CONFORMED COPY


                               FACILITY AGREEMENT

                                       for

                  (pound)250,000,000 Revolving Credit Facility



                           Eastern Electricity plc                           (1)

                             Chase Manhattan plc                             (2)
                     Lehman Brothers International (Europe)
                        Merrill Lynch Capital Corporation
                             as Joint Lead Arrangers

                          The Chase Manhattan Bank                           (3)
                          Lehman Commercial Paper Inc.
                        Merrill Lynch Capital Corporation
                                 as Underwriters

                          The Chase Manhattan Bank                           (4)
                                 as Issuing Bank

                    Chase Manhattan International Limited                    (5)
                                as Facility Agent



For the Primary Borrower                                  For the Facility Agent
      Norton Rose                                          Lovell White Durrant
         London                                                   London

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                                    CONTENTS

1.   PURPOSE AND DEFINITIONS.................................................  1

2.   THE COMMITMENTS......................................................... 16
                                                                              
3.   THE CONDITIONS.......................................................... 17
                                                                              
4.   ADVANCES UNDER THE FACILITY............................................. 17
                                                                              
5.   INTEREST AND MATURITY PERIODS........................................... 23
                                                                              
6.   REPAYMENT, CANCELLATION AND REDUCTIONS.................................. 25
                                                                              
7.   FEES AND EXPENSES....................................................... 27
                                                                              
8.   PAYMENTS AND TAXES; ACCOUNTS AND CALCULATIONS........................... 29
                                                                             
9.   REPRESENTATIONS AND WARRANTIES.......................................... 35
                                                                              
10.  POSITIVE UNDERTAKINGS................................................... 37
                                                                              
11.  NEGATIVE UNDERTAKINGS................................................... 41
                                                                              
12.  EVENTS OF DEFAULT....................................................... 45
                                                                              
13.  INDEMNITIES............................................................. 49
                                                                              
14.  UNLAWFULNESS, INCREASED COSTS, ALTERNATIVE INTEREST RATES............... 50
                                                                              
15.  SET-OFF AND PRO-RATA PAYMENTS........................................... 54
                                                                             
16.  ASSIGNMENT, SUBSTITUTION AND LENDING OFFICES............................ 55

17.  FACILITY AGENT.......................................................... 60

18.  POWERS ................................................................. 62

19.  DUTIES ................................................................. 65

20.  EXONERATION............................................................. 66

21.  ENFORCEMENT AND RECOVERIES.............................................. 70

22.  DETERMINATION OF MATTERS................................................ 71

23.  BASIS OF DECISIONS...................................................... 73

24.  MATTERS CONCERNING THE OBLIGORS......................................... 74

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25.  NOTICES AND OTHER MATTERS............................................... 76

26.  GOVERNING LAW AND JURISDICTION.......................................... 79

Schedule 1

The Banks and their Commitments.............................................. 80

Schedule 2

Forms of Drawdown Notice..................................................... 81

Schedule 3

Conditions Precedent......................................................... 83

Schedule 4

Calculation of Additional Cost............................................... 84

Schedule 5

Form of Substitution Certificate............................................. 86

Schedule 6

Form of Deed of Accession.................................................... 89

Schedule 7

Terms of Borrowers' Indemnity................................................ 91

Schedule 8

Terms of Interbank Guarantee and Indemnity................................... 94

Schedule 9

Terms of Guarantee........................................................... 96

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THIS AGREEMENT is made the 21st day of May 1998

BETWEEN:

(1)    Eastern  Electricity  plc a company  registered in England and Wales with
       company number 2366906 as the initial Borrower and initial Guarantor (the
       "Primary Borrower");

(2)    Chase Manhattan plc, Lehman Brothers  International  (Europe) and Merrill
       Lynch Capital Corporation as joint lead arrangers;

(3)    The Chase Manhattan Bank,  Lehman Commercial Paper Inc. and Merrill Lynch
       Capital Corporation as the original Banks (the "Underwriters");

(4)    The Chase Manhattan Bank as the initial Issuing Bank;

(5)    Chase Manhattan International Limited as the initial Facility Agent.

IT IS AGREED as follows:

1.     PURPOSE AND DEFINITIONS

1.1    Purpose

       This  Agreement  sets out the terms and  conditions  upon and  subject to
       which the Banks agree,  according to their several  obligations,  to make
       available  to the Primary  Borrower  and  (subject to  accession  to this
       Agreement  under clause 24) the Additional  Borrowers,  a  multi-currency
       facility  of up to  (pound)250,000,000  to be used  for  such  Borrower's
       general corporate purposes.

       No  amounts  borrowed  under  the  Facility  may  be  used,  directly  or
       indirectly,  to give  financial  assistance  for the  acquisition  of the
       shares of any Borrower or any holding company of any Borrower.

1.2    Definitions

       In this Agreement, unless the context otherwise requires:

       "Act" means the Companies Act 1985;

       "Additional  Borrower"  means any  member of the  Group  which  becomes a
       Borrower pursuant to clause 24.1 (Additional Obligors);

       "Additional  Cost"  means,  in  relation  to  any  period,  a  percentage
       calculated  for such period at an annual rate  determined  in  accordance
       with schedule 4;

       "Additional  Guarantor"  means any  member of the Group  which  becomes a
       Guarantor  pursuant to clause 24.1  (Additional  Obligors)  and/or clause
       24.2 (Guarantees from REC Companies);

       "Additional   Obligor"  means  any  Additional   Borrower  or  Additional
       Guarantor;

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       "Advance"  means each  borrowing  made or to be made by way of an advance
       under the Facility or (as the context  requires) the principal  amount of
       that borrowing outstanding at any relevant time;

       "Affected Bank" has the meaning given to it in clause 14.4;

       "Affiliate"   means,  in  relation  to  any  person,  any  Subsidiary  or
       subsidiary  undertaking  (as  defined in section  258 of the Act) of that
       person,  any holding  company of that person and any other  Subsidiary or
       subsidiary undertaking of that holding company;

       "Applicable Fees Rate" means 0.25 per cent. per annum;

       "Applicable Margin" means 0.5 per cent. per annum;

       "Appropriate  Accounting Principles" means (i) the accounting principles,
       policies, standards, practices and bases (being generally accepted in the
       United  Kingdom),  as adopted in the last audited accounts of the Primary
       Borrower   published  prior  to  1  February  1998  and  varied  so  that
       investments in subsidiaries which are not REC Companies are accounted for
       on an equity  basis or (ii) where any change has been agreed under clause
       10.3(c), such accounting  principles,  standards,  practices and bases as
       have been so agreed;

       "Arrangers"  means Chase  Manhattan plc,  Lehman  Brothers  International
       (Europe) and Merrill Lynch Capital Corporation;

       "Auditors"   means  Price   Waterhouse  or  such  other   internationally
       recognised  firm of chartered  accountants  as may be auditors to the REC
       Group for the time being;

       "Available Commitment" means, in relation to a Bank and save as otherwise
       provided herein its Commitment at such time less:

       (a)    its Contribution to all Advances at such time;

       (b)    its  Proportion  of  the  Sterling  Amount  at  that  time  of the
              Outstanding  Contingent  Liabilities  under all  Letters of Credit
              then outstanding; and

       (c)    its  proportion  of the Sterling  Amount of any amount paid out by
              the Issuing Bank under a Letter of Credit and not yet reimbursed;

       "Available  Facility  Amount"  means,  at any time,  the aggregate of the
       Available Commitments of all the Banks in respect of the Facility at such
       time;

       "Banking  Day" means a day (other than Saturday or Sunday) on which banks
       are open for business in London and in New York;

       "Banks" means the original  banks listed in schedule 1 and includes their
       successors in title, assignees and Substitutes;

       "Borrowed  Money" includes any Indebtedness of any REC Company in respect
       of (without double counting):

       (a)    borrowed money; or

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       (b)    the  principal  amount  outstanding  in respect of any  debentures
              (within  the  meaning  of Section  744 of the Act) of that  person
              (notwithstanding  that the same are or were  issued in whole or in
              part  for  a   consideration   other  than  cash)  which  are  not
              beneficially owned by another REC Company; or

       (c)    the  principal  amount raised by that person by  acceptances  (not
              being an  acceptance  in relation to the purchase or sale of goods
              in the ordinary course of trading) or under any acceptance  credit
              opened by any bank or accepting house on behalf of that person; or

       (d)    receivables  sold or  discounted to the extent of any potential or
              contingent  recourse  save for recourse for disputed or ineligible
              debts or similar  rights of recourse  typical in a  securitisation
              transaction; or

       (e)    the acquisition  cost of any asset to the extent payable after the
              time of  acquisition  or  possession by the party liable where the
              deferred  payment is not normal  trade  credit,  is deferred for a
              period of more than 90 days or is arranged  primarily  as a method
              of raising finance or financing the acquisition of that asset from
              or through a bank or financial  institution,  except that,  if the
              deferred  payment is amortising,  only the amount which remains to
              be paid shall be taken into account; or

       (f)    the nominal  amount of any share capital and the principal  amount
              of any debentures or other  indebtedness of any other person,  the
              redemption or repayment of which is guaranteed or secured by or is
              the subject of an indemnity given by that person; or

       (g)    any  fixed or  minimum  premium  payable  on final  redemption  or
              repayment of any debenture, share capital or other borrowed moneys
              falling to be taken into  account  under the other  paragraphs  of
              this definition; or

       (h)    any net liability under any Derivative Transactions; or

       (i)    the capital element of any Finance Leases; or

       (j)    any  amount  raised  under  any  other   transaction   having  the
              commercial  effect of a borrowing or entered  into  primarily as a
              means of raising finance;

       but  does  not  include  items  of  the  type  described  in  (a)  to (j)
       (inclusive)  which are owed to a member of the Wider  Group or to another
       REC Company;

       "Borrowers" means the Primary Borrower and each other member of the Group
       which has become an Additional  Borrower and "Borrower"  means any one of
       them;

       "Change in Control" shall be deemed to have occurred if:

       (a)    any person or group of related persons (other than the Parent, any
              Subsidiary  of  the  Parent,  or any  pension,  savings  or  other
              employee  benefit  plan for the benefit of employees of the Parent
              and/or  any   Subsidiary   of  the  Parent)  shall  have  acquired
              beneficial  ownership of more than 30% of the  outstanding  Voting
              Shares of the Parent (within the meaning of section 13(d) or 14(d)
              of the  Securities  Exchange  Act of 1934 of the United  States of
              America,  as amended,  and the  applicable  rules and  regulations
              thereunder); provided that a Change in Control shall not be deemed
              to have occurred

<PAGE>


              if  such  acquisition  has  been  approved,  prior  to the  Parent
              Acquisition Date and the date on which any tender offer for Voting
              Shares  of  the  Parent  was  commenced,  by  a  majority  of  the
              Disinterested Directors of the Parent; or

       (b)    during any period of 12 consecutive  months,  commencing before or
              after the date of this Agreement, individuals who on the first day
              of such period were  directors  of the Parent  (together  with any
              replacement or additional  directors who were nominated or elected
              by a majority of directors  then in office)  cease to constitute a
              majority of the board of directors of the Parent;

       "Commitment"  means,  in relation  to a Bank at any  relevant  time,  the
       amount  set  opposite  its name in  schedule  1 and/or,  in the case of a
       Substitute,  the amount  novated in relation to the Facility as specified
       in the relevant  Substitution  Certificate,  as reduced, in each case, by
       any relevant term of this Agreement;

       "Contribution"  means, in relation to a Bank, the principal amount of any
       or all (as the context requires) of the Sterling Amount of Advances owing
       to such Bank at any relevant time;

       "Deed of Accession"  means an accession  certificate  (by way of deed) in
       the form or  substantially  the form of schedule 6 and entered into or to
       be entered into by the Facility  Agent and an Additional  Guarantor as an
       acceding  Guarantor and, in certain cases,  an Additional  Borrower as an
       acceding Borrower;

       "Default" means any Event of Default or any event or  circumstance  which
       in the  reasonable  opinion of the  Majority  Banks would  reasonably  be
       expected,  upon the giving of a notice by the  Facility  Agent and/or the
       expiry  of the  relevant  period  and/or  the  fulfilment  of  any  other
       condition  (in each case as specified in clause  12.1),  to constitute an
       Event of Default;

       "Derivatives  Transaction"  means a contract,  agreement  or  transaction
       which is:

       (a)    a rate swap,  basis swap,  forward  rate  transaction,  equity (or
              equity or other index) swap or option, bond option,  interest rate
              option,  foreign  exchange  transaction,  cap,  collar  or  floor,
              currency swap,  currency option or any other similar  transaction;
              and/or

       (b)    any combination of such transactions,

       in each case, whether on-exchange or otherwise;

       "Director  General"  means the person  appointed from time to time by the
       Secretary of State to hold office as the Director  General of Electricity
       Supply for the purposes of the Electricity Act;

       "Disinterested  Director" shall mean any member of the board of directors
       of the Parent who:

       (a)    is not affiliated,  directly or indirectly, with, or appointed by,
              a person or group of related  persons (other than the Parent,  any
              Subsidiary  of  the  Parent,  or any  pension,  savings  or  other
              employee  benefit  plan for the benefit of employees of the Parent
              and/or any  Subsidiary  of the Parent)  acquiring  the  beneficial
              ownership of more than 30% of the outstanding Voting Shares of the
              Parent  (within  the  meaning  of  section  13(d)  or 14(d) of the
              Securities  Exchange Act of 1934 of the United  States of America,
              as amended, and the applicable rules and regulations  thereunder);
              and

<PAGE>


       (b)    either was a member of the board of  directors of the Parent prior
              to the Parent  Acquisition Date or was recommended for election by
              a majority of the  Disinterested  Directors in office prior to the
              Parent Acquisition Date;

       "Distribution  Business"  means the business  conducted as at the date of
       this  Agreement  by the  Primary  Borrower  (and  as  that  business  may
       subsequently  be  conducted  by the REC Group),  in or  ancillary  to the
       distribution  (whether  for a REC  Company's  own  account or that of any
       other party) of electricity through any REC Company's distribution system
       and includes any business of providing  connections  to any REC Company's
       distribution system;

       "double  taxation  treaty" means any convention or agreement  between the
       government  of the  United  Kingdom  and  any  other  government  for the
       avoidance of double  taxation and the  prevention of fiscal  evasion with
       respect to taxes on income and capital gains;

       "Drawdown Date" means the date on which an Advance is, or is to be, made;

       "Drawdown Notice" means, in respect of a Facility, a notice substantially
       in the terms of the relevant Part of schedule 2;

       "Effective  Date" means the date on which the  requirements  of Part A of
       Schedule 3 are satisfied in accordance with clause 3;

       "Electricity Act" means the Electricity Act 1989;

       "Environmental  Claim"  means any  claim,  prosecution,  demand,  action,
       official  warning,  abatement,  penalty or other  order  (conditional  or
       otherwise) arising as a result of or in connection with any Environmental
       Matter against any member or former member of the Group and including any
       formal written  notification or order requiring compliance with the terms
       of any Environmental Licence or Environmental Law;

       "Environmental Laws" means all or any laws, statutes, rules, regulations,
       treaties, directives,  by-laws, statutory codes of practices,  circulars,
       guidance notes, orders,  notices and demands,  decisions of the courts or
       anything like any of the foregoing of any Government  Entity or any other
       body  whatsoever in any  jurisdiction  or the European  Union relating to
       Environmental Matters and includes the Environmental  Protection Act 1990
       and the Environment Act 1995;

       "Environmental Licence" means any permit, licence, authorisation, consent
       or other approval required at any time by any Environmental Law;

       "Environmental Matters" means:

       (a)    the generation,  deposit,  disposal,  escape, keeping,  treatment,
              transportation,  transmission, handling, importation, exportation,
              processing,  collection,  sorting,  presence or manufacture of any
              "waste" (as defined in the Environmental Protection Act 1990 or in
              any other  Environmental  Laws),  or any Relevant  Substance which
              gives  rise to a risk of causing  harm to man or any other  living
              organism supported by the environment, or damaging the environment
              or public  health or, for so long as any member of the Group shall
              be engaged in the Generation Business, welfare;

       (b)    nuisance, noise, health and safety at work or elsewhere; and

<PAGE>


       (c)    the pollution, conservation or protection of the environment (both
              natural and built) or of man or any living organisms  supported by
              the  environment  or any other  matter  whatsoever  affecting  the
              environment or any part of it;

       "Euro"  means the single  currency  of  participating  member  states (so
       described in any  legislative  measures of the  European  Council for the
       introduction  of,  changeover  to or  operation  of a single  or  unified
       European currency);

       "Event of Default" means any of the events or circumstances  described in
       clause 12.1;

       "Excluded  Business"  means any  business  (other  than the  Distribution
       Business  or  Supply  Business)  which  the  Director  General  or  other
       competent  authority  may determine  (by  modification  to the Licence or
       otherwise) should not be operated within the REC Group;

       "Expiry  Date"  means  the date  stated  in a Letter  of Credit to be its
       expiry  date or (if later) the  latest  date on which  demand may be made
       under it;

       "Facility"  means the  facility  granted by the Banks to the  Borrower in
       accordance with clause 2.1;

       "Facility  Agent"  means  Chase  Manhattan  International  Limited of 125
       London  Wall,  London EC2Y 5AJ or such other  person as may be  appointed
       Facility Agent for the Banks pursuant to clause 17;

       "Facility  Office" means,  in relation to the Facility Agent or any Bank,
       the office identified in Schedule 1 (or, in the case of a Substitute,  at
       the end of the  Substitution  Certificate  to  which  it is a party  as a
       Substitute)  or such  other  office  as it may from  time to time  select
       provided  written  notice thereof has been given by the Facility Agent or
       such Bank to the Primary Borrower;

       "Fee  Letter"  means the fee letter  referred  to in clause  7.1,  in the
       agreed form;

       "Fee  Payment  Date"  means each of the dates  falling  at three  monthly
       intervals after the date of this Agreement;

       "Final Repayment Date" means 2 March 2003;

       "Finance  Documents"  means this  Agreement,  any Deed of Accession,  any
       L/C-Related  Documents,  any Guarantee,  each Drawdown Notice and the Fee
       Letter;

       "Finance  Lease"  means any lease under which a REC Company is the lessee
       which is or should be treated as a finance  or  capital  lease  under the
       Appropriate   Accounting  Principles  (and  includes  any  hire  purchase
       contract or other arrangement which is or should be similarly treated);

       "Finance  Parties"  means the  Facility  Agent,  the  Issuing  Bank,  the
       Arrangers,  the Banks and (as the context requires) "Finance Party" means
       any one of them;

       "Finance  Period" means the period from the date of this Agreement  until
       the date on which the Facility  Agent  confirms  that neither the Finance
       Parties  nor any  Obligor  has any actual or  contingent  liabilities  or
       obligations under any of the Finance Documents;

<PAGE>


       "Financial  Covenants"  means  the  financial   undertakings  in  clauses
       10.3(a);

       "Financial Definitions" means the definitions of Operating Profit and Net
       Interest Expense;

       "Generation  Business"  means  the  business  of the Group (if any) in or
       ancillary to the generation of  electricity  (whether for its own account
       or that of any other party);

       "Government  Entity" means and includes  (whether having a distinct legal
       personality  or not) any  supra-national,  national  or local  government
       authority, regulatory body, central bank, board, commission,  department,
       division,  organ,  instrumentality,  court or agency and any association,
       organisation  or institution of which any of the foregoing is a member of
       or  whose  jurisdiction  any of the  foregoing  is  subject  or in  whose
       activities  any of the  foregoing  is a  participant  and (if the context
       requires) which, in relation to Environmental  Matters, has regulatory or
       administrative authority under Environmental Laws;

       "Group" means the Primary Borrower and all its Subsidiaries  from time to
       time;

       "Guarantee" means the guarantee set out in schedule 9 to be given by each
       Guarantor and "Guarantees" shall be construed accordingly;

       "Guarantors"  means the Primary  Borrower and each Additional  Guarantor,
       which  in each  case  has not  been  released  from  such  Guarantee  and
       "Guarantor" means any one of them;

       "Half-year  Periods" means the financial  periods of the REC Group ending
       on 31 March and 30 September in each year;

       "Indebtedness"  means  any  obligation  of a person  for the  payment  or
       repayment of money, whether as principal or as surety and whether present
       or future, actual or contingent;

       "Issue"  means with  respect to any Letter of Credit,  to issue or extend
       the expiry of, or to renew or  increase  the  amount of,  such  Letter of
       Credit;   and  the  terms   "Issued",   "Issuing"  and  "Issuance"   have
       corresponding meanings;

       "Issue  Date" means in relation to a Letter of Credit,  the date on which
       that Letter of Credit was Issued,  or, as the context requires,  is to be
       Issued under clause 4.2 (Issue of Letters of Credit);

       "Issuing  Bank" means The Chase  Manhattan Bank or any  alternative  Bank
       which has been notified to the Primary  Borrower by the Facility Agent as
       the issuer of any Letter of Credit in  accordance  with the terms of this
       Agreement;

       "L/C-Related  Documents" means each Letter of Credit, any Drawdown Notice
       or other  application  for a Letter  of  Credit  and any  other  document
       relating to any Letter of Credit;

       "Letter of Credit"  means a letter of credit or a bank  guarantee (as the
       case may be) Issued or to be Issued by the  Issuing  Bank on the terms of
       this Agreement;

       "LIBOR"  means,  in relation  to any Advance or unpaid sum,  the rate per
       annum determined by the Facility Agent to be equal to:

       (a)    the offered  rate (if any)  appearing on page 3740 or page 3750 of
              the Telerate screen,  or such other pages as may replace such page
              of the Telerate screen, which displays

<PAGE>


              British Bankers Association Interest Settlement Rates for deposits
              in the currency in which such Advance or unpaid sum is denominated
              and for the specified period (where  "specified  period" means the
              Interest Period or Maturity Period of such Advance or, as the case
              may be, the  period  for which  LIBOR  falls to be  determined  in
              relation to such unpaid sum); or

       (b)    if  the  Telerate  screen  is  generally  inaccessible  or if  the
              relevant  rate  does not  appear on page 3740 or page 3750 or such
              other page as may replace  such page of the Telerate  screen,  the
              arithmetic mean (rounded upwards,  if not already such a multiple,
              to four decimal  places) of the rates (as notified to the Facility
              Agent)  at which  each of the  Reference  Banks  was  offering  to
              leading banks in the London  inter-bank  market  deposits in which
              such Advance or unpaid sum is  denominated  and for the  specified
              period,

       in each case at or about 11.00 am on the Quotation Date for such period;

       "Licences" means those licences granted by the Secretary of State:

       (a)    under section 6 of the  Electricity  Act  authorising  the Primary
              Borrower  to carry on the  Distribution  Business  and  supply  of
              electricity and any activities ancillary thereto;

       (b)    being replacement Licence or Licences granted from time to time to
              any REC  Company  (or,  if more than  one,  the most  recent  such
              replacement), as amended and/or extended from time to time;

       "Licence  Undertaking"  means any and each undertaking or assurance given
       to the  Director  General  or  the  Secretary  of  State  concerning  the
       management  and/or  ownership of and/or other matters  concerning the REC
       Group;

       "Majority Banks" means subject to clause 23 at any relevant time Banks:

       (a)    the aggregate of whose Contributions to the Facility exceeds 662/3
              per cent. of the Total  Contributions  in respect of the Facility;
              or

       (b)    (if no principal amounts are outstanding under this Agreement) the
              aggregate of whose  Commitments in respect of the Facility exceeds
              662/3  per  cent.  of the  Total  Commitments  in  respect  of the
              Facility  but so that if at such  time the  Total  Commitments  in
              respect of the Facility have been reduced to zero  references to a
              Bank's  Commitment in relation to the Facility  shall be construed
              as amongst the Finance  Parties  (and not so as to give any rights
              to any other  person) as a reference to that Bank's  Commitment in
              relation to the Facility  immediately  prior to such  reduction to
              zero;

       "Material Adverse Effect" is a reference to:

       (a)    something  having a material  adverse effect on the ability of any
              Obligor to perform its payment or Financial  Covenant  obligations
              under any of the Finance Documents; or

       (b)    something  (other than the  Reservations)  which results in any of
              the Finance  Documents  not being legal,  valid and binding on, or
              enforceable in accordance with their terms

<PAGE>


              against,  any  Obligor  in a manner  and to an  extent  reasonably
              considered by the Majority  Banks to be materially  adverse to the
              interests of the Banks;

       "Maturity  Date" means,  in relation to any Advance,  the last day of the
       period for which that Advance is drawn down;

       "Maturity Period" means, in relation to any Advance, the period beginning
       on its Drawdown Date and ending on its Maturity Date;

       "month" or "months"  means a period  beginning in one calendar  month and
       ending  in the  relevant  later  calendar  month  on the day  numerically
       corresponding  to the day of the  calendar  month in  which  it  started,
       provided  that (a) if the  period  started on the last  Banking  Day in a
       calendar month or if there is no such numerically  corresponding  day, it
       shall end on the last Banking Day in such later calendar month and (b) if
       such numerically corresponding day is not a Banking Day, the period shall
       end on the next following Banking Day in such later calendar month but if
       there is no such  Banking Day it shall end on the  preceding  Banking Day
       and "monthly" shall be construed accordingly;

       "Net Interest  Expense"  means, in respect of the preceding two Half-year
       Periods, the aggregate interest paid or payable less interest received or
       receivable  by the REC Group  during  that period of the type which would
       appear  as "Net  Interest"  in the  audited  accounts  of the  REC  Group
       applying the Appropriate  Accounting Principles applied in preparation of
       the audited accounts of the REC Group;

       "Obligors"  means the Primary  Borrower and each  Additional  Obligor and
       "Obligor" means any one of them;

       "Operating  Profit"  means,  in respect of the  preceding  two  Half-year
       Periods, the pre-tax profit of the REC Group of the type which appears as
       "Profit on ordinary  activities  before  taxation" in the accounts of the
       REC Group (after adding back any Net Interest  Expense  during that year)
       for that period,  all as calculated in  accordance  with the  Appropriate
       Accounting  Principles  applied in preparation of the audited accounts of
       the REC Group;

       "Optional  Currency"  means any currency  (other than Sterling)  which is
       freely transferable and freely convertible into Sterling;

       "Outstanding Contingent Liabilities" at any time under a Letter of Credit
       means the face value of that Letter of Credit at that time in  accordance
       with its express provisions less:

       (a)    the  aggregate  amount of any cash cover (not  including  any cash
              cover  lodged  by any Bank)  held in  relation  to that  Letter of
              Credit at that time; and

       (b)    (save to the extent that this is taken into account in the express
              provisions  of  that  Letter  of  Credit  or  unless  the  context
              otherwise  requires)  the  aggregate of all  payments  made by the
              Issuing Bank, pursuant to demands made under that Letter of Credit
              on or prior to such time, for which it has been  reimbursed by the
              relevant Borrower;

       or such lesser  amount as the  Facility  Agent and the  Issuing  Bank may
       agree in good faith represents the maximum  liability of the Issuing Bank
       in respect thereof;

<PAGE>


       "Parent" means Texas Utilities  Company whose principal place of business
       is at 1601 Bryan Street, Dallas, Texas, 75201;

       "Parent  Acquisition  Date"  shall  mean the date as of which a person or
       group of related  persons first acquires more than 30% of the outstanding
       Voting Shares of the Parent (within the meaning of section 13(d) or 14(d)
       of the  Securities  Exchange Act of 1934 of the United States of America,
       as amended, and the applicable rules and regulations thereunder);

       "Permitted  Security  Interest" means a Security  Interest created by any
       REC Company being any of the following, namely:

       (a)    any lien arising solely by operation of law in the ordinary course
              of business and securing  amounts not more than 90 days overdue or
              which are being  contested  with due  diligence and in good faith,
              and other liens agreed to in writing by the Majority Banks;

       (b)    any  Security  Interest  existing on or over the assets of any REC
              Company  as at the  Effective  Date (or which any REC  Company  is
              obliged to create  under a contract  existing at such  date),  but
              only if:

              (i)    the maximum principal amount of the indebtedness secured by
                     the Security  Interest is not increased after the Effective
                     Date; and

              (ii)   any such Security Interest which is created between 2 March
                     1998 and the Effective  Date is discharged  within 180 days
                     after the Effective Date (unless the Security  Interest was
                     created  pursuant to an  obligation  existing as at 2 March
                     1998);

       (c)    any Security Interest existing on or over an asset acquired by any
              REC Company after the date of this Agreement, but only if:

              (i)    the Security  Interest was not created in  contemplation of
                     the acquisition; and

              (ii)   the maximum principal amount of the indebtedness secured by
                     the Security Interest is not subsequently increased;

       (d)    any Security  Interest over any asset  acquired by any REC Company
              after the date of this  Agreement  as  security  for  Indebtedness
              incurred  to  finance  or  refinance   (within  6  months  of  the
              acquisition) all or part of the  consideration for the acquisition
              of that asset,  provided that the Indebtedness secured by Security
              Interests under this subclause (d) shall not exceed (pound)250,000
              in aggregate at any time;

       (e)    any Security Interest arising over

              (i)    accounts with any bank or financial institution as a result
                     of netting  and  set-off  arrangements  existing  with such
                     person to the extent that such  arrangements are in support
                     of net overdraft facilities extended by such person; or

              (ii)   documents  of title to goods  and  insurances  under  trade
                     finance  facilities  provided to any REC Company as part of
                     the REC Group's normal day to day banking business;

<PAGE>


       (f)    any Security  Interest over goods purchased in the ordinary course
              of business arising by virtue of the supplier's retention of title
              clause in its  standard  conditions  of supply to secure  only the
              purchase price of the goods;

       (g)    so  far  as  they  relate  to  netting,   settlement   or  pooling
              arrangements  or  as  required  by  the  regulatory  framework  or
              arrangements in which the relevant business operates, any Security
              Interest arising under the Relevant Arrangements;

       (h)    any  Security  Interest  arising  under the  terms of  Derivatives
              Transactions  or  as a  result  of  trading  of  shares  or  other
              securities where such Security  Interest arises under the rules of
              the relevant exchange or clearing system;

       (i)    any  Security  Interest  constituted  by a  Finance  Lease  if the
              capital value of such Finance Lease would be permitted  under this
              Agreement as Borrowed Money under clause 11.1(b); and

       (j)    any Security Interests (other than any Security Interest permitted
              by  sub-paragraphs  (a) to (i) above)  securing  indebtedness  not
              exceeding  in aggregate  (pound)10,000,000  or its  equivalent  in
              other currencies at any time;

       "Pooling  and  Settlement  Agreement"  means the pooling  and  settlement
       agreement  dated 30 March 1990 made  between  REC and the  National  Grid
       Company  Plc and  others  setting  out the rules and  procedures  for the
       operation of an  electricity  trading pool and of a settlement  system in
       England and Wales;

       "Proportion"  means,  in relation to a Bank, the proportion  borne by its
       Commitment to the Total  Commitments  (or, if the Total  Commitments  are
       then zero, by its Commitment to the Total  Commitments  immediately prior
       to their reduction to zero);

       "Qualifying Bank" means:

       (a)    a person which:

              (i)    is a bank within the meaning of Section  840A of the Income
                     and Corporation Taxes Act 1988;

              (ii)   will be beneficially entitled to any interest to be paid to
                     it (as a Bank) under this Agreement; and

              (iii)  is within the charge to United Kingdom  corporation  tax as
                     respects such interest,

              except  that,  if Section  349 or  Section  840A of the Income and
              Corporation  Taxes Act 1988 is  repealed,  modified,  extended  or
              re-enacted,  the  Facility  Agent may at any time and from time to
              time (after  consultation with the Primary Borrower and the Banks)
              amend this paragraph (a) in such manner as it may determine acting
              reasonably  to be  appropriate  by giving  notice  of the  amended
              paragraph (a) to the Primary Borrower and the Banks and, so far as
              practicable  to put the Banks in the same  position  as they would
              otherwise have been in; or

       (b)    a Treaty Lender;

<PAGE>


       "Quotation  Date"  means,  in relation to an  Interest  Period,  Maturity
       Period or other period for which LIBOR is to be  determined,  the date on
       which  quotations  would  customarily be provided by leading banks in the
       London Interbank Market for deposits in the currency in relation to which
       such  rate is to be  determined  for  delivery  on the  first day of that
       Interest Period, Maturity Period or other period;

       "REC Companies" means the Primary Borrower  initially,  together with any
       other  members  of the  Group  carrying  on the  whole,  or part of,  the
       Distribution  Business or Supply  Business and/or holding any assets used
       to carry on the whole,  or part of, the  Distribution  Business or Supply
       Business and/or licensed under the Act to carry on the whole, or part of,
       the Distribution Business or Supply Business, each being a "REC Company";

       "REC Group" means the REC Companies from time to time;

       "Recovering Bank" has the meaning given to that term in clause 15.2;

       "Reference  Banks" means The Chase Manhattan Bank and any two other banks
       selected by the Facility  Agent with the consent of the Primary  Borrower
       (which is not to be unreasonably withheld), or if any of them cease to so
       act,  such  other  bank  or  banks  selected  by the  Facility  Agent  in
       accordance with clause 23.7;

       "Related  Persons"  each of the Facility  Agent,  the Issuing  Bank,  any
       successor  Facility  Agent,  or Issuing Bank arising under clause 17, the
       Arrangers and the Underwriters, together with their respective Affiliates
       and  the   officers,   directors,   employees,   agents,   trustees   and
       attorneys-in-fact of such persons and Affiliates;

       "Relevant  Arrangements"  means any  arrangements  under or in connection
       with pooling and settlement  agreements or agreements of the  electricity
       distribution and/or supply industry or energy trading business (including
       the  Pooling  and  Settlement   Agreement)  or  in  connection  with  any
       transactions or  arrangements  entered into in the ordinary course of its
       business in a form usual in any such industry or business;

       "Relevant Substance" means any radioactive emissions,  radiation,  noise,
       any natural or  artificial  substance  whatsoever  (whether in a solid or
       liquid  form or in the form of a gas or vapour  and  whether  alone or in
       combination with any other substance) and includes,  without  limitation,
       "waste" (as defined in the  Environmental  Protection  Act 1990 or in any
       equivalent  legislation  or  regulation in force in any  jurisdiction  in
       which any REC Company owns  property or assets or carries on any business
       or operations);

       "Reservations"  means (a) the principle  that  equitable  remedies may be
       granted or refused at the discretion of the court,  (b) the limitation on
       enforcement  by laws  of  general  application  relating  to  insolvency,
       liquidation,  reorganisation,  court schemes or  administration,  (c) the
       time  barring  of  claims  under  the  Limitation  Act  1980  and (d) the
       possibility  that an undertaking to assume  liability for or to indemnify
       against non-payment of UK stamp duty may be void;

       "Secretary  of State" means the Secretary of State for Trade and Industry
       from  time to time or such  other  person  as may for the  time  being be
       fulfilling the functions of the Secretary of State under the  Electricity
       Act;

<PAGE>


       "Security Interest" means any mortgage, pledge, lien, charge, assignment,
       right of set-off,  arrangement for retention of title,  hypothecation  or
       security  interest,  or any other  agreement  or  arrangement  having the
       effect of conferring security or a security interest, or any agreement to
       sell or  otherwise  dispose of any asset on terms  whereby  such asset is
       acquired or reacquired by any REC Company;

       "Spot Rate"  means,  in respect of any sum  denominated  in any  currency
       other  than  Sterling  at any date,  the  Facility  Agent's  spot rate of
       exchange for purchase of that sum in that currency in the London  foreign
       exchange  market  with  Sterling  at or about  11.00 am on that  date for
       delivery of such sum two Banking Days thereafter;

       "Sterling" and "(pound)"  mean the lawful  currency for the time being of
       the United  Kingdom and in respect of all  payments to be made under this
       Agreement in Sterling mean  immediately  available,  freely  transferable
       cleared funds;

       "Sterling Amount" means:

       (a)    in respect of Outstanding Contingent  Liabilities,  the sum of the
              amount in Sterling of the Outstanding Contingent Liabilities under
              Letters  of  Credit  denominated  in  Sterling  and the  amount of
              Sterling   required  to  purchase  the  currency   amount  of  the
              Outstanding   Contingent   Liabilities  under  Letters  of  Credit
              denominated  in each other  currency at the Spot Rate at that time
              and so that such  Sterling  Amount  shall be  recalculated  by the
              Facility Agent:

              (i)    in any event, on every Quarter Date; and

              (ii)   on each  date on  which  the  Majority  Banks  request  the
                     Facility  Agent to do so in accordance  with the provisions
                     of clause 4.10 (Currency Fluctuations);

              and any  recalculated  amount  under  paragraph  (a) and (b) above
              shall thereupon and until the next recalculation  required by this
              Agreement constitute the relevant Sterling Amount for all purposes
              of this Agreement;

       (b)    in respect of each  Advance,  if such  Advance is  denominated  in
              Sterling,  the amount of the  Advance  requested  in the  Drawdown
              Notice relating to the Advance, or, in the case of an amount of an
              Advance denominated in an Optional Currency the amount of Sterling
              required to purchase  such amount  calculated  at the Spot Rate on
              the Quotation  Date in each case as reduced by the amount (if any)
              of such Advance which has been repaid;

       "Subsidiary" means:

       (a)    a subsidiary within the meaning of section 736 of the Act; and

       (b)    for the purposes of the definition of "Affiliate"  and "Group" and
              clauses  10.1(a),  10.3,  20.6 and  schedule 6 only,  a subsidiary
              undertaking within the meaning of section 258 of the Act;

       "Substitute" has the meaning given to that term in clause 16.3;

       "Substitution Certificate" means a certificate substantially in the terms
       of schedule 5;

<PAGE>


       "Supply Business" means, in the case of each REC Company,  its authorised
       business as a public electricity  supplier in the authorised area as such
       terms are used in its  Public  Electricity  Supply  licence  from time to
       time;

       "Syndication  Date" means the date as  determined  by the  Arrangers  and
       notified by them to the  Primary  Borrower  on which  syndication  of the
       Facilities has been fully completed;

       "Taxes" includes all present and future taxes, levies,  imposts,  duties,
       fees or charges of  whatever  nature  including  without  limitation  any
       interest or penalties  payable in connection with any failure or delay in
       paying any of the same and "Taxation" shall be construed accordingly;

       "Total  Commitments"  means,  at any relevant time, and save as otherwise
       provided herein, the total of the Commitments of all the Banks in respect
       of the Facility at such time;

       "Total Contributions" means, in respect of the Facility, the total of the
       Contributions of all the Banks in respect of the Facility at such time;

       "Treaty Lender" means a person which is resident (as such term is defined
       in the appropriate  double  taxation  treaty) in a country with which the
       United  Kingdom has a double  taxation  treaty  giving  residents of that
       country  complete  exemption  from the  imposition of any  withholding or
       deduction  for or on account of United  Kingdom  Taxes on  interest  (and
       which  does  not  carry on  business  in the  United  Kingdom  through  a
       permanent  establishment with which the Indebtedness under this Agreement
       in respect of which the interest is paid is effectively connected);

       "Utilisation"  means the making of an Advance or the Issue of a Letter of
       Credit;

       "Voting Shares" means outstanding shares of capital stock of any class of
       the Parent  entitled  to vote in the  election  of  directors,  excluding
       shares  entitled so to vote only upon the happening of some  contingency;
       and

       "Wider Group" means TU Finance  (No.1)  Limited and all its  Subsidiaries
       from time to time (other than any REC Company).

1.3    Headings

       Clause headings and the table of contents are inserted for convenience of
       reference  only  and  shall  be  ignored  in the  interpretation  of this
       Agreement.

1.4    Construction of certain terms

       In this Agreement, unless the context otherwise requires:

       (a)    references  to  clauses  and  schedules  are  to be  construed  as
              references to the clauses of, and schedules to, this Agreement and
              references to this Agreement include its schedules;

       (b)    references to (or to any specified provision of) this Agreement or
              any  other  document  shall be  construed  as  references  to this
              Agreement (including any Substitution Certificate), that provision
              or that  document  as in force for the time being and as from time
              to time amended,  novated or  supplemented  in accordance with its
              terms, or, as the

<PAGE>


              case may be, with the agreement of the relevant parties and (where
              such  consent is, by the terms of this  Agreement  or the relevant
              document, required to be obtained as a condition to such amendment
              being permitted) the prior written consent of the Facility Agent;

       (c)    references  to  a  "regulation"  include  any  present  or  future
              regulation,  rule,  directive,  requirement,  request or guideline
              (whether or not having the force of law) of any Government Entity;

       (d)    references  to an  "authorisation"  mean and include any  consent,
              authorisation, licence, approval and permit;

       (e)    words  importing  the plural  shall  include the singular and vice
              versa;

       (f)    references to a time of day are to London time;

       (g)    references   to  a  "person"   shall  be  construed  as  including
              references  to  an   individual,   firm,   company,   corporation,
              unincorporated  body  of  persons  or  any  State  or  any  of its
              agencies;

       (h)    references  to  "assets"  include  all or  part  of any  business,
              undertaking,  real  property,  personal  property,  shareholdings,
              assets, revenues,  uncalled capital and any rights (whether actual
              or contingent,  present or future) to receive, or require delivery
              of, any of the foregoing;

       (i)    references  to  the  "equivalent"  of  an  amount  specified  in a
              particular  currency (the  "specified  currency  amount") shall be
              construed  as a  reference  to the  amount of the  other  relevant
              currency which can be purchased with the specified currency amount
              in the London foreign  exchange  market at or about 11 a.m. on the
              day on which the  calculation  falls to be made for spot delivery,
              as  conclusively  determined  by  the  Facility  Agent  (with  the
              relevant  exchange  rate of any  such  purchase  being  the  "spot
              rate");

       (j)    references to any enactment shall be deemed to include  references
              to such enactment as re-enacted, amended or extended;

       (k)    references to documents  being in the "agreed form" mean documents
              initialled by both Lovell White Durrant (on behalf of the Facility
              Agent  and the  Arrangers)  and  Norton  Rose  (on  behalf  of the
              Obligors),  or  otherwise  in the form  required  by the  Facility
              Agent;

       (l)    references to "VAT" are to be construed as including references to
              any similar Tax;

       (m)    "including"   and  "in   particular"   shall   not  be   construed
              restrictively but shall mean "including,  without prejudice to the
              generality  of the  foregoing"  and "in  particular,  but  without
              prejudice to the generality of the foregoing" respectively;

       (n)    references  to  documents  being  "certified  copies"  mean copies
              certified as being true,  complete and  up-to-date  copies as of a
              date no earlier  than the date of this  Agreement by an officer of
              the  Primary  Borrower  who is at such  time  duly  authorised  to
              execute  or  certify  such  documents  on  behalf  of the  Primary
              Borrower;

<PAGE>


       (o)    "arms-length  terms" means on terms which are fair and  reasonable
              to the relevant REC Company and no more or less  favourable to the
              other party to the relevant  transaction  than could reasonably be
              expected to be obtained in a comparable  transaction with a person
              unconnected with the REC Group;

       (p)    references  to "holding  company" and  "wholly-owned  subsidiary",
              save as  otherwise  defined,  shall  bear the same  meaning  as in
              section  736  of the  Act,  as if  extended  to  bodies  corporate
              wherever incorporated;

       (q)    a Letter of Credit being "repaid" or "prepaid" is effected by:

              (i)    providing  the Issuing Bank with cash cover in the currency
                     in which that Letter of Credit is denominated;

              (ii)   reducing (in  accordance  with the terms of this  Agreement
                     and the  relevant  Letter of Credit) the amount that may be
                     demanded  under that  Letter of Credit  (or by such  amount
                     automatically  reducing in accordance with the terms of the
                     relevant Letter of Credit); or

              (iii)  cancelling  that Letter of Credit by returning the original
                     to the Issuing Bank together with written  confirmation (in
                     form and substance  satisfactory  to the Issuing Bank) from
                     the  beneficiary  that  the  Issuing  Bank  has no  further
                     liability under that Letter of Credit.


2.     THE COMMITMENTS

2.1    The Facilities

       The Banks,  relying upon each of the  representations  and  warranties in
       clause 9 and upon and  subject to the  conditions  hereof,  agree to make
       available  to the Primary  Borrower  and  (subject to  accession  to this
       Agreement under clause 24) the Additional Borrowers,  a revolving advance
       and  letter  of  credit  facility  in an  aggregate  principal  amount of
       (pound)250,000,000.

       The obligations of each Bank under this Agreement shall be to participate
       in each  Utilisation in the proportion which its Commitment in respect of
       the Facility  bears to the Total  Commitments  in respect of the Facility
       but so that no Bank shall be under any  obligation  to  participate  in a
       Utilisation  if  and to the  extent  its  Commitment  in  respect  of the
       Facility would thereby be exceeded.

2.2    Finance Parties' obligations several

       The  obligations  of each Finance Party under this Agreement are several;
       the failure of any Finance  Party to perform such  obligations  shall not
       relieve any other Finance Party or any Obligor of any of their respective
       obligations  or  liabilities  under this  Agreement nor shall any Finance
       Party be responsible for the obligations of any other Finance Party under
       this Agreement.

<PAGE>


2.3    Finance Parties' interests several

       Notwithstanding  any other term of this Agreement (but without  prejudice
       to the  provisions of this Agreement  relating to or requiring  action by
       the Majority  Banks) the interests of the Finance Parties are several and
       the amount due to each of the Finance  Parties (for its own account) is a
       separate and independent  debt.  Without prejudice to any other provision
       of this Agreement (including any requirement for action to be approved or
       instigated  by, or with the consent or approval of, the  Majority  Banks)
       each of the Finance  Parties  shall have the right to protect and enforce
       its rights to amounts  which have become due and payable to it under this
       Agreement and it shall not be necessary for any other Finance Party to be
       joined as an additional party in any proceedings for this purpose.

3.     THE CONDITIONS

3.1    Documents and evidence

       No Drawdown Notice may be delivered until the Facility Agent, or its duly
       authorised representative, shall have received the documents and evidence
       specified in Schedule 3, in each case in form and substance  satisfactory
       to the  Facility  Agent which the  Facility  Agent  shall,  once it is so
       satisfied, confirm in writing to the Primary Borrower.

3.2    General conditions precedent

       Each Utilisation is subject to the further conditions that at the date of
       each Drawdown Notice and on each Drawdown Date and Issue Date:

       (a)    the applicable  representations and warranties set out in clause 9
              are true and  correct  on and as of each such date as if each were
              made with respect to the facts and circumstances  existing at such
              date; and

       (b)    no Default  shall have  occurred and be continuing or would result
              from the making of such Utilisation,

       but this clause 3.2 shall not prevent the rollover of an existing Advance
       (without  increasing the amount  thereof) or the refinancing of an amount
       payable under a maturing  Letter of Credit by an Advance in each case for
       a Maturity  Period of no more than one month at any time when no Event of
       Default has occurred and is continuing.

3.3    Waiver of conditions precedent

       The  conditions  specified in this clause 3 are  inserted  solely for the
       benefit  of the Banks  and may be  waived on their  behalf in whole or in
       part and with or without  conditions by the Facility  Agent acting on the
       instructions of the Majority Banks in respect of any Utilisation.


4.     ADVANCES UNDER THE FACILITY

4.1    The Facility

       (a)    Drawdown

<PAGE>


              Subject to the terms and  conditions of this  Agreement,  Advances
              shall be made to the relevant  Borrower  following  receipt by the
              Facility  Agent from the  relevant  Borrower  of an  appropriately
              completed  Drawdown  Notice  in the  form  set  out  in  Part A of
              Schedule 2 relating  to the  Facility  not later than 11 a.m.  one
              Banking Day, in the case of a Sterling Advance,  and three Banking
              Days otherwise, before the proposed Drawdown Date.

       (b)    Amount

              Each Drawdown  Notice  delivered to the Facility Agent pursuant to
              clause 4.2(a) shall be irrevocable and shall specify:

              (i)    the proposed  Drawdown  Date,  which shall be a Banking Day
                     falling prior to the Final Repayment Date;

              (ii)   the currency of denomination of the Advance (being Sterling
                     or an Optional Currency);

              (iii)  the   amount   of   the   Advance,   which   shall   be  of
                     (pound)10,000,000  or any larger  sum which is an  integral
                     multiple of  (pound)5,000,000  (or if such Advance is to be
                     denominated in an Optional  Currency,  an integral multiple
                     of 1,000,000 of the largest  currency unit of that Optional
                     Currency  but in an  amount  at  least  the  equivalent  of
                     (pound)5,000,000)  or,  if  less,  the  Available  Facility
                     Amount in respect of the Facility on the relevant  Drawdown
                     Date;

              (iv)   the  Maturity  Period which shall be of 1, 2, 3 or 6 months
                     (or such other period as the Facility Agent,  acting on the
                     instructions of the Majority Banks, shall agree) ending not
                     later than the Final Repayment Date;

              (v)    the account to which the proceeds of the  proposed  Advance
                     are to be paid.

       (c)    Number of Advances

              There shall be no more than 20 Advances  outstanding  at any time,
              and not  more  than one  Advance  may be made in any  period  of 5
              consecutive Banking Days.

       (d)    Calculation of Available Commitment

              For the  purpose of  calculating  the  Available  Commitment,  the
              Outstanding  Contingent  Liabilities under a Letter of Credit will
              initially  be its  Sterling  Amount on the Issue Date,  subject to
              recalculation  by  the  Facility  Agent  in  accordance  with  the
              definition  of  "Sterling   Amount"  and  clause  4.10   (Currency
              Fluctuations).

       (e)    Cancellation on the Final Repayment Date

              Without  prejudice to any other provision of this  Agreement,  the
              Total Commitments under the Facility shall in any event be reduced
              to zero on the Final  Repayment  Date in respect of such  Facility
              and no Advance may be drawn by the  Borrowers  under the  Facility
              thereafter.

       (f)    Unavailability of Optional Currency

<PAGE>


              If a  Borrower  requests  that an  Advance  be  denominated  in an
              Optional Currency during its Maturity Period as provided in Clause
              4.1(b)(ii), and:

              (i)    no later  than 10.00 a.m.  on the  Quotation  Date for such
                     Advance,  any Bank or Banks (an "Affected  Bank")  notifies
                     the  Facility  Agent   (providing   detailed   reasons  and
                     justification  therefor) that it is not able to comply with
                     such request; or

              (ii)   no later  than 11.00 a.m.  on the  Quotation  Date for such
                     Advance,  the Agent notifies the relevant  Borrower and the
                     Banks that by reason of circumstances  affecting the London
                     Interbank  Market  generally  it is not  feasible  for such
                     Advance  to be made in such  Optional  Currency  or, as the
                     case may be,  denominated in such Optional Currency for the
                     relevant Maturity Period;

              (iii)  to give effect to such  request  would  cause the  Advances
                     under  the  Facility  to be  denominated  in more than four
                     Optional Currencies,

              then:

                     (aa)   if the  circumstances  in  paragraph  (i) above only
                            apply, the relevant  Borrower and the Facility Agent
                            shall agree to adjust the amount of such  Advance to
                            exclude the  participation  therein of the  Affected
                            Bank or Banks and the  Affected  Bank or Banks shall
                            make a separate Advance in Sterling in the amount of
                            their  scheduled   participation   in  such  Advance
                            Provided  always that the  Maturity  Period  thereof
                            ends on the same day as the Maturity  Period of such
                            Advance; and/or

                     (bb)   if the  circumstances  in (ii) and/or  (iii)  apply,
                            such  Advance  shall not be made unless the relevant
                            Borrower  and  the  Banks  otherwise  agree,  or the
                            relevant  Borrower  specified in the Drawdown Notice
                            in  respect  of such  Advance  that  such  Revolving
                            Advance  should be  denominated  in Sterling in such
                            circumstances  in which case such  Advance  shall be
                            made in Sterling in the Sterling  Amount relating to
                            such Advance.

4.2    Issue of Letters of Credit

       Subject to the  provisions of this Agreement and to the prior delivery of
       the notice  referred to in clause  4.1(a),  the Issuing Bank will Issue a
       Letter of Credit  specified  in a  Drawdown  Notice at the  request  of a
       Borrower,  if the Agent has received the Drawdown  Notice for a Letter of
       Credit in the form set out in Part B of  schedule 2  (Letters  of Credit)
       signed on behalf of such  Borrower  not later than 11.00 am five  Banking
       Days prior to the proposed Issue Date; and

       (a)    the  proposed  Issue Date is a Banking  Day on or before the Final
              Repayment Date;

       (b)    the face  value of each  Letter of  Credit  is a minimum  Sterling
              Amount of (pound)250,000;

       (c)    the Expiry  Date falls on or before the  earlier of 12 months from
              the Issue Date and the Final Repayment Date;

       (d)    the Issuing Bank and (if  different) the Facility Agent has agreed
              its terms;

<PAGE>


       (e)    the  Sterling  Amount of the Letter of Credit  requested  does not
              exceed the Available Facility Amount in respect of the Facility;

       (f)    after such  Issue,  there will be no more than  twenty  Letters of
              Credit outstanding;

       (g)    no  order,  judgment  or  decree  of any  Governmental  Entity  or
              arbitrator  shall be  outstanding  which by its terms  purports to
              enjoin or restrain  the Issuing  Bank from  Issuing such Letter of
              Credit, nor shall any requirement of law applicable to the Issuing
              Bank or any request or directive  (whether or not having the force
              of law) from any Governmental  Entity with  jurisdiction  over the
              Issuing  Bank  prohibit,  or request that the Issuing Bank refrain
              from,  the Issuance of Letters of Credit  generally or such Letter
              of Credit in particular or shall impose upon the Issuing Bank with
              respect  to such  Letter of Credit  any  restriction,  reserve  or
              capital  requirement  (for which the Issuing Bank is not otherwise
              compensated  hereunder  and  which is not in effect on the date of
              this  Agreement),  or  shall  impose  upon  the  Issuing  Bank any
              unreimbursed loss, cost or expense which was not applicable on the
              date of this  Agreement  and which the Issuing  Bank in good faith
              deems material to it;

       (h)    the  currency  in which  the  relevant  Letter  of Credit is to be
              denominated  is, in the opinion of the Issuing Bank, not likely to
              be subject to undue fluctuation  against Sterling and is likely to
              be freely  convertible  and  available  in  sufficient  amounts to
              enable the Issuing Bank to discharge its  obligations as they fall
              due;

       (i)    the Issuing Bank has approved  (and been approved by) the relevant
              beneficiary; and

       (j)    the  total   Sterling   Amount  of  all   Outstanding   Contingent
              Liabilities under all Letters of Credit then outstanding would not
              exceed (pound)100,000,000.

4.3    Advances generally

       (a)    A Drawdown Notice (or notice  purporting to be such) shall only be
              effective if it complies with this  Agreement and only upon actual
              receipt  by  the  Facility   Agent  and,  once  given,   shall  be
              irrevocable.

       (b)    As soon as  practicable  after  receipt  of each  Drawdown  Notice
              complying with this Agreement the Facility Agent shall notify each
              Bank of such receipt and of the date on which the proposed Advance
              is to be made and of the relevant  Interest Period or, as the case
              may be, the relevant  Maturity  Period and each Bank shall on such
              Drawdown  Date  or,  the  case  may be,  on the  first  day of the
              relevant  Interest  Period  participate  in such Advance by making
              available  to the  Facility  Agent its portion of such  Advance in
              accordance with clause 8.2 (Payments by the Banks).

4.4    Application of proceeds

       Without prejudice to the Borrowers' obligations under clause 1.1(a), none
       of the Finance Parties shall have any  responsibility for the application
       of the proceeds of any Utilisation by the relevant Borrower.

<PAGE>


4.5    Letters of Credit

       (a)    Issuing Bank as principal:  the Issuing Bank will act as principal
              of  each  Letter  of  Credit  Issued  by it  and  each  Bank  will
              counter-indemnify  the Issuing Bank in respect of the  Outstanding
              Contingent Liabilities thereunder in the relevant Proportion;

       (b)    Borrower's  Authorisation  and  Indemnity:  the relevant  Borrower
              unconditionally and irrevocably:

              (i)    authorises the Issuing Bank to comply with any demand which
                     appears  to be duly made by a third  party in  respect of a
                     Letter of  Credit  without  any  further  reference  to the
                     relevant Borrower on the terms set out in Schedule 7 (Terms
                     of Borrower's Indemnity);

              (ii)   agrees that its  authorisation  under clause  4.5(b)(i) and
                     its indemnity under clause  4.5(b)(iv) shall remain in full
                     force and  effect  and shall not be  discharged  until such
                     date as the Facility Agent (acting on the  instructions  of
                     the Issuing  Bank) shall notify the relevant  Borrower that
                     it is satisfied  (acting  reasonably) that the Issuing Bank
                     remains  under  no  liability  (actual  or  contingent)  in
                     respect of any Letter of Credit;

              (iii)  agrees that each Letter of Credit is Issued  subject to and
                     with the benefit of the  provisions of Schedule 7 (Terms of
                     Borrower's Indemnity); and

              (iv)   if a Finance Party suffers any liabilities, damages, costs,
                     expenses,  losses and charges  whatsoever in relation to or
                     arising  out of any  Letter of Credit  Issued or clause 4.6
                     (Banks' Guarantee and Indemnity), the benefit of Schedule 7
                     (Terms  of  Borrower's  Indemnity)  shall  extend  to  such
                     Finance Party. The relevant  Borrower may finance a payment
                     under such  indemnity  by drawing  down an Advance if it is
                     then entitled to do so in accordance with the terms of this
                     Agreement.

4.6    Banks' Guarantee and Indemnity

       Each Bank hereby irrevocably and unconditionally:

       (a)    subject to clause  4.6(b),  guarantees to and  indemnifies  on the
              terms set out in  Schedule  8 (Terms of  Interbank  Guarantee  and
              Indemnity)  the Issuing Bank  severally in its  Proportion  and on
              demand by the Issuing Bank,  the due and punctual  performance  by
              the relevant  Borrower of all its  obligations  in respect of each
              Letter of Credit Issued by the Issuing Bank;

       (b)    if it is not  permitted  by its  constitutional  documents  or any
              applicable law to grant guarantees,  agrees that, upon any failure
              of the relevant  Borrower to make timely payment of any amount due
              in respect  of a Letter of Credit,  such Bank shall take (and upon
              the occurrence of an Event of Default specified in clauses 12.1(e)
              to (n) (Events of Default)  shall be deemed to have taken  without
              any  further  action,  as of the  Issue  Date of each  outstanding
              Letter of Credit),  an undivided  participating  interest from the
              Issuing Bank in each Letter of Credit  outstanding at such time in
              a proportion equal to such Bank's Proportion. Each Bank shall hold
              the Issuing Bank harmless and indemnify

<PAGE>


              the  Issuing  Bank  for  such  Bank's  proportionate  share of any
              drawing  under  any  Letter  of  Credit  in which it has  taken an
              undivided participating interest under this clause 4.7;

       (c)    as a separate and independent  stipulation  agrees that any sum of
              money  intended  to be the  subject  of the  guarantee  in  clause
              4.6(a),  and  subject to clause  4.6(b)  and  Schedule 8 (Terms of
              Interbank  Guarantee and Indemnity),  shall be recoverable from it
              (in its  Proportion)  as sole  principal  debtor  even if such sum
              would not be recoverable  from the relevant  Borrower by reason of
              any legal limitation or disability or incapacity or liquidation of
              the relevant  Borrower or any other fact or circumstance  (whether
              known  to the  Issuing  Bank or not) but  which  would  have  been
              recoverable from such Bank if it were the sole or principal debtor
              in respect of such liability in place of the relevant Borrower;

       (d)    if it ceases to have the Minimum Rating as defined in clause 16.5,
              to lodge  forthwith  with the Issuing  Bank cash cover as security
              for its  indemnity  obligations  in the same  amount  as if it had
              been, on that date, a Substitute.

4.7    Calculation of Interest if Bank makes a Guarantee or Indemnity Payment

       Any payment  made or to be made by a Bank  pursuant to clause 4.6 (Banks'
       Guarantee and Indemnity) and any  unreimbursed  amount on the part of the
       Issuing Bank shall (for the purpose of calculating interest thereon which
       is due from the relevant  Borrower) be deemed to have been made available
       to the relevant Borrower by way of an Advance on the date such payment is
       made or is to be made (or  reimbursed)  and accordingly is subject to the
       terms and  conditions  hereof and,  after the  earliest  date on which an
       Advance  could have been drawn down to fund such  liability,  such amount
       shall be treated as if it were an overdue sum with an initial term of one
       month but (for all other  purposes)  shall be immediately due and payable
       by the relevant Borrower.

4.8    Defaulting Banks

       If a Bank (a "Defaulting  Bank") fails to make payment on its due date of
       any  amount  (an  "overdue  amount")  due from it for the  account of the
       Issuing Bank pursuant to clause 4.6 (Banks' Guarantee and Indemnity) then
       until the Issuing Bank (or the Agent on its behalf) has received  payment
       of such overdue amount in full (and without prejudice to any other rights
       or remedies of the Issuing Bank in respect of such failure):

       (a)    the Issuing  Bank shall be  entitled  to receive any  remuneration
              which such  Defaulting  Bank would otherwise have been entitled to
              receive in respect of the Facility; and

       (b)    the overdue amount shall bear interest at the rate of one per cent
              per annum over LIBOR plus the  Additional  Cost for the time being
              from the due date until the date of payment and any such  interest
              which accrues shall be compounded monthly.

4.9    Subrogation of Banks making guarantee payments

       (a)    The  relevant  Borrower  agrees that if any Bank makes any payment
              under  clause  4.6  (Banks'   Guarantee  and  Indemnity)  it  will
              immediately  be subrogated to any rights that the Issuing Bank may
              then have against the  relevant  Borrower in respect of the amount
              paid and such  subrogation will be subject to the terms set out in
              Schedule 7 (Terms of Borrower's Indemnity).

<PAGE>


       (b)    The relevant  Borrower  agrees to indemnify the Bank making such a
              payment  in  respect of such  payment  and all costs and  expenses
              properly  incurred  by the Bank in  recovering  or  attempting  to
              recover any amount pursuant to such rights of subrogation.

4.10   Currency Fluctuations

       In addition and without  prejudice to the Banks' other rights  hereunder,
       the Facility  Agent shall on every Quarter Date (and at any other time at
       which it is  requested  to do so by the  Majority  Banks)  calculate  the
       aggregate  of  the  Sterling   Amounts  of  all  Outstanding   Contingent
       Liabilities under all Letters of Credit then outstanding.

4.11   Clawback

       If the Facility  Agent at any time issues a certificate  addressed to the
       Primary  Borrower  that in its  opinion  the  aggregate  of the  Sterling
       Amounts of Outstanding Contingent Liabilities under all Letters of Credit
       then  outstanding is equal to or exceeds 105% of the aggregate  amount of
       the  Banks'  Commitments  under  the  Facility  less  the  amount  of all
       outstanding  Advances  at that  time,  the Agent  may give  notice to the
       Borrowers requiring them within five Banking Days either to:

       (a)    make  arrangements  to repay Advances  and/or reduce the amount of
              the  Letters  of Credit  outstanding  so as to bring the  Sterling
              Amount of all such Outstanding Contingent Liabilities to an amount
              equal to or below 100% of that aggregate amount; or

       (b)    provide the Issuing  Bank with cash cover in the currency in which
              any Letter of Credit is  denominated of such amount as would cause
              the requirements of this clause 4.11 to be satisfied.

4.12   Cash Cover

       Wherecash  cover is provided by any Borrower under clause 4.11 (Clawback)
       or otherwise under this Agreement:

       (a)    the Issuing Bank or other  recipient Bank  undertakes to place the
              relevant cash deposit in an account with it bearing  interest at a
              rate and on the  standard  terms  (other  than as to the  security
              arrangements)  applicable  to  corporate  customers  of such  Bank
              making  deposits  of an  equivalent  size  and  for an  equivalent
              duration  (or on such other  terms as such Bank and such  Borrower
              may agree or are set out in this Agreement);

       (b)    interest accruing on cash deposited as cash cover shall be for the
              account of and paid to such Borrower but shall not be paid to such
              Borrower during the continuance of an Event of Default; and

       (c)    unless the Majority Banks decide otherwise,  cash cover may not be
              withdrawn by any Borrower until all outstanding liabilities of the
              Issuing  Bank in respect of all Letters of Credit have been repaid
              or prepaid  (ignoring for this purpose any cash cover  provided to
              the Issuing Bank) in full.

<PAGE>


5.     INTEREST AND MATURITY PERIODS

5.1    Interest under the Facility

       The relevant  Borrower shall pay interest on each Advance on its Maturity
       Date (or, in the case of an Advance having a Maturity Period of more than
       six months,  by instalments,  every six months from the relevant Drawdown
       Date and on the relevant  Maturity Date) at the rate per annum determined
       by the Facility Agent to be the aggregate of (i) the  Applicable  Margin,
       (ii) the Additional Cost and (iii) LIBOR.

5.2    Interest on unpaid sums

       (a)    If  any  Borrower  fails  to  pay  any  sum  (including,   without
              limitation,  any sum  payable  pursuant to this clause 5.2) on its
              due date for payment under this  Agreement such Borrower shall pay
              interest  on such sum  from the due date up to the date of  actual
              payment (as well after as before judgment) at a rate determined by
              the Facility Agent pursuant to this clause 5.2.

       (b)    The period beginning on the due date for payment and ending on the
              date of actual payment shall be divided into successive periods of
              not more than  three  months as  selected  by the  Facility  Agent
              (after   consultation   with  the  Banks  so  far  as   reasonably
              practicable  in the  circumstances)  each of which (other than the
              first,  which shall  commence on such due date) shall  commence on
              the  last  day of the  preceding  such  period  but so that if the
              unpaid sum is an amount of  principal  which shall have become due
              and payable prior to the relevant  Maturity  Date,  then the first
              such  period  selected  by the  Facility  Agent  shall end on such
              Maturity Date.

       (c)    The rate of  interest  applicable  to each  period  referred to in
              clause  5.2(b) shall  (subject to clause 5.4) be the aggregate (as
              determined  by the Facility  Agent) of (i) one per cent per annum,
              (ii) the  Applicable  Margin  (iii) the  Additional  Cost and (iv)
              LIBOR but so that if the unpaid sum is an amount of principal  (as
              referred to in clause  5.2(b))  interest  shall be payable on such
              unpaid sum during the first period  determined  pursuant to clause
              5.2(b) at a rate one per cent  above the rate  applicable  thereto
              immediately before it fell due.

       (d)    Interest  under this  clause  5.2 shall be due and  payable on the
              last day of each period  determined by the Facility Agent pursuant
              to this clause 5.2 or, if earlier, on the date on which the sum in
              respect of which such interest is accruing  shall actually be paid
              or on such  date or other  dates  which  the  Facility  Agent  may
              specify by written  notice to the relevant  Borrower (but not more
              frequently  than once a month).  Any interest  payable  under this
              clause  5.2  which is not paid  when due shall be deemed an unpaid
              sum and shall itself bear interest accordingly.

5.3    Notification of Maturity Periods and interest rate

       The  Facility  Agent shall  notify the  relevant  Borrower  and the Banks
       promptly of the duration of each Maturity  Period or other period for the
       calculation of interest (or, as the case may be, default interest) and of
       each rate of interest determined by it under this clause 5.

<PAGE>


5.4    Alternative interest rates

       If:

       (a)    in  attempting  to  calculate  LIBOR  under  paragraph  (b) of the
              definition  of LIBOR for a  specified  period the  Facility  Agent
              determines at 11.00 a.m.  (London time) on the Quotation Date that
              it is  unable  to  obtain  quotations  for  LIBOR  from any of the
              Reference  Banks in respect of the relevant  Advance or unpaid sum
              for the specified period; or

       (b)    before its close of business on such day, the  Facility  Agent has
              been  notified in writing by a Bank or group of Banks to which 35%
              or more of the  relevant  Advance  or  unpaid  sum is (or,  if the
              relevant  Advance  were  made,  would  then  be) owed  that  LIBOR
              calculated in  accordance  with its  definition in this  Agreement
              does not  accurately  reflect  the cost to them of  funding  their
              participation; or

       (c)    the Facility Agent, acting reasonably,  determines that, by reason
              of circumstances  affecting the London inter-bank market, adequate
              and fair means do not or will not exist for  determining  the rate
              of interest applicable to the specified period,

       then:

              (i)    the  Facility  Agent shall  promptly  notify in writing the
                     Primary   Borrower   and  the   Banks  of  such   event  or
                     circumstance;

              (ii)   the  Facility  Agent (on  behalf of and after  consultation
                     with the Banks)  shall,  within three  Banking Days of such
                     notice,  negotiate with the Primary Borrower with a view to
                     agreeing a substitute  basis on which the relevant  part of
                     the Facility may be maintained;

              (iii)  any  substitute  basis  agreed in writing  by the  Facility
                     Agent (on behalf of and with the  consent of all the Banks)
                     and the  Primary  Borrower  within  30 days of such  notice
                     shall take effect in accordance with its terms and interest
                     shall be  calculated  as if the  substitute  basis had come
                     into effect from the  beginning  of the  relevant  specific
                     period;

              (iv)   in  default  of  agreement  within  30  days,  each  Bank's
                     participation  in the  Advance or unpaid sum (if any) shall
                     during that  specific  period  bear  interest at the annual
                     rate equal to the cost to that Bank (as  certified by it to
                     the Primary  Borrower within ten days of the end of that 30
                     day period and expressed as a percentage rate per annum) of
                     funding its  participation  during that specific  period by
                     whatever means that Bank determines to be most  appropriate
                     plus the Applicable  Margin and the Additional  Cost and if
                     clause 5.4 (Interest on unpaid sums) applies, a further one
                     per cent.

<PAGE>


6.     REPAYMENT, CANCELLATION AND REDUCTIONS

6.1    Repayment of Advances

       (a)    The  relevant  Borrower  shall  repay each  Advance in full on its
              Maturity Date but, subject to the terms of this Agreement, amounts
              repaid may be reborrowed.

       (b)    On the  Final  Repayment  Date  the  balance  of  all  outstanding
              Advances  shall in any event be repaid in full  (together with all
              other  amounts  outstanding  under  the  Facility)  and may not be
              reborrowed.

       (c)    In the event that

              (i)    there is a Change in Control of the Parent; or

              (ii)   any REC Company  ceases to be a Subsidiary of the Parent or
                     the Parent  reduces  its  shareholding  (whether  direct or
                     indirect) in any REC Company;

              then,  within thirty days of such event (unless the Majority Banks
              decide otherwise) the balance of all outstanding Advances shall be
              repaid in full (together with all other amounts  outstanding under
              the Facility) and may not be  reborrowed  and each Borrower  shall
              procure  the  provision  of full cash  cover  for the  Outstanding
              Contingent   Liabilities   under  all   Letters  of  Credit   then
              outstanding  in the currency in which those  Letters of Credit are
              denominated.

6.2    Optional prepayment of all the Banks

       The relevant  Borrower may prepay  Advances  other than on their relative
       Maturity  Date  provided  that it shall  simultaneously  pay any relevant
       amounts payable pursuant to clause 13.1.

6.3    Affected Banks

       (a)    The relevant Borrower may and, where required under this Agreement
              shall prepay (in whole but not in part only),  without  premium or
              penalty, subject to clause 13.1, the whole of the Contributions to
              the  Facility of any Affected  Bank.  Upon any such notice of such
              prepayment  being given,  or as provided  for in clause 14.1,  the
              Commitments  of the relevant Bank to the Facility shall be reduced
              to zero and the undrawn amount of the Total Commitments in respect
              of the Facility shall be reduced accordingly.

       (b)    Instead of or, in addition to, its rights under clause  6.5(a) the
              relevant  Borrower  may on payment of the fee under  clause  16.5,
              without  prejudice  to clause 14.4,  require the Affected  Bank to
              transfer pursuant to clause 16.5 at par all of its Commitments and
              Contributions  to a  Qualifying  Bank  nominated  by the  relevant
              Borrower provided that the relevant Qualifying Bank agrees (in its
              absolute discretion) to accept the transfer to it and, in the case
              of  clause  14.1,  that  Bank  is  lawfully  able to do so and the
              transfer is to take effect prior to the prepayment  date specified
              by the Facility Agent thereunder.

6.4    Prepayments generally

       (a)    No prepayment may be made unless the relevant  Borrower shall have
              given the  Facility  Agent 5 Banking  Days prior notice (or in the
              case of a  prepayment  pursuant  to clause  14.1 such notice as is
              required  under clause 14.1)  specifying  the proposed date of the
              prepayment  and the amount to be prepaid.  Every such notice shall
              be effective only on actual receipt by the Facility  Agent,  shall
              be irrevocable and shall oblige the relevant  Borrower to make the
              relevant prepayment on the date specified.

<PAGE>


       (b)    All  prepayments  shall be made together with (to the extent these
              relate to the amounts prepaid) (i) accrued interest to the date of
              prepayment;  (ii) any additional  amount payable under clauses 8.5
              or 14.2; and (iii) all other sums payable by the relevant Borrower
              to the  relevant  Banks under this  Agreement  including,  without
              limitation, any accrued commitment commission payable under clause
              7.2,  any Letter of Credit  commission  and fees under clause 7.3,
              expenses  under  clause 7.4 and any amounts  payable  under clause
              13.1.

       (c)    No Borrower shall prepay all or any part of an Advance outstanding
              hereunder except at the times and in the manner expressly provided
              herein.

6.5    Cancellation of the Facilities

       The Primary Borrower may at any time prior to the Final Repayment Date in
       respect of the Facility by notice to the Facility Agent  (effective  only
       on  actual  receipt)  cancel  with  effect  from a date not less  than 10
       Banking Days after the receipt by the  Facility  Agent of such notice the
       whole or any part (if in part, being  (pound)10,000,000 or any larger sum
       which is an  integral  multiple  of  (pound)5,000,000)  of the  Available
       Facility Amount of the Facility, in each case which is not the subject of
       a Drawdown  Notice at such time.  Such notice shall specify the date upon
       which  such   cancellation   is  to  be  made  and  the  amount  of  such
       cancellation.  Any such  notice of  cancellation,  once  given,  shall be
       irrevocable and upon such  cancellation  taking effect the Commitments of
       the  Banks  in  respect  of  the  Facility  shall  be  reduced  pro  rata
       accordingly.

6.6    Termination

       The Commitment of each Bank shall be automatically  cancelled and reduced
       to zero at the close of business in London on the Final Repayment Date.

7.     FEES AND EXPENSES

7.1    Arrangement, underwriting, participation and agency fees

       The Primary  Borrower  shall pay to the Facility  Agent or shall  procure
       that there is paid,  whether or not any part of the  Commitments  is ever
       advanced on the date of this  Agreement and on each  anniversary  thereof
       until the end of the  Finance  Period,  for the  account of the  Facility
       Agent, an agency fee of an amount agreed between the Primary Borrower and
       the  Facility  Agent  in a  letter  dated  on or  about  the date of this
       Agreement.

7.2    Commitment fees

       The Primary Borrower shall pay to the Facility Agent,  whether or not any
       part of the Commitments is ever advanced, from the date of this Agreement
       on each Fee  Payment  Date  after the date of this  Agreement  and on the
       Final  Repayment  Date,  for the  account of each of the Banks  (pro-rata
       their  respective  Commitments for the Facility),  commitment  commission
       computed in arrears at the  Applicable  Fees Rate on the daily  amount by
       which the Total  Commitments  in  respect  of the  Facility  exceeds  the
       aggregate  of the  Contributions  in  respect  of the  Facility.  Accrued
       commitment  commission  will  also  be  payable  on  the  amount  of  any
       Commitment when cancelled on the date of its cancellation.

<PAGE>


7.3    Letter of Credit Fees

       (a)    The  relevant  Borrower  shall  (on the  dates  set out in  clause
              7.3(c)) pay  commission in Sterling to the Facility  Agent for the
              account  of the  Banks (in their  respective  Proportions)  on the
              Issue of any Letter of Credit  requested by the relevant  Borrower
              in Sterling at a percentage rate per annum equal to the Applicable
              Margin  on  the  Sterling  Amount  of the  Outstanding  Contingent
              Liabilities under such Letter of Credit calculated in each case on
              the date of Issue and  recalculated  on each Quarter Date from the
              Issue  Date of such  Letter of Credit  until  the  earlier  of its
              Expiry  Date or such date as the  Issuing  Bank and the Banks have
              ceased to be under any liability (actual or contingent) in respect
              thereof,  and on the  basis  of a 365 day  year.  If the  relevant
              Borrower  has  provided  cash cover for any Letter of Credit,  the
              percentage  rate per annum  payable on cash covered  amounts shall
              instead be 0.25%.

       (b)    The  relevant  Borrower  shall pay a fronting  fee to the Facility
              Agent  for the  account  of the  Issuing  Bank on the Issue of any
              Letter  of  Credit  at a rate of 0.2% per  annum  on the  Sterling
              Amount of the face amount of the relevant Letter of Credit payable
              in  advance  on the  date  of  Issue  and  on  each  Quarter  Date
              thereafter.

       (c)    The  commission  and fronting fee payable under clauses 7.3(a) and
              7.3(b)  in  respect  of each  Letter  of  Credit  shall be paid in
              advance on the  relevant  Issue Date and on each  Quarter  Date in
              each year during the  continuance  of such Letter of Credit (or if
              such day is not a  Banking  Day,  on the  preceding  Banking  Day)
              commencing on the first Quarter Date falling on or after the Issue
              of the  relevant  Letter  of  Credit.  If a Letter  of  Credit  is
              terminated leaving no Outstanding  Contingent Liabilities before a
              Quarter Date, any  commission  paid in advance for the period from
              the date of  cancellation  until the next  Quarter  Date  shall be
              repaid to the relevant Borrower which made the advance  commission
              payment by set-off  against any amounts then due from the relevant
              Borrower to any Finance  Party or, if no such  amounts are due, by
              payment in cash.

       (d)    For the avoidance of doubt,  the Issuing Bank's  Proportion of the
              commission at the rate and  calculated in the manner  specified in
              clause  7.3(a)  shall be payable to the Issuing Bank in respect of
              its residual liability in its capacity as a Bank,  notwithstanding
              that it does not purport to  guarantee  itself in its  capacity as
              Issuing Bank.

       (e)    The relevant  Borrower  shall pay interest on the amount  demanded
              and  outstanding  under the indemnity  given by them in respect of
              Letters of Credit in accordance  with clause 4.7  (Calculation  of
              Interest  if Bank  makes a  Guarantee  or  Indemnity  Payment)  in
              addition  to the  commission  and other  fees  payable  under this
              Agreement in respect of the Facility.

7.4    Expenses

       The Primary  Borrower  shall  reimburse  the  Arrangers,  the Banks,  the
       Issuing  Bank and the  Facility  Agent  from  time to time  within  three
       Banking Days of demand:

       (a)    all reasonable costs and expenses  (including  without  limitation
              legal, printing and out-of-pocket  expenses) together with any VAT
              thereon  incurred  by the  Facility  Agent  and the  Arrangers  in
              connection with the negotiation,  preparation and execution of the
              Finance  Documents  and  the  completion  and  syndication  of the
              transactions   therein   contemplated,    and   the   negotiation,
              preparation and execution of any amendment or

<PAGE>


              extension of, or the granting of any waiver or consent under,  any
              of the Finance Documents; and

       (b)    without prejudice to the generality of (c) below, all expenses and
              costs  (including  without  limitation  the fees and  expenses  of
              lawyers,   accountants,    surveyors,    valuers,    environmental
              consultants  and other  professional  advisers  and  out-of-pocket
              expenses)  incurred by the Facility  Agent in connection  with the
              obtaining  of reports  and/or  advice  and/or the  undertaking  of
              investigations  by or on  behalf  of the  Facility  Agent  into or
              concerning any Borrower or the REC Group  following the occurrence
              of a Default and whilst it is  continuing  (or where the  Majority
              Banks' reasonable opinion is that a Default may have occurred) and
              each  Borrower  undertakes  to  give,  and  to  procure  that  its
              Subsidiaries  give,  all such  reasonable  assistance  (including,
              without  limitation,  access to its and/or  their  properties  and
              financial  and other  records) at all times as the Facility  Agent
              shall reasonably  require for the purpose of enabling such reports
              or advice to be prepared or such  investigations to be undertaken;
              and

       (c)    after a Default has  occurred,  all costs and expenses  (including
              without  limitation legal and out-of-pocket  expenses) incurred by
              any of the Finance  Parties in  contemplation  of, or otherwise in
              connection  with, the enforcement or attempted  enforcement of, or
              preservation or attempted preservation of any rights under, any of
              the Finance Documents, or otherwise in respect of the recovery, or
              attempted recovery,  of moneys owing under the same, together with
              interest  at the rate  referred  to in clause 5.4 from the date on
              which such  expenses were incurred to the date of payment (as well
              after as before judgment).

7.5    Value Added Tax

       All fees,  costs and expenses  payable pursuant to this clause 7 shall be
       paid together  with an amount equal to any VAT thereon  payable by any of
       the Finance Parties in respect of such fees and expenses.

7.6    Stamp and other duties

       The  Primary  Borrower  shall pay all stamp,  documentary,  registration,
       notarisation  or other  duties or Taxes  (including  any  duties or Taxes
       payable  by, or  assessed  on,  the  Finance  Parties)  imposed  on or in
       connection with the negotiation, preparation, execution or implementation
       of any of the Finance Documents and the syndication of the Facilities and
       shall  indemnify the Finance  Parties  against any  liability  arising by
       reason of any  delay or  omission  by the  Primary  Borrower  to pay such
       duties or Taxes.

8.     PAYMENTS AND TAXES; ACCOUNTS AND CALCULATIONS

8.1    No set-off or counterclaim; distribution to the Banks

       All  payments to be made by the  relevant  Obligor  under this  Agreement
       shall be made in full,  without  any set-off or  counterclaim  whatsoever
       and,  subject as provided in clause 8.5, free and clear of any deductions
       or withholdings,  in Sterling (except for (a) the repayment or prepayment
       of an Advance which shall be payable in the currency in which the Advance
       is  denominated  on the due date,  (b) interest which shall be payable in
       the  currency  in which the  relevant  amount in  respect  of which it is
       payable is denominated, (c) costs, charges or expenses which shall be

<PAGE>


       payable in the currency in which they are incurred and (d)  provisions in
       the Finance Documents providing otherwise) on the due date to the account
       of the Facility Agent at such bank as the Facility Agent may from time to
       time specify for this purpose.  Save where this Agreement  provides for a
       payment  to be made for the  account  of a  particular  Finance  Party or
       Finance  Parties,  in which case the Facility Agent shall  distribute the
       relevant  payment  to the  relevant  Finance  Party  or  Finance  Parties
       concerned,  payments  to be  made  by the  relevant  Obligor  under  this
       Agreement  shall be for the  account  of all the Banks  and the  Facility
       Agent  shall  forthwith  distribute  such  payments  in like funds as are
       received by the Facility  Agent to the Banks  rateably for the account of
       such  Banks'  respective   Facility  Offices  in  accordance  with  their
       Commitments or Contributions, as the case may be.

8.2    Payments by the Banks

       All sums to be advanced by the Banks to the relevant  Borrower under this
       Agreement  shall be remitted in the  currency  specified  in the Drawdown
       Notice  (subject to clause  4.1(f)) in  immediately  available  funds not
       later than such time as the Facility Agent may specify as being customary
       for settlement of transactions  in the relevant  currency on the relevant
       Drawdown  Date or,  as the case may be,  the  first  day of the  relevant
       Interest  Period to the account of the Facility Agent at such bank as the
       Facility  Agent may have  notified  to the Banks and shall be paid by the
       Facility  Agent on such date to the account of the  relevant  Borrower in
       England specified in the relevant Drawdown Notice.

8.3    Non-Banking Days

       When any payment  under this  Agreement  would  otherwise be due on a day
       which is not a Banking Day,  the due date for payment  shall be postponed
       to the next  following  Banking Day unless such  Banking Day falls in the
       next  calendar  month,  in  which  case  payment  shall  be  made  on the
       immediately preceding Banking Day.

8.4    Facility Agent may assume receipt

       Where any sum is to be paid under this  Agreement to the  Facility  Agent
       for the account of another person, the Facility Agent may assume that the
       payment  will be made when due and may (but shall not be obliged to) make
       such sum available to the person so entitled. If it proves to be the case
       that such payment was not made to the Facility Agent,  then the person to
       whom such sum was so made  available  shall on request refund such sum to
       the  Facility  Agent  together  with  interest   thereon   sufficient  to
       compensate the Facility  Agent for the cost of making  available such sum
       up to (and/or,  as the case may be, the cost to the relevant other person
       of not  receiving  such sum  until)  the date of such  repayment  and the
       person by whom such sum was payable shall  indemnify  the Facility  Agent
       (or the relevant  other person) for any and all loss or expense which the
       Facility  Agent (or the relevant  other person) may sustain or incur as a
       consequence  of such sum not  having  been paid on its due date  together
       with  any  interest,  expenses  and  penalties  payable  or  incurred  in
       connection therewith.

8.5    Grossing-up for Taxes

       If at any time the relevant  Obligor is required to make any deduction or
       withholding  in respect of Taxes from any  payment  due under any Finance
       Document for the account of any Finance Party (or if the Facility  Agent,
       is required to make any such deduction or withholding from a payment to a
       Finance Party),  the sum due from the relevant Obligor in respect of such
       payment  shall,  subject  to  clause  8.6,  be  increased  to the  extent
       necessary to ensure that, after the making

<PAGE>


       of  such  deduction  or  withholding  (and  any  further   deduction  and
       withholding which may be levied on the additional  amounts paid by reason
       of this  clause),  each Finance  Party  receives on the due date for such
       payment  (and  retains,  free  from  any  liability  in  respect  of such
       deduction or  withholding) a net sum equal to the sum which it would have
       received and so retained had no such deduction or  withholding  been made
       or required to be made and (without prejudice to the foregoing provisions
       of this clause 8.5) the relevant  Obligor  shall  indemnify  each Finance
       Party on  demand  by the  Facility  Agent  against  any  losses  or costs
       incurred by it together with any interest, expenses and penalties payable
       or  incurred  in  connection  therewith  by reason of any  failure of the
       relevant Obligor to make any such deduction or withholding.

       The relevant  Obligor shall  promptly  deliver to the Facility  Agent any
       receipts,  certificates  or other proof  evidencing  the amounts (if any)
       paid or payable in respect of any such deduction or withholding.

8.6    Qualifying Bank

       (a)    If:

              (i)    any Bank is not or ceases to be a Qualifying Bank; and

              (ii)   as a result any  Borrower is required to deduct or withhold
                     United  Kingdom  income  tax  in  respect  of  payments  of
                     interest to be made by such Borrower to that Bank under any
                     Finance  Document or would  otherwise have been required to
                     make an indemnity  payment or a greater  indemnity  payment
                     under clause 8.5 or 14.2,

              then  the  relevant  Borrower  shall  (as the  case may be) not be
              liable to pay under  clause 8.5 in respect of any such  payment of
              interest  any  amount in excess of the  amount it would  have been
              obliged to pay if such Bank were a Qualifying  Bank,  nor shall it
              be  liable to make an  indemnity  payment  or a greater  indemnity
              payment  under clause 8.5 or, as the case may be, Clause 14.2 than
              would have been required if the aforesaid Bank had been or had not
              ceased to be a Qualifying Bank Provided that this Clause 8.6 shall
              not apply,  and the relevant  Borrower  shall be obliged to comply
              with its obligations under clause 8.5, or as the case may be 14.2,
              if on or after the date hereof:

              (aa)   there  shall have been any  change  in, or in the  official
                     interpretation  or application  of, any relevant law or the
                     practice of the United  Kingdom  Inland Revenue (or, in the
                     case of a  Treaty  Lender,  any  Government  Entity  in the
                     country  in which it is  resident  for the  purpose  of the
                     relevant  double  taxation  treaty) and as a result thereof
                     the Bank is not or ceases to be a Qualifying Bank, or

              (bb)   the Bank referred to in clause 8.6(a) has  transferred  its
                     Facility  Office in respect  of any  Facility  outside  the
                     United  Kingdom  or  has  become  a Bank  hereunder  with a
                     Facility  Office  outside the United  Kingdom in respect of
                     any Facility, in each case, with the consent of the Primary
                     Borrower if and insofar as required under this Agreement.

       (b)    A person  intending to make a claim  pursuant to clause 8.5 shall,
              promptly  after such  person  becomes  aware of the  circumstances
              giving rise to such claim and the amount of such claim, deliver to
              the Primary Borrower through the Facility Agent a certificate

<PAGE>


              to that effect specifying the amount of such claim and setting out
              in  reasonable  detail  the  basis of such  claim,  provided  that
              nothing  shall  require such person to disclose  any  confidential
              information relating to the organisation of its affairs.

       (c)    If at any time after the date of this  Agreement any Bank is aware
              that it is not or will cease to be a Qualifying Bank (for whatever
              reason), it shall promptly notify the Primary Borrower.

       (d)    A  Treaty  Lender  will  submit  such  claim  to  the  appropriate
              authorities  (together with such forms,  papers,  other  documents
              and/or  evidence as necessary) as may be required for the relevant
              Borrower to make payment of interest to such Treaty  Lender on its
              Advances  free of  withholding  or  deduction on account of United
              Kingdom Tax. The relevant  Borrower  will not be liable to pay any
              additional  amount under clause 8.5 in respect of the  withholding
              or deduction on account of United Kingdom income tax from any such
              interest unless such claim has been submitted to those authorities
              promptly after that Treaty Leader became a party to this Agreement
              as a Treaty Lender or the proviso to clause 8.6(a) applies.

8.7    Claw-back of Tax benefit

       If  following  any such  deduction  or  withholding  as is referred to in
       clause 8.5 any Finance Party  determines in its sole  discretion  that it
       has received or been granted a credit  against or remission for any Taxes
       payable by it, such Finance Party shall, subject to the relevant Borrower
       having  made any  increased  payment in  accordance  with  clause 8.5 and
       subject to there not being any Default  which is  continuing,  and to the
       extent  that  such  Finance  Party  can  do so  without  prejudicing  the
       retention of the amount of such credit or remission and without prejudice
       to the  right of such  Finance  Party  to  obtain  any  other  relief  or
       allowance which may be available to it,  reimburse the relevant  Borrower
       with such amount as such Finance  Party shall in its absolute  discretion
       certify to be the  proportion  of such credit or  remission as will leave
       such Finance Party (after such  reimbursement)  in no worse position than
       it would have been in had there  been no such  deduction  or  withholding
       from  the  payment  by  the   relevant   Borrower  as   aforesaid.   Such
       reimbursement  shall be made forthwith upon such Finance Party certifying
       that the amount of such  credit or  remission  has been  received  by it,
       provided  that the Finance Party shall be the sole judge of the amount of
       any  such  benefit  and of the date on  which  it was  received.  Nothing
       contained in this Agreement shall interfere with the right of any Finance
       Party to arrange  its tax  affairs in  whatever  manner it thinks fit nor
       oblige any Finance  Party to disclose any  information  regarding its tax
       affairs and  computations.  Without  prejudice to the  generality  of the
       foregoing,  no Borrower  shall, by virtue of this clause 8.7, be entitled
       to enquire  about any Finance  Party's tax affairs or  computations.  The
       Finance  Parties are under no obligation to  investigate  whether any tax
       credit is  available  or to claim any tax credit.  Any amount paid by any
       Finance  Party to any  Borrower  under this  clause  shall be  conclusive
       evidence of the amount  payable and will be accepted by such  Borrower in
       full and final settlement of its claim.

8.8    Bank accounts

       Each Bank shall  maintain,  in accordance  with its usual  practices,  an
       account or accounts  evidencing  the  amounts  from time to time lent by,
       owing to and paid to it under this  Agreement.  The Facility  Agent shall
       maintain a control  account showing the utilisation of the Facilities and
       other sums owing by the Borrowers  under this  Agreement and all payments
       in respect  thereof made by any Borrower  from time to time. In any legal
       action  arising out of or in  connection  with the Finance  Documents the
       entries made in the accounts maintained pursuant to this

<PAGE>


       clause 8.8 shall,  in the absence of manifest  error, be conclusive as to
       the amount from time to time owing by each Borrower under this Agreement.

8.9    Partial payments

       If:

       (a)    on any  date on  which a  payment  is due to be made by a  Obligor
              under this  Agreement,  the amount  received by the Facility Agent
              from such  Obligor  falls short of the total amount of the payment
              due to be made by such Obligor on such date; or

       (b)    on any date on which the Facility  Agent  receives or recovers any
              payment  from  an  Obligor  or   otherwise   receives  any  amount
              representing  proceeds of realisations or other  recoveries  under
              any of the Finance Documents,  the amount of such payment or other
              receipt  falls  short of the  total  amount  owing to the  Finance
              Parties under this Agreement on such date,

       then (in any such  case),  without  prejudice  to any rights or  remedies
       available to the Finance Parties under any of the Finance Documents,  the
       Facility  Agent  shall  apply the amount  actually  received  by it in or
       towards  discharge of the obligations of the relevant  Obligor under this
       Agreement in the following order, notwithstanding any appropriation made,
       or purported to be made, by such Obligor:

              (i)    first, in or towards  payment,  on a pro-rata basis, of any
                     unpaid  costs and  expenses  of the  Facility  Agent or the
                     Arrangers under this Agreement;

              (ii)   secondly, in or towards payment to the Banks, on a pro-rata
                     basis, of any amount owing to the Banks under clause 20.2;

              (iii)  thirdly,  in or towards  payment to the Facility Agent on a
                     pro-rata  basis,  of any portion of the fees payable  under
                     clause 7.1(b) which remains unpaid;

              (iv)   fourthly, in or towards payment to the Banks, on a pro-rata
                     basis, of any accrued  commitment  commission payable under
                     clause 7.2 which shall have become due but remains unpaid;

              (v)    fifthly,  in or towards payment to the Banks, on a pro-rata
                     basis, of any accrued interest, Letter of Credit commission
                     and (in the case of the  Issuing  Bank)  Letter  of  Credit
                     fronting fees or commission which shall have become due but
                     remain unpaid,  but so that any amount payable by virtue of
                     clause 8.5 shall be excluded;

              (vi)   sixthly,  in or towards payment to the Banks, on a pro-rata
                     basis,  of any  principal  which  shall have become due but
                     remains unpaid;

              (vii)  seventhly,  in or towards  payment to any such Banks,  on a
                     pro-rata  basis,  of any  amount  payable  to any  Banks by
                     virtue of clause 8.5 which remains unpaid; and

              (viii) eighthly,  in or  towards  payment  of any  other sum which
                     shall have become due but remains unpaid (and, if more than
                     one such sum so remains unpaid, on a pro-rata basis).

<PAGE>


       Each  reference in clause 8.9(i) to (viii)  (inclusive)  to a category of
       unpaid sums shall include  interest  thereon  payable in accordance  with
       this Agreement  (including,  without  limitation,  default interest under
       clause 5.4).  Accordingly,  clause 8.9(v) shall be construed as referring
       to interest on principal and accrued interest thereon which remain unpaid
       to the extent due.

       The order of application set out in this clause 8.9(v) to 8.9(viii) shall
       be varied by the Facility Agent if the Majority Banks so direct,  without
       any reference to, or consent or approval from, any Obligor.

8.10   Calculations

       All interest and other  payments of an annual nature under this Agreement
       or any of the  Finance  Documents  shall  accrue  from  day to day and be
       calculated on the basis of the actual number of days elapsed,  and in the
       case of Sterling a 365 day year and in the case of other currencies a 360
       day year.  In  calculating  the actual number of days elapsed in a period
       which is one of a series of consecutive  periods with no interval between
       them or a period on the last day of which any payment falls to be made in
       respect of such  period,  the first day of such period  shall be included
       but the last day excluded.

       Where the Applicable Margin or Additional Cost changes during any period,
       interest and commitment  fees shall be calculated on the rate  prevailing
       from day to day.

8.11   Certificates conclusive

       Any certificate of, or  determination  by, a Finance Party as to any rate
       of interest or any other amount payable under this Agreement or any other
       Finance  Documents shall, in the absence of manifest error, be conclusive
       and binding  evidence of such rate or amount on the  Obligors and (in the
       case of a certificate of or  determination  by the Facility Agent) on the
       Banks.

8.12   Effect of monetary union

       If the country of any national  currency in which any amount is expressed
       to be payable under this Agreement  participates in economic and monetary
       union in  accordance  with Article 109J of the Treaty on European  Union,
       then:

       (a)    any amount  expressed to be payable  under this  Agreement in that
              national currency shall (until the end of the transitional period)
              be made in that  national  currency  or in Euros  as the  Facility
              Agent  may,  by not less  than two  Banking  Days'  notice  to the
              Primary Borrower and the Banks to that effect, require;

       (b)    any amount so required  under  clause  8.12(a) to be paid in Euros
              shall  be  converted  from  that  national  currency  at the  rate
              stipulated  pursuant to Article  109L(4) of the Treaty on European
              Union  and  payment  of the  amount  in  Euro  derived  from  such
              conversion shall discharge the obligation of the relevant party to
              pay such national currency amount; and

       (c)    after  consultation  with the Primary  Borrower  and the Banks and
              notwithstanding clause 22, the Facility Agent shall be entitled to
              make from time to time such amendments to this Agreement as it may
              determine to be necessary to take account of monetary union

<PAGE>


              and any consequent  changes in market practices (whether as to the
              settlement or rounding of obligations, the calculation of interest
              or otherwise howsoever).

       Any  amendment so made to this  Agreement by the Facility  Agent shall be
       promptly  notified to the other Finance Parties and the Primary  Borrower
       by the  Facility  Agent and  shall be  binding  on all the other  Finance
       Parties and the Primary Borrower and any other party to this Agreement.

9.     REPRESENTATIONS AND WARRANTIES

9.1    Repeated representations and warranties

       Each Obligor represents and warrants to each Finance Party that:

       (a)    Due  incorporation:  it is duly  incorporated and validly existing
              under the laws of England as a limited  liability  company and has
              power to carry on its  businesses as they are now being  conducted
              and to own its property and other assets;

       (b)    Corporate Power: it has power to execute,  deliver and perform its
              obligations  under each of the Finance Documents and to borrow the
              Commitments; all necessary corporate, shareholder and other action
              has  been  taken  to  authorise   the   execution,   delivery  and
              performance  of the same and no  limitation  on the  powers of any
              Borrower to borrow or Guarantor to guarantee will be exceeded as a
              result of any  Utilisation  under or entry into any of the Finance
              Documents;

       (c)    Binding  obligations:  (i)  each  of the  Finance  Documents  when
              executed and  delivered by it will  (subject to the  Reservations)
              constitute,  valid, legally binding and enforceable obligations of
              it in accordance  with their  respective  terms and (ii) it is not
              necessary,  to ensure the legality,  validity,  enforceability  or
              admissibility in evidence of any Finance Document that they or any
              other  instrument be  notarised,  filed,  recorded,  registered or
              enrolled in any court,  public  office or  elsewhere in the United
              Kingdom or  elsewhere or that any stamp,  registration  or similar
              tax or charge be paid in the United  Kingdom or elsewhere on or in
              relation to any Finance Documents;

       (d)    No conflict with other obligations: the execution and delivery of,
              the exercise of its rights and the  performance of its obligations
              under,   and  compliance  with  the  provisions  of,  the  Finance
              Documents by it will not (i)  contravene  any existing  applicable
              law, statute, rule or regulation or any judgment, decree or permit
              to which any of them are subject, (ii) conflict with, or result in
              any breach of any of the terms of, or  constitute a default  under
              any of the Licences or the Pooling and  Settlement  Agreement,  or
              under any other agreement or other instrument to which any of them
              are a party or are  subject or by which any of their  property  is
              bound to an extent which is  reasonably  likely in the  reasonable
              opinion of the Majority Banks to have a Material  Adverse  Effect,
              (iii)  contravene or conflict with any provision of its Memorandum
              or Articles of Association or (iv) result,  other than pursuant to
              the provisions of any of the Finance Documents, in the creation or
              imposition  of, or oblige  any  Obligor to  create,  any  Security
              Interest  (save in favour of the  Finance  Parties) on its assets,
              rights or revenues; and

       (e)    Pari passu:  its obligations  under this Agreement are its direct,
              general and unconditional obligations and rank at least pari passu
              with all its other present and

<PAGE>


              future  unsecured  and   unsubordinated   Indebtedness   with  the
              exception of any obligations  which are  mandatorily  preferred by
              law and not by contract.

       (f)    No Litigation:  So far as it is aware, no litigation,  alternative
              dispute  resolution,  arbitration or administration  proceeding is
              taking place, pending or threatened against it or any other member
              of the Group which is reasonably likely (in the reasonable opinion
              of the Majority  Banks) in either case to have a Material  Adverse
              Effect.

9.2    Continuing representations

       Each Obligor represents and warrants to each Finance Party that:

       (a)    Compliance with Environmental Laws: it:

              (i)    as at the  Effective  Date, or in the case of an Additional
                     Obligor,  the date it accedes to this  Agreement  complies;
                     and

              (ii)   has (to the extent that non-compliance  would be reasonably
                     likely  to give  rise  to a  material  liability  as at the
                     Effective Date or such date) at all times complied,

              in all  material  respects  with  all  Environmental  Laws,  where
              non-compliance, in each case, would be reasonably likely to have a
              Material Adverse Effect;

       (b)    No Environmental Claims:

              (i)    no  Environmental  Claim is  pending  or has  been  made or
                     threatened against the Primary Borrower or any other member
                     of the Group for which any REC Company could be held liable
                     or any of their  respective  officers in their  capacity as
                     such; and

              (ii)   no  member of the  Group is aware of any  circumstances  or
                     situation which would be reasonably  likely to result in it
                     having any liability in relation to Environmental Matters,

              which,  in  either  case,  would be  reasonably  likely  to have a
              Material Adverse Effect;

       (c)    Electricity Act:

              (i)    each REC Company (to the extent necessary for it to be able
                     to carry on such part of the  Distribution  Business and/or
                     Supply Business  carried on by it) has been duly authorised
                     by  the   Secretary  of  State  under   Section  6  of  the
                     Electricity  Act to distribute  and/or supply  electricity;
                     and

              (ii)   no REC Company is in contravention of:

                     (A)    any term or condition of any Licence; or

                     (B)    any  requirement  of  the  Electricity  Act  or  any
                            regulations made thereunder; or

<PAGE>


                     (C)    any other  statutory  requirement or any final order
                            or  confirmed   provisional  order  made  under  the
                            Electricity Act; or

                     (D)    any undertaking  given by it to the Director General
                            or the Secretary of State in relation to the conduct
                            of its business as a public electricity supplier;

                     the  contravention  or  consequence  of which is reasonably
                     likely to have a Material Adverse Effect;

       (d)    The Licences:

              (i)    each  Licence is in full force and effect and  neither  the
                     Director  General  nor the  Secretary  of State  has  given
                     notice to revoke a Licence;

              (ii)   no amendment of any of the terms of a Licence has been made
                     or proposed;

              (iii)  no  other  material   licence,   consent,   undertaking  or
                     authorisation  necessary  for  the  carrying  on by any REC
                     Company of its  business  substantially  as it is currently
                     carried on has been  terminated or breached or not obtained
                     or is otherwise not in full force and effect;

              which in  either  case is  reasonably  likely  to have a  Material
              Adverse Effect.

9.3    Repetition

       The representations and warranties in clauses 9.1 and 9.2 shall be deemed
       to be repeated as of each Drawdown Date, the date of each Drawdown Notice
       and the date of accession of each Additional Obligor and, as if made with
       reference to the facts and circumstances  existing on each such date, and
       shall,  after the first set of financial  statements  have been delivered
       under clauses  10.1(b)(i) and (ii), be deemed to include a representation
       that the then latest  financial  statements  delivered to the Banks under
       clauses  10.1(b)(i)  and (ii) have been prepared in  accordance  with the
       Appropriate  Accounting  Principles which have been consistently  applied
       and give a true and fair view of (or in the case of  unaudited  accounts,
       present with  reasonable  accuracy)  the  financial  position of each REC
       Company  and  the  consolidated  financial  position  of  the  REC  Group
       respectively as at the date to which such financial  statements were made
       up and the results of the  operations of each REC Company and the results
       of the operations of the REC Group  respectively for the relevant period,
       and in the case of audited accounts are not subject to any qualifications
       save of a technical and non-adverse nature.

9.4    Borrowers' acknowledgement

       Each Borrower  acknowledges  that the Finance  Parties are relying on the
       representations   and  warranties  but  not  on  any  other   information
       contradictory to them or varying them of which the Finance Parties or any
       of them or  their  respective  agents  or  advisers  may have  actual  or
       constructive knowledge.

<PAGE>


10.    POSITIVE UNDERTAKINGS

10.1   Information Undertakings

       Each  Borrower   undertakes  with  each  of  the  Finance  Parties  that,
       throughout the Finance Period:

       (a)    Preparation of financial statements: it will:

              (i)    Annual  audited  financial  statements:  beginning with the
                     financial  year  ending 31 March  1998,  prepare  financial
                     statements in respect of itself and consolidated  financial
                     statements in respect of the REC Group in  accordance  with
                     the   Appropriate   Accounting   Principles   (consistently
                     applied)  in respect of each  financial  year and cause the
                     same to be reported on by the Auditors; and

              (ii)   Semi-annual   financial   statements:   prepare   unaudited
                     consolidated  financial  statements  of the REC  Group  and
                     financial  statements  in  respect  of each REC  Company in
                     respect of each Half-Year  Period in each financial year in
                     accordance  with  the  Appropriate   Accounting  Principles
                     (consistently applied);

       (b)    Delivery of financial statements:  it will deliver to the Facility
              Agent,  for distribution to the Banks,  sufficient  copies for all
              the Banks of each of the following documents:

              (i)    Annual audited financial  statements:  at the time of issue
                     thereof to the shareholders of the Primary Borrower, but in
                     any  event  not  later  than 120 days  after the end of the
                     financial year to which they relate,  the audited financial
                     statements  referred  to  in  clause  10.1(a)(i)  for  each
                     financial year together,  in each case,  with the report of
                     the Auditors  thereon,  the notes  thereto,  the directors'
                     report  thereon and the  certificate  referred to in clause
                     10.1(b)(iii);

              (ii)   Unaudited management accounts: within 45 days after the end
                     of  each  Half-  year  Period  in  each   financial   year,
                     consolidated  management  accounts  for  the REC  Group  in
                     respect of such  Half-year  Period  prepared in  accordance
                     with the requirements of clause  10.1(a)(ii)  together with
                     the certificate referred to in clause 10.1(b)(iii);

              (iii)  Compliance  with Financial  Undertakings:  with each set of
                     accounts  delivered by it under clauses 10.1(b)(i) and (ii)
                     above by reference  to which the  financial  covenants  are
                     tested,  the Primary  Borrower will deliver to the Facility
                     Agent a  certificate  signed by a director  of the  Primary
                     Borrower:

                     (aa)   confirming    compliance    with    the    financial
                            undertakings  in  clause  10.3  as at the end of the
                            relevant Test Period; and

                     (bb)   setting  out  in  reasonable  detail  and  in a form
                            satisfactory to the Facility Agent the  computations
                            necessary to demonstrate such compliance;

              (iv)   Regulatory  Accounts:  at the  time of  their  issue to the
                     relevant  Government Entity or regulator,  all accounts and
                     other  financial  statements or information  required under
                     any law or  regulation  to be  provided  to any  Government
                     Entity, industry regulator or similar body or person;

<PAGE>


              (v)    Reports and notices to shareholders  and creditors:  at the
                     time of issue  thereof every  report,  circular,  notice or
                     like   document   issued  by  each  REC   Company   to  its
                     shareholders  or  creditors   generally  and  every  notice
                     convening a meeting of its shareholders or any class of its
                     shareholders; and

              (vi)   Further  information:  promptly upon request,  such further
                     information  concerning  the financial  position of the REC
                     Group (or any  member of it) as the  Facility  Agent  shall
                     reasonably require;

       (c)    Notice of Default:  it will promptly  upon  becoming  aware of the
              same inform the Facility Agent of any Default;

       (d)    Notice of litigation:  it will,  upon becoming aware that the same
              is  threatened  or  pending  and in any case  promptly  after  the
              commencement thereof, give to the Facility Agent notice in writing
              of any litigation,  alternative dispute resolution, arbitration or
              administrative  proceedings or any dispute affecting any member of
              the Group to the extent that any REC Company  could be held liable
              or any of its respective  assets,  rights or revenues affected and
              which if  determined  against it could  reasonably  be expected to
              result    in   a    liability    (including    costs)    of   more
              than(pound)10,000,000 or otherwise have a Material Adverse Effect;
              and

       (e)    Environmental  Claims:  promptly  upon  receipt of formal  written
              notice  of the same  inform  the  Facility  Agent of any  material
              Environmental  Claim to the extent that any REC Company would have
              responsibility for or be materially affected by it.

10.2   General Undertakings

       Each Obligor undertakes with each of the Finance Parties that, throughout
       the Finance Period:

       (a)    Consents etc relating to the Finance Documents:  it will obtain or
              cause to be obtained, maintain in full force and effect and comply
              in all material  respects with the conditions and restrictions (if
              any)  imposed  in,  or  in   connection   with,   every   consent,
              authorisation,  licence or  approval of any  Government  Entity or
              consents   required  by  it  in  connection  with  the  execution,
              delivery, validity, enforceability or admissibility in evidence of
              the Finance  Documents and do, or cause to be done, all other acts
              and  things,  which  may  from  time to time  be  necessary  under
              applicable  law  for  the  continued  due  performance  of all its
              obligations under the Finance Documents;

       (b)    Pari passu: it will ensure that its obligations, under each of the
              Finance  Documents  shall,  at all times be  direct,  general  and
              unconditional  obligations  and rank at least  pari passu with all
              its  other  present  and  future   unsecured  and   unsubordinated
              Indebtedness  with the  exception  of any  obligations  which  are
              mandatorily  preferred  by law and not by  contract  and  save for
              Indebtedness secured by Permitted Security Interests;

       (c)    Licences and Environmental Laws:

              (i)    it will  obtain and  maintain in full force and effect each
                     Licence and use all  reasonable  endeavours to procure that
                     each other REC Company  obtains and maintains in full force
                     and effect  each  Licence  required  by such person for the
                     carrying  on  of  their   respective   businesses  and,  as
                     appropriate  for so long as any REC  Company is involved in
                     the Generation Business, any licence under the

<PAGE>


                     Electricity Act to carry on Generation Business required by
                     such  person  for  the  carrying  on  of  their  respective
                     businesses; and

              (ii)   it  will  obtain  and  maintain,  and  use  all  reasonable
                     endeavours  to procure  that each REC  Company  obtains and
                     maintains,  in full  force and  effect  all other  material
                     Environmental  Licences  and ensures  that its business and
                     the  business of each of its  Subsidiaries  complies in all
                     respects with all material Environmental Laws and all other
                     material Environmental Licences;

       (d)    Insurance: it will maintain and will use all reasonable endeavours
              to procure that each member of the REC Group maintains  insurances
              on and in  relation  to its  business  and assets  with  reputable
              underwriters or insurance companies against such risks and to such
              extent as is usual for  companies  carrying on a business  such as
              that carried on by such member of the REC Group.

10.3   Financial Condition

       (a)    Each  Obligor  shall  procure  that,  at the end of any  Half-year
              Period (the first such Half-year Period being the one beginning on
              1 April  1998),  the ratio of  Operating  Profit  to Net  Interest
              Expense in respect of the preceding  two Half-year  Periods is not
              less than 2.25:1.

       (b)    Each Obligor  undertakes  with each of the Finance Parties that it
              will not adopt any accounting  policy or change the consistency of
              application  of its  accounting  principles  from the  Appropriate
              Accounting Principles unless:

              (i)    the revised  policy and practice  adopted from time to time
                     is  in  accordance  with  generally   accepted   accounting
                     practice in the United Kingdom, and

              (ii)   prior to any revised policy and practice being adopted such
                     Obligor has  notified the  Facility  Agent  thereof and, if
                     required by the  Facility  Agent,  will  negotiate  in good
                     faith with the Facility  Agent in order that the  Financial
                     Covenants may be amended as required by the Facility  Agent
                     in order for it to be able to make the same judgments as to
                     the financial performance of the REC Group as it is able to
                     under the present accounting policy.

              If such  negotiations are not concluded to the satisfaction of the
              Facility Agent within a period of 30 days from the commencement of
              such negotiations the relevant Obligor agrees that it will procure
              that the Auditors  provide  financial  statements  reflecting  the
              Appropriate   Accounting  Policies,  and  any  reference  in  this
              Agreement to financial  statements  under this Agreement  shall be
              construed as a reference to such financial  statements as adjusted
              to reflect the Appropriate Accounting Policies.

       (c)    If, at the end of any Half-year  Period,  the  financial  covenant
              under clause 10.3(a) is breached due to any  exceptional,  special
              or windfall tax or levy applying to the electricity  industry as a
              whole, then:

              (i)    the breach of that clause will not  constitute  an Event of
                     Default   under   clause   12.1(b)   (Breach   of   certain
                     obligations)  and the  Primary  Borrower  and the  Facility
                     Agent  (on   behalf  of  the   Banks)   shall   enter  into
                     negotiations  for a period  of not more than 30 days with a
                     view to agreeing new terms for this Agreement

<PAGE>


                     to  reflect  that tax or levy and such  terms  may  include
                     improved  pricing and/or  security and if any new terms are
                     agreed under this  paragraph  (i),  they shall be, with the
                     prior consent of the Majority  Banks,  binding upon all the
                     parties to this Agreement; but

              (ii)   if no new terms are agreed  within 30 days of such  breach,
                     the breach will become an immediate  Event of Default under
                     clause 12.1(b) (Breach of certain  obligations) on the 31st
                     day after the date of such breach.

11.    NEGATIVE UNDERTAKINGS

       Negative undertakings

       Each Obligor  undertakes with each of the Finance Parties that throughout
       the Finance  Period,  without the prior  written  consent of the Facility
       Agent acting on the instructions of the Majority Banks:

       (a)    Negative  pledge:  it shall not permit,  and shall procure that no
              other REC Company shall permit, any Security Interest by it or any
              other  member of the REC Group to subsist,  arise or be created or
              extended  over  all or any  part of their  respective  present  or
              future  undertakings,  assets,  rights or  revenues,  save for any
              Permitted Security Interest;

       (b)    No other Borrowed  Money:  it shall not, and shall procure that no
              REC  Company  shall,  incur or permit to exist on its  behalf  any
              obligations   in  respect  of  Borrowed   Money   (excluding   any
              guarantees,  indemnities  or  other  forms  of  assurance  against
              financial loss in respect of Borrowed Money, which are referred to
              in clause 11.1(d) below) to any person except:

              (i)    the Facility;

              (ii)   Borrowed  Money owed by any REC  Company to a member of the
                     Wider Group;

              (iii)  Borrowed Money to the extent secured by a Security Interest
                     permitted  by  paragraphs  (c),  (d),  (e)  and  (j) of the
                     definition of Permitted Security Interest,  but only for so
                     long as such Security Interest remains a Permitted Security
                     Interest;

              (iv)   Borrowed Money incurred to repay and discharge the Facility
                     in full;

              (v)    Borrowed Money of the Primary  Borrower as at the Effective
                     Date (and refinancings thereof) provided that:

                     (aa)   each refinancing extends the tenor of the refinanced
                            amount to beyond the Final Repayment Date; and

                     (bb)   all  refinancings  shall be of a like  nature to the
                            Indebtedness  or facility being  refinanced or shall
                            be by way of capital markets  instruments  which are
                            of a  similar  nature  to the REC  Group's  existing
                            instruments

<PAGE>


                            having regard to market  conditions and the issuer's
                            credit status,  or are structurally or contractually
                            subordinated   to  the   Facilities   in  a   manner
                            satisfactory   to   the   Majority   Banks   (acting
                            reasonably); and

                     (cc)   any new  facilities  for Borrowed Money entered into
                            by the  REC  Group  between  2  March  1998  and the
                            Effective  Date  (inclusive)  shall be cancelled and
                            repaid  in full  within  180  days of the  Effective
                            Date;

              (vi)   contracts for  differences and contracts to hedge commodity
                     and energy related  exposures and positions in the ordinary
                     course of trading;

              (vii)  individual  letters  of  credit  having  a face  value of a
                     Sterling Amount less than  (pound)250,000  provided that in
                     aggregate  the face value of such  letters of credit at any
                     one   time  is  no  more   than  a   Sterling   Amount   of
                     (pound)10,000,000;

       (c)    Disposals:  it shall  not and  shall  procure  that no  other  REC
              Company  shall,  either in a single  transaction or in a series of
              transactions,  whether  related or not and whether  voluntarily or
              involuntarily,  sell, factor, discount,  transfer,  licence, lend,
              grant  or  lease or  otherwise  dispose  of all or any part of the
              assets or undertaking of any REC Company other than:

              (i)    disposals in the ordinary course of trading;

              (ii)   disposals of obsolete or redundant assets;

              (iii)  other  disposals  to  third  parties,   provided  that  the
                     consideration   for  such   disposals   does   not   exceed
                     (pound)5,000,000  in  aggregate  for the REC  Group  in any
                     financial year;

              (iv)   disposals  constituting the creation of Permitted  Security
                     Interests;

              (v)    securitisations   of   receivables   of  the   Borrower  in
                     accordance with the Borrower's  securitisation programme in
                     existence  at the  date of this  Agreement  (or  comparable
                     programme(s)  of REC Companies)  Provided that the value of
                     the billed,  unbilled  and future flow  receivables  in the
                     programme    at   any   one   time    does    not    exceed
                     (pound)300,000,000 in aggregate in all such programmes; or

              (vi)   disposals  of an  interest in a  Subsidiary  of the Primary
                     Borrower   which  is  not   itself  in  the  REC  Group  on
                     arms-length  terms to a  person  outside  the REC  Group in
                     consideration for payment in freely  transferrable funds on
                     the date of disposal.

              (vii)  disposals of assets by a REC Company to another REC Company
                     or to  another  member  of the  Group  which  becomes a REC
                     Company on or before acquiring the assets disposed of;

              (viii) disposals  by way of  sales  and  operating  leasebacks  of
                     capital  assets to other members of the Wider Group limited
                     to a net book value of (pound)75,000,000 in aggregate;

<PAGE>


              (ix)   disposals  of any  interest in an Excluded  Business of any
                     REC Company  (including  by way of disposal of any interest
                     in a member of the Group not being a REC  Company  carrying
                     on an Excluded Business) or disposals of assets to a member
                     of the Wider  Group where such REC Company is engaged in an
                     Excluded Business irrespective of what consideration may be
                     payable provided that such a disposal is not of all or part
                     of the  Distribution  Business or Supply Business or any of
                     the assets primarily used in such Distribution  Business or
                     Supply Business;

       (d)    Restriction on Guarantees:  it shall not and shall procure that no
              other REC  Company  shall give any  guarantee  (which  includes an
              indemnity  or other form of  assurance  against  financial  loss),
              except:

              (i)    where the  guarantee  is given by a member of the REC Group
                     in connection with cash  management and netting  facilities
                     extended   to  the  REC  Group  by  a  bank  or   financial
                     institution in the normal course of business; or

              (ii)   any  guarantee,  indemnity,  letter of  credit  or  similar
                     assurance   against   financial  loss  under  any  Relevant
                     Arrangements;

              (iii)  guarantees of Borrowed Money or other  obligations of other
                     members  of the REC  Group,  for so  long  as  they  remain
                     members of the REC Group where such  guarantees are already
                     in existence as at the  Effective  Date  provided  that any
                     such  guarantees  of Borrowed  Money entered into between 2
                     March  1998 and the  Effective  Date  (inclusive)  shall be
                     discharged  and released  within 180 days of the  Effective
                     Date  (unless  the  guarantee  was  created  pursuant to an
                     obligation existing as at 2 March 1998);

              (iv)   any guarantee permitted under clause 11.1(b)(vi);

              (v)    any other  guarantees  given with the prior written consent
                     of the Majority Banks;

       (e)    The  Licences:  it shall,  and shall  procure  that each other REC
              Company  shall,  (having regard to the  Distribution  Business and
              Supply Business or that part of such businesses carried on by it):

              (i)    take all  appropriate  steps  efficiently  to  perform  and
                     discharge the duties and functions of a public  electricity
                     supplier  in   accordance   with  the   provisions  of  the
                     Electricity Act and, in particular, to comply with:

                     (aa)   the terms and conditions of the Licence;

                     (bb)   the  provisions  of any  final  order  or  confirmed
                            provisional  order made under the  Electricity  Act;
                            and

                     (cc)   all Licence Undertakings given by it to the Director
                            General  and/or the Secretary of State in respect of
                            the  matters  referred  to in  Section  25(5) of the
                            Electricity Act;

<PAGE>


              (ii)   not consent to any amendment to the terms and conditions of
                     the Licence if that amendment is reasonably  likely to have
                     a Material Adverse Effect;

              (iii)  not consent to any revocation of the Licence except where a
                     replacement Licence is to be granted to it in its place;

              (iv)   promptly inform the Facility Agent of any material  Licence
                     Undertaking  given by it or any  Affiliate  to the Director
                     General,  and/or the  Secretary  of State and  subsequently
                     comply with its terms;

              (v)    promptly supply to the Facility Agent:

                     (aa)   certified  copies of all notices or orders served on
                            it by the Director General or the Secretary of State
                            in  exercise of the powers  conferred  on him by the
                            Electricity Act;

                     (bb)   details  of any  references  to the  Monopolies  and
                            Mergers  Commission  relating to the business of the
                            REC Group; and

                     (cc)   details of the exercise or purported exercise by the
                            Secretary  of State or the  Director  General of the
                            powers  conferred  on him by the  Fair  Trading  Act
                            1973, the  Competition Act 1980 and/or Section 12 of
                            the Electricity Act;

              (vi)   ensure that all times it has sufficient  working capital to
                     finance the  performance  and  discharge of its duties as a
                     public   electricity   supplier  in  accordance   with  the
                     provisions  of  the  Electricity  Act  and  the  terms  and
                     conditions of any Licence; and

              (vii)  not permit any other  person  (other than a REC Company) to
                     perform or manage on its behalf any of its  functions  as a
                     public electricity  supplier, as set out in any Licence and
                     the Electricity Act;

       (f)    Dividend  payments:  the Primary Borrower shall not declare or pay
              any dividend or make any other distribution or payment (whether in
              cash  or  in  specie),   including  any  interest   and/or  unpaid
              dividends,  to its  shareholders or their  Affiliates for the time
              being  if and for so  long  as any  Default  has  occurred  and is
              continuing;

       (g)    Contracts  and  arrangements  between  the REC  Companies  and the
              Parent:  it shall  not  enter  into any  material  arrangement  or
              contract with or incur any material liability to the Parent or any
              of its Subsidiaries or Affiliates or any member of the Wider Group
              other than  another  REC  Company  or another  member of the Group
              which becomes a REC Company on or prior to such arrangement coming
              into force or liability being incurred, save for contracts entered
              into on an arm's length basis in the ordinary course of trade (and
              in any  event  no REC  Company  will  make any loan to or give any
              guarantee in respect of the Parent or any of its  Subsidiaries  or
              Affiliates other than another REC Company);

       (h)    Amalgamation  and merger:  it shall not and shall  procure that no
              other REC Company shall amalgamate or merge with any other company
              or person (other than a REC Company);

<PAGE>


       (i)    Change in business:  it shall not and shall  procure that no other
              REC Company shall carry on any business other than those which are
              usual for electricity  companies in the United Kingdom  including,
              without limitation,  electricity distribution and supply. Provided
              that the  limitation  of  business  activities  contained  in this
              clause  11.1(i)  will not apply to any other  business  activities
              carried  on by the  REC  Group  as long  as  such  other  business
              activities  do not in  aggregate  account for more than 10% of the
              consolidated gross assets or gross revenues of the REC Group; and

       (j)    Treasury  Transactions:  it shall not,  and shall  procure that no
              other REC Company shall, enter into any Derivatives  Transactions,
              save for hedging  financial  exposures of the REC Group arising in
              the ordinary course of business.

12.    EVENTS OF DEFAULT

12.1   Events of Default

       Each of the events set out below is an Event of Default  (whether  or not
       caused by any reason whatsoever  outside the control of any member of the
       REC Group (or any other person)) namely if:

       (a)    Non-payment:  any Borrower  fails to pay any sum due from it under
              any  of the  Finance  Documents  on its  due  date  in the  manner
              stipulated  in the  relevant  Finance  Document  (or within  three
              Banking  Days of the due date if the delay is caused by  technical
              difficulties or administrative error in the transfer of funds); or

       (b)    Breach of certain  obligations:  any Obligor commits any breach or
              omits to observe any of the obligations or undertakings  expressed
              to be assumed by it under clause 10.3, 11.1(a),  11.1(f),  11.1(i)
              or 24.2(b); or

       (c)    Breach of other obligations:  any Obligor commits any breach of or
              omits to observe any of the obligations or undertakings  expressed
              to be assumed by it under any of the Finance Documents (other than
              any such obligations referred to in clause 12.1(a) and (b)) and in
              respect of any such breach or omission  which,  in the  reasonable
              opinion of the Majority Banks,  is capable of remedy,  such action
              as shall  remedy the same to the  reasonable  satisfaction  of the
              Majority  Banks  shall not have been taken  within 21 days of such
              Obligor becoming aware of such default; or

       (d)    Misrepresentation:  any representation, warranty or statement made
              or deemed to be made or  repeated  by or on behalf of any  Obligor
              in, or in connection with, any of the Finance  Documents or in any
              notice,  accounts,  certificate  or  statement  referred  to in or
              delivered under any of the Finance  Documents is or proves to have
              been incorrect or misleading and if capable of being remedied,  in
              the reasonable  opinion of the Majority  Banks, is not remedied to
              the  reasonable  satisfaction  of the Majority Banks 21 days after
              the   date  on   which   any   Obligor   becomes   aware  of  such
              misrepresentation; or

       (e)    Cross-default:

              (i)    any  Borrowed  Money of any Obligor is not paid when due or
                     within any originally stated applicable grace period; or

<PAGE>


              (ii)   any  Borrowed  Money of any  Obligor is declared or becomes
                     capable of being declared (by reason of an event of default
                     or default howsoever  described) to be or otherwise becomes
                     due and payable prior to its specified maturity; or

              (iii)  any  Borrowed  Money of any Obligor  which is  repayable on
                     demand is not repaid on demand being made,

              in circumstances where, in all or any of the above paragraphs, the
              Borrowed  Money  amounts in aggregate at any one time to more than
              (pound)20,000,000  or its equivalent in other  currencies,  unless
              the Borrowed  Money  concerned is being disputed in good faith and
              any Obligor has shown to the Facility Agent's satisfaction (acting
              reasonably)  that  it has  adequate  cash  reserves  to  pay  that
              Borrowed Money and its other outstanding debts; or

       (f)    Legal process:  (without  prejudice to any other provision of this
              Agreement)   any   final   judgment   or   order   in  an   amount
              exceeding(pound)2,000,000  (or its equivalent in other currencies)
              made  against any  Obligor is not stayed or complied  with or paid
              within 28 days (or in the case of  payments,  when due (if later))
              or a creditor  attaches  or takes  possession  of, or a  distress,
              execution,  sequestration  or other  process is levied or enforced
              upon or sued out against,  any part of the  undertakings,  assets,
              rights or  revenues  of any  Obligor  with a book  value or market
              value in excess of(pound)2,000,000 and is not discharged or stayed
              within 14 days; or

       (g)    Insolvency:  any Obligor (i) is deemed  unable to pay its debts in
              accordance  with  Section  123(1)(a),  (b)  or  (e)  or (2) of the
              Insolvency Act 1986 unless, in the case of Section 123(1)(a) only,
              a statutory notice has been withdrawn,  stayed or dismissed within
              14 days or (ii) is unable  generally to pay its debts as they fall
              due; or

       (h)    Administration: (i) any meeting of any Obligor is convened for the
              purpose of  considering  any  resolution to present an application
              for  an  administration   order  or  (ii)  the  Obligor  passes  a
              resolution to present an application for an  administration  order
              or  (iii)  an  administration  order  is made in  relation  to any
              Obligor; or

       (i)    Compositions etc: any steps are taken, or negotiations  commenced,
              by any Obligor or by any of its creditors with a view to proposing
              any kind of  composition,  scheme of  arrangement,  compromise  or
              arrangement,  in each case  involving  any  Obligor and any of its
              creditors; or

       (j)    Appointment of receivers and managers:  (i) any  administrative or
              other receiver or any manager is appointed over any Obligor or any
              material  part  of its  assets  and/or  undertaking  or  (ii)  the
              directors  of any  Obligor  request  any person to appoint  such a
              receiver  or manager or (iii) any other steps are taken to enforce
              any Security  Interest over all or any material part of the assets
              and/or undertakings of any Obligor; or

       (k)    Winding up: (i) any  meeting of any  Obligor is  convened  for the
              purpose of considering any resolution for (or to petition for) its
              winding up or (ii) any Obligor passes such a resolution;  or (iii)
              any person presents any petition for the winding up of any Obligor
              (not being a petition  which such Obligor can  demonstrate  to the
              satisfaction  of the Facility  Agent is frivolous  vexatious or an
              abuse of the process of the court) which is not discharged  within
              14 days or (iv) an order for the winding up of any Obligor is

<PAGE>


              made,  not (in any case) being a winding-up of a Subsidiary of any
              Obligor  involving an amalgamation or  reorganisation on a solvent
              basis  which has been  approved in advance by the  Facility  Agent
              (acting reasonably); or

       (l)    Dissolution:  any corporate,  legal or administrative  proceedings
              are commenced by any person (including,  without  limitation,  the
              Registrar  of  Companies)  with a view to the  dissolution  of any
              Obligor,  not being a  dissolution  involving an  amalgamation  or
              reorganisation  on a  solvent  basis  which has been  approved  in
              advance by the Facility Agent (acting reasonably); or

       (m)    Analogous  proceedings:  there occurs, in relation to any Obligor,
              in any country or  territory in which it carries on business or to
              the  jurisdiction  of whose  courts  any part of their  assets  is
              subject,  any  event  which,  in  the  reasonable  opinion  of the
              Majority Banks, appears in that country or territory to correspond
              with, or have an effect  equivalent to, any of those  mentioned in
              clauses  12.1(f)  to  (l)  (inclusive)  or any  Obligor  otherwise
              becomes  subject,  in  any  such  country  or  territory,  to  the
              operation  of  any  law  relating  to  insolvency,  bankruptcy  or
              liquidation; or

       (n)    Cessation  of  business:  other  than in  relation  to a  disposal
              permitted under this Agreement, any REC Company suspends or ceases
              or threatens  to suspend or cease to carry on its business  unless
              it is transferred to another REC Company; or

       (o)    Insolvency  of members of REC Group:  any of the events (e) to (n)
              above  happening  in respect  of another  member of the REC Group,
              where that could reasonably be expected to have a Material Adverse
              Effect;

       (p)    Distribution Business and Supply Business:

              (i)    the REC Group  ceases,  or threatens to cease,  to carry on
                     all or any material  part of the  Distribution  Business or
                     Supply Business;

              (ii)   all or a majority  of the issued  shares of any REC Company
                     or the whole or any material part of the assets or revenues
                     of the Distribution Business or Supply Business are seized,
                     nationalised,  expropriated or compulsorily  acquired by or
                     under the authority of a Government Entity;

              (iii)  any  change  is  made  in  the   statutory  or   regulatory
                     requirements  applicable  to the  Distribution  Business or
                     Supply   Business  or  any  new   statutory  or  regulatory
                     requirements  are imposed on it which  would be  reasonably
                     likely to have a Material Adverse Effect; or

              (iv)   any  REC  Company  is  not  or  ceases  to  be  a  directly
                     wholly-owned  Subsidiary of the Primary  Borrower or is not
                     incorporated  in  England  and Wales or fails to  execute a
                     Deed of Accession in accordance with clause 24;

       (q)    Licences:

              (i)    the  Secretary  of State  gives  notice in  writing  of the
                     revocation of a Licence for any reason or a Licence  ceases
                     to be in full  force  and  effect in any  material  respect
                     except where a similar licence or licences are granted to a
                     REC Company in its place;

<PAGE>


              (ii)   without  prejudice to paragraph (i) above,  any legislation
                     (whether  primary  or  subordinate)   with  regard  to  the
                     creditors  of any REC  Company  or the  ability  of any REC
                     Company to raise  finance under a Licence or with regard to
                     public electricity  suppliers generally is enacted and that
                     enactment  would be  reasonably  likely to have a  Material
                     Adverse Effect;

              (iii)  any  amendment  is made to the  terms and  conditions  of a
                     Licence and the  amendment  would be  reasonably  likely to
                     have a Material Adverse Effect;

              (iv)   the REC Group ceases to hold the Licences required by it to
                     carry on the Distribution Business and Supply Business.

       (r)    Electricity Act:

              (i)    any of  the  provisions  of the  Electricity  Act  (or  any
                     subordinate  legislation)  detailing  the  rights,  powers,
                     authorities,  obligations  and duties of the  Secretary  of
                     State or the Director General,  or the manner in or time at
                     which they are to be exercised,  are repealed or amended in
                     a manner which would be  reasonably  likely (in the opinion
                     of the Majority  Banks) to have a Material  Adverse Effect;
                     or

              (ii)   any REC Company  fails to comply with a final order (within
                     the meaning of section 25 of the Electricity Act) or with a
                     provisional  order  (within  the  meaning of that  section)
                     which has been  confirmed  under that section and in either
                     case which has not been  revoked  under that section or the
                     validity of which has not been questioned  under section 27
                     of the Electricity  Act, if such failure to comply would be
                     reasonably likely to have a Material Adverse Effect; or

       (s)    Pooling and Settlement Agreement: any REC Company which is a party
              to the Pooling and Settlement  Agreement ceases to be such a party
              (except where another REC Company is substituted in its place), or
              any  notice  requiring  REC  Company to cease to be a party to the
              Pooling and  Settlement  Agreement is given to such company  under
              the relevant clauses of the Pooling and Settlement Agreement;

       (t)    Finance  Documents:  any  Finance  Document is not or ceases to be
              legal, valid and binding on or enforceable  against any Obligor or
              is alleged by any Obligor to be ineffective for any reason; or

       (u)    Unlawfulness:  it becomes  unlawful at any time for any Obligor to
              perform all or any of its  material  obligations  under any of the
              Finance Documents.

12.2   Acceleration

       The Facility  Agent may,  and, if so  requested  by the  Majority  Banks,
       shall,  without  prejudice to any other rights of the Finance  Parties at
       any time, after the happening of an Event of Default,  and so long as the
       same is continuing, by notice to the Primary Borrower:

<PAGE>


       (i)    declare that the  obligation of each Bank to make its  Commitments
              available shall be terminated,  whereupon the Total Commitments in
              respect of all  Facilities  shall be  reduced  to zero  forthwith;
              and/or

       (ii)   declare that the Advances and all  interest,  fees and  commitment
              commission  accrued and all other sums  payable  under the Finance
              Documents  have  become  due and  payable  or have  become due and
              payable on demand,  whereupon  the same shall,  immediately  or in
              accordance with the terms of such notice,  become due and payable;
              and/or

       (iii)  demand full cash cover for the Outstanding  Contingent Liabilities
              under all Letters of Credit then  outstanding  in the  currency in
              which those Letters of Credit are denominated.

       On or at any time after the making of any such declaration,  the Facility
       Agent shall be entitled,  to the  exclusion of the Primary  Borrower,  to
       select the duration of Interest Periods.

13.    INDEMNITIES

13.1   Miscellaneous indemnities

       The Primary  Borrower shall within three Banking Days of demand indemnify
       each Finance Party,  without prejudice to any of their other rights under
       any of the Finance  Documents,  against any cost,  loss,  claim,  expense
       (including  loss of  Applicable  Margin  and  legal  fees)  or  liability
       together  with any Tax thereon  which such Finance Party shall certify as
       sustained or incurred by it as a consequence of:

       (a)    any  default in payment by any Obligor of any sum under any of the
              Finance Documents when due,

       (b)    the occurrence of any other Default,

       (c)    any Advance  outstanding  under the Facility or part thereof being
              made otherwise than on Maturity Date relative thereto,

       (d)    any Advance not being made for any reason (excluding,  but only to
              the extent of the  indemnification  of a particular Finance Party,
              any gross  negligence  or wilful  default by such  Finance  Party)
              after a Drawdown Notice has been given, or

       (e)    any notice sent by telefax failing to be received,

       including,  in any such  case,  but not  limited  to, any loss or expense
       sustained or incurred in maintaining or funding its  Contributions or any
       part  thereof  or in  liquidating  or  re-employing  deposits  from third
       parties  acquired  or  contracted  for to  fund  all or any  part  of its
       Contributions or any other amount owing to such Finance Party.

13.2   Currency of account; currency indemnity

       (a)    No payment by any Obligor under any of the Finance Documents which
              is  made in a  currency  other  than  the  currency  ("Contractual
              Currency")  in which such payment is required to be made  pursuant
              to the relevant Finance Documents shall discharge the

<PAGE>


              obligation  in respect of which it is made except to the extent of
              the net  proceeds  in the  Contractual  Currency  received  by the
              Facility  Agent upon the sale of the currency so  received,  after
              taking  into   account  any  premium  and  costs  of  exchange  in
              connection with such sale.

       (b)    The  Finance  Parties  shall not be  obliged  to  accept  any such
              payment in a  currency  other than the  Contractual  Currency  nor
              shall the Finance Parties be liable to any Obligor for any loss or
              alleged loss arising from  fluctuations  in exchange rates between
              the date on which such  payment  is so  received  by the  Facility
              Agent and the date on which the Facility  Agent effects such sale,
              as to which the Facility Agent shall (as against any Obligor) have
              an absolute discretion.

       (c)    If any sum due from any Obligor under any Finance Documents or any
              order or judgment given or made in relation  hereto is required to
              be  converted  from the  Contractual  Currency or the  currency in
              which the same is payable under such order or judgment (the "first
              currency") into another  currency (the "second  currency") for the
              purpose  of (i)  making  or  filing a claim or proof  against  any
              Obligor, (ii) obtaining an order or judgment in any court or other
              tribunal or (iii) enforcing any order or judgment given or made in
              relation  to any of the Finance  Documents,  each  Borrower  shall
              indemnify  and hold  harmless  each Finance Party from and against
              any loss  suffered as a result of any  difference  between (A) the
              rate of  exchange  used for such  purpose  to  convert  the sum in
              question from the first currency into the second  currency and (B)
              the rate or rates of exchange at which each such Finance Party may
              in the ordinary  course of business  purchase  the first  currency
              with  the  second  currency  upon  receipt  of a sum paid to it in
              satisfaction,  in whole or in part,  of any such order,  judgment,
              claim or proof.

       (d)    Any amount due from any Borrower under the indemnity  contained in
              this clause 13.2 shall be due as a separate  debt and shall not be
              affected by judgment  being  obtained for any other sums due under
              or in respect of any of the Finance  Documents  and the term "rate
              of exchange" includes any premium and costs of exchange payable in
              connection with the purchase of the first currency with the second
              currency.

13.3   No settlement without consent

       The Primary Borrower agrees on its own behalf and on behalf of each other
       member of the REC Group that,  without the prior  written  consent of the
       Agent and the  Majority  Banks,  no member of the REC Group will  settle,
       compromise  or consent  to the entry of any  judgment  in any  pending or
       threatened  claim,  action,  suit  or  proceeding  in  respect  of  which
       indemnification  could be sought under the indemnification  provisions of
       clauses  4.5(b)(iv),  8.4, 8.5, 8.6, 7.6, 13, 16.14,  or 20.2 (whether or
       not  any  indemnitee  thereunder  (the  "Indemnitee")  is  an  actual  or
       potential party to such claim,  action, suit or proceeding),  unless such
       settlement, compromise or consent does not include any statement as to an
       admission of fault,  culpability or failure to act by or on behalf of any
       Indemnitee  and does not  involve  any payment of money or other value by
       any  Indemnitee  or  any  injunctive   relief  or  factual   findings  or
       stipulations binding on any Indemnitee.

<PAGE>


14.    UNLAWFULNESS, INCREASED COSTS, ALTERNATIVE INTEREST RATES

14.1   Unlawfulness

       (a)    If it is or becomes  contrary to any law or regulation or contrary
              to any request from or requirement of any fiscal monetary or other
              authority  (with which such Finance Party would  normally  comply)
              for a  Finance  Party  to  contribute  to  any  Utilisation  or to
              maintain  its  Commitments  in respect  of a Facility  or fund its
              Contribution  to a Facility,  such  Finance  Party shall  promptly
              after  becoming  aware of the same,  through the  Facility  Agent,
              notify the Primary  Borrower  whereupon  (a) such Finance  Party's
              Commitments  shall be reduced to zero (and,  if it is the  Issuing
              Bank,  it shall have no  further  obligation  to Issue  Letters of
              Credit if to do so would in the opinion of the Issuing  Bank be or
              become  contrary  to any  law or  regulation  or  contrary  to any
              request  from or  requirement  of any  fiscal  monetary  or  other
              authority  (with which such Finance Party would normally  comply))
              and (b) if the  Facility  Agent on behalf of the Finance  Party so
              requires  the  relevant  Borrower  shall be  obliged to prepay the
              Contribution  of such Finance  Party to such  Facility and provide
              full cash cover for any Outstanding  Contingent Liabilities of the
              relevant  Finance Party on a future date specified by the Facility
              Agent not being  earlier  than the latest  date  permitted  by the
              relevant  law or  regulation  or not  contrary to such  request or
              requirement.  Any prepayment pursuant to this clause 14.1 shall be
              made together with all amounts referred to in clause 6.6.

       (b)    When any Borrower makes any prepayment  under this clause 14.1 the
              Facility  Agent shall not  release  the amount of such  prepayment
              which is cash cover for any Outstanding  Contingent Liabilities of
              the relevant Finance Party to such Finance Parties but shall place
              such  monies on  suspense  account  and such  money may be used as
              collateral for the actual and the  contingent  liabilities of that
              Finance Party to the Issuing Bank, which  liabilities shall remain
              in full force and effect notwithstanding such prepayment; and such
              Finance   Party  shall  remain   liable  under  all  the  relevant
              provisions  of this  Agreement  to the Issuing Bank to pay in cash
              any  shortfall  between the amount held by the Facility  Agent and
              its liabilities under this Agreement.

14.2   Increased costs

       If the result of any change in, or in the  interpretation  or application
       of, or the introduction of, (after the date of this Agreement):

       (a)    any law  (including,  the  introduction  of the  proposed  Bank of
              England Act following the  publication of the Bank of England Bill
              1997) or

       (b)    any  regulation,  request or requirement  (which if not having the
              force of law is one of a kind  with  which  the  relevant  Finance
              Party  or,  as the case may be,  its  holding  company  habitually
              complies), including those relating to Taxation, capital adequacy,
              European  monetary union,  liquidity,  reserve assets,  cash ratio
              deposits  and  special  deposits or  requested  or required by any
              central bank (including  without  limitation any European  Central
              Bank) or other fiscal monetary or other authority,

       is to:

              (i)    subject any Finance  Party or its holding  company to Taxes
                     or change the basis of Taxation  of any Finance  Party with
                     respect to any payment under this

<PAGE>


                     Agreement  (other than Taxes or Taxation on the overall net
                     income,  profits or gains of such Finance  Party imposed in
                     the  jurisdiction in which its principal office or Facility
                     Office is located); and/or

              (ii)   increase the cost to, or impose an additional  cost on, any
                     Finance  Party or its holding  company in entering  into or
                     performing  its  obligations  under the  Finance  Documents
                     and/or in making or keeping  available  all or part of such
                     Finance Party's  Commitments  and/or maintaining or funding
                     all or part of such Finance Party's  Contributions  (and/or
                     providing  any  guarantee or indemnity of any other Finance
                     Party's obligations); and/or

              (iii)  reduce the amount  payable or the  effective  return to any
                     Finance Party under this Agreement; and/or

              (iv)   reduce any Finance Party's or its holding company's rate of
                     return on its overall  capital by reason of a change in the
                     manner  in  which  it  is  required  to  allocate   capital
                     resources  in  respect  of all or  any of the  advances  or
                     obligations comprised in a class of advances or obligations
                     formed  by or  including  such  Finance  Party's  share  in
                     Utilisations  made  or to be  made  under  this  Agreement;
                     and/or

              (v)    require any Finance Party or its holding  company to make a
                     payment or forgo a return  calculated by reference to or on
                     any amount  received or  receivable  by such Finance  Party
                     under this Agreement; and/or

              (vi)   require any Finance  Party or its holding  company to incur
                     or  sustain a loss  (including  a loss of future  potential
                     profits)  by reason of being  obliged to deduct all or part
                     of such Finance Party's  Commitments or Contributions  from
                     its capital for regulatory purposes,

              then and in each such case (but subject to clause 8.6 and 14.3):

                     (aa)   such Finance Party shall notify the Primary Borrower
                            through the Facility  Agent in writing of such event
                            promptly upon its becoming aware of the same; and

                     (bb)   following  such  notification  the Primary  Borrower
                            shall,   whether   or  not  such   Finance   Party's
                            Contribution to any Facility has been repaid, pay to
                            the Facility Agent on demand for the account of such
                            Finance  Party the amount which such  Finance  Party
                            specifies (in a certificate  setting forth the basis
                            of the  computation of such amount but not including
                            any matters  which such Finance Party or its holding
                            company  regards as  confidential)  is  required  to
                            compensate  such  Finance  Party  and/or its holding
                            company in its sole discretion for such liability to
                            Taxes,  increased  or  additional  cost,  reduction,
                            payment, forgone return or loss.

       For the purposes of this clause 14.2 each Finance Party may in good faith
       allocate or spread costs and/or  losses among its assets and  liabilities
       (or any class thereof) on such basis as it considers appropriate.

<PAGE>


       Each  Finance  Party shall use all  reasonable  endeavours  to notify the
       Primary Borrower as soon as reasonably  practicable of any such increased
       cost, reduction, payment or forgone return which is to result in a demand
       under clause 14.2(bb).

       For the  purposes of this clause 14.2 and clause 14.4  "holding  company"
       means,  in  relation to a Finance  Party,  the company or entity (if any)
       within  the  consolidated  supervision  of which  such  Finance  Party is
       included.

       For the purposes of this clause 14.2, each Borrower acknowledges that any
       requirement that the Finance Parties treat interest hereunder as anything
       other  than  interest  shall  be a  change  in law or the  interpretation
       thereof.

14.3   Exceptions

       Nothing in clause 14.2 shall  entitle  any  Finance  Party to receive any
       amount  in  respect  of  compensation  for any such  liability  to Taxes,
       increased or additional cost, reduction,  payment, forgone return or loss
       to the extent that the same:

       (a)    is taken into account in calculating the Additional Cost; or

       (b)    is the subject of an additional payment under clause 8.5; or

       (c)    arises  as  a  consequence   of  (or  of  any  law  or  regulation
              implementing) (i) the proposals for  international  convergence of
              capital  measurement and capital standards  published by the Basle
              Committee on Banking Regulations and Supervisory Practices in July
              1988 and/or (ii) any  applicable  directive of the European  Union
              (in each  case)  unless it  results  from any change in, or in the
              interpretation  or  application  of,  such  proposals  or any such
              applicable  directive (or any law or regulation  implementing  the
              same) occurring after the date hereof; or

       (d)    is  attributable  to  Taxation  save where it is  recovered  under
              clause 14.2(i); or

       (e)    is  attributable  to the wilful  default or gross  negligence of a
              Finance Party.

       For the purposes of clause 14.3(c) the term "applicable  directive" means
       (exclusively)  each of the Own Funds Directive  (89/299/EEC of 17th April
       1989) and the  Solvency  Ratio  Directive  (89/647/EEC  of 18th  December
       1989).

14.4   Mitigation

       If, in respect of any Finance Party (an "Affected  Bank"),  circumstances
       arise or exist which would result in:

       (a)    any Borrower being  required to make an increased  payment to that
              Finance Party pursuant to clause 8.5;

       (b)    the reduction of that Finance Party's Commitment in respect of any
              Facility  to zero or any  Borrower  being  required to prepay that
              Finance Party's  Contribution  to any Facility  pursuant to clause
              14.1;

<PAGE>


       (c)    any Borrower being required to make a payment to any Finance Party
              to  compensate  such  Finance  Party or its holding  company for a
              liability  to Taxes,  increased  or  additional  cost,  reduction,
              payment, forgone return or loss pursuant to clause 14.2(bb); or

       (d)    any Borrower not being  entitled to a deduction for UK corporation
              tax purposes in respect of interest  payable under this  Agreement
              to that Finance Party;

       then, without in any way limiting,  reducing or otherwise  qualifying the
       obligations  of any  Borrower  under  clause  8 and this  clause  14 (and
       subject to such  Borrower's  rights under clause 6.5), such Finance Party
       shall,  in consultation  with the Facility Agent,  endeavour to take such
       reasonable  steps (and/or,  in the case of clause  14.2(bb) and where the
       increased or additional cost, reduction,  payment, forgone return or loss
       is that of its holding  company,  endeavour  to procure  that its holding
       company takes such  reasonable  steps) as are open to it (or, as the case
       may be, its holding  company)  to  mitigate or remove such  circumstances
       unless  the taking of such steps  might (in the  opinion of such  Finance
       Party) be  prejudicial to such Finance Party (or, as the case may be, its
       holding  company) and provided  that such Finance Party shall be under no
       obligation  to take any such  action if in the  opinion  of such  Finance
       Party  to  do so  might  have  any  adverse  effect  upon  its  business,
       operations or financial condition.

15.    SET-OFF AND PRO-RATA PAYMENTS

15.1   Set-off

       Each  Borrower  hereby  agrees that each  Finance  Party may at any time,
       whilst any Default  shall be  continuing  or, with  respect to cash cover
       referred to in clause 4.12, at any time,  notwithstanding  any settlement
       of account or other matter whatsoever,  combine or consolidate all or any
       of its then existing accounts  wheresoever situate (including accounts in
       the name of such Finance  Party or of any Borrower  jointly with others),
       whether such accounts are current,  deposit,  loan or of any other nature
       whatsoever,  whether  they are subject to notice or not and whether  they
       are  denominated  in  Sterling or in any other  currency,  and set-off or
       transfer any sum standing to the credit of any one or more such  accounts
       in or towards  satisfaction  of any moneys,  obligations  or  liabilities
       which are due and payable by any Borrower to such Finance Party under the
       Finance Documents but are unpaid.  For this purpose each Finance Party is
       authorised  to  purchase  with the moneys  standing to the credit of such
       account  such  other  currencies  as  may be  necessary  to  effect  such
       application.  No Finance  Party  shall be obliged to  exercise  any right
       given to it by this clause  15.1.  Each  Finance  Party shall  notify the
       Facility  Agent  promptly upon the exercise or purported  exercise of any
       right of set-off in  relation  to any  Borrower  giving  full  details in
       relation  thereto and the Facility  Agent shall inform the other  Finance
       Parties.

15.2   Pro-rata payments

       (a)    If at any  time any  Bank  (the  "Recovering  Bank")  receives  or
              recovers any amount owing to it by a Borrower under this Agreement
              by direct payment,  set-off or in any manner other than by payment
              through the Facility  Agent (not being a payment  received  from a
              Substitute or a sub-participant in such Bank's Contribution to any
              Facility or any other  payment of an amount due to the  Recovering
              Bank for its sole account),  the Recovering Bank shall, within two
              Banking Days of such  receipt or recovery (a  "Relevant  Receipt")
              notify the Facility Agent of the amount of the

<PAGE>


              Relevant Receipt. If the Relevant Receipt exceeds the amount which
              the  Recovering  Bank would have received if the Relevant  Receipt
              had been received by the Facility Agent then:

              (i)    within two Banking  Days of demand by the  Facility  Agent,
                     the  Recovering  Bank  shall pay to the  Facility  Agent an
                     amount equal to the excess;

              (ii)   the Facility Agent shall treat the excess amount so paid by
                     the  Recovering  Bank as if it were a  payment  made by the
                     relevant  Borrower  and  shall  distribute  the same to the
                     Banks (other than the Recovering Bank); and

              (iii)  as between the relevant  Borrower and the Recovering  Bank,
                     the excess amount so re-distributed shall be treated as not
                     having  been  paid  but  the  obligations  of the  relevant
                     Borrower  to the other  Banks  shall,  to the extent of the
                     amount so re-distributed to them, be treated as discharged.

       (b)    If any part of a Relevant Receipt subsequently has to be wholly or
              partly refunded by the Recovering Bank (whether to a liquidator or
              otherwise)  each Bank to which any part of such  Relevant  Receipt
              was so  re-distributed  shall on request from the Recovering  Bank
              repay to the  Recovering  Bank such Bank's  pro-rata  share of the
              amount which has to be refunded by the Recovering Bank.

       (c)    Each Bank  shall on  request  supply to the  Facility  Agent  such
              information  as the  Facility  Agent may from time to time request
              for the purpose of this clause 15.2.

       (d)    Notwithstanding  the foregoing  provisions of this clause 15.2, no
              Recovering  Bank shall be obliged  to share any  Relevant  Receipt
              which it receives or recovers  pursuant to legal proceedings taken
              by it to recover  any sums owing to it under this  Agreement  with
              any other party  which has a legal right to, but does not,  either
              join  in  such  proceedings  or  commence  and  diligently  pursue
              separate  proceedings to enforce its rights in the same or another
              court (unless the  proceedings  instituted by the Recovering  Bank
              are instituted by it in breach of clause 18.2).

       (e)    The  amounts due from the  relevant  Borrower to each of the Banks
              shall reflect any payments and receipts among the Banks prescribed
              by this clause.

       (f)    Nothing in this  clause 15.2 shall  prevent the Issuing  Bank from
              recovering  from the  relevant  Borrower  any  amounts due under a
              Letter of Credit issued by the Issuing Bank.

15.3   No release

       For the  avoidance  of doubt it is hereby  declared  that  failure by any
       Recovering  Bank to comply with the  provisions  of clause 15.2 shall not
       release  any  other  Recovering  Bank  from  any  of its  obligations  or
       liabilities under clause 15.2.

15.4   No charge

       The  provisions  of this clause 15 are not  intended  to,  shall not, and
       shall  not be  construed  so as to,  constitute  a charge  by a Bank.  In
       particular  it is not intended to create a charge over all or any part of
       a sum received or recovered by any Bank in the circumstances mentioned in
       clause 15.2.

<PAGE>


16.    ASSIGNMENT, SUBSTITUTION AND LENDING OFFICES

16.1   Benefit and burden

       This  Agreement  shall be binding upon, and enure for the benefit of, the
       Finance  Parties  and each  Borrower  and  their  respective  successors,
       transferees and assigns.

16.2   No assignment by the Borrower

       No Borrower may assign or otherwise transfer any of its respective rights
       or obligations under any of the Finance Documents.

16.3   Substitution

       Each Bank (an  "Existing  Bank") may at any time assign all or any of its
       rights and benefits  under the Finance  Documents or novate in accordance
       with  clause  16.5  all  or  any  part  of its  rights,  benefits  and/or
       obligations  under the Finance  Documents to another  Qualifying  Bank (a
       "Substitute")  with the consent of the Issuing Bank, and with the consent
       of the Primary  Borrower  (not to be  unreasonably  withheld or delayed),
       save that such  consent of the Primary  Borrower  will not be required to
       assignments or novations which take place prior to the Syndication Date.

16.4   Assignment

       If any Bank  assigns  all or any of its  rights  and  benefits  under the
       Finance  Documents in accordance with clause 16.3, then, unless and until
       the assignee has agreed with the other  Finance  Parties that it shall be
       under the same obligations  towards each of them as it would have been if
       it had been an  original  party  thereto  as a Bank,  the  other  Finance
       Parties  shall not be obliged to  recognise  that  assignee as having the
       rights against each of them which it would have had if it had been such a
       party thereto.

16.5   Substitution Certificate

       (a)    Subject  to  clause  16.5(b),  if a  duly  completed  Substitution
              Certificate  duly executed by the Existing Bank and the Substitute
              is delivered five Banking Days before the proposed  Effective Date
              (unless  the  Facility  Agent  otherwise  agrees) to and  counter-
              signed by the Facility  Agent (for itself and the other parties to
              this  Agreement  other  than  the  Existing  Bank),  then  on  the
              Effective Date (as defined in that  Substitution  Certificate)  to
              the  extent  that  the  Existing   Bank's  rights,   benefits  and
              obligations  under the Finance  Documents  are  expressed  in such
              Substitution Certificate to be the subject of a novation in favour
              of the Substitute effected pursuant to this clause 16.5:

              (i)    the  existing  parties  to the  Finance  Documents  and the
                     Existing  Bank  shall be  released  from  their  respective
                     obligations towards one another under the Finance Documents
                     ("discharged  obligations") except for any obligation which
                     the Existing  Bank has to the Issuing Bank under clause 4.7
                     (Bank's  Guarantee and Indemnity)  before the date on which
                     the novation takes place unless otherwise agreed in writing
                     by the Issuing Bank and their respective rights against one
                     another under the Finance Documents  ("discharged  rights")
                     shall be cancelled;

<PAGE>


              (ii)   the Substitute party to such  Substitution  Certificate and
                     the existing parties to the Finance  Documents shall assume
                     obligations  towards  each  other  which  differ  from  the
                     discharged  obligations only insofar as they are owed to or
                     assumed  by  such  Substitute  instead  of to  or  by  such
                     Existing Bank;

              (iii)  the Substitute party to such  Substitution  Certificate and
                     the existing parties to the Finance Documents shall acquire
                     rights  against each other which differ from the discharged
                     rights only insofar as they are  exercisable  by or against
                     such  Substitute  instead  of by or against  such  Existing
                     Bank; and

              (iv)   the  Finance  Parties  shall  acquire  the same  rights and
                     benefits and assume the same obligations between themselves
                     as they would have acquired and assumed had such Substitute
                     been an  original  party  hereto as a Bank with the rights,
                     benefits and/or obligations  acquired or assumed by it as a
                     result of such transfer;

              and, on such Effective  Date,  the  Substitute  shall (unless such
              novation  is part of the  syndication  process  carried out by the
              Arrangers)  pay to the Facility Agent for its own account a fee of
              (pound)750.  The Facility  Agent shall  promptly  notify the other
              Banks of the  receipt by it of any  Substitution  Certificate  and
              shall promptly deliver a copy of such Substitution  Certificate to
              the Primary Borrower.

       (b)    A Substitution  Certificate  executed under this clause 16.5 shall
              be  automatically  effective  only if and to the  extent  that the
              Substitute  shall have a credit  rating issued by Standard & Poors
              Corporation  of  at  least  A  (the  "Minimum  Rating").   If  any
              Substitute  does not have the Minimum Rating as at the time of the
              transfer, then the Substitution  Certificate shall not take effect
              until such time as the Substitute has lodged with the Issuing Bank
              such  amount of cash by way of cash cover as would  represent  the
              amount required to be paid by that Substitute to the Issuing Bank,
              if the  Issuing  Bank  were  to call on the  Bank's  indemnity  in
              respect of Letters of Credit  contained in clause 4.6.  Should the
              Issuing Bank issue any further Letters of Credit,  such Substitute
              shall   lodge  such   further   cash  cover  as  shall  equal  the
              contribution  which  it could be  required  to make to the  Banks'
              indemnity in respect of such  additional  Letters of Credit.  Cash
              cover lodged under this clause  16.5(b) or clause  4.6(d) shall be
              placed by the Issuing Bank in a deposit  account  (subject to such
              security  arrangements  as  the  Issuing  Bank  may  specify)  and
              interest  (at a rate  determined  by the Issuing Bank from time to
              time) shall be for the account of and paid to such  Substitute  or
              Bank required to lodge such cash cover.

16.6   Reliance on Substitution Certificate

       The Facility  Agent and the Primary  Borrower  shall be fully entitled to
       rely on any Substitution  Certificate  delivered to the Facility Agent in
       accordance  with the  foregoing  provisions  of this  clause  16 which is
       complete and regular on its face as regards its contents and  purportedly
       signed on behalf of the relevant  Existing Bank(s) and the  Substitute(s)
       and none of the Facility  Agent and the Primary  Borrower  shall have any
       liability  or  responsibility  to any party as a  consequence  of placing
       reliance  on  and  acting  in  accordance  with  any  such   Substitution
       Certificate  if it proves to be the case that the same was not  authentic
       or duly authorised.

<PAGE>


16.7   Authorisation of Facility Agent

       Each party to this Agreement irrevocably authorises the Facility Agent to
       counter-sign each Substitution Certificate on its behalf for the purposes
       of clause 16.5 without any further consent of, or consultation with, such
       party.

16.8   Deed of Accession

       Each  Borrower  shall from time to time at the  request  of the  Facility
       Agent promptly execute any accession deed to any of the Finance Documents
       and do any  other  act or thing or  execute  such  further  documents  as
       directed by the Facility Agent in connection  with the transfer of rights
       or benefits under clause 16.3.

16.9   Costs and Expenses

       Each Borrower will,  promptly after demand by the Facility Agent,  pay to
       the Facility  Agent the reasonable  costs and expenses  incurred by it or
       any other Finance Party in connection with the creation of valid security
       in respect of any  Substitute  taking an  assignment  of rights and/or an
       assumption of  obligations  pursuant to clause 16 in those  jurisdictions
       requiring  further  steps  to  be  taken  following  such  assignment  or
       assumption.

16.10  Construction of certain references

       If any  Bank  novates  all or  any  part  of  its  rights,  benefits  and
       obligations  as provided in clause 16.3 all relevant  references  in this
       Agreement  to such Bank shall  thereafter  be construed as a reference to
       such  Bank  and/or  its  Substitute  to the  extent  of their  respective
       interests.

16.11  Lending offices

       Each Bank  shall lend  through  its office at the  address  specified  in
       schedule  1 or,  as the  case  may be,  in or  pursuant  to any  relevant
       Substitution  Certificate  or  through  any  other  office  of such  Bank
       selected from time to time by such Bank through which such Bank wishes to
       lend for the purposes of this  Agreement.  If the office  through which a
       Bank is lending is changed pursuant to this clause 16.11, such Bank shall
       notify the Facility Agent promptly of such change. No Bank shall exercise
       its rights  under this  clause in any manner  which might  reasonably  be
       expected to result in it not being a Qualifying Bank.

16.12  Disclosure of information

       Each  Borrower  agrees that the Finance  Parties may at any time disclose
       such  information  relating  to itself,  its  Affiliates  and  associated
       companies as shall come into their possession, whether or not in relation
       to the Facility:

       (a)    to any prospective assignee, Substitute or sub-participant;

       (b)    to their respective advisers, professional or otherwise;

       (c)    to any Affiliate of such Finance Party;

       (d)    to the other Finance Parties;

<PAGE>


       (e)    if required to do so by an order of a court in any jurisdiction;

       (f)    under  any  law  or  regulation  or to any  applicable  regulatory
              authority (including the Bank of England) in any jurisdiction; and

       (g)    where such  information  shall  have  already  entered  the public
              domain,

       and in the case of (a) and (b) above,  subject to requiring and receiving
       a written confirmation from the recipient of the information that it will
       treat in confidence any  confidential  information so disclosed to it and
       not  use it for  any  unauthorised  purpose  and,  upon  receipt  of such
       confirmation, such Finance Party shall in no way be liable or responsible
       for  such  information  not  being  kept  confidential  by such  proposed
       assignee, Substitute or other person.

16.13  Restrictions on novations

       Any novation by an Existing Bank which is transferring part (but not all)
       of its Commitment may only be made under this clause 16 if (i) it is made
       in respect of a Commitment  of  (pound)5,000,000  or any larger  integral
       multiple of  (pound)5,000,000  and (ii) as a consequence of such novation
       (or as a consequence of that and any other  novation  between the same or
       related  parties  taking effect at or about the same time) the Commitment
       of the  Existing  Bank would be not less than  (pound)5,000,000.  If part
       (but not all) of a Bank's Contribution is being transferred, the previous
       sentence   shall   be  read  as  if  it   referred   to   "Contribution",
       "Contributions"  and assignment instead of "Commitment" and "Commitments"
       and "novation" respectively.

16.14  No obligation

       The Existing Bank shall not be obliged by any Finance Document to:

       (a)    accept a  re-transfer  from the  Substitute  of any of the  rights
              and/or  obligations  assigned or transferred under this clause 16;
              or

       (b)    indemnify the  Substitute  for any losses arising by reason of any
              Obligor's  failure to perform  its  obligations  under any Finance
              Documents or otherwise.

16.15  Syndication

       It is  acknowledged  that at the date of this  Agreement  the Facility is
       being made  available by the  Underwriters  with the intention  that each
       Underwriter may transfer any part of its participation in accordance with
       clause 16.5  (Substitution)  and,  accordingly,  references  to the Banks
       shall,  before the first date on which such transfer shall be made of the
       Underwriter's  rights,  benefits and obligations  under this Agreement in
       accordance with clause 16.5  (Substitution),  be construed as a reference
       solely to the Underwriters.

16.16  The Borrower's undertakings in connection with syndication

       Each Borrower acknowledges that syndication of the Facility in accordance
       with this clause 16.16 will take place and undertakes to take  reasonable
       steps to assist and co-operate with the Arrangers, the Facility Agent and
       the Underwriters in syndication by, among other things:

       (a)    co-operating  with site visits by the Banks and persons invited by
              the Arrangers to participate (in this clause 16.16 only,  together
              the "Banks");

<PAGE>


       (b)    participating  at  an  appropriate   senior  management  level  in
              presentations to the Banks  concerning the Parent,  the members of
              the REC Group and their activities;

       (c)    using reasonable  endeavours to obtain appropriate  authorisations
              from the Auditors, other accountants, consultants and professional
              advisers to release  for the benefit of the Banks any  information
              addressed to a Borrower and/or the Facility Agent;

       (d)    refraining from making any statement,  announcement or publication
              or doing any act or thing which may  obstruct  syndication  in any
              way;

       (e)    providing the Banks with such  information  relating to the Parent
              and members of the REC Group, and their  associated  companies and
              their activities as the Banks reasonably request;

       (f)    assisting the Facility Agent and the Arrangers in the  preparation
              and review of any information which such Facility Agent and/or the
              Arrangers  reasonably  require for the  purposes  of  syndication,
              including   assisting  in  the   preparation  of  any  information
              memorandum  and the giving of such  additional  warranties  as the
              Facility  Agent may  reasonably  request  of the  contents  of the
              information  and/or the  warranties in clause 9, provided that any
              such warranties are expressed to be to the best of such Borrower's
              knowledge, information and belief and that it may disclose against
              such warranties such matters as it deems appropriate;

       (g)    passing on to the Facility Agent any enquiries received by it from
              potential Banks; and

       (h)    agreeing   to   amendments   to  the  Finance   Documents   of  an
              administrative or technical nature or to correct  typographical or
              other clerical errors.

17.    FACILITY AGENT

17.1   Appointment of Facility Agent

       Each Finance  Party  appoints  the Facility  Agent to act as its agent in
       connection  with the Finance  Documents to which the Facility  Agent is a
       party  and  authorises  the  Facility  Agent  to  exercise  such  rights,
       remedies,  powers and discretions as are specifically  delegated to it by
       the  terms of this  Agreement  together  with all  reasonably  incidental
       rights, powers and discretions. The Borrowers shall be entitled to assume
       that the Facility  Agent  represents the Finance  Parties,  the Reference
       Banks or the  Majority  Banks (as the case may be), and that all consents
       and notices given by the Facility Agent on its behalf are validly given.

17.2   Separate treatment of syndication division

       In acting as Facility Agent,  the Facility Agent's  syndication  division
       (or such other division as may undertake such task) shall be treated as a
       separate  entity  from any other of its  divisions  or  departments  and,
       despite the  provisions of clauses 17 to 21, if the Facility Agent or any
       Related Person acts for or transacts  business with any member of a group
       comprising  the Parent and its  Affiliates or associated  companies  (the
       "Parent  Group") or any other person which may be a trade  competitor  of
       the Parent Group or the Wider Group or any member of either such group or
       may otherwise have commercial interests similar to those of any member of
       such groups in

<PAGE>


       any capacity in relation to any other matter  (including  as a Bank under
       this  Agreement),  any information  acquired by the Facility Agent or any
       Related Person in such other capacity may be treated as  confidential  by
       the Facility Agent. The Borrowers  hereby expressly  acknowledge that the
       Finance  Parties and Related  Persons may be  providing  debt  financing,
       equity capital or other services (including  financial advisory services)
       to other  persons  with  whom the  Parent  or the  Wider  Group  may have
       conflicting interests in respect of the Facilities or otherwise.

17.3   Actions of Facility Agent

       Each action  taken or  decision  made by the  Facility  Agent under or in
       relation to any Finance  Document  with  requisite  authority  under this
       Agreement, including on the basis of the requisite instructions, shall be
       binding on all the Finance Parties.

17.4   Notification of retirement of Facility Agent or Issuing Bank

       Each of the  Facility  Agent  and/or  the  Issuing  Bank may  resign  its
       appointment under this Agreement at any time without assigning any reason
       therefor  by giving not less than 30 days' prior  written  notice to that
       effect to each of the other  parties to this  Agreement  Provided that no
       such  resignation  shall be effective until a successor for such Facility
       Agent or Issuing  Bank (as the case may be) is  appointed  in  accordance
       with the succeeding provisions of this clause.

17.5   Successor Facility Agent or Issuing Bank

       If the Facility  Agent or Issuing  Bank gives  notice of its  resignation
       pursuant to clause 17.4, then any reputable and experienced bank or other
       financial  institution  with an office in London  may after  consultation
       with the Borrowers be appointed as a successor to such Facility  Agent or
       Issuing Bank (as the case may be) by the  Majority  Banks but, if no such
       successor is so  appointed,  the  Facility  Agent or Issuing Bank (as the
       case may be) may appoint such a successor itself.

17.6   Provisions relating to successor Facility Agent or Issuing Bank

       With effect from the date that a successor is  appointed  and accepts the
       office  of  Facility  Agent  or,  as the  case may be,  Issuing  Bank and
       executes such necessary documentation under this clause 17:

       (a)    as regards  the other  Finance  Parties  and the  Borrowers,  such
              successor  shall  become  bound  by  all  the  obligations  of the
              Facility Agent or, as the case may be, the Issuing Bank and become
              entitled to all the rights,  privileges,  powers,  authorities and
              discretions  of the  Facility  Agent or,  as the case may be,  the
              Issuing Bank under the Finance Documents;

       (b)    the agency of the retiring  Facility Agent or, as the case may be,
              the duties of the Issuing  Bank shall  terminate  and the retiring
              Facility  Agent or, as the case may be, the retiring  Issuing Bank
              shall be discharged from any further liability or obligation under
              the Finance  Documents,  but without  prejudice to any liabilities
              which the  retiring  Facility  Agent  or, as the case may be,  the
              retiring Issuing Bank may have incurred (including with respect to
              the retiring  Issuing Bank any then  outstanding  Issued Letter of
              Credit) before the termination of its agency,  trusteeship  and/or
              duties;

<PAGE>


       (c)    the costs,  charges and expenses of the retiring  Facility  Agent,
              or,  as the  case  may be,  the  retiring  Issuing  Bank  shall be
              discharged if recoverable under the provisions of this Agreement;

       (d)    the provisions of the Finance  Documents  shall continue in effect
              for the benefit of any retiring  Facility  Agent,  or, as the case
              may be, the retiring  Issuing Bank in respect of any actions taken
              or  omitted  to be taken by it or any event  occurring  before the
              termination of its agency,  trusteeship  and/or duties  (including
              with  respect to the retiring  Issuing  Bank any then  outstanding
              Issued Letter of Credit);

       (e)    the retiring  Facility Agent or Issuing Bank shall (at the expense
              of the Primary Borrower) provide its successor with copies of such
              of its records as its successor  reasonably  requires to carry out
              its functions as such.

17.7   Merger of Facility Agent or Issuing Bank

       Any corporation  into which the Facility Agent or the Issuing Bank may be
       merged or converted or any  corporation  with which the Facility Agent or
       the Issuing Bank may be consolidated  or any  corporation  resulting from
       any   merger,   conversion,   amalgamation,    consolidation   or   other
       reorganisation to which the Facility Agent or the Issuing Bank shall be a
       party shall, to the extent  permitted by applicable law, be the successor
       Facility  Agent or, as the case may be, Issuing Bank under this Agreement
       and the other Finance Documents (as appropriate) without the execution or
       filing  of any  document  or any  further  act on the  part of any of the
       parties  to this  Agreement  or, as the case may be,  the  other  Finance
       Documents   save  that  notice  of  merger,   conversion,   amalgamation,
       consolidation  or other  reorganisation  shall  forthwith be given to the
       Primary Borrower and the Banks.

17.8   Role of Issuing Bank

       The  Issuing  Bank shall act on behalf of the Banks  with  respect to any
       Letters of Credit  Issued by it and the  documents  associated  therewith
       until such time and except for so long as the Facility Agent may agree at
       the  request  of the  Majority  Banks to act for such  Issuing  Bank with
       respect thereto.

18.    POWERS

18.1   General powers

       Each of the Facility  Agent,  the Issuing  Bank,  the  Arrangers  and the
       Underwriters may:

       (a)    assume that the  Facility  Office of each Bank is that  identified
              with its signature  below (or, in the case of a  Substitute,  that
              identified in the Substitution Certificate under which it became a
              party to this  Agreement)  until it has received  from such Bank a
              notice  designating some other office of such Bank as its Facility
              Office,  and may act  upon  any  such  notice  until  the  same is
              superseded by a further such notice;

       (b)    engage  and  pay  for  the  advice  or  services  of any  lawyers,
              accountants  or other  advisers  whose advice or services may seem
              necessary,  expedient  or  desirable  to it and may rely  upon any
              advice so obtained;

<PAGE>


       (c)    rely as to matters of fact which might  reasonably  be expected to
              be within the  knowledge of any  Borrower  upon a  certificate  or
              statement signed by or on behalf of such Borrower;

       (d)    rely  upon any  communication  or  document  believed  by it to be
              genuine and correct and to have been communicated or signed by the
              person by whom it purports to be communicated or signed;

       (e)    refrain from exercising any right,  power or discretion  vested in
              it under any Finance  Document unless and until  instructed by the
              Majority Banks or, where required,  all of the Banks as to whether
              or not such right,  power or discretion is to be exercised and, if
              it is to be  exercised,  as to the  manner  in which it  should be
              exercised,  and it shall not be liable  for  acting or  refraining
              from  acting  in  accordance  with  or  in  the  absence  of  such
              instructions;

       (f)    refrain  from  taking any step to protect or enforce the rights of
              any Finance  Party under any Finance  Document and from  beginning
              any legal  action or  proceeding  arising out of or in  connection
              with any Finance  Document  until it has been  indemnified  and/or
              secured as it may require (whether by way of payment in advance or
              otherwise) against all costs,  claims,  expenses  (including legal
              fees)  and  liabilities  which it will or may  expend  or incur in
              complying with such instructions;

       (g)    refrain from doing anything which would or might in its opinion be
              contrary to any applicable law or any requirements (whether or not
              having  the  force  of  law)  of  any  governmental,  judicial  or
              regulatory body or otherwise  render it liable to any person,  and
              do anything  which is in its opinion  necessary to comply with any
              such applicable law or requirement;

       (h)    do any act or  thing  in the  exercise  of any of its  powers  and
              duties under the Finance  Documents which may lawfully be done and
              which  in its  absolute  discretion  it  deems  advisable  for the
              protection and benefit of the Finance Parties collectively;

       (i)    perform any of its duties,  obligations and responsibilities under
              the Finance Documents by or through its personnel or agents; and

       (j)    accept  deposits  from,  lend money  (secured or unsecured) to and
              generally engage in any kind of banking or other business with, be
              the owner or holder of any  shares  or other  securities  of,  and
              provide   advisory  or  other  services  to  the  Parent  and  its
              Affiliates,  and/or the REC Group or any of the  Finance  Parties,
              without any liability to account.

18.2   Specific powers of Facility Agent and Issuing Bank

       The Facility Agent and the Issuing Bank:

       (a)    may assume that:

              (i)    any  representation  made by a Obligor in or in  connection
                     with the Finance Documents is true;

              (ii)   no Default has occurred;

<PAGE>


              (iii)  no Obligor is in breach of or default under its obligations
                     under any Finance Document; and

              (iv)   any right, power,  authority or discretion vested in any of
                     the Finance  Documents upon the Majority Banks,  all Banks,
                     or any  other  person  or  group  of  persons  has not been
                     exercised,

              unless the  Facility  Agent has in its  capacity  as agent for the
              relevant  Finance  Parties  received actual notice to the contrary
              from any other party to any Finance Document;

       (b)    shall be at liberty to place any  Finance  Document  and any other
              instruments,  documents or deeds delivered to it pursuant  thereto
              or in connection therewith for the time being in its possession in
              any safe  deposit,  safe or  receptacle  selected by the  Facility
              Agent,  as the case may be, or with any bank,  any  company  whose
              business includes undertaking the safe custody of documents or any
              firm of lawyers of good repute and may make any such  arrangements
              as it thinks fit for allowing  any of the  Obligors  access to, or
              its  solicitors or auditors  possession  of, such  documents  when
              necessary or convenient and, in the absence of gross negligence or
              wilful default on its part,  shall not be responsible for any loss
              thereby incurred;

       (c)    may,  whenever  it thinks  fit,  delegate  by power of attorney or
              otherwise  to any  person  or  persons  all or any of the  rights,
              trusts,  powers,  authorities  and discretion  vested in it by any
              Finance  Document and such  delegation may be made upon such terms
              and subject to such conditions and subject to such  regulations as
              the  Facility  Agent,  as the case may be, may think fit and shall
              not be bound to supervise  the  proceedings  or (in the absence of
              gross  negligence  or  wilful  default  on its part) be in any way
              responsible  for any loss incurred by reason of any  misconduct or
              default on the part of any such delegate;

       (d)    notwithstanding  anything else herein contained,  may refrain from
              doing  anything which would or might in its opinion be contrary to
              any relevant law of any jurisdiction or any relevant  directive or
              regulation  of any  agency  of any  state or which  would or might
              otherwise  render  it liable to any  persons  and may do  anything
              which is, in its  opinion,  necessary  or desirable to comply with
              any such law, directive or regulations;

       (e)    may indemnify itself and/or every attorney,  agent or other person
              appointed  by it under any Finance  Document  out of any  security
              against all  liabilities  arising in connection  with the Facility
              and/or in respect of any other  matter or thing done or omitted to
              be done in any way  relating  to any  Finance  Document  or by law
              and/or acting as Facility Agent or Issuing Bank;

       (f)    shall have the power to institute,  prosecute and defend any suits
              or actions or other  proceedings  affecting the Facility  Agent or
              Issuing  Bank or any  security  and to  compromise  any  matter or
              difference  or  submit  any  such  matter  to  arbitration  and to
              compromise  or compound any debts owing to the  Facility  Agent or
              Issuing Bank or any other  claims  against it or any such terms as
              it shall deem  sufficient  and to make petition upon such terms as
              it shall deem desirable;

       (g)    save as otherwise  expressly provided herein,  shall have absolute
              discretion  as to the  exercise  or non  exercise  (and  as to the
              manner and time of any such exercise) of all

<PAGE>


              rights, trust, powers, authorities and discretions vested in it by
              any of the Finance Documents but shall be entitled to refrain from
              exercising any right, power or discretion vested in it as agent or
              trustee under any Finance  Document unless and until instructed by
              the Majority Banks or, where required  under this  Agreement,  all
              Banks as to whether or not such right,  power or  discretion is to
              be exercised  and, if it is to be  exercised,  as to the manner in
              which it should be exercised; and

       (h)    shall have absolute  discretion as to the exercise or non-exercise
              (and as to the  manner  and  time  of any  such  exercise)  of all
              rights, trust, powers,  authorities and discretions in relation to
              any matter, or in any context,  not expressly provided for by this
              Agreement  to act or, as the case may be,  refrain  from acting in
              accordance with the instructions of the Majority Banks;

       (i)    shall  have  the  power  to  give or  enter  into  any  indemnity,
              warranty, guarantee,  undertaking or covenant or to enter into any
              type of agreement  as it shall,  with the approval of the Majority
              Banks (or,  where required  under this  Agreement,  all Banks) and
              subject to all other  provisions of the Finance  Documents,  think
              fit in relation to any security in respect of the Facility;

       (j)    shall  (subject to clause 19) be  entitled  (in its own name or in
              the names of nominees)  to invest  moneys from time to time which,
              in the opinion of the Facility Agent or the Issuing Bank, it would
              not be practicable  to distribute  immediately by placing the same
              on  deposit  in the name or under the  control of itself as it may
              think fit without  being under any duty to diversify  the same and
              it shall not be  responsible  for any loss due to interest rate or
              exchange rate fluctuations;

       (k)    with respect to its own  Commitments and  Contributions  (if any),
              shall have the same rights and powers under this Agreement and the
              other  Finance  Documents  as any other Bank and may  exercise the
              same as though it were not  performing  the duties  and  functions
              delegated  to it under this  Agreement  and/or  the other  Finance
              Documents and the term "Banks" shall,  unless the context  clearly
              otherwise  indicates,  include the Facility Agent and Issuing Bank
              in their individual capacities as Banks.

19.    DUTIES

19.1   Specific duties of the Facility Agent

       The Facility  Agent (for the benefit of the other  Finance  Parties only)
       shall:

       (a)    promptly  upon  receipt  inform  each Bank of the  contents of any
              notice or document or other information received by it on or after
              the date of this Agreement in its capacity as Facility Agent under
              this Agreement from any Borrower;

       (b)    promptly  notify each Bank of the occurrence of any Default or any
              material  breach  by any  Obligor  in the due  performance  of its
              obligations  under this  Agreement or any guarantee or security in
              respect of the Facility of which the  Facility  Agent has received
              written notice from any other party to any Finance Document;

<PAGE>


       (c)    save as otherwise  provided  herein,  act in  accordance  with any
              instructions given to it by the Majority Banks (which instructions
              shall be binding on all of the Finance Parties);

       (d)    if so  instructed  by the  Majority  Banks (or,  where so required
              under this  Agreement,  all Banks),  refrain from  exercising  any
              right,  remedy power or discretion  vested in it under the Finance
              Documents;

       (e)    except as regards purely  administrative  acts,  consult  whenever
              reasonably  practicable  with the Banks before doing or refraining
              from doing any act or thing in the exercise of its powers as agent
              and/or trustee;

       (f)    to the extent that it receives or recovers  monies  following  the
              service of a notice in accordance  with Clause 12.2 pursuant to or
              as a result of any breach of any Finance Document to be applied in
              discharging any obligation (whether actual or contingent,  present
              or future) of any Obligor under any Finance  Document,  apply such
              monies (without prejudice to the respective rights of the Facility
              Agent  pursuant  to any  Finance  Document  to credit  any  monies
              received  by it to any  suspense  account)  as between the Finance
              Parties in  accordance  with  clause 8.9 as if they were a partial
              payment; and

       (g)    shall make each such application and/or distribution as soon as is
              practicable   after  the  relevant  moneys  are  received  by,  or
              otherwise become available to, it save that the Facility Agent may
              credit any moneys received by it to a suspense account for so long
              and in such  manner  as the  Facility  Agent may from time to time
              determine  with a view to  preserving  the  rights of the  Finance
              Parties or any of them to prove for the whole of their  respective
              claims against any Obligor or any other person liable.

20.    EXONERATION

20.1   Absence of obligation on initial Finance Parties

       Despite  anything  to the  contrary  expressed  or implied in any Finance
       Document, each of the Facility Agent, the Issuing Bank, the Arrangers and
       the Underwriters shall:

       (a)    not be  bound  to  enquire  as to and will  have no  liability  in
              respect of:

              (i)    whether or not any  representation  or warranty made by any
                     Obligor under or in connection with any Finance Document is
                     true, complete or adequate;

              (ii)   the occurrence or otherwise of any Default;

              (iii)  the performance by any Obligor of its obligations under any
                     Finance Document; or

              (iv)   any  breach  or  default  by any  Obligor  of or under  its
                     obligations under any Finance Document;

       (b)    not be bound to account to any Finance  Party for any fee or other
              sum or the profit  element of any sum  received  by it for its own
              account;

<PAGE>


       (c)    not be bound to  disclose  to any  other  person  any  information
              relating to any member of the REC Group if such  disclosure  would
              or  might  in its  opinion  constitute  a  breach  of  any  law or
              regulation or duty of confidentiality  or be otherwise  actionable
              at the suit of any person;

       (d)    not be under any fiduciary or other duty towards any Finance Party
              or under any obligations  other than those expressly  provided for
              in any Finance Documents;

       (e)    not be  liable  (in the  absence  of its own gross  negligence  or
              wilful default):

              (i)    for any failure,  omission, or defect in the due execution,
                     delivery,  validity,   legality,   adequacy,   performance,
                     enforceability, or admissibility in evidence of any Finance
                     Document  or any  communication,  report or other  document
                     delivered under any Finance Document; or

              (ii)   in respect of its  exercise or failure to  exercise  any of
                     its powers and duties under any Finance Document; or

       (f)    not have any duties,  obligations or liabilities  other than those
              expressly  provided for in this Agreement and have no liability or
              responsibility  (in the  absence  of its own gross  negligence  or
              wilful default) of any kind to:

              (i)    any member of the Wider Group arising out of or in relation
                     to any failure or delay in the performance or breach by any
                     Finance Party (other than itself) of any of its obligations
                     under or in connection with any Finance Document; or

              (ii)   any Finance Party arising out of or in relation to:

                     (aa)   the  financial  condition of any member of the Wider
                            Group; or

                     (bb)   any failure or delay in the performance or breach by
                            any  Obligor of any of its  obligations  under or in
                            connection   with  any   Finance   Document  or  the
                            Facility;

       (g)    not be bound to check or  enquire  on behalf of any other  Finance
              Party  into or  liable  for  the  adequacy,  accuracy,  execution,
              genuineness,   enforceability,   admissibility   in   evidence  or
              completeness of any communication delivered to it under any of the
              Finance   Documents,   any  legal  or  other  opinions,   reports,
              valuations, certificates,  appraisals or other documents delivered
              or made  or  required  to be  delivered  or  made  at any  time in
              connection with any of the Finance  Documents,  any security to be
              constituted  thereby  or  any  other  report  or  other  document,
              statement or information  circulated,  delivered or made,  whether
              orally or otherwise  and whether  before,  on or after the date of
              this Agreement;

       (h)    be entitled to accept  without  enquiry,  requisition or objection
              such right and title as any  Obligor  may have to that part of the
              property  belonging  to it (or  any  part  thereof)  which  is the
              subject  matter  of any  Finance  Document  and  not be  bound  or
              concerned  to  investigate  or make any enquiry  into the right or
              title of such person to such  property  (or any part  thereof) or,
              without  prejudice  to the  foregoing,  to require  such person to
              remedy any defect in such person's right or title as aforesaid;

<PAGE>


       (i)    be entitled to invest  monies which in the opinion of the Facility
              Agent may not be paid out promptly  following  receipt in the name
              or under the control of the Facility  Agent or Issuing Bank in any
              of the  investments  for the time being  authorised by law for the
              investment by trustees of trust monies or in any other investments
              whether  similar to the aforesaid or not which may be requested by
              the  Majority  Banks or by placing the same on deposit in the name
              or under the control of the Facility  Agent or Issuing Bank as the
              Facility  Agent may think fit and the  Facility  Agent or  Issuing
              Bank may at any time vary or transpose any such investments for or
              into any  others of a like  nature  and (in the  absence  of gross
              negligence or wilful default on the part of such Facility Agent or
              Issuing  Bank)  shall  not be  responsible  for any  loss  thereby
              incurred  whether due to depreciation in value of such investments
              or any other reason whatever;

       (j)    not be bound  to take  any  steps or  perform  any  obligation  or
              exercise  any right or fulfil any request if to do so might in its
              sole opinion  breach or conflict with or contradict or be contrary
              to any rule, regulation, law, regulatory requirement,  court order
              or judgment in any  jurisdiction or expose the Facility Agent, the
              Issuing Bank, the Arrangers or the  Underwriters to liabilities in
              any  jurisdiction  or be otherwise  actionable  at the suit of any
              person;

       (k)    not be liable for any failure:

              (i)    to  require  the  deposit  with it of any deed or  document
                     certifying,  representing or constituting  the title of any
                     Obligor to any of the property mortgaged, charged, assigned
                     or otherwise encumbered by or pursuant to any security;

              (ii)   to obtain any licence,  consent or other  authority for the
                     execution,    delivery,   validity,   legality,   adequacy,
                     performance, enforceability or admissibility in evidence of
                     any of the Finance Documents; or

              (iii)  to register or notify any of the  foregoing  in  accordance
                     with the provisions of any of the documents of title of any
                     Obligor;

       (l)    have no liability (save as otherwise provided in clauses 17 to 23)
              otherwise in connection with the Facility or their negotiations or
              for  acting  (or as the case may be  refraining  from  acting)  in
              connection with the instructions of the Majority Banks.

20.2   Indemnity from Banks

       Each Bank shall, in its Proportion,  on demand by the Facility Agent, the
       Issuing Bank or any Arranger  from time to time,  indemnify  the Facility
       Agent, the Issuing Bank or the Arranger, against any and all fees (to the
       extent properly chargeable by the Facility Agent, the Issuing Bank or the
       Arranger under any Finance  Document but not promptly  recovered from any
       Obligor),  costs,  claims and expenses and liabilities  including any VAT
       thereon:

       (a)    to which the Facility  Agent or Issuing  Bank  becomes  subject by
              reason of it acting as agent or security trustee; or

       (ii)   incurred by the Facility Agent or any attorney, agent, delegate or
              other person  appointed  by the  Facility  Agent under any Finance
              Document in relation to or arising out of the taking or holding of
              any of the security given or created by or pursuant to

<PAGE>


              any of the Finance  Documents or in the  execution or purported or
              attempted execution of the rights,  trusts,  powers,  authorities,
              discretions and obligations vested in it; or

       (iii)  which it is otherwise entitled to recover from any Obligor,

       in each case  under any of the  Finance  Documents  or by law,  including
       those relating to all actions, proceedings, claims and demands in respect
       of any matter or thing done or omitted in any way relating to the Finance
       Documents any exercise or non exercise of any right, power or discretion,
       and all  amounts due to the  Facility  Agent by way of  remuneration  for
       acting  as  agent  or  trustee   under  any  of  the  Finance   Documents
       (collectively the "Liabilities").  Each Borrower shall  counter-indemnify
       the Banks  against all payments by them under this clause 20.2. If a Bank
       (referred to in this clause 20.2 as a "defaulting Bank") fails to pay its
       due  contribution  under  this  indemnity,  then the  Facility  Agent may
       (without  prejudice to its other rights and  remedies)  deduct the amount
       due from the  defaulting  Bank from any sums which are then or afterwards
       in its  possession  which would  otherwise  be payable to the  defaulting
       Bank.

20.3   Disclaimer

       Neither the  Facility  Agent or the  Issuing  Bank,  nor any  Arranger or
       Underwriter  accepts  responsibility  to any other  Finance Party for the
       accuracy and/or  completeness  of any information  supplied in connection
       with any Finance Document or for the legality,  validity,  effectiveness,
       adequacy  or  enforceability  of any  Finance  Document  and  neither the
       Facility Agent or the Issuing Bank, nor any Arranger or Underwriter shall
       be under any  liability to any other  Finance Party as a result of taking
       or  omitting  to take any  action in  relation  to any  Finance  Document
       (except in the case of its gross negligence or wilful misconduct).

20.4   No actions against individuals

       Each of the  Banks  agrees  that it will  not  assert  or seek to  assert
       against any  director,  officer or employee of the  Facility  Agent,  the
       Issuing Bank, any Arranger or  Underwriter  any claim it may have against
       any of them in respect of the matters referred to in clause 20.3.

20.5   Credit appraisals

       It is agreed by each Bank, by virtue of its  execution of this  Agreement
       or its  accession to this  Agreement,  that it has itself been,  and will
       continue  to be,  solely  responsible  for  making  its  own  independent
       appraisal   of  and   investigations   into  the   financial   condition,
       creditworthiness, condition, affairs, status and nature of each member of
       the REC  Group,  and,  accordingly,  each  Bank  confirms  to each of the
       Facility Agent,  the Issuing Bank, the Arrangers,  the  Underwriters  and
       other Banks that it:

       (a)    does not enter into this  Agreement  nor accede to it on the basis
              of and has not  relied  on and  will  not  rely on any  statement,
              opinion,  forecast or other  representation  (whether negligent or
              innocent)  or warranty  or other  provision  (in any case  whether
              oral,  written,  express  or  implied)  made by, or agreed to, the
              Facility Agent, the Issuing Bank, any Arranger, any Underwriter or
              any other  Bank to induce it to enter into this  Agreement  or any
              other Finance Document except as expressly set out therein and the
              remedies  available  in respect of any such  misrepresentation  or
              untrue statement made to such Bank shall be limited to a claim for
              breach of contract under this Agreement; and

<PAGE>


       (b)    has not  relied on and will not rely on the  Facility  Agent,  the
              Issuing Bank, any Arranger, any Underwriter or any other Bank:

              (i)    to check  or  enquire  on its  behalf  into  the  adequacy,
                     accuracy or completeness of any information  provided by or
                     on  behalf  of any  Obligor  or any  of its  Affiliates  in
                     connection   with   any   Finance   Document   and/or   the
                     transactions contemplated in the Finance Documents (whether
                     or not such  information  has been or is after  the date of
                     this  Agreement  circulated  to such  Bank by the  Facility
                     Agent,  the Issuing Bank, any Arranger or Underwriter or as
                     the case may be any other Bank); or

              (ii)   to assess or keep under review on its behalf the  financial
                     condition, creditworthiness,  condition, affairs, status or
                     nature of any Obligor or any of its Affiliates.

       Provided  that  clause  20.5(a)  shall  not  apply  to any  statement  or
       representation  made fraudulently,  or to any provision of this Agreement
       which was induced by fraud for which the remedies  available shall be all
       those available under English law.

20.6   Exoneration of Related Persons

       All the  provisions  of this clause 20 and of any other  provision of any
       Finance  Document  protecting  (including  indemnifying)  or limiting the
       liability  of any Finance  Party,  or  exonerating  it from  liability or
       responsibility,  which may enure to the benefit of the such Finance Party
       shall also be deemed to be given for the benefit of all  Related  Persons
       to whom they are  capable  of  relating  or in  respect  of whom they are
       capable of taking effect.

20.7   Pre-contractual effect of exoneration

       For the avoidance of doubt,  the guarantee,  indemnity,  exonerations and
       other  protections in favour of the Facility Agent, the Issuing Bank, the
       Arrangers,  the  Underwriters  and the Related  Persons  contained in the
       Finance Documents shall take effect in respect of all events,  action and
       omissions occurring before the execution and completion of this Agreement
       as well as  events,  actions  and  omissions  occurring  on or after  its
       execution and completion  and to the extent that any liability  should be
       adjudged  to have  arisen  prior  to the  date of  this  Agreement,  such
       liability is hereby completely released.

21.    ENFORCEMENT AND RECOVERIES

21.1   Obligations owed by each Borrower to Finance Parties

       Each Borrower agrees that:

       (a)    all claims in the Finance Documents may be enforced,  realised and
              distributed by the Facility Agent and, where relevant, the Issuing
              Bank in accordance with their respective powers and obligations of
              the Finance Parties set out in clauses 18 and 19;

       (b)    if it  receives  any sum from any person  which,  pursuant  to the
              Finance  Documents,  should have been paid to the Facility  Agent,
              such sum shall be held on trust for the Finance  Parties and shall
              forthwith be paid over to the Facility Agent.

<PAGE>


       (c)    the obligations and liabilities the subject of any Guarantee shall
              only be  discharged  by  virtue  of  receipt  or  recovery  by the
              Facility  Agent of monies,  or of  payments  made by the  Facility
              Agent  hereunder,  to  the  extent  that  the  ultimate  recipient
              actually receives monies from the Facility Agent hereunder.

21.2   Obligations owed by Finance Parties to Facility Agent and Security Agent

       The  Finance  Parties  agree  between  themselves  not to take any action
       separately  to enforce or attempt to enforce any Guarantee or to exercise
       any rights,  discretions  or powers or to grant any  consents or releases
       under or pursuant to any Guarantee.

22.    DETERMINATION OF MATTERS

22.1   Majority Bank matters: amendments and waivers

       Except as  provided  in  clauses  22.4 and 22.5,  with the prior  written
       consent  of the  Majority  Banks,  the  Facility  Agent  and the  Primary
       Borrower may from time to time:

       (a)    enter into written amendments, supplements or modifications to the
              Finance Documents (however  fundamental) for the purpose of adding
              any provisions to the Finance  Documents or changing in any manner
              the rights and/or obligations of any of the Obligors, the Facility
              Agent, the Issuing Bank and the Banks; and

       (b)    execute and deliver to the Primary  Borrower a written  instrument
              waiving  prospectively  or  retrospectively,  on  such  terms  and
              conditions as the Facility  Agent may specify in such  instrument,
              any of the requirements of any of the Finance Documents, or giving
              any consents or approvals thereunder.

22.2   Documentation of Majority Bank changes

       Any action so authorised  and effected by the Facility Agent under clause
       22.1 shall be documented in such manner as the Facility Agent shall (with
       the approval of the Majority Banks) determine, shall be promptly notified
       to  the  Banks  by the  Facility  Agent  and  (without  prejudice  to the
       generality of clause 17.3) shall be binding on all the Banks.

22.3   Majority bank matters: enforcement

       If the Facility Agent makes a declaration  under clause 12.2 the Facility
       Agent shall, in the names of all the Banks, take such action on behalf of
       the Banks and conduct such  negotiations  with any Obligor and  generally
       administer  the  Facility in  accordance  with the wishes of the Majority
       Banks. All the Banks shall be bound by the provisions of this clause 22.3
       and no Bank shall be entitled to take  action  independently  against the
       Primary Borrower without the prior consent of the Majority Banks.

22.4   All Bank matters: amendments and waivers

       Except  with the prior  written  consent of all the Banks,  the  Facility
       Agent shall not have  authority  on behalf of the Banks to agree with any
       Borrower any amendment or  modification  to this  Agreement or to vary or
       waive breaches of or defaults under or otherwise excuse

<PAGE>


       performance  of any provision of this  Agreement by any Borrower,  if the
       effect of such would be to:

       (a)    reduce the Applicable Margin;

       (b)    postpone  the due date or  reduce  the  amount of any  payment  of
              principal, interest, commitment commission or other amount payable
              by any Borrower under this Agreement;

       (c)    change the currency in which any amount is payable by any Borrower
              under this Agreement;

       (d)    have the effect of changing the amount of any Facility, any Bank's
              Commitment  or the  principal  or face  amount or  currency of any
              Advance;

       (e)    extend any period during which a Drawdown Notice may be delivered;

       (f)    change any provision of this Agreement  which  expressly  requires
              the  approval  or consent of all the Banks such that the  relevant
              approval or consent may be given  otherwise than with the sanction
              of all the Banks;

       (g)    change  the  definitions  of  Borrowed  Money,  Event of  Default,
              Majority  Banks,  Default,  Final  Repayment Date or  Substitution
              Certificate;

       (h)    agree with any Obligor any amendment of, or action in relation to,
              any Guarantee which would have the effect of:

              (i)    extending  the  due  date or  reducing  the  amount  of any
                     payment under any Guarantee; or

              (ii)   changing the currency in which any amount is payable  under
                     any Guarantee;

       (i)    change clause 15.2 (Pro-rata Payments); or

       (j)    change this clause 22 or clause 23.

22.5   Execution of new security

       For  the  purposes  of  this  clause  22  it  is  expressly   agreed  and
       acknowledged  that the execution of a guarantee  and/or deed of adherence
       by a new REC Company or other Obligor or proposed  Obligor or any deed or
       instrument pursuant to a further assurance provision in this Agreement or
       the  other  Finance  Documents  shall  not  constitute  an  amendment  or
       modification to, or variation of, any of the Finance Documents.

22.6   Veto of Facility Agent

       Regardless of any other provision in this  Agreement,  the Facility Agent
       and, to the extent  affected,  the  Issuing  Bank shall not be obliged to
       agree to any such waiver,  amendment,  supplement or  modification  if it
       would:

       (a)    amend, modify or waive any provision of clause 22; or

<PAGE>


       (b)    otherwise amend, modify or waive any of the Facility Agent's,  the
              Issuing Bank's or the  Arrangers'  rights under any of the Finance
              Documents to any additional obligations under such documents.

22.7   Administrative determinations

       The Facility Agent may determine  purely  administrative  matters without
       reference to the Banks.

23.    BASIS OF DECISIONS

23.1   Meaning of Majority Banks

       Where  this  Agreement  provides  for  any  matter  to be  determined  by
       reference  to the  opinion of, or to be subject to the consent or request
       of, the Majority Banks or for any action to be taken on the  instructions
       of the Majority  Banks,  such opinion,  consent,  request or instructions
       shall (as between  the Banks)  only be  regarded  as having been  validly
       given or  issued  by the  Majority  Banks  if all the  Banks  shall  have
       received  prior  notice of the  matter on which  such  opinion,  consent,
       request or  instructions  are  required to be obtained  and the  relevant
       majority  of Banks  shall have  given or issued  such  opinion,  consent,
       request or  instructions,  but so that (as between each  Borrower and the
       Finance  Parties) each  Borrower  shall be entitled (and bound) to assume
       that such notice shall have been duly  received by each Bank and that the
       relevant  majority shall have been obtained to constitute  Majority Banks
       when notified to this effect by the Facility Agent whether or not this is
       the case.

23.2   Notice to Majority Banks

       If, within 10 Banking Days of the Facility Agent despatching to each Bank
       a notice requesting  instructions (or confirmation of instructions)  from
       the Banks or the agreement of the Banks to any  amendment,  modification,
       waiver,  variation  or excuse of  performance  for the purposes of, or in
       relation to, any of the Finance  Documents,  the  Facility  Agent has not
       received a reply specifically giving or confirming or refusing to give or
       confirm the relevant  instructions  or, as the case may be,  approving or
       refusing  to  approve  the  proposed  amendment,   modification,  waiver,
       variation  or excuse of  performance,  then  (subject to clause 23.4) the
       Facility  Agent shall treat any Bank which has not so responded as having
       indicated a desire to be bound by the wishes of 662/3 per cent.  of those
       Banks (measured in terms of the relevant  Contributions  or, if none, the
       relevant  Commitments  of those Banks) which have so responded.  Any Bank
       which  notifies the  Facility  Agent of a wish or intention to abstain on
       any particular issue shall be treated as if it had not responded.

23.3   Meaning of all Banks

       Where this  Agreement  or any other  Finance  Document,  provides for any
       matter to be  determined by reference to the opinion of, or to be subject
       to the  consent  of or  request  of all of the Banks or the Banks  acting
       unanimously  or for any action to be taken on the  instruction of all the
       Banks such opinion,  consent,  request or instructions  shall (as between
       the Banks) only be regarded as having been validly given or issued by all
       the Banks (or the Banks acting  unanimously)  if all the Banks shall have
       received prior notice (the "Agent's  Notice") of such matter containing a
       request for written instructions from such Bank to be received by the

<PAGE>


       Facility  Agent  within ten  Banking  Days of the  receipt (or the deemed
       receipt pursuant to clause 24.1(b)) of the Agent's Notice. If, in respect
       of a Bank, the Facility Agent:

       (a)    shall not have received  written  instructions  in respect of such
              matter from such Bank; and

       (b)    the Facility  Agent shall have received  written  instructions  in
              respect of such matter from at least five other Banks,

       in each case within such time period (and subject to clause  23.4),  such
       Bank shall be deemed to have  irrevocably  renounced and waived its right
       to make any such determination, approval, consent or provide instructions
       to the  Facility  Agent in  respect  of such  matter;  shall not have any
       rights,  recourse or remedy against the Facility Agent in respect of such
       matter; and shall be bound (as shall each Borrower) by the determination,
       approval,  consent or  instructions of the other Banks in respect of such
       matter.  Clauses  23.1 and 23.2  shall  not  apply in  relation  to those
       matters which are to be decided by all the Banks.

23.4   Late responses

       In any case where a Bank fails to respond  within the time limit set down
       under clauses 23.2 or 23.3, such Bank's  response,  if it responds before
       any  determination  or instruction is acted upon or  communicated  to any
       Borrower,  will be taken into account as if it had been  received  within
       the time limit  Provided  that the  Facility  Agent has  received  actual
       notice of such response before any such action or communication.

23.5   Costs

       If the Primary  Borrower  requests,  or if the Facility Agent requires in
       accordance  with clause 10.3(c) or any other provision of this Agreement,
       any amendment,  supplement,  modification or waiver under clauses 22.1 or
       22.3  (Majority Bank matters) or clauses 22.4 or 22.5 (All Bank matters),
       then the  Primary  Borrower  shall,  on  demand  by the  Facility  Agent,
       reimburse the Facility Agent for all costs and expenses  (including legal
       fees),  together with any VAT on them,  incurred by the Facility Agent in
       the  negotiation,  preparation  and  execution of any written  instrument
       contemplated  by clauses 22.1 or 22.3  (Majority Bank matters) or clauses
       22.4 or 22.5 (All Bank matters).

23.6   No partnership

       This Agreement shall not and shall not be construed so as to constitute a
       partnership between the parties to this Agreement or any of them.

23.7   Change of Reference Banks

       If:

       (a)    the whole of the  Contributions (if any) of any Reference Bank are
              prepaid;

       (b)    the Commitments (if any) of any Reference Bank are reduced to zero
              prior to the end of the Finance Period;

<PAGE>


       (c)    a Reference  Bank novates the whole of its rights and  obligations
              (if any) as a Bank under this Agreement; or

       (d)    a Reference  Bank  ceases to provide  quotations  to the  Facility
              Agent upon  request for the purposes of  determining  LIBOR (where
              such  quotations  are required  having regard to the definition of
              "LIBOR" in clause 1.2)

       the Facility Agent may, acting on the instructions of the Majority Banks,
       terminate the  appointment of such Reference Bank and after  consultation
       with the Primary  Borrower appoint another Bank to replace such Reference
       Bank.

24.    MATTERS CONCERNING THE OBLIGORS

24.1   Additional Borrower

       The Primary  Borrower may with the prior written  consent of the Facility
       Agent at any time  during the term of this  Agreement  designate  another
       directly  wholly owned,  English  incorporated  Subsidiary of the Primary
       Borrower which is or, on or prior to it making a drawdown hereunder, will
       become a REC Company as an Additional  Borrower  under the  Facility,  by
       giving not less than 10 days' written  notice to the Facility  Agent.  No
       such accession shall be valid until the Primary Borrower has procured the
       delivery to the Facility  Agent of a Deed of Accession  duly  executed by
       the  proposed  Additional  Borrower.  Any member of the Group  wishing to
       become an Additional Borrower shall also become an Additional Guarantor.

24.2   Guarantees from REC Companies

       The Primary Borrower shall:

       (a)    notify the Facility Agent as soon as reasonably  practicable after
              it  becomes  aware that any member of the Group is to become a REC
              Company; and

       (b)    procure that each such member of the Group  becomes an  Additional
              Guarantor by the time it becomes a REC Company.

24.3   Deed of Accession

       Any member of the Group which is to become either an Additional Guarantor
       or both an Additional Borrower and an Additional  Guarantor shall deliver
       to the Facility Agent:

       (a)    a Deed of Accession (incorporating a Guarantee) executed by it;

       (b)    the documents  specified in clause 3 of the Deed of Accession,  in
              form and substance satisfactory to the Facility Agent;

       (c)    such other information relating to that Subsidiary as the Facility
              Agent may reasonably require; and

       (d)    a guarantee  executed by the Guarantors (other than the Additional
              Borrower)  in a form  satisfactory  to the  Facility  Agent of the
              Additional Borrower's obligations to the Banks

<PAGE>


              under the Finance Documents unless the Guarantees already executed
              by such  Guarantors  would (to the  satisfaction  of the  Facility
              Agent) guarantee such Additional Borrower's obligations.

       Such a member of the Group shall  become an  Additional  Obligor when the
       relevant Deed of Accession has been executed by the Facility Agent,  such
       Subsidiary  and the Primary  Borrower and the Facility Agent has notified
       the Primary  Borrower that it has received the other items referred to in
       this clause 24.3.

24.4   Primary Borrower as Obligors' Agent

       Each  Obligor  (other than the  Primary  Borrower),  and each  Additional
       Obligor by its execution of a Deed of Accession, irrevocably appoints the
       Primary  Borrower as its agent for all purposes of or connected  with the
       Finance  Documents  (including,  without  limitation,  the  giving of any
       Drawdown  Notice  under the  Facility,  the  execution of future Deeds of
       Accession  on its  behalf and any  agreement  to the  continuance  of its
       Guarantee on its behalf).  Each of the Finance  Parties may rely upon any
       document, notice,  confirmation or agreement (whether given in writing or
       orally) signed by or given by, or on behalf of the Primary Borrower as if
       it had been  signed  by or given by each and  every  other  Obligor.  The
       Primary  Borrower may give a good receipt for any sum payable to each and
       every other Borrower under this Agreement.

24.5   Obligations unconditional

       The  obligations  of each  Obligor  under this  Agreement  and each other
       Finance  Document  are  unconditional  and  irrevocable  (subject  to the
       express  provisions  of  this  Agreement)  and  shall  not be in any  way
       affected or  discharged  by reason of any matter in  connection  with the
       offer for shares in The Energy Group PLC made by TU Acquisitions PLC.

24.6   Obligations Several

       The  obligations  of each  Obligor  under  this  Agreement  and the other
       Finance  Documents  are several and the failure of any Obligor to perform
       such obligations shall not release any other Obligor from its obligations
       under this Agreement.

25.    NOTICES AND OTHER MATTERS

25.1   Address for Notice

       Every notice, request, demand or other communication under this Agreement
       shall:

       (a)    be in  writing  delivered  personally  or by  first-class  prepaid
              letter (airmail if available) or telefax;

       (b)    be deemed to have been received,  subject as otherwise provided in
              this Agreement, in the case of a letter, when delivered personally
              or 2 days after it has been put into the post and,  in the case of
              a telefax,  when a complete  and  legible  copy is received by the
              addressee  (unless  the time of  despatch  of any telefax is after
              close of  business  in which  case it shall be deemed to have been
              received at the opening of business on the next Banking Day); and

<PAGE>


       (c)    be sent:

              (i)    to the Primary Borrower at:

                     Wherstead Park,
                     Wherstead,
                     Suffolk 1PQ 2AQ

                     Telefax:          +44 (0)1473 555034
                     Attention:        Mike Andrews
               
                     with a copy to:

                     TU Acquisitions PLC
                     117 Piccadilly
                     London W1

                     Telefax:          +44 (0) 1473 555034
                     Attention:        Finance Director

              (ii)   to the Facility Agent at:

                     Chase Manhattan International Ltd
                     Trinity Tower
                     9 Thomas More Street
                     London E1 9YT

                     Telefax:          +44 171 777 2360
                     Attention:        Stephen Clarke

              (iii)  to the Issuing Bank at:

                     The Chase Manhattan Bank
                     Trinity Tower
                     9 Thomas More Street
                     London E1 9YT

                     Telefax:          +44 171 777 2360
                     Attention:        Stephen Clarke

              (iv)   to each Bank at its address or telefax number  specified in
                     schedule 1 or in, or pursuant to, any relevant Substitution
                     Certificate

              (v)    to the Arrangers:

                     Chase Manhattan plc
                     125 London Wall
                     London EC2Y 5AJ

                     Telefax:          +44 171 777 3840
                     Attention:        Cheryl Boucher/Kristian Orssten

<PAGE>


                     Lehman Brothers International (Europe)
                     3 World Financial Center
                     10th Floor
                     200 Vesey Street
                     New York
                     NY 10285
            
                     Telefax:          001 212 528 0819
                     Attention:        Michele Swanson
            
                     Merrill Lynch Capital Corporation
                     c/o Merrill Lynch & Co
                     World Financial Center
                     North Tower
                     250 Vesey Street
                     New York
                     NY 10281
            
                     Telefax:          001 212 447 9461
                     Attention:        Pete Wersching
      
              or to such other  address or telefax  number as is notified by the
              Primary  Borrower,  or a Finance Party, as the case may be, to the
              other parties to this Agreement.

25.2   Notice to Facility Agent

       Every notice, request, demand or other communication under this Agreement
       to be given by a Borrower  shall be given by the Primary  Borrower and by
       the Primary  Borrower  to any other party shall be given to the  Facility
       Agent  for  onward  transmission  as  appropriate  and to be  given  to a
       Borrower shall (except as otherwise  provided in this Agreement) be given
       by the Facility Agent to the Primary Borrower.

25.3   No implied waiver, remedies cumulative

       No failure or delay on the part of the Finance  Parties or any of them to
       exercise any power, right or remedy under this Agreement shall operate as
       a waiver thereof, nor shall any single or partial exercise by the Finance
       Parties or any of them of any power,  right or remedy  preclude any other
       or further exercise thereof or the exercise of any other power,  right or
       remedy.  The remedies  provided in this  Agreement are cumulative and are
       not exclusive of any remedies provided by law.

25.4   English translations

       All  certificates,  instruments and other documents to be delivered under
       or supplied in  connection  with this  Agreement  shall be in the English
       language or shall be accompanied by a certified English  translation upon
       which the Finance Parties shall be entitled to rely.

<PAGE>


25.5   Counterparts

       This Agreement may be executed in any number of  counterparts  and by the
       different  parties  on  separate  counterparts,  each  of  which  when so
       executed and delivered shall be an original,  but all counterparts  shall
       together constitute one and the same instrument.

25.6   Severance

       If any  provision  of this  Agreement  is held to be illegal,  invalid or
       unforceable in whole or in part this Agreement shall continue to be valid
       as to its other provisions and the remainder of the affected provision.

26.    GOVERNING LAW AND JURISDICTION

26.1   Law

       This Agreement shall be governed by English law.

26.2   Submission to jurisdiction

       The  parties  to this  Agreement  agree for the  benefit  of the  Finance
       Parties that:

       (a)    if any party has any claim  against any other arising out of or in
              connection  with this  Agreement,  such claim  shall  (subject  to
              clause  25.2(c))  be  referred  to the High  Court of  Justice  in
              England,  to  the  jurisdiction  of  which  each  of  the  parties
              irrevocably submits;

       (b)    the  jurisdiction of the High Court of Justice in England over any
              such claim  against  any Finance  Party  shall be a  non-exclusive
              jurisdiction and no courts outside England shall have jurisdiction
              to hear or determine any such claim; and

       (c)    nothing in this  clause  25.2 shall limit the right of any Finance
              Party to refer any such claim  against  any  Borrower to any other
              court  of  competent   jurisdiction   outside   England,   to  the
              jurisdiction of which such Borrower hereby  irrevocably  agrees to
              submit,  nor shall the taking of  proceedings by any Finance Party
              before the courts in one or more jurisdictions preclude the taking
              of proceedings in any other jurisdiction  whether  concurrently or
              not.

IN WITNESS  whereof the parties to this  Agreement have caused this Agreement to
be duly executed on the date first above written.

<PAGE>


                                   Schedule 1

                         The Banks and their Commitments

================================================================================
            Bank                                            Commitments

 Address and telefax number

--------------------------------------------------------------------------------

The Chase Manhattan Bank                               (pound)83,333,333.34

125 London Wall
London
EC2Y 5AJ

Fax:  +44 171 777 3840
Attn: Cheryl Boucher
--------------------------------------------------------------------------------

Lehman Commercial Paper Inc.                           (pound)83,333,333.33

3 World Financial Center
10th Floor
200 Vesey Street
New York
NY 10285

Fax:  +212 528 0819
Tel:  +212 526 0330
Attn: Michele Swanson
--------------------------------------------------------------------------------

Merrill Lynch Capital Corporation                      (pound)83,333,333.33

4 World Financial Center
c/o Merrill Lynch & Co
North Tower
7th Floor
250 Vesey Street
New York
NY 10281 - 1307

Fax: +212 449 9461
Tel: +212 449 4972
Attn: Pete Wersching
--------------------------------------------------------------------------------

<PAGE>


                                   Schedule 2

                            Forms of Drawdown Notice

                                     Part A

                                    Advances


To:  [Name and address of Facility Agent]

                                                                          [DATE]
Attention: o
          (pound)250,000,000 Revolving Credit Facility Agreement dated o 1998

1.     We refer to the above  Agreement  and hereby give you notice that Eastern
       Electricity plc wishes to draw an Advance:

       (a)    on o 19 o ;

       (b)    in the sum of (pound)o;

       (c)    with a Maturity Period in respect thereof of o months; and

       (d)    the  proceeds  of such fund to be  credited to [name and number of
              account] with [details of bank in London].

2.     We confirm that:

       (a)    no event or  circumstance  has  occurred and is  continuing  which
              constitutes a Default; and

       (b)    the applicable  representations and warranties contained in clause
              9 of the above  Agreement  are true and correct at the date hereof
              as if made with respect to the facts and circumstances existing at
              such date.

3.     Words and expressions  defined in the above Agreement shall have the same
       meanings where used herein.


                              For and on behalf of
                             Eastern Electricity plc


                         ..............................
                             Duly authorised officer

<PAGE>


                                     Part B

                                Letters of Credit


To:  [Name and address of Facility Agent]


Attention:                          
--------------------------------------

                                                                          [DATE]


       (pound)250,000,000 Revolving Credit Facility Agreement dated o 1998

1.     We refer to the above  Agreement  and hereby give you notice that Eastern
       Electricity plc requests the Issue of a Letter of Credit as follows:

       (a)    Drawdown Date: [__________]

       (b)    Expiry Date: [__________]

       (c)    Currency: [__________]

       (d)    Beneficiary: [__________]

       (e)    Amount: [__________]

       (f)    Purpose: [__________]

       (g)    Issue instructions: [__________]

       (h)    Documents required to be presented: [__________].

2.     We confirm that:

       (a)    no event or  circumstance  has  occurred and is  continuing  which
              constitutes a Default; and

       (b)    the applicable  representations and warranties contained in clause
              9 of the above  Agreement  are true and correct at the date hereof
              as if made with respect to the facts and circumstances existing at
              such date.

3.     Words and expressions  defined in the above Agreement shall have the same
       meanings where used herein.

                              For and on behalf of
                             Eastern Electricity plc

                         ..............................
                             Duly authorised officer

<PAGE>


                                   Schedule 3

                              Conditions Precedent



1.     Evidence that the offer made by TU Acquisitions PLC for the entire issued
       share  capital  of The  Energy  Group  PLC has  become  or been  declared
       unconditional   in  all  respects  and  that  the   obligations   of  the
       Underwriters in favour of TU Finance (No.1) Limited under the acquisition
       facility  agreement  dated 2 March 1998 (and amended and restated as of 3
       March 1998 and 21 April 1998 and May 1998) have become unconditional.

2.     Delivery of a notice of cancellation of the agreement dated 5 August 1996
       between  The  Energy  Group  PLC,  Citibank  International  plc as agent,
       Barclays Bank PLC and Midland Bank plc so that it is no longer  available
       for drawing.

3.     Delivery  of the latest  stand-alone  audited  accounts  for the  Primary
       Borrower prepared on the basis of Appropriate  Accounting  Principles for
       the year ending 31 March 1997 or, if available, 31 March 1998.

4.     A certified copy of the certificate of  incorporation  and the memorandum
       and articles of association of the Primary Borrower.

5.     A certified  copy of the  resolutions  of the board of  directors  of the
       Primary  Borrower  evidencing  approval of this  Agreement (to which that
       company is a party)  and  authorising  its  appropriate  duly  authorised
       officers to execute and deliver  this  Agreement  and to give all notices
       and take all other  action  required by the Primary  Borrower  under this
       Agreement.

6.     Specimen signatures, authenticated by the company secretary or a director
       of the Primary Borrower,  of the persons authorised in the resolutions of
       the board of directors referred to in paragraph 3 above.

7.     A certificate of a director of the Primary  Borrower  certifying that the
       borrowing of the Total  Commitments  in respect of the Facility would not
       cause any borrowing limit binding on the Primary Borrower to be exceeded.

<PAGE>


                                   Schedule 4

                         Calculation of Additional Cost

1.     The  Additional  Cost for any period  shall  (subject to  paragraph  2(e)
       below) be calculated in accordance with the following formula:

                   BY + L(Y - X) + S(Y - Z) per cent per annum
                   ------------------------                    
                         100 - (B + S)

       where on the day of application of the formula:

       B      is the  percentage of the Facility  Agent's  eligible  liabilities
              which the Bank of England then requires the Facility Agent to hold
              on a  non-interest-bearing  deposit account in accordance with its
              cash ratio requirements;

       Y      is the rate at which Sterling deposits are offered by the Facility
              Agent to leading banks in the London  Interbank Market at or about
              11 a.m. on that day for the relevant period;

       L      is the  percentage of eligible  liabilities  which (as a result of
              the  requirements  of the  Bank of  England)  the  Facility  Agent
              maintains  as secured  money with  members of the London  Discount
              Market Association or in certain marketable or callable securities
              approved by the Bank of England;

       X      is the rate at which secured Sterling investments may be placed by
              the  Facility  Agent with  members of the London  Discount  Market
              Association  at or  about  11 a.m.  on that  day for the  relevant
              period  or,  if  greater,  the  rate at  which  Sterling  bills of
              exchange (of a tenor equal to the duration of the relevant period)
              eligible  for   rediscounting  at  the  Bank  of  England  can  be
              discounted  in the London  Discount  Market at or about 11 a.m. on
              that day;

       S      is the  percentage of the Facility  Agent's  eligible  liabilities
              which the Bank of England  requires the Facility Agent to place as
              a special deposit; and

       Z      is the interest rate  expressed as a percentage  per annum allowed
              by the Bank of England on special deposits.

2.     For the purpose of this schedule 4:

       (a)    "eligible  liabilities"  and "special  deposits" have the meanings
              given to them at the time of  application  of the  formula  by the
              Bank of England; and

       (b)    "relevant  period" in relation to each period for which Additional
              Cost falls to be calculated means:

              (i)    if it is 3 months or less, that period; or

              (ii)   if it is more than 3 months, 3 months.

<PAGE>


       (c)    In the  application  of  the  formula,  B,  Y,  L,  X, S and Z are
              included in the formula as figures and not as percentages, e.g. if
              B = 0.5 per cent and Y = 15 per cent BY is calculated as 0.5 x 15.

       (d)    The  formula  shall be applied  on the first day of each  relevant
              period.  Each  amount  shall be  rounded  up to the  nearest  four
              decimal places.

       (e)    If the Facility Agent  determines  that a change in  circumstances
              (including  the  introduction  of charges by the FSA in June 1998)
              has  rendered,  or will  render,  the formula  inappropriate,  the
              Facility  Agent (after  consultation  with the Banks) shall notify
              the Primary  Borrower of the manner in which the  Additional  Cost
              will  subsequently  be  calculated.  The manner of  calculation so
              notified by the Facility  Agent shall,  in the absence of manifest
              error, be binding on all the parties.

<PAGE>


                                   Schedule 5

                        Form of Substitution Certificate
                          (referred to in clause 16.5)

NB 1.  Banks are advised not to employ Substitution Certificates or otherwise to
       assign,  novate or transfer  interests  in the  Agreement  without  first
       ensuring  that the  transaction  complies  with all  applicable  laws and
       regulations,  including the Financial  Services Act 1986 and  regulations
       made thereunder.

   2.  It is expected that Banks will enter into separate  arrangements  dealing
       with the  monies to be paid to the  Existing  Bank by the  Substitute  in
       consideration of the novation (e.g. principal, accrued interest, fees and
       any  mismatched  funding  adjustment).  Unless  the  Effective  Date is a
       rollover date, mismatches of parties' funding may arise. This Certificate
       does not deal with these  issues,  nor does it deal with any interim risk
       participation  the Existing Bank may grant to the Substitute  pending the
       Effective Date.



To:    [Name of  Facility  Agent] on its own behalf,  as  Facility  Agent and on
       behalf of each other party to the Agreement mentioned below.

Attention: o                                                              [DATE]

                            Substitution Certificate

This Substitution  Certificate relates to a (pound)250,000,000  Revolving Credit
Facility  Agreement  (the  "Agreement")  dated [ ] [March] 1998 between  Eastern
Electricity plc as the Primary Borrower (1) Chase Manhattan plc, Lehman Brothers
International  (Europe),  Merrill Lynch Capital  Corporation  as Arrangers  (2),
various banks and financial institutions as Underwriters (3) The Chase Manhattan
Bank as Issuing Bank (4) Chase Manhattan International Limited as Facility Agent
(5).  Terms  defined  in the  Agreement  shall  have  the same  meaning  in this
Substitution Certificate unless otherwise defined herein.

1.     [Existing  Bank] (the  "Existing  Bank") (a) confirms the accuracy of the
       summary of its  participation  in the  Agreement  set out in the schedule
       below; and (b) requests [Substitute Bank] (the "Substitute") to accept by
       way of  novation  the  portion  of such  participation  specified  in the
       schedule  to  this  Substitution   Certificate  by  counter-signing   and
       delivering  this  Substitution  Certificate  to the Facility Agent at its
       address for the service of notices specified in the Agreement.

2.     The Substitute  hereby  requests the Facility Agent (on behalf of itself,
       the other Finance Parties,  the Primary Borrower and all other parties to
       the Agreement) to accept this Substitution Certificate as being delivered
       to the Facility  Agent pursuant to and for the purposes of clause 16.5 of
       the Agreement so as to take effect in  accordance  with the terms of such
       clause 16.5 on [date of transfer] (the "Effective Date") or on such later
       date as may be determined in accordance with the terms of the Agreement.

3.     The Facility Agent (on behalf of itself,  the other Finance Parties,  the
       Primary  Borrower and all other  parties to the  Agreement)  confirms the
       novation effected by this Substitution Certificate

<PAGE>


       pursuant to and for the purposes of clause 16.5 of the Agreement so as to
       take effect in accordance with the terms of such clause 16.5.

4.     The Substitute confirms:

       (a)    that  it has  received  a copy  of the  Agreement  and  all  other
              documentation  and  information  required by it in connection with
              the transactions contemplated by this Substitution Certificate;

       (b)    that it has not relied upon any  statement,  opinion,  forecast or
              other  representation or warranty made by the Existing Bank or any
              other  party  to  induce  it  to  enter  into  this   Substitution
              Certificate;

       (c)    that it has made and will  continue to make,  without  reliance on
              the Existing  Bank or any other Finance  Party,  and based on such
              documents as it considers  appropriate,  its own  appraisal of the
              creditworthiness  of each Borrower and its  Affiliates and its own
              independent  investigation of the financial  condition,  prospects
              and affairs of each Borrower and its Affiliates in connection with
              the making and  continuation  of the Facility  under the Agreement
              and the other Finance Documents;

       (d)    that neither the Existing  Bank nor any other  Finance Party shall
              at  any   time  be   deemed   to  have  had  or  have  a  duty  or
              responsibility,  either historically, initially or on a continuing
              basis,  to  provide  the  Substitute  with  any  credit  or  other
              information  with respect to any Borrower or any of its Affiliates
              whether  coming into its possession  before any  Utilisation or at
              any  time or  times  thereafter,  other  than  (in the case of the
              Facility Agent) as provided in clause 19.1 of the Agreement;

       (e)    that it has made and will  continue to make its own  assessment of
              the legality,  validity,  enforceability  and  sufficiency  of the
              Agreement,  any  other  Finance  Document  and  this  Substitution
              Certificate  and has not relied and will not rely on the  Existing
              Bank or any other Finance Party or any  statements  made by any of
              them in that respect;

       (f)    that, accordingly, none of the Existing Bank nor any other Finance
              Party makes any  representations  or  warranties in respect of, or
              shall have any liability or  responsibility  to the  Substitute in
              respect  of,  any of the  foregoing  matters  or any other  matter
              referred to in clause 20 of the Agreement;

       (g)    that it is a Qualifying Bank; and

       (h)    that it has  signed  an  appropriate  confidentiality  undertaking
              issued by the Existing Bank.

5.     The  Substitute  hereby  undertakes  to the  Existing  Bank,  the Finance
       Parties,  the  Primary  Borrower  and each of the  other  parties  to the
       Agreement  that it will  perform in  accordance  with its terms all those
       obligations  which by the terms of the  Agreement  will be  assumed by it
       after counter-signature of this Substitution  Certificate by the Facility
       Agent.

6.     The  Substitute   irrevocably  and  unconditionally   guarantees  to  and
       indemnifies  the  Issuing  Bank as  required  under  clause  4.6  (Banks'
       Guarantee and Indemnity).

7.     Without  limiting  the above  paragraphs,  nothing  in this  Substitution
       Certificate obliges the Existing Bank to:

<PAGE>


       (a)    accept any  re-transfer  from the Substitute of any of the rights,
              benefits and/or obligations hereby transferred; or

       (b)    support  any losses  incurred by the  Substitute  by reason of any
              non-performance  by the Primary Borrower or any other party to the
              Agreement or any of the Finance Documents or any document relating
              thereto of any of its obligations under the same.

8.     This  Substitution  Certificate  and the  rights and  obligations  of the
       parties  hereunder  shall be governed by and construed in accordance with
       English law.

Note:  This Substitution  Certificate is not a security,  bond, note, debenture,
       investment or similar instrument.

AS  WITNESS  the hands of the  authorised  signatories  of the  parties  to this
Substitution Certificate on the date appearing below.

                                  The Schedule

THE FACILITY

Commitment ((pound))                               Portion Transferred ((pound))

     [____]                                               [____]

Contribution ((pound))     Next Maturity Date(s)   Portion Transferred ((pound))

     [____]                      [____]                    [____]


Transferor's share of                               Portion of Letters of Credit
outstanding Letters of Credit                       Transferred

     [____]                                               [____]

                      Administrative Details of Substitute

Lending Office:
Account for payments:
Telephone:
Telefax:
Attention:

[Existing Bank]                          [Substitute]
By: ...........                          By: .........
Date:                                    Date:

The Facility Agent
By:.........
Date:

on its own behalf and on behalf of all other  parties  to the  Agreement  (other
than the Existing Bank)

<PAGE>


                                   Schedule 6

                            Form of Deed of Accession

THIS DEED is made on                                                        199

BETWEEN

(1)    [            ] (the "Additional Obligor");

(2)    Eastern Electricity plc (the "Primary Borrower") on behalf of itself, and
       each other Borrower (as defined in the Facilities  Agreement  referred to
       below); and

(3)    [Chase Manhattan  International  Ltd] as agent (the "Facility Agent") (as
       defined in the Facilities Agreement referred to below).

WHEREAS

(A)    This Deed is supplemental to the facilities  agreement dated [ ] May 1998
       made between among others Eastern Electricity plc as Primary Borrower and
       Chase  Manhattan  International  Ltd as Facility  Agent (the  "Facilities
       Agreement",  which expression shall include any amendments to it in force
       from time to time).

(B)    The parties intend that [ ] shall accede to the  Facilities  Agreement as
       an Additional Guarantor [and Additional Borrower].

NOW THIS DEED WITNESSES:

1.     Accession of Additional Obligor

       [In consideration of the Banks through the Facility Agent agreeing to the
       Additional  Borrower  becoming an additional  Borrower pursuant to clause
       24.1  (Additional  Obligors)  of the  Facilities  Agreement  and]  by the
       execution of this Deed the  Additional  Obligor  agrees to observe and be
       bound by all of the terms and provisions of the  Facilities  Agreement to
       the extent  that they  apply to the  Obligors  as if it were an  original
       party  to  the  Facilities  Agreement  and,  without  limitation  to  the
       generality of the foregoing, to become a Guarantor and give the Guarantee
       in the form contained in schedule 9 (Terms of Guarantee).

2.     Interpretation

       This Deed shall be read as one with the Facilities  Agreement so that any
       reference in it to "this Agreement" and similar expressions shall include
       and be deemed to include this Deed.

3.     Conditions precedent

       The  obligations  of the  Facility  Agent  and each Bank in this Deed are
       subject  to the  condition  that the  Facility  Agent  has  received  all
       appropriate  conditions  precedent,  as notified by the Facility Agent to
       the Primary  Borrower in form and substance  satisfactory to it including
       the following:

<PAGE>


       (a)    a  certified  copy  of  the  Certificate  of   Incorporation   and
              Memorandum and Articles of  Association of the Additional  Obligor
              in the form required by the Facility Agent together with certified
              copies  of the  minutes  of the  meetings  of the  members  of the
              Additional  Obligor  adopting such changes to the  memorandum  and
              articles of the  Additional  Obligor as the  Facility  Agent shall
              have  required,  and a certificate of a director of the Additional
              Obligor  confirming that such  resolutions  were duly and properly
              passed;

       (b)    a  certificate  of a  director  of the  Additional  Obligor to the
              effect that the requisite resolutions of its board of directors in
              a form agreed with the Facility  Agent have been duly and properly
              passed (1) authorising the execution,  delivery and performance on
              behalf of the Additional  Obligor of this Deed and (2) authorising
              a named person or persons  specified in the board  resolution  and
              whose  specimen  signatures  appear  there to give any  notices or
              certificates  required in connection  with it and confirming  that
              such  resolutions  are still in effect and have not been varied or
              rescinded;

       (c)    a copy, certified by a director of the Additional Obligor as being
              a true copy, of the  resolutions  of the board of directors of the
              Additional Obligor referred to in (b) above;

       (d)    a certificate of a director of the Additional  Obligor  confirming
              that the  aggregate of the  Borrowings of the  Additional  Obligor
              (including  the  Facilities)  do not or, as the case may be, would
              not if fully drawn,  exceed any borrowing  limit  contained in the
              Additional Obligor's constitutional documents or in any trust deed
              or other  agreement or instrument to which the Additional  Obligor
              is a party.

4.     Notices

       The  Additional  Obligor's  address for  notices  and  demands  under the
       Facilities Agreement is:

              Address:

              Telephone:

              Telefax:

              Attention:

6.     Governing Law

       This  Agreement  shall be governed by and  construed in  accordance  with
       English law.

IN WITNESS whereof this Deed of Accession has been entered into as a Deed on the
date above.

The Additional Guarantor [and Additional Borrower]

[Execution particulars - Additional Obligor to execute as a deed]

The Facility Agent

By:
on its own behalf and on behalf of
all the other parties to the Facility Agreement.

<PAGE>


                                   Schedule 7

                          Terms of Borrowers' Indemnity


1.     Each Borrower  unconditionally and irrevocably  undertakes to the Issuing
       Bank as follows:

       (a)    each  Borrower  will at all times on demand  indemnify the Issuing
              Bank against all actions,  suits,  proceedings,  claims,  demands,
              liabilities,   damages,   costs,  expenses,   losses  and  charges
              whatsoever  (except  those  arising from the gross  negligence  or
              wilful  misconduct  of the Issuing Bank) in relation to or arising
              out of the Issue of any  Letter of Credit and each  Borrower  will
              pay to the  Facility  Agent for the account of the Issuing Bank in
              immediately  available  funds  and in the  currency  in which  the
              relevant  Letter  of  Credit  is  denominated  the  amount  of all
              payments made (whether directly or by way of set-off, counterclaim
              or otherwise howsoever) and all losses, costs or expenses suffered
              or incurred from time to time by the Issuing  Bank,  arising under
              any liability  which the Issuing Bank has incurred under the Issue
              of any  Letter  of  Credit  and  any of the  indemnities  relating
              thereto;

       (b)    the liability of each Borrower under this  indemnity  shall not be
              affected by any time being given or by anything  being done by the
              Issuing Bank unless the same  constitutes the gross  negligence or
              wilful misconduct of the Issuing Bank.

2.     Each of the Borrowers  specifically  releases and indemnifies the Issuing
       Bank against the consequences of:

       (a)    the failure of the Issuing Bank or any other person to receive any
              telex or telephone  message in a form in which it was  despatched;
              and

       (b)    any delay that may occur during the course of the  transmission of
              any such message  save in respect of any failure  arising from the
              gross negligence or wilful misconduct of the Issuing Bank.

       3.     (a) The  obligations  of any Borrower under this Agreement and any
              L/C-Related  Document to reimburse  the Issuing Bank for a drawing
              under a Letter of Credit and to repay any  drawing  under a Letter
              of Credit which is converted into Advances, shall be unconditional
              and irrevocable, and shall be paid strictly in accordance with the
              terms of this Agreement and each such other  L/C-Related  Document
              under all circumstances, including the following:

              (i)    any lack of validity or enforceability of this Agreement or
                     any L/C-Related Document;

              (ii)   any change in the time,  manner or place of payment  of, or
                     in any other term of, all or any of the  obligations of the
                     relevant Borrower in respect of any Letter of Credit or any
                     other  amendment  or waiver of or any consent to  departure
                     from all or any of the L/C-Related Documents;

              (iii)  the existence of any claim, set-off, defence or other right
                     that the relevant Borrower may have at any time against any
                     beneficiary or any transferee of any

<PAGE>


                     Letter  of  Credit   (or  any  person  for  whom  any  such
                     beneficiary  or any such  transferee  may be  acting),  the
                     Issuing  Bank or any other  person,  whether in  connection
                     with this Agreement,  the transactions  contemplated hereby
                     or  by  the   L/C-Related   Documents   or  any   unrelated
                     transaction;

              (iv)   any draft, demand,  certificate or other document presented
                     under  any   Letter  of  Credit   proving   to  be  forged,
                     fraudulent,  (save where the Issuing Bank should decline to
                     make  payment  under the terms of the  Uniform  Customs and
                     Practice for  Documentary  Credits (1993) (ICC  Publication
                     No.  500 (the  "UCPDC"))  invalid  or  insufficient  in any
                     respect or any statement therein being untrue or inaccurate
                     in any respect; or any loss or delay in the transmission or
                     otherwise  of any  document  required  in  order  to make a
                     drawing under any Letter of Credit;

              (v)    any payment by the Issuing  Bank under any Letter of Credit
                     against  presentation  of a draft or certificate  that does
                     not strictly comply with the terms of any Letter of Credit;
                     or any payment made by the Issuing Bank under any Letter of
                     Credit  to  any  person  purporting  to  be  a  trustee  in
                     bankruptcy, debtor-in-possession,  assignee for the benefit
                     of creditors,  liquidator, receiver or other representative
                     of or successor to any  beneficiary  or  transferee  of any
                     Letter of Credit,  including any arising in connection with
                     any  voluntary  or  involuntary   proceeding,   process  or
                     arrangement under any law, regulation or procedure relating
                     to insolvency in any jurisdiction  including in relation to
                     winding  up,  bankruptcy,  administration,   administrative
                     receivership,  receivership  and management,  receivership,
                     judicial   custodianship,   judicial   trusteeship  or  the
                     appointment of a judicial  conservator or other official or
                     the reconstruction,  rescheduling, readjustment, moratorium
                     or suspension of payments of any Indebtedness;

              (vi)   any exchange,  release or non-perfection of any collateral,
                     or any  release  or  amendment  or waiver of or  consent to
                     departure from any other  guarantee,  for all or any of the
                     obligations  of the  relevant  Borrower  in  respect of any
                     Letter of Credit; or

              (vii)  any other circumstance or happening whatsoever,  whether or
                     not similar to any of the  foregoing,  including  any other
                     circumstance  that  might  otherwise  constitute  a defence
                     available to, or a discharge of, the relevant Borrower;

       (b)    The  obligations  of  each  of the  Borrowers  under  the  Finance
              Documents  shall not be  affected in any way by reason of any time
              or other indulgence which may be granted:

              (i)    to the  Issuing  Bank by any  beneficiary  of any Letter of
                     Credit; or

              (ii)   by the  Issuing  Bank to any  person  from whom it may seek
                     reimbursement  in  respect of sums paid out by it under any
                     Letter of Credit or any other  obligation  pursuant thereto
                     or pursuant to this Agreement, as the case may be.

4.     The Issuing Bank may, at any time, without affecting any security created
       by,  pursuant to or in relation to this  Agreement or the rights,  powers
       and remedies conferred upon it by this Agreement, any such security or by
       law:

<PAGE>


       (a)    offer or agree to or enter into  agreement  for the  extension  or
              variation  of the Issue of any Letter of Credit  (provided it does
              so  in  accordance  with  written  instructions  of  the  relevant
              Borrower); or

       (b)    offer or agree to give any time or other  indulgence  for any sums
              paid  out by it under  any  Letter  of  Credit  or any  obligation
              pursuant to any Letter of Credit.

5.     Any rights  conferred on the Issuing Bank by this  Agreement  and by each
       document  executed in relation to this Agreement  shall be in addition to
       and not in  substitution  for or derogation of any other rights which the
       Issuing  Bank may at any time have to seek from any person  reimbursement
       of or indemnification against payments made or liabilities incurred under
       any  Letter  of  Credit,  any  obligation  pursuant  thereto  or to  this
       Agreement.

6.     Any satisfaction of obligations by any Obligor or any other person to the
       Issuing Bank or any discharge given by the Issuing Bank to any Obligor or
       any other person in respect of  obligations  under this  Agreement or any
       related  agreement  between the Issuing Bank and any Obligor or any other
       person  shall be,  and be deemed  always  to have  been,  void if any act
       satisfying  any of such  obligations  or on the  faith of which  any such
       discharge   was  given  or  any  such   agreement  was  entered  into  is
       subsequently  avoided  by law  (otherwise  than as a result of any act or
       default by the Issuing Bank).

7.     Any Letter of Credit  shall be  considered  to be  outstanding  until the
       later of:

       (a)    its Expiry  Date,  or a  reasonable  time after its Expiry Date to
              allow for the presentation of documents  through an advising bank;
              and

       (b)    if, in the opinion of the Issuing Bank,  its  liability  under the
              Letter of Credit  does not  expire on its  stated  Expiry  Date or
              there is any doubt as to its  Expiry  Date,  the date of return of
              the  document  evidencing  the  Issuing  Bank's  liability  to the
              relevant beneficiary under any Letter of Credit.

8.     Each Borrower confirms and agrees that:

       (a)    the Issuing  Bank shall make any payment  that  appears to be duly
              requested  or  demanded  in writing by any  beneficiary  under any
              Letter of Credit subject to its compliance (where applicable) with
              its  obligations  as Issuing  Bank under the UCPDC  regardless  of
              whether or not the relevant Borrower shall be in any way in breach
              of any of its obligations under or by virtue of the transaction in
              connection  with which the Letter of Credit was Issued and without
              making any  further  reference  to the  relevant  Borrower  or any
              investigation as to the bona fide nature,  validity or genuineness
              of any such request or demand (unless,  under  applicable law, the
              Issuing Bank is under no obligation to make such payment), and

       (b)    the  liability  of  such  Borrower  hereunder  and the  right  and
              obligation of the Issuing Bank to make such payment shall be in no
              way  diminished or prejudiced if it should appear that, as between
              the relevant Borrower and that  beneficiary,  that beneficiary was
              not  entitled  for  whatever  reason to demand  payment  under the
              Letter  of Credit or that  such  demand  was not valid or  genuine
              (subject as mentioned in paragraph 8(a) above).

<PAGE>


                                   Schedule 8

                   Terms of Interbank Guarantee and Indemnity


1.     Each Bank  agrees to pay to the  Facility  Agent for the  account  of the
       Issuing Bank on demand made  through the Facility  Agent under clause 4.7
       (Banks'  Guarantee and  Indemnity) to such account as the Facility  Agent
       may have specified for the purpose in immediately  available funds and in
       the currency in which the relevant Letter of Credit is  denominated,  its
       Proportion of:

       (a)    any and every sum of money which the relevant  Borrower shall from
              time to time be liable to pay to the  Issuing  Bank in  respect of
              that Letter of Credit in full without  set-off or  counterclaim on
              the later of the date  that the  Issuing  Bank has  itself to make
              payment  under the Letter of Credit (as  notified by the  Facility
              Agent to such  Bank in the  demand)  and two  Banking  Days  after
              receipt by such Bank of such demand; and

       (b)    full cash cover for the Outstanding  Contingent  Liabilities under
              that  Letter  of Credit at any time  after  the  Issuing  Bank has
              become entitled to demand an indemnity  through the Facility Agent
              in respect thereof from the relevant  Borrower and which shall not
              have been paid at the time such demand is made.

2.     Where a Bank makes a payment  pursuant  to  paragraph 1 after the date on
       which the Issuing  Bank makes the  relevant  payment  under the Letter of
       Credit in question, such Bank shall pay on demand to the Issuing Bank its
       Proportion  (as  calculated  in clause 4.7) of such amount as the Issuing
       Bank  certifies  as  necessary  to  compensate  it for funding the amount
       demanded in the interim.

3.     No  assurance,  security  or payment  avoided  under any law  relating to
       bankruptcy, liquidation, insolvency,  reconstruction or reorganisation or
       any similar  laws and no release,  settlement,  arrangement  or discharge
       which  may have been  given or made on the  basis of any such  assurance,
       security or payment  shall  prejudice  or affect the right of the Issuing
       Bank to  recover  from  each of the  Banks  to the full  extent  of their
       obligations under clause 4.7.

4.     The  obligations  of each Bank under  clause  4.7 shall not be  impaired,
       affected or revoked by any act, omission,  matter,  thing or circumstance
       whatsoever  which but for this  provision  might  operate  to  release or
       exonerate such Bank from all or any part of its obligations  under clause
       4.7 or reduce, impair or affect such obligations or cause all or any part
       of such obligations to be irrecoverable from or unenforceable against any
       Obligor  or  to  discharge,   reduce,   affect  or  impair  any  of  such
       obligations, including without limitation:

       (a)    any  time,  waiver  or  indulgence  granted  to any  person or the
              forbearance  of the Issuing Bank in enforcing the  obligations  of
              any person  under any Finance  Document or in respect of any other
              guarantee, security, obligation, right or remedy;

       (b)    the recovery of any  judgment  against any person or any action to
              enforce the same;

       (c)    the taking of any other  security  from any person or the failure,
              refusal,  or neglect  to take,  perfect or  enforce,  any  rights,
              remedies  or  securities  from or against any person or all or any
              part of the security constituted by any of the Finance Documents;

<PAGE>


       (d)    any alteration in the constitution of any Obligor or any defect in
              or  irregular  exercise of the  borrowing  or other  powers of any
              person or any legal  limitation,  disability,  incapacity or other
              circumstance  relating  to any  person  or any  legal  limitation,
              disability,  incapacity  or  other  circumstance  relating  to any
              person  whether  arising in relation  to any  Finance  Document or
              otherwise howsoever;

       (e)    subject  to  clause  22.4  and  22.5  (Unanimous  consents),   any
              amendment  or  supplement  to or  variation  of any L/C -  Related
              Document or any other Finance Document;

       (f)    the  insolvency,   bankruptcy,   liquidation,   reconstruction  or
              reorganisation of, or analogous proceedings relating to any person
              or any  composition  or  arrangement  made by any of them with the
              Issuing  Bank,  any Bank or any other  person or any  transfer  or
              extinction  of any  liabilities  of any Obligor by any law,  order
              regulation, decree, court order or similar instrument;

       (g)    any   irregularity,   unenforceability   or   invalidity   of  any
              obligations  of any person  under any security or document (to the
              intent that such Bank's  obligations under clause 4.7 shall remain
              in  full   force   as  if   there   were  no  such   irregularity,
              unenforceability or invalidity);

       (h)    the occurrence of an Event of Default;

       (i)    the existence of any claim,  set-off  defence or other right which
              any Obligor  may have  against  any  beneficiary  of any Letter of
              Credit or any other person; or

       (j)    any draft,  certificate or any other document  presented under any
              Letter of Credit  proving  to be  forged,  fraudulent,  invalid or
              insufficient in any respect or any statement  therein being untrue
              or inaccurate in any respect.

5.     The Issuing  Bank shall be entitled  to enforce the  obligations  of each
       Bank  under  clause  4.7  without  making  any  demand on or  taking  any
       proceedings  against  or  filing  any  proof of claim in any  insolvency,
       winding up,  dissolution  or  liquidation of any person or exhausting any
       right or remedy  against  any person or taking any action to enforce  any
       part of the  security  constituted  or  evidenced  by any of the  Finance
       Documents.

6.     The  obligations  of each  Bank  under  clause  4.7  shall be  continuing
       obligations  and shall extend to the ultimate  balance of the obligations
       referred to therein.  If, for any reason,  such  obligations  cease to be
       continuing  obligations,  the Issuing Bank may open a new account with or
       continue any existing  account with any person and the  liability of each
       Bank in respect of amounts guaranteed by it pursuant to clause 4.7 at the
       date of such cessation shall remain  regardless of any payments in or out
       of any such account.

7.     The Issuing  Bank's  rights  under clause 4.7 shall be in addition to and
       shall be in no way  prejudiced by any other rights of or security held by
       the Issuing  Bank in  relation to the  obligations  of any  Obligor.  The
       Issuing  Bank's  rights  under  clause 4.7 are in addition to and are not
       exclusive of those provided by law.

8.     A  certificate  of the  Issuing  Bank as to any amount due to it from any
       Bank  pursuant  to clause  4.7 shall be  conclusive  (in the  absence  of
       manifest error).

<PAGE>


                                   Schedule 9

                               Terms of Guarantee


1.     Each Guarantor irrevocably, unconditionally, jointly and severally:

       (a)    as principal obligor, and not merely as surety, guarantees to each
              Finance Party prompt  performance by each other Obligor of all its
              obligations  under the Finance  Documents and the payment when due
              of all sums from time to time  payable  to each  Finance  Party by
              each other Obligor;

       (b)    undertakes  with each Finance  Party that whenever a Borrower does
              not pay any  amount  when  due  under  or in  connection  with any
              Finance Document,  that Guarantor shall forthwith on demand by the
              Facility Agent pay that amount as if that Guarantor instead of the
              relevant Borrower were expressed to be the principal obligor; and

       (c)    indemnifies  each  Finance  Party on  demand  against  any loss or
              liability  suffered  by  such  Finance  Party  if  any  obligation
              guaranteed by that Guarantor is or becomes unenforceable,  invalid
              or illegal.

2.     Continuing guarantee

       This guarantee is a continuing  guarantee and will extend to the ultimate
       balance  of all sums  payable  by the  Obligors  or any of them under the
       Finance Documents, regardless of any intermediate payment or discharge in
       whole or in part.

3.     Reinstatement

       (a)    Where any discharge  (whether in respect of the obligations of any
              Obligor or any security for those  obligations  or  otherwise)  is
              made in whole or in part of any  arrangement  is made on the faith
              of any payment,  security or other disposition which is avoided or
              must be restored on insolvency,  liquidation or otherwise  without
              limitation,  the liability of each Guarantor under this schedule 9
              shall  continue  as  if  the  discharge  or  arrangement  had  not
              occurred.

       (b)    Each Finance  Party may concede or  compromise  any claim that any
              payment,  security or other  disposition is liable to avoidance or
              restoration.

4.     Waiver of defences

       The  obligations  of each  Guarantor  under  this  schedule 9 will not be
       affected by any act, circumstance,  omission,  matter or thing which, but
       for  this  provision,  would  reduce,  release  or  prejudice  any of its
       obligations  under  this  schedule  9  or  prejudice  or  diminish  those
       obligations in whole or in part, including without limitation (whether or
       not known to it or any other party):

       (a)    any time,  indulgence or waiver granted to, or  composition  with,
              any Obligor or other person;

<PAGE>


       (b)    the taking, variation,  compromise,  exchange,  renewal or release
              of, or  refusal or neglect to  perfect,  take up or  enforce,  any
              rights or  remedies  against,  or  security  over  assets  of, any
              Obligor or other person or any  non-presentation or non-observance
              of the full value of any security;

       (c)    any legal  limitation,  disability,  incapacity or lack of powers,
              authority or legal  personality of or dissolution or change in the
              members or status of any Obligor or any other person;

       (d)    any variation (however fundamental and whether or not involving an
              increase in liability of any Obligor) or  replacement of a Finance
              Document or any other  document or security so that  references to
              that Finance Document in this schedule 9 (Guarantee) shall include
              each variation or replacement;

       (e)    any unenforceability, illegality, invalidity or frustration of any
              obligation  of any person under any Finance  Document or any other
              document  or  security  or any  failure of any Obligor or proposed
              Obligor to become bound by the terms of any Finance Document;

       (f)    any postponement,  discharge, reduction,  non-provability or other
              similar circumstance affecting any obligation of any Obligor under
              a Finance Document  resulting from any insolvency,  liquidation or
              dissolution proceedings or from any law, regulation or order,

       so that each such obligation  shall,  for the purposes of the Guarantor's
       obligations  under this  schedule 9 remain in full force and be construed
       as if there were no such act, circumstance,  variation,  omission, matter
       or thing.

5.     Immediate recourse

       Each  Guarantor  waives  any  right it may have of  first  requiring  any
       Finance Party (or any trustee or agent on its behalf) to proceed  against
       or enforce any other rights or security or claim payment from or file any
       proof  or  claim  in any  insolvency  proceedings  of any  person  before
       claiming from the Guarantor under this schedule 9.

6.     Appropriations

       Until all amounts which may be or become payable by the Obligors under or
       in connection with the Finance  Documents have been  irrevocably  paid in
       full, each Finance Party (or any trustee or agent on its behalf) may:

       (a)    refrain from applying or enforcing  any other monies,  security or
              rights held or received by that  Finance  Party (or any trustee or
              agent on its  behalf) in respect  of those  amounts,  or apply and
              enforce the same in such manner and order as it sees fit  (whether
              against  those  amounts or  otherwise)  and no Guarantor  shall be
              entitled to the benefit of the same; and

       (b)    hold in an interest  bearing  suspense account any monies received
              from any  Guarantor  or on  account of any  Guarantor's  liability
              under this schedule 9.


<PAGE>


7.     Non-competition

       Until all amounts which may be or become payable by the Obligors under or
       in connection with the Finance  Documents have been  irrevocably  paid in
       full, no Guarantor shall, after a claim has been made or by virtue of any
       payment or performance by it under this schedule 9:

       (a)    be subrogated to any rights,  security or monies held, received or
              receivable  by any  Finance  Party (or any trustee or agent on its
              behalf) or be entitled to any right of  contribution  or indemnity
              in respect of any  payment  made or monies  received on account of
              that  Guarantor's  liability  under this  schedule  9 and,  to the
              extent that any  Guarantor  is so  subrogated  or entitled by law,
              that Guarantor (to the fullest extent permitted by law) waives and
              agrees not to exercise or claim those rights, security or money or
              that right of contribution or indemnity;

       (b)    claim,  rank,  prove or vote as a creditor  of any  Obligor or its
              estate in  competition  with any Finance  Party (or any trustee or
              agent on its behalf)  unless  otherwise  required by the  Facility
              Agent  or by law (in  which  case  any  proceeds  of any  claim in
              respect of any rights,  security or monies of any Finance Party to
              which such Guarantor was subrogated will be paid by such Guarantor
              to the  Facility  Agent  to be  applied  in  accordance  with  the
              provisions of the Finance Documents); or

       (c)    receive, claim or have the benefit of any payment, distribution or
              security from or on account of any Obligor,  or exercise any right
              of set-off as against any Obligor  (and  without  prejudice to the
              foregoing,  each  Guarantor  shall  forthwith  pay to the Facility
              Agent for the  benefit of the Finance  Parties an amount  equal to
              any amount so set-off by it).

       Each  Guarantor  shall hold in trust for and forthwith pay or transfer to
       the Facility Agent for the Finance Parties any payment or distribution or
       benefit of security received by it contrary to this schedule 9.

8.     Additional security

       This  guarantee is in addition to and is not in any way prejudiced by any
       other security now or hereafter held by any Finance Party.

<PAGE>


PRIMARY BORROWER

Signed for and on behalf of
Eastern Electricity plc

[Paul Marsh - Group Finance Director]
 ...................................



GUARANTOR

Signed for and on behalf of
Eastern Electricity plc

[Paul Marsh]
 ...................................



JOINT LEAD ARRANGERS

Signed for and on behalf of
Chase Manhattan plc
as Arranger

[Jane Ritchie]
 ...................................



Signed for and on behalf of
Lehman Brothers International (Europe)
as Arranger

[Julian Entwisle]
 ...................................



Signed for and on behalf of
Merrill Lynch Capital Corporation
as Arranger

[Steve Paras]
 ...................................

<PAGE>


ORIGINAL BANKS

Signed for and on behalf of
The Chase Manhattan Bank
as Underwriter

[Jane Ritchie]
 ...................................



Signed for and on behalf of
Lehman Commercial Paper Inc
as Underwriter

[Christopher Ryan]
 ...................................



Signed for and on behalf of
Merrill Lynch Capital Corporation
as Underwriter

[Steve Paras]
 ...................................



ISSUING BANK

Signed for and on behalf of
The Chase Manhattan Bank
as Issuing Bank

[Jane Ritchie]
 ...................................



FACILITY AGENT

Signed for and on behalf of
Chase Manhattan International Limited
as Facility Agent

[Jane Ritchie]
 ...................................

<PAGE>