date of the
Casualty):  (a) if the Casualty destroys less than thirty percent
(30%) of the Purchased Assets, then six (6) months; (b) if the Casualty destroys
thirty percent (30%) or more of the Purchased Assets but less than substantially
all of the Purchased Assets, then twelve (12) months; and (c) if the Casualty
destroys substantially all


–39–


of the
Purchased Assets, then eighteen (18) months.  If TVA shall elect to
restore but (i) shall fail or neglect to restore with reasonable diligence the
Leased Premises or any portion thereof so damaged or destroyed, or (ii) having
so commenced such Restoration, shall fail to complete the same with reasonable
diligence in accordance with the terms of this Lease, then Seven States may
complete the same at TVA’s cost and expense.  If TVA shall fail to
make an election as provided in the first sentence of this Section 10.1, a
Casualty shall be deemed to have occurred at the end of the ninety (90)-day
period referred to in the first sentence of this Section 9.1, above, and TVA
shall be deemed to have made the election to exercise its Buy-Back
Option.  In any event, all Rent hereunder shall continue unabated
until this Lease terminates.


9.2  Application of
Proceeds.  Any payments with respect to the Purchased Assets
received at any time by Seven States, TVA, or any other Person from any
Governmental Authority or from Casualty Insurance Proceeds as a result of the
occurrence during the Lease Term of a Casualty shall be deposited in an account
jointly designated by Seven States and TVA.


9.3
Major
Condemnation.  If a Major Condemnation occurs after the Lease
Commencement Date, then TVA shall be obligated to exercise its Buy-Back Option
within a reasonable time but not to exceed thirty (30) days after such
occurrence and to conduct the Buy-Back Closing, if practicable, before the
effective date of the condemnation.  Rent shall be apportioned as of
the earlier of the effective date of the Major Condemnation or the date of the
Buy-Back Closing.  Any Condemnation Proceeds shall be paid to an
account designated jointly by Seven States and TVA, and allocated between Seven
States and TVA as follows:


9.3(a)  Seven States’
Share.  Seven States
shall be entitled to receive a percentage of the total Condemnation Proceeds
equaling its Elected Percentage of the Purchased


–40–


Assets,
with such share reduced by the Fair Market Value of TVA’s Leasehold Interest as
of the effective date of the Condemnation.


9.3(b)  TVA’s
Share.  TVA shall be entitled to receive a percentage of the
total Condemnation Proceeds equaling its Elected Percentage of the Purchased
Assets, as well as the Fair Market Value of TVA’s Leasehold Interest as of the
effective date of the Condemnation.


9.3(c)  Costs and
Expenses.  Each Party shall bear its own legal costs incurred
as a result of any Major Condemnation and any Minor Condemnation.


9.4  Minor
Condemnation.  If a Minor Condemnation occurs after the Lease
Commencement Date, there shall be no abatement of rent, and the entire award
shall be paid to an account designated jointly by Seven States and TVA and shall
be applied first to Restoration of any remaining improvements not taken, then to
TVA to reimburse it for the pro-rated portion of any rent TVA paid to Seven
States for any portion of the Purchased Assets rendered unusable from the date
of condemnation to the date full use of the Purchased Assets is
restored.  TVA shall perform such Restoration in accordance with the
procedures set forth in this Article 9 so as to return the Leased Premises to
its value and functionality prior to the Minor Condemnation to the extent
Commercially Reasonable after giving effect to the consequences of the Minor
Condemnation.  Any remaining Condemnation Proceeds shall be
distributed to Seven States and TVA in the same manner as are Condemnation
Proceeds arising from a Major Condemnation, as described in Section 9.3,
above.  In the event of a Minor Condemnation, TVA has the right to
exercise its Buy-Back Option within twenty (20) days of the occurrence of such
Minor Condemnation, in which event the Lease shall terminate as of the
consummation of the Buy-Back Closing, and Rent shall be apportioned as of such
closing date.


–41–





9.5  Temporary
Condemnation.  If a Temporary Condemnation occurs after the
Lease Commencement Date, then TVA shall give Seven States prompt notice
thereof.  The Lease Term shall not be reduced or affected in any way
by such Temporary Condemnation, and TVA shall continue to pay all
Rent.  TVA shall be entitled to all Condemnation Proceeds attributable
to any portion of the Temporary Condemnation occurring during the Lease
Term.


9.6  TVA’s
Waiver.  In any and all proceedings relating to a Condemnation,
TVA waives the right to make a separate claim for the Leasehold Interest or for
any costs related to the value of the Purchased Assets or any
Component.  TVA shall be entitled solely to the amounts, if any,
payable to it pursuant to the provisions of this Article 9.  In each
such proceeding, Seven States and TVA agree to execute any and all documents
that may be reasonably required to facilitate collection of the Condemnation
Proceeds in such proceeding and distribution of such Condemnation Proceeds in
the manner provided for in this Lease; provided, however, that TVA
may raise and litigate in the condemnation proceeding any defense, including
asserting that TVA’s property as a matter of Law is not subject to
condemnation.


9.7  Right of
Compensation.  In case of any action by any Governmental
Authority not resulting in an actual transfer of interest in the Leased Premises
but creating a right to compensation with respect to the Leased Premises, this
Lease shall continue in full force and effect without reduction or abatement of
Rent, and the award shall be equitably apportioned between Seven States and
TVA.


9.8  Effect of
Default.  Notwithstanding anything to the contrary contained
herein, if any Event of Default of which TVA has received notice exists, then
any payments to which TVA would otherwise be entitled under this Article 9 shall
first be applied to cure such Event of


–42–


Default.  Notwithstanding
the foregoing, if such Event of Default is not reasonably susceptible of cure by
the payment of money alone, then TVA shall be entitled to receive any payments
to which it is entitled under this Article 9 without first curing such Event of
Default, provided that: (a) TVA has duly commenced the cure of such Event of
Default, and (b) TVA is diligently prosecuting to completion the remedy of such
Event of Default.


9.9  Appearance.  Each
Party has the right, at its own expense, to appear in any proceedings related to
a Condemnation and participate in any and all hearings, trials, and appeals
therein.


9.10  Prompt
Notice.  If Seven States or TVA shall receive notice of any
proposed or pending Condemnation, such Party shall promptly notify the other
Party of the receipt and contents thereof.





ARTICLE
10.  INSURANCE.


During
the Lease Term, TVA shall maintain (or cause to be maintained) the insurance
required to be maintained pursuant to the Insurance Requirements set forth on
Schedule 10.1 hereof and shall comply with such Insurance
Requirements.





ARTICLE
11.  INSPECTION.


During
the Lease Term, Seven States and its agents and representatives, including any
environmental consultant retained by Seven States and any agents and
representatives of current or prospective lenders and underwriters, have the
right, during normal business hours, upon reasonable notice to TVA and at no
risk to TVA, to visit, observe, and inspect the Leased Premises and the records
with respect to the operations and maintenance thereof
(including


–43–


operating
costs) in TVA’s custody or to which TVA has access so long as TVA has the
opportunity to be present; provided, however, that (a)
TVA shall not be required to permit Seven States to review or inspect TVA’s
proprietary business records and documentation relating to TVA’s budget
projections, finances, projected load profiles, or pricing of the electricity
produced at the Purchased Assets or any matters solely related to energy trading
or the forward dispatch of the Purchased Assets, and (b) any such inspection
shall be conducted so as not to disturb or interfere unreasonably with TVA’s
quiet enjoyment of the Purchased Assets, including the operation or maintenance
of the Purchased Assets and the conduct by TVA of its business, and shall be in
accordance with TVA’s safety and insurance programs.





ARTICLE
12.  EVENTS
OF DEFAULT; REMEDIES.


12.1  Events of
Default.  Each of the following events shall constitute an
Event of Default hereunder and, where specified in this Section 12.1, under the
Assignment and Assumption Agreement (whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree, or order by any court or any order,
rule, or regulation of any Governmental Authority):


12.1(a)  TVA
shall fail to make any payment of Basic Rent after the same has become due and
payable, and such failure shall have continued for a period of ten (10) Business
Days after receipt by TVA of written notice of such failure from Seven
States;


12.1(b)  TVA
shall fail to make any payment of Supplemental Rent after the same has become
due and such failure shall have continued for a period of thirty (30) Business
Days after receipt by TVA of written notice of such failure from Seven States or
any other Person to whom such payment is owed;


–44–





12.1(c)  Either
TVA or Seven States shall fail to perform or observe in any material respect
(without giving duplicative effect to any materiality qualifier set forth in the
text of any covenant, agreement, obligation, or representation) any covenant,
obligation, or agreement to be performed or observed by it under this Lease or
the Assignment and Assumption Agreement (other than any covenant, obligation, or
agreement referred to in clause (a) or (b) of this Section 12.1) and such
failure shall continue unremedied for thirty (30) days after receipt by the
Defaulting Party of written notice thereof from the Non-Defaulting Party; provided, however, that in
the case of TVA as Defaulting Party under this Section 12.1(c), if (A) such
failure is reasonably susceptible of being remedied, but not within such thirty
(30) -day period, and (B) TVA presents to Seven States a plan TVA reasonably
believes will cure such failure, and TVA is diligently proceeding to cure such
failure in accordance with such plan, then the period for cure shall be extended
for the period as necessary for TVA to cure such failure, but in no event shall
the aggregate cure period under this Section 12.1(d) exceed one hundred and
eighty (180) days after receipt by TVA of written notice thereof from Seven
States;


12.1(d)  Any
representation or warranty made by TVA or Seven States in this Lease or in any
Officer’s Certificate delivered pursuant thereto is materially false or
misleading as of the date made (except to the extent that such representations
and warranties relate solely to an earlier date, in which case as of such date)
and shall continue to be material and the circumstances giving rise to such
representation or warranty are unremedied for a period of thirty (30) days after
receipt by the Defaulting Party of written notice thereof from the
Non-Defaulting Party; provided, however, that
if


–45–


such
condition cannot be remedied within such thirty (30) -day period, then the
period within which to remedy such condition shall be extended up to an
additional one hundred and eighty (180) days, so long as the Defaulting Party
diligently pursues such remedy and such condition is reasonably capable of being
remedied within such additional one hundred and eighty (180) -day
period;


12.1(e)  Seven
States (i) shall become subject to a Bankruptcy Event or (ii) shall breach its
duty to TVA of quiet enjoyment under Section 4.2;


12.1(f)  The
termination, suspension, or revocation of, or material adverse modification or
omission or failure to obtain, or cause a third party to obtain, under any
Project Document, any Governmental Approval required for the construction, use,
maintenance, and operation of the Leased Premises or the Purchased Assets, which
termination, suspension, revocation, modification, omission, or failure to
obtain, or cause to be obtained, could reasonably be expected to result in a
Material Adverse Effect, and such termination, suspension, revocation,
modification, omission, or failure shall continue unremedied for a period of
thirty (30) days after the earlier to occur of TVA obtaining Actual Knowledge
thereof or receipt by TVA of written notice thereof from Seven States; provided, however, that if
(A) such termination, suspension, revocation, modification, omission, or failure
cannot be cured within such period, or (B) such termination, suspension,
revocation, modification, omission, or failure is reasonably susceptible of cure
within one hundred and eighty (180) days after the earlier of TVA obtaining
Actual Knowledge or TVA’s receipt of written notice of such termination,
suspension, revocation, modification, omission, or failure from Seven States, or
(C) TVA is proceeding with diligence and in good faith to cure such termination,
suspension,


–46–


revocation,
modification, omission, or failure, or (D) the existence of such termination,
suspension, revocation, modification, omission, or failure has not had and could
not, after considering the nature of the cure, be reasonably expected to result
in a Material Adverse Effect, then such cure period shall be extended to such
date, not to exceed one hundred and eighty (180) days after such termination,
suspension, revocation, modification, omission, or failure, as necessary for TVA
diligently to cure such termination, suspension, revocation, modification,
omission, or failure;


12.1(g)  With
respect to the Lease or the Assignment and Assumption Agreement, (A) such Lease
or Assignment and Assumption Agreement (1) ceases to be a valid and binding
obligation of the parties thereto or (2) is declared unenforceable by a
Governmental Authority or (B) such Lease or Assignment and Assumption Agreement
is terminated or ceases to be in full force and effect (prior to its normal or
permitted expiration or termination pursuant to Section 3.1), except if caused
by a default by Seven States thereunder;


12.1(h)  An
Event of Abandonment shall occur;


12.1(i)  With
respect to any of the Project Documents:


12.1(i)(i)  Any
Person shall be in breach of, or in default under, a Project Document (without
regard to any cure periods therein), and such breach or default shall not be
remediable or, if remediable, shall continue unremedied for the lesser of (A) a
period of thirty (30) days from the time TVA obtains Actual Knowledge of such
breach or default or (B) such period of time under such Project Document that
such Person has available to it in which to remedy the breach or default; provided, however, that if (1) such
breach or default cannot be cured within such


–47–


thirty
(30)-day period (or lesser period, as the case may be), and (2) such breach or
default is susceptible of cure within one hundred and eighty (180) days, and (3)
the breaching Person or TVA is proceeding with diligence and in good faith to
cure such breach or default, then such thirty (30)-day cure period (or lesser
period, as the case may be) shall be extended to such date, not to exceed a
total of one hundred and eighty (180) days after such breach or default, as
shall be necessary for such breaching Person diligently to cure such breach;
provided, further, that
no Event of Default shall occur as a result of any such action if TVA obtains a
replacement party for the affected party within the thirty (30)-day cure period
(or lesser period, as the case may be) referred to in this Section 12.1(i)(i)
(or within the one hundred and eighty (180)-day cure period, if an extension
pursuant to this Section 12.1(i)(i) is given) and such action does not have,
prior to so obtaining such replacement party, a Material Adverse Effect;
or


12.1(i)(ii)  Any
material provision in any Project Document shall for any reason cease to be
valid and binding on any party thereto except upon fulfillment of such party’s
obligations thereunder, or shall be declared null and void, and such deficiency
is in TVA’s reasonable power to remediate; provided, however, that no Event of
Default shall occur as a result of such breach or default if (A) such provision
is restored or replaced by a replacement provision in form and substance
reasonably acceptable to Seven States within a period of one hundred and eighty
(180) days thereafter or (B) TVA obtains a replacement party for the affected
party within one hundred and eighty (180) days thereafter and, in
either


–48–


case,
such breach or default has not had, and does not have prior to so obtaining such
replacement provision or replacement party, a Material Adverse Effect;
or


12.1(i)(iii)  Either
Party shall cause or permit any Project Document to be amended or altered
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld or delayed in each instance;


12.1(j)  Either Party shall
materially fail to comply with applicable Law in connection with this Lease
specifically or the Purchased Assets generally.


12.2  Remedies for Event of
Default.  Upon the occurrence of any Event of Default and at
any time thereafter so long as the same shall be continuing, either Party who is
not in default (Non-Defaulting Party) may declare this Lease to be in default by
written notice to the other, defaulting Party (Defaulting Party).  At
any time after this Lease is declared or deemed declared to be in default
pursuant to the preceding sentence, so long as the outstanding Event of Default
shall not have been remedied or cured as may be specifically provided with
respect to any such Event of Default under Section 12.1, above, or so long as
the occurrence of the Event of Default is no longer within any applicable grace
or notice periods provided in Section 12.1, above, the Parties may do one or
more of the following, as may be appropriate, to the extent permitted by and
subject to compliance with any mandatory requirements of applicable Law then in
effect:


12.2(a)  The
Non-Defaulting Party may, from time to time and at any time, proceed by
appropriate court action or actions, either at law or in equity, to enforce
performance by the Defaulting Party of the applicable covenants and terms of
this Lease or to recover damages for breach thereof.


12.2(b)  The
Non-Defaulting Party may give the Defaulting Party written notice terminating
this Lease, whereupon (1) the Non-Defaulting Party shall be deemed
eligible


–49–


to
exercise the Buy-Back Option and (2) (i) if TVA is the Non-Defaulting Party, TVA
shall be deemed to have exercised its Buy-Back Option and (ii) if Seven States
is the Non-Defaulting Party, Seven States may elect to exercise the Buy-Back
Option; provided,
however, that this Lease shall not terminate until completion of the
closing in which TVA purchases the Leased Premises.  All rights of the
Parties under this Lease, except for those rights that expressly survive such
termination, shall cease.  Such notice, however, shall not in any way
adversely affect TVA’s existing ownership interest in the Purchased
Assets.


12.3  Right to Cure.  If the
Defaulting Party at any time fails to make any payment or perform any other act
on its part to be made or performed pursuant to this Lease, then the
Non-Defaulting Party, after ten (10) Business Days’ notice to the Defaulting
Party, or in an emergency with such notice as is reasonably practicable under
the circumstances, and without waiving or releasing the Defaulting Party from
any obligation or from any Event of Default and without waiving the
Non-Defaulting Party’s right to take such action as may be permissible under
this Lease as a result of such Event of Default, may make such payment or
perform such act on the Defaulting Party’s behalf pursuant to this
Lease.  The Defaulting Party shall reimburse the Non-Defaulting Party,
within ten (10) days after written notice from the Non-Defaulting Party, an
amount equal to all Commercially Reasonable sums, costs, and expenses paid or
incurred by the Non-Defaulting Party in connection with the exercise of the
Non-Defaulting Party’s cure rights under this paragraph.


12.4  Waiver of Outside Cure
Periods.  Notwithstanding anything to the contrary contained in
this Article 12, in the event that TVA is a Defaulting Party, to the extent that
(a) TVA continues to timely pay all Rent and its other monetary obligations as
provided under this


–50–


Lease,
(b) TVA’s long-term debt obligations are rated A3 or higher by Moody’s Investor
Service, Inc. and A- or higher by Standard & Poor’s Ratings Group, and (c)
TVA is diligently acting to cure any non-monetary Event of Default or an Event
of Default that (1) does not involve (A) any material risk of foreclosure, sale,
forfeiture or loss of any part of the Leased Premises or of impairment of Seven
States’ use, operation, or maintenance of the Leased Premises in any material
respect or (B) a risk of criminal sanctions or criminal liability being incurred
by, or a material risk of any Material Adverse Effect on Seven States, or (2)
could not reasonably be expected to have any Material Adverse Effect on the
business and interests of Seven States, including any material risk of
subjecting any such Person to regulation as a public utility under applicable
Law, then any provision where TVA is limited to an outside cure deadline of one
hundred and eighty (180) days shall not apply.


12.5  Force
Majeure.


12.5(a)  Any delays in or
failure of performance (except for the obligation to pay money) by a Party or
its contractors shall not constitute an Event of Default hereunder if and to the
extent such delays or failures of performance are caused by occurrences beyond
the reasonable control of that Party or its contractors, and that Party shall
not be liable for any loss or damage due to or arising out of any such delays or
failure of performance.  Such occurrences include acts of God or the
public enemy, fires, epidemics, quarantines, strikes, freight embargoes or
delays in transportation, unforeseeable severe weather or floods, or applicable
Laws, regulations, orders, or other acts or failures to act of Governmental
Authorities, or any causes, whether or not of the same class or kind of those
specifically above named, that are not within the control of that Party or its
contractors.


–51–





12.5(b)  A Party required to
perform under this Lease shall give the other Party notice within seven (7) days
after such Party knows (or reasonably should have known) of any such Force
Majeure and shall give the other Party notice within seven (7) days after such
Force Majeure ceases to exist.  If the Party required to perform under
this Lease gives such notice after the expiration of such seven (7) -day period,
then such Party shall have the right to claim Force Majeure for only the seven
(7) days prior to the date of such Notice as opposed to the date on which such
Force Majeure arose.  Force Majeure shall only extend the time
permitted for such performance by the number of days by which such Force Majeure
actually delayed such performance.





ARTICLE
13.  INDEMNIFICATION.


13.1  By TVA to Seven
States. TVA shall indemnify, defend, and hold harmless Seven States, its
officers, agents, contractors, subcontractors, and employees from any and all
claims, based on any Laws whatsoever, for personal injury including death,
property damage, and any and all fines or penalties to the extent such arise
from the negligent acts, omissions or willful misconduct of TVA, its
contractors, subcontractors, officers, employees, and agents (collectively, the
TVA Parties) acting in the course and scope of their employment in performing
activities on the Leased Premises.  This indemnification shall not
extend to any damages to the Leased Premises or claims of any sort relating to
the Leased Premises caused solely by the Seven States Parties’ (as defined in
section 13.2, below) negligence or willful misconduct.


13.2  By Seven States to
TVA. Seven States shall indemnify, defend, and hold harmless the TVA
Parties from any and all claims based on any Laws whatsoever, for personal
injury, including death, property damage, and any fines or penalties to the
extent such arise from the


–52–


negligent
acts, omissions, or willful misconduct of Seven States, its officers, agents,
employees, contractors, subcontractors, successors, and/or assigns and their
respective employees and agents (collectively, the Seven States Parties) acting
in the course and scope of their employment in performing activities on the
Leased Premises.  This indemnification shall not extend to any damages
to the Leased Premises or claims of any sort relating to the Leased Premises
that were caused solely by the TVA Parties’ negligence or willful
misconduct.





ARTICLE
14.  MISCELLANEOUS.


14.1  Assignment.




14.1(a)  Each
Party, for itself, its executors, administrators, legal representatives,
successors, and assigns, expressly covenants that it shall not sell, assign,
transfer, mortgage, pledge, or otherwise dispose of or encumber its rights in
the Leased Premises, or assign or otherwise transfer any right or obligation
under this Lease, to any Person (collectively, Transfer) without the prior
written consent of the other Party in each instance; provided, however, that Seven
States may Transfer rights as provided in Section 19 of the Joint Ownership
Agreement (Assignment).  Notwithstanding the other Party’s consent, if
given, to any proposed Transfer, the assigning Party shall at all times remain
liable to the other Party for all of the assigning Party’s obligations hereunder
unless otherwise agreed by the other Party in the exercise of its sole
discretion and in a manner consistent with the covenant of good faith dealings
imposed by Law.


14.1(b)  If
the Transferring Party shall desire to Transfer its interest in this Lease, the
assigning Party shall submit to the other Party a written request for the other
Party’s consent to such Transfer, which request shall be accompanied by the
following:  (i) the name and address of the proposed Transferee; (ii)
the form, terms, and conditions of the


–53–


proposed
Transfer and Transfer agreement; (iii) the nature and character of the business
of the proposed Transferee and information relating to the proposed Transferee’s
experience and involvement in the business of owning and managing energy
production assets in accordance with Good Utility Practice; (iv) current
financial information evidencing a financial standing consistent with the
standards for entities engaged in the business of owning and managing energy
production assets in accordance with Good Utility Practice; and (v) any other
information the other Party may reasonably request with respect to the proposed
Transferee.


14.1(c)  The
effectiveness of any Transfer and any consent to a Transfer by the other Party
pursuant to this Section 14.1 shall be further conditioned on the
following:


14.1(c)(i)  The
Transferring Party shall reimburse the other Party on demand for any
Commercially Reasonable documented out-of-pocket costs, including reasonable
attorneys’ fees and disbursements, that may be incurred by the other Party in
connection with said Transfer;


14.1(c)(ii)  The
Transferring Party shall promptly deliver to the other Party a copy of the fully
executed Transfer agreement consented to by the other Party and any related
agreements promptly after the full execution thereof;


14.1(c)(iii)  the
proposed Transferee, and, if the Transferee is a general partnership, the
individual partners thereof, shall execute and deliver to the other Party an
agreement in recordable form, whereby such Transferee agrees unconditionally to
be personally bound by and to perform all of the obligations of the Transferring
Party hereunder and further expressly agrees that


–54–


notwithstanding
such Transfer the provisions of this Section 14.1 shall continue to be binding
upon such Transferee with respect to all future Transfers;


14.1(c)(iv)  The
Transferring Party shall, in connection with such Transfer, have obtained any
third-party consents required in accordance with applicable Law, and all
applicable Governmental Approvals;


14.1(c)(v)  No
Change in Law has occurred that would (A) make it illegal for either Party to
permit or cause such a Transfer, or (B) reasonably be expected to result in a
Material Adverse Effect; and


14.1(c)(vi)  Subject
to Section 14.1(a), above, the Transferring Party shall remain fully liable for
the performance of all of the Transferring Party’s obligations hereunder
notwithstanding any Transfer and, without limiting the generality of the
foregoing, shall remain fully responsible and liable to the other Party for all
acts and omissions of any Transferee or anyone claiming by, through, or under
any Transferee that violates any of the obligations of this Lease, and any such
violation shall be deemed to be a violation by the Transferring
Party.  Notwithstanding any Transfer and assumption by the Transferee
of the obligations of the Transferring Party hereunder, the Transferring Party,
and each immediate or remote successor in interest of the Transferring Party,
shall remain liable jointly and severally (as a primary obligor) with its
Transferee and all subsequent Transferees for the performance of the
Transferring Party’s obligations hereunder, and shall remain fully and directly
responsible and liable to the other Party for all acts and omissions on the part
of any Transferee subsequent to it in violation of any of the obligations of
this Lease.


–55–





14.1(d)  To
the extent that TVA is not the lessee hereunder, any transfer, by operation of
law or otherwise, of the interest of TVA in this Lease (in whole or in part) or
of a fifty percent (50%) or greater interest in TVA (whether stock, partnership
interest, or otherwise) shall be deemed a Transfer within the meaning of this
Section 14.1.  The issuance of shares of such stock to other than the
United States government shall be deemed to be a transfer of such stock for the
purposes of this Section 14.1(d).


14.1(e)  The
consent of the other Party to any Transfer shall not relieve the Transferring
Party from obtaining the express consent in writing of the other Party to any
further assignment.


14.2  Amendments and
Waivers.  No term, covenant, agreement, or condition of this
Lease may be terminated or amended or have compliance therewith waived (either
generally or in a particular instance, retroactively or prospectively) except by
an instrument in writing executed by each Party hereto.


14.3  Notices.  All
notices, confirmations, and other communications required or permitted by the
terms of this Lease shall be given in English and in writing and shall be deemed
to have been duly given:  (a) if sent by certified mail postage
prepaid, return receipt requested, five (5) days after being deposited in the
United States mail; (b) if sent by standard overnight carrier (such as Federal
Express), upon the date of delivery indicated in the records of such carrier;
(c) if transmitted by facsimile, when received by the recipient in legible form
(with machine confirmation); and (d) if hand-delivered, when delivered by hand;
and, in the case of each of the foregoing methods (a) through (d) addressed or
transmitted as follows:


–56–





For
TVA:                                Tennessee
Valley Authority


Attn:  Executive
Vice President, Customer Resources


One
Century Place, 26 Century Blvd., OCP 1F-NST


Nashville,
TN  37229


615-232-6011


Fax:  615-232-6014





With copy
to:                                           Tennessee
Valley Authority


Attn:  Office of General
Counsel


400 West Summit Hill Drive, WT
6A-K


Knoxville,
TN  37902


Phone:  865-632-4131


Fax:  865-632-3307





For Seven
States:                                           Seven
States Southaven, LLC


Attn:  President and
CEO


1206 Broad Street


Chattanooga,
TN  37402


Phone:  423-756-6511


Fax:  423-267-9424








With a
copy
to:`                                           Carlos
Smith


Miller & Martin, PLLC


832 Georgia Avenue


Chattanooga,
TN  37402


Phone:  423-785-8359


Fax:  423-321-1659








14.4 Survival.  Termination
of this Lease shall not relieve the Parties of obligations that by their nature
should survive such termination, including final billing, billing adjustment and
payments, warranties, remedies, and confidentiality obligations, as well as the
compliance obligations under Section 2.4 above, the apportionment of Impositions
under Section 3.8 above, and environmental matters under Section 7.3
above.


–57–





14.5 Successors and
Assigns.  This Lease shall be binding upon and shall inure to
the benefit of, and shall be enforceable by, the Parties and their respective
successors and assigns as permitted by and in accordance with the terms
hereof.


14.6 Governing
Law.  In all respects, including matters of construction,
validity, and performance, this Lease shall be governed by, and construed in
accordance with, the Federal Laws of the United States of America; provided,however, that (a) the Laws
of the State of Mississippi shall govern as to matters affecting real property
in the State of Mississippi where there is no such applicable Federal Law or
Federal Law requires adoption of state Law for a rule of decision with respect
to such matters, and (b) the Laws of the State of Tennessee shall govern where
there is no such applicable Federal Law or Federal Law requires adoption of
state Law for a rule of decision as to matters other than with respect to
matters affecting real property in the State of Mississippi.  To the
fullest extent permitted by Law, TVA and Seven States hereby unconditionally and
irrevocably waive any claim to assert that the Law of any other jurisdiction
governs this Lease, except as expressly otherwise provided above.


14.7  Consent to Jurisdiction;
Waiver of Trial by Jury.




14.7(a)  Each
of the Parties (i) hereby irrevocably submits to the exclusive jurisdiction of
the United States District Court for the Eastern District of Tennessee for the
purposes of any suit, action, or other proceeding arising out of this Lease, the
Assignment and Assumption Agreement, or the Joint Ownership Agreement that is
brought by either of the Parties or their successors or assigns, (ii) hereby
irrevocably agrees that all claims with respect to such suit, action, or other
proceeding shall be heard and determined in the above-named court, and
(iii) to the extent permitted by applicable Law, hereby irrevocably waives, and
agrees not to assert, by way of motion, as a defense,


–58–


or
otherwise in any such suit, action, or other proceeding, any claim that:
 (A) it is not personally subject to the jurisdiction of the above-named
court; (B) that the suit, action, or other proceeding is brought in an
inconvenient forum; (C) that the venue of the suit, action, or other proceeding
is improper; or (D) that this Lease, the Assignment and Assumption
Agreement, or the Joint Ownership Agreement, may not be enforced in or by the
above-named court.


14.7(b)  TO
THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HEREBY IRREVOCABLY
WAIVES THE RIGHT TO DEMAND A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR OTHER
PROCEEDING ARISING OUT OF THIS LEASE, THE ASSIGNMENT AND ASSUMPTION AGREEMENT OR
THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY BROUGHT BY ANY OF THE PARTIES OR THEIR SUCCESSORS OR
ASSIGNS.


14.8 Merger.  To
the extent permitted by applicable Law, this Lease shall not terminate, nor
shall TVA’s interest be extinguished, lost, conveyed, or otherwise impaired, or
be merged into or with any other interest or estate in the Leased Premises or
any other property interest, in whole or in part, other than as expressly
provided in this Lease by any cause or for any reason whatsoever, including
(a) any damage to or destruction of all or any part of the Leased Premises
or the taking of the Leased Premises or any portion thereof by condemnation,
requisition, eminent domain, or otherwise, (b) any prohibition, limitation,
or restriction of Seven States’ or TVA’s use of all or any part of the Leased
Premises or the interference of such use by any Person, (c) the coincident
ownership by any Person (including Seven States) of any estate or interest in
the Leased Premises or any other rights granted or conveyed pursuant to this
Lease


–59–


with any
estate or interest in the Leased Premises, (d) any inadequacy,
incorrectness, or failure of the description of the Leased Premises or any
property or rights intended to be granted or conveyed by this Lease,
(e) any default in the performance or the observance by Seven States or TVA
of any of their respective covenants and agreements to be performed and observed
by such party hereunder, (f) the insolvency, bankruptcy, reorganization, or
similar proceedings by or against Seven States or TVA, or (g) any other
reason whatsoever, whether similar or dissimilar to any of the
foregoing.  The Parties intend and agree that the rights granted and
conveyed hereunder shall be separate and independent covenants and agreements of
the Parties and that this Lease and any other right granted or conveyed pursuant
to this Lease may be terminated only as provided in this Lease and may not be
terminated without notice.


14.9 Severability.  Any
provision of this Lease that 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.


14.10 Counterparts.  This
Lease may be executed by the Parties in separate counterparts, each of which,
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.


14.11 Headings and Table of
Contents.  The headings of the sections of this Lease and the
Table of Contents are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions
hereof.


14.12 Further
Assurances.  Each Party shall promptly and duly execute and
deliver such further documents and assurances for and take such further action
reasonably requested by the


–60–


other
Party, all as may be reasonably necessary to carry out more effectively the
intent and purpose of this Lease.


14.13 Effectiveness.  This
Lease has been dated as of the date first above written for convenience
only.  This Lease shall be effective on the date of execution and
delivery by TVA and Seven States.


14.14 Entire
Agreement.  This Lease, the Assignment and Assumption
Agreements, the Joint Ownership Agreement, and related nondisclosure agreements
constitute the entire agreement of the Parties with respect to the subject
matter hereof and thereof and supersede all oral and all prior written
agreements and understandings with respect to such subject matter.


14.15 No Partnership,
Etc.  Except as set forth herein and under the Joint Ownership
Agreement, the Parties intend that nothing contained in this Lease or the
Assignment and Assumption Agreement or the Joint Ownership Agreement shall
be deemed or construed to create a partnership, joint venture, or other
co-ownership arrangement by and among any of them.  The Parties hereby
acknowledge and agree that for United States Federal income tax purposes, Seven
States is the owner of the Leased Premises and this Lease is a “true
lease.”  Further, this Lease shall constitute an agreement of lease
only and nothing herein shall be construed as conveying to TVA any right, title,
or interest in and to the Leased Premises except solely as lessee
hereunder.


14.16 Memorandum of
Lease.  Upon request by either Party, the other Party shall
promptly execute, acknowledge, and deliver duplicate originals of a Memorandum
of Lease.  Either Party may record such Memorandum of
Lease.  Any taxes imposed upon such recording shall be paid by the
Party that bears primary liability under applicable Law for payment of
such


–61–


taxes.  If
the Parties amend this Lease, then the Parties have the same rights and
obligations regarding a memorandum of such amendment that they do for the
Memorandum of Lease.


14.17 Estoppel
Certificates.  From time to time, each Party to this Lease (a
Requesting Party) may, up to twice a year, require the other Party (a Certifying
Party) to execute, acknowledge, and deliver to the Requesting Party (or directly
to a third party whose name and address are provided by the Requesting Party) up
to four original counterparts of an Estoppel Certificate.  The
Certifying Party shall sign, acknowledge, and return such Estoppel Certificate
within fifteen (15) days after request.  Any third party to whom an
Estoppel Certificate is directed may rely on such Estoppel
Certificate.


14.18 Consentand
Waiver.  It is understood and agreed that one Party’s granting
of any consent to the other Party to perform any act requiring the first Party’s
consent or approval under the terms of this Lease, or the failure on the part of
the first Party to object to any such action taken by the other Party without
the first Party’s consent, shall not be deemed a waiver by the first Party of
its rights to require such consent for any further similar act by the other
Party.  The Parties hereby expressly covenant and warrant that as to all
matters requiring the other Party’s consent under the terms of this Lease, the
Party requiring consent shall secure such consent for each and every happening
of the event requiring such consent, and shall not claim any waiver by the other
Party of the requirement to secure such consent.  If the Party
withholding or delaying consent is determined to have done so unreasonably (in
violation of an express obligation to be reasonable as expressly set forth in
this Lease), then such Party’s consent shall be deemed granted and such Party
shall have no liability as a result of its withholding or delaying of
consent.


–62–





14.19 Seven StatesRequired Federal
Contracting Covenants.  So long as this Lease shall remain in
effect, Seven States (or any successor thereto) hereby agrees and covenants to
comply with the applicable provisions of 41 C.F.R. § 60-1.4,
41 C.F.R. § 60-250.4, and 41 C.F.R. § 60-741.5.


14.20 Waiver of
Partition. So long as the Purchased Assets or any part thereof as
originally constructed, reconstructed, or added to are used or useful for the
generation of electrical power and energy, or to the end of the period permitted
by applicable Law, whichever first occurs, the Parties waive any right to
partition (whether by partition in kind or sale and division of the proceeds
thereof), and agree that they will not resort to any action at law or in equity
to partition and further waive the benefit of all Laws that may now or hereafter
authorize such partition of the properties comprising the Purchased
Assets.  It is agreed that this covenant shall be deemed to run with
the land.  All instruments of conveyance which effect, evidence, or
vest the ownership interest of Seven States in the Purchased Assets shall
contain this waiver of right to partition.


14.21 Interpretation.  In
this Lease, unless otherwise provided herein, the terms set forth in
Article 1 have the meanings provided for herein.  Any term defined in
Article 1, above, by reference to another document, instrument, or agreement
shall continue to have the meaning ascribed thereto whether or not such other
document, instrument, or agreement is in effect.  Words in the
singular include the plural and vice versa.  Words referring to one
gender include any gender.  A reference to any statute, regulation,
proclamation, ordinance, or other Law includes all statutes, regulations,
proclamations, ordinances, and other Laws varying, consolidating, or
replacing the same from time to time, and a reference to a statute includes
all


–63–


regulations,
policies, protocols, codes, proclamations, and ordinances issued or otherwise
applicable under that statute unless, in any such case, otherwise expressly
provided in any such statute.  A definition of or reference to any
document, instrument, or agreement includes each amendment or supplement to, or
restatement, replacement, substitution, successor, modification, or novation of,
any such document, instrument, or agreement unless otherwise specified in such
definition or in the context in which such reference is used; provided,however, that such documents
were not amended in breach of a covenant contained in any agreement to which TVA
or Seven States is a party.  A reference to a particular section,
paragraph, or other part of a particular statute shall be deemed to be a
reference to any other section, paragraph, or other part substituted therefor
from time to time unless otherwise specified.  A reference to any
Person (as hereinafter defined) includes such Person’s successors and permitted
assigns.  Any reference to “days” means calendar days unless “Business
Days” are expressly specified.  If the date as of which any right,
option, or election is exercisable, or the date upon which any amount is due and
payable, is stated to be on a day that is not a Business Day, such right,
option, or election may be exercised, and such amount shall be deemed due and
payable, on the next succeeding Business Day, with the same effect as if the
same was exercised or made on such date or day and no interest shall accrue or
be payable with respect to such payment.  Words such as “hereunder,”
“hereto,” “hereof,” and “herein” and other words of similar import shall, unless
the context requires otherwise, refer to the whole of the applicable document
and not to any particular article, section, subsection, paragraph, or clause
thereof.  A reference to “including” means including without limiting
the generality of any description preceding such term, and for purposes hereof
the rule of ejusdem
generis shall
not be applicable to limit a general statement, followed by or referable to an
enumeration of specific matters, to matters similar to those


–64–


specifically
mentioned. Unless otherwise expressly stated, references in this Lease to
“Articles,” “Sections,” and “Subsections” are to Articles, Sections, and
Subsections of this Lease.


14.22  TVA’s Access to Seven
States’ Financial Statements.  Upon written request by TVA,
Seven States shall provide access during normal working hours to its records as
necessary to permit TVA to verify the accuracy or appropriateness of Seven
States’ financial records.  TVA shall keep the information examined
confidential.  Nothing in this Section shall be construed as in any
way impairing the ability pursuant to statutory authority of the Office of the
Inspector General of TVA or of any other Federal agency having auditing
jurisdiction over TVA to examine the records of Seven States to the extent
relating to any amount billed to TVA by Seven States.


14.23  Fees and
Expenses.  Except as expressly provided elsewhere in this
Lease, each Party shall bear its own costs and expenses incurred by it in
connection with the negotiation, preparation, execution, and implementation of
this Lease, including the costs of accounting and financial
reporting.


14.24  Dispute
Resolution.  If a dispute arises out of or relates to this
Lease, the Parties agree to use their best efforts to resolve such a dispute
informally at the lowest possible levels of decision-making.  If such
a dispute is not resolved at the working level, it shall be referred to higher
levels of management of both Parties for consideration, as
necessary.  If the dispute cannot be so settled within sixty (60)
days, the Parties will consider the development and use of consensual
alternative dispute resolution processes (“ADR”), such as facilitation and
mediation, to try in good faith to settle the dispute before resorting to
litigation.  It is expressly recognized and agreed, however, that (a)
nothing in this Section 14.24 shall be construed to require the use or
completion of ADR prior to resorting to litigation or to otherwise limit the
Parties from




–65–


resorting
to litigation, and (b) this Section 14.24 is not a “Disputes” clause within the
meaning of the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (CDA), and
that this Lease is not subject to the provisions of the CDA.




IN
WITNESS WHEREOF, Seven States and TVA have caused this Lease to be duly executed
and delivered under seal by their duly authorized officers.











SEVEN
STATES SOUTHAVEN, LLC











By:  /s/ Jack W.
Simmons___________________


Title:  President
      and Chief Executive Officer











TENNESSEE
VALLEY AUTHORITY











By:  /s/ Tom D.
Kilgore_____________________


Title:  President
      and CEO


–66–


EXHIBIT
A


LEGAL
DESCRIPTION







SOUTHAVEN
COMBUSTION TURBINE SITE









Mississippi Parcel 1
(Acquisition Tract SCBTS-1)




A parcel
of land lying in the SW1/4 of Section 15 Township 1 South Range 8 West in Desoto
County, State of Mississippi, being on the Southaven Combustion Turbine Site and
at the intersection of Tulane Road and Stateline Road, as shown on US-TVA
Drawing No. 112 MS 422 B 100(D) R.0 and being more particularly described as
follows:





Commencing
at a concrete monument (found) (Coordinates: N. 275,703.11, E. 750,567.00),
being NGS MON 153; thence S42°05'16"E, 13,353.72 feet to an angle iron (set) on
the accepted Mississippi-Tennessee state line being corner No. SCBTS-1 and the
Point of Beginning:





Thence
leaving the point of beginning and said Mississippi-Tennessee state line
S02°11'31"W, 1,100.72 feet to a rebar (found) in the northern right of way of
Stateline Road, being corner No. SCBTS-2; thence continuing with said right of
way for the following two calls;


N87°47'07"W,
304.06 feet to a rebar (found), being corner No. SCBTS-3;


thence
N87°47'41"W, 104.99 feet to a (3/8") rebar (found), being corner No.
SCBTS-6;


thence
leaving said right of way N02°12'24"E, 206.98 feet to a (3/8") rebar (found),
being corner No. SCBTS-5; thence parallel with north right of way of Stateline
Road N87°48'27"W, 1,260.36 feet to rebar with cap (found) and stamped “THY INC.
#888” in the eastern right of way of Tulane Road, being corner No. SCBTS-7;
thence with said right of way N02°15'03"E, 899.31 feet to a rebar with cap
(found) on the accepted Mississippi-Tennessee state line, being corner No.
SCBTS-8; thence leaving said right of way and with said state line S87°36'39"E,
1,668.44 feet to the point of beginning and containing 36.29 acres.





Located
on VTM Quad Horn Lake, MS.





Positions
of corners and directions of lines are referred to the Tennessee Lambert State
Coordinate System and NAD 83 (2007) Horizontal Datum.





This
description was prepared from an ALTA survey dated May 1, 2000 and a survey
dated December 18, 2007 by:





Tennessee Valley Authority


MR 4B-C


Chattanooga, TN 37402-2801







–67–







Mississippi Parcel 2
(Acquisition Tract SCBTS-2)




A parcel
of land lying in the SE1/4 of Section 16 Township 1 South Range 8 West in Desoto
County, State of Mississippi, being on the Southaven Combustion Turbine Site and
at the intersection of Tulane Road and Stateline Road, as shown on US-TVA
Drawing No. 112 MS 422 B 100(D) R.0 and being more particularly described as
follows:





Commencing
at a concrete monument (found) (Coordinates: N. 275,703.11, E. 750,567.00),
being NGS MON 153; thence S33°33'03"E, 12,943.26 feet to a rebar (found) in the
west right of way of Tulane Road, being corner No. SCBTS-9 and the Point of
Beginning:





Thence
leaving the point of beginning and said right of way N87°55'13"W, 225.69 feet to
a nail (60d) (found), being corner No. SCBTS-10;


thence
N87°42'13"W, 420.76 feet to a rebar without cap (found), being corner No.
SCBTS-11;


thence
N02°36'46"E, 209.28 feet to a rebar without cap (found), being corner No.
SCBTS-12; thence N87°28'38"W, 210.14 feet to an iron pipe (1.5") (found), being
corner No. SCBTS-13;


thence
S02°13'39"W, 209.42 feet to a pin (found), being corner No.
SCBTS-14;


thence
S02°43'42"W, 155.47 feet to a rebar with cap (found) in the north right of way
of Stateline Road, being corner No. SCBTS-15;


thence
with road said right of way N87°43'40"W, 415.16 feet to a rebar (found), being
corner No. SCBTS-16;


thence
N02°24'39"E, 673.73 feet to an iron pipe (1.5") (found), being corner No.
SCBTS-17; thence S87°35'36"E, 434.83 feet to a rebar (found), being corner No.
SCBTS-18;


thence
N02°19'08"E, 435.00 feet to a rebar (found) on the accepted
Mississippi-Tennessee state line, being corner No. SCBTS-19;


thence
with said state line for the following calls:


S87°35'34"E,
311.41 feet to an angle iron (set), being corner No. SCBTS-26;


thence
S87°35’28”E, 523.19 feet to an iron pipe (found) in the west right of way of
Tulane Road, being Corner No. SCBTS-20;


thence
leaving said state line and with said road right of way S02°15'57"W, 206.15 feet
to a rebar (found), being corner No. SCBTS-21;


thence
leaving said right of way N87°38'49"W, 158.80 feet to a rebar (found), being
corner No. SCBTS-22;


thence
S02°07'35"W, 209.14 feet to an iron pipe (found), being corner No.
SCBTS-23;


thence
S87°29'48"E, 158.20 feet to a rebar (found) in the western right of way of
Tulane Road, being corner No. SCBTS-24;


thence
with said road right of way S02°15'14"W, 534.74 feet to the point of beginning
and containing 23.14 acres.





Located
on VTM Quad Horn Lake, MS.





Positions
of corners and directions of lines are referred to the Tennessee Lambert State
Coordinate System and NAD 83 (2007) Horizontal Datum.





This
description was prepared from an ALTA survey dated May 1, 2000 and a survey
dated December 18, 2007 by:





Tennessee Valley Authority


MR 4B-C


Chattanooga, TN 37402-2801







–68–







Mississippi Parcel 3 –
Transmission Line Easement (Acquisition Tract SCBTS-4-TL)




An
easement for transmission line purposes as described in that certain
Transmission Line Easement dated November 21, 2000, between Entergy Mississippi,
Inc. and Southaven Power, LLC, recorded December 8, 2000 in Deed Book 384, page
81 over, under and across a parcel of land lying in the SE1/4 of Section 16
Township 1 South Range 8 West in Desoto County, State of Mississippi, being on
the Southaven Combustion Turbine Site, as shown on US-TVA Drawing No. 112 MS 422
B 100(D) R.0 and being more particularly described as follows:




Commencing
at a concrete monument (found) (Coordinates: N. 275,703.11, E. 750,567.00),
being NGS MON 153; thence S29°12'19"E, 12,075.19 feet to a point in the western
line of tract SCBTS-2, being corner SCBTS-33 and the Point of
Beginning:





Thence
leaving the point of beginning and said western line of tract SCBTS-2
N89°54'39"W, 417.53 feet to a point, being corner No. SCBTS-34;


thence
N44°04'03"W, 81.72 feet to a point, being corner No. SCBTS-35;


thence
N45°55'57"E, 150.00 feet to a point, being corner No. SCBTS-36;


thence
S44°04’03”E, 18.29 to a point, being Corner No. SCBTS-37;


thence
S89°54’39”E, 360.18 to a point, being Corner No. SCBTS-38;


thence
S02°24’35”W, 150.12 feet to the point of beginning and containing 1.51
acres.





Located
on VTM Quad Horn Lake, MS.





Positions
of corners and directions of lines are referred to the Tennessee Lambert State
Coordinate System and NAD 83 (2007) Horizontal Datum.





This
description was prepared from an ALTA survey dated May 1, 2000 and a survey
dated December 18, 2007 by:





Tennessee Valley Authority


MR 4B-C


Chattanooga, TN 37402-2801





–69–


Tennessee Parcel 1
(Acquisition Tract SCBTS-3)




A parcel
of land lying in the in the Third Civil District of Shelby County, State of
Tennessee, being on the Southaven Combustion Turbine Site and at the
intersection of Tulane Road and Windsor Road, as shown on US-TVA Drawing No. 112
MS 422 B 100(D) R.0 and being more particularly described as
follows:




Commencing
at a concrete monument (found) (Coordinates: N. 275,703.11, E. 750,567.00),
being NGS MON 153; thence S41°31'41"E, 10,982.12 feet to an iron pipe with cap
(found) in the west right of way of Tulane Road being corner No. SCBTS-32 and
the Point of Beginning:





Thence
leaving the point of beginning and with said right of way S02°12'12"W, 1,617.62
feet to a rebar (found), being corner No. SCBTS-25;


thence
N88°17'26"W, 27.82 feet to an iron pipe (found), being corner No.
SCBTS-20


thence
N87°35’28”W, 523.19 feet to an angle iron (set), being Corner No.
SCBTS-26;


thence
N02°21'10"E, 126.18 feet to an angle iron (set), being Corner No.
SCBTS-27;


thence
N02°21’15”E, 238.59 feet to an angle iron (set), being Corner No.
SCBTS-30;


thence
N02°20'30"E, 1,271.29 feet to an iron pipe (2") (found) in the south line of
Windsor Road, being corner No. SCBTS-31;


thence
with said south line S85°41'42"E, 547.38 feet to the point of beginning and
containing 20.51 acres.





Located
on VTM Quad Horn Lake, MS.





Positions
of corners and directions of lines are referred to the Tennessee Lambert State
Coordinate System and NAD 83 (2007) Horizontal Datum.





This
description was prepared from an ALTA survey dated May 1, 2000 and a survey
dated December 18, 2007 by:





Tennessee Valley Authority


MR 4B-C


Chattanooga, TN 37402-2801












–70–


Tennessee Transmission Line
Corridor





A parcel
of land lying in the in the Third Civil District of Shelby County, State of
Tennessee, being on the Southaven Combustion Turbine Site and at the
intersection of Tulane Road and Windsor Road, as shown on US-TVA Drawing No. 112
MS 421 B 99(D) R.0 and being more particularly described as
follows:





Commencing
at a concrete monument (found) (Coordinates: N. 275,703.11, E. 750,567.00),
being NGS MON 153; thence S34°33'26"E, 11,764.90 feet to an angle iron (set)
being corner No. SCBTS-27 and the Point of Beginning:





Thence
leaving the point of beginning N54°36'16"W, 480.01 feet to an angle iron
(set),being Corner No. SCBTS-28;


thence
N35°24'01"E, 200.01 feet to an angle iron (set), being Corner No.
SCBTS-29


thence
S54°36'16"E, 349.90 feet to an angle iron (set), being Corner No.
SCBTS-30;


thence
S02°21'15"W, 238.59 feet to the point of beginning and containing 1.91
acres.





Located
on VTM Quad Horn Lake, MS.





Positions
of corners and directions of lines are referred to the Tennessee Lambert State
Coordinate System and NAD 83 (2007) Horizontal Datum.





This
description was prepared from an ALTA survey dated May 1, 2000 and a survey
dated December 18, 2007 by:





Tennessee Valley Authority


MR 4B-C


Chattanooga, TN 37402-2801

















–71–





EXHIBIT
B


TVA’S PEOPLEWITH ACTUAL
KNOWLEDGE


1.           James
D. Clayton, Plant Manager


2.
            Louis
      Chip Diamond (solely with respect to such person’s knowledge of
      environmental matters applicable under this
  Lease)


[End of
Exhibit B]





–72–


EXHIBIT
C


SEVEN STATES’PEOPLEWITH ACTUAL
KNOWLEDGE


1.           Jack
W. Simmons


2.           James
S. Adams, Jr.


3.           John
I. Cooke


[End of
Exhibit C]










–73–


SCHEDULE
10.1




INSURANCE
REQUIREMENTS




1.           Insurance
Coverage.  Without limiting any of the other liabilities of TVA
under the Lease, TVA shall at all times carry and maintain at least the minimum
insurance coverage set forth below in this Schedule.  All insurance
carried pursuant to this Lease shall be placed with insurers having a minimum
A.M. Best rating of A, or as may otherwise be acceptable to Seven
States.




(a)           All Risk Property
Insurance.  All risk property insurance covering against
physical loss or damage to the Leased Premises, including fire and extended
coverage, collapse, flood, earth movement, terrorism, and comprehensive boiler
and machinery coverage (including electrical malfunction and mechanical
breakdown).  Coverage shall be written on a replacement cost basis;
and




(b)           Commercial General
Liability.  Third-party liability insurance written on an
occurrence basis with a limit of not less than One Million Dollars
($1,000,000).  Such coverage shall include premises/operations,
explosion, collapse, underground hazards, contractual liability, independent
contractors, products/completed operations, property damage, and personal injury
liability; and




(c)           Workers’ Compensation /
Employer’s Liability.  A compensation program as required by
law under the Federal Employees Compensation Act or, in the alternative,
workers’ compensation insurance in accordance with statutory provisions covering
accidental injury, illness, or death of a TVA employee while at work or in the
scope of his employment with TVA and employer’s liability insurance in an amount
not less than One Million Dollars ($1,000,000); and




(d)           Automobile
Liability.  In the event TVA utilizes vehicles on the Leased
Premises, automobile liability insurance covering owned, non-owned, leased,
hired, or borrowed vehicles against bodily injury or property
damage.  Such coverage shall have a limit of not less than One Million
Dollars ($1,000,000); and




(e)           Excess/Umbrella
Liability.  Excess/umbrella insurance written on an occurrence
basis and providing coverage limits in excess of the primary limits applying
under policies described in Subsections 1(b), 1(c) (employer’s liability only),
and 1(d) of this Schedule, above.  The limit of such excess/umbrella
coverage shall not be less than Ten Million Dollars
($10,000,000).  Such insurance shall contain a drop-down provision in
the event of exhaustion of underlying limits or aggregates and apply on a
following form basis.




2.           Operator Insurance
Coverage.  TVA shall cause any operator (if other than TVA) of
the Purchased Assets to maintain, or cause to be maintained, in full force and
effect such insurance as such operator is contractually required to
maintain.  Furthermore, the operator shall cause its liability
insurance policies to be endorsed with the following
clauses:  additional insured status in favor of TVA, Seven States, and
any mortgagee; waiver of subrogation in favor of TVA and Seven States;
severability of interests in favor of TVA and Seven States; primary and
non-contributory working in favor of TVA and Seven States; and a thirty (30)
-day cancellation clause in favor of TVA, Seven States, and any
mortgagee.  TVA shall cause any such operator,




–74–


prior to
the Lease Commencement Date and upon request from time to time, to deliver to
Seven States such evidence of insurance as may be requested by Seven States or
any mortgagee.




3.           Endorsements.  TVA
shall cause all insurance maintained in accordance with this Lease to be
endorsed as follows:




(a)           TVA
shall be the named insured and Seven States and any mortgagee shall be
additional named insureds with respect to the property policies described in
section 1(a) above.  TVA shall be the named insured and Seven States
shall be an additional insured with respect to the liability policies described
in sections 1(b), 1(c) (employer’s liability only), and 1(e) of this Schedule,
above; and




(b)           inasmuch
as the liability policies are written to cover more than one insured, all terms,
conditions, insuring agreements, and endorsements, with the exception of the
limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured; and




(c)           the
insurers shall waive all rights of subrogation against Seven States;
and




(d)           such
insurance shall be primary without right of contribution of any other insurance
carried by or on behalf of Seven States with respect to its interest as such in
the Leased Premises; and




(e)           if
such insurance is canceled for any reason whatsoever, including for nonpayment
of premium, or any changes are initiated by TVA or the insurance carrier that
affect the interest of Seven States, Seven States, and any mortgagee shall be
notified thirty (30) days prior (ten (10) days prior in the case of non-payment
of premium) by the insurer.




4.           Certifications.  Within
ten (10) days of the Lease Commencement Date, and at each policy renewal, but
not less than annually, TVA shall provide to Seven States approved certification
from each insurer or by an authorized representative of each
insurer.  Such certification shall identify the underwriters, the type
of insurance, the limits, deductibles, and term thereof and shall specifically
list the special provisions delineated in Section 3 of this Schedule, above, for
such insurance required under this Section 4.  Upon reasonable
request, TVA shall allow Seven States to review the insurance policies, binders,
or other evidence of such insurance at the TVA Risk Management Chattanooga
office.




5.           Self
Insurance.  Notwithstanding anything to the contrary contained
in this Schedule, TVA may elect to self-insure with respect to the insurance
required by Subsections 1(a), 1(b), 1(c), 1(d), and1(e) of this
Schedule.








–75–